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Pembridge Insurance Company of Canada v. Chu, 2019 ONCA 904 (Simmons, Pardu and Nordheimer JJ.A.), November 15, 2019

5 minute read

In this decision, the Court of Appeal underscores the important distinction between the duty to defend and the contractual obligation to indemnify.

As noted by the Court, an insurer is obliged to defend a claim if the alleged facts, if proven, would fall within the insurer’s policy. The mere possibility that the facts once found will result in a successful claim is sufficient to engage the contractual duty to defend. This is true where it is uncertain at the time of a duty to defend application whether an exclusion will ultimately apply. If, depending on the facts that are found by the trial judge in the underlying action, it is “arguable” that the exclusion will apply, then it is an error to conclude that there is no duty to defend on the basis of that exclusion. In such circumstances, the determination of ultimate responsibility for indemnity must await findings of fact regarding the events giving rise to the action, findings which cannot be made by the application judge.

The Dominion of Canada General Insurance Company appealed from an application judge’s decision that Pembridge Insurance Company of Canada was under no duty to defend Dennis Chu and John Chu from claims related to a motor vehicle accident.

Dominion is Dennis Chu’s auto insurer and conceded a duty to defend allegations of negligent driving against him. Pembridge provides John Chu’s homeowner insurance. John Chu is Dennis Chu’s father, with whom Dennis was living at the time of loss. Pembridge therefore covered Dennis Chu under the homeowner’s policy.

In the underlying litigation, Tate Moran claimed that Ottavio Fabrizi caused her injuries by driving through a red light. Fabrizi made a third party claim against Dennis Chu, alleging that Dennis not only drove negligently but also got out of his vehicle and threatened Fabrizi and his passenger with violence, causing them to fear for their lives. Fabrizi claimed that his flight from Dennis Chu led to the collision which caused Moran’s injuries.

The Pembridge homeowner’s policy insured the policy holder for “legal liability arising out of [their] personal actions anywhere in the world” but excluded claims made arising from “the ownership, use or operation of any motorized vehicle”.

Dominion argued that the motion judge made three errors:

  • First, he failed to compare the allegation against the Chus in the pleading with the homeowner policy’s language, instead considering that it was “more appropriate” for Dominion to provide coverage
  • Second, he erred in concluding that the intentional act exclusion in the homeowner’s policy meant that Pembridge was under no duty to defend.
  • And third, he inappropriately made factual findings that Dennis Chu’s actions after getting out of the vehicle would be deemed “incident to the ownership, use or operation of a vehicle” and therefore covered by the auto-insurer and not by the homeowner insurer.

The Court of Appeal agreed with these submissions and allowed the appeal.

The court held that it is arguable that the exclusion in the Pembridge homeowner policy for acts arising from “the ownership, use or operation of any motorized vehicle”, when construed narrowly, does not apply to Dennis’ alleged assaults. It noted that in other parts of the policy, Pembridge excluded coverage for matters such as terrorism or fungal contamination where there are other causes of the losses, whether concurrent or sequential. In other exclusions, Pembridge uses the language of bodily injury arising “directly or indirectly” from an excluded event. The automobile exclusion does not include that language. Therefore, a court might conclude that the automobile exclusion in the Pembridge homeowner policy did not apply so as to exclude coverage for Dennis’ actions. The court held that under these circumstances, the motion judge erred in concluding that Pembridge had no duty to defend under the use of the automobile exclusions.

Turning to Dominion’s second submission, the court noted that the Pembridge homeowner policy also excludes bodily injury “caused by any intentional or criminal acts” by any person insured by the policy. While Dennis’ alleged conduct after he left his vehicle was intentional in the sense that it was advertent behaviour, the court emphasized that there was no allegation that Dennis intended to harm either Moran or Fabrizi. Therefore, it is not clear that the assaults and threats attributed to Dennis would be sufficient to invoke the exclusion,  per Non-Marine Underwriters Lloyd’s London v. Scalera, in which the Supreme Court held that an identical exclusion clause had to be read to require that in addition to the intentional act, there was also an intent to injure. Since the exclusion clause may be narrowly construed, and since there was a possibility that Pembridge may have to indemnify the Chus depending on what facts are ultimately found, there was a duty to defend.

Finally, the court noted that a duty to defend motion does not resolve the ultimate factual issues as to a duty to indemnify. That motion involves comparing allegations in the pleadings and the relevant policy. Findings of fact are not made about the accident’s circumstances. Determination of ultimate responsibility for indemnity must await those findings of fact.

On May 7, 2020, the Supreme Court dismissed Pembridge’s application for leave to appeal.

Where a second insurer is found to have a duty to defend because it is arguable whether an exclusion will apply until the facts are found, and thus there are two insurers with a right to participate in the defence, insurers and counsel might refer to the Court of Appeal’s recent decision in Markham (City) v. AIG Insurance Company of Canada, 2020 ONCA 239 (see Lerners’ blog post from June 3, 2020) for some direction on how to manage the litigation.

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