Additional Insured coverage
What does it mean to be additional insured ? The law, like most things, can sometimes be ambiguous. Where some laws are straight forward and easily understood, others leave a great deal of room for interpretation. In the latter case, it is often left to the courts to interpret the law and set precedent. This has certainly been the case for Additional Insureds.
Additional Insured coverage occurs when one company engages in a business relationship with another company. Such relationships, while often beneficial, can sometime create the risk of lawsuits. An example of this would be a landlord hiring a contractor to shovel the snow from the walkways in the winter. Should a tenant of the building slip and fall on ice, that tenant could sue both the landlord and the contractor for damages.
As an Additional Insured, the contractor could request protection under the landlord’s general liability policy, but since the law has not been clear, these requests for defense have often been denied by insurance companies. The rationale being that there was a lack of clarity. The insurance company would say that contractor should have independent liability insurance of their own and, when cases like this came to court, the rulings on Additional Insureds have not been consistent.
A recent case, The Corporation of the City of Markham. v. Intact Insurance Company has done a lot to provide some clarity around Additional Insureds. In this slip-and-fall-case, the City of Markham and a contractor hired to keep the sidewalks clear of snow, both requested defense from the Intact Insurance Company. Intact took the position that Markham was not entitled to a defence and was not an additional insured for the purposes of this claim as it had failed to call out the contractor on the date of the incident. The Judge ruled that “The mere possibility that a claim falls within the policy triggers the duty to defend”, and that since the Plaintiff had alleged negligence on behalf of both the city and the contractor and that the city was a named additional insured, Intact could not opt out of defending the city. The judge further ruled that the city was entitled to appoint and instruct a counsel of its choice at Intact’s expense, as well as the past costs of defending the main action.
The court was very clear in the insurance company’s responsibility to provide a defense. Meaning that Intact Insurance would need to pay for separate counsel if the City of Markham did not believe that the one lawyer could effectively represent both parties.
Much of the confusion stems from a series of cases that were decided differently, in particular, the case of Atlific Hotels and Resorts Ltd. v. Aviva Insurance Company of Canada, 2009. At the time, a guest of the Deerhurst Resort slipped on an icy pathway and the Aviva insurance company refused to provide a defense to Deerhurst as an additional insured. The judge found that since there were different categories of negligence in this action and that only of the categories, snow and ice removal, fell within the coverage, the insurer only had to provide the contractor with a claim. However, the court ruled that Aviva had to provide the defence in part to Deerhurst, but it was appealed soon after because the parties felt the decision lacked clarity. The cases ended up being resolved before the appeal was heard and the clarity never came to be. Since the decision was not in line with previous decisions, there was confusion as to how to apply the law.
Although the Markahm v. Intact decision has shed some light on how insurance companies must interpret the additional insured’s clauses of their liability policies, we will have to wait for a new Ontario Court of Appeal decision to provide clearer instructions and guidance in this area of litigation law.