A duty to defend an insured is generally not broader than a duty to indemnify. An insured may choose their own counsel to defend a claim if there is a coverage dispute.

An insurer was sued by a person who suffered injuries as a result of mold and bacteria.  The insured was denied coverage under his CGL policy, which stated that coverage was not provided for damages arising from mold.  The insured was obligated to defend the insured because all of the damages could have been attributed to bacteria which was not excluded by the policy.  Because there was a dispute over coverage, the insured was allowed to appoint counsel of his choice to defend the action, and the insurer had to indemnify their insured for the counsel costs.

Appin Realty Corp. v. Economical Mutual Insurance Co., 2008 ONCA 95, Ontario Court of Appeal, J.I. Laskin, M.J. Moldaver and K.N. Feldman JJ.A., February 12, 2008

This was an appeal involving two issues. The first related to the scope of an exclusion clause and the motion judge’s determination that it did not absolve the insurer from its duty to defend the insured against the insured’s claim for bodily injury arising from his exposure to mold and/or bacteria. The second related to the motion judge’s determination that the insured could require the insurer to retain counsel of the insured’s choice.

On the first issue the insurer relied on the clause in the policy under the heading “Common Exclusions”. That provision provided as follows:

“This insurance does not apply to:

7. FUNGI AND FUNGAL DERIVATIVES

(a) “bodily injury”, “property damage”, “personal injury”, or Medical Payments or any other costs, loss or expense incurred by others, arising directly or indirectly, from the actual, alleged or threatened inhalation of, ingestion of, contact with, exposure to, existence of, presence of, spread of, reproduction, discharge or other growth of any “fungi” or “spores” however caused, including any costs or expenses incurred to prevent, respond to, test for, monitor, abate, mitigate, remove, cleanup, contain, remediate, treat, detoxify, neutralize, assess or otherwise deal with or dispose of “fungi” or “spores”…

This exclusion applies regardless of the cause of the loss or damage, other causes of the injury, damage, expense or costs or whether other causes acted concurrently or in any sequence to produce the injury, damage, expenses or costs.”

The motion judge found that this exclusion, including the “concurrent exclusion” clause, did not absolve the insurer of its duty to defend because the plaintiff had pleaded that his injuries arose from mold and bacteria and if it were found that the injuries were due solely to bacteria (a non-excluded peril), the exclusion clause would not apply.

On appeal, the insurer argued that the motion judge failed to consider the effect of the word “alleged” within s. 7(a) of the exclusion. According to the insurer, the effect of that language was to absolve the insurer of a duty to defend in any case where bodily injury from mold is alleged, even if combined with other causes of bodily injury, such as bacteria. The insurer submitted that the effect of the clause was that the duty to defend was narrower than the duty to indemnify.

The court disagreed with the insurer’s position finding that the language in clause 7(a) is both unclear and ambiguous in its effect. The court found that a plain reading of the provision did not support the insurer’s position. The court further found that the insurer’s position “stands on its head” the general proposition that the duty to defend is broader than the duty to indemnify. The court found that if the clause was meant to convey that the insurer’s duty to defend is narrower than its duty to indemnify then clear and unambiguous language would be required.

Because of the issues with respect to coverage, both the insured and insurer sought to appoint the counsel of their choice. The motion judge had referred to the principle that an insurer’s right to control the defence is not absolute citing Brockton (Municipality) v. Frank Cowan Co. (2002), 57 O.R. (3d) 447 (C.A.). The motion judge found that the insured’s counsel was competent and experienced and should be retained by the insured to defend the action at the insurer’s expense. On appeal the insurer suggested that in order to meet the mutual concerns expressed by both sides, a third approach would be to agree on independent counsel. The Court of Appeal was not prepared to interfere with the trial judge’s exercise of his discretion.

This case was originally summarized by Cameron B. Elder and edited by David W. Pilley.

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