IN THE SUPREME COURT OF BRITISH COLUMBIA
Citation: | Danicek v. Alexander Holburn Beaudin & Lang, |
| 2011 BCSC 65 |
Date: 20110121
Docket: S042714
Registry:
Vancouver
Between:
Michelle Marie
Danicek
Plaintiff
And
Alexander
Holburn Beaudin & Lang and Jeremy Martin Poole
Defendants
And
Lombard
General Insurance Company of Canada
Third Party
– and –
Docket: S094306
Registry:
Vancouver
Between:
Co-operators
General Insurance Company
Plaintiff
And
Lombard General
Insurance Company of Canada
Defendant
Before:
The Honourable Mr. Justice Kelleher
Reasons for Judgment
Counsel for Jeremy Poole and Co-operators | N.P. |
Counsel for the Defendant and Third Party, Lombard General | R.B. Lindsay, Q.C. C. Stewart |
Place and Date of Trial: | Vancouver, B.C. November 2224, 2010 |
Place and Date of Judgment: | Vancouver, B.C. January 21, 2011 |
Background
[1]
Michelle Danicek was injured in two mishaps, a dance accident on April
6, 2001, and a motor vehicle accident on June 29, 2002.
[2]
Three actions arose from these events. They are described in the
decision in the first stage of these proceedings: Danicek v. Alexander
Holburn Beaudin & Lang, 2010 BCSC 1111 at paras. 2-5 and 8-11:
[2] Action No. S042714 (the Poole Action) concerns
Ms. Daniceks claim for damages from a fall on the dance floor of Bar None. She
brought the action against both Jeremy Poole and the then-employer of the
plaintiff and Mr. Poole, Alexander Holburn Beaudin & Lang (Alexander
Holburn).
[3] There were third party proceedings brought against
Rodneys Oyster House (Vancouver) Corp., where the plaintiff and Mr. Poole
and others dined that evening, and against Bar None Enterprises Ltd., which
operates the nightclub where the mishap took place. Those third party
proceedings have been resolved.
[4] Lombard General Insurance Co. of Canada
(Lombard) is a third party. Lombard has a policy of insurance covering
Alexander Holburn and its employees. The issue between Mr. Poole and Lombard is
whether that policy covers the claim of Ms. Danicek.
[5] The plaintiff reached a settlement with
Mr. Poole, a Mary Carter agreement. Mr. Poole has admitted
liability and has made a third party claim against Lombard, the insurer of
Mr. Pooles employer.
[8] Although Mr. Poole admitted liability,
Lombard has not conceded that he is at fault.
[9] The claim against Alexander Holburn has been
settled.
[10] The second action (No. M041927) arises from a motor
vehicle accident which occurred on the Lions Gate bridge on June 29, 2002. The
plaintiffs vehicle was struck from behind by the vehicle owned by the
defendant Pao Fu Li and operated by the defendant Susan Shou Yee Li. Liability
is admitted by these defendants.
[11] The third action (No.
S094306) concerns a dispute between Co-operators General Insurance Company and
Lombard. The issues between them concern the interpretation of Lombards policy
of insurance and the question of whether Lombards policy of insurance applies
in the circumstances of this case. These issues will be determined in the
second phase of these proceedings.
[3]
The above description could be more precise. First, the plaintiff and
Mr. Poole reached a settlement. I am now aware of the terms of the settlement.
It is not exactly a Mary Carter agreement. It is described below. Second,
Lombard provides coverage to Alexander Holburn Beaudin & Lang (Alexander
Holburn). The issue is whether the policy covers the claim against Mr. Poole.
[4]
The decision cited above addressed liability for and the quantum of Ms.
Daniceks claim. I concluded that Mr. Poole was liable in the first accident
and awarded damages of $5,913,783.54. The defendants in the Li action admitted
liability; damages of $10,595.00 were awarded.
[5]
This is the second phase of the trial. It addresses two claims. The
first is by the defendant Mr. Poole against the third party Lombard General
Insurance Company of Canada (Lombard). Mr. Poole seeks a declaration that he
is insured under the Lombard policy for the liability claim made against him by
Danicek; a declaration that Lombards denial of coverage was wrongful, and that
Lombard therefore breached the policy entitling Mr. Poole to damages for breach
of contract; and an award of damages against Lombard in the amount of the
Danicek judgment against Mr. Poole plus interest and costs, an amount equal to reasonable
costs incurred in respect of the Danicek lawsuit (legal fees and disbursements),
and costs on a solicitor-client basis of pursuing the coverage enforcement
proceedings against Lombard.
[6]
The action of Co-operators General Insurance Company (Co-operators) against
Lombard (Action No. S094306), is a claim for restitution or, in the
alternative, contribution from Lombard with respect to the amounts that
Co-operators have paid for the defence and indemnity of Mr. Poole in the
Danicek action.
[7]
In general terms, the central issue in this phase of the trial is
whether there was a sufficient connection between the circumstances of the
accident, and Ms. Daniceks and Mr. Pooles employment by Alexander Holburn, to
trigger liability insurance coverage under a policy of insurance covering Alexander
Holburns employees.
The Facts
[8]
This phase of the trial was based on a statement of agreed facts as well
as the evidence at the first phase. The facts which are relevant at this phase
of the trial include the following.
[9]
Both Ms. Danicek and Mr. Poole were employees of Alexander Holburn on
April 6, 2001. Ms. Danicek was employed as an articled student, and Mr. Poole
was employed as an associate lawyer.
[10]
Alexander Holburn pays for an associates dinner approximately three
times per year. The dinner is organized by the associates. In this case, Susan
Sangha, then an associate, sent an e-mail to the firms articled students and
other associates. It invited them to attend the dinner at Rodneys Oyster
House.
[11]
Ms. Sangha described what she understood to be the reason for these
dinners:
Q What
was the reason for the dinner, dinners I should say. What was the reason for
the dinners? And Im talking about the dinners themselves.
A To foster collegiality among
the associates. To give them an informal venue in which to get to know each
other better and communicate about their experiences at the firm and as a
reward for hard work, as a like a perk.
[12]
There is conflicting evidence about whether there was any obligation to
attend. Ms. Danicek testified at the trial that she felt there was an
expectation that she be there. However, Ms. Sanghas evidence was that there
was no compulsion to attending these events. Also, Greg Pun, another former
associate, called it a social occasion. If business was discussed, it was
incidental.
[13]
The visit to Bar None was not planned. Nothing in the invitation
referred to going to Bar None or any other nightclub after the dinner. But it
was common for some people to extend the evening beyond dinner.
[14]
Approximately 20 associates and students attended the dinner at Rodneys
Oyster House. It ended at approximately 10:30 p.m. Several of the persons in
attendance, including the plaintiff and the defendant Mr. Poole, decided to
proceed to Bar None. There is no precise evidence about the number of people
who did so. Between seven and 12 would be as precise an estimate as I can make.
[15]
Alcohol was served at both locations.
[16]
Ms. Sangha attended both the dinner and Bar None. She paid for the
dinner and submitted the receipt for reimbursement.
[17]
Ms. Sangha also paid $17.50 for drinks at Bar None. She paid for drinks
for some people junior to her, thinking that if she were not reimbursed, it would
be better she than they who bear the expense. She testified that she did not
expect that the firm would necessarily reimburse her for the Bar None expense. Ms.
Sangha testified that, if she had been certain the firm would reimburse her,
then she
would have put my card on the bar and say, anybody who wants to
have a drink can go ahead.
[18]
The accident happened at approximately 12:30 a.m. Mr. Poole lost his
balance and fell. He caused Ms. Danicek to fall. He fell on her. She hit her
head on the floor.
[19]
Lombard had issued a professional package policy of insurance to Alexander
Holburn. This covered the period June 26, 2000, to June 26, 2001. Co-operators
had issued a Home-Guard policy of tenants insurance to Karen Poole for the
period November 10, 2000, to November 10, 2001. Mr. Poole was insured
under the Co-operators policy. Both policies were in full force and effect on
the date of the accident.
[20]
On April 12, 2001, Poole advised Co-operators of the accident. On April 24,
2001, Alexander Holburn gave notice to Lombard of the accident.
[21]
On April 1, 2003, the plaintiff issued the writ of summons initiating
the action against Mr. Poole and Alexander Holburn. Mr. Poole was served in
March 2004. Co-operators then appointed Michael D. Adlem of Gowlings Lafleur
Henderson LLP (Gowlings) to represent and defend Mr. Poole.
[22]
The two insurers were aware of possible overlapping coverage issues.
They exchanged policies early in these proceedings.
[23]
The statement of claim in the Danicek action was filed in April 2004. It
was amended on April 5, 2005, and read, in relevant part:
4. On or about April 5, 2001, the Defendant,
Alexander Holburn hosted and paid for a party for associates and articled
students at the firm (the Associates Party), with all associates and articled
students encouraged to attend. The Associates Party began at Rodneys Oyster
Bar Restaurant with dinner and drinks and then moved into Bar None nightclub,
all in Vancouver.
5. While the Defendant, Alexander Holburn was the
host of the Associates Party, no partner attended, and it was left to the
senior associate lawyers, as agents of the firm, to supervise the said
Associates Party. The Defendant, Poole was one of the senior associate lawyers
attending the Associates Party.
6. The Plaintiff attended the Associates Party and,
while on the dance floor at the Bar None nightclub, was accidentally struck,
knocked down and then fallen on by the Defendant, Poole (the Collision).
7. The Collision was caused or contributed to by the
negligence of the Defendant, Poole, particulars of which negligence are as
follows:
a. in failing to monitor and
supervise the actions of those attending the Associates Party, including
himself;
b. in consuming an excessive
amount of alcohol on the evening of the Associates Party to the point where he
became impaired;
c. in failing to keep any, or in
the alternative, an adequate lookout for others while dancing on the dance
floor of the Bar None nightclub;
d. in acting in a careless,
reckless, aggressive or negligent manner, having regard to all circumstances,
including the nature, condition and use of the Bar None nightclub;
e. in failing to consider the
safety of others in the Bar None nightclub;
f. in failing to take reasonable
efforts to avoid the Collision, or failing to direct his body away from the
Plaintiff so as to avoid the Collision when the same was or should have been
imminent; and
g. in dancing in the Bar None
night club while his ability to do so was impaired.
[24]
On July 28, 2005, counsel for Mr. Poole made an application pursuant to
s. 257 of the Workers Compensation Act, R.S.B.C. 1996, c. 492. He
sought a determination that Ms. Daniceks injury arose out of and in the
course of employment.
[25]
On August 4, 2005, Co-operators counsel wrote to Lombard seeking
coverage for Mr. Poole under the Lombard policy. Counsel asked that
Lombard agree to share equally with Co-operators in the defence of Mr. Poole. Lombard
responded on September 1, 2005. Lombard denied coverage of Mr. Poole under the
Lombard policy. The reply letter read, in part:
… From our investigation to date we have not been provided
with any evidence or facts that would determine that Mr. Poole was acting within
the scope or course of his employment with AHBL when the alleged incident
occurred resulting in the action commenced by Ms. Michelle Danicek.
Accordingly, we must deny your
clients request for defence and indemnification under the Lombard General
Insurance Company of Canada policy.
[26]
On December 5, 2005, Mr. Poole issued third party proceedings against Lombard
in the Danicek lawsuit.
[27]
In a further amended statement of claim, dated March 25, 2008, the
nature of the allegations changed somewhat:
4. On or
about April 5, 2001, the Defendant, Alexander Holburn hosted and paid for a
party for associates and articled students at the firm (the Associates
Party), with all Associates and all Articled Students
being invited to attend. The Associates Party was at Rodneys Oyster Bar
Restaurant with dinner and drinks paid for by the Defendant, Alexander
Holburn.
5. While
the Defendant, Alexander Holburn was the host of the Associates Party, no
partner attended, and it was left to the senior associate lawyers, as agents of
the firm, to supervise the said Associates Party. The Defendant, Poole was one
of the senior associate lawyers attending the Associates Party.
5.1 Some
of the employees went to Bar None nightclub after the Associates Party.
6. The
Plaintiff attended the Associates Party and then went to the Bar None nightclub.
While on the dance floor at the Bar None nightclub, was accidentally struck,
knocked down and then fallen on by the Defendant, Poole (the Collision).
7. The
Collision was caused or contributed to by the negligence of the Defendant,
Poole, particulars of which negligence are as follows:
a. in failing to monitor and
supervise the actions of those attending the Associates Party, including
himself;
b. in consuming an excessive
amount of alcohol on the evening of the Associates Party to the point where he
became impaired;
c. in failing to keep any, or in
the alternative, an adequate lookout for others while dancing on the dance
floor of the Bar None nightclub;
d. in acting in a careless,
reckless, aggressive or negligent manner, having regard to all circumstances,
including the nature, condition and use of the Bar None nightclub;
e. in failing to consider the
safety of others in the Bar None nightclub;
f. in failing to take reasonable
efforts to avoid the Collision, or failing to direct his body away from the
Plaintiff so as to avoid the Collision when the same was or should have been
imminent; and
g. in dancing in the Bar None
night club while his ability to do so was impaired.
[28]
On November 12, 2008, the Workers Compensation Appeal Tribunal
published its decision:
THE WORKERS COMPENSATION APPEAL TRIBUNAL DETERMINES THAT at
the time the cause of the action arose, April 5, 2001:
1. The
Plaintiff, MICHELLE MARIE DANICEK, was a worker within the meaning of Part 1 of
the Workers Compensation Act.
2. The
injuries suffered by the Plaintiff, MICHELLE MARIE DANICEK, did not arise out
of and in the course of her employment within the scope of Part 1 of the Workers
Compensation Act.
3. The
Defendant, JEREMY MARTIN POOLE, was a worker within the meaning of Part 1 of
the Workers Compensation Act.
4. The action or conduct of the
Defendant, JEREMY MARTIN POOLE, that allegedly caused a breach of duty of care,
did not arise out of and in the course of his employment within the scope of
Part 1 of the Workers Compensation Act.
[29]
The gist of the Tribunals reasoning is captured in paragraphs 33-35 of the
decision:
[33] It is
not disputed that the associates dinner was of benefit to AHBL to the extent
that good morale supports the sharing of information amongst colleagues,
contributes to the viability of the firm and assists in employee retention. The
employer encouraged participation in the associates dinner by paying for it
and it is unlikely that it would do so were there not some benefit to the firm.
There is, however, a wide spectrum of activities performed by employees that
are for the benefit of the employer. These range from providing a very direct
benefit, such as when an employee is engaged in productive activity, to
activities that provide a more nebulous benefit to the employer such as
participating in activities that are intended to promote collegiality and
foster productive relationships. In that regard, the attendance of the
plaintiff at the associates dinner would be of less direct benefit to the
employer than many other activities in which she would engage over the course
of a day at work. However, her attendance at this function was clearly of some
benefit to the employer.
[34] I am
not persuaded, however, that the subsequent attendance at the nightclub
provided a benefit to the employer, even if it is characterized as an extension
of the associates dinner. In that regard, I note the employer did not pay
expenses associated with the attendance at Bar None. I do not consider that the
payment of an expense item of $17.50 may be characterized as the employer
funding, hosting or supporting the activity. Nor do I consider the payment of
taxi fares as evidence that the attendance at the nightclub was encouraged by
the employer. Mr. Pooles evidence was that taxi fare was paid to and from the
dinner as an expense that was incidental to the dinner. It seems reasonable
that the employer would not scrutinize every bill submitted for the payment of
taxi fare to determine whether the expense related to a trip from the
restaurant or from the nightclub attended afterwards. Since alcohol was served
at the associates dinner, AHBL would have an interest in ensuring that
employees returned to their home safely after the associates dinner, whether
that occurred immediately after the dinner or at some point later in the
evening. Therefore, I do not infer from this that AHBL promoted or had any
interest in whether its employees went on to post-dinner nightclubbing.
[35] In considering the benefits that
the employer derived from the associates dinner, I do not consider that much
of the purpose intended by such a dinner would be furthered by continued
socializing between employees at a nightclub, after the dinner was over.
Although some of the employees were still socializing in an informal
environment, which might promote collegiality, it was not an environment
conducive to discussing work matters. Once the dinner was over, I consider that
the employees made personal choices as to whether they would continue with
activities which were now predominantly social in nature.
[30]
Mediation took place on January 8, 2009. It was attended by Ms. Danicek,
Mr. Poole, Alexander Holburn, Rodneys Oyster House, Bar None, Lombard, and the
parties to the motor vehicle accident action.
[31]
In the mediation, Ms. Danicek asserted that her claim was valued at
approximately $6 million plus costs. This amount exceeded Co-operators policy
limit. For that reason, Mr. Poole retained independent counsel, James Killam,
Q.C. Co-operators retained independent coverage counsel, Nigel P. Kent of
Clark Wilson LLP. No settlement was reached in the mediation; however,
negotiations continued afterward. Eventually, on January 28, 2009, Ms. Danicek,
Mr. Poole, and Co-operators reached a settlement.
[32]
Three formal agreements were reached as a result of the mediation and
subsequent negotiations. First was the Danicek agreement. The terms were:
a)
Poole agreed to pay Danicek $1,050,000;
b)
Poole agreed to admit liability;
c)
Poole agreed to pursue his claim against Lombard for coverage under that
policy;
d)
Any recovery in the claim against Lombard for coverage would be divided
based on the respective entitlements of the parties; and
e)
Danicek agreed that once the Lombard coverage claim was concluded and
any amounts were paid out, Danicek would release Poole. She would not seek to
execute on any judgment against him.
[33]
Poole and Co-operators entered into a loan and insurance recovery
agreement. The principal terms of this agreement were:
a)
Co-operators agreed to lend Poole $1,050,000 to fund the Danicek
agreement;
b)
Co-operators agreed to fund all of Pooles legal costs in defending the
tort action and in pursuing the insurance claim against Lombard; and
c)
Repayment of the loan amount would come only from the proceeds of the
Lombard coverage claim; the loan would be forgiven if there were no recovery
against Lombard.
[34]
The third agreement was the Limited AHBL Release Agreement. The
parties to that agreement are the same three parties, i.e. Mr. Poole,
Co-operators and Ms. Danicek. It is not relevant to the issues before me.
[35]
Ms. Danicek subsequently settled with Alexander Holburn.
Summary of the Issues and the Parties Positions
[36]
The Co-operators action against Lombard is a claim for restitution or,
alternatively, contribution from Lombard in defence and indemnity of Poole in
the Danicek action. There are two main aspects to this action:
1)
Was Lombard under a duty to defend?
2)
Was there coverage?
[37]
As is discussed below, an insureds duty to defend and its obligation to
indemnify (or provide coverage) are distinct concepts.
[38]
In approaching the issues in this case, I have the benefit of the
Supreme Court of Canadas recent and unanimous decision in Progressive Homes
Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33. The Supreme Court
in that case briefly summarized the principles of interpretation of insurance
policies:
[21] … a brief review of the relevant principles may
be a useful introduction to the interpretation of the [commercial general
liability insurance] policies that follow.
[22] The primary interpretive principle is that when the
language of the policy is unambiguous, the court should give effect to clear
language, reading the contract as a whole (Scalera, at para. 71).
[23] Where the language of the insurance policy is
ambiguous, the courts rely on general rules of contract construction (Consolidated‑Bathurst,
at pp. 900-902). For example, courts should prefer interpretations that are
consistent with the reasonable expectations of the parties (Gibbens,
at para. 26; Scalera, at para. 71; Consolidated-Bathurst, at p.
901), so long as such an interpretation can be supported by the text of the
policy. Courts should avoid interpretations that would give rise to an
unrealistic result or that would not have been in the contemplation of the
parties at the time the policy was concluded (Scalera, at para. 71; Consolidated-Bathurst,
at p. 901). Courts should also strive to ensure that similar insurance policies
are construed consistently (Gibbens, at para. 27). These rules of
construction are applied to resolve ambiguity. They do not operate to create
ambiguity where there is none in the first place.
[24] When these rules of
construction fail to resolve the ambiguity, courts will construe the policy contra
proferentem against the insurer (Gibbens, at para. 25; Scalera,
at para. 70; Consolidated-Bathurst, at pp. 899-901). One corollary of
the contra proferentem rule is that coverage provisions are interpreted
broadly, and exclusion clauses narrowly (Jesuit Fathers, at para. 28).
The Duty to Defend
[39]
The Supreme Court of Canada in Progressive Homes succinctly
described the nature of the duty to defend at paras. 19-20:
[19] An insurer is required to defend a claim where the
facts alleged in the pleadings, if proven to be true, would require the insurer
to indemnify the insured for the claim (Nichols v. American Home Assurance
Co., [1990] 1 S.C.R. 801, at pp.810-11; Monenco Ltd. v. Commonwealth
Insurance Co., 2001 SCC 49, [2001] 2 S.C.R. 699, at para. 28; Jesuit
Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21,
[2006] 1 S.C.R. 744, at paras. 54-55). It is irrelevant whether the allegations
in the pleadings can be proven in evidence. That is to say, the duty to defend
is not dependent on the insured actually being liable and the insurer actually
being required to indemnify. What is required is the mere possibility that a
claim falls within the insurance policy. Where it is clear that the claim falls
outside the policy, either because it does not come within the initial grant of
coverage or is excluded by an exclusion clause, there will be no duty to defend
(see Nichols, at p. 810; Monenco, at para. 29).
[20] In examining the
pleadings to determine whether the claims fall within the scope of coverage, the
parties to the insurance contract are not bound by the labels selected by the
plaintiff (Non-Marine Underwriters, Lloyds of London v. Scalera, 2000
SCC 24, [2000] 1 S.C.R. 551, at paras. 79 and 81). The use or absence of a
particular term will not determine whether the duty to defend arises. What is
determinative is the true nature or the substance of the claim (Scalera,
at para. 79; Monenco, at para. 35; Nichols, at p. 810).
[40]
I pause to note that the settlement of an underlying action has no
impact on the existence of a duty to defend where the duty arose before the
settlement.
[41]
Counsel for Co-operators also referred me to Lombard General
Insurance Co. of Canada v. Crosbie Industrial Services Ltd., 2006 NLCA 55. There,
the Court of Appeal for Newfoundland and Labrador said this at para. 21:
[21] … the insured must
clear only a low threshold to establish that the insurer has a duty to defend.
The courts have described the threshold in terms such as, a mere possibility
that a claim falling within the insurance contract may succeed, or the claim
might or could possibly fall within the scope of coverage of the insurance
contract. Any doubt that the pleadings bring the occurrence within the ambit of
the insurance contract should be resolved in favour of the insured. The
analysis is based on the pleadings which must be taken without question as to
their factual verity. Inferences may be drawn from the pleadings as a whole in
determining the true nature of the claims. Finally, coverage provisions in an insurance
contract should be broadly construed while exclusionary clauses should be
interpreted narrowly.
[42]
Co-operators argues that Lombard should have considered these questions:
a)
Did the Statement of Claim allege that Poole was an employee?
b)
Did the Statement of Claim allege action on Pooles part that might
possibly be considered within the scope of his employment?
c)
Is it possible that Danicek, on the evidence at trial, might be
determined not to have been in the course of her employment at the time of
the injury?
d)
Is it possible that, on the evidence at trial, the incident may be
characterized as involving Poole with respect to his employment with AHBL?
Co-operators argues that all of these questions are very
clearly answered in the affirmative. Thus, Lombard was under a duty to defend.
[43]
Lombard, on the other hand, argues that before there is a duty to
defend, there must be an insured. Their position is that Mr. Poole was not
an insured because the actions in issue were not within the scope of his
employment. Lombard relies on the following language its policy:
2. Each of the following is also an insured:
a. Your employees, other than your
executive officers, but only for acts within the scope of employment by you.
Coverage Under the Lombard Policy
[44]
The Lombard policy is apparently designed for law firms; it is
called a Professional Package Policy. The policy establishes two categories
of insurance: property insurance and liability insurance. This action is
concerned with the latter.
[45]
The limit under the policy is $5 million.
[46]
The liability insurance coverage includes seven kinds of coverage:
1. Coverage A
Bodily Injury and/or Property Damage
2. Coverage B
Personal Injury and Advertising Injury
3. Coverage C
Medical Expense
4. Coverage D
Tenants Legal Liability
5. Coverage E
Voluntary Compensation for Employees
6. Coverage F
Employee Benefits Errors & Omissions
7. Coverage G
Non-Owned Automobile
[47]
The relevant coverage here is Coverage A Bodily Injury and/or Property
Damage. The insurance agreement under this heading provides as follows:
COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE LIABILITY
PART I COVERAGES
1. Insuring
Agreement.
a. We will pay those sums that the
Insured becomes legally obligated to pay as damages because of bodily injury or
property damage to which this insurance applies. No other obligation or
liability to pay sums or perform acts or services is covered unless explicitly
provided for under SUPPLEMENTARY PAYMENTS COVERAGES A, B AND D, of this
Section. This insurance applies only to bodily injury and property damage which
occurs during the policy period. The bodily injury or property damage must be
caused by an occurrence. The occurrence must take place in the coverage
territory. We will have the right and duty to defend any action seeking those
damages but:
1) The amount we will pay for
damages is limited as described in PART III LIMITS OF INSURANCE, in this
Section;
2) Our right and duty to defend
end when we have used up the applicable limit of insurance in the payment of
judgements or settlements under Coverage A, B or medical expenses under
Coverage C….
[48]
Bodily Injury and occurrence are both defined terms under Part IV of
the policy, the Definitions section. It provides:
Bodily Injury means bodily injury, mental injury, mental
anguish, shock, sickness, disease, or disability sustained by a person,
including death resulting from any of these at any time.
Occurrence means an accident,
including continuous or repeated exposure to substantially the same general
harmful conditions.
[49]
In addition to Alexander Holburn, the Named Insured, a wide variety of
persons are also insured under the Lombard policy. This is set out in Part II
– Who is an Insured. The relevant clauses read:
PART II WHO IS AN INSURED
1. If you
are:
b. A
partnership or joint venture, you are an insured. Your members, your partners,
and their spouses are also insureds, but only with respect to the conduct of
your business.
…
2. Each of the following is also
an insured:
a. Your employees,
other than your executive officers, but only for acts within the scope of their
employment by you. However, none of these employees is an insured for:
1) Bodily injury or personal
injury to you or to a co-employee while in the course of his or her employment;
or
2) Bodily injury or personal
injury to any person who at the time of injury is entitled to benefits under
any workers compensation or disability benefits law or a similar law; or
3) Bodily injury or personal
injury arising out of your employees or any of your partners or members (if you
are a partnership or joint venture), providing or failing to provide
professional health care services;
b. Any
employee, or person under contract, or any persons or personal corporations who
provide or have provided services to or for the Named Insured under a personal
services contract or personal services agreement or employees on loan from
others working solely for and on behalf of the Named Insured or persons
designated Associate Counsel or of Counsel, students or volunteers, but
only with respect to their employment association, or their contract with the
Named Insured.
c. Any
former or retired partner, member, executive officer, director, employee or
stockholder, but only with respect to their employment with the Named Insured(s).
d. Any
social club, group, or athletic organization, sponsored by the Named Insured,
but only with respect to the Named Insureds activities.
e. Any
person or organization with whom the Named Insured is associated with in an
expense sharing arrangement, but only with respect to the Named Insureds
premises or operations.
f. Persons
or Organizations as evidenced by the Certificates of Insurance that form part
of this Policy, but only with respect to the Named Insureds premises or
operations.
g. Any
person (other than your employee), or any organization while acting as your
real estate manager.
h. Any
person or organization having proper temporary custody or control of your
property if you die, but only:
1) With respect to liability
arising out of the maintenance or use of that property; and
2) Until your legal
representative has been appointed.
i. Your legal representative if
you die, but only with respect to duties as such. That representative will have
all the rights and duties under this policy.
[50]
Co-operators argues that the relevant sub-paragraph is Part II, section
2b:
PART II WHO IS AN INSURED
2. Each of the following is also an insured:
b. Any employee, or person under contract, or any
persons or personal corporations who provide or have provided services to or
for the Named Insured under a personal services contract or personal services
agreement or employees on loan from others working solely for and on behalf of
the Named Insured or persons designated Associate Counsel or of Counsel,
students or volunteers, but only with respect to their employment, association,
or their contract with the Named Insured.
Co-operators argues that the
relevant words are any employee
with respect to their employment
with [Alexander
Holburn]. Counsel also argues that the words with respect to are to be given
a broad interpretation. Reliance is placed on the Supreme Court of Canadas
decision in Nowegijick v. The Queen, [1983] 1 S.C.R. 29 at 39, where the
Court was considering the words in respect of:
The words "in respect of
are, in my opinion, words of the widest possible scope. They import such
meanings as "in relation to", "with reference to" or
"in connection with". The phrase "in respect of" is
probably the widest of any expression intended to convey some connection
between two related subject matters.
[51]
Co-operators further argues that Mr. Poole is insured as long as there
is some connection between his employment and the accident. It points to the
following: associate dinners are paid by the partnership and conducted
regularly; the associates were put in charge or organizing the activities and
thereafter seeking reimbursement; it was almost invariable that there was
further activity at a nightclub or in an associates home after the dinner; and
all these activities had a legitimate purpose of promoting collegiality and esprit
de corps.
[52]
Mr. Poole testified that after dinner it was frequent that the group
would carry on to a nightclub or bar afterward. Similarly, Peter Asselstine,
the director of administration at Alexander Holburn testified that almost
without exception the dinner was followed by something, whether a house party
or attending at a club. He treated expenses of such matters to be reimbursed to
the associate.
[53]
Co-operators pointed to the fact that Ms. Sangha, an associate who went
to Bar None, purchased some drinks and sought and obtained reimbursement for
them. She testified that she thought: I should buy their drinks because they
were more junior than me and assuming that they made less money than me, and it
would be nice if I bought their drinks.
[54]
Lombard argues that the paramount consideration in interpreting
insurance contracts was stated by the Supreme Court of Canada in Co-operators
Life Insurance Co. v. Gibbens, 2009 SCC 59 at para. 20:
[20] The courts have developed a number of general
interpretative principles that reflect a concern that customers not suffer from
the imbalance of power that often exists between insurers and the insured but,
on the other hand, that customers obtain no greater coverage than they are
prepared to pay for. The exercise of interpretation should avoid "an
unrealistic result or a result which would not be contemplated in the
commercial atmosphere in which the insurance was contracted": Consolidated-Bathurst
Export Ltd. v. Mutual Boiler and Machinery Insurance Co., [1980] 1 S.C.R.
888, per Estey J., at p. 901.
[55]
Lombard argues that there is no ambiguity here and the contra
proferentem principle has no application. Further, Lombard argues that the
burden is on Mr. Poole to show that he is covered by the policy. Their
position is that Mr. Poole is not an insured because he was not acting within
the scope of his employment.
[56]
Counsel for Lombard argues that Mr. Pooles claim falls within clause
2.a. and, since he was not acting within the scope of his employment, he cannot
be covered by the policy. Moreover, even if he was, Ms. Danicek, as a
co-employee, has her claim excluded pursuant to clause 2.a.1).
[57]
On a joint reading of clauses 2.a. and 2.b., Lombard argues that the
substance of clause 2.b. demonstrates that the parties intended to extend
insurance to persons who would not qualify as true employees in 2.a., but have
a relationship with Alexander Holburn of a more intermediate nature, such as
counsel. It is not consistent with the Alexander Holburn policy to interpret
clause 2.b. to capture conventional employees because they are already
described in clause 2.a.
[58]
Further, it is submitted that the parties could not have reasonably
intended that an employee having injured a fellow employee could avoid the
exclusion in 2a.1) and 2) and invoke coverage under 2.b. Lombard argues that
such an interpretation creates a glaring inconsistency within clause 2.b.
[59]
Even if Mr. Poole falls within the scope of clause 2.b., Lombard argues,
his acts are not with respect to employment.
[60]
They note that the Nowegijick decision, cited by Co-operators,
did not arise in the context of insurance.
[61]
On the evidence, Lombard argues that it cannot be said that Alexander
Holburn enjoyed any benefit from the event at Bar None. Lombard does not
concede that the event at Rodneys Oyster House arose out of employment. The
event at Bar None was of a totally different nature. The decision to attend Bar
None was a decision made by the group at the conclusion of the dinner. Counsel
points out that it is noteworthy that the Workers Compensation Appeal Tribunal
discounted the evidence as showing a relationship to employment that only a
portion of the people who attended the dinner decided to go to Bar None.
[62]
Lombard also emphasizes that the partnership was not involved in the
organizing of the dinner. That was done by Ms. Sangha. Mr. De Vita confirmed in
his evidence that the partnership did not know when or where the events took
place; it simply created a budget. It is obvious that there was no obligation
to attend the dinner, let alone Bar None. Only approximately half of the
persons attending the dinner went to Bar None.
[63]
Lombard acknowledges that the firm paid the receipt submitted by
Ms. Sangha for $17.50, but argues that this nominal reimbursement is
insufficient to support the assertion that it is a single indivisible event
with the dinner.
[64]
Finally, Lombard argues that the issue of employment was canvassed by
the Workers Compensation Appeal Tribunal. Its decision, while not
determinative of the issues before me, is instructive. In response to a similar
argument, the WCAT adjudicator held:
I find that the personal elements
of the attendance at the nightclub substantially outweigh any employment aspect.
As a result, I do not consider that the injury occurred while the plaintiff was
engaged in an activity that was for the benefit of the employer. The only
factor that supports the connection between the activities of the plaintiff at
the nightclub and her employment is that the plaintiffs injuries were
allegedly caused by an action of a fellow employee.
Analysis
The Duty to Defend
[65]
In my view, Lombard misapprehended the correct approach to take in
assessing whether it owed a duty to defend Mr. Poole.
[66]
Mr. Poole, as an employee of Alexander Holburn, is clearly an insured
under the policy. That is, he is an insured who is covered for acts within the scope
of his employment.
[67]
The four questions enunciated by Co-operators are useful considerations
to assist in deciding if there is a duty to defend. In this instance, the
questions can be answered in the affirmative: the statement of claim alleged
that Mr. Poole was an employee; it alleged that Mr. Pooles actions might
possibly fall within the scope of his employment; Ms. Danicek might be
determined not to have been in the course of her employment at the time of
the injury; and, the incident may be characterized as involving Mr. Poole with
respect to his employment at Alexander Holburn. Thus, in the words of the
Supreme Court, there was at least a mere possibility that the Danicek claim
fell within the scope of the Lombard policy; nor was it clear that the claim
fell outside the policy: Progressive Homes at para. 19.
[68]
Co-operators argument may overstate the duty to defend. In my view an
insurer, having taken the position there is no coverage, is not obliged to
defend simply because of a possibility that a judge might disagree. However,
here there is more.
[69]
It is alleged in the pleadings that Mr. Poole consumed an excessive amount
of alcohol. This pleading is general enough to cover Mr. Pooles consumption of
alcohol both at Rodneys and at Bar None. Thus, it is at least arguable that,
if Mr. Poole was acting in the scope of his employment at Rodneys, his negligent
acts at Rodneys contributed to the later accident at Bar None.
[70]
In light of the foregoing, I find that Lombard was under a duty to
defend. The question, then, is one of coverage.
Coverage Under the Lombard Policy
[71]
Clauses 2.a. and 2.b. in the Lombard policy arguably cover
Mr. Poole. They read as follows:
2. Each of the following is also
an insured:
a. Your
employees, other than your executive officers, but only for acts within the
scope of their employment by you. However, none of these employees is an
insured for:
1) Bodily injury or
personal injury to you or to a co-employee while in the course of his or her
employment; or
2) Bodily injury or
personal injury to any person who at the time of injury is entitled to benefits
under any workers compensation or disability benefits law or a similar law; or
3) Bodily injury or
personal injury arising out of your employees or any of your partners or
members (if you are a partnership or joint venture), providing or failing to
provide professional health care services;
b. Any employee, or person under
contract, or any persons or personal corporations who provide or have provided
services to or for the Named Insured under a personal services contract or
personal services agreement or employees on loan from others working solely for
and on behalf of the Named Insured or persons designated Associate Counsel or
of Counsel, students or volunteers, but only with respect to their employment
association, or their contract with the Named Insured.
[72]
Mr. Poole, as an employee of Alexander Holburn, is an insured
within the meaning of the Lombard policy. The only question is whether the
insured comes within the scope of coverage. In other words, was Mr. Pooles act
at Bar None within the scope of [his] employment pursuant to paragraph 2.a.?
Alternatively, in the case of paragraph 2.b., was this accident with respect
to [his] employment?
[73]
If clause 2.b. provides coverage to Mr. Poole, the only remaining
question is whether the claim is with respect to [his] employment. So, although
Mr. Poole is certainly an insured within the meaning of clause 2.a., the
contention of Co-operators and Mr. Poole that he is an insured within the
meaning of clause 2.b. must be addressed first.
[74]
I agree with Lombard that the principle of contra proferentem does
not apply in this instance. A clause is not ambiguous simply because it is of
uncertain breadth or is difficult to interpret: McDonald Crawford v. Morrow,
[2004] A.J. No. 496, 244 D.L.R. (4th) 144 at para. 26 (Alta. C.A.). Any
uncertainty in clauses 2.a. and 2.b. can be reconciled on a reading of the
policy as a whole. I also note the statement of LHeureux-Dubé J., writing for
the court in Frenette v. Metropolitan Life Insurance Co., [1992] 1 S.C.R.
647 at 667, that [i]t is only where all the rules of construction have failed
in assisting in the discovery of the true intention of the parties, that the
court is entitled to resort to the contra proferentem rule….
[75]
The opening words of 2.b. are [a]ny employee. That would, without more,
appear to capture Mr. Poole. He was, after all, an employee. However, clause
2.b. appears to broaden the coverage beyond employees to a number of persons
who are in a variety of employment or quasi-employment relationships with the
law firm. It clearly covers persons who are of counsel or associate counsel.
It also appears to cover persons providing services under a contract.
[76]
Clause 2.b. cannot be read in isolation. Clause 2.a., which of course
precedes clause 2.b., clearly describes a person in Mr. Pooles position. At
the material time, he was an employee of Alexander Holburn, the policy holder.
[77]
Liability arising from acts within the scope of… [the insureds employment]
(clause 2.a.) is intended to be different from liability with respect to [the
insureds] employment or association or … contract (clause 2.b.). Moreover,
clause 2.a. excludes from coverage a number of situations covered by workers
compensation and worker/worker injuries. The insurer cannot have intended to
exclude certain individuals from coverage under clause 2.a., only to bring them
back into coverage through clause 2.b.
[78]
I conclude that clause 2.b. does not cover Mr. Poole. Rather, it provides
coverage to persons who are not employees within the meaning of clause 2.a.,
but are in various employment-like relationships with Alexander Holburn. This
interpretation promotes the reasonable intention of the parties and does not
generate an unrealistic result in its effect.
[79]
In light of the foregoing, I conclude that Mr. Poole must find coverage
under clause 2.a.
[80]
Under clause 2.a., two questions arise: first, whether the acts leading
to the injury were within the scope of [Mr. Pooles] employment; and second,
whether the bodily injury happened to Ms. Danicek while in the course of
her
employment. Each will be addressed in turn.
Was Mr. Poole acting within the scope of [his]
employment?
[81]
I do not accept the contention of Mr. Poole and Co-operators that any
connection between work and the activity, which triggered the insured to seek
coverage, places that activity within the scope of employment.
[82]
Counsel for Lombard referred me to the principles of vicarious
liability. He argued that to determine the parties insuring intent, one must
consider how liability can attach to the insured and the limitations to the
doctrine of vicarious liability. I agree that the concepts are related. One of
the risks that an employer is seeking to insure is liability for acts done by
its employees for which the employer may be liable. However, the precise
coverage provided by the policy must be based on the wording of the policy, not
the principles of vicarious liability.
[83]
The term scope of employment is found in other commercial general
liability insurance policies and has been considered in a number of decisions
in the United States courts. In Canadian Contractual Interpretation Law (Markham,
Ont.: LexisNexis, 2007), Geoff R. Hall comments on the willingness of Canadian
courts to rely on American jurisprudence in interpreting insurance contracts. He
says this at 183:
While in general Canadian courts
tend not to look at American authorities, in the insurance context Canadian
courts have expressed a willingness to consider American cases where there are
few Canadian authorities on point, provided the American cases employ rules of
construction not materially different from those used in Canada. This is
because insurance is often marketed content-wide and there should be uniformity
in interpreting insurance contracts used in both Canada and the United States.
In addition, many insurance issues which have not been much considered in
Canada have been subject of much judicial consideration and academic commentary
in the United States, and Canadian courts want to take advantage of American
expertise. See: Zurich Insurance Co. v. 686234 Ontario Ltd., [2002] O.J.
No. 4496, 62 O.R. (3d) 447 at para. 34 (Ont. C.A.), leave to appeal to S.C.C.
refused [2003] S.C.C.A. No. 33 (S.C.C.) and Kohanski v. St. Paul Guarantee
Insurance Co., [2006] O.J. No. 157, 78 O.R. (3d) 684 at para. 15 (Ont.
C.A.).
The present case is such an instance where American
jurisprudence is instructive. Specifically, I draw insight from Mumford v.
Interplast, Inc. 696 N.E.2d 259 (Ohio App. 2 Dist. 1997), a decision of the
Court of Appeals of Ohio, and Hentges v. Thomford and Church Mutual
Insurance Company, 569 NW2d 424 (Minnesota Court of Appeals 1997), a
decision of the Minnesota Court of Appeals.
[84]
In Mumford, the Court considered whether the insurer was required
to indemnify the employer. Ms. Mumford was an underage employee of
Interplast who was injured in a motor vehicle accident. She was driving her
vehicle after consuming alcoholic beverages, which five fellow employees bought
for her. The beverages were charged to the companys credit card. The issue was
whether the employees were acting within the scope of employment when they
bought these drinks. At 265, the court says this about the term scope
of employment:
[59] As a threshold matter,
[t]he expression scope of employment cannot be accurately defined, because
it is a question of fact to be determined according 734 to
the peculiar facts of each case. Tarlecka v. Morgan (1932), 125 Ohio
St. 319, 181 N.E. 450, paragraph four of the syllabus; Calhoun v. Middletown
Coca-Cola Bottling Co. (1974), 43 Ohio App.2d 10, 13, 72 O.O.2d 158, 160,
332 N.E.2d 73, 76. Generally, [c]onduct is within the scope of employment if
it is initiated, in part, to further or promote the masters business. Martin
v. Cent. Ohio Transit Auth. (1990), 70 Ohio App.3d 83, 92, 590 N.E.2d 411,
417. Ordinarily, an act committed by an employee when he is off duty is not
within the scope of employment. Biddle v. New York Cent. Rd. Co. (1930),
43 Ohio App. 6, 8-9, 182 N.E. 601, 601-602; Knecht v. Vandalia Med. Ctr.,
Inc. (1984), 14 Ohio App.3d 129, 132, 14 OBR 145, 147-148, 470 N.E. 2d 230,
233. An exception to this rule is where the employee has a duty to perform in
furtherance of the masters business after working hours and performs that
duty, causing injury to a third party. Biddle, 43 Ohio App. at 8-9, 182
N.E. at 601-602. Still, an employee is acting outside the scope of employment
where the act has no relationship to the employers business or is so divergent
that its very character severs the employer-employee relationship. Thomas v.
Ohio Dept. of Rehab. & Corr. (1988), 48 Ohio App.3d 86, 89, 548 N.E.2d
991, 994.
[85]
The court went on to hold that the employees actions were not within
the scope of their employment:
[10] In the case before us,
Mumford alleges in Count One of her complaint that she and McQuinn, Dalton,
Holden, Blocher, and Stump met at a cocktail lounge after their second shift at
Interplast and consumed alcoholic beverages. Although Mumford claims that the
alcoholic beverages were paid for with a company credit card, allegedly with
the companys knowledge and consent, this alone does not transform an
after-work social event into acts performed in furtherance of the employers
business. On the face of the complaint, Mumford, McQuinn, Dalton, Holden,
Blocher, and Stump were engaged in a purely social function with no stated
business purpose or design. The fact that the alcoholic beverages were paid for
with a company credit card does not, by itself, alter the nature of the
activity, even where the company consents to the use of its credit card to pay
for the activity. In sum, the allegations set forth in Count One of Mumfords
complaint do not arguably or potentially establish acts that were within the
scope of Interplasts employment of McQuinn, Dalton, Holden, Blocher, and
Stump. Thus, the named employees were not an insured as defined by the
comprehensive business policy, and Indiana Insurance has no duty to defend or
indemnify them for liability arising from Count One of Mumfords complaint.
[86]
In Hentges, a Lutheran minister, while out hunting, accidentally
killed one of his parishioners. In considering whether the employer church was
liable for the negligence of its employee, the issue became whether the
negligent acts were committed in the course and scope of employment. The court
said this about scope of employment:
Scope of employment does not
have a fixed or technical definition, and is ordinarily a question of fact for
the jury. See Marston v. Minneapolis Clinic of Psychiatry, 329 NW2d 306,
311 (Minn. 1982); Boland v. Morrill, 270 Minn. 86, 96, 132 NW 2d 711,
718 (1965), but when the evidence in the record is conclusive on all the
necessary elements or there is an absence of evidence to support a necessary
element, no fact issue is presented for the jury and the scope of employment is
determined as a matter of law. See Lange v. National Biscuit Co., 297
Minn. 399, 404, 211 NW2d 783, 786 (1973); Pesio v. Sherman, 285 Minn.
246, 248, 172 NWTD 748, 750 (1969).
The evidence demonstrated that the minister had changed his
day off to go hunting. He would have gone hunting by himself if his
parishioners had not been available. He went with them not because they were parishioners
but because of his relationship with them. The court held that the hunting trip
did not have the purpose of furthering relationships within the church. At
best, it had a residual benefit of fostering an ongoing relationship among the
pastor and his parishioners that could benefit the church. The residual benefit
was found to be too tenuous in its connection to Reverend Thomfords employment
to support a determination that he was acting within its scope: at 429.
[87]
I find that Mr. Pooles actions were not in the scope of his employment.
He and Ms. Danicek both attended a dinner paid for by their employer. There
were some business reasons for Alexander Holburn to sponsor such events: they
promote good will for the firm, and they were an opportunity for associates to
become acquainted. The attendance at Bar None, however, has a far more tenuous
connection with employment. Some of the persons who attended the dinner decided
to go to the bar; some did not. Additionally, it cannot be said that the law
firm sponsored this. I agree with the vice-chair of the Workers Compensation
Appeal Tribunal that payment of one receipt for $17.50 does not mean that the
employer sponsored the activity. Also see: Mumford at para. 10. The
evidence does not support the suggestion that Alexander Holburn gained any
residual benefit from the attendance of its employees at Bar None. As such,
there was no coverage.
[88]
Finally, there is a question as to whether Mr. Pooles liability arises
out of negligence on his part at Rodneys, and whether that negligence was
within the scope of his employment. It is theoretically possible that Mr.
Pooles liability could arise from his actions at Rodneys earlier in the
evening. Any such negligence might arguably be within the scope of his
employment. However, there is no evidence that Mr. Poole was grossly
intoxicated at Rodneys or otherwise. Nor can I find that he was demonstrably
exercising poor judgment. Therefore, there is no reason to decide whether his actions
at Rodneys were within the scope of his employment.
Was the injury caused to Ms. Danicek while
in the course of
her employment?
[89]
If I am wrong in concluding that Mr. Pooles acts were not within the
scope of employment, I must go on to consider whether Ms. Danicek was injured
while in the course of her employment pursuant to clause 2.a.1).
[90]
I adopt the reasoning of the Workers Compensation Appeal Tribunal quoted
above at paras. 33-35, which concluded that Ms. Daniceks injuries did not
arise out of and in the course of her employment as that term is used in the Workers
Compensation Act.
[91]
The concept of in the course of employment is not distinctly broader
than in the scope of employment. They essentially overlap. To determine if an
act is in the course of employment, the scope of employment for which the
employee was hired is relevant. Considered in the negative: if an employee is
injured while outside the scope of employment, then she cannot be within the course
of her employment at the time. That is Ms. Daniceks situation.
[92]
Additionally, if it was intended for in the course of employment and
in the scope of employment to have substantially different effects, that is
not evident from an objective reading of clause 2. or the policy as a whole. As
such, an interpretation of clause 2.a.1) should give effect to the clear
language, reading the contract as a whole: Progressive Homes at para.
22.
[93]
Thus, for similar reasons to my conclusion about Mr. Poole, I conclude
that Ms. Daniceks injuries were not caused to her while in the course of her
employment.
Co-operators Claim for Contribution from
Lombard
[94]
Both insurers owed a duty to defend. Co-operators defended. Lombard
denied coverage and, as discussed above, refused to contribute to Mr. Pooles defence.
Now, Co-operators argues that it is entitled to reimbursement from Lombard, by
way of either contribution or restitution, for the defence costs that it paid
up to the date of settlement, January 28, 2009. Counsel for Co-operators
submits that Lombards coverage is primary and that Co-operators is the excess
insurer.
[95]
Counsel for Lombard argues that, if its policy applies, it is
irreconcilable with the Co-operators Policy to the extent that they each state
that they are in excess to the other. Thus, defence costs should be borne
equally.
[96]
Both insurers owed a duty to defend Mr. Poole in the Danicek action.
Lombard failed to fulfill this duty. Thus, Co-operators, who bore the entire
expense of the defence, is entitled to some amount of contribution from Lombard
for this expense. It remains for me to decide how to fairly allocate the cost
of defending Mr. Poole up to the point of settlement.
[97]
This issue was addressed in Broadhurst & Ball v. American Home
Assurance Co. (sub nom. Broadhurst v. American Home Assurance Co.)
(1990), 76 D.L.R. (4th) 80, 1 O.R. (3d) 225 (C.A.), leave to appeal refd
[1991] S.C.C.A. No. 55. There, the Court addressed what happens when the
insured has more than one liability insurer and both are obligated to defend
the action. Although the appeal concerned the scope of an excess insurers
obligation to provide a defence for an insured and the allocation of defence
costs among primary and excess insurers, it is still instructive: at para. 1. The
Courts conclusions on the issue of allocation are found at pp. 95-96 [cited to
D.L.R.] of the judgment:
On the facts of the present case, it appears to me that, as a
simple matter of fairness between insurers under concurrent obligations to
defend, and, as well, in fairness to the insured, Guardian should pay a proper
share of the costs of defence. It follows that American Home should be able to
compel such payment. Since these insurers have no agreement between themselves
with respect to the defence their respective obligations cannot be a matter of
contract. Nonetheless, their obligations should be subject to and governed by
principles of equity and good conscience, which, in my opinion, dictate that
the costs of litigation should be equitably distributed between them.
To require a primary insurer, whose financial exposure is
significantly less than that of the excess insurer, to bear the entire burden
of defending an action of this nature is, in my view, patently inconsistent
with those principles. By the same token, a result which allows an excess
insurer to deny any responsibility for costs which it ought in good conscience
to pay, is likewise inconsistent with those principles. As a matter of equity,
the burden that these insurers assumed in insuring the same insured against the
same risks should fall on both of them and the costs accordingly be shared by
them. Insofar as it is necessary to provide American Home with a remedy to
achieve this result, and without purporting to formulate any rule of general
application to all cases involving claims exceeding the limits of the primary
policy, I would adopt the approach taken in the line of authority to which I
have made reference and recognize the equitable subrogation rights of American
Home to compel Guardian to pay a fair share of the costs of defence.
On what basis, then, should the
costs of defending the Lumsden Building action be apportioned between these
insurers? In American Home’s submission, they should be shared pro rata
in proportion to the coverages afforded by each insurer, that is, 95% of costs
should be borne by Guardian and 5% by American Home. I cannot accept that
submission. The underlying action here, unlike the situation in most of the
American cases, has not yet been tried or settled; it remains outstanding and
its final outcome will not likely be known for some time. In this situation, I
do not think it appropriate to allocate costs simply by reference to the
respective policy limits, although I would add, in other situations, this may
well be a fitting basis for the allocation. The costs of providing the defence
here are clearly not necessarily related to the monetary limits of the
policies. It seems to me, in viewing the matter broadly and as best I can, that
the fairest, most reasonable and most equitable allocation of costs that can be
made in the overall circumstances of this case is to apportion them equally
between the insurers.
[98]
The Court in Alie v. Bertrand & Frere Construction Co.
(2002), 62 O.R. (3d) 345 (Ont. Sup. Ct.) at para. 203, interpreted Broadhurst
& Ball as follows:
[203] … Broadhurst &
Ball does not hold that an excess insurer with a duty to defend will be
compelled to contribute to defence costs in each and every case where a claim
exceeds the limits of the primary insurer. Robins J.A. recognized that the
excess insurer’s obligation to contribute, if any, was a "matter of
equity" or "fairness" as among the insurers who were under a
duty to defend the claim. The determination of the equities depends on the
circumstances of the particular case.
Unlike in Broadhurst & Ball, Alie involved an
after-the-fact allocation of defence costs amongst multiple insurers.
[99]
One consideration in deciding how to fairly allocate defence costs is whether
the particular insurer was "plainly at risk to indemnify the insured: ING
Insurance at para. 30. Further, the allocation of defence costs among
insurers is not an exact science: Alie at para. 235.
[100] Here,
Lombard owed a duty to defend. It was at risk, if not plainly at risk, to
indemnify. In light of: (1) the fact that Lombard wrongfully refused to assume
Mr. Pooles defence; (2) Lombard did not deny contribution to Mr. Pooles
defence in bad faith; (3) Mr. Poole was not covered by the Lombard policy; and (4)
that both parties would have been required to contribute to the defence,
regardless of their priority; in my view, as a matter of equity and fairness,
Lombard should contribute to fifty percent of Co-operators expenses in
defending Mr. Poole in the Danicek action.
[101]
The applicable principle is equality in equity. Southin J.A. put it
this way in Affiliated FM Insurance Co. v. Quintette Coal Ltd. (1998),
156 D.L.R. (4th) 307, 48 B.C.L.R. (3d) 8 at para. 52:
[52] There is a maxim of
equity that "equality is equity". Like all equitable maxims, it can
only apply if there is not some good reason in law and equity why it ought not
to apply.
[102] In sum, both
Lombard and Co-operators owed a duty to defend Mr. Poole in the Danicek action.
Co-operators assumed Mr. Pooles defence, while Lombard did not. Thus,
Co-operators is entitled to contribution from Lombard for half of the amounts
paid to defend Mr. Poole in the Danicek action.
Mr. Pooles Claim for Damages
[103] Co-operators
argues that Lombard breached its contract when it wrongfully refused to assume
Mr. Pooles defence. As a result, they say that Mr. Poole is entitled to
damages from Lombard for the amount paid to Killam Cordell.
[104] Lombard
submits that there is no basis for this award because [t]here is no evidence
that Mr. Killam was in any way attempting to secure coverage for Mr. Poole
under the AHBL Policy.
[105] The duty
to defend imposes on an insurer the obligation to fund the defence of the
insured. However, an insurers duty to defend does not include the funding of
an insureds independent legal counsel where it is prudent to retain
independent counsel in any event. To do so would unfairly extend the scope of the
duty.
[106] In January
2009, Ms. Danicek asserted the settlement value of all her claims to be
approximately $6 million. Mr. Poole was faced the possibility of $5 million in
personal liability. As a result, Mr. Poole retained independent legal counsel,
James Killam, Q.C., to represent him in the mediation and negotiations relating
to the Danicek claims.
[107] Mr.
Pooles exposure to significant personal liability was triggered as a
consequence of Lombards refusal to indemnify. The fact that Lombard refused to
contribute to Mr. Pooles defence is of no consequence. Thus, retaining
independent legal counsel would have resulted in any event. Put another way, it
was prudent for Mr. Poole to retain Mr. Killam upon receiving notice that
Lombard would not indemnify and that Ms. Daniceks claim exceeded Co-operators
policy limit.
[108] Lombard
did not wrongfully deny coverage to Mr. Poole. However, if Mr. Poole were
entitled to coverage by Lombard, he likely would have been entitled to the cost
of retaining Mr. Killam.
[109] In the
result, I find that Lombard is not liable for the amount Mr. Pooles payment to
Killam Cordell.
Conclusion
[110] The third
party claim of Mr. Poole is allowed in part. Mr. Poole is entitled to a
declaration that Lombards denial of defence in the Danicek action was wrongful;
however, the Danicek claim is not covered by the Lombard policy.
[111] Co-operators
action also succeeds in part. It is entitled to contribution from Lombard with
respect to amounts Co-operators paid to defend Mr. Poole in the Danicek action.
Consequently, I order that Lombard shall reimburse Co-operators for half of the
expenses it incurred in the defence of Poole in the Danicek action up to
January 28, 2009, the date of settlement.
[112] There has
been mixed success. Each party shall bear its own costs.
Mr.
Justice Kelleher