Indemnification And The Duty To Defend In Commercial Agreements

Background

The Alberta Court of Appeal ("ABCA") recently provided a beneficial review of the law of indemnification and the duty to defend in Alberta. Unfortunately, the ABCA passed up the opportunity to rule on whether the presence of a save harmless clause in a commercial agreement could give rise to a duty to defend.

In Kostic,1 the Piikani Nation received a payment of approximately $64 million from the Alberta government relating to the settlement of various land and water disputes. The funds were put in a trust as per the trust agreement. The trust agreement delegated CIBC as the trustee and vested investment management responsibility with Raymond James.

CIBC opened various accounts with Raymond James which involved various account agreements (collectively, the "Account Agreement"). The Account Agreement was a commercial agreement which contained a clause that required CIBC to "indemnify and save harmless" Raymond James.

Ms. Kostic was an employee of Raymond James who was named as the investment advisor by Piikani Nation. However, in 2006, Piikani Nation commenced legal action against Raymond James and Ms. Kostic (and many others) alleging negligence, breach of fiduciary duty, conspiracy and breach of the trust agreement.

The issue was whether the Account Agreement required CIBC to provide indemnification and/or a defence to Ms. Kostic.

Indemnification

Our initial gut...