Addendum: This case is of doubtful authority following the Court of Appeal’s decision in Meadows v. Meloche Monnex Insurance Brokers Inc., 2010 ONCA 394, released June 2, 2010.
Glassford v. TD Home and Auto Insurance Company is an example of a peculiar strain of “duty to defend” case in insurance law. Here, the allegations made against the plaintiff in the statement of claim were clearly excluded by the defendant’s insurance policy, such that no duty to defend would have been owed. However, Mr. Justice David Brown looked beyond the statement of claim to the statement of defence and found in that pleading allegations that, in his view, gave rise to such a duty.
This was an application by the defendant in the underlying lawsuit, for a declaration that his insurer, TD Home and Auto Insurance Company, was required to defend him in the lawsuit. The plaintiff and defendant in that action were neighbours. The plaintiff alleged, in the statement of claim, that the defendant had attacked and beaten him and he sought damages for his injuries.
In his statement of defence, the defendant in the underlying action alleged that it had been the plaintiff who had attacked him and that he had struck the plaintiff in self-defence, using only reasonable force.
The defendant had home insurance with TD. Its policy excluded coverage for “bodily injury or property damage caused by any intentional or criminal act or failure to act by:
a) any person insured by this policy;
b) any other person at the direction of any person insured by this policy.”
TD took the position that the claim in the underlying suit was for intentional assault and that coverage was excluded, with the result that it owed no duty to defend. The insured (the defendant in the underlying action) then brought this application to have the “duty to defend” issue determined.
Justice Brown began by applying the traditional “pleadings rule”: “If the pleadings allege facts which, if true, would require the insurer to indemnify the insured for the claim, then the insurer is obliged to provide a defence, even though the actual facts may differ from the allegations pleaded.” He was of the view that the underlying claim was one for damages caused by an assault. He then turned to the question of what effect the defendant’s pleading of self-defence had on the issue of coverage.
His Honour then considered a number of authorities before concluding that it was permissible for him to look beyond the statement of claim in order to evaluate the duty to defend. (Here, the defendant in the underlying action had filed a statement of defence and also submitted in evidence a handwritten statement that, according to Justice Brown, tracked the allegations in his defence.)
Since the defendant had “squarely” pleaded that he had acted in self-defence, Justice Brown held that TD owed a duty to defend. His Honour went further and ruled that the insured was entitled to counsel of his own choosing because of the potential adversity of interest that existed between the insured and the insurer in the defence of the underlying action.
This result seems wrong to us, although there is no doubt that a number of other judges have come to the same conclusion in similar cases. Justice Brown addressed what seems to us to be the fundamental problem with the reasoning, in the following passage:
Before turning to the specific pleadings in the present case, I wish to comment on a statement made by the court in Wlasichuk. There the court suggested that if the insured’s pleading of justifiable self-defence were accepted, then no duty to indemnify would arise, there being no loss, and therefore no duty to defend would arise. This strikes me as conflating the issues of the duty to defend and the obligation to indemnify. Where a policy, such as the present one, provides that the insurer will defend the insured “even if the claim is groundless, false or fraudulent”, it should not be open to argue that the possible success of the defence of justifiable self-defence would vitiate any duty to defend: see Thorne, para. 28.
In a case such as this one, there are two possible outcomes. Either the plaintiff will succeed in showing that he was assaulted, in which case there will be no insurance coverage for the defendant (because of the intentional act exclusion), or the defendant will establish that he acted in self-defence. In the event of the latter, the plaintiff’s action will be dismissed and again, the insurance policy will not respond. There is no possible outcome in which the duty to indemnify will be engaged.
While it is true, as Justice Brown says, that the TD policy (like most liability insurance policies) extends coverage ” even if the claim is groundless, false or fraudulent”, the portion of the insuring agreement that was quoted by His Honour omitted some important words: “If a claim is made against you for which you are insured under COVERAGE E, we will defend you, even if the claim is groundless, false or fraudulent.” [Emphasis added] So, it is not all claims to which the words, “groundless, false or fraudulent” apply, only those that are within the policy coverage. And the caselaw, going back to Bacon v. McBride, is very clear as to which claims trigger the duty to defend: “If the claim alleges a state of facts which, if proven, would fall within the coverage of the policy the insurer is obliged to defend the suit regardless of the truth or falsity of such allegations.”
Therefore, it is, we think, specious to rely on the “groundless, false or fraudulent” provision to find that there is coverage for a claim that cannot possibly engage the duty to indemnify. What must be determined is whether, on the pleadings, there is some possible outcome that would fall within coverage. The Supreme Court of Canada made this clear in 2000, in Non-Marine Underwriters, Lloyd’s of London v. Scalera: “For there to be a duty to defend, there must be the possibility of a duty to indemnify.”
The issue of whether the “pleadings rule” allows a court to consider a statement of defence as well as a statement of claim, is hazy (in Ontario, at least). In A.R.G. Construction Corp. v. Allstate, Mr. Justice Lee Ferrier of the Superior Court said, “Thus, in determining the issue, the court considers only the pleadings and the contract of insurance. Throughout the jurisprudence, ‘pleadings’ means the allegations in the statement of claim.” There is no doubt that in other jurisdictions, courts have been quite willing to do what Justice Brown did here and consider the statement of defence as well as the statement of claim. However, it strikes us that the theoretical underpinning of that approach is rather suspect, given that the whole point of the exercise is to compare the policy language with the possible outcomes to which the statement of claim gives rise. (The statement of defence could presumably only narrow the range of those outcomes, so it is difficult to see why it should be relevant.)