Statutory Third Party Must Answer Questions About Denial of Coverage

A recent decision requires a statutory third party to answer questions about why it denied coverage to its insured.  In Lica v. Dhaliwal, 2015 ONSC 3888 (S.C.J.), State Farm denied coverage and added itself as a statutory third party.  The plaintiff asked questions by written interrogatory requesting details as to why the insurer denied coverage.  State Farm refused to answer and the plaintiff brought a motion, arguing he needed the information in order for him to claim underinsurance coverage from his own insurer under the OPCF 44R and to permit his insurer to assess its potential liability.  State Farm argued that the main action was not the proper forum to decide coverage issues so the questions were improper.

Justice Price ordered State Farm to provide details of the denial of coverage.  A court requires the information to determine whether State Farm's allegation the insured breached the conditions of his policy are borne out by the evidence.  If the denial was justified, the plaintiff would have access to the coverage provided by his OPCF 44R endorsement.  Justice Price held that where coverage has been denied, the court should determine whether an insurer must disclose the information and documents relating to its decision on a case by case basis, having regard to whether the documents are relevant, whether their disclosure would cause prejudice, whether they are protected by litigation privilege and whether that privilege, if it exists, has been waived.

Statutory Third Parties will have to carefully consider what must be disclosed as a result of the Lica decision.

Adding an Insurer as a Defendant Rather than a Statutory Third Party

Can an insurer add itself as a defendant rather than as a statutory third party?

In Azad v. Dekran, 2012 ONSC 4257 (S.C.J.), the Personal insured the defendant and brought a motion pursuant to r. 13.01 to intervene as an added defendant.  It wished to allege that the accident did not occur or was staged and to crossclaim against its insured.  It preferred this route rather than being added as a statutory third party since s. 258(14) of the Insurance Act prohibits a statutory third party from taking a position incongruous to its insured.

Master Dash dismissed the motion, holding that it was not a proper use of r. 13.01.  One of the purposes of s. 258 is to permit an insurer to contest the plaintiff’s claim in a situation where it denies coverage.  The plaintiff’s action is not the appropriate forum to decide issues between the insured and insurer.  Any dispute could be decided in subsequent proceedings, including a proceeding to recover the statutory minimum paid to the plaintiff. 

Master Dash noted that if the accident was staged, the plaintiff would not be entitled to damages; on the other hand, if the trial court did award damages, it would mean there was a legitimate accident and there would be no basis for a crossclaim against the insured.  In addition, as a statutory third party, the insurer would have a right to discover its insured.

Master Dash refused to follow the decision in Esho v. Dekran, 2012 ONSC 3638 (S.C.J.), where the insurer was added as a defendant.  Now that there are conflicting decisions on this issue, perhaps it will be up to the Divisional Court to provide clarity.