Blaneys Wins Appeal On The Duty To Defend Allegations Of Fraud

In July 2012 someone stole 494,050 pounds of nickel from Vale Canada in Manitoba. In 2013 Vale sued those parties it thought responsible, including one of its subcontractors and a company named Urbanmine Inc., which is involved in the metal industry in Manitoba. The statement of claim alleged the defendants were liable for damages of more than $2.5 million for fraud, theft, misappropriation and wrongful conversion of the stolen nickel. Negligence was not pleaded. On April 20, 2017, the Manitoba Court of Appeal answered the question: is there a duty to defend Urbanmine against those allegations. The answer was no. The case is Urbanmine Inc et al v. St Paul Fire and Marine Insurance Company et al (2017 MBCA 42).

Urbanmine was insured by St. Paul Fire and Marine Insurance Company pursuant to a commercial general liability policy. Urbanmine sought a paid defence and St. Paul denied the claim. St. Paul argued that the true nature and substance of the lawsuit was not an accident and that Vale's losses were alleged to be intended or expected by Urbanmine and therefore excluded from coverage. Urbanmine brought a coverage application in the Manitoba Court of Queen's Bench and the application judge ordered St. Paul to defend the lawsuit. St. Paul appealed that decision and the Manitoba Court of Appeal overturned it and declared that St. Paul does not have a duty to defend Urbanmine. Colin Empke of Blaney McMurtry LLP successfully brought the appeal.

Vale is the only producer and distributor of nickel in Manitoba. Urbanmine had purchased the nickel from a co-defendant, Schwartz Bros., which is not a nickel manufacturer and which is alleged to have stolen the nickel. Vale alleged that Urbanmine, knew or ought to have known that the nickel was obtained through unlawful means and was actually owned by Vale. There were also allegations Urbanmine was aware of a conspiracy or fraud, that it intended to cause loss and damage to Vale and that it wrongfully and unlawfully converted the nickel for its own use and profit.

The application judge reasoned that Urbanmine was in the business of buying and selling metal and because this case involved allegations of the buying and selling of nickel the allegations were within the normal scope of its business. The judge concluded that Urbanmine's reasonable expectations were to be covered for claims relating to its ordinary course of business. He reasoned that if there was no duty to defend these allegations the...