Ontario government’s insurer has no duty to defend in a class action suit: Ontario Court of Appeal

The Ontario Court of Appeal has ruled that the Ontario government’s insurer has no duty to defend in a $300-million class action lawsuit brought against the province.

Ontario faced a class action claim arising from the alleged delays in the province’s bail release system. Representative plaintiff Robin Cirillo commenced the suit on behalf of persons arrested and detained for more than 24 hours before receiving a bail hearing.

Ontario anticipated insurance coverage for the claims in the underlying action. The province notified its insurer, St. Paul Fire and Marine Insurance Company, which had issued two successive general liability commercial policies to Ontario. The first policy included coverage of $20 million for each “occurrence.” Under the second policy, Ontario was self-insured for the first $5 million ultimate net loss. St. Paul would provide insurance of $15 million for each “occurrence” more than the first $ 5 million.

A motion judge denied certification for the underlying class action. By then, Ontario had spent approximately $300,000 on legal services defending the claim. St. Paul advised Ontario that there was no available coverage for the claim and that it would not indemnify Ontario for its legal costs.

Ontario filed an action, seeking a court declaration that St. Paul had a duty to defend in the underlying class action. The application judge dismissed Ontario’s application, finding that St. Paul did not have a duty to defend under either the first or the second policy. Ontario elevated the matter to the Court of Appeal.

Reasonable possibility of coverage

The appeal court said the application judge did not commit any error in finding no duty to defend under the first policy. However, the appeal court found that the judge wrongly construed the coverage for an “occurrence” under the second policy.

The court explained that the underlying claim alleged wrongful detention is included in the definition of personal injury in the second policy. Further, the coverage for personal injury caused by an occurrence is not limited to damage that is “neither expected nor intended from the standpoint of the insured.” As a result, the court concluded that the judge failed to recognize a reasonable possibility of coverage under the second policy for the damages claimed in the underlying action.

The court further said that the application judge failed to recognize that the claims made in the underlying action were all personal injury claims within the meaning of the policies, not bodily injury claims. The court explained that bodily injury is defined in both policies by reference to the kind of injury claim, including “nervous shock, mental suffering, mental injury, mental anguish including death.” However, personal injury is defined by wrongful acts, such as “false arrest, malicious prosecution, wilful or wrongful detention or imprisonment,” or “libel, slander, or defamation of character.” Since there is no limitation provided in the personal injury definition of the kinds of injuries that can be claimed where one of the enumerated wrongful acts has occurred, it would follow that even damages for physical and psychological injury arising from covered enumerated wrongful acts would fall within the personal injury coverage of the policies.

The court concluded that the judge made an error in treating the underlying claims as bodily injury claims to determine coverage under the policies. The judge incorrectly interpreted the occurrence clause in the second policy. The court said the underlying action included claims for personal injury, and there was “doubtlessly a reasonable possibility under the second policy that such claims would be covered.”

Duty to defend was not triggered

In any event, the court found that the duty to defend was not triggered as Ontario was self-insured up to $5 million under the second policy. St. Paul’s duty to bear the costs of Ontario’s defence is engaged only when Ontario’s self-insured retention has been exhausted. Until then, Ontario remained liable for costs, expenses, and damages, including defence costs. The court pointed out that Ontario expended only $300,000 in costs at the time of the application. Consequently, St. Paul’s obligation to indemnify Ontario for its defence costs was not triggered.