Duty to defend

Today's decision in Goodman v. AIG Commercial Insurance Company of Canada, 2010 ONCA 391 is a good source for the distinction between the duty to defend as opposed to the duty to indemnify.

This situation often arises in legal professional negligence claims where fraud is alleged -- if there is a related negligence claim the Insurer must defend but if fraud is found the Insurer is not obliged to pay the judgment. Obviously this is significant for the Insured but also for the Claimant because most Insureds have limited resources and may be judgment proof. Accordingly, in cases where there is an Insurer it may not be prudent to purse a claim in fraud or other intentional tort.

The Court writes:

[15] The duty to defend is separate from the duty to indemnify: see Nicholls v. American Home, [1990] 1 S.C.R. 801. While a duty to defend will arise where a claim is made that may possibly fall within cover, indemnity is only required when a claim is proved to fall within cover. They are separate and distinct aspects of coverage and are dealt with separately in the Lloyd's policy. It is undisputed that the AIG policy does not provide a duty to defend.