"Use and Operation of an Automobile" and The Insurer’s Duty to Defend: Recent Lessons from the B.C. Court of Appeal

The insurer’s duty to defend, while closely aligned with its obligation to indemnify, is broader. Two recent decisions of the British Columbia Court of Appeal examine the insurer’s duty to defend. As an interesting point of comparison, both cases also discuss when an insurance claim will be held to "arise out of the use and operation of an automobile" - language that forms the heart of the coverage grant of automobile insurance and the exclusion to coverage in many general liability policies. In Marjak Services Ltd. v. Insurance Corporation of British Columbia , the Court conducts an in depth examination of the considerations to be made on a duty to defend application, chief of which is an examination of the pleadings. In the other decision, Taylor v. Maris , the Court finds that pleadings sometimes disclose concurrent causes of action and, as a result, leave an auto insurer and a general liability insurer with a joint duty to defend.

Marjak v. ICBC

http://www.courts.gov.bc.ca/jdb-txt/ca/04/04/2004bcca0455.htm

The Court of Appeal’s reasons in Marjak consider the leading cases from the Supreme Court of Canada on the determination of an insurer’s duty to defend. The decision also looks at situations where the court may consider not just the pleadings, but also extrinsic evidence, on a duty to defend application. The Court’s discussion of these issues, as well as its review of the law on what constitutes the use or operation of a motor vehicle, make for especially edifying reading.

The appeal was from a ruling of the B.C. Supreme Court that ordered ICBC and Co-Operators General Insurance Company to defend the parties named in a negligence action brought in Washington State. ICBC and Co-Operators both insured Marjak Services Ltd., a B.C. business, and Marjak’s manager, Ian Scargill. ICBC provided a garage automobile policy and Co-Operators underwrote the primary portion of a commercial general liability policy.

Mr. Scargill and another employee of Marjak, Robert Forsen, were travelling in a company vehicle back to Vernon from a convention in Nevada. As the pair entered Washington, Mr. Forsen told Mr. Scargill that he was ill. Despite Mr. Forsen’s warning, Mr. Scargill continued to drive through Washington and did not take Mr. Forsen to a doctor until they had crossed back into Canada, by which time, Mr. Forsen had become unconscious. Mr. Forsen later sued Mr. Scargill and Marjak in Washington State Superior Court for injuries suffered as a result of Mr. Scargill’s failure to seek immediate medical attention for Mr. Forsen.

The Court of Appeal dismissed both appeals from the order directing the insurers to defend. The Co-Operators appeal, while interesting, turned on a technical issue. In its reasons, the Court focused mostly on the ICBC appeal, which appeal was argued on two grounds. First, ICBC said that the judge in the court below had erred by refusing to consider a written statement made by Mr. Scargill. Second, ICBC argued that its policy did not cover the loss Mr. Forsen alleged.

The Court of Appeal first reviewed the basic principles to be considered on an application to determine the duty to defend. The most basic of these is the principle known as the "pleadings rule". The pleadings rule, discussed and employed by the Supreme Court of Canada in Monenco Ltd. v. Commonwealth Insurance Co., states that "if the pleadings allege facts which, if true, would require the insurer to indemnify the insured for the claim, then the insurer is obliged to provide a defence".

In dismissing ICBC’s first ground of appeal - that the court below ought to have considered a written statement given by Mr. Scargill - the Court of Appeal considered when it may be appropriate for a court to review evidence beyond the pleadings in determining whether or not a duty to defend exists. The Supreme Court of Canada, in Monenco, held that it was proper for a court to review extrinsic evidence in some circumstances, where such a review could help determine the real issues disclosed in the pleadings. The Court cautioned, however, that on a duty to defend application, evidence that called for a finding of fact was not to be considered. A duty to defend application is not to be a trial within a trial. In the Marjak case, the Court of Appeal concluded that Mr. Scargill’s statement could not be considered, because it would require findings to be made before trial that would affect the underlying litigation and as such, was what Mr. Justice Iacaboucci referred to in Monenco as "premature evidence".

ICBC’s second argument was that regardless of the extrinsic evidence, the ICBC policy would not cover the loss. ICBC argued that the loss did not "arise out of the use or operation of an owned automobile", which was the language used in the grant of coverage in Marjak’s ICBC garage policy. The Court of Appeal undertook a thorough review of the law on what constitutes the ownership, use, or operation of an automobile. ICBC argued that Mr. Scargill’s operation of the company vehicle was merely incidental to his delay in seeking medical attention for Mr. Forsen. The Court, relying on the Supreme Court of Canada decision in Amos v. Insurance Corporation of British Columbia , disagreed. Because the language was used in the grant of coverage, it was to be given its broadest reasonable meaning in favour of the insured. The Court of Appeal held that Mr. Forsen’s claim had a real connection to the use and operation of the company vehicle. As the Court said:

ICBC had further argued that the particular wording of an exclusion in the policy meant that the claim was not covered. In the end, the Court was unable to discern a clear meaning from the wording of the exclusion and applied the contra proferentem rule against ICBC. The contra proferentem rule states that where a term of a contract is ambiguous, the provision is construed against the party who wrote the ambiguous term.

Taylor v. Maris

http://www.courts.gov.bc.ca/jdb-txt/ca/04/03/2004bcca0391.htm

In Taylor v. Maris, the defendant’s general liability insurer, Canadian Northern Shield, was appealing from a ruling that ICBC had no duty to defend the action, as the claim did not arise "out of the use or operation by the insured of a vehicle". The basic facts of the case were that the defendant’s dog had bitten the plaintiff, while the dog was tied up in the back of the defendant’s pickup truck.

In the decision being appealed from, the Court held that although the transportation of a dog was a normal use to which an automobile is put, the "crux of the plaintiff’s allegations" was that the defendant failed to warn the plaintiff of the danger posed by the dog. In turn, held the Court, the failure to warn was not sufficiently causally connected to the transportation of the dog in the truck that it could be said that the claim arose from the use and operation of an automobile.

The defendant’s general liability insurer, whose policy had an exclusion for claims arising out of the use and operation of an automobile, nevertheless admitted that it had a duty to defend based on the part of the statement of claim that alleged a failure to warn. On appeal, however, the insurer argued that other portions of the statement of claim articulated an allegation that would be considered to arise out of the use and operation of an automobile and, therefore, would also trigger ICBC’s duty to defend. Indeed, one of the allegations was that the defendant failed to keep his dog properly contained in the pickup truck. The Court of Appeal agreed with Canadian Northern Shield and held that the pleadings alleged concurrent causes of action and the general liability insurer and the auto insurer were jointly liable to defend the action.

Summary

The Court of Appeal decision in Marjak provides a succinct survey and reminder of the law on an insurer’s duty to defend. The case is particularly helpful for its discussion on the propriety of considering extrinsic evidence on a duty to defend application. Both Marjak and Taylor v. Maris are instructive for their discussion of the "use and operation of an automobile" language.

There are lessons to draw from these decisions. The importance of pleadings (statement of claim and third party notices in particular) cannot be overemphasised. Ordinarily, pleadings, read in the light of a particular insurer’s policy wording, determine whether that insurer has a duty to defend. Importantly, there will also be situations, as in Taylor v. Maris, where the pleadings disclose more than one cause of action and create, in more than one insurer, a corresponding duty to defend.

Readers with questions are invited to contact Neo Tuytel (at 604- 643-3180; or njt@cwilson.com) or Jeremy Lovell (at 604-891-7725; or jtl@cwilson.com) of Clark Wilson LLP's Insurance Group.