Douglas McInnis and Anthony Cole

This was a costs and terms endorsement following a partially successful duty to defend application.

The applicants obtained a duty to defend against three insurer respondents but were unsuccessful against the service provider respondents.

The court awarded costs to the applicants against each insurer respondent, awarded partial indemnity costs to the successful service provider respondents in reduced amounts where appropriate, and declined to make a Sanderson order or determine disputed supplementary payments coverage issues within the costs proceeding.

The court also ordered each insurer respondent to pay a share of defence costs already incurred in the underlying action, excluding adverse costs awards, and imposed terms governing the appointment and reporting obligations of independent counsel because of conflicts of interest.

The applicants sought declarations that contractor respondents and their CGL insurers owed duties to defend and indemnify them for legal costs arising from third party claims in underlying vaccine spoilage litigation.

The court held that, for a duty to defend analysis involving third party claims, the statement of claim and the relevant third party claims must be read together.

Applying the pleadings rule and the mere possibility of coverage standard, the court found that three insurer respondents owed a duty to defend, but only with respect to the negligence-based vendor and service-provider claims, not the distinct claims concerning the applicants' own contractual representations and warehouse operations.

The service contracts did not themselves impose a separate contractual duty to defend, only indemnity obligations.

Defence responsibility for the covered category was apportioned equally among the three insurers, and independent counsel was required due to conflict.