The British Columbia Supreme Court decision, Burnaby (City) v Intact Insurance Company (Burnaby), was released on February 20, 2020. The court in this case invokes the general principles for determining the presence of a duty to defend from Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49, and illustrates the commitment of the court to preserving the rights of alleged insured despite pretrial uncertainties.
Factual background
The city of Burnaby brought a petition against Intact Insurance Company (Intact) to enforce the insurer’s duty to defend it against a number of claims. The underlying action relates to a motor vehicle accident. The plaintiff driver brought a negligence claim against Burnaby (City) after allegedly colliding with a curb and pole that was placed “in the middle of [a] roadway” without any warning signs or markings.[1] In response, the City brought third party notices against the engineering firm (Binnie) and the construction company (Cewe) who were contracted design and install the curb and pole at the accident site.[2] The plaintiff’s pleadings were amended to include all three defendants and allege negligence for the dangerous placement of the curb and pole, failure to have adequate warning signage regarding ongoing construction, and creation of a trap at the accident site.[3] All three defendants ultimately delivered third party claims against each other.[4]
The petition in Burnaby was initiated by the City against Intact after Intact refused to defend the City in the original and third party claims brought against it. The contract between the City and Cewe mandated that Cewe obtain general liability insurance, including the City and Binnie as additional insured.[5] Cewe obtained a policy with Intact that included defence coverage and named the other parties as additional insured. Upon commencement of the underlying action, the City sought to have Intact provide its defence. Intact maintained, however, that the City did not qualify as an “insured” under Cewe’s policy in the context of this case.
The general principles that guide determinations on the existence of the duty to defend
When determining if a duty to defend exists in a given case, the courts examine the scope and viability of the claims plead. Justice Norell summarized the general principles from Monenco Ltd v Commonwealth Insurance Co. that guide this determination: [6]
a) The court examines the pleadings filed against the insured to determine whether the pleadings allege facts which, if true, fall within coverage under the policy. The truth of the facts alleged, or the insurer’s view of the strength of the claim, is not relevant.
b) The mere possibility of a claim falling within coverage is sufficient. In that sense, the duty to defend is broader than the duty to indemnify.
c) Where it is clear from the pleadings that the claim falls outside coverage because of an exclusion clause, there is no duty to defend.
d) Where pleadings are not precise enough to determine whether a claim is covered, the duty to defend is triggered if, on a reasonable reading of the pleadings, a claim within coverage can be inferred. When there is genuine ambiguity or doubt, the duty to defend must be resolved in favour of the insured.
e) However, bare assertions in a pleading are not necessarily determinative; the court must look to the “substance” or “true nature of the claim” and determine whether, if the factual allegations are true, they could possibly support the legal allegations.
f) Extrinsic evidence which has been explicitly referred to within the pleadings may be considered to determine the true nature of the claim.
Since the pleadings against the City referred to the City and Cewe’s “contract for works” (Contract), the court was entitled to refer to the Contract for the purposes of its decision.[7]
The insurance policy and certificate
During the project, Cewe named the City as an additional insured in its commercial general liability policy. The source of conflict between Burnaby and Intact stemmed in part from a disagreement over which documents and language governed the coverage. The City pointed to the “Who is Insured” clause of the insurance policy itself, which defined “insured” as:
(e) Each person, firm corporation or government body for which the Named Insured has contracted to provide insurance but only with respect to vicarious liability that arises out of the operations of the Named Insured, and only to the extent required by such contract [emphasis added].[8]
Intact, meanwhile, relied on the certificate of insurance that more narrowly identified the City as an additional insured, “but only with respect to liability caused directly by the operations of the Named Insured…” [emphasis added].[9]
Analysis
Justice Norell applied the Monenco principles to determine that Intact was obligated to defend and continue the defence against the plaintiff’s claim as well as the third party claims brought against the City in the underlying action.
The preliminary issue of the governing definition of “insured” under the policy was resolved swiftly, and the broader scope of liability prevailed. The certificate could not be relied upon, as the document stated that it was “issued as a matter of information only…” and “does not amend, extend or alter the coverage afforded by the policies…”[10] Furthermore, Justice Norell noted that any genuine conflict in the ambiguity across documents would follow the general principles and would have been resolved in favour of the City.[11]
The main issue that the court considered was whether the true nature of the pleadings allege liability which could have arisen out of Cewe’s operation. The court determined that the pleading’s reference to a failure to maintain warning signs fell within the scope of coverage. In Cewe’s Contract with the City, Cewe had been assigned the responsibility of maintaining adequate construction signage and warning devices over the course of the construction period.[12] The factual allegation regarding a failure to maintain adequate warning signs, if true, could have arisen out Cewe’s operations, based on its Contract with the City.
Although Justice Norell acknowledged that the pleadings had shortcomings in evidence and consistency, he declined to explore such issues of fact at the duty to defend phase. Intact had tried to undermine the viability of the pleading’s factual allegations by noting that there was no evidence that the site’s construction was ongoing at the time of the accident, and any reference to ongoing construction was only pleaded after the plaintiff amended the claim. The court reiterated that factual allegations in the currently relied-on pleadings must be assumed true, under the requisite test for the duty to defend. Justice Norell relied on Menonco to reiterate that courts should not be making findings of fact on applications to enforce a duty to defend, as doing so may impact the underlying action.[13]
Takeaway
The decision in Burnaby affirms that the courts continue to maintain a relatively low threshold for triggering an insurer’s duty to defend. Insurers can best combat uncertainty in pretrial duty to defend applications by ensuring that their policy provisions and exclusion clauses are clear, precise, and consistent across forms.
This article was co-authored by Dragana Bukejlovic, an associate in Dentons Litigation and Dispute Resolution group and Hannah Bourgeois, a summer student in Dentons’ Toronto office.
[1] 2020 BCSC 221 at para 4.
[2] 2020 BCSC 221 at para 5.
[3] 2020 BCSC 221 at paras 4 and 6.
[4] 2020 BCSC 221 at paras 7-9.
[5] 2020 BCSC 221 at para 14.
[6] 2001 SCC 49; 2020 BCSC 221 at para 2.
[7] 2020 BCSC 221 at para 10.
[8] 2020 BCSC 221 at para 21.
[9] 2020 BCSC 221 at para 18.
[10] 2020 BCSC 221 at para 33.
[11] 2020 BCSC 221 at para 35.
[12] 2020 BCSC 221 at para 38.
[13] 2020 BCSC 221 at para 39.
