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Court Clarifies the Pleadings Rule in the Duty to Defend Analysis

Wust (Estate) v Novex Insurance Company, 2023 NBKB 62. 

Reading Time: 6 minutes  (approx.)

By: Weston McArthur (Articled Clerk) 

This matter concerned two class action lawsuits launched against The Estate of Pierre Wüst (the “Estate”). Mr. Wüst was a massage therapist who, from around 2006 to 2017, filmed his patients as they were receiving massages from him and saved the recordings on his computer.

During the time that Mr. Wüst was a massage therapist, he had miscellaneous malpractice liability coverage (“MML coverage”) and commercial general liability coverage (“CGL coverage”) with Novex Insurance Company.

After the initiation of the class actions, Novex denied coverage to the Estate. The Estate subsequently filed an application for a declaration of coverage.

The first major step in the duty to defend analysis is to determine the true nature of the claim as alleged in the pleadings. For the purposes of this analysis, the Court accepts that allegations pled in a plaintiff’s Statement of Claim as true; however, Justice Morrison stressed that the Court must look beyond the “labels selected by the plaintiff” [para 11].

For both class actions, the plaintiffs pled negligence, breach of fiduciary duty, and various intentional torts. Mr. Wüst’s coverage under the two policies did not extend to intentional conduct.

Justice Morrison laid out the legal principle for how to determine what claim is dominant and what claim is derivative, quoting from the Supreme Court of Canada’s decision in Non-Marine Underwriters, Lloyd’s of London v Scalera, 2000 SCC 24. At paragraph 28, Justice Morrison quoted: “If both the negligence and intentional tort claims arise from the same actions and cause the same harm, the negligence claim is derivative, and it will be subsumed into the intentional tort for the purposes of the exclusion clause analysis. If, on the other hand, neither claim is derivative, the claim of negligence will survive and the duty to defend will apply.”

Justice Morrison also made reference to the Alberta Court of Queen’s Bench’s decision in Rocky Mountain House (Town of) v Alberta Municipal Insurance Exchange, [2007] ABQB 548 in his explanation of the circumstances in which intentional and negligent conduct claims can be treated as “independent of each other” for the purposes of the duty to defend. At paragraph 69 in Rocky Mountain, the Court laid out the analysis to determine if both claims are separate: “In conducting its analysis the question asked was whether, i[f] you take away the facts which set out the factual basis for the intentional tort, [are there] remaining facts sufficient to support the claim in negligence. If so, the two claims are independent of each other.”

In plain language terms, if a plaintiff pleads both negligence (covered by an insured’s policy) and intentional tort (not covered by an insured’s policy) against an insured, and a court finds that these claims are independent of each other, an insurer would have to provide coverage as it relates to the negligence claim but not with respect to the intentional tort claim.

When Justice Morrison reviewed the pleadings, he found that the whole action was one concerning the tort of intrusion upon seclusion – an intentional tort – and that the negligence claims were derivative. Justice Morrison ultimately found that Novex did not have a duty to defend.

Link: Wust (Estate) v Novex Insurance Company, 2023 NBKB 62.

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