A recent Court of Appeal decision outlined the breadth of an insurer’s duty to defend.
In Ernst v. Northbridge Personal Insurance Corporation, the application judge ruled that the insurer had a duty to defend the driver of an ATV. The insurance policy extended coverage to an ATV if it was owned by the defendant driver and the defendant was not an occupier of the property on which the accident occurred (note, we are seeing more and more of these types of cases). The defendants were in the process of purchasing both the ATV and the property from the former owners, however the accident occurred before the closing date. The insurer denied coverage on the basis that at the time of the accident, the ATV was being operated on the ATV owner’s private property, and therefore was not considered an automobile.
In coming to the decision that the insurer was obligated to defend the defendant driver, the application judge explored possible outcomes rather than simply evaluating the pleadings, and he assumed that the defendants were not occupiers of the property (thereby triggering a duty to defend) because the former/potential current owners of the ATV were occupiers of the property at the time of the accident. Of note, it was unclear at the time of pleadings whether the defendants had finalized the purchase of the ATV from the original owners, as they were in the process of doing so.
On appeal, the Court of Appeal noted the law governing pleadings explained in Monenco Ltd. V. Commonwealth Insurance Co.,  2 S.C.R. 699, 2001 SCC 49 (CanLII), stating:
Whether an insurer is bound to defend a particular claim has been conventionally addressed by relying on the allegations made in the pleadings filed against the insured, usually in the form of a statement of claim. If the pleadings allege facts which, if tru, would require the insurer to indemnify the insured for the claim, then the insurer is obliged to provide a defence. This remains so even though the actual facts may differ from the allegations pleaded.
[I]t is not necessary to prove that the obligation to indemnify will in fact arise in order to trigger the duty to defend. … The mere possibility that a claim falling within the policy may succeed will suffice.
The Court noted that the pleadings included allegations both that the defendants were owners of the ATV and occupiers of the property, and that the ATV’s original owners were the owners of the ATV and occupiers of the property at the relevant time. The application judge found that the pleadings alleged facts that would permit a finding that the original ATV owners, and not the defendants, were the occupiers at the relevant time. Even if this was not ultimately factual, it was sufficient to trigger the appellant’s duty to defend. The Court found that there was no requirement that the allegations against the defendants be expressly pleaded in the alternative for the duty to defend to arise. The Court took no issue with the application judge reading the pleadings widely, and adopting a reading of the pleadings that supported a duty to defend.
The takeaway from this decision is that courts will read pleadings with a wide latitude in order to find a duty on an insurer to defend an insured. If there is a possibility, based on the pleadings, that there may reasonably be a situation in which the insurer will have the duty to defend, even though those facts might ultimately be proven false, there is a high possibility that a court will find a positive duty to defend. Insurers should hesitate to refuse to defend their insured if the pleadings are structured in a way that a court would find that a duty is possible. If you are unsure of your exposure in this regard, contact your lawyer to provide their opinion.
Ernst v. Northbridge Personal Insurance Corporation, 2018 ONCA 339 (CanLII)
Gabe Flatt has an insurance law practice that has focused exclusively on insurance defence for the past 8 years. He has developed an expertise in complex priority and loss transfer disputes as well as general coverage issues.