Nichols v. Am. Home Assurance Co. (1990), 107 N.R. 321 (SCC)
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American Home Assurance Company and The Law Society Of Upper Canada (appellants) v. Alan John Nichols (respondent)
(21438)
Indexed As: Nichols v. American Home Assurance Co. et al.
Supreme Court of Canada
Dickson, C.J.C., Wilson, La Forest, L’Heureux-Dubé, Gonthier, Cory and McLachlin, JJ.
April 12, 1990.
Summary:
A lawyer was insured as a member of the Law Society of Upper Canada. In 1983 the law firm in which the lawyer was a partner was sued, among others, by the Bank of Montreal for alleged fraud. The insurer refused to defend the action and also denied indemnity coverage under the policy because of the allegations of fraud against the law firm. The action against the law firm was eventually discontinued. Costs were awarded to the law firm, but these did not cover the lawyer’s full cost of defending. The insurer declined to pay the balance of costs personally incurred by the lawyer in defending the action. The lawyer applied for relief.
The trial judge, in a decision reported [1988] I.L.R. 1-2282; 63 O.R.(2d) 693; 30 C.C.L.I. 79, allowed the application and granted, inter alia, a declaration that the lawyer was covered under the insurance policy and that he was at all material times entitled to a defence funded by the insurer. The trial judge also made an order respecting costs. The insurer and the Law Society appealed. The issue on appeal was whether the insurer was obligated to defend the insured lawyer.
The Ontario Court of Appeal, in a decision reported [1989] I.L.R. 1-2421; 33 O.A.C. 142; 68 O.R.(2d) 1; 36 C.C.L.I. 204, dismissed the appeal. The insurer and the Law Society appealed.
The Supreme Court of Canada allowed the appeal and in the result dismissed the lawyer’s application.
Insurance – Topic 725
Insurers – Duties – Duty to defend – The Supreme Court of Canada held that the duty to defend arises only where the pleadings raise claims which would be payable under the agreement to indemnify in the insurance contract – Where it is clear from the pleadings that the suit falls outside the coverage of the policy by reason of an exclusion clause, the duty to defend has been held not to arise – It is not necessary to prove that the obligation to indemnify will in fact arise in order to trigger the duty to defend – The mere possibility that a claim within the policy may succeed suffices – See paragraphs 16 to 17.
Insurance – Topic 725
Insurers – Duties – Duty to defend – The Supreme Court of Canada discussed the relationship between the defence clause and the exclusion clause in a lawyer’s professional liability policy – See paragraph 14.
Insurance – Topic 725
Insurers – Duties – Duty to defend – A lawyer’s liability policy imposed a duty to defend any suit “alleging such act or omission and seeking damages … payable under the terms of this policy” – A client sued the lawyer for damages for alleged fraudulent acts or omissions – Damages for fraud were clearly excluded from coverage under the policy – The Supreme Court of Canada held that accordingly the client’s claim was not for “damages payable under the … policy” and the defence clause was inapplicable – See paragraphs 11, 14.
Insurance – Topic 725
Insurers – Duties – Duty to defend – A lawyer’s liability policy imposed a duty to defend against any suit “alleging such act or omission and seeking damages … payable under the terms of this policy” – The Supreme Court of Canada held that the duty to defend was broader than and independent of the duty to indemnify, “in the sense that the duty to defend arises where the claim alleges acts or omissions falling within the policy coverage, while the duty to indemnify arises only where such allegations are proven at trial” – The duty to defend, however, is not so broad that it arises respecting allegations clearly beyond the scope of the policy – See paragraph 13.
Insurance – Topic 7664
Professional liability insurance – Defences and exclusions – Exclusions – General – [See first and second Insurance – Topic 725].
Insurance – Topic 7665
Professional liability insurance – Defences and exclusions – Exclusions – Dishonest, fraudulent, criminal or malicious acts – The exclusion clause in a lawyer’s professional liability policy excluded indemnity for dishonest, fraudulent, criminal or malicious acts or omissions of an insured – Additionally, the exclusion clause was inapplicable where the insured was neither the author of nor an accomplice in the act or omission – The Supreme Court of Canada rejected the view that the exclusion for fraud applied only where actual fraud was established – See paragraph 15.
Cases Noticed:
Bacon v. McBride (1984), 6 D.L.R.(4th) 96 (B.C.S.C.), refd to. [para. 16].
Opron Maritimes Construction Ltd. v. Canadian Indemnity Co. (1986), 73 N.B.R.(2d) 389; 184 A.P.R. 389; 19 C.C.L.I. 168 (N.B.C.A.); leave to appeal refused [1987] 1 S.C.R. xi; 76 N.R. 399; 76 N.B.R.(2d) 360; 192 A.P.R. 260, refd to. [para. 16].
Prudential Life Insurance Co. v. Manitoba Public Insurance Corp. (1976), 67 D.L.R.(3d) 421 (Man. C.A.), refd to. [para. 17].
Dobish v. Garies (1985), 63 A.R. 63; 15 C.C.L.I. 69 (Q.B.), refd to. [para. 18].
Thames Steel Construction Ltd. v. Northern Assurance Co., [1989] I.L.R. 1-2399; 32 O.A.C. 330 (C.A.), refd to. [para. 18].
Vancouver General Hospital v. Scottish & York Insurance Co. (1987), 15 B.C.L.R.(2d) 178 (B.C.S.C.), refd to. [para. 18].
Conner v. Transamerica Insurance Co. (1972), 496 P. 2d 770, disappvd. [para. 19].
Authors and Works Noticed:
Couch, George James, Cyclopedia of Insurance Law (2nd Ed. 1982), vol. 14, para. 51:45 [para. 19].
Counsel:
W.L.N. Somerville, Q.C., and Wendy Earle, for the appellants;
Janis P. Criger, for the respondent.
Solicitors of Record:
Borden & Elliot, Toronto, Ontario, for the appellants;
Gerald Swaye, Hamilton, Ontario, for the respondent.
This appeal was heard before Dickson, C.J.C., Wilson, La Forest, L’Heureux-Dubé, Gonthier, Cory and McLachlin, JJ., of the Supreme Court of Canada on January 29, 1990. The decision of the Supreme Court was delivered on April 12, 1990, by McLachlin, J., in both official languages:
