Georgian Downs Limited v. State Farm Fire and Casualty Company, 2013 ONSC 2110 (CanLII) is a recent decision on the subject of additional insureds, about which I have written in earlier posts. (See particularly here.)
The decision of Justice Gregory M. Mulligan suggests that insurers should reconsider the hard-nosed approach that they often seem to take in additional insured cases.
Here, the underlying action was a slip and fall claim. The plaintiff sued the property owner and the snow removal contractor with which it had a maintenance contract.
The reasons say only that the contract “required [the contractor] to have insurance” but do not indicate whether that obligation was defined any more precisely. In any event, it was apparently the case that the contractor’s insurer, State Farm Fire and Casualty Company, added the owner as an additional insured under the contractor’s policy, “but only with respect to liability arising out of [the named insured contractor’s] work”.
(Unfortunately, the reasons do not disclose the source of this limitation on the scope of coverage. Presumably, there was an additional insured endorsement that set it out but, as I have noted in previous posts, courts frequently seem to confuse the roles of insurance certificates, additional insured endorsements and provisions in underlying contracts. In addition, the reasons in this case contain no analysis of what is meant by “liability arising out of [the named insured’s] work”. A number of U.S. cases have shown that the meaning of such language is not necessarily as straightforward as Ontario cases usually assume.)
State Farm settled the underlying claim for $65,503.50 and the property owner was not required to contribute to that payment. However, following the settlement, the owner sued State Farm for reimbursement for its defence costs in having to defend the action. Justice Mulligan granted the relief sought.
State Farm had refused to undertake the owner’s defence because, while allegations of negligence in failing to maintain an ice-free parking lot had been made in the statement of claim, there were other allegations made against the owner that State Farm felt did not arise out of the work of the contractor, its named insured.
State Farm argued, in the alternative, that it should only be required to defend potentially covered claims and that the defence costs should be apportioned accordingly.
Justice Mulligan reviewed the jurisprudence and, applying it to this case, concluded that despite the other allegations made against the owner, the “true nature of the claim” was the failure to maintain an ice-free parking lot and that therefore, State Farm was not entitled to apportionment of defence costs. It was ordered to indemnify the additional insured owner for all of its costs.
However, in another recent decision on this issue, apportionment was granted. In Riocan Property Services Inc. v. Dominion of Canada General Insurance Co., 2013 ONSC 2474 (CanLII), Mr. Justice Timothy D. Ray was dealing with an application by the additional insured (Riocan) for an order requiring the insurer of a snow removal contractor with which it had a contract, to pay the defence costs of an underlying slip and fall action in which both Riocan and the contractor were defendants.
Here, coverage for the additional insured, Riocan, was limited to “the operations performed by or on behalf of [the snow removal contractor]”. Once again, the reasons do not say where this limitation appeared.
It was evidently conceded by the insurer, Dominion of Canada, that it was responsible to pay for some of Riocan’s defence, but not more than fifty percent. It argued that portions of the underlying claim did not fall within the coverage extended to the additional insured.
Justice Ray held that “[a] review of the particulars of negligence shows that there are clearly claims against the applicants which are beyond the scope of the Franick [the snow removal contractor]–Riocan agreement”.
His Honour did not refer to the “true nature of the claim” test that was applied by Justice Mulligan in Georgian Downs and that led to there being no apportionment in that case.
As usually happens in Ontario “additional insured” cases, there was evidently no argument as to the appropriate construction of the insuring language and, in particular, the meaning of the limiting words, “the operations performed by or on behalf of [the snow removal contractor]”. As I have said above, American cases have interpreted such words quite broadly. In Ontario though, the issue never seems to come up.
In any event, Justice Ray held that this was a case for apportionment of defence costs, saying, “I am satisfied that there is a sufficient basis for the applicants to be found liable independently of Franick [the snow removal contractor] and therefore outside the coverage of the CGL. This is a case where based on the pleading and the coverage that the respondent should be obliged to pay a portion of the applicants’ defence costs.” He ordered that Dominion pay 75% of Riocan’s defence costs and that an accounting be done quarterly.
His Honour also said that “[a]s the factual foundation becomes better known to the parties, the nature of the claims and the interests of the parties will likely change. It would therefore make sense to permit the applicants or the respondent to renew this application later in the proceeding – perhaps after discoveries- so that this order can be re-visited.”
One wonders whether this was something of a Pyrrhic victory for Dominion. Instead of having one law firm defend both Riocan and the contractor, it must now pay one set of legal fees for the contractor and at least 75% of the fees incurred by a second firm, defending Riocan. Instead of mounting a common front against the plaintiff’s case, it will be in the interest of Riocan for its lawyers to help the plaintiff make the case against the snow removal contractor, so as to bring the claim within Dominion’s coverage. Meanwhile, Dominion will incur the expense of the quarterly accounting ordered by Justice Ray and faces the prospect of a renewed application by Riocan later in the proceedings.
Just another day in the Wild West that is additional insured jurisprudence in Ontario.