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INSURERS - Duties - Duty to defend

Tuesday, May 30, 2017 @ 8:43 AM  

Lexis Advance® Quicklaw®
Appeal by the insurers from a decision finding that they had a duty to defend their insured in an action for fraud, theft, misappropriation and wrongful conversion. The insured was a metal broker. In the action, the plaintiff, a nickel producer, alleged that the co-defendant stole nickel from the plaintiff and sold it to the insured. The insured, knowing that the product was stolen, fraudulently represented to a third party that it lawfully owned or possessed the stolen product, and subsequently resold the stolen product to the third party for less than fair market value. The application judge considered the reasonable expectations of the parties and found that when the insured bought or sold metal, it would be offered liability coverage under the policy for decisions that were negligent during the course of those operations. The application judge determined that the claim was for conduct in the ordinary course of the insured buying and selling metal, and concluded that a policy exclusion, which indicated that there was no coverage if damage was expected or intended, did not apply.

HELD: Appeal allowed. Where there were allegations of fraud, theft and misappropriation, courts would conclude as a matter of legal inference that such claims contemplated that the defendant intended harm for the purpose of construing exemptions of insurance coverage for intended injury. The exclusion thus applied, and the appellants had no duty to defend such claims in the present case. While it was possible to commit the tort of conversion innocently, there was no possibility that the statement of claim included, by inference, a claim against the insured for conversion resulting from ignorance, innocent mistake or negligence. It was not a reasonable interpretation of the statement of claim that the insured innocently or negligently bought and sold 494,050 pounds of nickel that they thought the co-defendants lawfully owned. The application judge made a palpable and overriding error in finding that the claims against the insured were claims based on the purchase and sale of nickel in the ordinary course of business. The plaintiff specifically pleaded that the insured wrongfully converted the stolen product to their own use and intended to cause injury.

Urbanmine Inc. v. St. Paul Fire and Marine Insurance Co., [2017] M.J. No. 118, Manitoba Court of Appeal, B.M. Hamilton, W.J. Burnett and J.A. Pfuetzner JJ.A., April 20, 2017. Digest No. TLD-May292017004