The Court of Appeal’s recent decision in Ontario v St. Paul Fire and Marine Insurance Company (2023 ONCA 173) revisits the duty to defend that all underwriters should be aware of. When analysing pleadings and the terms of a policy, attention to detail is a must.
Background
On June 29, 2017, a proposed $300,000,000 class action was commenced against Ontario for the harms suffered by accused individuals when they were arrested and held for more than 24 hours before receiving a bail hearing. The claim pleaded that Ontario had intentionally under-resourced the bail system and pursued policies that it knew would result in harm to the class.
Ontario’s insurer, St. Paul Fire and Marine Insurance Company (“St. Paul”), denied coverage in defending the class action on the basis that Ontario was alleged to have committed intentional acts.
Ontario argued that the underlying lawsuit was based in claims of negligence and breach of fiduciary duty and thus came within the ambit of coverage. Ontario’s argument was articulated in the Superior Court, as follows:
It argues that these claims all relate to the alleged unjustified and unreasonable detention of class members by Ontario that caused injuries and damages. It notes that the claim does not plead that Ontario intended to cause the injury and damages allegedly suffered by the class; rather, the litigation may point to intentional acts carried out by Ontario, but Ontario argues that the true nature of the claim is that the consequences of the acts were unintended.
Ontario brought an application to challenge the denial.
Justice Akbarali of the Superior Court denied Ontario’s application and upheld the denial. The decision was upheld on appeal.
Court of Appeal’s decision
The Court of Appeal provides helpful reminders for underwriters dealing with disputes over an insurer’s duty to defend.
When determining if an insurer’s duty to defend has been triggered, one must look past the labels in the statement of claim and examine the true nature of that claim. The simple fact that a statement of claim says “negligence” does not make that the true nature of the claim. In this case Ontario’s narrow interpretation – focused on a plain reading of the causes of action articulated in the Claim itself – was fatal to its application. By contrast, St. Paul picked up on allegations that were not specifically pleaded but woven throughout the claim – that Ontario knew of the harms that would arise from its intentional policy decisions regarding the bail system and simply ignored them. The Court accepted that the harms caused by the policy decisions were not intended, but were ‘expected’. This distinction rendered the claim uninsurable under the terms of the policy.
In this particular case, the underlying lawsuit specifically referenced reports that were critical of Ontario’s conduct and thus were open to being considered in the duty to defend application. It begs the question as to whether a more basic statement of claim, without the extensive pleaded facts typical in a class action, may have resulted in a different decision.
This is a helpful decision for insurers facing demands for a defence under a liability policy when the claim was not the type contemplated when coverage was bound.
Although it did not impact the outcome, the Court of Appeal was critical of the application judge for conflating the two insurance policies at issue. This highlights the importance of interpreting each policy on its own distinct terms. Whether it’s the claim at issue or the terms of the policy, the Court of Appeal’s decision in this case drives home the importance of being attentive to details when dealing with an insurer’s duty to defend.
Should you have any questions or concerns, please do not hesitate to contact a member of Miller Thomson’s Insurance Defence team.
