AIG Insurance Company of Canada v Lloyd’s Underwriters, 2022 ONCA 699.
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By: Weston McArthur (Articled Clerk)
The Forgets owned a home in Timmins, Ontario, which they moved into in 2013. Three years after they moved in, the home experienced progressive damage due to land erosion and instability. The homeowners sued the City on the grounds of negligence.
The City had general liability coverage through AIG during 2016 – 2017 and through Lloyd’s Underwriters during 2018 – 2019 (“Lloyd’s). Lloyd’s denied that it had a duty to defend the City. AIG brought an application to establish that Lloyd’s had a duty to defend the City in respect of the claim for the years that it was the City’s insurer.
To review, “[a] liability insurer’s duty to defend arises when an insured shows a ‘mere possibility’ that the true nature or substance of the pleaded claim, if proven at trial, falls within coverage and would trigger and insurer’s duty to indemnify” [para 40]. A judge reviews the pleadings to decide this. Judges can review extrinsic evidence that is explicitly referred to in the pleadings, but cannot conduct a “trial within a trial” and make findings of fact with respect to extrinsic evidence that would impact the underlying trial process. The Supreme Court of Canada described this type of evidence as “premature evidence” in its decision in Monenco Ltd v. Commonwealth Insurance Co, 2001 SCC 49. Premature evidence should not be considered because “‘premature findings on such contested facts [are] best left to the judge hearing the underlying trial’” [para 53].
The application judge ruled in favour of AIG in finding that Lloyd’s did have a duty to defend the City. Lloyd’s then appealed to the Ontario Court of Appeal, which upheld the application judge’s decision.
Lloyd’s argument was that the application judge erred in not considering an expert report on the land that was referred to in the pleadings. If the expert report was taken to be true in this matter, it would mean that the exclusionary provisions in Lloyd’s insurance policy with the City would apply and coverage could be safely denied. Writing for the ONCA, Justice Gillisie said that the judge did not err in deciding to not consider this evidence as the expert report dealt with key facts and issues in the larger litigation between the Forgets and the City that were contested and this evidence could not be considered prematurely.
