A court may look beyond the pleadings to determine if an insurer has a duty to defend

21. October 2009 0

Court considered the Statement of Claim, the insurance policy, and a contract of indemnity in determining whether the Insurer had a duty to defend the Insureds in relation to a Third Party Notice.

Tarrabain v. Wawanesa Mutual Insurance Co., [2009] A.J. No. 912, May 4, 2009, Alberta Court of Queen’s Bench, L.J. Smith J.

The Applicants, the Insureds, sought a Declaration that the Insurer had a duty to defend them in relation to a Third Party Notice.

The Statement of Claim alleged that the Plaintiff was a passenger in a BMW which was involved in a road race. The driver of the BMW lost control of the car leading to a collision with a light pole and serious injury to the Plaintiff. The Plaintiff sued the owner and driver of the BMW as well as Ericksen Nissan Ltd. (“Ericksen”) which owned the other car involved in the road race, a Nissan, and also the driver of the Nissan. Ericksen defended the claim on the basis that the driver did not have Ericksen’s consent to drive the Nissan. Ericksen issued a Third Party Notice to the Insureds, the father and brother of the driver of the Nissan.

It was alleged in the Third Party Notice that the brother of the driver of the Nissan owned an Infinity which was brought into Ericksen for service. A Service Loaner Agreement was signed by the owner of the Infinity. The Service Loaner Agreement provided that any loss or damage to the loaner vehicle was the responsibility of the Insureds.

The Insureds sought coverage from their Insurer, who insured the Infinity.

The issue before the Court was which documents ought to be considered in determining whether the Insurer had a duty to defend the Insureds. The Insureds argued that the Court should consider the pleadings as a whole including the Insureds’ policy and the Service Loaner Agreement. The Insurer argued that the Court ought only to consider the Third Party Notice since the Third Party Notice sounded in contract and provided no basis for indemnity other than in contract and made no allegations regarding the involvement of an at-fault motorist.

The Court concluded that the relevant pleadings should be considered as a whole together with the terms of the policy and the Service Loan Agreement. In the result, the Court found that the Insurer had a duty to defend the Insureds in relation to the Third Party Notice. The key issue was whether the Insurer had a duty to defend the Insureds if their obligation to pay arose in contract. The Court held that while the Service Loaner Agreement was the basis on which the Insureds might be required to pay, that Agreement effectively transferred a potential tort liability from Ericksen to the driver of the Nissan and therefore the Insureds, which would trigger the policy. It was only upon examining the Statement of Claim, the policy and the Service Loaner Agreement together that this became apparent.

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

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