Insurer has a duty to defend its insured due to a possibility the insured would be liable for compensatory damages the insured had assumed under a contract

Insurance law – Commercial general liability insurance – Duty to defend – Practice – Appeals

Creative Door Services Ltd. v. Axa Pacific Insurance Co., [2018] A.J. No. 292, 2018 ABCA 98, Alberta Court of Appeal, March 13, 2018, C.A. Fraser C.J.A., P.T. Costigan and M.G. Crighton JJ.A.

The insurer appealed an order that it was obliged to defend and indemnify the insured under a commercial general liability policy. The insured had supplied and installed an overhead door to AltaSteel. The insured subcontracted the work to a subcontractor who was electrocuted while performing the work. The subcontractor issued a claim against AltaSteel claiming damages for personal injury resulting from negligence and occupiers liability. AltaSteel issued a third party notice to the insured claiming contribution and indemnity. The third party notice alleged the insured had breached its written contract with AltaSteel by hiring a subcontractor who was not covered under the Workers’ Compensation system.

The court allowed the appeal with respect to the declaration of a duty to indemnify. However, the court agreed the insurer had a duty to defend the insured under the policy. The insurer argued the third party notice contained no claims in tort or negligence and that the true nature of the claim against the insured was for breach of contract. The court held that as the claim alleged AltaSteel was liable to the plaintiff for compensatory damages because of bodily injury and the insuring agreement covers liability for compensatory damages because of bodily injury and the third party notice seeks to transfer that liability to the insured, there was a possibility that the insured would be liable for compensatory damages that the insured has assumed under a contract.

This case was digested by Cameron B. Elder, and first published in the LexisNexis® Harper Grey Administrative Law Netletter and the Harper Grey Administrative Law Newsletter. If you would like to discuss this case further, please contact Cameron B. Elder at