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Newsletters
> September 2002
Liability Insurance, Duty To Defend, Extrinsic
Evidence
Cooper v. Farmer's Mutual Insurance Co., [2002]
O.J. No. 3504 (Ont. C.A.) (released May 17, 2002)
The current restatement is the duty to defend arises
where there is a mere possibility that the law suit asserts a claim
within policy coverage. Put another way, it is sufficient to trigger
the duty to defend that the document which sets out the claim (whatever
that document is called) alleges a state of facts which, if assumed
to be true, falls within the policy coverage. There is no consideration
given to the merits of the allegations; that is, assuming the action
alleges a valid cause of action, the courts do not embark into any
consideration of whether the plaintiff will be able to succeed on
the merits.
The Ontario Court of Appeal, in Cooper v. Farmer's
Mutual Insurance Co., affirmed the principle that the policy
and the pleadings setting out the claim are all the court is to
look at to determine whether the duty to defend exists. Evidence,
such as documents, which is "extrinsic" to the documents
setting out the claim may be considered only if specifically referred
to in the documents. The fact that the evidence is referred to in
the pleadings brings it within the ambit of the court's review.
The Court affirmed motion decision holding that the
allegations in the statement of claim triggered the duty to defend.
The motions judge refused to consider extrinsic evidence from the
insurer offered to support the argument that counsel for the plaintiff
had "manipulated" the pleadings so as to allege a claim
which might fall within coverage, all the while knowing that the
true facts of the case were different than as alleged. The Court
said that this evidence, relating to the truth of the facts alleged,
was relevant to liability (and so to the duty to indemnify if there
was liability)but not to the duty to defend.
Farmer's Mutual wanted the Court to look at correspondence
between the plaintiff and counsel for the insured, and the first
statement of claim issued by the plaintiff, in which there was an
employment relationship pleaded as between plaintiff and the insured.
The first action had been discontinued by plaintiff's counsel after
correspondence with the insured's counsel and after the insured's
counsel advised plaintiff's counsel that the action would be barred
by workers' compensation legislation if, in fact, the plaintiff
was an employee as alleged. Plaintiff's counsel then commenced a
new action in which there was no mention of any employment relationship.
Subject to one caveat, the result in Cooper v.
Farmer's Mutual Insurance Co. seems to suggest that, absent
fraud or some other sort of conduct patently tending to bring the
administration of justice into disrepute, claimants and their counsel
have carte blanche to make allegations designed to trigger the duty
to defend (so as to bring a "deep pocket" into the action)
in pleadings, regardless of the truth of the facts in those allegations,
with the only control being whatever realistic exposure there is
to costs.
The caveat is this. For whatever reason, the Court
in paragraph 12 of its reason specifically mentioned that the documents
that Farmer's Mutual wanted the court to review were not part of
the pleadings in the new action. That must be understood to mean
were not at least referred to in the pleadings. Then, in paragraph
14, it said: "While consideration of extrinsic evidence may
be appropriate in a proper case to determining the true nature of
a claim, it was neither appropriate nor necessary in this case to
assess[the plaintiff's] claims." Those statements by the Court
suggest, to this writer, that the Court might have said more if
the documents had been somehow made part of the pleadings. This
may indicate that the Court has left open for the future the problem
of what do where it is apparent, in some relevant way, from the
pleadings themselves that the claim has been pleaded as it is solely
for the purpose of triggering the defendant's insurance coverage
and where ignoring that reality would tend to bring the administration
of justice into disrepute. That sort of case might well trigger
some sort of inherent jurisdiction decision, since the courts have
the inherent jurisdiction to control their own process to prevent
this sort of abuse.
D.C.
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