The recent BCMA v. Aviva Insurance case is not only interesting on its facts, but provides educational summaries of important principles on such matters as,
- Policy interpretation;
- A CGL insurer’s duty to defend mixed claims;
- Coverage for defamation claims under the “personal injury” section of a CGL policy; and
- Restrictions that can be imposed on the selection, instruction and reporting of defence counsel in light of insurer-insured coverage conflicts.
The Plaintiff in the underlying litigation, Dr. Wang, issued a lawsuit against the B.C. Medical Association (“BCMA”) and various of its officers, directors, employees and volunteers alleging a “bad faith campaign of malicious public attacks on the Plaintiff characterized by defamation, injurious falsehoods and negligent statements” all knowingly published for the dominant purpose of “inflicting injury upon the Plaintiff and destroying her reputation”. BCMA was insured by CGL policies issued by Aviva which contained the usual “Personal and Advertising Injury Liability” coverage which, among other things, extended coverage for liability claims arising out of the “offences” of slander, libel or disparagement. The coverage expressly excluded “knowing violation of rights of another” and “material published with knowledge of falsity”.
Aviva denied coverage for all but the narrow claim of vicarious liability on the part of BCMA for the conduct of its personnel. With respect to the rest of the claims and coverage for the individual Defendants personally, Aviva denied coverage invoking the above exclusions and also pointing out that the allegations of intentional injury simply did not engage the “fortuity principle fundamental to every policy of liability insurance”.
Aviva took the position it would defend the BCMA on a Reservation of Rights basis, using counsel of its choice and would seek an apportionment of defence costs at a later date depending on the outcome of the litigation.
BCMA appointed senior litigation counsel of its own choice to defend both the association and all the individual Defendants. They did not accept Aviva’s denial of coverage and were not prepared to accept the proffered defence of the claim on a Reservation of Rights basis. The resulting Court Application addressed whether Aviva’s duty to defend the insureds under the CGL policy was triggered and, if so, how the defence of the claim was to be handled in light of potential conflicts of interest.
The Duty to Defend
The Court correctly summarized a CGL insurers duty to defend as following:
- “The pleadings govern the duty to provide a defence;
- An insurer, under a liability policy containing a duty to defend, is required to provide for a defence where facts alleged in the pleadings, if proven to be true, could require the insurer to indemnify the insured for the claim;
- The duty is triggered by the mere possibility that a claim within the policy may succeed; and
- In this regard it is the true nature of the substance of the claim that is to be determined, not the particular labels by the Plaintiff in its pleading.”
Aviva argued that the whole tenor of the litigation was a “campaign of vilification actuated by malice and bad faith”, involving allegations of defamatory publications published with intention to harm and with knowledge of their falsehood i.e. all clearly outside coverage.
The Court did not agree. Rather, it ruled:
- The “possibility test” for an insurer’s duty to defend requires the Court to address possible outcomes at trial based upon the claims alleged in the Statement of Claim;
- This requires the Court to consider the possibility that only some and not all of a Plaintiff’s allegations will succeed at trial;
- In defamation cases, it is not necessary for a Plaintiff to demonstrate malice or even knowing falsity of the publication in order to succeed…all that is required is proof that the words were published and that they were defamatory in nature;
- “The elements of the defamation claim do not require proof of conduct that proves intent to injure…if the allegations of intent to injure and knowing publication of falsehood are removed, sufficient facts remain to support a pleading of defamation”;
- Hence, the Plaintiff could possibly succeed in a claim for defamation simply by proving the defamatory publication and this possibility was “sufficiently disparate” to trigger the duty to defend without more.
But Who Gets to Control the Defence?
The Court noted that “in general, when the insurer defends a claim it has the right to control the defence, including the right to appoint and instruct counsel. However, the right of the insurer to control the defence is not absolute”. In certain cases, there may be a sufficient conflict of interest between insurer and insured, that the former may be required to surrender control of the defence to the latter.
The Court reviewed a number of cases where there had been sufficient conflict of interest requiring the insurer to surrender control of the defence. It acknowledged that such surrender is not necessarily required in every instance where there is a reservation of coverage rights by the insurer. If the reservation is based on coverage disputes that have nothing to do with the issues being litigated in the underlying action, no disqualifying conflict exists. However, such a conflict will arise where the coverage questions depend on the characterization of the insured’s own conduct and that conduct is an issue in the underlying litigation.
In the BCMA case, the Court held that “the insured’s knowledge, purpose and intention will be a central issue at trial in the underlying action and the conflict presented between the [coverage] interests of Aviva and the insured in this regard is too substantial to ignore”. The Court ruled that Aviva was not entitled to exercise any right to control the defence of the insured. Rather it ordered that:
- BCMA and the individual Defendants were permitted to conduct a defence of the underlying action with legal counsel of their choosing;
- Aviva was responsible for paying all fees of such counsel on a solicitor/client basis at the hourly rate normally charged by such legal counsel; and
- Defence counsel chosen by the insureds was not required to report to Aviva with respect to any matters bearing on the issue of liability.
The case can be accessed on the BC Supreme Court’s website here.