Insurer to pay costs in “mixed” defence, even if they relate to uninsured claims

In a lawsuit involving “mixed claims,” some of which are insured under a policy and some of which are not, the costs of defending a lawsuit should be apportioned between an insurer and an insured based on the operative language in the insurance policy, the Ontario Court of Appeal has ruled.
In deciding Hanis v. Teevan, the appellate court rejected the argument of Guardian Insurance Company of Canada, which argued that apportionment should be decided, as in American case law, on a “fair and equitable” basis.
“Where there is an unqualified obligation to pay for the defence of claims covered by the policy, as in this case,” Ontario Appeal Court Justice David Doherty wrote for the Court of Appeal, “the insurer is required to pay all reasonable costs associated with the defence of those claims even if those costs further the defence of uncovered claims.”
Guardian acted as the insurer for the University of Western Ontario when Dr. Edward Hanis was fired as the university’s Social Science Computing Laboratory section in October 1986. In March 1987, Hanis sued the university and several senior employees of the university.
Hanis’ lawsuit made a number of allegations, including wrongful dismissal and malicious prosecution. The malicious prosecution allegation arose out of criminal charges levelled against Hamis after his dismissal from the university, charges from which Hamis was ultimately acquitted in court.
Guardian’s policy covered only the claim of malicious prosecution. But the trial judge found Guardian was obliged to pay all defence costs related to the defence of claims covered under the policy (i.e. malicious prosecution), even if those same costs furthered the defence of uncovered claims (i.e. wrongful dismissal).
Guardian argued that under the principles of fairness and equity, the insurer should have paid only that portion of the costs related to malicious prosecution, which, the insurer argued, amounted to only 20% of the costs.
The Appeal Court dismissed Guardian’s appeal.
“If the costs were reasonably associated with the defence of the malicious prosecution claim, nothing in the policy exempts Guardian from paying those costs simply because they also assisted Western in the defence of uncovered claims,” Doherty wrote. “Guardian could have written qualifying words into the policy providing for an allocation of ‘mixed costs,’ or requiring that the costs relate principally to a covered claim, if that had been intended. It chose not to do so.”