Clark Wilson LLP Insurance Bulletin
Case Law Review Archive
To Cover or Not to Cover: That is the Question
Kingsway General Insurance Company v. Lougheed Enterprises
Ltd., [2004] BCCA 421
Should an insurer provide coverage or not? This was the
question posed to the B.C. Court of Appeal in the above
decision, appealing the Supreme Court decision canvassed
in our August 2003 e-mail bulletin "A Clear and Present
Exclusion".
The case dealt with the interpretation of an exclusion
clause in an insurance policy between the Kingsway General
Insurance and the Appellants, Lougheed Enterprises and
Vine Enterprises.
As participants in a partnership, Blundell Place Partnership,
Lougheed and Vine were involved in the design and
construction of a condominium project.
In 1997, Lougheed purchased a liability insurance policy
issued by Kingsway. Vine was added as a named insured,
but the partnership was not added as a named insured.
During the period of the policy a fire seriously damaged part
of Blundell Place. The strata corporation and unit holders
sued various persons, including the partnership, Lougheed
and Vine, alleging various acts of negligence in the design
and construction of the building.
Lougheed and Vine requested Kingsway to defend the
action pursuant to its policy. Kingsway objected on the
ground that there was a bar to indemnity arising out of the
"Definitions" section of the policy. Under the definition of
"insured" the following provision stated:
"No person or organization is an Insured with respect
to the conduct of any current or past partnership or joint
venture that is not shown as a Named Insured in the Declarations."
In deciding not to defend, Kingsway relied on the foregoing
definition to argue that the Blundell Place Partnership was
not shown as a named insured on the policy; and therefore,
the action was not within the scope of coverage. The chambers
judge agreed with Kingsway deciding that the intent of the
parties was that Kingsway would provide liability coverage to
Lougheed and to Vine, but not if they carried out an otherwise
insured activity as part of a partnership with a third party who
was not a named insured.
Vine and Lougheed appealed the decision. The Court of Appeal
set out the following principles with respect to the insurer's duty
to defend:
the starting point for assessing whether an insurer's duty to
defend has been triggered rests in an assessment of the pleadings;
where pleadings are not framed with sufficient precision to
determine whether they are covered by a policy, the insurer's
obligation to defend will be triggered where on a reasonable
reading of the pleadings, a claim within coverage can be inferred;
courts should not engage in a fanciful reading of the pleadings
merely for the purpose of requiring the insurer to defend. The
question is not whether the claims are meritorious, but whether
assuming the truth of all of the plaintiff's factual allegations, the
pleadings could support the plaintiff's legal allegations; and
in determining the true nature of the claim, a court may go
beyond the pleadings and consider extrinsic evidence including
extrinsic evidence that has been explicitly referred to within the
pleadings.
The Appellants argued that the claims against them were based
in negligence in their individual capacities rather than claims
incurred by virtue of their being members of the Partnership,
with the result that the clause in question was not triggered. The
Court dismissed this argument in the following excerpt:
"In my view, the allegations made in the underlying lawsuit are
in substance allegations "with respect to the conduct of" the Blundell
Place Partnership within the meaning of the "No person" clause."
In dismissing the appeal, the Court succinctly concluded:
"I am reluctant to give effect to what is really an exclusion
clause that was misplaced in the "definitions" section of the policy,
but the principles of construction require that effect be given to
all words used in a contract, if at all possible and that the plain
meaning of the words used should be given effect unless the result
would be commercially unreasonable or absurd. In my opinion, the
intention of the "No person" clause was to ensure that the insurer
would not be bound to defend claims arising from the conduct of a
partnership of which it was not aware and which was not therefore
also named as an Insured. There was, then, a reasonable commercial
purpose for the clause thus construed. The allegations in the
underlying action are properly characterized as arising from the
conduct of the Blundell Place Partnership, and it was not a Named
Insured. In my opinion, the "No person" clause does operate to
qualify the coverage available to Lougheed and Vine."
In conclusion, the case is testament to the fact that an insurance
policy must be read in its entirety to determine whether coverage
takes effect, and that the policy should not be read in a piecemeal
fashion, thereby limiting an understanding of the intent of the parties.
A copy of this case is available on the BC Courts website at:
http://www.courts.gov.bc.ca/jdb-txt/ca/04/04/2004bcca0421.htm
Readers with questions are invited to contact Neo Tuytel (at 604-
643-3180; or njt@cwilson.com) or Gurminder Sandhu (at 604-643-
3173; or gss@cwilson.com) of Clark Wilson LLP's Insurance Group.
