Erin Crochetière Wins Duty to Defend Application

Erin Crochetière was successful yesterday in a duty to defend application. The underlying action arises out of an alleged slip and fall accident on spilled liquid at a store. The store contracted with a cleaning company that was insured by AIG. The store was an additional insured on the AIG policy.

Shortly prior to the application hearing, AIG agreed that it owed a duty to defend the store, but it would not agree to pay the store’s full defence costs on the argument that some of the plaintiff’s claims are not covered under the AIG policy as they arose out of the store’s operations.

In his endorsement, Justice Myers rejected the argument that defence costs should be allocated between the covered and allegedly uncovered claims. His Honour stated that there is no way to distinguish between defence costs expended on the exact same facts and issues. All that is necessary is a “mere possibility” that AIG’s insurance policy may have to respond.

The allegations in the statement of claim demonstrate more than a mere possibility that the cleaning contractor’s work was engaged.  In other words, the allegations relate to liability arising out of the operations of the contractor. Interestingly, the court held further that:

Moreover, it does appear that under the wording of the duty to defend, the insurer may have left itself open to paying all defence costs in a “suit” to which insurable claims are made. Nothing in the language of the duty to defend limits the obligation to pay full costs of the “suit”.

As a result, AIG was ordered to pay the full defence costs of the store, as well as substantial indemnity costs of the application. The court notes that costs on a substantial indemnity basis are the norm for duty to defend cases.