Today the Ontario Superior Court released its decision in the case of Heffernan Estate v. Lloyd’s Canada and considered whether an insurer has a duty to defend when the policy is limited in its express language to indemnification.

Heffernan was involved in a boating accident while his blood alcohol level was well above the legal limit.  Heffernan was killed in the accident and his passenger sued his estate. Heffernan’s insurer, Lloyd’s took the position that there was no duty to indemnify Heffernan and relied on a policy exclusion which stated that the insurer would not be liable to indemnify the insured if the vessel was operated “illegally”.

Justice Belobaba distinguished the within facts from those before the Court of Appeal in Kereliuk v. Jevco.  InKereliuk, the Court of Appeal ruled that the phrase “authorized by law” (used in reference to driving an automobile) was limited in scope to having a valid driver’s license and did not extend to other infractions that might affect the legality of driving.  Justice Belobaba found that operating a boat while intoxicated was clearly in violation of the criminal code and therefore the exclusion applied.

Lloyd’s Canada also successfully advanced the position that there was no duty to defend the Heffernan estate because there was no duty to defend set out in the insuring agreement. The policy provided: “We will settle or defend, as we consider appropriate, any claim or suit asking for … damages”.

Justice Belobaba ruled that while there was some ambiguity in the policy there was no express term in which the insurer agreed to defend the insured. At best, there was an agreement to defend “when appropriate” as determined by a reasonable exercise of the insurer’s discretion.  The duty to defend does not automatically flow from the duty to indemnify, but rather, must be expressly set out in the insuring agreement.

In any event, Belobaba J. found that even if his interpretation of the agreement was wrong that there would be no duty to defend, as there was no duty to indemnify.