Commercial general liability insurers are under duty to defend insured in third party claims and to share the costs on a proportionate basis.

[2015] O.J. No. 1360

2015 ONSC 1734

Ontario Superior Court of Justice

W.M. Matheson J.

March 18, 2015

UPS sought an order and declaration that three service providers and their commercial general liability insurers owed a duty to defend UPS in an underlying action which arose from the alleged malfunction of a UPS warehouse cooling system where Sanofi Pasteur vaccines were being stored. After a weekend of storage allegedly below the required temperature, the vaccines could not be sold. Sanofi Pasteur was indemnified by its insurer which brought a subrogated action against UPS and the respondent service providers. Two categories of claims were advanced: (1) claims against UPS regarding representations made to Sanofi Pasteur; and (2) claims against the service providers. The service providers brought third party claims against UPS in respect to this second category of claims.

UPS relied on contractual provisions in the service contracts and the policies of insurance with the commercial general liability insurers. These contracts required the service provider to add UPS to their own CGL policies as insureds and also included a clause requiring the service provider to indemnify and hold UPS harmless from certain losses including legal costs.

The court found that the service contracts did not impose a duty to defend upon the respondent service providers. However, the court found that the three commercial general liability insurers had a duty to defend UPS in respect to the second category of claims advanced by Sanofi Pasteur in the underlying action. The court held that the three insurers should share defence costs equally and, given that the duty to defend arose in respect to only one category of claims, independent counsel ought to be appointed to defend UPS.