An insured is entitled to a defence under a policy of insurance if part of the claim is covered by an insurance policy

An application by the Insured for a declaration that the Insurer be required to fund defence of the Insured in action brought against it was allowed where the Court held that since part of the claim was covered by the policy, the Insurer’s duty to defend was engaged.

Beaverdam Pools Ltd. v. Wawanesa Mutual Insurance Co., [2009] N.B.J. No. 120, May 6, 2009, New Brunswick Court of Queen’s Bench, P.C. Garnett J.

The Insured sold, installed and serviced swimming pools. Pursuant to a contract, the Insured installed an above ground pool at the home of a customer. The customer later had a deck constructed around the pool and level with the top of it. Some parts of the pool separated and attempts by the Insured to repair were unsuccessful. The customer brought an action against the Insured, who notified the Insurer. The Insurer denied coverage. The Insured retained counsel and settled the action. He then brought an application for a declaration that the Insurer had a duty to defend and was therefore obligated to reimburse him for the costs of the defence.

The Insurer relied on two exclusions in the policy. The first was for property damage for which the Insured is obliged to pay compensatory damages by reason of the assumption of liability in a contract or agreement. The second was for property damage to the Insured’s “work”.

The court reviewed the “Pleadings Rule”, which dictates that it is the allegations in the claim, not the facts proven, which determines whether the duty to defend arises. The court noted that the Plaintiff (in the action against the Insured) had framed his action in both contract and tort. Most of the damages claimed related to repairing and/or replacing the pool, however, some did not. For example, he claimed “the cost of raising the deck to make it level with the pool”. The deck was not constructed by the Insured and did not form a part of the “work” which was done by the Insured. The policy did not indemnify the Insured for the cost of repairing or replacing “the work” of the Insured. It did, however, indemnify the Insured for liability to repair or replace damage to other structures caused by the Insured’s negligence in performing its work. If the deck (which was not part of the Insured’s work) had to be rebuilt because of defects in the pool (which was part of the Insured’s work) the damages would be recoverable under the policy.

In the result, the court found the Insurer’s duty to defend to be engaged and ordered the Insurer to pay the reasonable costs paid by the Insured to defend the action.

This case was originally summarized by Natasha D. Morley and originally edited by David W. Pilley.

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