The University of Western Ontario (the “University”) succeeded in obtaining an Order that its Insurer (“Guardian”) pay 95% of the legal costs incurred by the University in defending an action brought against it by a former employee (“Hanis”). Guardian was held to be responsible for all defence costs except that portion of the costs related exclusively to non-covered claims.

Hanis v. University of Western Ontario, [2005] O.J. No. 5289, Ontario Superior Court of Justice

The underlying action involved a claim for damages by Hanis against the University alleging various causes of action including conspiracy, malicious prosecution, defamation and intentional interference with contractual relations. In a prior proceeding, the Court had granted judgment in favour of the University with respect to Guardian’s duty to defend. The Court ordered that a trial take place with respect to whether Guardian was entitled to an allocation of legal defence costs. The total amount of defence costs at issue was approximately $2,180,000.

Guardian took the position that the only covered claim was that relating to malicious prosecution and its obligation for defence costs should be limited to merely those expenses specifically related to the defence of that portion of the claim. The University argued that the coverage was broader and related to the majority of the Hanis claims. Further, as the Hanis action involved a “mishmash of allegations”, the University’s legal strategy was to treat the damages as being attributable to all causes of action. On this basis, the University argued that the vast majority of costs were incurred in defending the overall claim for damages.

The Court accepted the proposition put forth by the University that, as Guardian had breached its contractual duty to defend, it was liable to pay all legal expenses except those it could demonstrate were incurred exclusively for uncovered claims. Guardian took issue with the lack of detail in the docketing by counsel defending the University. The Court was not sympathetic to this argument noting that Guardian could have defended and kept detailed dockets on its own behalf and it was now too late in the day to adopt a critical position on this issue. After reviewing evidence with respect to the legal strategy adopted by counsel for the University, the Court agreed that it was reasonable for the University to treat the damages as being attributable to all causes of action.

The Court found that the vast majority of legal work was attributable to either covered claims or to work where there was no practical means of distinguishing the costs of defence between the covered and not covered claims. In the result, the Court found that Guardian was responsible for 95% of the legal costs incurred by the University.

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