Executive Summary: Key Legal and Evidentiary Issues

• Whether Aviva owed a duty to defend 17-year-old driver Nathan Hiruy under the Ontario standard automobile liability policy despite denying coverage based on alleged lack of owner’s consent.
• Interpretation of policy wording on “who is covered” versus exclusions for driving without the owner’s permission, and whether the pleadings create at least a “mere possibility” of coverage.
• Extent to which a court may rely on the statement of claim, co-defendant’s defence, and extrinsic evidence (such as adjuster interviews) to ascertain the “true nature” of the claim at the duty-to-defend stage.
• Application of the “mere possibility” test and prohibition against using “premature” evidence that would effectively turn a duty-to-defend motion into a summary judgment or mini-trial on consent.
• Assessment of a reasonable apprehension of conflict of interest where the insurer funds the owner’s defence on a no-consent theory while denying a defence to the driver on the same factual assertion.
• Appropriate remedy where a conflict exists, including whether Aviva must relinquish control of the defence and pay for independent counsel chosen by Nathan Hiruy.

Background and facts

This case arises out of a motor vehicle accident that occurred on or about October 26, 2023. At the time, 17-year-old Nathan Hiruy was driving his mother’s car when he collided with the vehicle of the plaintiff, Abdalla Nazal, who was stopped at a traffic light. The vehicle Nathan was operating was owned by his mother, Alem Solomon. Aviva Insurance Company of Canada insured two motor vehicles owned by Ms. Solomon and Nathan’s father, Araya Hiruy. Following the accident, Mr. Nazal commenced an action against both Nathan and Ms. Solomon, advancing an extensive list of negligence allegations against Nathan and several focused allegations against Ms. Solomon, including that she allowed Nathan to operate the vehicle without a qualified driver. Aviva took differing positions in relation to the two defendants. It appointed and funded counsel to defend Ms. Solomon, but it denied coverage to Nathan. Aviva sent denial correspondence directly to Nathan, while sending a separate letter to Ms. Solomon and Mr. Hiruy confirming that it would defend them. Nathan, who was self-represented on the motion, filed and served a placeholder defence noting that consent, insurance and liability issues remained in dispute, and then brought this motion seeking an order that Aviva appoint and fund independent defence counsel for him.

Insurance policy terms and coverage dispute

The motion turned on standard wording in the Ontario automobile policy. Under section 3.2, “Who is Covered”, the policy provides that the named insured is covered and that coverage extends to “anyone else in possession of a described automobile with your consent,” who is then deemed an insured person. In contrast, section 1.8.2, “Excluded Driver and Driving Without Permission”, removes coverage (except for certain accident benefits) where the automobile is used or operated by a person in possession of the automobile without the owner’s consent. Aviva argued that because its defence of Ms. Solomon was premised on the position that Nathan drove without consent, it had no obligation to defend him. Nathan’s entitlement to a defence therefore depended on whether the material before the court, particularly the pleadings, raised at least the possibility that he fell within the consent-based coverage grant in section 3.2, and whether Aviva could clearly and unambiguously bring the claim within the no-consent exclusion in section 1.8.2.

Legal framework on duty to defend

Associate Justice Kamal reviewed the leading Supreme Court of Canada and Ontario Court of Appeal authorities governing an insurer’s duty to defend. The court reiterated that the duty to defend is a contractual obligation distinct from the duty to indemnify and that the pleadings “govern the duty to defend”, subject to a limited use of extrinsic evidence to ascertain the true nature of the claim. The court adopted the long-standing “mere possibility” test: if there is a mere possibility that the true nature of the pleaded claim, if proven, falls within the scope of coverage, the insurer’s duty to defend is triggered. The judge emphasized that it is not necessary to prove that indemnity will actually be owed, nor that the insured will ultimately succeed at trial. Pleadings are to be read broadly and any doubt as to coverage at this preliminary stage must be resolved in favour of the insured. While some extrinsic evidence explicitly referred to in the pleadings may be consulted to clarify the nature of the claim, courts are not permitted to rely on “premature” evidence that would require factual findings or credibility assessments that properly belong to the trial of the underlying action.

Court’s analysis on pleadings and evidence

Turning to the specific materials, the court highlighted that the statement of claim contained detailed allegations of negligence against Nathan and allegations against Ms. Solomon, including that she allowed Nathan to operate the vehicle without a qualified driver. The question of consent therefore formed part of the live issues within the litigation narrative as framed by the plaintiff. The judge acknowledged that, generally, the statement of claim is the primary document for assessing the duty to defend, but in this case also considered Ms. Solomon’s statement of defence, which expressly pleaded that Nathan was operating the vehicle without her consent and invoked section 192(2) of the Highway Traffic Act in relation to vicarious liability. Having regard to the claim and defences, the court concluded that the existence or absence of consent was very much a contested issue that would need to be determined at trial. Aviva sought to rely on extrinsic evidence in the form of an affidavit from its adjuster, attaching transcripts of interviews with Ms. Solomon, Mr. Hiruy and Nathan. One interview was expressly described to the parents as “without prejudice,” yet Aviva still filed it. The court noted that the interviews occurred long after the accident, that Nathan was a teenager at both the time of the accident and the interview, and that the questioning was narrow and did not probe other potential bases of consent, such as implied consent. None of this material had been tested by cross-examination, nor was it referred to in the pleadings. Associate Justice Kamal held that this evidence was “premature” and inappropriate for a duty-to-defend motion, as considering it would effectively require findings that could affect the underlying litigation. Even if the extrinsic evidence were considered, the judge was not satisfied that it conclusively negated any possibility of consent or coverage. Given that any doubt must be resolved in favour of the insured, the court found that Nathan had met his onus to show that the pleadings raised a possibility of coverage, and Aviva had not met its corresponding onus to show that an exclusion clearly and unambiguously barred a defence. The court also stressed that this was not a summary judgment motion or trial. Accepting Aviva’s approach would improperly turn a coverage motion into a “trial within a trial” on consent, collapsing the distinct questions of duty to defend and duty to indemnify and undermining procedural fairness and judicial economy.

Conflict of interest and independent counsel

Once the court determined that Aviva owed Nathan a duty to defend, it turned to whether Aviva could continue to control his defence. Nathan argued that there was a conflict of interest because Aviva was both defending Ms. Solomon on the basis that he had no consent and, at the same time, denying him any defence on that same factual theory. The judge applied Ontario Court of Appeal guidance on insurer-appointed counsel and conflicts, focusing on whether there was a reasonable apprehension of conflict such that counsel instructed by the insurer could not faithfully and undividedly advance the insured’s best interests. The court underscored that counsel’s primary duty is always to the insured, even where the insurer is paying the fees, but recognized that in some circumstances the insurer must relinquish control and fund independent counsel. Here, Aviva had already denied Nathan coverage while pleading, on behalf of Ms. Solomon, that he was driving without consent. That litigation strategy created an inherent tension: in order to protect its own coverage position and Ms. Solomon’s defence, Aviva had an interest in emphasizing a lack of consent and Nathan’s sole responsibility, whereas Nathan’s best interests might lie in proving consent or in presenting the liability issues differently. Associate Justice Kamal held that this constellation of roles and positions created a reasonable apprehension of conflict. Aviva’s control of the defence posed a real risk that defence strategy, pleadings and allocation of fault would be shaped by coverage concerns rather than Nathan’s interests. The appropriate remedy was to require Aviva to fund independent counsel selected by Nathan, while making clear that this did not expand coverage but simply ensured that the duty to defend was fulfilled free of divided loyalties.

Outcome and implications

In the result, the motion was granted in full. The court declared that Aviva has a duty to defend Nathan Hiruy in the action brought by Abdalla Nazal and that, because of a reasonable apprehension of conflict, Aviva must pay for independent counsel of Nathan’s choosing to conduct his defence. The judge emphasized that the issue of whether Nathan in fact had his parents’ consent to operate the vehicle remains a live factual question to be resolved at trial or final hearing, and that nothing in the decision constitutes a determination of liability or entitlement to indemnity. There is no specific monetary award of damages or quantified costs set out in this motion decision; the only financial consequence is Aviva’s obligation to fund Nathan’s ongoing legal defence, the total amount of which cannot be determined from the decision. As framed by the court, the successful party on the motion is Nathan Hiruy, but the exact quantum of any costs, damages or total monetary award in his favour is not specified and cannot be ascertained from this ruling alone.