The Court of Appeal, in allowing the appeal, held that the “insured v. insured” exclusion clause was unambiguous. The insurer did not have a duty to defend.

Kohanski v. St. Paul Guarantee Insurance Co., [2006] O.J. No. 157 Ontario Court of Appeal

The insurer appealed from an order requiring it to defend the former director of an association. The policy provided coverage to the former director for all of his actions as a director of the association, but also contained an exclusion clause for actions brought on behalf of the association, which was an insured.

The judge in the court below concluded that the insurer owed a duty to defend. In allowing the appeal, the Court of Appeal held that the application judge erred in concluding that a duty to defend was owed in the circumstances. The Court of Appeal noted that in each of the American authorities referred to, the court had concluded that the exclusion clause was ambiguous with respect to whether the party bringing the underlying action was an “insured” within the meaning of the policy.

In the case at bar, the exclusion clause was unambiguous. The court had an obligation to give effect to the language of the contract unless to do so would defeat the main object of the contract or virtually nullify the coverage. The exclusion clause did not have the effect of virtually nullifying the coverage under the policy. In the result, the insurer did not have a duty to defend the former director in the underlying action.

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