When a Person Is Sued In a Liability Claim Is An Insurance Company Required to Pay the Cost of Legal Defence?
An Insurance Company Is Required to Provide and Pay For the Legal Defence Where a Liability Lawsuit Will Be Covered By the Insurance Policy If the Case Is Proven At Trial.
A Helpful Guide For How to Determine Whether An Insurer Owes a Duty to Defend a Legal Case On Behalf of An Insured
Defending against a lawsuit may be quite costly in terms of time, stress, and money, all as in addition to the concern for possibility of losing the case. Accordingly, concern for insurance coverage to protect both against the possibility of a losing outcome with corresponding liabilities becoming due, the insured person will usually also be quite concerned about coverage to fight the lawsuit. Generally, where there is insurance in place that would be required to indemnify the insured or required to compensate the third party person bringing the case on behalf of the insured, then the insurance company also has the duty to provide, and pay for, a defence against the lawsuit.
Per Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33 (CanLII),  2 SCR 245, an insurer is under the duty to provide and pay for the defence of an insured person if the coverage provided within the insurance policy would become triggered if the legal case against the insured person results in a successful lawsuit. This duty to defend was explained by the Supreme Court within Progressive Homes wherein it was stated:
 An insurer is required to defend a claim where the facts alleged in the pleadings, if proven to be true, would require the insurer to indemnify the insured for the claim (Nichols v. American Home Assurance Co., 1990 CanLII 144 (SCC),  1 S.C.R. 801, at pp. 810-11; Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49,  2 S.C.R. 699, at para. 28; Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21,  1 S.C.R. 744, at paras. 54-55). It is irrelevant whether the allegations in the pleadings can be proven in evidence. That is to say, the duty to defend is not dependent on the insured actually being liable and the insurer actually being required to indemnify. What is required is the mere possibility that a claim falls within the insurance policy. Where it is clear that the claim falls outside the policy, either because it does not come within the initial grant of coverage or is excluded by an exclusion clause, there will be no duty to defend (see Nichols, at p. 810; Monenco, at para. 29).
 In examining the pleadings to determine whether the claims fall within the scope of coverage, the parties to the insurance contract are not bound by the labels selected by the plaintiff (Non-Marine Underwriters, Lloyd’s of London v. Scalera, 2000 SCC 24,  1 S.C.R. 551, at paras. 79 and 81). The use or absence of a particular term will not determine whether the duty to defend arises. What is determinative is the true nature or the substance of the claim (Scalera, at para. 79; Monenco, at para. 35; Nichols, at p. 810).
As stated within Progressive Homes when reviewing whether an insurance policy might be triggered, it is necessary to review the context of the allegations rather than the express words of the allegations. For example, where allegations may use legal terminologies such as 'breach of contract', which is generally excluded by an insurance policy, the context of the allegations may involve negligence which may be included by an insurance policy even if the word negligence is absent. For example, the lawsuit may allege that, "the Defendant breached the contract by failing to perform in the diligent manner that would be usual to a reasonable person"; and thereby the allegations sound in negligence.
To determine whether an insurer is required to provide and pay for the defence of a lawsuit on behalf of an insured person, a review of whether the insurance policy in question would be triggered if the lawsuit is successfully proven is required. If the insurance policy provides coverage that would require the insurer to payout in the event of a liability finding, then the insurer is, generally, required to provide, and pay for, the defence of the lawsuit.