An Insurer’s Obligation to Indemnify was Found to be a Debt and Subject to Garnishment

An insurer’s obligation to indemnify an insured under a liability policy constituted a debt subject to garnishment.

Abuzour v. Heydary, [2014] O.J. No. 5199, October 28, 2014, Ontario Superior Court of Justice, M.A. Penny J.

The applicants retained the insured lawyer to represent them in a case where they received $3.6 million in settlement. The funds were deposited into the insured lawyer’s trust account. The court ordered the release of the funds to the applicants. The lawyer and the funds then disappeared.

The lawyer was insured under a professional liability policy in which the insurer was obligated to pay on behalf of the insured all sums which the insured became legally obligated to pay. The insured had $1 million of coverage for fraud during the policy period. The applicants applied for an order that the insurer for the lawyer, as garnishee, pay to them, as judgment creditors of the lawyer, the proceeds of the lawyer’s insurance policy.

The insurer admitted there was coverage for this particular claim, but resisted garnishment on two grounds: that its insurance obligations under the policy did not constitute a debt subject to garnishment, and; it would be unfair and prejudicial to other insured lawyers at the same law firm to make the payment because it may reduce or exhaust the policy limit in the future. The court rejected the first argument and stated that the substance of the mandatory insurance was the protection of the public. The court concluded the insurer’s obligation to indemnify the insured under the policy constituted a debt subject to garnishment by the applicants. The court also dismissed the insurer’s second argument because it was based on potential claims which could not take precedent or be weighed against the fully formed obligation to indemnify the plaintiffs.

This case was digested by Djuna M. Field and edited by David W. Pilley of Harper Grey LLP. If you would like to discuss this case further, please feel free to contact them directly at dfield@harpergrey.com or dpilley@harpergrey.com or review their biographies at http://www.harpergrey.com.

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