Insurer Owes No Duty to Defend Additional Named Insured When It is Already Defending Named Insured

Madam Justice Nancy M. Mossip has refused to order an insurer to undertake, in whole or in part, the defence of an additional named insured. She reasoned that since the insurer was already defending its named insured, there was no basis for it to also have to defend the additional named insured in relation to its vicarious liability for the actions of the named insured.

In D’Cruz v. B.P. Landscaping Ltd. and Peel Housing Corporation, the plaintiff had slipped and fallen on property owned by Peel Housing. She sued the latter and its winter maintenance contractor, B.P. Landscaping. The contract between B.P. Landscaping and Peel Housing required that Peel Housing be added to B.P. Landscaping’s insurance policy as an additional named insured. This was done.

B.P. Landscaping’s certificate of insurance with Citadel Insurance provided that, “[t]he Regional Municipality of Peel and/or Peel Housing Corporation – O/A Peel Living have been added as additional insured’s [sic], but only with respect to their interest in the operation of the named insured.)”

On this motion, Peel Housing asked that the court rule that Citadel was obliged to defend and indemnify Peel Housing in relation to the plaintiff’s claims. It argued that because Citadel was obliged to defend it in relation to the acts of B.P. Landscaping, it must also defend Peel against other claims that were unrelated to actions of B.P. Landscaping. In other words, Peel Housing submitted that once the duty to defend had been triggered in relation to some of the claims against it, Citadel was obliged to defend all of the claims.

Justice Mossip dismissed the motion. She reasoned that because Citadel was already defending B.P. Landscaping (a co-defendant in the action) in relation to the allegations that had been made against it, there was no need for it to defend Peel Housing separately for Peel’s vicarious liability arising out of those same allegations. She said:

[16] It seems clear to me that there are separate and distinct claims of liability against Peel Housing set out in the Statement of Claim and which are unrelated to the acts covered in B.P. Landscaping’s insurance policy which are presently being defended. There is no need for Citadel to defend Peel Housing’s liability arising from B.P. Landscaping’s alleged negligence in winter maintenance; they are already doing that.

[17] Peel Housing’s operations themselves have to be defended by their own insurance company. Peel Housing has duties as an occupier that need to be defended in the main action. These are stand alone duties to any person on their property which Citadel has no duty to defend.

[18] Peel Housing is covered for the negligence of B.P. Landscaping with respect to winter maintenance as a named insured in that policy, but that is all. Their coverage for that negligence is presently defended by Citadel. They are not covered, as a named insured in that policy, for acts of negligence against the operations of Peel Housing itself as an occupier. That is no doubt covered by Peel Housing’s own policy of insurance, which premium would be based on that assessed risk.

If this decision is sound, one might wonder what benefit Peel Housing obtained by having contracted with B.P. Landscaping, to have itself included in Citadel’s policy as an additional named insured. It seems to us that the only benefit would be if the plaintiff had chosen not to sue B.P. Landscaping. In that case, presumably Mossip J. would have concluded that Citadel owed Peel Housing a duty to defend, at least in relation to claims against Peel Housing that were based on its responsibility for acts of negligence of B.P. Landscaping.

However, as a result of this decision, where both the named insured and the additional insured (“named” or otherwise) have been sued, it does not appear that the latter would get any benefit from being a named insured. Justice Mossip’s reasons make it sound like it was only necessary to defend the allegations of negligence on the part of B.P. Landscaping once. But in fact, B.P. Landscaping had to defend itself against those allegations and then Peel Housing also had to incur its own legal expense to defend itself against its potential vicarious liability for those same allegations.

Thus, it seems to us that Her Honour was wrong to conclude that just because B.P. Landscaping was already defending itself, Citadel owed no duty to defend the additional named insured, Peel Housing.

Arguably, this was a case of overlapping coverage (between Citadel and Peel’s own insurer), such that the appropriate disposition might have been to allocate the defence costs of Peel Housing between those two insurers. We can’t tell from the reasons of Mossip J. whether this issue was argued.

This decision also reminds us how important it is to draft additional insured endorsements properly. The wording of these endorsements is not uniform and varies from one company to another. This particular version was not very clear. What does it mean to say that Peel Housing was an insured under Citadel’s policy, but only with respect to Peel’s interest in the operation of B.P. Landscaping? What does “interest in the operation of” even mean?

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