In Monenco, the Supreme Court of Canada was called upon once again to consider the nature of the analysis of the pleadings which is required in order to determine whether a claim advanced against an insured under a liability policy gives rise to a duty to defend under the policy.
The decision is interesting in that it again considers the nature of the evidence which is admissible on an application for a determination respecting coverage. One of the issues on the appeal was the extent to which extrinsic evidence, not found in the pleadings, may be considered by the court in making a decision respecting the duty to defend.
In the judgment, the court confirmed a long line of authority which suggests that the duty to defend is governed by the pleadings. Where it is clear from the pleadings filed that a suit falls outside policy coverage by reason of an exclusion clause, the duty to defend does not arise. The court went on to hold that while the duty to defend must be assessed by reference to the pleadings, the bare assertions advanced in the pleadings are not necessarily determinative. The court is required to embark upon an assessment of the pleadings to ascertain the “substance” and “true nature” of the claims. The following excerpts from the judgment at paragraphs 34, 35 and 36 are instructive:
34. At the same time, Scalera held that the bare assertions advanced in a statement of claim are not necessarily determinative. If so, the parties to an insurance contract would always be at the mercy of a third-party pleader. As such, it was stated at para. 79 that “[w]hat really matters is not the labels used by the plaintiff, but the true nature of the claim” (emphasis added). Based on this, courts have been encouraged to look behind the literal terms of the pleadings in order to assess which of the legal claims put forward by the pleader could be supported by the factual allegations. This analysis is undertaken with a view to discerning the true “substance” of the allegations. Thus, the key question is not whether the claims are meritorious, but “whether, assuming the verity of all of the plaintiff’s factual allegations, the pleadings could possibly support the plaintiff’s legal allegations” (at para. 84).
35. Based on this line of authority, it follows that the proper basis for determining whether a duty to defend exists in any given situation requires an assessment of the pleadings to ascertain the “substance” and “true nature” of the claims. More specifically, the factual allegations set out therein must be considered in their entirety to determine whether they could possibly support the plaintiff’s legal claims.
36. While these principles are instructive for the purposes of the present case, one important question arising in this appeal has been left open by the jurisprudence to date. That is, whether, in seeking to determine the “substance” and “true nature” of a claim, a court is entitled to go beyond the pleadings and consider extrinsic evidence. Without wishing to decide the extent to which extrinsic evidence can be considered, I am of the view that extrinsic evidence that has been explicitly referred to within the pleadings may be considered to determine the substance and true nature of the allegations, and thus, to appreciate the nature and scope of an insurer’s duty to defend. I now turn to that question.
The court went on to rule that a court was entitled to admit into evidence and consider extrinsic evidence of documents which are specifically referred to in the pleadings. The court noted that Rule 26(8) of the B.C. Supreme Court Rules permits an opposing party to request to see any document referred to in a Statement of Claim and agreed that a court should also be entitled to this benefit in construing whether a duty to defend arises on the pleadings.
It is apparent from this decision that, in addition to the pleadings, a court will consider any document which is specifically referred to in the pleadings. It is also apparent that on an application for a determination respecting the duty to defend, a court will not embark upon a “trial within a trial” or make any determinations of fact based on an assessment of inconsistent evidence. Within those two extremes, it would appear that there is still some flexibility and discretion respecting the nature of the evidence which will be admitted on applications of this type. We suspect that the Monenco decision will be cited as authority for the proposition that only the pleadings and documents referred to in the pleadings are admissible notwithstanding that the court has specifically stated that it was not necessary for the purposes of the appeal to determine the extent to which extrinsic evidence may be considered.