O.J. No. 811
2011 ONSC 1249
Ontario Superior Court of Justice
H.S. Arrell J.
February 24, 2011
The defendant in the underlying action was the operator of a vehicle involved in a very serious single car accident where four individuals were either killed or badly injured. Four separate actions were commenced against the defendant, who was insured by Kingsway General Insurance Co.
Kingsway retained counsel to represent the defendant in the four actions. At mediation Kingsway tendered the full limits of its policy and this was accepted on a pro-rata basis on the consent of all the plaintiffs. The plaintiff in the fourth action had also sued her own insurer, Dominion of Canada General Insurance Co., with whom she had underinsurance coverage with limits of $1,000,000. Dominion attended the mediation and signed the Minutes of Settlement, but did not contribute financially to the settlement. The settlement between this plaintiff and the defendant provided that her action could continue against Dominion, and that Dominion in turn would get an assignment of the judgment so it could seek contribution from the defendant personally. It was conceded that this plaintiff's claim would well exceed the insurance available from the defendant's policy.
The counsel retained by Kingsway to defend its insured brought this application to get off the record following the settlement. Kingsway argued that it had defended its insured to the extent required under the policy and that, as it had paid out 100% of its policy plus costs to each of the plaintiffs, there was no further possibility of any additional indemnity payment available, and therefore, no further duty to defend. Dominion argued that Kingsway's duty to defend under the policy continued as long as the defendant, its insured, was exposed in a lawsuit, even if that exposure was only in a personal capacity.
The relevant section of the Ontario Automobile Policy provided that if an insured is sued, the insurer "will hire lawyers at our expense and cover all costs of your defence in court". However, the policy also provided that the insurer had the unfettered right to settle a case up to the policy limits at its sole discretion, and also stated:
If you are sued for more than the limits of your policy, you may wish to hire, at your costs, your own lawyer to protect yourself against this additional risk.
The motions judge concluded that there was nothing in the Ontario Automobile Policy that obliged an insurer to continue to defend an insured when it had paid its limits and costs in full. The judge also reviewed the relevant case law, and held that it was clear that there is no duty to defend if there is no possibility of a duty to indemnify. In this case, it was conceded that there was no possibility of any remaining duty to indemnify on Kingsway's part. To hold that Kingsway must continue to defend and pay all defence costs, which would benefit only Dominion, would be illogical and fly in the face of encouraging primary insurers to enter into timely resolution of cases. In the result, the court held there was no further duty for Kingsway to provide a defence to its insured.