The duty to defend may arise after pleadings have been amended to include negligent conduct
The Insurer was found to owe its insured a duty to defend in circumstances where the plaintiffs amended their claim from one alleging fraud to one alleging negligence.
Aitken v. Unifund Assurance Co.,  O.J. No. 4450, September 25, 2012, Ontario Court of Appeal, S.E. Lang, G.J. Epstein and A. Hoy JJ.A.
The insureds had a homeowner’s insurance policy with the insurer. The insureds had purchased a home in Thunder Bay in 1999. On October 27, 2008, they sold it. In connection with the sale, the insureds completed a seller property information statement in which they made a number of representations regarding the property. On September 10, 2009, the purchaser of the property commenced an action against the insureds and the company that performed the home inspection on his behalf. The purchaser alleged that the insureds had intentionally failed to disclose a series of problems with the house, including a leaky roof and basement, bad wiring, and the improper removal of load bearing walls, but also had taken steps to disguise these problems prior to the sale. After they filed the statement of defence, the insureds notified the insurer about the action and sought defence costs and indemnity. The insurer denied coverage.
The insureds brought an application seeking a declaration that the insurer owed a duty to defend them and to indemnify them for any damages they were found to owe. Before this application was held, the plaintiff amended the pleadings to allege negligence against the insureds. The insurer argued at the application that the amendments to the statement of claim were nothing more than an attempt to access insurance. The Court found that there is a duty to defend if there is a “mere possibility” that the claim falls within the scope of the insurance policy. On this basis, the Court concluded that there was a duty to defend and this decision was upheld on appeal.
This case was originally summarized by Cameron B. Elder and originally edited by David W. Pilley of Harper Grey LLP.
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