Canadian Underwriter

Ontario court rules against insurer denying defence costs

April 22, 2013   by Canadian Underwriter

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An Ontario court ruled last week against State Farm Fire and Casualty Company, which had settled an injury claim made against a horse racetrack and a property maintenance contractor but had declined to defend the racetrack operator.


In June 2009, a plaintiff commenced legal action against Georgian Downs and its maintenance contractor, North-Gate, in relation to an accident related to a slip and fall in December 2008.

“State Farm issued a policy to North-Gate covering its winter maintenance operations at Georgian Downs,” according to court records. “Georgian Downs was added as an additional insured but only with respect to liability arising out of North-Gate’s work.”

The lawsuit against North-Gate was settled last September for $65,503.50. Georgian Downs, which includes a racetrack and Ontario Lottery and Gaming (OLG) Slots facility about 90 km north of Toronto, did not pay any money towards that settlement but sought reimbursement for $25,000 in defence costs.

On April 15, 2013, Mr. Justice Gregory Mulligan of the Ontario Superior Court of Justice in Barrie ruled that State Farm no longer has a duty to defend because the action was settled, but that State Farm is required to indemnify Georgian Downs for its defence costs.

State Farm had opposed Georgian Downs’ application for a court order requiring State Farm to pay its defence costs. The insurance carrier, according to court records, claimed that Georgian Downs’ application fell outside the limitation period, and that some of the fall victim’s claims fell outside the scope of coverage.

The fall victim made a total of eight allegations in the statement of claim, including a claim that Georgian Downs, “or their agents failed to take corrective action, despite having notice of the danger posted by the slush, snow and ice, and knowing that the slush, snow and ice was a danger and a threat to the safety of the customers.”

However, the victim had also made allegations that did not specifically mention snow, slush or ice. For example, according to court records, the plaintiff said Georgian Downs or its agents “caused to exist and permitted to exist a hidden or unusual danger.”

It was allegations like this, State Farm contended, that “could be interpreted as independent claims of negligence against Georgian Downs for which North-Gate was not obligated to defend.”

“Alternately State Farm argues that it should only be required to provide a defence for those claims that are covered under the policy and the costs should be apportioned accordingly,” Judge Mulligan wrote.

In ruling against State Farm, Judge Mulligan from several previous court rulings, including a 2008 decision by Madame Justice Patricia Hennessy of Ontario Superior Court in the case of Riocan Real Estate Investment Trust vs Lombard General Insurance Co.

According to court records, a Riocan maintenance contractor, Palmer Paving Construction Group Inc., had a policy with Lombard General. Riocan was being sued in two separate actions by plaintiffs alleging they suffered injuries arising from falling on snow or ice in the parking lots of malls owned by Riocan in Sault Ste. Marie.

Judge Hennessey granted Riocan’s application for an order declaring that the Lombard policies held by Palmer Paving ” are valid insurance policies in respect of the winter maintenance contract between Rio Can and Palmer Paving” and that those contracts required Lombard to defend Riocan in its lawsuits.

Those lawsuits made allegations that fell outside the scope of Riocan’s contract with Palmer Paving but Judge Hennessy still ruled in favour of Riocan.

“Notwithstanding the multiple theories pleaded by the plaintiffs, the fundamental issue raised in each of the actions is that the plaintiffs’ slip and fall on the ice covered parking lot occurred because of the failure of the owner to keep the parking lot free of ice,” Judge Hennessy wrote. “The true nature of the claim is that the defendant was negligent in failing to maintain an ice free parking lot and as a result the plaintiffs fell and sustained injuries. “

In applying case history to Georgian Downs vs State Farm, Judge Mulligan wrote: “…the true nature of the claim was North-Gate’s negligence in failing to maintain an ice free parking lot.”


He added that although the original statement of claim against Georgian Downs “could be broadly interpreted as raising additional independent claims against Georgian Downs the issues were narrowed significantly after discovery.”

The record of settlement, Judge Mulligan noted, “was based solely on the liability of State Farm’s insured, North-Gate, as the occupier of the location where the slip and fall accident occurred.”

Judge Mulligan also disagreed with State Farm’s position on the limitation period. State Farm had argued that the two-year period started the day of the accident, or, alternatively, on March 10, 2010, the day that it denied Georgian Downs’ application for defence costs.

Both of those dates were more than two years before Dec. 7 of last year, when Georgian Downs asked the court to order State Farm to pay its defence costs. But Judge Mulligan ruled that the letter State Farm sent to Georgian Downs March 10, 2010 “was not a clear and unequivocal denial of Georgian Downs’ request for defence costs.

“In my view, when there is an absence of a clear and unequivocal denial of a duty to defend or a duty to indemnify, a limitation period commences on the day of judgment or settlement,” Judge Mulligan added, referring to the settlement reached Sept. 28, 2012.

In reaching his decision on the limitation period, Mulligan quoted from a March 2012 ruling by the Ontario Court of Appeal overturning a lower court finding that a claim was brought outside the limitation of a previous provincial standard auto policy.

That claim was brought against Zurich Canada by the estate of a driver who died in a 1988 car accident and was sued by families of three passengers who also died. The families of the deceased passengers had offered to settle in 1992, minutes of settlement were signed the following year and in August 1995, consent judgments were issued to the estate of the deceased driver.

It was on that final date in 1995, the Court of Appeal ruled, that the estate had a liability to pay the families of the passengers.

“And it was at this time that it was entitled to demand indemnity from Zurich,” Mr. Justice George Strathy wrote for the appeal court, adding that it “…promotes certainty, by fixing a date that is readily ascertainable, as opposed to being dependant on subjective questions of discoverability.”

In applying that ruling to Georgian Downs’ case against State Farm, Judge Mulligan suggested that in determining that the limitation period began on the date of settlement, that interpretation also promotes certainty, is readily ascertainable and does not depend on “subjective questions of discoverability.”