Danicek v. Alexander Holburn Beaudin & Lang

2011 BCSC 65 Danicek v. Alexander Holburn Beaudin & Lang

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Danicek v. Alexander Holburn Beaudin & Lang, 2011 BCSC 65 Date: 20110121 Docket: S042714 Registry: Vancouver Between: Michelle Marie Danicek Plaintiff And Alexander Holburn Beaudin & Lang and Jeremy Martin Poole Defendants And Lombard General Insurance Company of Canada Third Party - and - Docket: S094306 Registry: Vancouver Between: Co-operators General Insurance Company Plaintiff And Lombard General Insurance Company of Canada Defendant Before: The Honourable Mr. Justice Kelleher Reasons for Judgment Counsel for Jeremy Poole and Co-operators General Insurance Company: N.P. Kent Counsel for the Defendant and Third Party, Lombard General Insurance Company of Canada: R.B. Lindsay, Q.C. C. Stewart Place and Date of Trial: Vancouver, B.C. November 22-24, 2010 Place and Date of Judgment: Vancouver, B.C. January 21, 2011 Background [1] Michelle Danicek was injured in two mishaps, a dance accident on April 6, 2001, and a motor vehicle accident on June 29, 2002. [2] Three actions arose from these events. They are described in the decision in the first stage of these proceedings: Danicek v. Alexander Holburn Beaudin & Lang, 2010 BCSC 1111 at paras. 2-5 and 8-11: [2] Action No. S042714 (the "Poole Action") concerns Ms. Danicek's claim for damages from a fall on the dance floor of Bar None. She brought the action against both Jeremy

Poole and the then-employer of the plaintiff and Mr. Poole, Alexander Holburn Beaudin & Lang ("Alexander Holburn"). [3] There were third party proceedings brought against Rodney's Oyster House (Vancouver) Corp., where the plaintiff and Mr. Poole and others dined that evening, and against Bar None Enterprises Ltd., which operates the nightclub where the mishap took place. Those third party proceedings have been resolved. [4] Lombard General Insurance Co. of Canada ("Lombard") is a third party. Lombard has a policy of insurance covering Alexander Holburn and its employees. The issue between Mr. Poole and Lombard is whether that policy covers the claim of Ms. Danicek. [5] The plaintiff reached a settlement with Mr. Poole, a "Mary Carter" agreement. Mr. Poole has admitted liability and has made a third party claim against Lombard, the insurer of Mr. Poole's employer. [8] Although Mr. Poole admitted liability, Lombard has not conceded that he is at fault. [9] The claim against Alexander Holburn has been settled. [10] The second action (No. M041927) arises from a motor vehicle accident which occurred on the Lions Gate bridge on June 29, 2002. The plaintiff's vehicle was struck from behind by the vehicle owned by the defendant Pao Fu Li and operated by the defendant Susan Shou Yee Li. Liability is admitted by these defendants. [11] The third action (No. S094306) concerns a dispute

between Co-operators General Insurance Company and Lombard. The issues between them concern the interpretation of Lombard's policy of insurance and the question of whether Lombard's policy of insurance applies in the circumstances of this case. These issues will be determined in the second phase of these proceedings. [3] The above description could be more precise. First, the plaintiff and Mr. Poole reached a settlement. I am now aware of the terms of the settlement. It is not exactly a "Mary Carter" agreement. It is described below. Second, Lombard provides coverage to Alexander Holburn Beaudin & Lang ("Alexander Holburn"). The issue is whether the policy covers the claim against Mr. Poole. [4] The decision cited above addressed liability for and the quantum of Ms. Danicek's claim. I concluded that Mr. Poole was liable in the first accident and awarded damages of $5,913,783.54. The defendants in the Li action admitted liability; damages of $10,595.00 were awarded. [5] This is the second phase of the trial. It addresses two claims. The first is by the defendant Mr. Poole against the third party Lombard General Insurance Company of Canada ("Lombard"). Mr. Poole seeks a declaration that he is insured under the Lombard policy for the liability claim made against him by Danicek; a declaration that Lombard's denial of coverage was wrongful, and that Lombard therefore breached the

policy entitling Mr. Poole to damages for breach of contract; and an award of damages against Lombard in the amount of the Danicek judgment against Mr. Poole plus interest and costs, an amount equal to reasonable costs incurred in respect of the Danicek lawsuit (legal fees and disbursements), and costs on a solicitor-client basis of pursuing the coverage enforcement proceedings against Lombard. [6] The action of Co-operators General Insurance Company ("Co-operators") against Lombard (Action No. S094306), is a claim for restitution or, in the alternative, contribution from Lombard with respect to the amounts that Co-operators have paid for the defence and indemnity of Mr. Poole in the Danicek action. [7] In general terms, the central issue in this phase of the trial is whether there was a sufficient connection between the circumstances of the accident, and Ms. Danicek's and Mr. Poole's employment by Alexander Holburn, to trigger liability insurance coverage under a policy of insurance covering Alexander Holburn's employees. The Facts [8] This phase of the trial was based on a statement of agreed facts as well as the evidence at the first phase. The facts which are relevant at this phase of the trial include the following. [9] Both Ms. Danicek and Mr. Poole were employees of Alexander Holburn on April 6, 2001. Ms. Danicek was employed as an articled student, and Mr. Poole was

employed as an associate lawyer. [10] Alexander Holburn pays for an "associates' dinner" approximately three times per year. The dinner is organized by the associates. In this case, Susan Sangha, then an associate, sent an e-mail to the firm's articled students and other associates. It invited them to attend the dinner at Rodney's Oyster House. [11] Ms. Sangha described what she understood to be the reason for these dinners: Q What was the reason for the dinner, dinners I should say. What was the reason for the dinners? And I'm talking about the dinners themselves. A To foster collegiality among the associates. To give them an informal venue in which to get to know each other better and communicate about their experiences at the firm and as a reward for hard work, as a - like a perk. [12] There is conflicting evidence about whether there was any obligation to attend. Ms. Danicek testified at the trial that she felt there was an expectation that she be there. However, Ms. Sangha's evidence was that there was no compulsion to attending these events. Also, Greg Pun, another former associate, called it a "social occasion." If business was discussed, it was incidental. [13] The visit to Bar None was not planned. Nothing in the invitation referred to going to Bar None or any other nightclub after the dinner. But it was common for some people to extend the evening beyond dinner. [14]

Approximately 20 associates and students attended the dinner at Rodney's Oyster House. It ended at approximately 10:30 p.m. Several of the persons in attendance, including the plaintiff and the defendant Mr. Poole, decided to proceed to Bar None. There is no precise evidence about the number of people who did so. Between seven and 12 would be as precise an estimate as I can make. [15] Alcohol was served at both locations. [16] Ms. Sangha attended both the dinner and Bar None. She paid for the dinner and submitted the receipt for reimbursement. [17] Ms. Sangha also paid $17.50 for drinks at Bar None. She paid for drinks for some people junior to her, thinking that if she were not reimbursed, it would be better she than they who bear the expense. She testified that she did not expect that the firm would necessarily reimburse her for the Bar None expense. Ms. Sangha testified that, if she had been certain the firm would reimburse her, then she " would have put my card on the bar and say, anybody who wants to have a drink can go ahead." [18] The accident happened at approximately 12:30 a.m. Mr. Poole lost his balance and fell. He caused Ms. Danicek to fall. He fell on her. She hit her head on the floor. [19] Lombard had issued a "professional package policy" of insurance to Alexander Holburn. This covered the period June 26, 2000, to June 26, 2001. Co-operators had issued a

"Home-Guard" policy of "tenants insurance" to Karen Poole for the period November 10, 2000, to November 10, 2001. Mr. Poole was insured under the Co-operators policy. Both policies were in full force and effect on the date of the accident. [20] On April 12, 2001, Poole advised Co-operators of the accident. On April 24, 2001, Alexander Holburn gave notice to Lombard of the accident. [21] On April 1, 2003, the plaintiff issued the writ of summons initiating the action against Mr. Poole and Alexander Holburn. Mr. Poole was served in March 2004. Co-operators then appointed Michael D. Adlem of Gowlings Lafleur Henderson LLP ("Gowlings") to represent and defend Mr. Poole. [22] The two insurers were aware of possible overlapping coverage issues. They exchanged policies early in these proceedings. [23] The statement of claim in the Danicek action was filed in April 2004. It was amended on April 5, 2005, and read, in relevant part: 4. On or about April 5, 2001, the Defendant, Alexander Holburn hosted and paid for a party for associates and articled students at the firm (the "Associates Party"), with all associates and articled students encouraged to attend. The Associates Party began at Rodney's Oyster Bar Restaurant with dinner and drinks and then moved into Bar None nightclub, all in Vancouver.

5. While the Defendant, Alexander Holburn was the host of the Associates Party, no partner attended, and it was left to the senior associate lawyers, as agents of the firm, to supervise the said Associates Party. The Defendant, Poole was one of the senior associate lawyers attending the Associates Party.

6. The Plaintiff attended the Associates Party and, while on the dance floor at the Bar None nightclub, was accidentally struck, knocked down and then fallen on by the Defendant, Poole (the "Collision").

7. The Collision was caused or contributed to by the negligence of the Defendant, Poole, particulars of which negligence are as follows: a. in failing to monitor and supervise the actions of those attending the Associates Party, including himself; b. in consuming an excessive amount of alcohol on the evening of the Associates Party to the point where he became impaired; c. in failing to keep any, or in the alternative, an adequate lookout for others while dancing on the dance floor of the Bar None nightclub; d. in acting in a careless, reckless, aggressive or negligent manner, having regard to all circumstances, including the nature, condition and use of the Bar None nightclub; e. in failing to consider the safety of others in the Bar None nightclub; f. in failing to take reasonable efforts to avoid the Collision, or failing to direct his body away from the Plaintiff so as to avoid the Collision when the same was or should have been imminent; and g. in dancing in the Bar None night club while his ability to do so was impaired. [24] On July 28, 2005, counsel for Mr. Poole made an application pursuant to s. 257 of the Workers Compensation Act, R.S.B.C. 1996, c.

492. He sought a determination that Ms. Danicek's injury arose out of and in the course of employment. [25] On August 4, 2005, Co-operators' counsel wrote to Lombard seeking coverage for Mr. Poole under the Lombard policy. Counsel asked that Lombard agree to share equally with Co-operators in the defence of Mr. Poole. Lombard responded on September 1, 2005. Lombard denied coverage of Mr. Poole under the Lombard policy. The reply letter read, in part: ... From our investigation to date we have not been provided with any evidence or facts that would determine that Mr. Poole was acting within the scope or course of his employment with AHBL when the alleged incident occurred resulting in the action commenced by Ms. Michelle Danicek. Accordingly, we must deny your client's request for defence and indemnification under the Lombard General Insurance Company of Canada policy. [26] On December 5, 2005, Mr. Poole issued third party proceedings against Lombard in the Danicek lawsuit. [27] In a further amended statement of claim, dated March 25, 2008, the nature of the allegations changed somewhat: 4. On or about April 5, 2001, the Defendant, Alexander Holburn hosted and paid for a party for associates and articled students at the firm (the "Associates Party"), with all Associates and all Articled Students being invited to attend. The Associates Party was at Rodney's Oyster Bar Restaurant with dinner and drinks paid for by the Defendant, Alexander Holburn.

5. While the Defendant, Alexander Holburn was the host of the Associates Party, no partner attended, and it was left to the senior associate lawyers, as agents of the firm, to supervise the said Associates Party. The Defendant, Poole was one of the senior associate lawyers attending the Associates Party. 5.1 Some of the employees went to Bar None nightclub after the Associates Party.

6. The Plaintiff attended the Associates Party and then went to the Bar None nightclub. While on the dance floor at the Bar None nightclub, was accidentally struck, knocked down and then fallen on by the Defendant, Poole (the "Collision").

7. The Collision was caused or contributed to by the negligence of the Defendant, Poole, particulars of which negligence are as follows: a. in failing to monitor and supervise the actions of those attending the Associates Party, including himself; b. in consuming an excessive amount of alcohol on the evening of the Associates Party to the point where he became impaired; c. in failing to keep any, or in the alternative, an adequate lookout for others while dancing on the dance floor of the Bar None nightclub; d. in acting in a careless, reckless, aggressive or negligent manner, having regard to all circumstances, including the nature, condition and use of the Bar None nightclub; e. in failing to consider the safety of others in the Bar None nightclub; f. in failing to take reasonable efforts to avoid the Collision, or failing to direct his body away from the Plaintiff so as to avoid the Collision when the same was or should have been imminent; and g. in dancing in the Bar None night club while his ability to do so was impaired. [28] On November 12, 2008, the Workers' Compensation Appeal Tribunal published its decision: THE WORKERS' COMPENSATION APPEAL TRIBUNAL DETERMINES THAT at the time the cause of the action arose, April 5, 2001: 1. The Plaintiff, MICHELLE MARIE DANICEK, was a worker within the meaning of Part 1 of the Workers Compensation Act.

2. The injuries suffered by the Plaintiff, MICHELLE MARIE DANICEK, did not arise out of and in the course of her employment within the scope of Part 1 of the Workers Compensation Act.

3. The Defendant, JEREMY MARTIN POOLE, was a worker within the meaning of Part 1 of the Workers Compensation Act.

4. The action or conduct of the Defendant, JEREMY MARTIN POOLE, that allegedly caused a breach of duty of care, did not arise out of and in the course of his employment within the scope of Part 1 of the Workers Compensation Act. [29] The gist of the Tribunal's reasoning is captured in paragraphs 33-35 of the decision: [33] It is not disputed that the associates' dinner was of benefit to AHBL to the extent that good morale supports the sharing of information amongst colleagues, contributes to the viability of the firm and assists in employee retention. The employer encouraged participation in the associates' dinner by paying for it and it is unlikely that it would do so were there not some benefit to the firm. There is, however, a wide spectrum of activities performed by employees that are for the benefit of the employer. These range from providing a very direct benefit, such as when an employee is engaged in productive activity, to activities that provide a more nebulous benefit to the employer such as participating in activities that are intended to promote collegiality and foster productive relationships. In that regard, the attendance of the plaintiff at the associates' dinner would be of less direct benefit to the employer than many other activities in which she would engage over the course of a day at work. However, her attendance at this function was clearly of some

benefit to the employer. [34] I am not persuaded, however, that the subsequent attendance at the nightclub provided a benefit to the employer, even if it is characterized as an extension of the associates' dinner. In that regard, I note the employer did not pay expenses associated with the attendance at Bar None. I do not consider that the payment of an expense item of $17.50 may be characterized as the employer funding, hosting or supporting the activity. Nor do I consider the payment of taxi fares as evidence that the attendance at the nightclub was encouraged by the employer. Mr. Poole's evidence was that taxi fare was paid to and from the dinner as an expense that was incidental to the dinner. It seems reasonable that the employer would not scrutinize every bill submitted for the payment of taxi fare to determine whether the expense related to a trip from the restaurant or from the nightclub attended afterwards. Since alcohol was served at the associates' dinner, AHBL would have an interest in ensuring that employees returned to their home safely after the associates' dinner, whether that occurred immediately after the dinner or at some point later in the evening. Therefore, I do not infer from this that AHBL promoted or had any interest in whether its employees went on to post-dinner nightclubbing. [35] In considering the benefits that the employer derived from the

associates' dinner, I do not consider that much of the purpose intended by such a dinner would be furthered by continued socializing between employees at a nightclub, after the dinner was over. Although some of the employees were still socializing in an informal environment, which might promote collegiality, it was not an environment conducive to discussing work matters. Once the dinner was over, I consider that the employees made personal choices as to whether they would continue with activities which were now predominantly social in nature. [30] Mediation took place on January 8, 2009. It was attended by Ms. Danicek, Mr. Poole, Alexander Holburn, Rodney's Oyster House, Bar None, Lombard, and the parties to the motor vehicle accident action. [31] In the mediation, Ms. Danicek asserted that her claim was valued at approximately $6 million plus costs. This amount exceeded Co-operators' policy limit. For that reason, Mr. Poole retained independent counsel, James Killam, Q.C. Co-operators retained "independent coverage counsel", Nigel P. Kent of Clark Wilson LLP. No settlement was reached in the mediation; however, negotiations continued afterward. Eventually, on January 28, 2009, Ms. Danicek, Mr. Poole, and Co-operators reached a settlement. [32] Three formal agreements were reached as a result of the mediation and subsequent negotiations. First was the "Danicek agreement." The

terms were: a) Poole agreed to pay Danicek $1,050,000; b) Poole agreed to admit liability; c) Poole agreed to pursue his claim against Lombard for coverage under that policy; d) Any recovery in the claim against Lombard for coverage would be divided based on the respective entitlements of the parties; and e) Danicek agreed that once the Lombard coverage claim was concluded and any amounts were paid out, Danicek would release Poole. She would not seek to execute on any judgment against him. [33] Poole and Co-operators entered into a "loan and insurance recovery agreement." The principal terms of this agreement were: a) Co-operators agreed to lend Poole $1,050,000 to fund the Danicek agreement; b) Co-operators agreed to fund all of Poole's legal costs in defending the tort action and in pursuing the insurance claim against Lombard; and c) Repayment of the loan amount would come only from the proceeds of the Lombard coverage claim; the loan would be forgiven if there were no recovery against Lombard. [34] The third agreement was the "Limited AHBL Release Agreement." The parties to that agreement are the same three parties, i.e. Mr. Poole, Co-operators and Ms. Danicek. It is not relevant to the issues before me. [35] Ms. Danicek subsequently settled with Alexander Holburn. Summary of the Issues and the Parties' Positions [36] The Co-operators action against Lombard is a claim for restitution or, alternatively, contribution from Lombard in defence and indemnity of Poole in the Danicek action. There are two main aspects to this action: 1) Was Lombard under a duty to defend?

2) Was there coverage? [37] As is discussed below, an insured's duty to defend and its obligation to indemnify (or provide coverage) are distinct concepts. [38] In approaching the issues in this case, I have the benefit of the Supreme Court of Canada's recent and unanimous decision in Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33. The Supreme Court in that case briefly summarized the principles of interpretation of insurance policies: [21] ... a brief review of the relevant principles may be a useful introduction to the interpretation of the [commercial general liability insurance] policies that follow. [22] The primary interpretive principle is that when the language of the policy is unambiguous, the court should give effect to clear language, reading the contract as a whole (Scalera, at para. 71). [23] Where the language of the insurance policy is ambiguous, the courts rely on general rules of contract construction (Consolidated‑Bathurst, at pp. 900-902). For example, courts should prefer interpretations that are consistent with the reasonable expectations of the parties (Gibbens, at para. 26; Scalera, at para. 71; Consolidated-Bathurst, at p. 901), so long as such an interpretation can be supported by the text of the policy. Courts should avoid interpretations that would give rise to an unrealistic result or that would not have been in the

contemplation of the parties at the time the policy was concluded (Scalera, at para. 71; Consolidated-Bathurst, at p. 901). Courts should also strive to ensure that similar insurance policies are construed consistently (Gibbens, at para. 27). These rules of construction are applied to resolve ambiguity. They do not operate to create ambiguity where there is none in the first place. [24] When these rules of construction fail to resolve the ambiguity, courts will construe the policy contra proferentem -- against the insurer (Gibbens, at para. 25; Scalera, at para. 70; Consolidated-Bathurst, at pp. 899-901). One corollary of the contra proferentem rule is that coverage provisions are interpreted broadly, and exclusion clauses narrowly (Jesuit Fathers, at para. 28). The Duty to Defend [39] The Supreme Court of Canada in Progressive Homes succinctly described the nature of the duty to defend at paras. 19-20: [19] An insurer is required to defend a claim where the facts alleged in the pleadings, if proven to be true, would require the insurer to indemnify the insured for the claim (Nichols v. American Home Assurance Co., [1990] 1 S.C.R. 801, at pp.810-11; Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49, [2001] 2 S.C.R. 699, at para. 28; Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at paras. 54-55). It is irrelevant

whether the allegations in the pleadings can be proven in evidence. That is to say, the duty to defend is not dependent on the insured actually being liable and the insurer actually being required to indemnify. What is required is the mere possibility that a claim falls within the insurance policy. Where it is clear that the claim falls outside the policy, either because it does not come within the initial grant of coverage or is excluded by an exclusion clause, there will be no duty to defend (see Nichols, at p. 810; Monenco, at para. 29). [20] In examining the pleadings to determine whether the claims fall within the scope of coverage, the parties to the insurance contract are not bound by the labels selected by the plaintiff (Non-Marine Underwriters, Lloyd's of London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551, at paras. 79 and 81). The use or absence of a particular term will not determine whether the duty to defend arises. What is determinative is the true nature or the substance of the claim (Scalera, at para. 79; Monenco, at para. 35; Nichols, at p. 810). [40] I pause to note that the settlement of an underlying action has no impact on the existence of a duty to defend where the duty arose before the settlement. [41] Counsel for Co-operators also referred me to Lombard General Insurance Co. of Canada v. Crosbie Industrial Services Ltd., 2006 NLCA 55. There, the Court

of Appeal for Newfoundland and Labrador said this at para. 21: [21] ... the insured must clear only a low threshold to establish that the insurer has a duty to defend. The courts have described the threshold in terms such as, a "mere possibility" that a claim falling within the insurance contract may succeed, or the claim "might" or "could possibly" fall within the scope of coverage of the insurance contract. Any doubt that the pleadings bring the occurrence within the ambit of the insurance contract should be resolved in favour of the insured. The analysis is based on the pleadings which must be taken without question as to their factual verity. Inferences may be drawn from the pleadings as a whole in determining the true nature of the claims. Finally, coverage provisions in an insurance contract should be broadly construed while exclusionary clauses should be interpreted narrowly. [42] Co-operators argues that Lombard should have considered these questions: a) Did the Statement of Claim allege that Poole was an employee? b) Did the Statement of Claim allege action on Poole's part that might possibly be considered within the scope of his employment? c) Is it possible that Danicek, on the evidence at trial, might be determined not to have been "in the course of her employment" at the time of the injury? d) Is it possible that, on the evidence at trial, the incident may be

characterized as involving Poole "with respect to his employment with AHBL"? Co-operators argues that all of these questions are very clearly answered in the affirmative. Thus, Lombard was under a duty to defend. [43] Lombard, on the other hand, argues that before there is a duty to defend, there must be an "insured." Their position is that Mr. Poole was not an insured because the actions in issue were not within the scope of his employment. Lombard relies on the following language its policy: 2. Each of the following is also an insured: a. Your employees, other than your executive officers, but only for acts within the scope of employment by you. Coverage Under the Lombard Policy [44] The Lombard policy is apparently designed for law firms; it is called a "Professional Package Policy." The policy establishes two categories of insurance: property insurance and liability insurance. This action is concerned with the latter. [45] The limit under the policy is $5 million. [46] The liability insurance coverage includes seven kinds of coverage: 1. Coverage A - Bodily Injury and/or Property Damage 2. Coverage B - Personal Injury and Advertising Injury 3. Coverage C - Medical Expense 4. Coverage D - Tenants Legal Liability 5. Coverage E - Voluntary Compensation for Employees 6. Coverage F - Employee Benefits Errors & Omissions 7. Coverage G - Non-Owned Automobile [47] The relevant

coverage here is Coverage A - Bodily Injury and/or Property Damage. The insurance agreement under this heading provides as follows: COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE LIABILITY PART I - COVERAGES 1. Insuring Agreement. a. We will pay those sums that the Insured becomes legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies. No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under SUPPLEMENTARY PAYMENTS - COVERAGES A, B AND D, of this Section. This insurance applies only to bodily injury and property damage which occurs during the policy period. The bodily injury or property damage must be caused by an occurrence. The occurrence must take place in the coverage territory. We will have the right and duty to defend any action seeking those damages but: 1) The amount we will pay for damages is limited as described in PART III - LIMITS OF INSURANCE, in this Section; 2) Our right and duty to defend end when we have used up the applicable limit of insurance in the payment of judgements or settlements under Coverage A, B or medical expenses under Coverage C.... [48] "Bodily Injury" and "occurrence" are both defined terms under Part IV of the policy, the "Definitions" section. It provides: "Bodily Injury" means bodily injury, mental injury, mental anguish,

shock, sickness, disease, or disability sustained by a person, including death resulting from any of these at any time. "Occurrence" means an accident, including continuous or repeated exposure to substantially the same general harmful conditions. [49] In addition to Alexander Holburn, the Named Insured, a wide variety of persons are also insured under the Lombard policy. This is set out in "Part II - Who is an Insured." The relevant clauses read: PART II - WHO IS AN INSURED 1. If you are: b. A partnership or joint venture, you are an insured. Your members, your partners, and their spouses are also insureds, but only with respect to the conduct of your business. ...

2. Each of the following is also an insured: a. Your employees, other than your executive officers, but only for acts within the scope of their employment by you. However, none of these employees is an insured for: 1) Bodily injury or personal injury to you or to a co-employee while in the course of his or her employment; or 2) Bodily injury or personal injury to any person who at the time of injury is entitled to benefits under any workers compensation or disability benefits law or a similar law; or 3) Bodily injury or personal injury arising out of your employees or any of your partners or members (if you are a partnership or joint venture), providing or failing to provide professional health care services; b. Any employee, or person under contract, or any persons or personal corporations who provide or have provided services to or for the Named Insured under a personal services contract or personal services agreement or employees on loan from others working solely for and on behalf of the Named Insured or persons designated "Associate Counsel" or "of Counsel", students or volunteers, but only with respect to their employment association, or their contract with the Named Insured. c. Any former or retired partner, member, executive officer, director, employee or stockholder, but only with respect to their employment with the Named Insured(s). d. Any social club, group, or

athletic organization, sponsored by the Named Insured, but only with respect to the Named Insured's activities. e. Any person or organization with whom the Named Insured is associated with in an expense sharing arrangement, but only with respect to the Named Insured's premises or operations. f. Persons or Organizations as evidenced by the Certificates of Insurance that form part of this Policy, but only with respect to the Named Insured's premises or operations. g. Any person (other than your employee), or any organization while acting as your real estate manager. h. Any person or organization having proper temporary custody or control of your property if you die, but only: 1) With respect to liability arising out of the maintenance or use of that property; and 2) Until your legal representative has been appointed. i. Your legal representative if you die, but only with respect to duties as such. That representative will have all the rights and duties under this policy. [50] Co-operators argues that the relevant sub-paragraph is Part II, section 2b: PART II - WHO IS AN INSURED 2. Each of the following is also an insured: b. Any employee, or person under contract, or any persons or personal corporations who provide or have provided services to or for the Named Insured under a personal services contract or personal services agreement or employees on loan from others working solely

for and on behalf of the Named Insured or persons designated "Associate Counsel" or "of Counsel", students or volunteers, but only with respect to their employment, association, or their contract with the Named Insured. Co-operators argues that the relevant words are "any employee with respect to their employment with [Alexander Holburn]." Counsel also argues that the words "with respect to" are to be given a broad interpretation. Reliance is placed on the Supreme Court of Canada's decision in Nowegijick v. The Queen, [1983] 1 S.C.R. 29 at 39, where the Court was considering the words "in respect of": The words "in respect of" are, in my opinion, words of the widest possible scope. They import such meanings as "in relation to", "with reference to" or "in connection with". The phrase "in respect of" is probably the widest of any expression intended to convey some connection between two related subject matters. [51] Co-operators further argues that Mr. Poole is insured as long as there is some connection between his employment and the accident. It points to the following: associate dinners are paid by the partnership and conducted regularly; the associates were put in charge or organizing the activities and thereafter seeking reimbursement; it was almost invariable that there was further activity at a nightclub or in an associate's home after the dinner; and all these activities

had a legitimate purpose of promoting collegiality and esprit de corps. [52] Mr. Poole testified that after dinner it was frequent that the group would carry on to a nightclub or bar afterward. Similarly, Peter Asselstine, the director of administration at Alexander Holburn testified that almost without exception the dinner was followed by something, whether a house party or attending at a club. He treated expenses of such matters to be reimbursed to the associate. [53] Co-operators pointed to the fact that Ms. Sangha, an associate who went to Bar None, purchased some drinks and sought and obtained reimbursement for them. She testified that she thought: "I should buy their drinks because they were more junior than me and assuming that they made less money than me, and it would be nice if I bought their drinks." [54] Lombard argues that the paramount consideration in interpreting insurance contracts was stated by the Supreme Court of Canada in Co-operators Life Insurance Co. v. Gibbens, 2009 SCC 59 at para. 20: [20] The courts have developed a number of general interpretative principles that reflect a concern that customers not suffer from the imbalance of power that often exists between insurers and the insured but, on the other hand, that customers obtain no greater coverage than they are prepared to pay for. The exercise of interpretation should avoid "an unrealistic result

or a result which would not be contemplated in the commercial atmosphere in which the insurance was contracted": Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., [1980] 1 S.C.R. 888, per Estey J., at p. 901. [55] Lombard argues that there is no ambiguity here and the contra proferentem principle has no application. Further, Lombard argues that the burden is on Mr. Poole to show that he is covered by the policy. Their position is that Mr. Poole is not an insured because he was not acting within the scope of his employment. [56] Counsel for Lombard argues that Mr. Poole's claim falls within clause 2.a. and, since he was not acting within the scope of his employment, he cannot be covered by the policy. Moreover, even if he was, Ms. Danicek, as a co-employee, has her claim excluded pursuant to clause 2.a.1). [57] On a joint reading of clauses 2.a. and 2.b., Lombard argues that the substance of clause 2.b. demonstrates that the parties intended to extend insurance to persons who would not qualify as true employees in 2.a., but have a relationship with Alexander Holburn of a more intermediate nature, such as counsel. It is not consistent with the Alexander Holburn policy to interpret clause 2.b. to capture conventional employees because they are already described in clause 2.a. [58] Further, it is submitted that the parties could not have reasonably

intended that an employee having injured a fellow employee could avoid the exclusion in 2a.1) and 2) and invoke coverage under 2.b. Lombard argues that such an interpretation creates a glaring inconsistency within clause 2.b. [59] Even if Mr. Poole falls within the scope of clause 2.b., Lombard argues, his acts are not "with respect to" employment. [60] They note that the Nowegijick decision, cited by Co-operators, did not arise in the context of insurance. [61] On the evidence, Lombard argues that it cannot be said that Alexander Holburn enjoyed any benefit from the event at Bar None. Lombard does not concede that the event at Rodney's Oyster House arose out of employment. The event at Bar None was of a totally different nature. The decision to attend Bar None was a decision made by the group at the conclusion of the dinner. Counsel points out that it is noteworthy that the Workers' Compensation Appeal Tribunal discounted the evidence as showing a relationship to employment that only a portion of the people who attended the dinner decided to go to Bar None. [62] Lombard also emphasizes that the partnership was not involved in the organizing of the dinner. That was done by Ms. Sangha. Mr. De Vita confirmed in his evidence that the partnership did not know when or where the events took place; it simply created a budget. It is obvious that there was no obligation to attend the

dinner, let alone Bar None. Only approximately half of the persons attending the dinner went to Bar None. [63] Lombard acknowledges that the firm paid the receipt submitted by Ms. Sangha for $17.50, but argues that this nominal reimbursement is insufficient to support the assertion that it is a single indivisible event with the dinner. [64] Finally, Lombard argues that the issue of employment was canvassed by the Workers' Compensation Appeal Tribunal. Its decision, while not determinative of the issues before me, is instructive. In response to a similar argument, the WCAT adjudicator held: I find that the personal elements of the attendance at the nightclub substantially outweigh any employment aspect. As a result, I do not consider that the injury occurred while the plaintiff was engaged in an activity that was for the benefit of the employer. The only factor that supports the connection between the activities of the plaintiff at the nightclub and her employment is that the plaintiff's injuries were allegedly caused by an action of a fellow employee. Analysis The Duty to Defend [65] In my view, Lombard misapprehended the correct approach to take in assessing whether it owed a duty to defend Mr. Poole. [66] Mr. Poole, as an employee of Alexander Holburn, is clearly an insured under the policy. That is, he is an insured who is covered for acts within the scope of his

employment. [67] The four questions enunciated by Co-operators are useful considerations to assist in deciding if there is a duty to defend. In this instance, the questions can be answered in the affirmative: the statement of claim alleged that Mr. Poole was an employee; it alleged that Mr. Poole's actions might possibly fall within the scope of his employment; Ms. Danicek might be determined not to have been "in the course of her employment" at the time of the injury; and, the incident may be characterized as involving Mr. Poole "with respect to his employment" at Alexander Holburn. Thus, in the words of the Supreme Court, there was at least a "mere possibility" that the Danicek claim fell within the scope of the Lombard policy; nor was it "clear" that the claim fell outside the policy: Progressive Homes at para. 19. [68] Co-operators' argument may overstate the duty to defend. In my view an insurer, having taken the position there is no coverage, is not obliged to defend simply because of a possibility that a judge might disagree. However, here there is more. [69] It is alleged in the pleadings that Mr. Poole consumed an excessive amount of alcohol. This pleading is general enough to cover Mr. Poole's consumption of alcohol both at Rodney's and at Bar None. Thus, it is at least arguable that, if Mr. Poole was acting in the scope of his employment at Rodney's, his negligent

acts at Rodney's contributed to the later accident at Bar None. [70] In light of the foregoing, I find that Lombard was under a duty to defend. The question, then, is one of coverage. Coverage Under the Lombard Policy [71] Clauses 2.a. and 2.b. in the Lombard policy arguably cover Mr. Poole. They read as follows: 2. Each of the following is also an insured: a. Your employees, other than your executive officers, but only for acts within the scope of their employment by you. However, none of these employees is an insured for: 1) Bodily injury or personal injury to you or to a co-employee while in the course of his or her employment; or 2) Bodily injury or personal injury to any person who at the time of injury is entitled to benefits under any workers compensation or disability benefits law or a similar law; or 3) Bodily injury or personal injury arising out of your employees or any of your partners or members (if you are a partnership or joint venture), providing or failing to provide professional health care services; b. Any employee, or person under contract, or any persons or personal corporations who provide or have provided services to or for the Named Insured under a personal services contract or personal services agreement or employees on loan from others working solely for and on behalf of the Named Insured or persons designated "Associate Counsel" or "of Counsel",

students or volunteers, but only with respect to their employment association, or their contract with the Named Insured. [72] Mr. Poole, as an employee of Alexander Holburn, is an insured within the meaning of the Lombard policy. The only question is whether the insured comes within the scope of coverage. In other words, was Mr. Poole's act at Bar None "within the scope of [his] employment" pursuant to paragraph 2.a.? Alternatively, in the case of paragraph 2.b., was this accident "with respect to [his] employment"? [73] If clause 2.b. provides coverage to Mr. Poole, the only remaining question is whether the claim is "with respect to [his] employment." So, although Mr. Poole is certainly an insured within the meaning of clause 2.a., the contention of Co-operators and Mr. Poole that he is an insured within the meaning of clause 2.b. must be addressed first. [74] I agree with Lombard that the principle of contra proferentem does not apply in this instance. A clause is not ambiguous simply because it is of uncertain breadth or is difficult to interpret: McDonald Crawford v. Morrow, [2004] A.J. No. 496, 244 D.L.R. (4th) 144 at para. 26 (Alta. C.A.). Any uncertainty in clauses 2.a. and 2.b. can be reconciled on a reading of the policy as a whole. I also note the statement of L'Heureux-Dubé J., writing for the court in Frenette v. Metropolitan Life Insurance Co., [1992] 1 S.C.R. 647

at 667, that "[i]t is only where all the rules of construction have failed in assisting in the discovery of the true intention of the parties, that the court is entitled to resort to the contra proferentem rule...." [75] The opening words of 2.b. are "[a]ny employee." That would, without more, appear to capture Mr. Poole. He was, after all, an employee. However, clause 2.b. appears to broaden the coverage beyond employees to a number of persons who are in a variety of employment or quasi-employment relationships with the law firm. It clearly covers persons who are "of counsel" or "associate counsel." It also appears to cover persons providing services under a contract. [76] Clause 2.b. cannot be read in isolation. Clause 2.a., which of course precedes clause 2.b., clearly describes a person in Mr. Poole's position. At the material time, he was an employee of Alexander Holburn, the policy holder. [77] Liability arising from "acts within the scope of... [the insured's employment]" (clause 2.a.) is intended to be different from liability "with respect to [the insured's] employment or association or ... contract" (clause 2.b.). Moreover, clause 2.a. excludes from coverage a number of situations covered by workers' compensation and worker/worker injuries. The insurer cannot have intended to exclude certain individuals from coverage under clause 2.a., only to bring them back into

coverage through clause 2.b. [78] I conclude that clause 2.b. does not cover Mr. Poole. Rather, it provides coverage to persons who are not employees within the meaning of clause 2.a., but are in various employment-like relationships with Alexander Holburn. This interpretation promotes the reasonable intention of the parties and does not generate an unrealistic result in its effect. [79] In light of the foregoing, I conclude that Mr. Poole must find coverage under clause 2.a. [80] Under clause 2.a., two questions arise: first, whether the acts leading to the injury were "within the scope of [Mr. Poole's] employment"; and second, whether the bodily injury happened to Ms. Danicek "while in the course of her employment." Each will be addressed in turn. Was Mr. Poole acting "within the scope of [his] employment"? [81] I do not accept the contention of Mr. Poole and Co-operators that any connection between work and the activity, which triggered the insured to seek coverage, places that activity within the scope of employment. [82] Counsel for Lombard referred me to the principles of vicarious liability. He argued that to determine the parties' "insuring intent," one must consider how liability can attach to the insured and the limitations to the doctrine of vicarious liability. I agree that the concepts are related. One of the risks that an employer is seeking to insure is liability

for acts done by its employees for which the employer may be liable. However, the precise coverage provided by the policy must be based on the wording of the policy, not the principles of vicarious liability. [83] The term "scope of employment" is found in other commercial general liability insurance policies and has been considered in a number of decisions in the United States courts. In Canadian Contractual Interpretation Law (Markham, Ont.: LexisNexis, 2007), Geoff R. Hall comments on the willingness of Canadian courts to rely on American jurisprudence in interpreting insurance contracts. He says this at 183: While in general Canadian courts tend not to look at American authorities, in the insurance context Canadian courts have expressed a willingness to consider American cases where there are few Canadian authorities on point, provided the American cases employ rules of construction not materially different from those used in Canada. This is because insurance is often marketed content-wide and there should be uniformity in interpreting insurance contracts used in both Canada and the United States. In addition, many insurance issues which have not been much considered in Canada have been subject of much judicial consideration and academic commentary in the United States, and Canadian courts want to take advantage of American expertise. See: Zurich Insurance Co. v. 686234

Ontario Ltd., [2002] O.J. No. 4496, 62 O.R. (3d) 447 at para. 34 (Ont. C.A.), leave to appeal to S.C.C. refused [2003] S.C.C.A. No. 33 (S.C.C.) and Kohanski v. St. Paul Guarantee Insurance Co., [2006] O.J. No. 157, 78 O.R. (3d) 684 at para. 15 (Ont. C.A.). The present case is such an instance where American jurisprudence is instructive. Specifically, I draw insight from Mumford v. Interplast, Inc. 696 N.E.2d 259 (Ohio App. 2 Dist. 1997), a decision of the Court of Appeals of Ohio, and Hentges v. Thomford and Church Mutual Insurance Company, 569 NW2d 424 (Minnesota Court of Appeals 1997), a decision of the Minnesota Court of Appeals. [84] In Mumford, the Court considered whether the insurer was required to indemnify the employer. Ms. Mumford was an underage employee of Interplast who was injured in a motor vehicle accident. She was driving her vehicle after consuming alcoholic beverages, which five fellow employees bought for her. The beverages were charged to the company's credit card. The issue was whether the employees were acting within the "scope of employment" when they bought these drinks. At 265, the court says this about the term "scope of employment": [5-9] As a threshold matter, "[t]he expression 'scope of employment' cannot be accurately defined, because it is a question of fact to be determined according 734 to the peculiar facts of each case." Tarlecka v. Morgan

(1932), 125 Ohio St. 319, 181 N.E. 450, paragraph four of the syllabus; Calhoun v. Middletown Coca-Cola Bottling Co. (1974), 43 Ohio App.2d 10, 13, 72 O.O.2d 158, 160, 332 N.E.2d 73, 76. Generally, "[c]onduct is within the scope of employment if it is initiated, in part, to further or promote the master's business." Martin v. Cent. Ohio Transit Auth. (1990), 70 Ohio App.3d 83, 92, 590 N.E.2d 411, 417. Ordinarily, an act committed by an employee when he is off duty is not within the scope of employment. Biddle v. New York Cent. Rd. Co. (1930), 43 Ohio App. 6, 8-9, 182 N.E. 601, 601-602; Knecht v. Vandalia Med. Ctr., Inc. (1984), 14 Ohio App.3d 129, 132, 14 OBR 145, 147-148, 470 N.E. 2d 230, 233. An exception to this rule is where the employee has a duty to perform in furtherance of the master's business after working hours and performs that duty, causing injury to a third party. Biddle, 43 Ohio App. at 8-9, 182 N.E. at 601-602. Still, an employee is acting outside the scope of employment where the act has no relationship to the employer's business or is so divergent that its very character severs the employer-employee relationship. Thomas v. Ohio Dept. of Rehab. & Corr. (1988), 48 Ohio App.3d 86, 89, 548 N.E.2d 991, 994. [85] The court went on to hold that the employees' actions were not within the scope of their employment: [10] In the case before us, Mumford alleges in Count

One of her complaint that she and McQuinn, Dalton, Holden, Blocher, and Stump met at a cocktail lounge after their second shift at Interplast and consumed alcoholic beverages. Although Mumford claims that the alcoholic beverages were paid for with a company credit card, allegedly with the company's "knowledge and consent," this alone does not transform an after-work social event into acts performed in furtherance of the employer's business. On the face of the complaint, Mumford, McQuinn, Dalton, Holden, Blocher, and Stump were engaged in a purely social function with no stated business purpose or design. The fact that the alcoholic beverages were paid for with a company credit card does not, by itself, alter the nature of the activity, even where the company consents to the use of its credit card to pay for the activity. In sum, the allegations set forth in Count One of Mumford's complaint do not arguably or potentially establish acts that were within the scope of Interplast's employment of McQuinn, Dalton, Holden, Blocher, and Stump. Thus, the named employees were not an "insured" as defined by the comprehensive business policy, and Indiana Insurance has no duty to defend or indemnify them for liability arising from Count One of Mumford's complaint. [86] In Hentges, a Lutheran minister, while out hunting, accidentally killed one of his parishioners. In considering whether the

employer church was liable for the negligence of its employee, the issue became whether the negligent acts were committed in the course and scope of employment. The court said this about "scope of employment": "Scope of employment" does not have a fixed or technical definition, and is ordinarily a question of fact for the jury. See Marston v. Minneapolis Clinic of Psychiatry, 329 NW2d 306, 311 (Minn. 1982); Boland v. Morrill, 270 Minn. 86, 96, 132 NW 2d 711, 718 (1965), but when the evidence in the record is conclusive on all the necessary elements or there is an absence of evidence to support a necessary element, no fact issue is presented for the jury and the scope of employment is determined as a matter of law. See Lange v. National Biscuit Co., 297 Minn. 399, 404, 211 NW2d 783, 786 (1973); Pesio v. Sherman, 285 Minn. 246, 248, 172 NWTD 748, 750 (1969). The evidence demonstrated that the minister had changed his day off to go hunting. He would have gone hunting by himself if his parishioners had not been available. He went with them not because they were parishioners but because of his relationship with them. The court held that the hunting trip did not have the purpose of furthering relationships within the church. At best, it had a residual benefit of fostering an ongoing relationship among the pastor and his parishioners that could benefit the church. The residual benefit

was found to be too tenuous in its connection to Reverend Thomford's employment " to support a determination that he was acting within its scope": at 429. [87] I find that Mr. Poole's actions were not in the scope of his employment. He and Ms. Danicek both attended a dinner paid for by their employer. There were some business reasons for Alexander Holburn to sponsor such events: they promote good will for the firm, and they were an opportunity for associates to become acquainted. The attendance at Bar None, however, has a far more tenuous connection with employment. Some of the persons who attended the dinner decided to go to the bar; some did not. Additionally, it cannot be said that the law firm sponsored this. I agree with the vice-chair of the Workers' Compensation Appeal Tribunal that payment of one receipt for $17.50 does not mean that the employer sponsored the activity. Also see: Mumford at para.

10. The evidence does not support the suggestion that Alexander Holburn gained any residual benefit from the attendance of its employees at Bar None. As such, there was no coverage. [88] Finally, there is a question as to whether Mr. Poole's liability arises out of negligence on his part at Rodney's, and whether that negligence was within the scope of his employment. It is theoretically possible that Mr. Poole's liability could arise from his actions at Rodney's earlier in the evening. Any such negligence might arguably be within the scope of his employment. However, there is no evidence that Mr. Poole was grossly intoxicated at Rodney's or otherwise. Nor can I find that he was demonstrably exercising poor judgment. Therefore, there is no reason to decide whether his actions at Rodney's were within the scope of his employment. Was the injury caused to Ms. Danicek while "in the course of her employment"? [89] If I am wrong in concluding that Mr. Poole's acts were not within the scope of employment, I must go on to consider whether Ms. Danicek was injured while in the course of her employment pursuant to clause 2.a.1). [90] I adopt the reasoning of the Workers' Compensation Appeal Tribunal quoted above at paras. 33-35, which concluded that Ms. Danicek's injuries did not arise out of and in the course of her employment as that term is used in the Workers Compensation Act. [91] The

concept of "in the course of employment" is not distinctly broader than "in the scope of employment." They essentially overlap. To determine if an act is in the course of employment, the scope of employment for which the employee was hired is relevant. Considered in the negative: if an employee is injured while outside the scope of employment, then she cannot be within the course of her employment at the time. That is Ms. Danicek's situation. [92] Additionally, if it was intended for "in the course of employment" and "in the scope of employment" to have substantially different effects, that is not evident from an objective reading of clause 2. or the policy as a whole. As such, an interpretation of clause 2.a.1) "should give effect to the clear language, reading the contract as a whole": Progressive Homes at para. 22. [93] Thus, for similar reasons to my conclusion about Mr. Poole, I conclude that Ms. Danicek's injuries were not caused to her while in the course of her employment. Co-operators' Claim for Contribution from Lombard [94] Both insurers owed a duty to defend. Co-operators defended. Lombard denied coverage and, as discussed above, refused to contribute to Mr. Poole's defence. Now, Co-operators argues that it is entitled to reimbursement from Lombard, by way of either contribution or restitution, for the defence costs that it paid up to the date of settlement, January

28, 2009. Counsel for Co-operators submits that Lombard's coverage is primary and that Co-operators is the excess insurer. [95] Counsel for Lombard argues that, if its policy applies, it is irreconcilable with the Co-operators Policy to the extent that they each state that they are in excess to the other. Thus, defence costs should be borne equally. [96] Both insurers owed a duty to defend Mr. Poole in the Danicek action. Lombard failed to fulfill this duty. Thus, Co-operators, who bore the entire expense of the defence, is entitled to some amount of contribution from Lombard for this expense. It remains for me to decide how to fairly allocate the cost of defending Mr. Poole up to the point of settlement. [97] This issue was addressed in Broadhurst & Ball v. American Home Assurance Co. (sub nom. Broadhurst v. American Home Assurance Co.) (1990), 76 D.L.R. (4th) 80, 1 O.R. (3d) 225 (C.A.), leave to appeal ref'd [1991] S.C.C.A. No.

55. There, the Court addressed what happens when the insured has more than one liability insurer and both are obligated to defend the action. Although the appeal concerned "the scope of an excess insurer's obligation to provide a defence for an insured and the allocation of defence costs among primary and excess insurers," it is still instructive: at para.

1. The Court's conclusions on the issue of allocation are found at pp. 95-96 [cited to D.L.R.] of the judgment: On the facts of the present case, it appears to me that, as a simple matter of fairness between insurers under concurrent obligations to defend, and, as well, in fairness to the insured, Guardian should pay a proper share of the costs of defence. It follows that American Home should be able to compel such payment. Since these insurers have no agreement between themselves with respect to the defence their respective obligations cannot be a matter of contract. Nonetheless, their obligations should be subject to and governed by principles of equity and good conscience, which, in my opinion, dictate that the costs of litigation should be equitably distributed between them. To require a primary insurer, whose financial exposure is significantly less than that of the excess insurer, to bear the entire burden of defending an action of this nature is, in my view, patently inconsistent with those principles. By the same token, a result which allows an excess insurer to deny any responsibility for costs which it ought in good conscience to pay, is likewise inconsistent with those principles. As a matter of equity, the burden that these insurers assumed in insuring the same insured against the same risks should fall on both of them and the costs accordingly be shared by them.

Insofar as it is necessary to provide American Home with a remedy to achieve this result, and without purporting to formulate any rule of general application to all cases involving claims exceeding the limits of the primary policy, I would adopt the approach taken in the line of authority to which I have made reference and recognize the equitable subrogation rights of American Home to compel Guardian to pay a fair share of the costs of defence. On what basis, then, should the costs of defending the Lumsden Building action be apportioned between these insurers? In American Home's submission, they should be shared pro rata in proportion to the coverages afforded by each insurer, that is, 95% of costs should be borne by Guardian and 5% by American Home. I cannot accept that submission. The underlying action here, unlike the situation in most of the American cases, has not yet been tried or settled; it remains outstanding and its final outcome will not likely be known for some time. In this situation, I do not think it appropriate to allocate costs simply by reference to the respective policy limits, although I would add, in other situations, this may well be a fitting basis for the allocation. The costs of providing the defence here are clearly not necessarily related to the monetary limits of the policies. It seems to me, in viewing the matter broadly and as best I can, that the

fairest, most reasonable and most equitable allocation of costs that can be made in the overall circumstances of this case is to apportion them equally between the insurers. [98] The Court in Alie v. Bertrand & Frere Construction Co. (2002), 62 O.R. (3d) 345 (Ont. Sup. Ct.) at para. 203, interpreted Broadhurst & Ball as follows: [203] ... Broadhurst & Ball does not hold that an excess insurer with a duty to defend will be compelled to contribute to defence costs in each and every case where a claim exceeds the limits of the primary insurer. Robins J.A. recognized that the excess insurer's obligation to contribute, if any, was a "matter of equity" or "fairness" as among the insurers who were under a duty to defend the claim. The determination of the equities depends on the circumstances of the particular case. Unlike in Broadhurst & Ball, Alie involved an after-the-fact allocation of defence costs amongst multiple insurers. [99] One consideration in deciding how to fairly allocate defence costs "is whether the particular insurer was "plainly at risk" to indemnify the insured: ING Insurance at para.

30. Further, the allocation of defence costs among insurers is "not an exact science": Alie at para. 235. [100] Here, Lombard owed a duty to defend. It was at risk, if not "plainly at risk," to indemnify. In light of: (1) the fact that Lombard wrongfully refused to assume Mr. Poole's defence; (2) Lombard did not deny contribution to Mr. Poole's defence in bad faith; (3) Mr. Poole was not covered by the Lombard policy; and (4) that both parties would have been required to contribute to the defence, regardless of their priority; in my view, as a matter of equity and fairness, Lombard should contribute to fifty percent of Co-operators' expenses in defending Mr. Poole in the Danicek action. [101] The applicable principle is "equality in equity." Southin J.A. put it this way in Affiliated FM Insurance Co. v. Quintette Coal Ltd. (1998), 156 D.L.R. (4th) 307, 48 B.C.L.R. (3d) 8 at para. 52: [52] There is a maxim of equity that "equality is equity". Like all equitable maxims, it can only apply if there is not some good reason in law and equity why it ought not to apply. [102] In sum, both Lombard and Co-operators owed a duty to defend Mr. Poole in the Danicek action. Co-operators assumed Mr. Poole's defence, while Lombard did not. Thus, Co-operators is entitled to contribution from Lombard for half of the amounts paid to defend Mr. Poole in the Danicek action. Mr. Poole's Claim for

Damages [103] Co-operators argues that Lombard breached its contract when it wrongfully refused to assume Mr. Poole's defence. As a result, they say that Mr. Poole is entitled to damages from Lombard for the amount paid to Killam Cordell. [104] Lombard submits that there is no basis for this award because "[t]here is no evidence that Mr. Killam was in any way attempting to secure coverage for Mr. Poole under the AHBL Policy." [105] The duty to defend imposes on an insurer the obligation to fund the defence of the insured. However, an insurer's duty to defend does not include the funding of an insured's independent legal counsel where it is prudent to retain independent counsel in any event. To do so would unfairly extend the scope of the duty. [106] In January 2009, Ms. Danicek asserted the settlement value of all her claims to be approximately $6 million. Mr. Poole was faced the possibility of $5 million in personal liability. As a result, Mr. Poole retained independent legal counsel, James Killam, Q.C., to represent him in the mediation and negotiations relating to the Danicek claims. [107] Mr. Poole's exposure to significant personal liability was triggered as a consequence of Lombard's refusal to indemnify. The fact that Lombard refused to contribute to Mr. Poole's defence is of no consequence. Thus, retaining independent legal counsel would have resulted in any event. Put

another way, it was prudent for Mr. Poole to retain Mr. Killam upon receiving notice that Lombard would not indemnify and that Ms. Danicek's claim exceeded Co-operators policy limit. [108] Lombard did not wrongfully deny coverage to Mr. Poole. However, if Mr. Poole were entitled to coverage by Lombard, he likely would have been entitled to the cost of retaining Mr. Killam. [109] In the result, I find that Lombard is not liable for the amount Mr. Poole's payment to Killam Cordell. Conclusion [110] The third party claim of Mr. Poole is allowed in part. Mr. Poole is entitled to a declaration that Lombard's denial of defence in the Danicek action was wrongful; however, the Danicek claim is not covered by the Lombard policy. [111] Co-operator's action also succeeds in part. It is entitled to contribution from Lombard with respect to amounts Co-operators paid to defend Mr. Poole in the Danicek action. Consequently, I order that Lombard shall reimburse Co-operators for half of the expenses it incurred in the defence of Poole in the Danicek action up to January 28, 2009, the date of settlement. [112] There has been mixed success. Each party shall bear its own costs. "Mr. Justice Kelleher"