ON Superior Court finds additional insured entitled to defence with 50/50 sharing between insurers

0 July 15, 2014 at 9:55 am by

In Amello v. Bluewave Energy Limited Partnership, 2014 ONSC 4040, Ontario Superior Court Justice Perell dealt with a number of issues including, of most interest, a party’s obligation to pay defence costs when it has agreed to include another party as an insured under its liability policy but failed to do so.

His Honour followed the Ontario Court of Appeal’s Papapetrou  v. 1054422 Ontario Ltd. decision in holding that defence costs had to be paid, but given the “other insurance” clauses in the two policies that afforded or would have afforded coverage, (including the policy under which the additional insured would have been covered), and the principle of equitable contribution, his order was that 50% of past and future defence costs had to be paid.

On the latter point, while His Honour refers to the Supreme Court of Canada’s Family v. Lombard decision on “other insurance” clauses, he does not engage in a comprehensive analysis of the effect of the wording of these clauses in concluding that there should be equal sharing.

His Honour also dealt with a request for the withdrawal of admissions, and a bar order in light of a Pierringer Agreement, both of which he refused.

Briefly, the facts were that there was an oil spill in the basement of the plaintiff Amellos’ home. Oil seeped from a leak in a tank that was maintained by Bluewave, a division of Parkland. Bluewave was also the oil supplier.

The Amellos sued Parkland, Bluewave, and Daniel Charles Transport Ltd., the transportation company that delivered the oil.

There was a Trucking Services Agreement between Bluewave and Daniel Charles Transport that obligated the transportation company, among other things, to hold harmless and indemnify Bluewave for costs and legal fees that arose from an oil spill. Further, under the Agreement, Daniel Charles Transport was obliged to take out liability insurance naming Bluewave as an additional insured.

Daniel Charles Transport did take out liability insurance, for itself, with State Farm, but it omitted to add Bluewave as a co-insured.

Bluewave had its own liability insurance with Liberty Mutual, which is paying for the cost of Bluewave’s and Parkland’s defence to the Amellos’ action. Bluewave sought the costs of that defence from Daniel Charles Transport.

Daniel Charles Transport also brought a motion to withdraw admissions made in a Response to a Request to Admit. And, relying on a Pierringer Settlement Agreement it negotiated with the Amellos, it brought a cross-motion (similar to a bar order) for a judgment dismissing Bluewave’s crossclaim.

Daniel Charles Transport argued that the admissions should be withdrawn because its lawyer did not review the Response to the Request to Admit with Daniel Watts, the principal of Daniel Charles Transport, who did not give instructions to release the Response with its admissions.

Justice Perell summarized his reasons on the three issues before him as follows:

[15] First, with respect to its motion to withdraw admissions, Daniel Charles Transport has not satisfied the criteria for leave to withdraw its Response to the Request to Admit.

[16] Second, with respect to Bluewave’s motion for payment of defence costs, Daniel Charles Transport contracted to obtain insurance for Bluewave but failed to do so. The missing insurance coverage would have provided Bluewave with an indemnity for the costs of defending the Amellos’ claim if the allegations in the Amellos’ Statement of Claim would have engaged coverage. The allegations in the Amellos’ Amended Statement of Claim do engage coverage for a defence for Bluewave, and therefore, there is no genuine issue requiring a trial, and Bluewave has proven a claim for damages against Daniel Charles Transport for payment of the defence costs.

[17] The measure of Bluewave’s damages is equal to the amount of money that would put it in the position it would have been had Daniel Charles Transport performed its promise to obtain insurance including coverage for the costs of defence.

[18] In this regard, had Daniel Charles Transport obtained insurance for Bluewave that included a duty to defend as required, then because Bluewave has some insurance of its own that includes a duty to defend, the principle of equitable contribution would have been engaged; that is to say, the missing other insurer of Bluewave would have been responsible for 50% of the indemnity for the risks that were to be insured for Bluewave by that other insurer. Thus, using money to put Bluewave in the position it would have been in had the contract been performed, Daniel Charles Transport is liable for 50% of the defence costs incurred to date ($17,242.41) and 50% of the defence costs on an ongoing basis.

[19] To be clear, the above analysis does not answer – and I do not answer the question of whether Daniel Charles Transport must indemnify Bluewave for its own negligence or mistakes, including its failure to maintain the Amellos’ oil tank.

[20] The duty to defend and the obligation to indemnify are separate obligations, and the duty to defend is determined prospectively based on the pleaded allegations, while the duty to indemnify is triggered later if the allegations are actually proven.

[21] In the case at bar, whether there are damages commensurate with the duty to indemnify will depend upon interpreting the scope of Daniel Charles Transport’s obligations under the Trucking Services Agreement and upon the findings of fact at a summary judgment motion or at a trial about who was liable for the spill at the Amellos’ home. Bluewave’s present motion for summary judgment, however, involves only its claim for damages for the costs of defending the Amellos’ action. For the purposes of the motions before the Court, I need only determine whether a duty to defend has been triggered.

[22] Turning to the effect of the Pierringer Agreement between the Amellos and Daniel Charles Transport, under this Agreement, the Amellos have agreed to be responsible for the costs of Bluewave’s defence, and the Amellos have agreed to confine their remaining claims against Bluewave to the individual or several liability of Bluewave. Daniel Charles Transport, therefore, argues that because of the Pierringer Agreement, it is appropriate to dismiss Bluewave’s Crossclaim.

[23] This argument based on the Pierringer Agreement, however, is fallacious, because it ignores that Bluewave’s Crossclaim is premised on Daniel Charles Transport being liable to indemnify Bluewave for [its] several; i.e. its own discrete liability. Thus, the Pierringer Agreement does not make the Crossclaim meaningless, and it should not be dismissed at this juncture of the proceedings.

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