The commercial general liability insurer (“Co-Operators”) of Matthews Pallet Recycling (“Matthews Pallet”) was successful in appealing a decision holding that it had a duty to defend claims advanced by passengers of an automobile involved in an accident with a truck owned by Matthews Pallet. The Court of Appeal held that allegations of “negligent business practices” and “negligent repair” were not sufficient to take the claims outside of the exclusion clause in the Co-Operators policy for claims arising out of ownership, use or operation of an automobile.

01. December 2003 0

Unger (Litigation guardian of) v. Unger, [2003] O.J. No. 4587, Ontario Court of Appeal

The Ungers were passengers in an automobile that was in an accident with a truck driven by an employee of Matthews Pallet. The Ungers sued the driver of the vehicle, an employee of Matthews Pallet and Matthews Pallet. At the relevant time, Matthews Pallet and its employees were covered by an automobile insurance policy issued by Pilot Insurance Company (“Pilot”). Matthews Pallet was also covered by a CGL policy issued by Co-Operators. Pilot accepted that it had a duty to defend at least some of the claims brought by the Ungers. Co-Operators took the position that none of the claims fell within its coverage. Pilot was successful in an application for a declaration that Co-Operators had a duty to defend the allegations raised by the Ungers in their claim against Matthews Pallet. Co-Operators appealed the decision.

The Court of Appeal reviewed the Co-Operators policy and noted that it contained the following exclusions:

2. This insurance does not apply to …

1) “Bodily injury” or “property damage” arising out of the ownership, use or operation by or on behalf of any insured of …

a) Any “automobile” …

2) “Bodily injury” or “property damage” with respect to which any motor vehicle liability policy is in effect or would be in effect but for its termination upon exhaustion of its limit of liability or is required by law to be in effect.

The court noted that it was clear that the claims fell within the coverage granted by the Pilot automobile insurance policy. However, this did not mean that Co-Operators did not have a duty to defend the claims. The court stated that if there was a possibility that any of the claims were captured by Co-Operators coverage then Co-Operators would also have a duty to defend the same claims as Pilot.

Pilot relied on the decision of the Supreme Court of Canada in Derksen v. 539938 Ontario Ltd. (2001), 205 D.L.R. (4th) 1 for the proposition that where there are two concurrent causes of action alleged in a Statement of Claim and one falls within the coverage of a policy, the insurer under that policy has a duty to defend that claim. In Derksen, an employee of the Defendant, while clearing a work site, placed a steel plate on the back of a truck in a manner which, according to the Statement of Claim, was negligent. The employee then drove the truck off the site and during the course of the journey, the plate fell off the truck and struck a bus, killing one person and injuring three others. The Supreme Court of Canada held that the placing of the plate on the back of the vehicle was part of the clean-up of the site and not part of the loading or use of the vehicle and therefore fell within the coverage of the relevant commercial general liability policy at issue.

The Court of Appeal noted that the applicability of the Derksen decision depended on whether, in this case, there were two “concurrent but discrete” claims against Matthews Pallet, one of which was not covered by its automobile policy. The court noted that, in Derksen, there was a possibility that the Defendant could have been found liable even if it had not engaged in negligent use or operation of the motor vehicle. For example, even if the collision had been caused by the bus, the Defendant might still have been held liable for the negligent placing of the plate on the truck during the clean-up of the work site and that this negligence, apart entirely from the operation or use of the vehicle, may well have contributed to the damages suffered by the Plaintiffs.

The Court of Appeal held that in determining a duty to defend, the court must accept the facts as pleaded. However, the court held that it was not required to accept the pleader’s characterization of those facts. The court reviewed the Supreme Court of Canada decision in Non-Marine Underwriters, Lloyds of London v. Scalera, [2000] 1 S.C.R. 551, where the Supreme Court of Canada described the appropriate approach to take in characterizing pleadings to determine whether, in substance, more than one cause of action is alleged. The analysis of whether one purported claim is “derivative” is based upon whether the underlying elements of the concurrent claims are sufficiently disparate to render the two claims unrelated. Based on this analysis, the Court of Appeal held that, in substance, all of the allegations in the Statement of Claim alleged that the Ungers were injured as a result of the use, operation or ownership of the vehicle. The court stated that the mere description of some of the acts of negligence as “negligent business practices” did not create a separate and discrete cause of action. Similarly, allegations of negligent repair and maintenance of the vehicle and negligence in entrusting the vehicle to the driver were not discrete causes of action but merely germane to the issue of the Defendant’s negligence in the ownership, use or operation of the vehicle.

In the result, the court held that the Unger claims were excluded from coverage under the Co-Operators policy exclusions and issued a declaration that Co-Operators was not obliged to defend Matthews Pallet under the terms of its CGL policy.

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