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May 2018

Duty to Defend an Additional Insured Under a CGL Policy


Matt Dugas
Matthew Dugas,

By Matthew Dugas

Service contracts as between sophisticated parties often contain numerous indemnity and insurance provisions, subject to specific terms. Determining whether a duty to defend an additional insured under a Commercial General Liability Policy ("CGL Policy") is triggered in a particular instance is, therefore, an intricate exercise. Many CGL Policies provide that one party, for example, a subcontractor or service provider, agrees to defend (and often indemnify) the owner of the property and add them as an "additional insured".

These contracts are common within property maintenance contracts such as snow removal, property management, and custodial services. Thus, if a claim is made against the property owner, the owner may tender their defence to the service provider and the service provider's insurer, demanding that the owner be provided defence and indemnity for the claim. Depending on the facts of a particular matter, this may greatly increase the potential exposure of the insurer on the receiving end of the defence tender. Recent litigation with respect to this tender demand has focused on whether the claim "arose out of" the operations of the named insured.

This following is an overview of the recent decisions with respect to an additional insured within a CGL Policy and practical guidance based on the current state of the law.

Scope and Coverage

Generally, a duty to defend clause stipulates that one party is obligated to defend another party against any claim that arises from the execution of a particular contract. The determination of whether a claim arises from the execution of a contract is usually based on the allegations contained within the Statement of Claim.

Extending this logic, the main issue in many cases is whether the events alleged in the Statement of Claim would "arise out of" the operations of the named insured. The courts will attempt to narrow in on the "true nature" of the claim. Therefore, the process for defining the scope of coverage is highly fact-specific and requires careful analysis.

A typical scenario is as follows: A municipality contracts with a road maintenance contractor to maintain city streets. The contract requires the contractor to obtain CGL insurance naming the municipality as an additional insured. The contract will also include a clause that stipulates that if the municipality is sued, the contractor's insurer will be required to defend (and often indemnify) the municipality against such claims. When a claim is made against the municipality for damages arising from alleged deficiencies in road maintenance, the parties must determine whether the claim engages the duty to defend clause and requires the contractor to defend the municipality.

Determining the Differences between Covered and Non-Covered Claims

To determine whether a duty to defend is triggered, the court must determine whether the claim falls within the scope of the contractor's insurance coverage. This investigation will include an analysis of the "true nature" of the claim.

In Non-Marine Underwriters, Lloyd's of London v. Scalera,1 the court advised that a proper interpretation is not limited to the mere language chosen by the plaintiff in its pleadings, but rather entails examining the actual substance of the allegations. The court rejected relying solely on the language of the pleadings. It found that the claim was essentially for sexual battery despite claims for negligence and breach of fiduciary duty being included in the Statement of Claim. There was an exclusionary clause for "intentional acts" which would apply to the sexual battery claim, but the Court also found the claims of negligence and breach of fiduciary duty arose from the same facts, and was therefore derivative and subsumed into the main sexual battery claim, and therefore excluded. Fortunately, recent case law has brought more predictably to this analysis.

Key Case: Carniero v Durham (Regional Municipality)

The uncertainty of the Scalera analysis has been partially resolved in the recent Ontario Court of Appeal case of Carneiro v Durham.2

The case related to a car accident resulting in a fatality during a snowstorm in Pickering, Ontario. The surviving family members sued The Regional Municipality of Durham ("Durham") and their winter maintenance contractor, Miller Maintenance Limited ("Miller"), for failure to maintain the road. The Statement of Claim alleged a series of boilerplate "identical particulars" against each Durham and Miller. It included claims that both defendants failed to keep the road clear of ice and snow, which related to the joint responsibility of Miller and Durham. The Statement of Claim also contained several allegations that appeared to go beyond the role of Miller, such as failure to have proper signage and negligent design of the roads, failing to close the road, and improper completion of inspections and weather monitoring; largely allegations that fall outside of the scope of Miller's contract. The Statement of Claim did not distinguish between Miller and Durham in the various allegations of negligence.

The contract with Durham required Miller to obtain CGL insurance and name Durham as an additional insured.

The contract with Durham required Miller to obtain CGL insurance and name Durham as an additional insured. Accordingly, Durham tendered defence of the claim to Miller and its insurer. Miller's insurer refused the defence tender on the basis that many of the alleged claims were unrelated to the scope of work of Miller and outside the additional insured coverage. The contract, however, included an "unqualified" duty to defend. Durham brought an application as against Miller's insurer, Zurich Insurance Company Ltd. ("Zurich"), for coverage.

The motions judge refused to order Zurich to defend Durham. The court held that Zurich only had a duty to defend claims specifically "insured for Miller".

The Court of Appeal, however, used a different approach. The court reiterated that the duty to defend was governed by the pleadings rule and held that the "true nature" of the claim was that the plaintiff's car slid on the slippery road. Accordingly, the court found that the common allegation, or "true nature" of the claim, was that both Durham and Miller failed to keep the road clear and safe for vehicular travel. The court further held that there were "mixed claims", meaning that some allegations contained within the Statement of Claim were both within and outside the scope of the contract as between Miller and Durham. The court relied on the "unqualified" duty to defend contained within the policy. The insurer for Miller was ordered to provide a defence to Durham with respect to all the "mixed claims", including independent counsel. However, the Court of Appeal also made it clear that claims "solely" related to allegations against Durham are "uncovered" in the policy and dealt with them separately. In this particular situation, with the claim well into litigation, Zurich was to provide a defence and independent counsel for Durham, but subject to an apportionment of costs for defending solely uncovered claims.

Key Case: Lefeuvre v. Boekee

A 2017 Superior Court decision also dealt with how the Carneiro v. Durham decision is applied in a practical sense. In Lefeuvre v. Boekee,3 the insurers of winter maintenance contractors had already agreed to defend the additional named insured municipalities, but there was a dispute about whether the municipalities or the insurers would be entitled to appoint counsel and direct the defence.

A pedestrian was injured in a motor vehicle accident. The Municipality of Clarington ("Clarington") and the Municipality of Durham ("Durham") were added as defendants, as well as the winter maintenance contractors Langley Utilities Contracting ("Langley") and Miller Maintenance ("Miller"). The municipalities jointly brought a coverage Application against the insurers of the winter maintenance contractors, seeking a declaration that the municipalities are entitled to appoint their own counsel and manage their own defence at the expense of the winter maintenance contractors' insurers.

The municipalities alleged that the insurers would have a conflict if they were able to appoint counsel and direct the defence of the municipalities. Given that uncovered claims were at play in this matter, the insurers could benefit by focusing on the covered claims to the detriment of the uncovered claims.

The court granted the Application of the municipalities. It agreed that much of the municipalities defence is alleging that the winter maintenance contractors failed to carry out their responsibilities, which is at odds with the defence the insurers were providing for the winter maintenance contractors. The municipalities were therefore entitled to appoint their choice of counsel, which would be paid for by the winter maintenance contractors' insurers. The court further declared that counsel appointed by the municipalities were not required to report to the winter maintenance contractors' insurers, except for the purposes of resolution/settlement of any covered claims. As in Carneiro v. Durham, the winter maintenance contractors' insurers were nevertheless entitled to seek reimbursement at the resolution of the claim for amounts paid for defending uncovered claims, or amounts found to be unreasonable.

Key Case: National Gallery of Canada v. Lafleur de la Capitale Inc.

A further interpretation of the duty to defend was elaborated in National Gallery of Canada v Lafleur et al.4 In that case, the Court of Appeal overturned a finding that Intact Insurance had a duty to defend a defendant arising out of a slip and fall accident. The court determined this that the reasons provided by the motions judge were insufficient and ordered a rehearing.

The case stemmed from the death of a worker during maintenance on a vehicle ramp at the National Gallery of Canada (the "Gallery"). Lafleur was a contractor of the Gallery for landscaping and property maintenance. The plaintiff was under the employment of the contractor, Lafleur. While working on a vehicle ramp, the plaintiff stepped back as a vehicle approached, but unfortunately fell from the ramp in the process, dying from the fall. The Gallery required Lafleur to take out a CGL Policy that named the Gallery as an additional insured. The insurance policy stated that the Gallery was named as an additional defendant "only insofar as [its] Legal Liability arises vicariously out of the operations of [Lafleur] in connection with [its landscaping and snow removal services]".

The issue was whether the duty to defend was triggered.

The issue was whether the duty to defend was triggered. The motions judge held that the underlying action "could relate to the issues of maintenance or of measures that should have been taken in the course of maintenance"5 meaning that it fell within the scope of the CGL policy. However, the Court of Appeal held that the motions judge's explanation was insufficient because the motions court did not conduct the required analysis of the pleadings, maintenance contract, and the CGL Policy with Intact. Particularly, the court noted that the CGL policy contained key exclusion clauses regarding "worker's compensation" and "bodily injury to employee" that should have been considered in the analysis. Thus, the court did not have enough information to determine whether a duty to defend was trigged. Therefore, a rehearing was ordered.

Key Case: Wal-Mart v Intact

A recent interpretation of the duty to defend was further elaborated in Wal-Mart Canada Corp. v. Intact Insurance Company, 2016 ONSC 4971.6 This case involved a person who tripped and fell over uneven pavement in a parking lot. The Statement of Claim alleged that Wal-Mart was negligent and "employed individuals, cleaners and maintenance companies who it knew or ought to have known were not qualified or competent to carry out the necessary inspection, maintenance and repairs". Wal-Mart had entered into an agreement with a subcontractor, CL & Sons Landscaping Ltd. ("CL & Sons"). This contract stated that CL & Sons must "communicate regularly any deficiency/condition that may be contributing to extraordinary maintenance ... that would reduce debris, benefit vehicular and/or pedestrian safety, or enhance the appearance of the property". The contract also required CL & Sons to take out a CGL policy naming Wal-Mart as an additional insured. CL & Sons had a CGL policy with Intact. The CGL stated that coverage would be restricted to liability arising out of their operations at the Wal-Mart property.

Here, the motions court held there was a duty to defend. Through an examination of the pleadings in the tort action, the maintenance contract, and the CGL Policy, the court concluded that the policy provided coverage for the slip and fall claim, and the duty to defend was triggered. The court also held that Intact has the right to appoint their own counsel.


The above discussion highlights the nuanced nature of a duty to defend analysis. It can be difficult to determine whether a duty to defend is triggered in a given situation. Nevertheless, the recent case law has provided some guidance for potential claims.

A duty to defend is examined through the pleadings rule, where an analysis of the pleadings is primary. However, the analysis of the pleadings allows for interpretation, and the courts will look to determine the "true nature" of the claim from the pleadings, especially if the pleadings are unspecific or boilerplate.

The terms of the contracts between the subcontractor and the contractor are also key factors in the analysis, especially clauses on indemnity, duty to defend and the nature of the services provided.

The issue is complicated when there are "mixed claims" which are partly covered by the policy to the additional insured, but partly uncovered. In such situations, the courts have found that the insurer may owe coverage to the additional insured for mixed claims depending on the provisions in the policy (for example, an unqualified duty to defend).

Overall, a duty to defend or indemnify an additional named insured is very nuanced and fact specific. The main points of analysis are the pleadings and the contract. Overlapping claims and coverages can be quite common in practice, and novel issues are typical. However, there is a detailed framework from the courts about how to engage such an analysis, and as such, parties, insurers and their counsel now have clearer guidance from which to vigorously defend claims.

1 Non-Marine Underwriters, Lloyd's of London v. Scalera, [2000] 1 SCR 551, 2000 SCC 24
2 Carneiro v Durham (Regional Municipality), 2015 ONCA 909
3 Lefeuvre v. Boekee, 2017 ONSC 6874
4 National Gallery of Canada v Lafleur et al., 2017 ONCA 688.
5 Ibid at para 14.
6 Wal-Mart Canada Corp. v. Intact Insurance Company, 2016 ONSC 4971


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