The Ontario Court of Appeal (ONCA) has released a decision that reiterates a key guiding principle in proceedings brought to enforce an insurer’s duty to defend: the court must carefully review the underlying pleading and focus on the true nature of the claim, not simply the words used by the plaintiff in the underlying claim, to determine if any of the claims could potentially be covered by the policy. In Family and Children’s Services of Lanark, Leeds and Grenville v. Cooperators, the ONCA overturned a lower court judge who the Court said failed to properly conduct this analysis.
Insureds who suffer a loss may find they are covered by multiple insurance policies for that loss. Such situations can arise inadvertently, or the existence of multiple overlapping policies may be by design. For example, the prudent insured may have purchased several distinct types of coverage, one or more of which overlap to cover a risk. Or the insured may have required another entity to name it as an additional insured, while also having its own coverage for the risk. In the context of liability claims, having multiple insurance policies can cause disputes over which insurer(s) have a duty to defend, and if more than one, how associated defence costs should be allocated. It is not uncommon for the insured to get caught up in these fights, although they most frequently involve disputes between the insurers. This paper will provide an overview of several issues that may arise with the duty to defend, where there are “overlapping” or concurrent insurance policies.
The Ontario Insurance Act requires that every property insurance contract in the province give the parties a right to require that disagreements about the amount of an insured loss be resolved via an appraisal process. Other provinces’ insurance statutes contain similar provisions. However, the principles applicable to appraisals are often not well understood. Northbridge General Insurance Corp. v. Ashcroft Homes-Capital Hall Inc. seems to be the latest example of this. In that case, an Ontario judge terminated an appraisal, and in the course of doing so, reviewed the principles applicable to appraisals. Ashcroft Homes is necessary reading for any insured thinking about invoking an appraisal.
Insurance applications can be challenging. The questions are often ambiguous and remembering every piece of relevant information is difficult. However, being diligent is important, as an insurer may deny coverage of a claim if an insured incorrectly answered a question or failed to disclose material information. On the other hand, insureds should be aware that courts will scrutinize claims of inadequate disclosure on a reasonableness basis. Typically, insurers cannot rely on answers to ambiguous questions in application materials unless the nature of the risks those questions sought to elicit is obvious or was brought to the insured’s attention.
On January 15, 2021, the UK’s Supreme Court rendered its much-awaited decision on business interruption coverage for COVID-19. In a decision over 100 pages long, the court ruled in favour of policyholders on almost every issue. As of today, there are no reported cases in Canada on the merits of coverage for business interruption losses caused by COVID-19, and this case will likely be positively received by our courts.
England’s Financial Conduct Authority (“FCA”) was largely successful in its test case against eight (8) insurers, with respect to business interruption coverage for infectious disease and/or prevention of access/orders of civil authority. The decision considered 21 policy forms issued by these eight insurers, but FCA’s counsel has suggested that “some 700 types of policies across 60 different insurers and 370,000 policyholders could potentially be affected by the test case.” The 150-page decision considers many issues, and notes that the particular policy wording is important. Subtle differences lead to potentially different results. However, there are some very important issues decided that appear to have very broad application.
A recent Ontario case appears to be one of the first interpreting a data exclusion often found in liability policies. The case went in favour of the insureds, with the insurer being ordered to defend claims arising out of an alleged security breach on a website owned by Family and Children’s Services of Lanark, Leeds and Grenville (“FCS”). Following the alleged breach, a lawsuit was brought against FCS, and FCS claimed over against Laridae Communications Inc., who had given FCS advice on the design and security of its website. The insurer for FCS and Laridae was ordered to defend all the claims, on the basis that not all of the claims were captured by the policy’s data exclusion.
In MDS Inc v Factory Mutual Insurance Company, the Ontario Superior Court of Justice recently held that an insurer who wrongfully denied a US$121 million claim must pay prejudgment interest based on the actual cost of borrowing, and not the rates stipulated in the Courts of Justice Act. This decision is one that counsel and adjusters would be wise to carefully consider in any future insurance coverage dispute, as it sets out a number of factors that a Court could consider in deciding whether to award commercial interest rates.
In Markham (City) v. AIG Insurance Company of Canada, 2020 ONCA 239, the Ontario Court of Appeal addressed three important elements of the duty to defend, where there is concurrent coverage under two policies: whether there was a concurrent duty to defend given the existence of an “other insurance” clause, the obligation to pay ongoing costs and its allocation, and the right to participate in the defence.
In Intact v. Clauson, The Alberta Court of Appeal ordered an insurer to defend claims made against the insured’s cold storage business, which was sued when its warehouse thawed and damaged its customer’s food products. This decision is consistent with leading principles of insurance law, which emphasize the importance of reading the contract as a whole when interpreting the meaning of a particular provision, and underlines that it is important to always review the specific words of a policy to determine coverage, not rely on received wisdom about what a policy typically covers.