Malaviya was insured under a Standard Automobile Policy
(SAP) with Jevco for the minimum liability limit of $200,000. He was sued following an accident in 2005. The
insurer paid the limits of its policy, then sought a declaration that it had no
continuing duty to indemnify or defend Malaviya. The contentious issue on the application was
whether Jevco was obliged to continue paying the insured’s defence costs.
Justice Morgan described the wording of the SAP as “muddled
and contradictory”. It failed to clearly
answer whether the insured would pay the insured’s legal costs above and beyond
the coverage limit. On the other hand,
s. 245(b) of the Insurance Act provides
that the insurer shall bear the defence costs of a claim. There is no limiting language in s. 245. As a result, the insurer is obligated to
continue paying defence costs of the insured, even when there is no further
duty to indemnify.
The SAP may have to
be modified in order to avoid this situation from arising in the future.
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