At issue in this case was whether an insurer who agrees to defend suits, under a general liability insurance policy, must pay the insured’s costs of voluntary compliance with a regulator’s requirements. The Court of Appeal for Ontario ruled in the negative, approving the lower court’s distinction between defence costs and compliance costs while rejecting the reasoning of some US courts.
The respondent insurers agreed, under a general liability policy, to defend suits on behalf of the insured General Electric (GE), and to investigate or pay the costs of investigating those claims. GE received a letter from the Ontario Minister of Environment (MOE) requiring that GE investigate and report on contamination of groundwater near land it had owned and occupied. GE voluntarily complied, and incurred significant costs in doing so. GE then sought a declaration that its insurers should bear those costs. The trial judge had held that by complying, GE did not defend; therefore, it could not claim the associated costs under the insurer’s duty to defend. The Court of Appeal for Ontario agreed. Armstrong JA declined to follow those US courts which had held that an adversarial process commenced upon receipt of a regulator’s letter, triggering an insurer’s duty to defend. Rather, he held that any potential liability which GE might face under the Environmental Protection Act, R.S.O. 1990 was at that stage only speculative, and therefore irrelevant to the characterization of the costs in question.
Aaron SanFilippo
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