In Halifax Insurance Company v. Innopex Limited, the Ontario Court of Appeal confirmed that the duty to defend will be determined based on the policy wording and the allegations in the claim. Extrinsic evidence should not be considered.
The Court reiterated that reference to and reliance on U.S. insurance decisions, where there is little or no Canadian authority, is appropriate in order to "ensure uniformity in the construction of insurance contracts in use in both countries". While a laudable goal, there does not seem to be uniformity within the U.S. on troublesome coverage issues.
The Court also had some strong words for the insurer:
"I return to the procedure employed by Halifax to bring the duty to defend issue to the court for its determination. It is unfortunate that Halifax adopted a proactive, preemptive strike tactic that resulted in the creation of a substantial record containing considerable extrinsic evidence that diverted the motion judge from deciding the duty to defend issue expeditiously on the basis of the legal principles and test explained by the Supreme Court of Canada in Nichols, Scalera and Monenco. Moreover, it is very disturbing that Halifax followed this procedure in what appears to be a deliberate effort to divert the court from deciding the real issue of whether it had a duty to defend, a result which its own expert believed to be virtually inevitable. When an insured person is sued for a claim that may fall within a risk that is insured, it is essential that he or she know at a very early stage whether or not the claim falls within the coverage, thereby creating a duty to defend, as it is necessary that prompt steps be taken to defend the lawsuit and to forestall default judgment. No doubt this underlies the principle that the duty to defend issue is to be decided expeditiously as a preliminary matter on the basis of the allegations in the underlying litigation read with the insurance coverage. The insurer’s procedure in this case did not result in either an early, or an economical resolution of the issue. Indeed, it has now been more than four years since Halifax commenced its action claiming a declaration that it was not under a duty to defend."
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