Canadian Maritime Engineering Ltd. v. Intact Insurance Company, 2019 NSSC 328 (2019-11-06)
Facts: While under a scheduled maintenance contract and docked at the plaintiff’s facility, the DFO vessel CCGS Corporal McLaren (the “Vessel”) was damaged due to suspected vandalism. The plaintiff notified its insurer, the defendant, of the damage but upon notice of loss the defendant reserved its rights and referenced an exclusion clause in the covering policy that the policy shall not cover “…any act of any person acting maliciously”. By way of demand letters, the Department of Justice on behalf of the Queen in right of Canada (“Canada”) asserted a claim against the plaintiff for the damage to the Vessel and demanded either immediate repair of the Vessel pursuant to the contract terms or compensate Canada for the damage to the Vessel as a result of the vandalism. At issue was whether the defendant insurer had to a duty to defend the plaintiff against the claim from Canada despite the insurer’s reliance on the exclusion clause.
Decision: Order granted. The defendant had a duty to defend.
Held: The duty to defend is informed by, among other things, the pleadings and the policy language as well as if the allegations state facts which if proven fall within policy coverage. The Court looked to Canada’s demand letters and found there was a duty to defend based on the allegations of negligence, vandalism and breach of contract against the plaintiff. In doing so, the Court held that an insurer has a duty to pay defence costs even if there is a mere possibility of coverage. The Court then turned to consider whether the exclusion clause for “suspected vandalism” in the policy applied. In finding that the term had no single accepted meaning and that vandalism may or may not require intention, let alone malice, the exclusion did not apply. The Court further held that as Canada alleged the damage resulted from the plaintiff’s negligence, this was a separate cause falling outside the exclusion relied on by the defendant. On a preponderance of lead authority, the Court also found that the plaintiff was entitled to retain and instruct its own counsel as there was a reasonable apprehension of conflict due to the defendant insurer having an incentive to lead the plaintiff’s evidence in defence in a manner that increased the finding of a malicious act to trigger the exclusion.