Field Law

I. INSURANCE ISSUES

A. Where an insurer has failed to afford a defence to its insured and the insured is successful in bringing proceedings to enforce the insurer’s obligations, the court can and will award the insured a complete indemnity for both defence expenses already incurred and the expense of enforcing compliance with the policy terms

Williams v. Canales, 2016 BCSC 1811 per Blok, J. [4215]

I. FACTS AND ISSUES
 
The plaintiff Williams brought a lawsuit for injuries she alleged she suffered during the course of training at the Amazing Personal Training Studio Ltd. (ATP) gym. Weltman was the principal of APT, while Arbutus Village Holdings Ltd. was the owner of the premises. ATP, Weltman and Arbutus Village (the Insureds) were all insured under the policy at issue. The other third parties in the proceedings, and Martin John Goodger (the Brokers) were the insurance broker and agent respectively.
 
When Williams brought her action, the insurer Intact, denied coverage, relying on an exclusion in the policy. The Insureds brought third party proceedings against Intact and the broker Vancouver Holdings (BC) Ltd. and the agent Goodger and sought summary judgment against Intact. They did not seek that remedy against the broker and agent. The broker and agent supported the position of the Insureds. Justice Blok granted judgment in favor of the Insureds, declaring that Intact was obligated to defend the Insureds in the personal injury action and requiring Intact to reimburse the Insureds for defence costs already incurred. The Insureds then brought an action against Intact seeking special costs. The broker and agent sought party and party costs against Intact by way of a Sanderson order.
 
The issue was as to whether or not the Insureds and/or the agent and broker should be awarded special costs from Intact.
 
II. HELD: Special costs awarded to the Insureds and party and party costs awarded to the broker and agent

1. The Court awarded special costs to the Insureds, on the basis of the unique nature of an insurance contract between insurer and insured. The Court cited M.(E.) v. Reed (2003) 49 CCLI (3d) 57 (On.C.A.) where solicitor and client costs were awarded to the insured in circumstances similar to the case at hand (at para. 22):
“Entitlement to solicitor and client costs in the third party proceedings flows directly from the unique nature of the insurance contract which entails a duty to defend at no expense to the insured. The obligation to save harmless the insured from the costs of defending the action is sufficiently broad to encompass the third party proceedings. It is the contractual basis for the claim to solicitor and client costs that justifies the award and therefore constitutes an exception to the usual rule that solicitor and client costs will not be awarded except in unusual circumstances.”
The Court followed the Ontario Court of Appeal and held that coverage cases are one exception to the “usual rule” that special costs will not be awarded in the absence of unusual circumstances. It awarded the Insureds special costs against Intact, including costs associated with the submissions on costs.
2. Party and Party Costs were awarded to the broker and agent in the form of a Sanderson order.
(a) Intact had argued that a Sanderson order can only be made in favour of a “successful” defendant (or, in this case a successful third party) and that the broker and agent were not “successful,” rendering them ineligible to receive costs. The Court noted that the Rule of Court associated with this type of Order (Rule 14-1(18)) does not consistently use the terms “successful” and “unsuccessful” insofar as those terms are not used in the first part of the Rule. Regardless of this fact, the Court found that the appropriate approach is to focus on the substance of the events.

(b) In this case, the Insureds originally brought a third party action against both Intact and the broker and agent due to Intact denying coverage.  The Court noted that this was typical for these types of proceedings because there is uncertainty about who is liable. The Court held that once Intact’s obligation to defend was established, there was no longer any reason for the proceedings against the broker and agent to continue. Although they did not participate in the summary judgment application, the broker and agent were held to be part of the coverage dispute with a substantial interest in seeing Intact held responsible for the defence of the Insureds. The Court was satisfied that the coverage decision disposed of the entire third party proceedings and that the Brokers were “successful,” which led to the award of party and party costs in favour of the Brokers. 

III. COMMENTARY

The judge in this case cited appellate level decisions from Ontario, while the Insureds also presented appellate level decisions from New Brunswick, Newfoundland and Labrador and a trial level case from Manitoba. The Court in BC rendered a decision that fell in line with the other decisions across the country, which should serve as a potential warning to all insurers and Insureds in Alberta.
 
Though this decision is out of province, it shows that the consensus across the country is that insurers can and will be held responsible for special costs towards Insureds that they incorrectly deny coverage to. This puts more pressure on insurers to ensure the initial decision to deny coverage is correct.

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