On an application for a Declaration that another insurer share in the costs of the defence of an underlying action, there was nothing in the documentation to specifically identify the contested policy as either a claims-made policy or an occurrence policy. Because more than one reasonable interpretation of the insuring agreement was open, the interpretation favouring the Insured by recognizing a duty to defend resulted and the Declaration was granted.

Lanark Mutual Insurance Co. v. Economical Mutual Insurance Co., [2006] O.J. No. 2173, Ontario Superior Court of Justice

Lanark Mutual Insurance Co. (“Lanark”) sought a Declaration that the Economical Mutual Insurance Company (“Economical”) had a duty to defend its insured, Hawley Trueman Plumbing & Heating Ltd. (“Hawley”) or share equally in the costs of defending an action commenced by William MacKinnon under the terms of a CGL policy purchased from Economical. The underlying action was settled for the sum of $15,000. Lanark was responsible for payment of $5,000 of this amount. It incurred defence costs amounting to approximately $10,000.

In the underlying action, Mr. MacKinnon sought $92,000 in damages from Hawley alleging that due to the negligence and/or breach of contract by the Defendants in installing a furnace in his residence, a fire occurred in March 2003 which destroyed his residence. Following the fire, Lanark, which insured Hawley under a CGL policy for the period July 22, 2002 to July 22, 2003, defended Hawley with respect to the claim.

Economical had issued a CGL policy insuring Hawley from June 25, 1991 to June 25, 1992. While no one had been able to uncover a complete copy of the relevant Economical policy, Economical denied any duty to defend or indemnify Hawley. Hawley however, was able to locate a Declaration page which made reference to a rider dated October 1991 obligating Economical to pay on behalf of the Insured all sums the Insured was legally obligated to pay because of property damage caused by accident. The rider also obligated Economical to provide a defence to the Insured at the cost to the Insurer. However, there was nothing in the documentation to specifically identify the policy as either a claims-made policy or an occurrence policy.

The Court found that the fact that the actual property damage caused by the accident occurred only in 2003 was not determinative since the Economical policy did not require that the property damage occur during the policy period. Furthermore, a representative from Economical admitted that the Economical policy would be more or less consistent with the Lanark policy which was clearly an “occurrence” policy. This was crucial to a determination of the application since it is established law that where more than one reasonable interpretation of an insuring agreement is open, an interpretation which favours the Insured by recognizing a duty to defend will result.

Because the property damage was caused by an occurrence which transpired in 1991, the Court found that the accident during the period when Economical was on the risk. In the result, Lanark was entitled to a Declaration that Economical had a duty to defend and was obliged to share in the costs of the settlement and defence costs incurred by Lanark.

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