Full Indemnity - Re: Notice of Application

Coventree Inc. v. Lloyds Syndicate 1221 (Millenium Syndicate) (Costs), 2011 ONSC 6660 (CanLII)

[3] The claim for costs on a full indemnity scale is based on the understanding that "where an insurer wrongfully denies its duty to defend, it will be liable to pay substantial indemnity costs" (Axa Insurance (Canada) v. Ani-Wall Concrete Forming Inc., 2007 CanLII 56478 (ON SC), [2007] O.J. No. 4975, at para. 30 referring to E. M. v. Reed, [2003] O.J. No. 1791 (C. A.); and, Godonoaga (Litigation Guardian of) v. Khatambaksh (2000), 2000 CanLII 16891 (ON CA), 50 O. R. (3d) 417 (C.A.). To put the insured in the same position it would have been in had the contract of insurance been performed, the insured would have to recover full indemnity costs. The case before the court is not one based on the duty of the insurer to provide a defence to a claim that may fall within the policy (College of Massage Therapists of Ontario v. Frank Cowan Company Ltd., [2010] I.L.R. I-4979 (S. C. J.) at p. 3). It is one where the costs of the defence were claimed as an item insured under the policy. Where an insured has been required to go to court to obtain the costs of a defence, as a claim under the policy, costs of the requisite application have been awarded on a full indemnity basis (Deloitte & Touche Inc. v. Bennett, [2006] O.J. No. 2797, at paras. 11 and 17).

[4] This is not invariably the case. This court has refused to grant costs on a full indemnity scale when the issue raised was not one of a duty to defend (Caneast Foods Ltd. v. Lombard General Insurance Co. of Canada, [2007] O.J. No. 3253, at para. 4; and, Axa Insurance (Canada) v. Ani-wall Concrete Forming Inc, supra, at paras. 36 and 40)). In the case being considered here, the issue did not concern whether, in the normal course, the insurance contract would respond to the claim made. It was acknowledged by both parties that the claim was a “Claim", a "Loss" and represented "Costs of Defence", as those terms were defined in policy. Rather, the issue was whether, during the process of negotiating the contract, the insurer had agreed to waive its right to rely on a notice of the claim provided to another insurer, under a earlier policy, as a basis to deny coverage. This was a legitimate question with respect to the interpretation of the policy that the insurer should be able raise without incurring an exposure to substantial indemnity costs (Solway v. Lloyd's Underwriters, [2005] O.J. No. 5465 (S.C.J.) as referred to in Axa Insurance (Canada) v. Ani-wall Concrete Forming Inc, supra, at paras. 37 and 38).