|
Class Actions - Practice. Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada
In Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada (Ont CA, 2024) the Court of Appeal considered an insurer appeal of a complex interlocutory application to declare 'duties to defend' and if so, the allocation of legal expenses between defendants, in five merged opioid class actions against several retailers, each with multiple insurers.
These quotes illustrate the litigation complexity that can arise with such multiple-party class action insurance litigation:[1] The allocation of defence costs amongst serial insurers who owe their insured a duty to defend raises complex issues in the context of consecutive coverage periods and multiple class action claims that span lengthy time frames.
[2] The respondent, Loblaw Companies Limited (“Loblaw”), is a Canadian grocery retailer that operates pharmacies across Canada. The respondent, Shoppers Drug Mart Inc. (“SDM”), is primarily a Canadian franchisor for retail pharmacies. SDM was acquired by Loblaw in 2014. The respondent, Sanis Health Inc. (“Sanis”), manufactures generic drugs including two drugs classified as opioids. Sanis has been a wholly-owned subsidiary of SDM since 2009. The three respondents are variously facing five class actions that relate to the manufacture, distribution, and sale of opioid drugs in Canada beginning in 1996 (the “Class Actions”).
[3] The appellants, Royal & Sun Alliance Insurance Company of Canada (“RSA”), AIG Insurance Company of Canada (“AIG”), Aviva Insurance Company of Canada (“Aviva”), Liberty Mutual Insurance Company (“Liberty”), and Zurich Insurance Company Ltd. (“Zurich”) (collectively, “the Primary Insurers”), issued primary Commercial/Comprehensive General Liability (“CGL”) policies to the respondents during the class periods. Each of the Primary Insurers also issued excess liability policies to one or more of the respondents from time to time.
[4] The appellants, Chubb Insurance Company of Canada (“Chubb”), Certain Underwriters at Lloyd’s as represented by their coverholder Markel Canada Limited (“Markel”), and QBE Syndicate 1886 at Lloyd’s of London (“QBE”), are excess insurers of the respondents (collectively, the “Excess Insurers”).[1]
[5] The respondents brought applications seeking declarations that each of the Primary Insurers had a duty to defend the Class Actions under their insurance policies. The respondents also sought a declaration that each respondent was entitled to select any single policy under which there was a duty to defend and require the selected insurer to defend all the claims against it. The respondents proposed to select either RSA or AIG to defend Loblaw, and Aviva to defend SDM and Sanis. Alternatively, the respondents sought an order allocating the respective share of defence costs that each insurer should pay.
[6] Although none of the insurers brought separate applications requesting an equitable allocation of defence costs amongst insurers, all parties agreed that the application judge could determine this issue without the need for such an application. Based on the respondents’ application, absent agreement or a court order, the insurers selected by them would initially have to bear the cost of the defence.
[7] Certain of the Primary Insurers’ policies contain varying self-insured retentions (“SIRs”) or deductibles that must be satisfied before the insurer will assume responsibility for defence costs. Some insurers, such as Aviva, have agreed that the applicable SIRs have been exhausted, while others assert that their SIRs or deductibles have not.
[8] One of the main issues in contention relates to the application judge’s conclusion that each of the respondents was entitled to select a single insurance policy under which there was a duty to defend and to require the selected insurer to bear the costs of the defence including those that related to claims outside that insurer’s coverage period. In addition, even though the respondents had sought coverage for defence costs under all policies, the application judge further concluded that the respondents themselves were only required to exhaust all the SIRs and deductibles in the single policies they had selected because the defence costs paid by the selected insurers could serve to exhaust the SIRs in the other policies.
[9] The appellants argued that each of the Primary Insurers should contribute to defence costs based on a pro rata “time-on-risk” calculation upon which they had agreed. This calculation reflected the insurers’ respective coverage periods as a percentage of the over 20-year time frame described in the Class Actions. No gap in coverage for defence costs would arise from the proposal but the respondents would be required to exhaust all of the SIRs and deductibles described in the applicable primary policies before an insurer would have to contribute its proportionate share of defence costs. The respondents would have to pay the pro rata share of an insurer whose SIR or deductible remains unpaid.
[10] The appellants bring multiple appeals challenging those portions of the judgment authorizing each respondent to choose a single policy and requiring that insurer to defend all claims rather than imposing a pro rata time-on-risk allocation, and permitting the SIRs to be exhausted by the payments by the selected insurers rather than by the respondents.
[11] Another area of contention relates to a Defence Reporting Agreement (“DRA”) proposed by the respondents. They had applied for a declaration that only those insurers who entered into the DRA be entitled to associate in the defence of the Class Action claims and receive privileged defence information. Among other things, the DRA required an insurer who wished to associate in the defence of the claims and receive defence side reporting to erect ethical screens to prevent the misuse of privileged information disclosed during the defence of the Class Actions.
....
(d) Analysis of Payment of Defence Costs
[65] The challenge presented by these appeals is what to do with the cost of defending claims that involve allegations of continuous or progressive injury that span many years (long-tail claims) where there are insurance policies with different insurers, different provisions governing deductibles and SIRs, and consecutive rather than concurrent coverage periods and therefore different risks. The American Professor Leo P. Martinez aptly described this as “among the thorniest problems in insurance law”: “The Allocation of Costs in Multi-Insurer Cases Spanning Multiple Years: The Deceptively Simple Problem of Defence Costs” in New Appleman on Insurance: Current Critical Issues in Insurance Law (New York: LexisNexis, 2012), at p. 53.
[66] At the outset, it is important to note what this case is not about. First, there is no denial of a duty to defend. None of the appellants contest their responsibility to defend the Class Actions. Indeed, the application judge found that, subject to the exhaustion of SIRs/deductibles, the duty to defend was triggered under each primary CGL policy. Second, the Primary Insurers had agreed beforehand on a pro rata time-on-risk allocation amongst themselves.[7] There was no need for this to be the subject of a separate contested application. As mentioned, even the respondents themselves sought in the alternative an order allocating the respective share of defence costs that should be paid by each insurer. Notably, they do not contest the proposed formula reached by the Primary Insurers. Third, this is not a case of any gap in coverage.
[67] As mentioned, the application judge concluded that each respondent was entitled to select one policy and require the selected insurer to defend for the entire multi-decade period over which the Class Actions spanned. So by way of example, RSA, whose policy only covered 8 months or approximately 3% of the class period was obliged to provide a defence for Loblaw for the entire period.
|
