In various contractual settings, one party assumes an obligation to have the other included in the former’s insurance policy as an “additional insured”. This has been a fertile source of work for lawyers practising in the insurance field because the process is often handled badly at one stage or another, resulting in litigation.
Unfortunately, the caselaw that has developed in Ontario has been somewhat inconsistent and, in a number of instances, has failed to address some key issues.
“Additional insureds” are a particular interest of mine so I will forewarn the reader that this post is considerably longer than usual.
This post was prompted by two very recent decisions. One came from the Court of Appeal: 1540039 Ontario Limited v. Farmers’ Mutual Insurance Company (Lindsay), 2012 ONCA 210 (CanLII). The other was a decision of Mr. Justice Stanley Kershman in Minto Developments Inc. v. Carlsbad Paving et al., 2012 ONSC 1574 (CanLII). I have some difficulties with both decisions.
1540039 Ontario Limited v. Farmers’ Mutual Insurance Company (C.A.)
In this case, a shopping centre tenant (“Design Depot”) had agreed, under the terms of its lease, to have its landlord named as an additional insured under a comprehensive general liability policy that it had with Farmers’ Mutual Insurance Company (Lindsay). A man was electrocuted while he was working on a pylon sign located in front of the plaza in question. His family members sued the landlord, alleging that it had been the owner and occupier of the plaza and had been negligent in its placement of the sign, had failed to warn of the danger posed by the sign and other similar allegations.
Hydro One was also sued (as owner of the hydro lines above the pylon sign), as was another person (“TRJ Signman”) who was alleged to have subcontracted to the deceased the work that led to his death.
The landlord sought to have the tenant’s insurer share in the cost of its defence. The tenant had not been sued, nor had any allegations implicating it been made in the pleadings.
However, the landlord had attempted to place before the court affidavit evidence to the effect that it had been the tenant, Design Depot, that had retained the deceased (or caused him to be retained), to place a sign advertising its business. The judge who had heard the application had refused to admit this “extrinsic evidence” because he considered that it would require him to make findings that would affect the underlying litigation. He would not have allowed the application, even if the extrinsic evidence had been admitted.
The landlord appealed to the Court of Appeal. The appeal was dismissed.
Much of the Court of Appeal’s decision had to do with the line of cases that have considered when and to what extent extrinsic evidence should be considered on a pleadings motion and, in particular, in deciding when a duty to defend has been triggered. I am not going to get into a discussion of those cases here, other than to say that I agree that the affidavit evidence tendered in this case did seem to go beyond the limits that have traditionally been established. Instead, I will focus on the aspects of the case that are relevant to the law relating to “additional insureds”.
For once, there seems to have been an actual additional insured endorsement issued by the insurer in this case. The endorsement cross-referenced the policy declaration, which provided that the landlord was an additional insured under the tenant’s policy “as landlord only”. According to the reasons of the Court of Appeal, once the cross-referenced passages were incorporated into the Endorsement, the latter would read as follows:
It is Hereby Understood and Agreed that [the appellant landlord] is added as an Additional Insured for the term of as of April 9, 2007 to January 14, 2008 but, only with respect to liability arising out of operations by or on behalf of Design Depot for interior decorating—home decor.
It is Further Understood and Agreed that the Additional Insured shall not be covered for other than “Insured Contract” as defined in the Insuring Agreements. [Emphasis added.]
(This seems a little surprising to me: the end result of the cross-referencing appears to have yielded a result that is quite a bit more restrictive than being insured “as landlord only”.)
The lease also contained an indemnity provision by the tenant, Design Depot, in favour of the landlord, but only with respect to occurrences on the leased premises and not elsewhere in the plaza.
As the application judge had done, the Court of Appeal refused to admit the extrinsic evidence that was aimed at showing that the tenant had hired the deceased. But in two paragraphs, the Court also rejected the argument that a duty to defend the landlord would have been triggered even if the extrinsic evidence had been admitted. It held that the “substance and true nature” of the claim against the landlord was on the basis of it being the owner and occupier of the property, not in its capacity as landlord:
The extrinsic evidence, if considered, would not create a possibility that the claims against the appellant may fall within the policy; it cannot convert claims against the appellant qua owner into claims against the appellant as landlord of the premises leased to Design Depot. The extrinsic evidence exception to the pleadings rule cannot be used to demonstrate that pleadings that say one thing really mean something else.
Oddly, there was no discussion in the reasons of the characteristics of being a “landlord” versus those of being an “owner” or “occupier”. Obviously, the two are separate concepts. However, I would have thought that there is at least some overlap. After all, there is an entire section of the Occupier’s Liability Act (section 8) that is devoted to delineating the “obligations of landlord as occupier”. It could be argued, I would have thought, that the only reason that the landlord would have had a pylon sign at all was that this was a shopping plaza that was leased to other businesses.
There was also no discussion in the reasons of the court as to the proper interpretation of the limiting phrase in the additional insured endorsement: “arising out of the operations by or on behalf of [the named insured]”. As I will discuss below, this is an issue that has attracted considerable attention in “additional insured” litigation in other jurisdictions, but remarkably little in Ontario.
On the other hand, it is true that the pleadings did not point to the tenant, Design Depot, at all. So, even if it could be said that there was at least the possibility of the landlord being liable qua landlord and not just as owner, the pleadings did not identify which tenant was involved.
So, we end up with the rather paradoxical result, that no duty to defend was found to have been triggered, but after the trial, when the extrinsic evidence will have been heard, it might very well turn out that the landlord’s liability will be found to have arisen out of having been the landlord of Design Depot, such that there will be coverage for the landlord under the additional insured endorsement.
It isn’t supposed to happen this way: the duty to defend is intended to be triggered in all situations in which there is any possibility of there being a duty to indemnify.
Minto Developments v. Carlsbad Paving et al. (Sup. Ct.)
In the other recent decision, Mr. Justice Stanley Kershman was faced with an application by a prominent Ottawa developer to have Intact Insurance defend and indemnify it in an underlying slip and fall action. Intact was the insurer of a snow removal contractor, Carlsbad Paving, and Minto had contracted with Carlsbad to have itself shown as an additional insured in Carlsbad’s liability insurance policy with Intact.
Justice Kershman ordered Intact to both defend and indemnify Minto.
The plaintiff in the underlying action had slipped and fallen on ice in a parking lot owned by Minto. She sued Minto and Carlsbad. (Carlsbad had a contract with Minto, “requiring it to maintain the premises including but not limited to winter maintenance services”.)
Minto took the position that it was entitled to be defended and indemnified by Intact, Carlsbad’s CGL carrier. Intact refused, thereby precipitating this application.
Under the terms of its contract with Minto, Carlsbad was “required to keep in force for the duration of the contract, among other types of insurance, a comprehensive general liability insurance policy with limits not less than $2,000,000 and Minto Developments Inc. and/or the landlord and/or the condominium corporation was [sic] to be added as additional insureds with respect to Carlsbad’s operations under the Contract, in accordance with clause 1.6 of Schedule ‘A’. This insurance was to apply as primary and not excess insurance.”
Justice Kershman noted that a CGL policy had been issued to Carlsbad by Intact. He then said, “[t]he Certificate of Insurance in respect of the Intact Policy indicates that Minto Management Ltd. was added as an additional insured on the Certificate of Insurance with respect to the operations performed by Carlsbad under the Contract.” Thus, the determination that Minto was an additional insured under the Intact policy seems to have been made on the basis that its name appeared in a Certificate of Insurance, not that it was actually named in an additional insured endorsement.
As discussed below, under the heading, “Certificate or endorsement”, this is a problem that has often arisen in Ontario decisions dealing with additional insureds: what is the source of the coverage? Regrettably, the courts in this province rarely seem to undertake a rigorous analysis of this fundamental issue. And that is what seems to have happened in Minto: the argument evidently proceeded on the basis that the Certificate of Insurance that was issued by Intact actually conferred coverage. The word, “endorsement” does not appear in the reasons.
Another issue that rarely surfaces in the Ontario cases, and did not here, is the meaning of the language limiting the scope of coverage. Typically, the words used are, “arising out of the operations of the named insured”. (In Minto, the Certificate actually said, “with respect to the operations performed by Carlsbad under the Contract”.) This issue too is discussed below, under the heading, “Scope of additional insured coverage”.
Justice Kershman did not interpret the meaning of the language used in Intact’s Certificate. Indeed, practically no attention was paid to it. Instead, the question considered by the court was whether the “true nature” of the claim that had been pleaded against Minto. His Honour held that, “[l]ooking at the Statement of Claim, as a whole, this Court finds that the ‘true nature’ of the Statement of Claim was that of a negligence case in which the Plaintiff slipped and fell on ice in the parking lot near her home.”
Having made that determination, His Honour simply held that “[t]he Court sees no reason why, as an additional insured, Minto should not be indemnified by Carlsbad.” He ordered both Carlsbad and Intact “to provide and fund a full defence to Minto in the Underlying Action” and then went further (although possibly unintentionally) by adding, “There will also be a Declaration and Order that Carlsbad and/or Intact shall indemnify Minto for liability attributable to Carlsbad in the Underlying Action.”
(The use of the phrase, “attributable to Carlsbad” does limit the scope of the indemnity obligation somewhat, although that language did not appear in the Certificate of Insurance, so far as I can see. So the extent to which the phrase meshes with the words that actually did appear–“with respect to the operations performed by Carlsbad under the Contract”– is perhaps open to question.)
This decision actually raises another issue, separate from the “additional insured” one that I am addressing in this post. However, it is potentially of some significance, so I want to mention it briefly.
The reasons for judgment in Minto do not suggest that there was any argument addressed to the question of duty to defend vs. duty to indemnify. Generally speaking, the former is decided on the basis of the pleadings while the latter is determined on the basis of facts found at trial. That is because a duty to defend arises when there is a possibility of the claim falling within coverage, even if there is also a possibility that it will not be covered. However, a duty to indemnify is based not on what is alleged to have happened, but on what the court finds did happen.
In this case, counsel for Intact argued that the statement of claim had made a number of allegations against Minto that were not covered under Intact’s policy (e.g., “Inspection and monitoring of the premises; warning signs; breach of lease agreement; and occupier’s liability generally”.) On what basis it was found that Minto was entitled to a declaration, at the pleadings stage, that all possible outcomes at trial would entitle it to indemnity from Intact, was not clear. Certainly, such a finding, while not unheard of, would be quite exceptional. It may be that the ruling was made without adverting to the distinction between duty to defend and duty to indemnify.
However, I digress. What I wanted to address in this post is what I suggest is some confusion in the Ontario cases as to how to deal with questions involving additional insureds. So, having discussed the two most recent Ontario decisions, I will turn to a more general look at the caselaw in Ontario and compare it with approaches that have been taken elsewhere.
Certificate or endorsement?
Someone who is not a party to a contract of insurance can acquire rights under it by becoming an “additional insured” or an “additional named insured” (the terms are not interchangeable). That step is (or should be) accomplished by the issuance of an endorsement to the policy. Most insurers have their own form of additional insured endorsement for this purpose (although there is no standard wording for such an endorsement, which is another factor that had contributed to the extent of litigation on the subject).
The additional insured endorsement represents a modification of the contract between the insurer and the named insured. It is that document (as well as the policy as a whole) to which the court should look in order to determine just what coverage has been extended to the additional insured.
However, Ontario courts frequently do not look at the insurance contract itself (or even advert to the need to do so). Instead, they are often guided in their reasoning by the Certificate of Insurance that the insurer has issued to the additional insured. This was what happened in Minto. As noted above, Justice Kershman said that “[t]he Certificate of Insurance in respect of the Intact Policy indicates that Minto Management Ltd. was added as an additional insured on the Certificate of Insurance with respect to the operations performed by Carlsbad under the Contract.”
Now, in fairness to Justice Kershman and his colleagues, the fact is that very often, no additional insured endorsement even exists, so all they are left with is the Certificate of Insurance. (I am ignoring, for the moment, the many cases in which the insured’s contractual obligation to have another party added to its insurance policy goes completely unfulfilled.)
There is no indication in Justice Kershman’s reasons as to the status of the endorsement itself. Having recently had an additional insured claim with the Ottawa office of Intact myself, no endorsement ever surfaced in that case either, so it may well be that the Certificate of Insurance is all that was before Justice Kershman. (In my case, Intact’s policy declarations did refer to an additional insured endorsement form, but that form never surfaced. And, in fairness to Intact, if it is indeed its practice not to actually issue an endorsement, it does not seem to be alone in this. I am aware of other insurers whose underwriting practice is not
to issue endorsements at all but to extend coverage by way of certificates, as it appears may have been done in the Minto case. Such an approach, of course, is quite incorrect. The insurer’s issuance of a certificate does not amount to compliance with the contractual obligation that its insured has undertaken in its own extrinsic contract with the additional insured, to arrange for a modification of its contract with its own insurer.)
The problem with this approach is that certificates do not confer coverage by a modification of the contract. Rather, a certificate is intended to do just that: certify to the additional insured that the contract between the insured and the insurer has been modified to reflect the obligation assumed by the insured in its extrinsic contract with the additional insured.
The certificate should track precisely the language of the additional insured endorsement. However, even when insurers issue an additional insured endorsement, as they should, often they then issue certificates that contain somewhat different language. They are then potentially faced with a discrepancy between the coverage that was actually extended (the endorsement) and that which they have represented to exist (the certificate). That is what happened in Lacombe v. Don Phillips Heating Ltd., 2005 CanLII 33036 (ON SC), a decision of Master Robert Beaudoin (as he then was) in which I acted for the additional insured. There, the endorsement itself limited the coverage to “liability arising out of the operations of the named insured”, but there was no mention of this in the certificate.
Thus, when the certificate is either all that exists or when its language does not conform to that of the endorsement, coverage will usually fall to be determined on the basis of misrepresentation: what did the insurer lead the additional insured to believe the coverage to be and did the additional insured rely on that representation to its detriment? Coverage might then be determined on the basis of an estoppel analysis.
One American commentator has described the endorsement-certificate issue as follows:
A certificate of insurance is a form confirming the existence of the named insured’s coverage. It is merely proof that the named insured has insurance. It is not, by its terms, a contract of insurance. In SLA Property Management v. Angelina Casualty Co., the court held that the terms of the insurance contract prevailed over the language of the certificate of insurance because the certificate “served merely as evidence of the insurance” and was not a part of the insurance contract.
It is not unusual, however, for a certificate to be issued stating on its face that the certificate holder (the general contractor or developer) is an additional insured with respect to the policies referenced in the certificate. In those cases, some courts are willing to hold that the certificate confers additional insured status upon the general contractor or developer, even if the policies referenced in the certificate were never formally endorsed with additional insured endorsements.[Footnotes omitted] (Spevacek, Ledwith, Newman & Lennes Jr., “Additional Insured and Indemnification Issues Affecting the Insurance Industry, Coverage Counsel, and Defense Counsel—Legal Advice and Practice Pointers”, FDCC Quarterly, October 1, 2001.)
And in fact, the proposition that a certificate does not create coverage was endorsed by a British Columbia case, Williams (Guardian ad litem of) v. B.C. Conference of the Mennonite Brethren Churches, 2010 BCSC 791 (CanLII), which quoted with approval the following passage from the leading U.S. text, Couch on Insurance:
Certificates of insurance are often issued to the designated certificate holder as proof that the named insured has insurance to cover work or operations being performed for the certificate holder named as an additional insured on the named insured’s insurance policy.
However, the presentation of a certificate of insurance alone does not create coverage or legal obligations between the insurer and certificate holder. Generally, a certificate of insurance is not considered to be a part of the insurance contract; it is merely evidence of the insurance.
Accordingly, a certificate of insurance cannot contradict the terms of a policy but instead only provides information as to the contents of the policy.
In accordance with the above principles, a certificate of insurance cannot create a contractual relationship between an insurer and an alleged insured if the policy itself does not provide for such a relationship. In other words, no additional insured relationship exists where a certificate of insurance has been issued identifying an individual as an additional insured without corresponding language in the policy or endorsement thereto which would include that individual or entity as an additional insured.
[Emphasis added and footnotes omitted by Dillon J.]
Whether an insurer could successfully deny coverage on the basis that it had issued only a certificate of insurance and not an actual endorsement is debateable. The point is, that Ontario courts (and, let’s be fair, Ontario lawyers) have so far not even identified the issue.
This whole area (the interplay between certificates and endorsements in the additional insured context) is complicated: the leading textbook on the subject devotes an entire chapter to a discussion of it. Unfortunately, I have yet to see an Ontario decision in which the issue has even been recognized.
And, it is perhaps unnecessary to say, that even in cases in which an endorsement exists and a certificate has been issued, it is not unusual to find that not only is there a disconnect between the certificate and the endorsement, neither one of them actually extends the coverage that the named insured has undertaken to obtain in its extrinsic contract with the additional insured, thereby leaving the named insured exposed to a claim for breach of the covenant to insure. So, in other words, it is not unheard of to find that (a) the extrinsic contract between the named insured and the additional insured, in which the former undertakes to have the latter added to its insurance policy; (b) the additional insured endorsement; and (c) the certificate of insurance issued to the additional insured, all contain provisions that do not dovetail with each other.
In any event, in the Minto case, the issue was not addressed: all parties evidently proceeded on the basis that coverage was conferred and defined by the Certificate of Insurance that was issued to Minto by Intact Insurance.
Scope of additional insured coverage
The next question is, what coverage does the additional insured receive? In Minto, the Certificate of Insurance indicated that “Minto Management Ltd. was added as an additional insured on the Certificate of Insurance with respect to the operations performed by Carlsbad under the Contract”. However, the court did not analyze the meaning of the phrase, “with respect to the operations performed by [the named insured] under the Contract”.
As I have said, there is no standard language used in additional insured endorsements. Different insurers employ different language, when they bother to issue additional insured endorsements at all.
Typically though, what the insurer will try to do is to confine the coverage extended to the additional insured to the liability that that entity faces as a result of the actions or inactions of the named insured. In other words, insurers don’t want to provide the same third party liability coverage to the additional insured that they extend to the named insured. Doing so will probably at least double the risk that they assume. There is usually no underwriting that accompanies the inclusion of the named insured (and therefore, no assessment of the risk of insuring it) and minimal or no premium charged for the endorsement. Thus, extending to the additional insured the same coverage as has been given to the named insured would represent a significant increase in risk, with little or nothing in the way of corresponding premium dollars.
How to accomplish this objective, of limiting the scope of the coverage to the additional insured? Ontario insurers usually do so using some variant of language used in a form issued in 1985 by the U.S. Insurance Services Office (“ISO”), which read as follows:
WHO IS AN INSURED (Section II) is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of ‘your work’ for that insured by or for you.
However, in the United States, “[c]ourts repeatedly interpreted the phrase ‘arising out of’ to require only an indirect causal connection between the named insured’s operations and the injury or damage”. (Gibson, Ligeros, Malecki, The Additional Insured Book (6th ed.), International Risk Management Institute, 2011, p. 181).
Partly as a result of the way in which this language was interpreted in the United States, that ISO form was replaced there in 2004. The newer form that replaced it defines “insured” to include persons named in a schedule, but only with respect to liability for injury caused by the acts or omissions of the named insured or those acting on behalf of the named insured.
However, it appears that Canadian insurers, when they do issue an endorsement, continue to use language similar to that in the 1985 ISO endorsement. Variants that have been seen in the Ontario caselaw include:
- “with respect to the operations performed by [the Named Insured] under the Contract” (Minto v. Carlsbad);
- “but only with respect to their interest in the operation of the named insured” (D’Cruz v. B.P. Landscaping Ltd.
2007 CanLII 26602 (ON S.C.)) and (Harris v. Memorial Boys’ and Girls’ Club Inc., 2008 CanLII 34360 (ON SC));
- “but only with respect to liability arising out of the contractor’s operations” (Atlific Hotels & Resorts v. Aviva Insurance Company of Canada, 2009 CanLII 24634 (ON SC);
- “solely with regard to liability arising out of the operations of the named insured” (Lacombe v. Don Phillips Heating Ltd., 2005 CanLII 33036 (ON SC));
- “but only with respect to the above noted contract and solely with respect the operations performed by the original named insured” (Riocan Real Estate Investment Trust (O&Y Properties Inc.) v. Lombard General Insurance Co., 2008 CanLII 16073 (ON SC));
- “but only insofar as their legal liability arises vicariously out of the negligent operations of the Named Insured” (Waterloo (City) v. Economical Mutual Insurance Company, 2006 CanLII 43498 (ON SC)) [Certificate];
- “but only with respect to liability arising out of the operations of the named insured” (Waterloo (City) v. Economical Mutual Insurance Company, 2006 CanLII 43498 (ON SC)) [Endorsement];
- “but only with respect to liability arising out of the operations of the named insured” (Cadillac Fairview Corporation v. Oakridge Landscape Contractors and Lombard Canada, 2010 ONSC 4535 (CanLII)); and
- “but only with respect to the operations of the Named Insured as stated in the declarations of this policy” (ING Insurance Co. of Canada v. Sportsco International L.P., 2004 CanLII 14366 (ON SC)).
What does this language mean? Practically no attention has been paid to the question by the Ontario courts. Indeed, there is a general assumption that additional insured endorsements do not cover the additional insured’s “own negligent acts” (see, for example, the Riocan v. Lombard case, at para. 14), but without any analysis as to the basis for the conclusion.
One of the few Ontario cases that even considered the meaning of “arising out of” was Waterloo v. Economical Mutual. Justice Flynn said that the words “have been interpreted in the cases to include such meanings as ‘originating from’, ‘growing out of’, ‘flowing from’, ‘incident to’, or ‘having connection with’.” Just how those meanings integrated into the additional insured endorsement itself was left less clear. The judge in that case found no duty to defend the additional insured, on the basis that the “operations” of the named insured “was merely the site or occasion” of the accident giving rise to the claim.
The courts of British Columbia have paid closer attention. An example is the decision of Madam Justice Dillon of the British Columbia Supreme Court in Williams (Guardian ad litem of) v. B.C. Conference of the Mennonite Brethren Churches, 2010 BCSC 791 (CanLII). Her Honour noted that the phrase, “arise out of the operations of the named insured” had been liberally interpreted in B.C.:
Insurers of the named insured frequently argue that they are not liable to defend the additional insured on the basis that the allegations against the additional insured arise out of the additional insured’s independent actions and do not “arise out of the operations” of the named insured. Several British Columbia decisions have had occasion to interpret the words “arising out of the operations” of the named insured in this context. In Monenco Ltd. v. Commonwealth Insurance Co.,1999 BCCA 129 (CanLII), 1999 BCCA 129 at para. 11, aff’d
2001 SCC 49 (CanLII), 2001 SCC 49, Madam Justice Southin endorsed a broad reading of the words in favour of coverage for the additional insured:
To put it another way, the claim in the underlying action is a claim “arising out of” this project. I do not find it necessary to refer to the authorities quoted … on the meaning of the phrase “arising out of”. Suffice it to say that if this project had not existed, there would have been no claim, ergo the claim arises out of it.
(The Monenco case, which went to the Supreme Court of Canada, did not deal with an additional insured endorsement, but did consider the meaning of “arising out of” in the context of a policy exclusion.)
Justice Dillon referred, in her reasons, to a number of other B.C. cases, in all of which a duty to defend the additional insured was found in the context of language that limited coverage to claims “arising out of the operations of the named insured” or something similar. Two Ontario cases (D’Cruz v. B.P. Landscaping Ltd. and Atlific Hotels and Resorts Ltd. v. Aviva Insurance Company of Canada)
The approach taken by the British Columbia courts to interpretation of “arising out of the operations of the named insured” is generally to see whether there is “a clear nexus on the pleadings between the [operations of the named insured], the alleged negligence and the alleged injury”. (Cowichan Valley School District No. 79 v. Lloyd’s Underwriters, Lloyd’s, London, 2003 BCSC 1303 (CanLII), 2003 BCSC 1303 (In Chambers), quoted with approval in Liu v. Chu, 2009 BCSC 753 (CanLII).)
On the other hand, in Kinnear v. Canadian Recreational Excellence (Vernon) Corporation, 2010 BCSC 1899 (CanLII), Madam Justice Beames of the B.C. Supreme Court reviewed the B.C. jurisprudence and the “nexus” test and concluded that none of the plaintiff’s allegations related to the operations of the named insured (a hockey team). She said that “I am satisfied something more is required than the mere attendance by the plaintiff at the game or…a temporary departure from the game to find better food than CRE or NORD [owner and operator of the facility where the game was being played] offered inside the multiplex”.
In 2010, the British Columbia Court of Appeal considered the proper interpretation of “solely with respect to the liability which arises out of the activities of the named insured”. (This phrase appeared in a certificate of insurance that the named insured’s insurer had issued, but the B.C. Court of Appeal did not consider the impact on coverage that the absence of an additional insured endorsement might have had.)
The Court of Appeal formulated the appropriate test this way:
[A]s Madam Justice Rowles in Hannah explained, there is more to causation than a connection of the “but for” variety. However, a connection is required, indeed a connection is the essence of causation and the concept of “but for” is familiar to all in the law of negligence, see for example Resurfice Corp. v. Hanke, 2007 SCC 7 (CanLII), 2007 SCC 7,  1 S.C.R. 333. This concept is easily stated in other words. For example, in Monenco at para. 23 the Supreme Court of Canada approved this expression of the “but for” test:
…if this project had not existed, there would have been no claim, ergo the claim arises out of it.
It seems to me we need say no more than that the essence of the issue is, as Justice Binnie observed in Lumbermens at para. 14 replicated earlier, there must be an unbroken chain of causation to engage the potential liability of the insurer.
In the United States most cases that have considered additional insured endorsements containing language like, “arising out of the activities of the named insured”, have interpreted the coverage liberally. According to the authors of The Additional Insured Book (6th ed.), International Risk Management Institute, 2011, “[t]hat language has consistently been interpreted to apply even to the additional insured’s sole negligence as long as the claim had some causal connection to the work the named insured was hired to do” (at 169). As noted above, that is what evidently what led the ISO to develop a new additional insured form, providing coverage only for liability caused, in whole or in part, by the acts or omissions of the named insured.
It may be that a test requiring “some causal connection” (as described in the quoted passage) approximates the “clear nexus” approach of the courts in British Columbia, as discussed in the previous section. (The “unbroken chain of causation” test referred to in the Kinnear case is arguably a more restrictive one.) In fact, in Vitty v. D.C.P. Corp., 633 A.2d 1040 (N.J. Super. Ct. App. Div. 1993), the court was considering the meaning of “arising out of” and held that only a “substantial nexus” and not a direct causal connection was required in order to engage the indemnity obligation.
The form of additional insured endorsement that has been most commonly been used in the United States, since 2004, is the ISO CG 20 10 (“Additional Insured—Owners, Lessees or Contracts—Scheduled Person or Organization”). It provides:
Section II – Who Is An Insured is amended to include as an additional insured the person(s) or organization(s) shown in the Schedule, but only with respect to liability for “bodily injury”, “property damage” or “personal and advertising injury” caused, in whole or in part, by:
Your acts or omissions; or
The acts or omissions of those acting on your behalf;
in the performance of your ongoing operations for the additional insured(s) at the location(s) designated above.
This language is obviously quite a bit more restrictive than the “arising out of the named insured’s operations” approach, although it has apparently received less attention from U.S. courts than did its “arising out of” predecessor. However, so far as I can determine, none of the Ontario cases has dealt with language resembling that of the 2004 version of CG 20 10.
Thus, it seems to me that the jurisprudence that has developed in Ontario, dealing with additional insured endorsements, has generally failed to address a number of fundamental issues. The two key ones though, are: (a) the relationship between the underlying contract, the additional insured endorsement and the certificate of insurance; and (b) the actual meaning of the language used in the endorsement, assuming that one even exists.
I also find it surprising how loose many insurers’ underwriting practices seem to be in relation to both the issuance of additional insured endorsements and certificates as well as to the language employed in both.
Doubtless, there will be more opportunities to discuss these issues as other cases are decided.