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Monday Morning Case Bites for June 22, 2020

Last Week’s Court Rulings from the Alberta Court of Queen’s Bench, Court of Appeal and SCC.

Edited by Amanda Kostek & Steven Graham

Magnus v Mason, 2020 ABCA 237
Condominium Unit Owner | Common Property

Laridae v. Co-operators, 2020 ONSC 2198
Duty to Defend | Enforceability of Exclusion Clauses

Magnus v Mason, 2020 ABCA 237

The Court of Appeal confirmed that an individual condominium unit owner can sue for deficiency to the common property, and that the Condominium Corporation does not have the exclusive right to sue with respect to common property.

Laridae v. Co-operators, 2020 ONSC 2198

In a case coming out of Ontario related to a date breach, the Court directed that the Insurer had a duty to defend its insured, and that the counsel retained did not have to report to the insurer. 

The issue surrounded the data breach exclusion in the policy.  

[2]               Co-operators did not dispute that the relevant proceedings are covered under the coverage clauses of the two insurance policies but relies on the “data exclusion” provisions to deny a duty to defend. The parties agree that there is no jurisprudence on the proper interpretation of data exclusion clauses. 

The Insured argued that broadly worded exclusion clauses which have the effect of nullifying the insurance paid for should not be enforced if enforcing them would run contrary to the reasonable expectations of the party purchasing insurance: 

[32]           Co-Operators has the burden of proving that the substance of the claims in this litigation clearly fall within the data exclusion clauses. The insureds make submissions regarding the enforceability of these data exclusion clauses. They rely on the argument that the courts will not enforce exclusion clauses which have the effect of nullifying the insurance which the insurer undertook to provide. They submit that Co-operators should not provide general coverage but rely on broadly worded exclusions which would have the effect of eliminating the coverage which it contracted to provide. It is submitted that this is an important issue on these Applications and that a court should not determine this issue in a “duty to defend” application, where such data exclusion clauses have not yet been judicially considered by our courts. I agree that such a novel interpretive issue should be considered on a full record and not in these Applications. 

[33]           The insureds submit that the interpretation of the exclusionary clause, as emphasized by Co-operators, is not conclusive in determining whether Co-operators has a duty to defend. As a result of imbalance of negotiating power as between insureds and insurers, interpretive principles have been developed to protect consumers of insurance policies. One of these most fundamental principles is that literal meanings of the policy should not be applied if it would render an unrealistic result wherein coverage provided by the insurance is virtually nullified or would be contrary to the reasonable expectations of the parties at the time the policy was concluded. Courts are to examine the terms of the policy considering the surrounding circumstances in order to determine the intent of the parties and the scope of their understanding. 

[34]           Further, the insureds submit that exclusion clauses should not be enforced, if enforcement would be inconsistent with the main purpose of the insurance coverage, and where it would be contrary to the reasonable expectations of the ordinary person who purchased coverage.  The Data Exclusion Clauses would nullify coverage for a significant portion of the services provided by Laridae. The insureds argue that Laridae’s business is to create and handle “data” as that term is defined in the Policies.  Such data is routinely “distributed” or “displayed” using the internet or similar forms of technology.  It would not make commercial sense that Co-Operators be permitted to sell comprehensive insurance policies and rely on “Data Exclusion” clauses that are so broad that they have the effect of nullifying virtually all the coverage which the insurer contracted to provide. 

[35]           Most importantly, it is argued that it can not be that such an effect would have been within the parties’ reasonable expectations. 

The Court determined that there was a duty to defend on the following basis: 

[36]           I agree that until the courts have had an opportunity to adjudicate the complex issues raised by these broadly worded data exclusion clauses, it would be improper for this court, having regard to present jurisprudence to uphold Co-operators’ denial of a duty to defend. Further, I can not find on these Applications that Co-operators has shown that there is no possibility of coverage.  I find that Co-Operators has not discharged its onus of establishing that the substance of the Claims clearly fall within the Data Exclusion Clauses and that there is no possibility of coverage under the Policies. Rather, in addition to the issue of the interpretation of the data exclusion clauses, it is apparent that there are claims and allegations in the Class Proceeding and the Third-Party Claim that would not excluded by the Data Exclusion Clauses. As there is at least some possibility that the Claims are covered under the Policies, I find that Co-Operators owes a duty to defend Laridae and FCS. 

Interestingly, the Court ordered that if there is a conflict of interest between the Insureds, the Insurer would need to fund independent counsel who do not report to the Insurer: 

[37]           The Applications of Laridae and FCS are therefore granted, with the Court declaring that Co-operators has a duty to defend Laridae in the Third-Party Claim and a duty to defend FCS in the Class Proceeding.  With that duty to defend, if there is a conflict of interest, due to competing interests as between the insureds Laridae and FCS, Co-operators must fund each defence with independent counsel, which does not report to Co-operators. The Court declares that Co-operators has the obligation to reimburse these Applicants for all their reasonable defence fees incurred after the date that their demand for a defence was made.  There was no evidence presented or submissions made, on the amount of these costs. Co-operators Application is therefore dismissed.