An Insurer has a duty to defend an Insured if there is a possibility that the allegations in the Statement of Claim permit a judgment against an Insured within the terms of the policy of insurance. Whether there was any merit to the alleged claim, or whether the alleged claim could be proven at trial, is irrelevant. Furthermore, it is inappropriate to rely upon the Statement of Defence and third party pleadings when determining whether a duty to defend existed.

28. October 2005 0
Wi-Lan Inc. v. St. Paul Guarantee Insurance Co., [2005] A.J. No. 1416, Alberta Court of Appeal