Does the Insurer have a Duty to Defend the Insured Based on the Policy’s Coverage?

Wal-Mart Canada Corp. v. Intact Insurance Company, 2016 ONSC 4971

In this case, Wal-Mart Canada Corp. (“Wal-Mart”) sought a declaration for defence and indemnification under a policy of insurance its maintenance subcontractor had with Intact Insurance Company (“Intact”). Walmart was a named insured under that policy.

The tort action involved a plaintiff who tripped and fell over cracked and uneven pavement in a Walmart parking lot.  Prior to the parking lot incident, Wal-Mart entered into an outdoor maintenance and services contract with C.L. & Sons Property Maintenance and Landscaping Services Ltd. (“C.L. & Sons”). Under the terms of the contract, C.L. & Sons was required to “communicate regularly any deficiency/condition that may be contributing to extraordinary maintenance that would reduce debris, benefit vehicular and/or pedestrian safety, or enhance the appearance of the property”. The agreement also required C.L. & Sons to have commercial general liability insurance that included coverage for personal injury liability. It also required that Wal-Mart be named as an additional insured.

Intact took the position that the incident described in the tort action was excluded from coverage because it did not fall within the scope of work that C.L. & Sons was contracted to do with Wal-Mart.

The Ontario Superior Court of Justice provided that the general rule on the duty of the insurer to defend is whether the pleadings against the insured make allegations that, if so found, would fall within the coverage under the policy.

The Court examined the pleadings from the tort action, the maintenance services contract, and insurance policy documents. Justice Dow concluded that the insurance policy clearly provided coverage for the type of claim that was advanced in the tort action subject to “liability arising out of the operations” of C.L. & Sons at Wal-Mart’s premises. As a result, the Court held that Intact did owe Wal-Mart a duty to defend it in the tort action.

Wal-Mart also sought a declaration that it be able to appoint and instruct counsel of its choice at Intact’s expense. Wal-Mart tried to argue its concern that counsel appointed, paid and instructed by Intact will attempt to steer the facts of the tort action to a conclusion where there is no duty to indemnify. The Court did not see this as a valid concern. Given that the evidence regarding inspection and maintenance of the parking lot will come from employees or subcontractors of Wal-Mart, Justice Dow held that Intact shall retain its right under the policy to choose, pay and instruct counsel.

What the Insurer Should Know

Coverage is determined by what is contained within the pleadings and the policy.  Absent good reason, the insurer will retain control of the defense.

Mitch Kitagawa Kentt Coburn (Articling Student)