A Further Discussion of Hold Harmless Agreements and Indemnity Provisions
The second portion of this paper discusses a number of decisions interpreting contractual hold harmless and indemnity provisions.
The cases below are motion and application decisions, which primarily arise out of disputes between defendant property owners/occupiers and maintenance contractors. The cases are generally in the context of an underlying personal injury action where an owner/occupier is attempting to shift obligations to a contractor under a hold harmless agreement/indemnity provision in a services contract. However, that is not to suggest that the commentary in these cases is isolated to occupiers’ liability matters. In our view, the cases provide a number of helpful principles, which have general applicability in this setting.
In the cases discussed, two “streams” of decisions arise: (i) those which focus upon independent pleadings of negligence against the party seeking defence/indemnity (a proximity analysis), where indemnity/hold harmless agreements are generally less likely to be enforced; and (ii) those which focus on the “true essence” of the underlying allegations pleaded against a party, such that an indemnity/hold harmless agreement is more likely to be enforced. The cases follow a coverage analysis, whether implicitly or explicitly, in respect of a defence obligation, as a finding on indemnity at the early stage of the cases at issue is premature.
The pattern in the case law is a movement to a “true essence” analysis – though the decisions which refuse, or narrowly enforce, indemnity/hold harmless agreements on an independent act of negligence analysis, seem to provide more predictability. Overall, one’s perspective will depend on whether the party is seeking or responding to the demand for defence and/or indemnity.
INDEPENDENT ACTS OF NEGLIGENCE/PROXIMITY
DEFENCE OBLIGATIONS NARROWLY ENFORCED
Potvin v. Canadian Museum of Nature,  O.J. No. 2020 (S.C.J.)
Potvin, a 2003 decision of Rutherford, J., arose from a Rule 22 motion (Stated Case) by the defendant Museum.
Royal LePage, a third party, rented a portion of the Museum’s premises for a holiday party. A standard form rental agreement was signed by both parties. The agreement contained a clause in which the renter agreed to indemnify and save harmless the Museum with respect to “any and all claims made against it,” including for personal injury, in “connection with the entry onto and use of the Museum’s facilities.”
Potvin attended the party with her husband. Her husband fell on the main steps of the Museum, and sustained injuries. The Potvins sued the Museum only.
At issue on the motion was whether the rental agreement required Royal LePage to indemnify the Museum with respect to the Plaintiffs’ claim. Rutherford, J. concluded that the agreement did not. His Honour noted that “one might be forgiven” for thinking that the very broadly cast indemnity language might well protect the Museum from any claim in any way connected with Royal Le Page’s use of the Museum premises.
However, Rutherford, J. noted that the analysis requires a “very close scrutiny” of any attempt by an occupier to pass on liability for its own negligence to another that comes on its premises. Such an obligation demands a very clear articulation of a transfer of liability, particularly against the one who seeks to transfer its liability. Rutherford, J. noted that:
It is now well established that if a person obtains an indemnity against the consequences of certain acts, the indemnity is not to be construed so as to include the consequences of his (sic) own negligence unless those consequences are covered either expressly or by necessary implication.
In short, Rutherford, J found there needed to be a proximate connection between the plaintiff’s injury and Royal LePage’s activity. The mere fact that the plaintiff was present on the premises to participate in Royal LePage’s event when injured, but the injury was otherwise not connected in a causal sense to the activity of the event, was not a sufficient connection to invoke the indemnification provision. While the injury followed the entry and attendance of one of Royal LePage’s invited guests on the Museum’s premises, that temporal connection alone was an insufficient connection to say that it arises out of or in connection with the entry onto and use of the Museum’s facilities.
Tinkess v. N.M. Davis Corp., O.J. No. 1026 (S.C.J.)
Tinkess was a motion for summary judgement on a crossclaim. The decision arose in the context of a winter weather slip and fall on a pedestrian walkway in the area of a parking lot resulting in significant orthopaedic injuries to the plaintiff, Tinkess. The defendants were the parking lot owner (N.M. Davis), the parking lot operator (Parkway) and the parking lot operator’s snow removal contractor (Total Contracting).
On defending, Parkway crossclaimed against Total Contracting pleading reliance on the indemnity and insurance provisions in a snow removal agreement between the two parties. Parkway moved for summary judgment motion on its crossclaim seeking direction on Total’s indemnity and insurance obligations.
The indemnity and insurance provisions benefitting Parkway were drafted in a fairly conventional manner and provided that:
- Parkway was not liable “for any injury to any person whatsoever by reason of, or in any manner arising out of, any of Total’s acts or failures to act under or pursuant to” the underlying snow removal agreement;
- Total was to
- defend (with counsel acceptable to Parkway);
- and hold harmless Parkway and its affiliates
from and against any and all claims arising from Total’s acts (or failure to act) of in connection with the services governed by the agreement; and
- Total was to carry commercial general liability insurance naming Parkway as an additional insured
A certificate of insurance was provided by Total to Parkway purporting to add Parkway as an additional insured; however, the Total policy was never actually so endorsed.
On the return of the motion, Parkway argued that the indemnity and insurance provisions should be read together noting that Total’s contractual undertaking to secure insurance coverage operated as an assumption of all risk of loss or damage caused by the peril insured against – including claims or losses arising from Parkway’s own negligence. Otherwise, Parkway argued there was no logical basis to require Total to obtain insurance coverage that named Parkway as an additional insured.
On holding against Parkway, Belobaba, J. noted that the case law was clear that “if one is to be protected against or indemnified for one’s own negligence” there would have to be an indemnity clause spelling out such obligation on the other party in the clearest terms:” Consumers’ Gas Co. v. Peterborough (City),  2 S.C.R. 613 (SCC). His Honour held that “nothing” was contained in the indemnification provisions of the underlying Total services agreement for Parkway’s own (or independent) negligence.
As such, Belobaba, J. held that the plain meaning of the provisions was that Parkway was to be covered by Total’s insurance for all claims “arising out of the acts or failure to act” of its contractor – not those of Parkway. His Honour therefore concluded:
In sum, I have no difficulty concluding that the Snow Plow Services Agreement requires Total to defend and indemnify only as against claims that arise out of the negligence of Total. It does not require Total to defend or indemnify Parkway against claims that involve Parkway’s own negligence, as may be the case here.
D’Cruz v. B.P. Landscaping Ltd.,  O.J. No. 2704 (S.C.J.)
Similar to Tinkess, the 2007 decision of Mossip, J. in D’Cruz, arose from an underlying slip on fall on property owned by the defendant, Peel Housing Corporation, and serviced by its winter maintenance contractor, B.P. Landscaping. The service contract between the parties provided that B.P. Landscaping was to obtain general liability insurance coverage and was to name Peel Housing as an additional named insured with respect to its “interest in BP Landscaping activities and operations.” Peel Housing commenced third party proceedings against B.P. Landscaping’s insurer (Citadel) seeking declarations for defence and indemnity
On refusing the relief sought, Mossip, J. noted the “separate and distinct” claims of liability against Peel Housing pleaded in the Statement of Claim, which were unrelated to the acts covered in the Citadel policy being defended in the litigation.
Her Honour specifically held that there was no need for Citadel to defend Peel Housing’s liability arising from B.P.’s alleged negligence in winter maintenance – as Citadel was “already doing that.”
Mossip, J. further noted that Peel Housing’s operations had to be defended by its own insurer insofar as it had independent duties as an occupier that required a defence in the main action. Such “stand alone duties” to any person on Peel Housing property were something for which Citadel had no duty to defend.
Overall, Mossip, J. concluded that Peel Housing was covered for the negligence of B.P. with respect to winter maintenance as a named insured in the Citadel policy, “but that is all.” As coverage for such negligence was defended by Citadel (vis-à-vis B.P. Landscaping), Peel Housing was not covered, as a named insured in the Citadel policy, for acts of negligence in its independent role as an occupier. Instead, Mossip, J. noted “that [was] no doubt covered by Peel Housing’s own policy of insurance, which premium would be based on that assessed risk.”
Atlific Hotels and Resorts Ltd v. Aviva Insurance Co. of Canada,  O.J. No. 2005 (S.C.J.)
Atlific, a further decision by Belobaba, J., arose from a winter slip and fall claim at Deerhurst Resort. In the underlying personal injury action, Deerhurst and a local snow removal contractor were named as defendants. Under the terms of the applicable snow removal contract, Deerhurst was named as an additional insured, though only with respect to “liability arising out of the contractor’s operations.”
Aviva was defending the snow removal contractor on the snow and ice-related claims. In doing so, Aviva maintained that it was de factodefending Deerhurst as well. Aviva refused various requests by Deerhurst to provide a separate, or additional defence, to Deerhurst. Ultimately, Deerhurst, by way of its parent company Atlific, brought an application seeking that Aviva defend the action in its entirety
On considering the matter, Belobaba, J. noted that the plaintiff’s underlying claims were grouped under three headings:
- negligence of all defendants relating to snow and ice removal;
- Deerhurst’s negligence in the operation and management of the hotel, including inadequate lighting, failure to provide non-slip matting and an alleged failure to cancel on ongoing conference to allow for snow removal); and
- Occupier’s liability.
Belobaba, J. undertook a coverage analysis when considering the application. Referring to Monenco Ltd. v. Commonwealth Insurance Co.,  2 S.C.R. 699, His Honour noted the well-settled law that if the pleadings allege facts which, if true, could possibly require an insurer to indemnify an insured on a particular claim set out in the pleadings, then the insurer was obliged to defend that particular claim. His Honour also noted the similarly well-established holding that an insurer is not obliged to defend a claim that clearly falls outside of the coverage provided by a policy: Nichols v. American Home Assurance Co., (1990) 68 D.L.R. (4th) 321. Belobaba, J. also further noted that in cases with mixed claims, where a plaintiff advances both covered and non-covered claims, an insurer is only obliged to defend those claims that potentially fall within coverage: see Unger (Litigation Guardian of) v. Unger,  O.J. No. 4587 (C.A.).
On reviewing the pleadings, Belobaba, J. held that the matter was not one in which a particular claim or category of claims captured the “true essence” of the action. His Honour noted that the snow and ice claims appeared “at first glance” to be predominant; but, the claims alleging negligence in hotel operations and management were “formidable and [could] stand on their own.”
Belobaba, J. held that Aviva was therefore obliged to provide the applicants with a defence to the snow and ice claims only. Similarly, the Deerhurst defendants were to provide their own defence to the other two “categories” of claims.
Further, and more importantly, Belobaba, J. held that providing a defence to the snow removal contractor on the “snow and ice claims” did not relieve Aviva of its contractual obligation to provide a defence to the Deerhurst defendants in this respect. The fact that Aviva would have to pay two defence counsel, or perhaps agree to a single independent defence counsel, was a necessary consequence of its insured’s contractual obligation. On this point, Belobaba, J. disagreed with the reasoning of Mossip, J. in D’Cruz v. B.P. Landscaping Ltd. and noted that Aviva could not “ignore” the claims being made against the Deerhurst Defendants merely because it was providing a defence for the snow removal contractor.
Notwithstanding his ruling, Belobaba, J. also clearly commented that if “after a careful examination of the entire pleading,” a court finds that a particular claim, which potentially falls within coverage captures “the true nature [or essence] of the overall claim”, then an insurer will be obliged to defend the entire action. We discuss this further below in the decision of Hennessey, J. in RioCan Real Estate Investment Trust v. Lombard General Insurance Co.,  O.J. No. 1449 (S.C.J.) and those following.
Cadillac Fairview Corp. v. Olympia Sanitation Products Inc.,  O.J. No. 3306 (S.C.J.)
Cadillac Fairview, a 2010 decision of DiTomaso, J., arose from a slip and fall incident at a shopping centre (Promenade Mall) owned and operated by Cadillac Fairview.
Cadillac Fairview had entered into a cleaning contract with the Defendant, Olympia. Thereunder, Olympia agreed to insure and indemnify Cadillac Fairview for any losses arising out of Olympia’s “contractual responsibilities.” The Agreement further stipulated that Olympia was to hold harmless and indemnify Cadillac Fairview for losses arising from Olympia’s duties at the shopping centre within the scope of the contract.
Cadillac Fairview moved for summary judgment on it crossclaim seeking to have Olympic provide a defence and indemnify in respect of the underlying personal injury action.
On reviewing the record, DiTomaso, J. held that the underlying and “true nature” of the claim did not fall within the scope of the contract between the defendants. While a slip and fall was alleged, there were no specific allegations in the Claim regarding any deficiency in cleaning on the part of Olympia. Furthermore, there were numerous independent allegations, including in respect of negligent design of the property that moved well outside the scope of Olympia’s work.
Specifically, DiTomaso, J. noted: (i) numerous “stand alone” claims alleging negligence against Cadillac Fairview; (ii) no specific pleading of negligence against Olympia alleging a failure to clean, maintain or inspect; and (iii) that the general form of pleading did “not articulate or even suggest” that the “main thrust or true essence” of the action attached to Olympia’s alleged negligence.
Lastly, in short order, His Honour correctly noted that any determination on the issue of indemnity, where findings of fact would necessarily have to be made at trial, was premature.
III. ‘True Essence’ of Claim (Sometimes…) – Obligations Broadly Enforced
RioCan Real Estate Investment Trust v. Lombard General Insurance Co.,  O.J. No. 1449 (S.C.J.)
Although it is now more than eight years since its reporting, the 2008 decision of Hennessy, J. in RioCan remains a primary case outlining the “true essence” test in respect of a demand to defend based upon a contractual obligation to defend and hold harmless.
RioCan operated two mall properties in Sault Ste. Marie and was a defendant in two underlying actions for personal injuries commenced by different plaintiffs arising from separate incidents of falls on ice or snow in the parking lots at both sites.
RioCan had a separate contract with Palmer Paving to provide snowplowing and winter maintenance for each parking lot. Palmer was added by RioCan as a third party in both actions.
Under the service agreements, Palmer agreed to indemnify RioCan for losses suffered as a result of “anything arising from the work performed” under the contract. Palmer was to indemnify and save harmless each RioCan in respect of “every loss, cost or expense” as a result of the breach of the contract or anything “arising from or related to” the work. The obligation purported to apply whether RioCan “[was] negligent or not.” Palmer was also required to maintain a contract of insurance and to name RioCan as an additional insured.
Lombard insured Palmer and had named RioCan as an additional insured in each instance. Palmer had also issued certificates of insurance, which provided that RioCan was an additional insured with respect to the maintenance contract with Palmer and “solely with respect” to the operations performed by Palmer.
RioCan brought applications at the pleadings stage for declarations that there was a valid policy of insurance binding Lombard in respect of the contracts between RioCan and Palmer. RioCan specifically maintained the “some” (and therefore not all) of the allegations in the underlying actions fell within Lombard’s obligation to respond and defend.
In the usual course, each of the underlying actions alleged negligence against RioCan for failing to properly maintain the parking lot areas free of ice/snow and failing to salt or sand. On a pleadings analysis, the failures could be attributable to Palmer, and if proven, would fall within the policy and trigger a duty to defend RioCan as a named insured with respect to Palmer’s work.
However, Hennessey, J. also noted claims asserting breaches of RioCan’s obligation as an occupier and the fact that Palmer’s coverage would not cover RioCan’s own negligent acts or breaches of the Occupiers’ Liability Act. For such claims, the duty to defend RioCan was not independently triggered.
Returning to first principles, His Honour noted that when determining whether an insurer has a duty to defend, the Court must look at the pleadings and the policy (or extrinsic evidence referred to in the pleadings) to determine the true nature of the claims. If an insured can demonstrate even a mere possibility that the claim could fall within the policy, then a prima facie duty to defend has been established. This duty to defend may only be negated if the insurer can demonstrate that the claim falls outside of the coverage due to a specific exclusion within the policy
Despite the “multiple liability theories” pleaded, the “true nature” of the claim in RioCan was that all defendants were negligent in failing to maintain an ice-free parking lot and as a result the plaintiffs in the underlying actions were involved in incidents and sustained injuries.
Referencing Nichols v. American Home Assurance Co.,  1 S.C.R. 801, Hennessy, J. noted that the fact that a plaintiff pleads multiple and potentially conflicting claims does not automatically negate the insurer’s duty to defend as defined in Nichols. A pleading containing multiple and potentially conflicting theories is not analogous to a claim that is found to be covered by an exclusion.
Ultimately, Hennessey, J. concluded that the Lombard policies insuring Palmer in respect of the winter maintenance contract between RioCan and Palmer Paving requires Lombard to provide a defence on behalf of RioCan in the two underlying actions as follows:
I am of the view that in most situations where there is a duty on an Insurer to defend some, or only one, of the claims made against an Insured and that claim embodies the true nature of the claim, a duty to defend the entire claim arises. This is so even where the pleadings include claims that may be outside the policy coverage.
Hennessey, J. also noted that “conflict issues” will inevitably arise in this setting. However, as counsel did not request that this issue be addressed, no direction was provided.
Harris v. Memorial Boys’ and Girls’ Club Inc.,  O.J. No. 2750 (S.C.J.)
Harris is a trial decision of Rady, J. addressing a crossclaim between defendants following a settlement with the plaintiff in the main action. The crossclaim at issue was advanced by the defendant, City of London, against the defendant, Memorial Boys’ and Girls’ Club Inc., for reimbursement of the City’s share of the earlier settlement. The issue is therefore primarily one of indemnity.
By way of background, the plaintiff was injured using a horizontal bungee amusement at the London Rib Fest. The Club operated the Rib Fest and the City was the owner of Victoria Park where the event took place.
One of the conditions for the Club’s use of the park, as outlined in an underlying rental contract with the City, was that $2 million of insurance be placed. A resulting certificate of insurance provided that the City (and related entities) were added as an additional insured. In the usual manner, the certificate further provided that such additional insured status was only with respect to the City’s interest in the operations of the named insured, the Club.
The rental contract between the parties also specifically provided that the Club would “indemnify and save harmless” the City against “all loss, costs, claims, damages, actions, suits of any nature and kind whatsoever which may arise as a result of the use of the facility or area granted under this agreement.”
At trial, the Club submitted that the plaintiff’s claims against the City were founded in allegations of negligence independent of those against the Club. Further, the Club submitted that the settlement reached with the plaintiff was made to resolve independent claims of negligence against the City, which defeated the indemnity clause on the facts of the case. The Club maintained that the City had a “non-delegable duty” as an occupier of the park that could not be contracted away except in the clearest of terms. Overall, the Club maintained that the indemnity agreement was not sufficiently broad to absolve the City of its own negligence and to permit it to, in effect, pass this it on to the Club (and the Club’s insurer). The Club made significant reference to the decision in Potvin.
In holding against the Club, and ordering that the City was entitled to indemnity for the contribution it made to the earlier settlement with the plaintiff, Rady, J. concluded that although custody and control of Victoria Park remained with the City, the indemnity provision stated that
“the applicant will indemnify and save harmless the City against all loss, costs, claims, damages, actions, suits of any nature and kind whatsoever which may arise as a result of the use of the facility” [emphasis in original]
Rady, J. concluded that there no was ambiguity about the clause, which had been so broadly worded that it required the Club to indemnify the City in the circumstances. Her Honour held it was unnecessary to determine whether the indemnity clause was sufficiently broad to cover “any negligence” on the part of the City. Rather, on distinguishing Potvin, Rady, J. held that the plaintiff’s injuries were causally connected to the activities being carried out by the Club. As such, there was a proximate connection between the injury and the use of the park by the Club. In short, the plaintiff would not have been injured but for the Club’s decision to put on the Rib Fest. In this respect, the plaintiff’s injuries were closely connected to the very activity that the Club’s insurer agreed to insure – even though in this instance vis-à-vis the City directly.
Papapetrou v. 1054422 Ontario Ltd.,  O.J. No. 35 (C.A.)
This Court of Appeal case arose from an earlier summary judgment holding in which Milanetti, J. had ordered the defendant/appellant, Collingwood Landscape, to assume the defence of the co-defendant property owner, Cora Group, in an underlying personal injury action and to indemnify Cora Group for any damages awarded in the action.
By way of background, the plaintiff had commenced an action against Collingwood and the co-defendant, Cora Group, for personal injuries suffered when she slipped on black ice on the stairs of a building managed by Cora Group. Collingwood provided winter maintenance and snow removal services. In its service agreement, Collingwood had contracted to name Cora as an additional insured. At first instance, Milanetti, J. found, based on the service contract, that a duty to defend and indemnify arose. On appeal, Cora Group properly conceded that the order to indemnify was premature and should therefore be set aside.
On the initial motion, the plaintiffs’ counsel took no position on the relief sought by Cora Group. Milanetti J. held that this was “particularly relevant,” given that the primary request was for dismissal of the claim as against the defendant property owners.
Collingwood’s service contract with Cora Group provided that it was to:
- Take all reasonable and necessary precautions to protect persons and property from injury or damage; and
- Indemnify and save harmless the Cora Group against all claims “from whatever source, nature and kind” in any manner “based upon, incidental to or arising out of” the performance or non-performance of the contract.
Milanetti J. held that while some allegations in the pleadings fell within the “general occupiers’ liability basket” they were “not of the nature of quite pointed allegations” found in Atlific. Rather, Her Honour found the general allegations that tied into the “essential negligence alleged” were Collingwood’s failure to address icy conditions on a pedestrian stairway. As such, in Milanetti, J’s view, the pleadings were more closely aligned with those in RioCan. In this regard, the “true nature” of the claim or “essence of the action,” was that the Collingwood was negligent in failing to maintain an ice free pedestrian stairway as a result of which the plaintiff fell and sustained injuries.
On appeal, the Court held that Milanetti, J. had erred in ordering Collingwood to assume the Cora Group’s defence. However, the net result of the Court’s decision, setting aside the assumption of defence, made little practical difference to Collingwood (and its insurer). In this respect, the Court held that Collingwood was liable in damages to Cora Group for the cost of its defence of the underlying action, save for any costs incurred exclusively to defend claims that did not arise from its performance or non-performance of the service contract.
The basis for this finding was the fact that on appeal the Cora Group did not argue that Collingwood’s obligation to defend arose out a defence and indemnification provision in the service contract. Rather, Cora Group relied on Collingwood’s failure to satisfy a contractual obligation to name it as an additional insured under the Collingwood policy. As such, Simmons, J.A. concluded that breach did not create a duty to defend; rather, it gave rise to a remedy in damages.
Simmons, J.A. noted that Collingwood was liable to Cora Group in damages for failing to satisfy its duty to have Cora Group named as an additional insured. The quantum of such damages is the amount Cora Group was (or would be) required to pay for a defence of the claims that Collingwood’s insurer was properly obliged to defend on Cora Group’s behalf had Collingwood fulfilled its contractual undertaking.
Simmons, J.A further held that the scope of this damages obligation would be determined by the terms of the insurance contract (in particular, the additional insured endorsement). However, the difficulty that the Court encountered was that the terms of coverage as an additional insured were silent – as Cora Group had not been included in Collingwood’s insurance policy. As such, the Court of Appeal held that the terms of the “intended insurance coverage” must be discerned from the insurance obligation and the indemnity provisions in the service contract.
The Court noted that Collingwood’s obligation was to obtain comprehensive general liability insurance to insure against bodily injury under its service contract; however, the scope of this obligation was limited to “claims … based upon, incidental to or arising out of the performance or non-performance of the contract by the Contractor”.
The Court further held that the potential for conflict between Collingwood and Cora Group’s interests was best dealt with by Cora continuing to retain independent counsel in respect of all allegations in the action. Collingwood’s obligation to pay (at least, in part) for two defence counsel was a necessary consequence of Collingwood’s breach of its contractual obligation.
Lastly, on reviewing a “true nature” analysis, Simmons, J.A. noted that assessing the true nature of a particular claim is not an exercise to be “undertaken in the abstract.” Rather it should be approached with a view to the specific limitations of the insurance coverage at issue – which in this case was limited to the matters relating to Collingwood’s performance or non-performance of the contract. This necessarily excludes Cora Group’s negligence extending beyond Collingwood’s obligations under the contract and any statutory cause of action under the Occupiers’ Liability Act beyond the obligations delegated to Collingwood. On this issue, the Court also expressly rejected Collingwood’s submission that a sufficient answer to Cora Group’s claim for a defence was the fact that its insurer was, in effect, already defending Cora Group by defending Collingwood against the claims arising from its performance of the service contract.
Saanich (District) v. Aviva Insurance Co. of Canada,  B.C.J. No. 1835 (C.A.)
Although a British Columbia decision, the holding in Saanich was reached at the appellate level and is relevant to our discussion. The case also has a unique fact pattern which indicates that the case law in this area is varied and not limited to maintenance-based occupiers’ liability matters.
In Saanich, Aviva appealed from an order directing it to defend the District of Saanich in an underlying personal injury action.
The facts were such that Saanich entered into a rental contract with a lacrosse association to use a specified area of a recreation centre for lacrosse practices. Other organized activities took place at the recreation centre concurrently, including dog obedience classes.
The plaintiff in the underlying action sued the lacrosse association and Saanich after he attended the recreation centre for a dog obedience class and, while on the premises, was hit in the head with a lacrosse ball suffering injuries.
Aviva was the lacrosse association’s insurer. Saanich had been named as an additional insured under the association’s policy with respect “to liability arising out of the activities” of the association. A certificate of insurance was provided.
On first returning, the application judge, Wedge, J., held that Aviva had a duty to defend Saanich. Wedge, J. posed the question before her as “the extent to which the alleged liability ‘arises out of’ the named insured’s operations or activities” and noted that
- The “true nature” of the claim and substance of the allegations is bodily injury arising from the lacrosse activities;
- There was no multiple causation claim in the underlying action, in that the plaintiff did not allege an injury caused independently of the lacrosse activities; and
- But for the lacrosse activities, the plaintiff would not have been hurt. As such, the pleadings connect his injury to the lacrosse activities, which was the very activity the Aviva agreed to insure.
On dismissing Aviva’s appeal, Saunders, J.A, writing for the Court, held that whether Saanich’s alleged liability arose from lacrosse activities was the only issue before Wedge, J.
In this respect, Saunders, J.A concluded that the question of the sufficiency of a causal link between Saanich’s alleged negligence and the activities covered by the certificate of insurance is guided by the “pleadings rule” and specifically whether the facts pleaded raise a claim which, if proven, would fall within the scope of the coverage: Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49,  2 S.C.R. 699:
Saunders, J.A refused to apply Atlific noting its reasoning was not transferable as it involved numerous allegations of negligence against a resort owner, only one of which directly engaged the issue of snow removal, which was the risk covered by the resort’s insurer. In Atlific, Saunders, J.A noted that the independent claims of inadequate lighting and other safety deficiencies, as well as the organization of the guests, could have supported a claim against the resort for loss, independent of the allegations relating to the adequacy of snow removal.
In contrast, Saunders, J.A correctly held that the case pleaded against Saanich could not stand, absent an “errant lacrosse ball.” As such, the Court held there was a causal link between the alleged negligence of Saanich and the plaintiff’s injury.
Carneiro v. Regional Municipality of Durham et al v. Zurich Insurance Company Ltd.,  O.J. No. 6813 (C.A.)
This more recent decision of the Court of Appeal further clarifies the duty to defend in a scenario where a party is added as an additional insured in the context of a services contract. In our view, Carneiro clarifies but does not change the case law in a significant manner.
Carneiro was an appeal by the Regional Municipality of Durham from the dismissal of its motion for an order requiring Zurich Insurance to defend claims made against it an automobile negligence case. In the underlying action, the plaintiffs sued for losses resulting from a fatal motor vehicle accident. The deceased, Mr. Carneiro, had lost control of his vehicle, allegedly because it skidded on ice and snow on a Durham roadway.
Durham had contracted with Miller Maintenance to plough its roads in the winter. Durham had been named as an additional insured under Miller’s liability policy with Zurich. The plaintiff’s claim in the main action set out numerous identical particulars of negligence against all defendants, including the allegation that Durham and Miller failed to maintain the incident roadway clear of ice and snow.
Durham commenced third party proceedings against Zurich and ultimately brought a motion before Lemon, J. seeking a declaration that Zurich had a duty to defend it in the action, to pay for counsel of its choice and to indemnify it for any amounts for which it might be found liable to the plaintiffs.
In reply, Zurich maintained that it had no duty to defend Durham on the basis that some of the particulars of negligence in the underlying statement of claim – those unrelated to winter maintenance work – fell outside of the scope of coverage it provided to Durham. Zurich correctly acknowledged on appeal that the allegations against Durham in the statement of claim arising out of Miller’s winter maintenance responsibilities were covered by its policy.
Zurich maintained that by defending Miller it was protecting Durham against any liability it may have for Miller’s negligence. Zurich further maintained that Durham must defend all claims itself, leaving “for another day” the issue of whether Zurich was required to pay for any portion of the defence costs.
Lemon, J. dismissed Durham’s motion finding that Zurich was only required to defend Durham “with respect to the claims insured for Miller.” Lemon, J. also added that Durham would continue with its own counsel to defend with respect to all other causes alleged in the claim. In this respect, Lemon, J. accepted Zurich’s argument that by defending Miller it was effectively protecting Durham against liability for Miller’s failure to discharge its contractual obligations
In its analysis, the Court of Appeal noted that Durham was an additional insured under Zurich’s policy. The Court noted that the policy contained an unqualified promise to defend an insured for actions covered by the policy. In this respect, Zurich was obligated to pay the reasonable costs of Durham’s defence of covered claims, even where that defence furthers the defence of uncovered claims (which is in our view is the practical inevitability in this scenario). However, the Court also held that Zurich was not obligated to pay costs related solely to the defence of uncovered claims. In this respect, the Court referenced its earlier decision in Hanis v. Teevan (2008), 92 O.R. (3d) 594 (C.A.).
The Court noted that it arrived at its conclusion for five reasons.
First, the allegations in the statement of claim triggered Zurich’s duty to defend Durham. Referencing Monenco v. Commonwealth,  2 S.C.R. 699, the Court noted that when pleadings allege facts that, if true, require an insurer to indemnify an insured, the insurer is obliged to defend the claim. The mere possibility that a claim may fall within the policy is sufficient to trigger the duty to defend. On the assessment of whether the facts pleaded fall within the policy, the court must consider the “true nature” of the claim.
Noting this, the Court concluded as was obvious: the true nature of the claim was that the deceased lost control of his vehicle when it skidded on ice and snow on the roadway. This pleading, coupled with the allegation that Durham and Miller failed to keep the road clear of ice and snow, related directly to Miller’s obligations under the contract. As such, the Court found this engaged Zurich’s obligation to defend Durham, subject to any qualification in the policy.
Second, the Court could not identify anything in the Zurich policy, which qualified its duty to defend. In this respect, Zurich’s policy required it to defend the action, not just the covered claims. On this issue, the Court referenced Hanis v. Teevan where some but not all of the claims made in an action were covered by a policy, and there was an unqualified obligation in such policy to provide a defence. In Hanis, the Court of Appeal held that the insurer was required to pay all reasonable costs associated with the defence of those claims, evenif those costs further the defence of uncovered claims. The Court further added that the insurer was not obliged to pay costs related solely to the defence of uncovered claims.
Relying upon Hanis, The Court noted that the language of Zurich’s policy of insurance created a duty to defend an insured (including an added insured) against “any action” seeking damage to which such insurance applies. As in Hanis, there was nothing in the language of the Zurich policy to qualify its duty to defend or to suggest that the duty did not apply to “mixed” claims impacting both Durham and Miller. In short, as the underlying action against Durham sought damages to which the insurance applied, Zurich had a duty to defend.
Third, the Court found that Zurich did not satisfy its duty to Durham by defending Miller. In this regard, the Court specifically noted that there was no authority for Zurich’s argument that it satisfied its duty to Durham by defending Miller. Instead, the Court noted that this position has been expressly rejected in Papapetrou and Atlific.
The Court noted that as an additional insured, Durham had independent rights, including a right to a defence, regardless of the defence provided to the named insured, Miller. The Court noted that if Zurich’s position were correct, it would rarely (if ever) have to defend an additional insured as it would usually be defending a named insured against the same liabilities.
Fourth, the Court noted that Zurich could not ignore its obligation to Durham as an additional insured in the face of insured and uninsured claims. In this respect, the conclusion was that Lemon, J. gave preference to Zurich’s interests over those of the insured, which ignored Zurich’s underlying, contractual duty to defend.
Fifth, the duty to defend is a separate contractual obligation that is not met by Zurich simply indemnifying Durham on defence costs “at the end of the day.” In this respect, the Court of Appeal expressly disagreed with Lemon, J’s conclusion that Durham was protected because it would be entitled to recover costs at the end of the litigation if it were not found liable. Quite critically, the Court held that this conclusion “misses the point: the duty to defend is a separate contractual obligation.” The outcome of the trial is irrelevant to the duty to defend.
On granting Durham’s appeal, the Court ordered that:
- Zurich provide Durham with independent counsel, at Zurich’s expense, to defend the action in its entirety, having regard to (i) Zurich’s unqualified contractual undertaking to defend Durham; and (ii) the conflict between the interests of Durham and Miller, and between those of Durham and Zurich; and
- At the end of the proceedings, Zurich would be entitled to seek an apportionment of defence costs, to the extent those costs dealt solely with uncovered claims, or exceeded the reasonable costs associated with the defence of covered claims.
Finally, at the end of its reasons, the Court made comments which can be read as a critique on time and resources directed to the respondent as follows:
We repeat this court’s observation in Halifax Insurance Co. of Canada v. Innopex, (2004), 72 O.R. (3d) 522, at para. 55, that the duty to defend issue must be determined expeditiously, on the basis of the allegations in the underlying litigation, read with the insurance coverage. The failure to do so in this case has undoubtedly increased the costs of the litigation and has caused delay to all parties.
UPS Supply Chain Solutions Inc. v. Airon HVAC Service Ltd.,  O.J. No. 1360 (S.C.J.)
The recent decision of Matheson, J. in UPS Supply Chain Solutions, further indicates that the underlying concepts on the duty to defend outlined in “routine” occupiers’ liability cases are applicable in matters with potentially more complex facts and damages.
The decision in UPS Supply Chain Solutions arose from an application by this UPS entity for an order and declaration against a number of service providers (and their respective insurers) to defend and indemnify it.
At issue in the underlying action was an alleged malfunction of a UPS warehouse cooling system where Sanofi Pasteur vaccines were stored. The vaccines were unsalable after a weekend of storage allegedly below the required temperature. Sanofi Pasteur was indemnified by its insurer, which subrogated and commenced the underlying action against the UPS defendants and their HVAC and building automation service providers, Honeywell Limited, Airon HVAC and Control and Industrial Technical Services. Losses exceeded $8 million.
The Honeywell, Airon, and Industrial Technical Services defendants commenced third party proceedings against a number of further UPS parties, who in turn commenced further proceedings against the service providers’ commercial general liability insurance carriers, ACE INA (Honeywell), Northbridge (Airon) and Intact (Industry Technical Services).
UPS Supply Chain Solutions brought an application before Matheson, J. relying on the service contracts with the service providers, and the policies of the insurer parties, seeking direction on a duty to defend.
Each of the service contracts between the UPS parties and Honeywell, Airon and Industrial Technical Services contained identical language requiring: (i) the service providers to add the UPS applicants to their respective CGL policies as insureds; and (ii) obliging the service provider to hold the UPS companies harmless from certain losses, including, in particular, legal costs.
Matheson, J. ultimately allowed the application in part, holding that certain allegations gave rise to a possibility of coverage by the respondent insurers (those allegations relating to negligence of the defendants as manufacturers, designers, installers and maintenanceproviders of the HVAC equipment that allegedly failed).
On determining whether the insurers were obliged to defend the whole claim or just part of it where there are multiple claims, only some of which are potentially covered, Matheson, J. relied on Papapetrou, RioCan, Atlific and Cadillac Fairview cases finding that a duty to defend is (i) limited to defending claims that – if proven true – would fall within coverage under the policy; (ii) does not extend to the defence of independent claims; and (iii) requires the Court to assess the substance or the “true nature” of each claim contained within the pleadings to see if it falls within the scope of coverage, which exercise is not to be undertaken in the abstract.
IV. Some Concluding Thoughts
It is inevitable that by the time a hold harmless and indemnity provision is scrutinized it is in the context of a litigated claim. That said, the pleadings will remain a touchstone when considering demands arising from such provisions. The view which the Court brings to the matter, is practically a coverage analysis. As such, a broadly drafted claim, which includes independent allegations of negligence, could defeat a demand for defence on a “true essence” examination. On the other hand, a tightly drafted hold harmless and indemnity provision, particularly one which specifies that the agreement responds even where the party seeking defence and indemnity is negligent, is more likely to support a finding for such party.
Of note, certificates of insurance, which are routinely issued by contracting parties, may have no real significance, unless a party is actually added as an additional insured to an underlying policy. Assuming that is the case, the holding in Carneiro provides clarity on matters – and further direction on the recovery of costs at the end of a proceeding by a party who has defended another for uncovered claims, or where costs associated with the defence of covered claims are unreasonable. On a further practical point, the holding in Papapetrou indicates that a party with a clear contractual obligation to act in accordance with a hold harmless/indemnity provision runs the risk of a finding against it for damages equivalent to the cost of a defence obligation not properly undertaken.