No More Over-Arching Interpretation Principles Favouring Insurers
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. It is irrelevant whether the allegations in the pleadings can be proven in evidence. 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. In examining the pleadings to determine whether the claims fall within the scope of coverage, what is determinative is the true nature or substance of the claim, not the labels selected by the plaintiff.
See: Progressive Homes Ltd. v. Lombard General http://www.canlii.org/en/ca/scc/doc/2010/2010scc33/2010scc33.html