ON court finds duty to defend shooting incident; given conflict, appointment by insurer of defence counsel was subject to conditions

0 March 24, 2014 at 9:54 am by

Kinkade v. 947014 Ontario Inc. c.o.b. as The Silver Dollar, 2014 ONSC 1599, involved a successful motion by the defendant adult entertainment facility for a defence in this action by the plaintiff who sustained personal injuries when shot in the leg by the defendant’s off-duty employee following a scuffle as the plaintiff was leaving The Silver Dollar.

The plaintiff alleged that the employee, Gray, negligently discharged a firearm, for which The Silver Dollar was vicariously liable, and that it was also liable as an occupier.

The Silver Dollar was insured by the third party, Omega General Insurance. The policy included a “gun” exclusion which read:

This Insurance does not apply to:

b. “Bodily Injury” …arising out of the ownership or use of:
(4) Guns, rifles, pistols, tasers, knives or other weapons.

Ontario Superior Court Justice Toscano Roccamo held that the allegations of negligent conduct were not derivative of those of intentional conduct, and that there were concurrent covered and uncovered claims, and that the former were not captured by the exclusion and, therefore, there was an obligation to defend.

In the course of argument, on the point of whether the insured could appoint and instruct defence counsel at its own expense, counsel agreed that in the event the defence duty was determined in favour of The Silver Dollar, “there would be no need to pursue the third party claim, and that the second question posed by the motion brought by the Silver Dollar would be resolved by an order of the kind made by Thorburn, J. in PCL Constructors Canada Inc. v. Lumbermens Mutual Casualty Co. (2009), 81 C.L.R. (3d) 186 (Ont. S.C.J.) at paras. 93 and 94 where the insurer was directed to appoint separate counsel for the defence and coverage issues with the following conditions:

(a) The insurer was to assign the claim to claims staff who had no previous involvement in the matter;

(b) Defence counsel must not have acted for either party in the past five years;

(c) There could be no discussions about the case between defence counsel and coverage counsel;

(d) Defence counsel was to provide identical concurrent reporting to both the insurer and the insured.

Her Honour later concluded that the duty to defend “does not necessarily give rise to a duty to indemnify, and the conflict between Omega’s coverage counsel and the defence counsel appointed to represent and defend Silver Dollar may continue to exist. Therefore, the Third Party Claim will not be dismissed and the potential conflict will be addressed by the order made on consent directing Omega to appoint separate counsel to defend Silver Dollar on conditions as previously noted”.

Her Honour’s order indicates that at least in this instance, the conditions provided for in the PCL decision have gained some traction which, insofar as he first two are concerned, have important implications for the relationship between insurers and their panel counsel, and in respect of file handling within insurance companies.

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