The Duty to Defend: A Clarion Call

The insurer was required to defend an additional insured because there was at least a mere possibility of coverage based on the allegations in the pleading.

Insurance law – Commercial general liability insurance – Additional named insured – Duty to defend – Exclusions – Interpretation of policy – Duties and liabilities of insurer

Surrey (City) v. Co-operators General Insurance Co., [2023] B.C.J. No. 1069, 2023 BCSC 955, British Columbia Supreme Court, June 5, 2023, A. Walkem J.

A gym user was injured while using a leg press machine at the Surrey Recreation and Leisure Centre. He sued the City of Surrey (“Surrey”), alleging that he had been hurt when a pin had fallen out of the machine. He said the pin in question had not been designed for the machine in which it had been placed.

Surrey had contracted with two individuals and a fitness equipment repair entity (collectively, “Elk”) for the provision of weekly maintenance and repair services, as well as quarterly preventative maintenance.  The contract required that Elk have in place commercial general liability insurance on an occurrence basis, naming Surrey as an additional insured. The coverage extended to death, bodily injury and property damage arising directly or indirectly out of the work or operations of Elk and its employees and agents. Elk duly obtained a policy with Co-operators General Insurance Co. (“Co-operators”). The policy contained an exclusion clause for bodily injury arising out of any act or omission of Surrey or its employees.

In due course, Surrey demanded coverage for potential liability and made a demand for defence in the underlying personal injury action. Co-operators denied coverage, relying in part on the exclusion clause, and brought a summary trial application, asserting that Elk had no liability because it had not placed the offending pin and therefore someone else must have done so. Co-operators argued that Elk’s application should be heard before Surrey’s, because a determination that Elk was not responsible for the pin placement would result in Elk’s insurance not covering Surrey, and that would be the end of the matter.  Co-operators also argued that the coverage in play required an act or omission on behalf of Elk (or its employees) and did not extend to bodily injury arising out of an act or omission on the part of Surrey (or its employees).

Surrey argued that the test for a duty to defend had been met, and that the Co-operators’ exclusion clause did not bar their duty to defend Surrey in the underlying action, because the pleadings alleged negligence in the maintenance and condition of the leg press, for which Elk was at least partly responsible.

As to whether Co-operators owed a duty to defend Surrey, the Court canvassed the often-cited principles concerning the interpretation of insurance policies (which also apply to the duty to defend and to exclusion clauses), noting in particular that the duty to defend is triggered even where there is “no more than a mere possibility” that the claim falls under the relevant policy. The Court also considered the test for triggering a duty to defend based on the pleadings rule, and in that regard noted that, although extrinsic evidence may be considered in order to determine the nature and scope of the duty to defend, caution should be taken to avoid a situation in which the duty to defend application turns into into a trial within a trial.

In the final analysis, the Court found that Co-operators had not met their burden to show that the exclusion clause applied to oust their duty to defend, and ordered that Co-operators defend Surrey based on the allegations in the pleadings in the underlying action.

This case was digested by Siobhan Sams, and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please contact Siobhan Sams at [email protected].

To stay current with the new case law and emerging legal issues in this area, subscribe here.