Unclear warranty results in insurer owing a duty to defend a lawsuit for Mud Bog Event injury

Insurance law – Liability insurance – Special events – Breach of policy – Interpretation of policy – void Ab Initio – Duty to defend – Duties and liabilities of insurer – Practice – Leave to appeal – Costs

Lloyd’s Underwriters v. Jagoe, [2022] N.B.J. No. 52, 2022 NBCA 7, New Brunswick Court of Appeal, March 17, 2022, K.A. Quigg, B.V. Green and C.A. LeBlond JJ.A.

The insurer appealed the application judge’s decision that: (1) the insurer owed the insured a duty to defend an action commenced against the insured; and (2) the insurer pay full solicitor-client costs and disbursements until it assumed conduct of the defence.

The insured organized a “Mud Bog Event” which was a timed event where four-wheel drive vehicles are driven through a mud track to reach the finish line as quickly as possible. The insured sought to secure insurance coverage for this event and completed an insurance application form. On this form, the insured indicated that guard rails are present each side of the track and spectators are seated at least 20 to 30 feet from the track behind a dirt barrier. The insurer issued an Event Liability Coverage Insurance Policy on the basis of the application made by the insured. The policy contained a warranty with respect to safety precautions stating: “Warranted all spectator viewing areas will be a minimum of 20 feet from the mud bog track and behind suitable barriers or fencing”.

A spectator was injured at the event when standing by the finish line where there was no protective barrier. The spectator subsequently commenced an action against the insured and others. When the insured notified the insurer of the action and requested the insurer provide a defence, the insurer refused on the basis that the insured had breached the policy’s warranty with respect to safety precautions. The insured filed a notice of application and obtained the orders described above. The application judge held that the words “suitable barriers or fencing” in the warranty could have been more clearly expressed as “suitable” was not defined. As a result, the warranty was too vague to be enforceable and the policy could not be voided ab initio.

The Court of Appeal found that the insured’s application and the warranty focused on safety measures in the area where races occurred and it could not be argued now that the insured ought to have understood the insurer was referring to additional measures for spectators situated away from the racetrack. On this basis, the Court of Appeal dismissed the appeal and ordered the insurer to pay full solicitor-client costs.

This case was digested by Dominic Wan, and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please contact Dominic Wan at [email protected].

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