



COURT OF APPEAL FOR ONTARIO

CITATION: Carneiro v. Durham (Regional Municipality), 2015
    ONCA 909

DATE: 20151222

DOCKET: C60366

Strathy C.J.O., LaForme and Huscroft JJ.A.

BETWEEN

Leena Carneiro and Jessica Carneiro

Plaintiffs

and

Regional
    Municipality of Durham
, Miller Maintenance Limited

o/a The
    Miller Group, Her Majesty the Queen in Right of Ontario

Brandon Lee and Judson
    Alexander Moore

Defendants/
Appellant

and

Zurich
    Insurance Company Ltd.

Third party/
Respondent

David G. Boghosian and Laura M. Day, for the appellant

Van Krkachovski, for the respondent

Heard: November 27, 2015

On appeal from the order of Justice Gordon Lemon of the
    Superior Court of Justice, dated April 15, 2015, with reasons reported at 2015
    ONSC 2427.

By the Court:

[1]

The Regional Municipality of Durham appeals the dismissal of its motion
    for an order requiring Zurich Insurance Company Ltd. to defend the claims made
    against it in this automobile negligence case.

[2]

We allowed the appeal with reasons to follow. These are our reasons.

Background

[3]

Antonio Carneiro Jr. died in a car accident on a snowy day in Pickering,
    in the Regional Municipality of Durham. His family members, who are not
    involved in this appeal, claim damages for the alleged negligence of Durham,
    Miller, Ontario and two individual defendants.

[4]

Durham contracted Miller Maintenance Limited to plow its roads in the
    winter. The contract required Miller to include Durham as an additional insured
    under its liability policy. Millers policy with Zurich did so.

[5]

The statement of claim alleges that the accident occurred when the car driven
    by the deceased suddenly and without warning  began to slide and spin on ice
    on Brock Road, and slid down the hill until it was hit by cars operated by the individual
    defendants.

[6]

The claim sets out a laundry list of identical particulars of negligence
    against Miller, Durham and Ontario. It asserts all manner of failings,
    including a failure to keep the road free of ice and snow, inadequate design
    and construction of the road and failure to close the road during a heavy
    snowstorm.

[7]

Durham and Miller cross-claimed against each other. Miller claims, among
    other things, that Durham was responsible for supervising its work and for
    calling for snow removal equipment as necessary. It also claims that Brock Road
    was dangerous in design and construction.

The Superior Court Motion

[8]

Durham brought a Third Party claim against Zurich. It sought a
    declaration that Zurich has a duty to defend it in the action, to pay for
    counsel of its choice and to indemnify it for any amounts for which it may be
    found liable to the plaintiffs.

[9]

Zurich claimed that it has no duty to defend Durham. This, it said, was because
    some of the particulars of negligence in the statement of claim  those
    unrelated to Millers winter maintenance work  fall outside the scope of the
    coverage it provided to Durham.

[10]

Zurich
    acknowledged before us, however, that some of the allegations against Durham in
    the statement of claim
are
covered by its policy. They relate to
    Durhams liability arising out of Millers winter maintenance responsibilities.

[11]

Zurich
    argues that by defending Miller it is protecting Durham against any liability
    it may have for Millers negligence. It adds that, given the other allegations
    of negligence against Durham, it should have no obligation to defend Durham. It
    says Durham must defend all claims itself, leaving for another day the issue of
    whether Zurich is required to pay for any portions of the defence costs.

[12]

The
    motion judge dismissed Durhams motion. He found that Zurich was only required
    to defend Durham with respect to the claims insured for Miller. He added that
    Durham will continue with its own counsel to defend with respect to all other
    causes as alleged in the claim. It appears the motion judge accepted Zurichs
    argument that by defending Miller it was effectively protecting Durham against
    liability for Millers failure to discharge its contractual obligations.

Analysis

[13]

Durham
    was an additional insured under Zurichs policy. The policy contained an
    unqualified promise to defend the insured for actions covered by the policy. Zurich
    is therefore obligated to pay the reasonable costs of Durhams defence of
    covered claims, even if that defence furthers the defence of uncovered claims. However,
    it is not obligated to pay costs related
solely
to the defence of
    uncovered claims:
Hanis v. Teevan
, 2008 ONCA 678, 92 O.R. (3d) 594, at
    para. 2.

[14]

We
    come to this conclusion for the following reasons. First, the allegations in
    the statement of claim triggered Zurichs duty to defend Durham. Second, nothing
    in the policy qualified Zurichs duty to defend. Third, Zurich did not satisfy
    its duty to Durham by defending Miller. Fourth, Zurichs best interests do not
    negate its obligation to Durham. Fifth, the duty to defend is a separate
    contractual obligation that is not met by Zurich simply indemnifying Durham at
    the end of the day. Each of these is explained in turn.

[15]

First,
    when pleadings allege facts that, if true, require the insurer to indemnify the
    insured, the insurer is obliged to defend the claim:
Monenco v.
    Commonwealth,
2001 SCC 49, [2001] 2 S.C.R. 699, at para. 28. The mere
    possibility that a claim may fall within the policy is sufficient to trigger
    the duty to defend:
Monenco,
at para. 29. In assessing whether the facts
    pleaded fall within the policy, the court must consider the substance and true
    nature of the claim:
Monenco,
at paras. 34-36. Extrinsic evidence
    expressly referred to in the pleadings may be considered:
Monenco
,

at
    para. 36.

[16]

The
    true nature of the claim was clearly expressed in the statement of claim  the
    deceased lost control of his car because it skidded on ice and snow on the
    roadway. That pleading, coupled with the allegation that Durham and Miller
    failed to keep the road clear of ice and snow, relates directly to Millers
    obligations under the contract. It engages Zurichs obligation to defend Durham,
    subject to any qualification in the policy.

[17]

The
    trial judge erred in holding otherwise. Although he identified the correct test
     set out in
Progressive Homes Ltd. v. Lombard General Insurance Co. of
    Canada
, 2010 SCC 33, [2010] 2 S.C.R. 245, at para. 19, and
Nichols v.
    American Home Assurance Co
., [1990] 1 S.C.R. 801  he failed to correctly apply
    that test.

[18]

Second,
    Zurichs policy required it to defend the action, not just the covered claims.

[19]

In
Hanis
, this court addressed the situation where, as here, some but not
    all of the claims made in the lawsuit are covered by the policy, and there is
    an unqualified obligation in the policy to provide the defence. In that event,
    this court held that the insurer is required to pay all reasonable costs
    associated with the defence of those claims,
even if
those costs further
    the defence of uncovered claims.  It added that the insurer is not obliged to
    pay costs related
solely
to the defence of uncovered claims.

[20]

Here,
    Zurichs policy of insurance imposed on it a duty to defend its insured,
    including an added insured, against any action seeking damage to which the
    insurance applies. It provided that there was no duty to defend any action
    seeking damages to which the policy did not apply. An action is defined to
    mean a civil proceeding in which compensatory damages are alleged because of
    bodily injury or property damage to which the policy applies.

[21]

As
    in
Hanis
, there was nothing in the language of the Zurich policy to qualify
    the duty to defend or to suggest that the duty to defend did not apply to
    mixed claims.

[22]

As
    the action against Durham sought damages to which the insurance applied, Zurich
    had a duty to defend Durham against the action.

[23]

Third,
    there is no authority for Zurichs argument that it satisfied its duty to
    Durham by defending Miller. Arguments to that effect were rejected by this
    court in
Papapetrou v. 1054422 Ontario Limited
, 2012 ONCA 506, 111 O.R.
    (3d) 532, at paras. 53-54. See also
Atlific Hotels and Resorts Ltd. v. Aviva
    Insurance Co. of Canada
(2009), 97 O.R. (3d) 233 (S.C.J.), at para. 21.


[24]

Indeed,
    counsel for the respondent acknowledged that there is no authority for this
    position. It would render meaningless Durhams status as an additional insured.
    As an additional insured, Durham has independent rights, including a right to a
    defence, regardless of the defence provided to the named insured. If Zurichs
    position were correct, it would seldom be required to provide a defence to an
    additional insured because it would usually be defending the named insured against
    the same liabilities.

[25]

Fourth,
    in deciding that it was not in Zurichs best interests to defend Miller when
    there were both insured and uninsured claims, the motion judge gave preference
    to Zurichs interests over those of the insured. That ignored Zurichs
    contractual
duty
to defend.

[26]

Fifth,
    and finally, we disagree with the motion judges conclusion that Durham was
    protected because it would be entitled to recover costs at the end of the
    litigation if it were not found liable. That misses the point. The duty to
    defend is a separate contractual obligation. The outcome of the trial is
    irrelevant to the duty to defend. The duty would be a hollow one if the
    insurers only obligation were to indemnify its insured at the end of the day.
    That was not the obligation Zurich undertook when it issued a policy naming
    Durham as an additional insured. It promised to defend Durham and it should
    have been held to that promise.

Conclusion

[27]

In
    our view, the motion judge should have ordered Zurich to provide Durham with
    independent counsel, at Zurichs expense, to defend the action in its entirety,
    having regard to (i) Zurichs unqualified contractual undertaking to defend
    Durham; and (ii) the conflict between the interests of Durham and Miller, and between
    those of Durham and Zurich: see
Zhou v. Markham (Town)
, 2014 ONSC 435;
Day
    v. Wood
(2008), 92 O.R. (3d) 438 (S.C.), at paras. 12-13, 15;
Appin
    Realty Corp v. Economical Mutual Insurance Co.
, 2008 ONCA 95, 89 O.R. (3d)
    654.

[28]

At
    the end of the proceedings, Zurich is entitled to seek an apportionment of the
    defence costs, to the extent they deal
solely
with uncovered claims, or
    exceed the reasonable costs associated with the defence of the covered claims:
Tedford
    v. TD Insurance Meloche Monnex
, 2012 ONCA 429, 112 O.R.(3d) 144, at para.
    24.

[29]

In
    closing, we repeat this courts observation in
Halifax Insurance Co. of
    Canada v. Innopex
, (2004), 72 O.R. (3d) 522, at para. 55, that the duty to
    defend issue must be determined expeditiously, on the basis of the allegations
    in the underlying litigation, read with the insurance coverage. The failure to
    do so in this case has undoubtedly increased the costs of the litigation and
    has caused delay to all parties.

Disposition

[30]

For
    these reasons, the appeal is allowed. Zurich is directed to defend Durham, to
    provide it with independent counsel at Zurichs expense and to reimburse Durham
    for reasonable defence costs incurred to this date.

[31]

If,
    at the end of the day, the parties are unable to agree on an allocation of the
    costs, Zurich shall be entitled to apply to the Superior Court of Justice to
    determine the allocation in accordance with
Hanis
.

[32]

Durham
    is entitled to its costs in this court and in the court below. Its costs in
    this court are fixed at $12,500, inclusive of taxes and all applicable
    disbursements.

G.R. Strathy C.J.O.

H.S.
    LaForme J.A.

G. Huscroft J.A.

Released: December 22, 2015


