Newsletter > December 2001
Supreme Court of Canada: Multiple Concurrent Causes – New Rule
In Derksen v 539938 Ontario Ltd.,  S.C.C. 72 (October, 2001), the Supreme Court of Canada abolished the rule of policy interpretation which held that, absent policy wording to the contrary, a loss caused by multiple concurrent causes where any of the causes was an excluded peril was not covered, even if one or more of the other causes was an insured peril. Instead, the SCC established a new rule of interpretation in favour of coverage. Under the new rule of interpretation, there will be coverage if any of the concurrent causes are insured perils, even if another of the causes is an excluded period, absent clear wording excluding coverage. The headnote accurately summarizes this conclusion: “Where there are concurrent causes, there is no presumption that all coverage is ousted if one of the concurrent causes is an excluded peril. If an insurer wishes to oust coverage in such cases, it must expressly state that in the insurance policy. Moreover, whether an exclusion clause applies in a particular case of concurrent causes is a matter of interpretation. … A narrow interpretation of the exclusion clauses is consistent with the general principles of interpretation of insurance policies and with the true intentions of the parties.”
Increasing Cost Rewards in Litigation: Complexity of Issues Not Sufficient
Many Canadian jurisdictions now have statutory provisions, of one form or another, under which litigants in civil trials can increase the level of the costs they will be awarded, if successful at trial, by making offers to settle which are open for acceptance until the commencement of trial and obtaining judgments equal to or better than the offers. However, costs remain discretionary so the Courts retain the power to not apply the offer/costs rules in appropriate circumstances. In Techform Products Ltd v Wolda,  O.J. No. 4306 (C.A.) (November 8, 2001), the Ontario Court of Appeal held that the complexity of the issues was not a sufficient reason to not apply Ontario the offer/costs rules where the plaintiff succeed at trial and obtained judgment more favouorable than the offer it had made. DC
Insurers Duty To Defend Extends To Costs of Personal Counsel
There are a plethora of decisions over the years, many in the United States, where the Courts have found that an insurer’s obligation to defend under insurance policies extends to indemnification of the insured for legal costs incurred in connection with a coverage dispute.
The more complex of these cases arose in California where coverage issues arose in the context of environmental contamination litigation where various insurers were involved. Insurers have ended up paying several sets of defence counsel: defence counsel protecting the interests of the insured in the action, defence counsel protecting the interests of the insurer in the action, coverage counsel representing the interests of the insured and coverage counsel representing the interests of the insurer.
In Mendez et al. v. Nicholls et al. (2001), 55 O.R. (3rd) at 187 (S.C.) the plaintiff was injured in a catastrophic motor vehicle accident. Statutory conditions are made part of the insurance policy and certain rights are prescribed by provisions under the Insurance Act.
The insurer in this case took the position that its insured was in breach of statutory conditions and was no longer entitled to indemnity under the policy. This decision was taken just months before trial. Two things followed. First, counsel of record for the insured, appointed initially by the insurer, voluntarily sought to withdraw as solicitors of record. The insurer appointed a new firm to act on behalf of the insured in the defence of the action. The insurer also sought to be added as a statutory third party.
In the circumstances, the insured brought a motion for an order that he was entitled to be represented by counsel of his choice and have the costs of that defence paid by the insurer even though new defence counsel had been retained by the insurer.
The court concluded that, in the circumstances under which coverage had been denied, the insured had a “reasonable basis for lacking confidence in the counsel that had been appointed by” the insurer. However, the new counsel that had been appointed by the insurer to take over the defence and who were not dealing with the issue of coverage would not be in a position of conflict of interest so there was no basis for denying the insurer its right to appoint such counsel. Nevertheless, the court concluded that the circumstances gave rise to a legitimate concern on the part of the insured sufficient to justify counsel of its choice participating in the defence of the action.
The court then held the insurer was responsible for payment of that counsel’s costs.
“As the division of judicial opinion makes clear, however, different fact situations raise different policy considerations that must be examined in order to determine whether, in any particular case, the insurer should be compelled to furnish, or excused from furnishing, a separate and independent defence for its insured. For that reason, I have reservations about the wisdom of establishing any hard and fast rule on the subject”.
The court suggested that the question should be determined upon consideration of the circumstances of each case.
In other words, although insurers usually do not contemplate going beyond defending the insured, in the action, in circumstances where there is any coverage dispute, the insurer must be mindful of the need to protect the rights of the insured directly and the risks it will face to pay one or more set of defence costs in doing so.
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