In Deasan Holdings Ltd. v Continental Casualty Company, 2025 BCCA 177, the BC Court of Appeal clarified important legal principles relating to the breadth of the agency relationship between insurers and brokers in the context of a decision on the duty to defend.
The underlying action related to a landslide that had occurred on property owned by the insured company, Deasan Holdings Ltd. (“Deasan”), in the course of a gravel mining operation. The insured’s neighbours claimed against it for damages. The insured sought a defence and indemnity from the defendant insurer, Continental Casualty Company (“Continental”). The named insured on Continental’s policy was D.R.S. Energy Services Inc. (“DRS”), a company affiliated with Deasan.
While Deasan had been incorporated years earlier, it was not involved in any business operations until August 2017 when DRS transferred property located at 9815 77th Avenue in Fort St. John to Deasan (the “Original Lands”). In October 2017, Deasan bought additional lands located outside of Fort St. John on which it intended to conduct its gravel mining operation (the “Gravel Pit Lands”).
When Deasan purchased the Gravel Pit Lands, Sandy Beech, a representative of a company that was a major shareholder of both Deasan and DRS, contacted a broker to arrange for additional liability insurance coverage for the mining operation. He explained the affiliated ownership of DRS and Deasan to the broker. The broker arranged for coverage for Deasan, the Original Lands, and the Gravel Pit Lands through DRS’ existing insurer. In December 2017, when the policy was up for renewal, the broker determined that the existing policy terms were not favourable and sought alternative coverage from Continental. Though the documents provided to Continental by the broker contained numerous errors and inconsistencies, Continental provided a quote and the broker requested that Continental “bind coverage” for the coming year.
The broker advised Mr. Beech that he had obtained coverage for both DRS and Deasan from Continental. On January 5, 2018, the broker sent Mr. Beech a certificate of insurance which provided that DRS was the named insured and that Deasan, with regard to its ownership of the Original Lands, was an additional insured. Both Mr. Beech and the broker believed that as with the previous policy, the Gravel Pit Lands were covered under the Continental policy.
In the summer of 2018, Deasan was ready to commence its gravel mining operation. Mr. Beech instructed his staff to ask the broker to add the mining operation to the insurance coverage with Continental. On September 4, 2018, the broker had a telephone conversation with a representative of Continental after which the broker believed that Continental had added Deasan’s gravel mining operation to its coverage. However, when the landslide occurred on September 29, 2018, Continental denied that it had a duty to defend Deasan.
At trial, Deasan argued that Continental owed it a duty to defend. One of its arguments was that the broker, acting as agent for Continental, had bound Continental to cover Deasan’s gravel pit operations. The trial judge agreed that the broker was Continental’s agent but held that all that the broker had communicated to Deasan when he sent the certificate of insurance was that Deasan was an additional insured on the Continental policy. The trial judge concluded that the fact that the certificate of insurance listed Deasan with regard to its ownership of the Original Lands as an additional insured did not communicate that coverage had been extended to cover the Gravel Pit Lands.
Deasan appealed, taking the position that the trial judge’s interpretation of the certificate of insurance was too narrow. Continental argued that the certificate of insurance clearly stated that Deasan was only an additional insured with regard to the Original Lands. The Court of Appeal held that the trial judge had erred when he limited the broker’s authority, as Continental’s agent, to the words written on the certificate of insurance. The Court stated that the trial judge had overlooked the context of the relationship between the broker and Deasan and failed to consider all of the evidence. The Court found that the trial judge had failed to consider what it was reasonable for Deasan to believe in the circumstances with regard to its liability coverage, which is a relevant consideration in determining the scope of an agent’s authority. The Court held that the certificate of insurance formed only one part of the communications between Deasan and the broker and had to be interpreted in the context of the entire factual matrix.
The Court of Appeal went on to speak more broadly about the broker-insured relationship, quoting from Progressive Homes Ltd. v Lombard General Insurance Co. of Canada for its statements on the contra proferentem principle. According to the Court of Appeal, where a broker makes representations to an insured about the scope of insurance coverage and the insured has not yet received its insurance contract, any resulting ambiguity must be resolved in accordance with the parties’ reasonable expectations and a certificate of insurance describing coverage ought to be interpreted broadly.
Applying the above principles to the facts before it, the Court of Appeal concluded that the only way to interpret the certificate of insurance in the context of the communications between Deasan and its broker was to conclude that the certificate communicated what both Deasan and its broker believed it did. That is, the certificate of insurance had to be interpreted as conferring liability coverage on the Gravel Pit Lands. For this and other reasons, the Court determined that Continental owed Deasan a duty to defend.
This decision reinforces the principle that insurance brokers are agents of insurers and that even when a broker makes an error in their communications with an insured, the broker’s representations may nonetheless be binding on the insurer. Further, just as coverage provisions in insurance policies are to be construed broadly where there is an ambiguity to be resolved, this decision indicates that coverage-conferring documents like a certificate of insurance should also, in the presence of any ambiguity, be interpreted in favour of the insured.