The applicants, Distillery Parties and Rite-Air, sought declarations that their insurers, Temple Insurance Company and Aviva Insurance Company of Canada, had a duty to defend them under a Specific Project Wrap-Up Liability Insurance Policy.
The insurers denied the duty to defend, arguing that the alleged property damage was below the policy's $10,000 deductible, and thus no coverage was triggered.
The court held that the duty to defend is triggered by the mere possibility of a covered claim, regardless of whether the alleged damages exceed the deductible.
The court also rejected the insurers' request for an ex ante allocation of defence costs, stating that such allocation is premature and must be determined ex post facto based on actual legal expenses for exclusively uncovered claims.