Willson et al. v. Certas Direct Insurance [Indexed as: Willson v. Certas Direct Insurance]

62 O.R. (3d) 423

[2002] O.J. No. 4702

Docket No. C37182

Court of Appeal for Ontario,

McMurtry C.J.O., Carthy and Goudge JJ.A.

December 10, 2002

Insurance -- Insurer's obligation to defend -- Claim against insured clearly falling outside indemnity provisions of automobile insurance policy -- Insurer having no duty to defend -- Duty not created by statement in policy that insurer would provide defence if "someone sues you or other insured persons insured by this Section for losses suffered in an automobile incident".

The applicants were insured by the respondent under a standard automobile policy. A personal injury claim was brought on behalf of their daughter against the owner and operator of a motor vehicle in which the daughter was a passenger when the vehicle was involved in a motor vehicle accident. The owner and operator brought third party proceedings against the applicants claiming indemnity because they failed to instruct their daughter about the proper use of seat belts. The applicants applied for a declaration that the respondent was obliged to defend them in the third party proceedings. The application was dismissed on the basis that the claim clearly and unambiguously fell outside the coverage provided by the policy. The applicants appealed. They conceded that the claim in the third party proceedings was clearly outside the policy coverage, but argued that s. 3.3.1 of the policy created the duty to defend. That provision states"If someone sues you or other insured persons insured by this Section for losses suffered in an automobile incident, we will provide a defence and cover the costs of that defence . . .".

Held, the appeal should be dismissed.

The words relied on by the applicants appeared in s. 3 of the policy which provided for liability coverage. The introduction to that section stated that the policy provided coverage where the named insured or other insured persons were responsible for bodily injuries or losses others suffered in an automobile accident. The balance of the section made it clear that the liability coverage provided did not extend to claims such as that made against the applicants. The similarity of the language creating the obligation to defend to the introductory language which began the liability coverage section strongly suggested that the former was not meant to extend beyond the reach of the latter. The words that the applicants relied on to create the duty to defend did not set up criteria different from those describing coverage. Rather, they mirrored them. Viewing the policy more generally, the consequence of the applicants' argument was that the few words they relied on would turn the policy into one of general litigation insurance rather than the standard automobile policy which it was on its face. Taking the language of the policy as a whole, the true intention was that the duty to defend did not arise for a claim that could not come within the indemnity provisions of the policy.

APPEAL from a judgment dismissing an application for a declaration that an insurer had a duty to defend the applicants. [page424]

Cases referred to Nichols v. American Home Assurance Co., 1990 144 (SCC), [1990] 1 S.C.R. 801, 72 O.R. (2d) 799n, 68 D.L.R. (4th) 321, 107 N.R. 321, 39 O.A.C. 63, [1990] I.L.R. 1-2583

James H. Cooke, for appellant. Harrison Arrell and Michelle Stark, for respondent.

The judgment of the court was delivered by

[1] GOUDGE J.A.: -- The issue raised by the appellants in this appeal is whether their insurer has a duty to defend them in litigation where the claim against them clearly falls outside the indemnity provisions of their automobile insurance policy.

[2] For the reasons that follow, I conclude, as did Caputo J. at first instance, that in these circumstances the insurer has no duty to defend. I would therefore dismiss the appeal.

[3] The litigation underlying this proceeding began with a personal injury claim brought on behalf of Melissa Willson, the ten-year-old daughter of the appellants.

[4] The statement of claim alleges that Melissa was a passenger in the car owned and operated by the defendants, Scarlet and Jeffrey Schreiber. Melissa was injured when the car driven by the defendant Maurice Nostadt went out of control, crossed the centre line on the highway, and collided with the Schreiber vehicle.

[5] The claim alleges that the Schreibers were negligent in failing to insure that Melissa was wearing a seat belt.

[6] The Schreibers, in turn, have brought third party proceedings against the appellants claiming indemnity from them because they failed to instruct their daughter Melissa about the proper use of seat belts.

[7] The appellants are insured by the respondent under a standard automobile policy in the form approved by the Insurance Commission for use as the standard owner's policy in Ontario on or after November 1, 1996.

[8] Based on this policy, the appellants applied for a declaration that the respondent is obliged to defend them in the third party proceedings brought by the Schreibers.

[9] Caputo J. dismissed the application. He concluded that the claim made against the appellants in the third party proceedings clearly and unambiguously fell outside the coverage provided by the policy and, therefore, the respondent had no duty to defend.

[10] In argument in this court the appellants conceded -- in my view appropriately -- that the claim in the third party proceedings could not require the insurer to provide indemnity. It was clearly outside the policy coverage.

[11] They argue, however, that s. 3.3.1 of the policy creates the duty to defend. It reads as follows: [page425]

3.3.1 If Someone Sues You

By accepting this policy you and other insured persons irrevocably appoint us to act on your or their behalf in any lawsuit against you or them in Canada, the United States of America or any other jurisdiction designated in the Statutory Accident Benefits Schedule arising out of the ownership, use or operation of the automobile.

If someone sues you or other insured persons insured by this Section for losses suffered in an automobile incident, we will provide a defence and cover the costs of that defence, including investigation costs. We will pay all legal costs the court assesses against you and other insured persons in the lawsuit we have defended.

If there is a judgment against you or other insured persons, we will pay any post-judgment interest owed on that part of the amount the court orders that falls within the liability limits of your policy.

We reserve the right to investigate, negotiate and settle any claim out of court if we choose.

(Emphasis added)

[12] The appellants' position is that the underlined words are clear or, at the least, ambiguous and hence are to be construed against the insurer. They argue that this language sets up three criteria which are all met in this case: someone has sued the appellants; they are insured by s. 3 of the policy; and the action is for loss as suffered in an automobile incident.

[13] In my view, this argument must fail based on both the wording of the policy and general insurance principles.

[14] The words relied on by the appellants appear in s. 3 of the policy which provides for liability coverage. The introduction to that section, in language very similar to that relied on by the appellants, states that the policy provides coverage where the named insured or other insured persons are responsible for bodily injuries or losses others suffer in an automobile incident. The balance of the section makes clear that the liability coverage provided does not extend to claims such as that of the Schreibers. Coverage is provided for the use or operation of the automobiles described in the policy and other specified types of automobile and this accident involved none of these. Moreover, the appellants do not now contest that the third party claim falls outside the coverage provisions of the policy.

[15] The point of relevance here is that the similarity of the language creating the obligation to defend to the introductory language which begins the liability coverage section strongly suggests that the former was not meant to extend beyond the reach of the latter. The words that the appellants rely on to create the duty to defend do not set up criteria different from those describing coverage. Rather, they mirror them. [page426]

[16] The same conclusion arises on a comparison of the first paragraph of s. 3.3.1 with the words that the appellants rely on in the second paragraph of that subsection. The former provide for the irrevocable appointment of the insurer to act for the insured in any lawsuit arising out of the ownership, use, or operation of "the automobile" as defined in the policy. This clearly tracks the policy provision spelling out coverage. While the latter does not use identical wording to describe the duty to defend, common sense suggests that the duty to defend and the irrevocable appointment to act for the insured would arise in the same circumstances, that is, circumstances to which coverage may extend.

[17] Viewing the policy more generally, the consequence of the appellants' argument is that the few words they rely on would turn this policy into one of general litigation insurance rather than the standard automobile policy which it is on its face.

[18] In summary, taking the language of the policy as a whole, the true intention is that the duty to defend does not arise for a claim that cannot come within the indemnity provisions of the policy.

[19] This conclusion is faithful not just to the wording of the policy, but to general insurance principles. In Nichols v. American Home Assurance Co., 1990 144 (SCC), [1990] 1 S.C.R. 801, 68 D.L.R. (4th) 321, at p. 810 S.C.R., McLachlin J. (now C.J.C.) said this:

Thus far, I have proceeded only by reference to the actual wording of the policy. However, general principles relating to the construction of insurance contracts support the conclusion that the duty to defend arises only where the pleadings raise claims which would be payable under the agreement to indemnify in the insurance contract. Courts have frequently stated that "[t]he pleadings govern the duty to defend": Bacon v. McBride (1984), 1984 692 (BC SC), 6 D.L.R. (4th) 96 (B.C.S.C.), at p. 99. Where it is clear from the pleadings that the suit falls outside of the coverage of the policy by reason of an exclusion clause, the duty to defend has been held not to arise: Opron Maritimes Construction Ltd. v. Canadian Indemnity Co. (1986), 1986 89 (NB CA), 19 C.C.L.I. 168 (N.B.C.A.), leave to appeal refused by this Court, [1987] 1 S.C.R. xi.

At the same time, it is not necessary to prove that the obligation to indemnify will in fact arise in order to trigger the duty to defend. The mere possibility that a claim within the policy may succeed suffices. In this sense, as noted earlier, the duty to defend is broader than the duty to indemnify. . . .

[20] McLachlin J. went on to explain the practical and policy difficulties that would arise if the insurer were obliged to defend a claim which was clearly outside the scope of the policy. Such an approach would require that others in the insurance pool be taxed to provide defences for risks they were not seeking to insure. Moreover, the insurer would be placed in a position of conflict since it would be required to defend the claim, however, it would have an interest in ensuring that liability, if found against the insured, falls outside the policy, contrary to the interest of the insured. [page427]

[21] Supported by this underpinning of general insurance principles, I think the conclusion is unassailable that, in this policy, there is no obligation to defend in these circumstances because the claim cannot fall within coverage.

[22] Thus, I would dismiss the appeal. The respondent is entitled to its costs on a partial indemnity basis, which I would fix at $2,500.

Appeal dismissed.