At our weekly meeting, Chris MacDonald discussed a decision of the Ontario Superior Court of Justice, Deonanan v. Kwan, 2021 ONSC 266.
In this decision, the court considered a motion brought before the close of pleadings by Economical Insurance Company – the insurer of one of the defendants. Economical sought five orders:
- First, Economical sought an order to be added as a statutory third party pursuant to section 248 (14) of the Insurance Act, R.S.O. 1990, c. I.8.
- Second, it sought an order amending the style of cause.
- Third, it sought an order setting a timeline for delivery of its statement of defence and the plaintiff’s reply, if any.
- Fourth, it sought an order that it be bound by the judgment in the action between the plaintiffs and the defendants, and that the question of the rights of said defendants against Economical would not be disposed of at trial, but after trial in such a manner that may be directed by the trial judge or following such direction as directed by a judge in chambers.
- Fifth, it sought an order stating that the fact that Economical was a party to the action shall not be disclosed to the jury.
About Section 258(14) of the Insurance Act
Pursuant to section 258(14), where an insurer claims that an insured is in breach of a policy condition, which is not challenged by the insured and there are no grounds for raising estoppel, waiver, or relief from forfeiture, the insured is generally disentitled both to indemnity under the policy and the costs of a defence. The provision states:
Insurer may be made third party
258 (14) Where an insurer denies liability under a contract evidenced by a motor vehicle liability policy, it shall, upon application to the court, be made a third party in any action to which the insured is a party and in which a claim is made against the insured by any party to the action in which it is or might be asserted that indemnity is provided by the contract, whether or not the insured enters an appearance or defence in the action.
In this case, Economical relied on this provision to deny coverage to its insured and subsequently be added as a statutory third party.
Decision on the First, Second and Third Orders
In granting each of the first three orders sought, the court noted that the only condition precedent to an insurer being added as a third party under section 258(14) is that the insurer deny liability under the policy.  As Economical had satisfied this condition, the court ordered that it be added as a statutory third party and allowed it to amend the style of cause and set a timeline for the delivery of its statement of defence and the plaintiff’s reply, if any.
Decision on the Fourth Order
The court was not prepared to grant an order that that Economical be bound by the judgment in the action between the plaintiffs and the defendants, and that the question of the rights of said defendants against Economical would not be disposed of at trial but after trial in such a manner that may be directed by the trial judge, or following such direction as directed by a judge in chambers.
The court acknowledged that a large body of case law supports the proposition that the question of the rights of the other defendants as against Economical should not be determined in the main action, but rather in a separate proceeding that is decided after the main action.
However, the court also identified that, in other cases, the question of the rights of other defendants against an insurer added as a statutory third party had been determined prior to the main action or at some other time. This, the court held, weighed against granting the order, as doing so would stifle the trial judge’s ability to direct that the issue be determined at a different stage of the proceeding.
Another factor which weighed against granting the order was the fact that only Economical possessed detailed information about the strength of its coverage defence. The court stated that if the order was granted at this early stage, prior to the close of pleadings, Economical would have the upper hand in the event that other parties sought information about its coverage position so that they may better assess their risk in the action.
The court concluded that it would be inappropriate to attempt to predict the landscape at the trial at this stage, and effectively bind the trial judge with any such order, especially given the lack of information and evidence that was presently available with respect to Economical’s decision to deny coverage.
Decision on the Fifth Order
The court was similarly unwilling to grant an order stating that the fact that Economical was a party to the action would not be disclosed to the jury. The court reasoned that by the time of the trial, there could be cogent reasons for the jury to be informed that Economical is a party. Accordingly, the court saw no reason or benefit in deciding that issue at such an early stage in the proceeding.
 Insurance Act, R.S.O. 1990, c. I.8., s. 258(14).