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Newsletter > September 2008

In this issue: 1. Firm News 2. Insurer Duty to Defend 3. CN Found in Breach of Service to Grain Shippers

1. Firm News

  • Rui Fernandes and Gordon Hearn will be representing the firm at the CMI conference in Athens in October. The Comite Maritime International, which was formally established in 1897, is the oldest international organization in the maritime law field. The CMI holds a conference for maritime lawyers from around the world every four years.
  • Rui Fernandes will be representing the firm at the 5th International Marine Claims Conference to be held in Dublin also in October. This year’s conference is entitled “Synergy or Antagonism.”
    2. Duty to Defend

The Superior Court of Ontario has recently had another opportunity to consider an insurer’s duty to defend in the case of RioCan Real Estate Investment Trust v. Lombard General Insurance Co. (2008) 91 O.R. (3d) 63.

The plaintiff, RioCan operates two malls and is the defendant in two separate actions wherein the plaintiffs seek damages for personal injuries arising from incidents of falling ice or snow in the mall parking lots (the “Personal Injury Actions”). RioCan had a contract with Palmer Paving (“Palmer”) wherein Palmer was to provide snowplowing and winter maintenance for the parking lots.

RioCan’s contract with Palmer included a clause wherein the contractor “agreed to indemnify RioCan for losses suffered as a result of anything arising from the work performed by the contractor under the contract”. Accordingly, RioCan initiated a third party claim in the Personal Injury Actions.

Under the contract, Palmer was also required to maintain insurance and RioCan was to be an additional insured under that policy. Palmer obtained the required insurance from Lombard (the “Lombard Policy”). Lombard accordingly undertook to defend Palmer in the Personal Injury Actions.

At issue in RioCan Real Estate Investment Trust v. Lombard General Insurance Co. was whether Lombard had a duty to defend RioCan as well as Palmer. There were several allegations made against RioCan in the Personal Injury Actions, but it argued that the Lombard Policy covered it with respect to any allegations regarding the removal of snow. It conceded that there were some allegations in the Personal Injury Actions that could fall outside of the contract with Palmer; however, it took the position that Lombard still had a duty to defend even if, ultimately, it did not have a duty to indemnify.

The Certificate of Insurance for the Lombard Policy read:

“It is hereby understood and agreed that RioCan Property Services, RioCan Holdings Inc. and RioCan REIT are added as additional insured but only with respect to the above noted contract and solely with respect to the operations performed by the original named insured”.

The Court found that the Personal Injury Actions made some allegations against RioCan that “would fall within the policy coverage and would therefore trigger a clear duty to defend RioCan”, however each action also had some allegations that would not be covered.

The Court reiterated that:

“if the insured can demonstrate even a mere possibility that the claim could fall within the policy, then a prima facie duty to defend has been established. This duty to defend may only be negated if the insurer can demonstrate that the claim falls outside of coverage due to a specific exclusion within the policy.”

The principles of the duty to defend have been often considered by the Supreme Court of Canada, and were summarized by the Court. It is for the insured to show that there is a possibility that the claim falls within the policy coverage.

The Court usually seeks to find coverage. If there are allegations in the pleadings that could give rise to coverage if proven, the Court will usually find a duty to defend. It is then for the insurer to show that there is an exclusion that brings the claim outside of the policy. The duty to defend is broader than the duty to indemnify. It may be that there is a duty to defend, even if, ultimately the claim is proven to fall outside of coverage and there is therefore no duty to indemnify.

Lombard argued that there were conflicting allegations that prevented it from indemnifying. Namely, in order to avoid Palmer being found liable, Lombard may argue that any injury was caused by the fault or negligence of RioCan as an occupier. If RioCan failed in its duty as an occupier of the premises, the Lombard Policy would not indemnify it. It is also in Lombard’s financial interest to blame RioCan for any damages.

Essentially, Lombard would be defending both RioCan and Palmer but to properly defend either entity it would have to accuse the other. This seems to put Lombard in a conflict of interest position.

The Court held that there was a number of ways that the Conflict issues could be addressed and that these concerns were not sufficient to negate the duty to defend. Lombard is required to defend on behalf of RioCan.

This case was decided based on the well-established case law on the duty to defend. However, it makes apparent the issues that insurers can face. There are often situations where multiple parties are sued, each is adverse and one insurance company is on risk for more than one party. This can lead to complicated litigations wherein insurance companies have to hire multiple counsel and have separate claims individuals working with each party.

These situations can be complex, and may lead to the early settlement of complicated cases. However, they are inevitable. The Courts are loath to place defence costs on individuals unless there is no possibility that their insurer will indemnify them.

The duty to defend is a broad one and insurers need to have strategies to deal with conflicts in the litigation context.

Cynthia Verconich


3. CN Found in Breach of Service to Grain Shippers

The Canadian Transportation Agency ruled on September 25th, 2008 on complaints received from six shippers that the Canadian National Railway Company (CN) was not meeting its obligations under the Canada Transportation Act to provide an adequate and reasonable (suitable) level of service for the movement of Western grain for crop year 2007-08.

The Agency found that CN failed to provide an adequate and reasonable level of service to North East Terminal Ltd., Paterson Grain, Parrish and Heimbecker Limited, and North West Terminal Ltd.

Based on the pleadings of the parties and all information submitted, the Agency determined that a performance benchmark should be applied as a basis for determining whether CN is providing an adequate and reasonable level of service. The benchmark is comprised of three components:

1. Number of rail cars requested by the shipper and confirmed for delivery by the railway company. This provides shippers with certainty that they will receive a reasonably high number of rail cars based on their order;

2. Timeliness and predictability of the delivery of confirmed rail cars. This takes into account the shippers’ “want” date and the actual delivery date of the cars and provides the shipper with the predictability it needs for planning purposes; and

3. Recognition of factors that affect railway performance such as weather, terminal unloads, excessive demand for rail cars in peak periods, operational restrictions and derailments. While shippers need a reasonable level of certainty for planning their operations, the ability of a railway to provide a level of service may be compromised for short periods of time by circumstances beyond its control and will need some time to return to adequate and reasonable service levels.

The Agency ordered CN to provide a level of service to the shippers as set out in the performance benchmark.

CN was required to immediately:

1. confirm a minimum of 80 percent of the grain shippers’ requested rail cars;

2. deliver 90 percent of these confirmed cars on time or in the subsequent two weeks; and

3. meet these performance standards on a 12-week rolling average throughout each crop year. CN is still obligated to deliver all remaining confirmed rail cars.

Rui Fernandes

This newsletter is published to keep our clients and friends informed of new and important legal developments. It is intended for information purposes only and does not constitute legal advice. You should not act or fail to act on anything based on any of the material contained herein without first consulting with a lawyer. The reading, sending or receiving of information from or via the newsletter does not create a lawyer-client relationship. Unless otherwise noted, all content on this newsletter (the “Content”) including images, illustrations, designs, icons, photographs, and written and other materials are copyrights, trade-marks and/or other intellectual properties owned, controlled or licensed by Fernandes Hearn LLP. The Content may not be otherwise used, reproduced, broadcast, published,or retransmitted without the prior written permission of Fernandes Hearn LLP.

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