Insurer’s duty to defend - a new Supreme Court of Canada decision

Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada 2010 SCC 33 was released a few moments ago. The decision is in line with an ongoing line of cases holding substance is more important than form.

The Court specifically considered the duty to ensure and held an insurer is required to defend a claim where the facts alleged in the pleadings, if proven to be true, would require the insurer to indemnify the insured for the claim. 

It is irrelevant whether the allegations in the pleadings can be proven in evidence.  What is required is the mere possibility that a claim falls within the insurance policy. 

Where it is clear that the claim falls outside the policy, either because it does not come within the initial grant of coverage or is excluded by an exclusion clause, there will be no duty to defend.  In examining the pleadings to determine whether the claims fall within the scope of coverage, what is determinative is the true nature or substance of the claim, not the labels selected by the plaintiff.

The Court held:

A. The Duty to Defend

[19]                          An insurer is required to defend a claim where the facts alleged in the pleadings, if proven to be true, would require the insurer to indemnify the insured for the claim (Nichols v. American Home Assurance Co., [1990] 1 S.C.R. 801, at pp.810-11; Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49, [2001] 2 S.C.R. 699, at para. 28;  Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at paras. 54-55).  It is irrelevant whether the allegations in the pleadings can be proven in evidence.  That is to say, the duty to defend is not dependent on the insured actually being liable and the insurer actually being required to indemnify.  What is required is the mere possibility that a claim falls within the insurance policy.  Where it is clear that the claim falls outside the policy, either because it does not come within the initial grant of coverage or is excluded by an exclusion clause, there will be no duty to defend (see Nichols, at p. 810; Monenco, at para. 29).

[20]                          In examining the pleadings to determine whether the claims fall within the scope of coverage, the parties to the insurance contract are not bound by the labels selected by the plaintiff (Non-Marine Underwriters, Lloyd's of London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551, at paras. 79 and 81).  The use or absence of a particular term will not determine whether the duty to defend arises.  What is determinative is the true nature or the substance of the claim (Scalera, at para. 79; Monenco, at para. 35; Nichols, at p. 810).