Duty to Defend Property Manager Where Listed on Policy as Additional Insured Not Automatic Where Property Manager May Be Liable in Negligence by Virtue of Its Own Acts or Omissions
Oct 30, 2017
Justice Jane Ferguson recently released the coverage application decision Brookfield Johnson Controls Canada LP v. Continental Casualty Company, in which Brookfield was seeking a declaration that Continental Casualty had a duty to defend Brookfield with respect to an action initiated by a plaintiff in an underlying action.
Brookfield entered into a contract with Olympic Dust Control under which Olympic supplied rental floor mats for a variety of CIBC bank branch locations. As a term of the contract, Olympic was also required to name Brookfield as an additional insured on their policy of insurance. Olympic obtained a commercial general liability policy with Continental which added Brookfield as an additional insured with the following provision:
Brookfield […] are added as an Additional Insured but only with respect to liability arising solely out of the operations of the Named Insured and only with respect to Commercial General Liability.
The statement of claim alleged that the plaintiff had tripped on a floor mat that was loose and not level with the floor. It was alleged that the floor mat had been supplied by Olympic. There were broad allegations of negligence against Olympic and Brookfield which related generally to a failure to maintain, inspect, repar, and/or replace the mat as well as negligent design and placement of the mat.
Justice Ferguson held that Continental owed Brookfield no duty to defend as the true substance of the allegations of negligence did not arise “solely” out of the operations of Olympic. Olympic was contracted to supply floor mats and remove worn and defective mats. Although the allegations were pleaded broadly against all defendants, Justice Ferguson held that the allegations related to independent negligence on the part of each defendant. There were no allegations of vicarious liability against Brookfield or allegations that Brookfield was liable for the negligence of Olympic. Justice Ferguson held that the true substance of the allegation was that “the plaintiff tripped and fell as a result of a floor mat that was loose and not level with the floor (which would relate to its placement and not just to its mere supply).”
Justice Ferguson further determined that the allegations against Brookfield fell within the scope of its own business of performing property management services and did not solely relate to the operations of Olympic, therefore being excluded from coverage by Continental pursuant to the certificate of insurance.
There is no coverage available to Brookfield through Continental because the claims made against it are not, in substance, claims arising solely out of the operations of Olympic. The addition of the word ‘solely’ emphasizes the limitation of coverage provided to additional insureds. There is no duty to defend Brookfield on the part of Continental.
Justice Ferguson went on to consider Brookfield’s motion to have independent counsel appointed at the expense of Continental given an alleged conflict of interest between the insurer and Brookfield. Justice Ferguson held that, in the event she was wrong about the underlying coverage issue, the level of perceived conflict between Brookfield and Continental did not reach the level where Brookfield would be entitled to appoint its own counsel at Continental’s expense.
Olympic had threatened a summary judgment against Brookfield in the proceedings and there were crossclaims between the parties. Justice Ferguson held that separate counsel appointed to defend Brookfield and reporting to a separate adjuster would be sufficient to protect against any perceived bias.
This decision from Justice Ferguson suggests that a carefully drafted additional insured clause can be instrumental in identifying the scope of coverage that an insurer is willing to provide to an additional insured. Justice Ferguson found that the narrow language of the additional insured provision resulted in a more narrow approach to determining coverage of the additional insured. The decision serves as guidance to insurance companies to ensure that their additional insured provisions adequately reflect the scope of coverage intended to be provided to additional insured. Justice Ferguson also confirmed that in the event of an apprehension of conflict between the insured and insurer, an insured will not automatically be granted the right to independent counsel unless it can be shown that separate counsel reporting to separate adjusters would be insufficient to cure the apprehension of bias.