Motion To Appoint Independent Defence Counsel Creates Confusion Over Insured's Right To Full Indemnity Costs

In a potentially controversial ruling, an Ontario judge recently refused to grant two insured applicants full indemnity for costs on a motion related to the duty to defend. This decision is likely to create some confusion regarding an insured's entitlement to full indemnity costs in duty to defend proceedings. Appellate authority has long established that when an insured applies to the court to enforce an insurer's duty to defend, that insured is entitled to full indemnification for both the costs of the defence and the costs of the insured to litigate with the insurer over entitlement to the defence. However, in Lefeuvre v. Boekee,1 the court may have deviated from this general principle.

In Lefeuvre, the underlying case was a pedestrian/motor vehicle collision. Two municipalities had been sued in the action along with two winter maintenance companies. The two municipalities sought a defence from their insurers — however, those insurers were also defending the winter maintenance companies, who were adverse in interest. Due to this apparent conflict, the two municipalities brought a motion requesting that they be entitled to appoint and manage their own counsel at the insurer's expense. The insurers admitted coverage for the defence but maintained that there was no conflict. In the result, the insureds were successful and independent counsel was ordered. The insureds sought their costs on a full indemnity basis.

In additional reasons, the court concluded that full indemnity costs on the motion were not appropriate. Instead, the court applied the general rules for costs on a motion and found that the insureds were instead entitled to "reasonable indemnification". In arriving at that conclusion, the court held that the costs of the motion were not legal fees owing under a contract but instead, simply costs under the Rules of Civil Procedure.

This ruling appears to be out of step with appellate authority which holds the costs borne by an insured to secure his or her right to a defence under an insurance policy should be paid on a full indemnity basis. The Ontario Court of Appeal has consistently held that the insured is "entitled to a defence ... at no cost to them".2 In other words, an insured is "entitled to be made financially whole" for legal costs incurred in securing a defence under the policy.3 This broad principle has not only been used to indemnify insureds for their past defence costs, but also the future defence costs of counsel of...

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