A duty to defend arises from a reasonable probability of coverage. The duty to defend exists even if there is no possiblity that the defendant will be liable for damages.

Where it is reasonably probable that a defendant in a subrogated action is an insured under the policy which gave rise to the right of subrogation, the insurer bears a duty to defend under the policy, regardless of the ultimate outcome of the final judgment.

Word of Life Tabernacle Society v. Sampson Construction Ltd., [2007] A.J. 1481, Alberta Court of Queen’s Bench, T.D. Clackson, J.,  December 18, 2007

The Defendants were involved in building an addition to the church building owned by the Plaintiff society. The Defendants were alleged to have caused a fire during the course of the building project which burned the church down. The Plaintiff society settled with its insurer for indemnity for the damage caused by the fire, and the insurer commenced a subrogated action in the name of the Plaintiff society against the Defendants. The Defendants then applied for a declaration that they were insureds under the contract of insurance between the Plaintiff society and its insurers, pursuant to the Commercial Policy and Builders Rider, and thus entitled to indemnification against subrogation.

The Court held that there were three stages to the Defendants’ application: the first was the determination of whether the insurers bore a duty to defend the Defendant; the second and third were the indemnification and subrogation issues, the determination of which the Court held would require a trial. The duty to defend, however, could be determined on the application. The Court found that the duty to defend and to indemnify against the costs of an action does not depend upon the judgment obtained in the action. Accordingly, the duty to defend is much broader than the duty to indemnify against a judgment. The Court held that there was a reasonable probability that the Defendants would be found to be insureds under the Plaintiff society’s insurance policy, and therefore the insurer was compelled to provide the Defendants with a defence.

This case was originally summarized by W. Jay Havelaar and edited by David W. Pilley.

To stay current with the new case law and emerging legal issues in this area, subscribe here.