The Scope of the Duty to Defend an Additional Insured: Great Atlantic & Pacific Company of Canada Limited v. Economical Mutual Insurance Co., 2014 ONCA 350

Maria Abdoullaeva

August 29, 2014

Introduction

In Great Atlantic & Pacific Company of Canada Limited v. Economical Mutual Insurance Co., 2014 ONCA 350, the Court of Appeal recently considered the scope of the duty to defend an additional insured under a commercial general liability policy. In its brief decision, the Court of Appeal adopted the conclusions and reasons of Hennessy J. in 2013 ONSC 7200. Therefore a closer examination Hennessy J.’s decision is warranted.

Hennessy J. considered an application by Great Atlantic & Pacific Co. of Canada Ltd. (“A&P”) for reimbursement from Economical Mutual Group Co. (“Economical”) for costs that it incurred in defending an action brought against it by customers who claimed damages from an alleged slip and fall in an A&P store.

While the underlying claim here involved a slip and fall injury, the court’s analysis will have application in a number of other factual scenarios, some of which will be considered following an analysis of the decision below.

Facts

(i)         The contracts and policy

A&P had an agreement with a contractor, Central Building Services Group (“CBSG”), for the provision of store maintenance services to its store. As part of the agreement, CBSG was required to add A&P as an additional insured on its liability policy. CBSG arranged to have A&P named as an additional insured under its Commercial General Liability policy with Economical (“the CGL policy”).[1]

The CGL policy contained an additional insured endorsement which read: “This insurance applies to those stated on the Declaration as ‘Additional Insureds’ but only with respect to liability arising out of the operations of [CBSG].” The operations of CBSG were janitorial services.[2]

There was also a certificate of insurance which read: “It is understood and agreed that [A&P] and its subsidiaries are added as additional insured but only insofar as their legal liability arises vicariously out of the negligent operations of [CBSG].”[3]

(ii)        The accident and allegations

An A&P customer allegedly slipped and fell on the floor of a store as a result of the accumulation of water left behind by a floor cleaning machine. The customer plaintiff sued A&P and CBSG.[4]

The facts pleaded in the statement of claim were:

  • the plaintiff attended A&P to purchase groceries
  • the plaintiff was approached by an individual operating a floor cleaning machine who demonstrated no intention of stopping or slowing down
  • the plaintiff stepped out of the path of the machine and slipped and fell on a clear colourless liquid
  • there were no warning signs indicating the floor was wet or slippery, and
  • the plaintiff suffered serious injuries in the fall.[5]

The statement of claim particularized the negligence of each of the defendants.[6] Against A&P the customer plaintiff alleged:

  • failure to properly instruct agents or employees with respect to safe cleaning
  • employing or contracting with cleaners who were untrained and not experienced
  • failure to exercise reasonable care and attention for persons lawfully on the premises
  • failure to minimize the risk of harm to customers with respect to cleaning of the premises
  • failure to inspect the premises
  • carrying on business when it knew the premises were unsafe
  • failure to warn or advise the plaintiffs when it knew the premises were unsafe and unusually slippery, and
  • permitting the premises to be in a dangerous or unsafe condition.[7]

There were no allegations that A&P was vicariously liable.[8]

The allegations against CBSG were:

  • failure to warn the plaintiffs of the wet and slippery conditions
  • cleaning, etc. the floor in a manner that left the floor slippery and unsafe
  • cleaning, etc. without regard for the safety of persons walking on it
  • failure to warn customers the floor surfaces were slippery and unsafe
  • using products that made the floor slippery and unsafe
  • using products in a manner that was inappropriate and hazardous, and
  • employing persons to clean, etc. when such persons were untrained, incompetent or unfamiliar with the proper methods.[9]

Economical defended CBSG in the action but refused to defend A&P.[10] A&P therefore brought an application against Economical, seeking a declaration that Economical had a duty to defend and indemnify for all costs incurred in defending the action.[11] The application was not heard until after the underlying action was heard.

Law and Analysis

Economical argued that there was no duty to defend because: (i) the certificate of insurance stated that coverage for A&P was limited to claim arising from vicarious liability; and (ii) the claim made allegations directly against A&P for its negligence as an occupier and there was no claim that its liability stemmed from CBSG’s acts.[12]

(i)         The certificate of insurance stated that coverage was limited to claims arising from vicarious liability

Economical argued that A&P’s coverage as an additional insured was limited to liability which flowed to them because of CBSG’s liability. Hennessy J. did not agree.[13] She held that the CGL policy was determinative, and not to be read subject to the certificate of insurance.[14] The CGL policy did not limit coverage to liability arising vicariously out of the negligence of CBSG, and the wording of the certificate of insurance was subordinate to the terms, conditions and exclusions of the CGL policy.[15]

(ii)        The claim made allegations against A&P directly for its negligence as an occupier and there was no claim that its liability stemmed from the acts of CBSG

Hennessy J. noted that as an additional insured, A&P need only be defended if it can be shown by the words of the statement of claim that the liability of A&P derives from the negligent actions or omissions of CBSG.[16]

Hennessy J. then applied the traditional “pleadings rule” to determine whether the duty to defend was triggered: if the pleadings allege facts which, if true, would require the insurer to indemnify the insured for the claim, then the insurer is obliged to provide a defence.[17] This requires the court to assess the pleadings to determine the “substance” and “true nature” of the claims.[18]

Hennessy J. found that the fundamental facts underpinning the claim, as opposed to legal theories, related to the janitorial operations, a matter covered by the insurance provided to A&P by Economical. There were no separate or free standing factual allegations of negligence on the part of A&P (e.g., inadequate lighting or lack of non-slip matting, etc.).[19]

The true substance of the claim was that the customer plaintiff alleged that she slipped and fell on the floor in close proximity in time and place to the floor cleaner who was operating floor cleaning equipment and who left the floors in a slippery and hazardous condition. The allegations against A&P claimed a breach of its obligations to ensure that the floors are safe and that the floor cleaners do not cause unsafe conditions.[20]

Hennessy J. held that the claim against A&P with respect to its duties as an occupier did not diminish the substance and true nature of the factual basis of the claim.[21] An analysis of the legal foundation which may give rise to damages (i.e. occupier’s liability or vicarious liability) is not required; the focus of the assessment must be on the facts alleged in the statement of claim.[22]

Hennessy J. concluded that the statement of claim in the underlying action triggered the duty to defend.[23] Since the underlying action was long over, Economical was ordered to indemnify A&P for defence costs incurred in defending the underlying action.[24]

Discussion

While this case involved a slip and fall injury, the reasoning used to determine Economical’s liability has wider application. For example, consider the scenario of the property owner who retains a general contractor to implement a particular construction project. The general contractor hires a subcontractor to do excavation work. As part of the agreement between the parties, the subcontractor adds the general contractor as an additional insured with respect to liability arising out of the subcontractor’s operations.

The owner’s property is subsequently damaged by flooding as a result of the subcontractor’s negligence in failing to perform locate services on underground utilities, causing it to damage a water pipe in the course of its work. The owner sues the general contractor and its subcontractor, alleging that the general contractor failed to hire a subcontractor with reasonable skill, failed to properly supervise the subcontractor, etc. The subcontractor’s insurer refuses to assume the defence of the general contractor.

In determining whether the subcontractor’s insurer has a duty to defend the general contractor, the court will have to examine whether the true substance of the claim was that of failure to perform locate services, in which case there is a duty to defend. Unless there are separate or free standing factual allegations against the general contractor (e.g., that it caused the flood by failing to install a proper drainage system or the like), based on Great Atlantic & Pacific Company of Canada Limited v. Economical Mutual Insurance Co., the subcontractor’s insurer will likely have a duty to defend the general contractor.

The hope is that this decision will result in more predictability in all cases where one party is added as an additional insured to another’s liability policy. It remains to be seen whether the decision will have significant impact on these coverage disputes, particularly where such disputes also involve issues of overlapping coverage.

(The plaintiff’s underlying action, by the way, was dismissed after a jury concluded that there was no negligence on the part of any of the defendants.)

 

[1] At para 2.

[2] At para 33.

[3] At para 34.

[4] At para 3.

[5] At para 42.

[6] At para 43.

[7] At para 44.

[8] At para 14.

[9] At para 45.

[10] At para 4.

[11] At para 8.

[12] At para 30.

[13] At para 35.

[14] At para 36.

[15] At para 37.

[16] At para 32.

[17] At para 25, 41.

[18] At para 40.

[19] At para 48.

[20] At para 51.

[21] At para 49.

[22] At para 50.

[23] At para 52.

[24] At paras 55, 57.