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Insurance - Auto - Primary and Umbrella Policies. Benson v. Walt
In Benson v. Walt (Ont CA, 2018) the Court of Appeal set out the basics of coverage-sharing between primary and umbrella policies in a MVA insurance case:[8] The difference between the nature of coverage provided by a primary policy and an umbrella policy was explained by Charron J.A. in Trenton Cold Storage Ltd. v. St. Paul Fire and Marine Insurance Co. (2001), 2001 CanLII 20561 (ON CA), [2001] O.J. No. 183, 199 D.L.R. (4th) 654 at paras. 21-22 (C.A.) and relied upon by MacFarland J.A. in McKenzie v. Dominion of Canada General Insurance Company, 2007 ONCA 480, 86 O.R. (3d) 419, leave to appeal refused, [2007] S.C.C.A. No. 471, at para. 39. A primary policy “clearly provides for an obligation to pay and a duty to defend upon the happening of a specified occurrence without any reference to, or requirement that there be, underlying insurance.” An umbrella policy, on the other hand, provides “coverage with respect to certain risks” but limits the insurer’s “liability to the loss in excess to that which may be collected by the insured under any underlying insurance” and “the limits of the underlying policies … operate as a kind of deductible.” Umbrella polices also provide “drop-down” coverage where there is no underlying insurance.
[9] Subsection 277(1) of the Insurance Act provides:Subject to section 255, insurance under a contract evidenced by a valid owner’s policy of the kind mentioned in the definition of “owner’s policy” in section 1 is, in respect of liability arising from or occurring in connection with the ownership, or directly or indirectly with the use or operation of an automobile owned by the insured named in the contract and within the description or definition thereof in the policy, a first loss insurance, and insurance attaching under any other valid motor vehicle liability policy is excess insurance only. [10] It is not disputed that, pursuant to ss. 277(1), the first policy to respond is the State Farm Auto Policy insuring the owner of the vehicle involved in the accident.
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[13] The State Farm PLUP does not, by its terms, provide primary insurance for liability arising from the use of an automobile. The State Farm PLUP, like the umbrella policy at issue in Keelty v. Bernique (2002), 2002 CanLII 22040 (ON CA), 57 O.R. (3d) 803, [2002] O.J. No. 83 (C.A.), does not fall within what the court described, at para. 25, as Ontario’s “highly regulated” scheme of motor vehicle insurance. It only responds after the limits of the required underlying policy are exhausted, or if the underlying insurance does not provide coverage for the loss. Subsection 277(1) deals with the priorities as between primary motor vehicle insurance policies and its reach does not extend to any and every other type of policy that might have to respond once the policy limits of applicable motor vehicle policies are exhausted.
[14] In support of its submission that the State Farm PLUP is primary automobile insurance, Economical relies heavily on the decision of this court in Avis Rent A Car System, Inc. v. Certas Direct Insurance Co. (2005), 2005 CanLII 16075 (ON CA), 75 O.R. (3d) 421, [2005] O.J. No. 1951 (C.A.), leave to appeal refused, [2005] S.C.C.A. No. 343. That case involved a commercial umbrella insurance policy issued to Avis to provide coverage in excess of two other automobile insurance policies. The court held that on the facts of that case, the umbrella policy was an “owner’s policy” within the meaning of ss. 277(1) and therefore responded as first loss insurance.
[15] In my view, the Avis decision is readily distinguishable from the case at bar. The umbrella policy at issue in Avis was issued in the United States by an American insurer. This court’s decision that it was an “owner’s policy” turned on the fact that the American insurer had filed an undertaking pursuant to s. 226.1 of the Insurance Act agreeing to provide the minimum statutory coverage required by Ontario’s automobile insurance scheme. The effect of the undertaking was to supercede the language of the policy and the coverage it provided and to replace it with the mandated terms of the standard Ontario automobile policy. That meant that when it came to determine how the policy responded in relation to other policies, the wording of the umbrella policy did not govern and the policy had to be treated as if it were an owner’s policy within the meaning of the Ontario automobile insurance scheme.
[16] Economical also relies on ING Insurance Company of Canada v. Lombard General Insurance Company of Canada (2009), 2009 CanLII 1667 (ON SC), 94 O.R. (3d) 669 (S.C.), aff’d 2009 ONCA 570, 98 O.R. (3d) 522, leave to appeal refused, [2009] S.C.C.A. No. 384. That case involved an umbrella policy that incorporated a Standard Excess Automobile Policy SPF No. 7 endorsement, which provided coverage for excess loss related to the specific automobiles covered in the required underlying automobile insurance policies. The motion judge found that the endorsement brought the umbrella policy within the definition of an owner’s first loss policy under ss. 277(1). The case at bar is distinguishable as it does not involve a Standard Excess Automobile Policy SPF No. 7 endorsement that alters the nature of the coverage provided by an umbrella policy.
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