Concurrent Exclusion Clause & Narrowing the Duty to Defend
Appin Realty Corp. v. Economical Mutual Insurance Co., [2008] O.J. No. 436, is an interesting decision by the Ontario Court of Appeal dealing with the age old issue of an insurer’s duty to defend. The insured had been sued for bodily injury arising from exposure to mould and/or bacteria. The insurer relied upon an exclusion clause which excluded coverage for bodily injury caused by mould. The motions judge found that the exclusion did not apply since bacteria was a non-excluded peril and had been plead by the plaintiff. On appeal, the insurer argued that the presence of the word “alleged” in the exclusion absolved the insurer of a duty to defend, even though a non-excluded peril was also alleged. The effect of this interpretation would be that the insurer would have a duty to indemnify (if, after a trial, it was proven that the injury was caused solely by bacteria), but its duty to defend would not be triggered.
This was an interesting argument given, as remarked by the Court of Appeal, it stands on its head the general proposition that the duty to defend is broader than the duty to indemnify. The key to the insurer’s argument was the existence of concurrent exclusion language, which precluded coverage even if there were any contemporaneous causes. The Court of Appeal ultimately rejected the argument since on another possible interpretation, the clause could be taken to mean that wherever injury from mould is alleged in a claim, even if it is ultimately established that the injury arose solely from a covered peril, such as bacteria, the claim would exclude both the duty to defend and the duty to indemnify. This would extend the exclusion to otherwise non-excluded perils. However, the Court of Appeal did leave the door open for an insurer to make its duty to defend more narrow than its duty to indemnify, though this would require more clear and less ambiguous language.