An insurer has a duty to defend both covered and uncovered claims made against an insured

Insurer’s duty to defend is triggered even if only some allegations are covered claims under the policy. Insurer is not entitled to apportion defence costs if it is impractical to do so between covered and non-covered claims.

A summary of this case also appears at MRB Lawyers blog.

Day v. Wood, [2008] O.J. No. 3296, D.A. Wilson, J., August 27, 2008

The defendant, the insured, sought a declaration that a third party insurer was obligated to defend him in the main action pursuant to a rental policy of insurance issued by the insurer to the insured. The insured owned a rental property in Toronto that he had rented out to the plaintiffs for a one-year period. They alleged that there was a flood in the basement towards the end of the rental term and they moved out that day.  The plaintiffs claimed damages for pain and suffering and special damages. The insurer refused to defend the claim on the basis that the damages flowed from the existence of mold and, due to an exclusion, there was no coverage.

The Plaintiffs alleged that after moving into the premises, they started suffering from health problems and that towards the end of the term, there was a flood in the basement.  The Statement of Claim alleges that as a result of the water damage and the illness, the Plaintiffs were forced to move out. The Plaintiffs alleged that afterwards, they discovered evidence of prior flooding and testing confirmed the presence of mold and yeast. They alleged that the Defendant was negligent in failing to disclose the existence of the water damage and mold problems.

The court found that the duty to defend was triggered because the exclusion did not extend to excess moisture, flooding, prior water damage, or yeast. The court found that it was possible that the damage arose from the presence of yeast only or perhaps from excessive moisture, and as both were covered perils under the policy, the duty to defend was triggered.

The insurer argued that it would be unfair to require it to assume all of the cost of the defence as the majority of the claims and associated costs would be attributable to issues for which coverage would not be provided under the policy.  Counsel for the insurer submitted that, at most, 10 – 15% of the damages would be attributable to perils apart from mold.  The insurer therefore sought an apportionment of the defence costs. The court found that there was no practicable way of apportioning the costs of the defence between the covered and non-covered claims and therefore the insurer would have to pay all of them.

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

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