Court File and Parties

COURT FILE NO.: CV-20-636253-0000 DATE: 20220426 SUPERIOR COURT OF JUSTICE – ONTARIO

RE: Whitehall Bureau of Canada Limited & Corporate Risk Solutions & Hire Image Canada, a Division of Whitehall Bureau of Canada Limited & Claims Invest AND: Lloyd’s Underwriters and The Sovereign General Insurance Company and Dan Lawrie Insurance Brokers Ltd.

BEFORE: J.T. Akbarali J.

COUNSEL: Guy Sanders, for the applicant Ben Forrest, for the respondent Dan Lawrie Insurance Andrew Graham, for the respondents Lloyd’s Underwriters and the Sovereign General Insurance Company

HEARD: April 7, 2022

Endorsement

Overview

[1] The applicant seeks an order that the respondents Lloyd’s Underwriters and the Sovereign General Insurance Company (the “Insurers”) are required to provide it with a defence to an action in which it is a named defendant. It also seeks reimbursement of its expenses incurred in defending the action, and an order that it be entitled to choose its counsel in the action. The Insurers deny that a duty to defend has arisen under the insurance policy. If there is a duty to defend, they deny that the applicant is entitled to choose its counsel.

Brief Background

[2] The applicant provides surveillance services to insurance companies. It purchased from the Insurers insurance policies that are designed for companies in the applicant’s line of business. The respondent Dan Lawrie Insurance Brokers Ltd. (“Lawrie”) was the broker that arranged and serviced the insurance policies on the applicant’s behalf. The amended amended notice of application pleads that Lawrie is a respondent because it is affected by this application, but no relief is sought against it. Lawrie supports the applicant in this application.

[3] At issue in this proceeding are terms of the policies that provide defence and indemnity coverage for claims of assault and/or battery by an employee, and terms that provide coverage for “non-owned auto” claims.

[4] This application has its genesis in an underlying action commenced by Lucia Derenzis and her son-in-law, Joshua Da Silva (the “plaintiffs”). The plaintiffs make claims against a number of defendants, including the applicant, certain of its employees, and Gore Mutual Insurance Company (“Gore”), among others.

[5] The claim alleges that the applicant was retained by Gore to surveil Lucia Derenzis, a Gore insured who was in a car accident and who had made a claim for accident benefits. The claim is 95 pages long. I address the allegations relevant to this application in greater detail, below. At this stage it suffices to note that Ms. Derenzis alleges that the defendants were involved in a conspiracy to harass her through, among other things, overt surveillance designed to intimidate her into abandoning her accident benefits claim, settling it improvidently, or committing suicide. She also makes allegations of negligence in connection with the surveillance she experienced. I refer to these allegations broadly as the “surveillance claims”.

[6] Mr. Da Silva claims damages for injury he alleges he sustained when he was purposefully or accidentally struck by a car driven by one of the applicant’s employees while Mr. Da Silva was trying to take a photograph of the car’s licence plate. I refer to these allegations broadly as the “auto claims”.

Issues

[7] This application raises the following issues:

a. Do the surveillance claims give rise to a duty to defend? b. Do the auto claims give rise to a duty to defend? c. If so, is the applicant entitled to (i) reimbursement for all expenses incurred in defending the action; and (ii) choose its counsel to defend it in the action?

The Duty to Defend: Legal Principles

[8] The parties agree on the legal principles that are relevant when determining whether a duty to defend has arisen. These were summarized by the Court of Appeal in Tedford v. TD Insurance Meloche Monnex, 2012 ONCA 429, 112 O.R. (3d) 144, at para. 14 (cites omitted):

a. the insurer has a duty to defend if the pleadings filed against the insured allege facts which, if true, would require the insurer to indemnify the insured; b. if there is any possibility that the claim falls within the liability coverage, the insurer must defend; c. the court must look beyond the labels used by the plaintiff to ascertain the substance and true nature of the claims. It must determine whether the factual allegations, if true, could possibly support the plaintiff’s legal claims; d. the court should determine if any claims pleaded are entirely derivative in nature. A derivative claim will not trigger a duty to defend; e. if the pleadings are not sufficiently precise to determine whether the claims would be covered by the policy, the insurer’s obligation to defend will be triggered where, on a reasonable reading of the pleadings, a claim within coverage can be inferred; f. in determining whether the policy would cover the claim, the usual principles governing the construction of insurance contracts apply, namely, the contra proferentum rule and the principle that coverage clauses should be construed broadly and exclusion clauses narrowly. In addition, where the policy is ambiguous, it is desirable to give effect to the reasonable expectations of the parties; g. extrinsic evidence that has been explicitly referred to in the pleadings may be considered to determine the substance and true nature of the allegations.

[9] In determining whether the duty to defend arises, the court must remain disinterested in the truth or falsity of the allegations contained within the statement of claim. A duty to defend application is not a fact-finding analysis into the actual facts surrounding the underlying claim: Cooper v. Farmers’ Mutual Insurance Co., at para. 13.

[10] The duty to defend is not dependent on the insured actually being liable, and the insurer actually being required to indemnify the insured. “What is required is the mere possibility that a claim falls within the insurance policy”: Progressive Homes v. Lombard General Ins., 2010 SCC 33, [2010] 2 S.C.R. 245, at para. 19.

[11] The “widest latitude should be given to the allegations in the pleadings in determining whether they raise a claim within the policy”: Nichols v. American Home Assurance Co..

[12] Determining whether or not a claim could trigger indemnity is a three-step process:

a. First, a court should determine which of the plaintiff’s legal allegations are properly pleaded, and in doing so, is not bound by the labels chosen by the plaintiff. Rather, a court must examine the substance of the allegations in the pleading to determine the true nature of the claims: Non-Marine Underwriters v. Scalera, 2000 SCC 24, at para. 50; b. Second, the court should determine if any claims are entirely derivative in nature. The duty to defend is not triggered simply because the claim can be cast in terms of both negligence and intentional tort. If the alleged negligence is based on the same harm as the intentional tort, it will not allow the insured to avoid the exclusion clause for intentionally caused injuries: Scalera, at para. 51; c. Third, the court must decide whether any of the properly pleaded, nonderivative claims could potentially trigger the insured’s duty to defend: Scalera, at para. 52.

[13] I turn now to consider the relevant provisions of the policies in the context of the allegations made against the applicant in the action.

Do the surveillance claims give rise to a duty to defend?

The Surveillance Claims

[14] The plaintiffs’ claim in the underlying action is prolix and unclear. However, in determining what is alleged in the claim, I must read the pleading generously in determining the coverage questions: Cusack v Lawyers’ Professional Indemnity Co., 2013 ONSC 5511, at para. 27.

[15] The plaintiffs’ claim makes a number of allegations relevant to the surveillance claims, including:

a. The surveillance of Ms. Derenzis and her family members amounted to criminal harassment. b. The applicant knew that Ms. Derenzis was terrified by the surveillance but continued to encourage that more surveillance take place. c. The applicant was given incorrect information by the insurance adjuster so the applicant could claim that the intent of intense surveillance was a misunderstanding. d. Alternatively, the applicant was “grossly negligent in their hiring protocols and their management and supervision of operations. The negligence causing [sic] internal control systems to disintegrate to the point that their investigators were involved in intimidation and harassment activities.” e. The surveillance was obvious and heavy handed with an intent to intimidate. f. Certain private investigators employed by the applicant chose not to participate in the surveillance because they knew their actions were criminal. g. Certain private investigators employed by the applicant knew the surveillance was not covert, and served no legitimate purpose, yet chose to follow Ms. Derenzis in a reckless manner risking her safety and the safety of her daughter. h. The surveillance involved instances of aggressive tail-gating. Video of the events was deleted or the events were edited out so as to avoid exposure of the criminal activities. i. The private investigators contacted the adjuster and advised that Ms. Derenzis and her husband were aware that surveillance was occurring. The adjuster told the applicant to continue surveillance as it was having the intended effect. The adjuster lied to the applicant advising it that Ms. Derenzis’s counsel had told her that Ms. Derenzis was bedridden when no such conversation had occurred. j. After the applicant’s employee struck Mr. Da Silva with his vehicle, the applicant destroyed evidence of the conspiracy to harass Ms. Derenzis.

[16] The claim appears to plead three separate causes of action against the applicant arising out of the facts alleged with respect to surveillance. These are harassment, participation in an unlawful means conspiracy aimed at harming Ms. Derenzis and her family, and negligence in hiring protocols and management and supervision of operations.

The Policy Terms

[17] The applicant purchased a commercial general liability insurance policy (“CGL”) from the Insurers which is relevant to the surveillance claims.

[18] The CGL provides coverage for damages that the “Insured” becomes legally obligated to pay “because of bodily injury to any person arising out of negligence of the Insured in preventing or in failing to prevent an assault and/or battery by an employee of the Insured or third party which occurs during the course of, or as a result of, the Named Insured’s work.”

[19] “Insured” is defined to include employees of the Named Insured. The Named Insured is the applicant.

[20] The policy includes a separation clause, which provides that the insurance applies “as if each Named Insured were the only Named Insured” and “[s]eparately to each Insured against whom claim is made or action is brought.”

[21] The CGL defines “bodily injury” to include, among other things, “shock, mental anguish, [and] mental suffering.”

[22] The CGL defines “assault and/or battery” to be “an intentional act by one person that creates an apprehension in another of an imminent harmful or offensive contact and/or an intentional unpermitted act causing harmful or offensive contact with the person of another.”

[23] The coverage under the CGL is subject to exclusions, including:

a. “expected or intended injury”, which is defined to include bodily injury expected or intended from the standpoint of the Insured. b. “automobile”, which is defined as bodily injury arising out of the ownership, use, operation or entrustment to others by or on behalf of any Insured of (i) any automobile…”.

[24] The applicant also purchased a standalone errors and omissions policy (“E&O policy”). The parties agree that the exclusions contained in the E&O policy apply such that no coverage is available to the applicant under it. However, the applicant and Lawrie make reference to terms contained in the E&O policy which they argue assist in understanding the scope of coverage in the CGL. In particular, the E&O policy excludes coverage for claims arising out of:

a. Any fraudulent, dishonest, criminal act or wilful act, error or omission committed by any “Insured”; b. Any error, omission or negligent act expected or intended from the standpoint of any “Insured”.

Analysis

[25] First, I note that the surveillance claims plead bodily injury as defined in the CGL. Moreover, I accept that the allegations pleaded against the applicant’s employees fall within the definition of “assault and/or battery by an employee”. They are pleaded to be intentional acts (the surveillance) by one person (the private investigator) that creates an apprehension in another (Ms. Derenzis) of an imminent harmful or offensive contact (for example, fear for her safety due to being aggressively tail-gated) and/or an intentional unpermitted act (the surveillance) causing harmful or offensive contact (fear-inducing and intimidating interactions) with the person of another (Ms. Derenzis).

[26] In my view, the real point of departure between the parties is whether the surveillance claims plead an intentional course of conduct such that the negligence claim is derivative of the intentional torts pleaded. The insurers agreed at the hearing that if the negligence claims are not derivative, a duty to defend arises.

[27] The Insurers rely on the exclusion under the CGL for criminal, wilful and/or intentional acts. They argue that the “pith and substance” of the allegations against the applicant is that the surveillance activities it and its employees carried out were criminal in nature, designed to intentionally cause the plaintiff harm and intimidate her from pursuing her accident benefits claim as part of an overall conspiracy with Gore and Gore’s other service providers.

[28] The insurers argue that the negligence claim, which was added through an amendment to the claim, was an attempt by the plaintiffs to engage coverage where none existed. They argue that there are no facts pleaded to support a negligence claim. They acknowledge that it would be possible to plead the claim in such a way as to set up a foundation for negligence, but that the plaintiff did not do so.

[29] I disagree with the Insurers’ analysis.

[30] The CGL excludes coverage for “bodily injury expected or intended from the standpoint of the Insured.” In contrast, the E&O policy excludes coverage for “any fraudulent, dishonest, criminal act or wilful act, error or omission committed by any “Insured”.

[31] The Insurers argue that the exclusion in the CGL applies to the criminal or intentional acts of “any insured”. I have difficulty with this position. The exclusionary clause, which must be narrowly construed, uses the words “the Insured”. That the E&O policy uses the words “any Insured” indicates that the exclusion in the CGL policy is narrower than the exclusion in the E&O policy. If the Insurers wanted to exclude coverage under the CGL when any insured had acted intentionally or criminally, they could have written the policy that way. They did not.

[32] While the CGL policy indicates that the Named Insured is “an” Insured, it does not define who “the” Insured is. In view of the separation clause, I conclude that whether coverage is excluded under this exclusion clause must be considered from the point of view of each insured. In other words, coverage for the applicant will be excluded if, from the standpoint of the applicant, the bodily injury was expected or intended.

[33] Moreover, the policy specifically provides coverage to the applicant for assault and battery committed by its employee in the course of discharging their employment duties. In my view it would be inconsistent with the reasonable expectations of the parties if an intentional act of the employee would void the applicant’s coverage under the CGL.

[34] While the surveillance claims include pleadings of conspiracy, and criminal harassment, and plead that the applicant was aware that it was involved in a conspiracy, I do not agree that the negligence claims made against the applicant are only derivative. I conclude that the true nature of the claims pleaded are threefold:

a. civil harassment, a tort which, if it exists, is nascent and, in this case, based on allegations of criminal harassment which require intentional acts on the part of the alleged tortfeasors; b. conspiracy, an intentional tort; and c. negligence.

[35] A claim for negligence will not be derivative of an intentional tort if the underlying elements of the negligence and of the intentional tort are sufficiently disparate to render the two claims unrelated. If the negligence and the intentional tort claims arise from the same actions and cause the same harm, the negligence claim is derivative and it will be subsumed into the intentional tort for the purposes of the exclusion clause analysis: Scalera, at para. 85.

[36] In my view, the negligence claim is not derivative of the intentional torts alleged. It is possible that a court could find that the applicant’s employees conducted reckless surveillance that in fact terrified Ms. Derenzis, but that there was no intent to do so. If the acts alleged to have been committed by the employees are proven, but the intent alleged is not, the applicant could be found responsible for negligently hiring, managing, and supervising its employees. In this event, the applicant’s wrong would not be knowingly participating in a conspiracy to harass Ms. Derezis, but in failing to properly supervise its employees.

[37] In addition, the claim pleads that the adjuster lied to the applicant at least twice. Reading the pleading generously, as I am obliged to do, these allegations raise the possibility that the adjuster was misleading and manipulating the applicant into acting in ways that were inappropriate. If so, the applicant’s participation in the surveillance need not have been motivated by intent to cause harm, or by a conspiracy, as the claim also alleges, but by misunderstanding and negligence. The pleading supports a claim in negligence that may be proven even if the intentional torts are not proven.

[38] There is at least a mere possibility that the negligence claims could trigger the Insurers’ duty to defend. The CGL provides coverage for the applicant’s negligence, even if its employees acted with intent. A duty to indemnify could arise on this pleading.

[39] I conclude that there is a duty to defend the applicant against the surveillance claims.

Do the auto claims give rise to a duty to defend?

The Auto Claims

[40] With respect to the auto claims, the claim pleads:

a. On October 31, 2017, two of the applicant’s employees, Mr. Mascarenhas and Mr. Wright, were following Ms. Derenzis despite realizing she was aware of their presence. Ms. Derenzis and her daughter were so terrified they asked Mr. Da Silva to drive Ms. Derenzis home. b. Mr. Wright and Mr. Mascarenhas continued to follow them and, once they arrived at Ms. Derenzis’s house, Mr. Wright parked at the curb several houses down, intending for his presence to be obvious. c. Mr. Da Silva attempted to approach Mr. Wright’s vehicle to take a photograph of the license plate and to ask him to identify himself. d. Mr. Wright, a former police officer, was aware of the criminality of his actions and attempted to flee to avoid identifying himself. e. In attempting to flee, Mr. Wright knew that he would be forced to hit Mr. Da Silva or stop, identify himself, and have a complaint of his criminal conduct put before police. Mr. Wright chose to hit Mr. Da Silva or alternatively, was negligent in how he operated his vehicle. f. Mr. Wright ran down Mr. Da Silva with his vehicle, breaking Mr. Da Silva’s leg. Mr. Wright left the scene of the accident. g. When Mr. Wright was a police officer, he was trained extensively in how to drive a car and could have avoided the accident is not for his need to remove himself from the scene of the accident. h. Mr. Wright battered Mr. Da Silva with his vehicle. i. Although the ownership of the car is not pleaded with particularity, the claim makes reference to Mr. Wright’s vehicle. The parties agree that it is appropriate to evaluate the claim on the assumption that the car that struck Mr. Da Silva was owned by Mr. Wright. j. The claim pleads that, if not for the involvement of the applicant, among others, the whole incident would not have occurred. k. The claim also pleads that Mr. Wright was an employee of the applicant. It does not specifically plead vicarious liability, but reading the pleading generously, there is some foundation for such a claim. l. In addition, the claim pleads the typical allegations that one finds in a motor vehicle action, including that Mr. Wright was negligent because he failed to stop or yield the right-of-way to Mr. Da Silva, he was travelling at an excessive rate of speed, he failed to keep a proper lookout, he was an incompetent driver, he failed to exercise due care and skill, he failed to apply the brakes properly or at all, he failed to give adequate warning, he was using a cell phone, he was impaired, or he failed to have his vehicle in proper working condition.

The NOA Policy Terms

[41] As noted, the CGL excludes coverage for loss or damage arising out of use or ownership of an automobile. The applicant purchased separate liability coverage from the Insurers for non-owned automobiles pursuant to a Form SPF 6 – Non-Owned Automobile Policy (“NOA”). It provides for indemnity “against the liability imposed by law upon the Insured for loss or damage arising from the use or operation of any automobile not owned in whole or in part by or licensed in the name of the Insured, and resulting from bodily injury to or the death of any person…”

[42] The NOA also provides, under the heading “Additional Insureds”, that:

The Insurer agrees to indemnify in the same manner and to the same extent as if named herein as the Insured, every partner, officer or employee of the Insured who, with the consent of the owner thereof, personally drives (a) in the business of the Insured stated in the Declarations, any automobile not owned in whole or in part by or licensed in the name of (i) the Insured, or (ii) such additional Insured person, or (iii) any person or persons residing in the same dwelling premises as the Insured or such additional Insured person, or (b) any automobile hired or leased in the name of the Insured except an automobile owned in whole or in part or licensed in the name of such additional Insured person.

[43] The NOA defines the term “Hired Automobiles” to mean “automobiles hired or leased from others with or without drivers, used under the control of the Insured in the business stated on the Declarations but shall not include any automobile owned in whole or in part by or licensed in the name of the Insured or any partner, officer or employee of the Insured”.

[44] There is no intentional act exclusion clause in the NOA form.

Analysis

[45] The Insurers argue that the sole allegation against the applicant relating to the automobile incidents does not arise out of the use or operation of an automobile, but out of the alleged criminal surveillance activities. In effect, the Insurers argue that the claim against the applicant related to the automobile incident is a non-automobile related claim. In the alternative, the Insurers argue that the NOA is a policy designed for rental cars.

[46] To the extent Mr. Da Silva seeks recovery against the applicant arising out of surveillance claims, I agree these would be barred by the exclusionary clause in the CGL relating to automobiles. However, the claim goes further than that. I have already noted that there is a basis in the pleading to find a claim for vicarious liability. The question is thus whether that claim falls within the scope of the coverage provided by the NOA such that there is a potential duty to defend.

[47] The coverage provision applies on its face. The Insurers have agreed to indemnify the applicant against liability imposed by law (for example, vicarious liability) for loss or damage arising from the use or operation of any automobile not owned in whole or in part by the applicant (for example, a vehicle owned by Mr. Wright) and resulting from bodily injury to any person (for example, Mr. Da Silva). There is no pleading that Mr. Wright’s vehicle was owned by the applicant.

[48] It is apparent from the language of the “Additional Insureds” provision that it is not an exclusionary provision, but rather expands coverage to additional insureds in certain circumstances. It uses words like “additional insureds”, and “the Insurer agrees to indemnify in the same manner and to the same extent…” Notably, the word “exclude” does not appear anywhere in the clause.

[49] Mr. Wright does not appear to be an additional insured under the provision. Leaving him, as owner of the vehicle, outside the scope of coverage is sensible because one can expect that Mr. Wright would have his own auto insurance over his personal vehicle. The fact that the expansion of coverage to additional insureds has limitations does not render the clause an exclusionary clause. It is a clause that expands coverage in some, but not all, circumstances.

[50] I also note the definition of the term “Hired Automobiles”, and the fact that the defined term is not used in the coverage provision. The Insurers argue that the NOA was geared towards rental vehicles. If that were the case, the coverage provision should have provided for indemnification “arising from the use or operation of any Hired Automobile”. But the coverage provision adopts broader language, indicating that the policy has applicability beyond rental cars.

[51] Although the Insurers argued that the NOA would also apply to borrowed cars, they were unable to provide a single example of when the NOA would provide coverage for a borrowed vehicle, or indeed, any vehicle other than a rental vehicle, based on their interpretation of the policy. They denied that the NOA provided coverage for borrowed cars in the examples that I put to them in argument. I do not accept that the policy must reasonably be understood as being geared towards rental cars. It is not drafted that way when it easily could have been.

[52] There is thus at least a mere possibility that the duty to defend could be triggered by the auto claims.

[53] In the result, I conclude that the duty to defend the auto claims arises under the NOA.

Is the applicant entitled to choose its own lawyer?

[54] The insurance policies give the Insurers the right to control the defence of an action, including the right to appoint counsel. There must be some justification to deprive the Insurers of their right under the contract to control the defence.

[55] Where there is a reasonable apprehension of conflict of interest, the Insurers’ right to appoint counsel can be interfered with: Brockton (Municipality) v. Frank Cowan Co., at para. 43. The fact that an insurer challenges its duty to defend is not enough to disentitle it from its right to retain and instruct counsel in the defence of the action: 2091533 Ontario Limited et al. v. Vertigo Investments Limited et al., 2013 ONSC 271, at para. 55.

[56] There is no principled reason to deny the Insurers their right to control the defence of the Derenzis action. Like 2091533 Ontario Limited, the Insurers here resisted their duty to defend based on allegations in the statement of claim of intentional misconduct. If those allegations are made out at trial, they will impact on the Insurers obligation to indemnify the applicant. The resistance to the duty to defend is not sufficient to disentitle the Insurers from their right to retain and instruct counsel.

[57] There is no evidence that the counsel the Insurers would appoint will not adhere to the duty of good faith they would owe the applicant to defend the action without regard to the provisions of the policy. There is no basis on which I can find a conflict of interest.

[58] I thus deny the applicant’s request to be entitled to choose its own counsel.

[59] To the extent the applicant has incurred costs in defending the action to date, those must be reimbursed by the Insurers in view of their duty to defend.

Costs

[60] The three main purposes of modern costs rules are to indemnify successful litigants for the costs of litigation, to encourage settlement, and to discourage and sanction inappropriate behaviour by litigants: Fong v. Chan (1999), 46 O.R. (3d) 330, at para. 22.

[61] Subject to the provisions of an Act or the rules of court, costs are in the discretion of the court, pursuant to s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43. The court exercises its discretion taking into account the factors enumerated in r. 57.01 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, including the principle of indemnity, the reasonable expectations of the unsuccessful party, and the complexity and importance of the issues. Overall, costs must be fair and reasonable: Boucher v. Public Accountants’ Council for the Province of Ontario, 71 O.R. (3d) 291, at paras. 4 and 38. A costs award should reflect what the court views as a fair and reasonable contribution by the unsuccessful party to the successful party rather than any exact measure of the actual costs to the successful litigant: Zesta Engineering Ltd. v. Cloutier, 2002 CarswellOnt 4020, 118 A.C.W.S. (3d) 341 (C.A.), at para. 4.

[62] The parties each filed a costs outline or a bill of costs and agreed that once I had written my reasons on the merits of the application, I would proceed to determine costs with regard to the material filed, without the need for additional submissions. The applicant also uploaded an offer to settle, clearly marked, which I did not review until after my reasons on the merits were complete.

[63] The position advanced by the applicant and Lawrie have prevailed in this application. They are the successful parties and are presumptively entitled to their costs, unless there is some reason to deny them those costs.

The Applicant’s Costs

[64] The applicant’s bill of costs supports partial indemnity costs of $49,215.58 all-inclusive, substantial indemnity costs of $63,074.82 all-inclusive, and full indemnity costs of $72,432.27, all-inclusive. In contrast, the respondent’s bill of costs supports all-inclusive partial indemnity costs of $18,218.96.

[65] The applicant delivered an offer to settle on September 21, 2021, offering to settle the application on the basis that the Insurers would provide the applicant with a defence to the action and would pay costs of this application to be agreed upon or assessed. In addition, the applicant offered to waive recovery of any costs incurred in defending itself in the underlying action up to September 15, 2021. The applicant has beaten this offer, so is entitled to its costs on a partial indemnity scale up to September 15, 2021, and on a substantial indemnity scale thereafter. Unfortunately, the applicant’s bill of costs does not break down the costs that were spent in each time frame. However, this application was returned several times and was unable to proceed due to conflict issues and technical problems. It appears from the court file that the offer to settle was served when the application was ready, or nearly ready, for hearing.

[66] With respect to the quantum of costs, I note that this application was moderately complex due to the nature of the underlying statement of claim, both in terms of its length and its lack of clarity. The issues were important to the applicant, given the amount claimed against it in the underlying action and the likely expense of dealing with the underlying action given its apparent challenges.

[67] The respondent states that the applicant drafted multiple affidavits and requests to admit that were unnecessary for this application, which turns on a review of the policies and the underlying claim. The respondent also alleges that the applicant unnecessarily complicated matters by adding Lawrie to the proceeding, whose involvement was superfluous.

[68] In my view, the costs claimed are excessive for an application of this type, and well outside the reasonable expectations of the unsuccessful party. Even allowing for substantial indemnity costs following the offer, I conclude that costs of $20,000 all-inclusive, are fair and reasonable in the circumstances.

Lawrie’s Costs

[69] Lawrie claims partial indemnity costs of $25,671.91 against the Insurers.

[70] I am not convinced that Lawrie was a necessary party to this application. The Notice of Application pleads that Lawrie is affected by the application, but it does not plead how. Lawrie fully supported the applicant in the application, and no relief was sought against it. I agree with the respondent that Lawrie’s participation was unnecessary.

[71] In the circumstances, the applicant having added an unnecessary party, it would not be just that the respondent should be forced to pay the entirety of that party’s costs, despite Lawrie’s position having carried the day.

[72] From Lawrie’s perspective, the matters at issue were not legally important, although I recognize it may have had business goals that this application advanced that were important to it. Still, I find it difficult to appreciate why its partial indemnity costs, as a party against which no relief was sought, should be higher than the respondent’s partial indemnity costs.

[73] In my view, taking into account the nature of the issues from Lawrie’s perspective, all-inclusive partial indemnity costs of $15,000 are fair and reasonable. I find that Lawrie’s costs shall be paid severally 50% by the applicant and 50% by the respondent.

[74] In summary, I make the following orders:

a. The Insurers are required to provide the applicant with a defence to the action entitled Lucia Derenzis et al. v. Her Majesty in Right of Ontario, et al., CV-19-004487-0000. b. The Insurers shall reimburse the applicant for all expenses incurred by it in defending the Derenzis action. c. The Insurers shall have the right to choose counsel to defend the Derenzis action. d. The Insurers shall pay the applicants’ all-inclusive costs of this application fixed in the amount of $20,000 within thirty days. e. Lawrie’s costs, fixed at $15,000 all-inclusive, shall be paid severally, 50% by the applicant and 50% by the respondent, within thirty days.

J.T. Akbarali J. Date: April 26, 2022