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Insurance - Excess Insurance. Kestenberg Siegal Lipkus LLP v. Royal & Sun Alliance Insurance Company of Canada
In Kestenberg Siegal Lipkus LLP v. Royal & Sun Alliance Insurance Company of Canada (Ont CA, 2024) the Ontario Court of Appeal considers the 'following form' structure of excess liability insurance:[51] As can be seen from the extract above, the insuring agreement clause in the Second Excess Policy uses a “follow form” structure. A follow form structure in an excess insurance policy means that the insurance coverage is intended to be the same as the underlying policy (in this case, the First Excess Policy), but with coverage limitations that are prescribed by the excess policy: see Cronos Group Inc. v. Assicurazioni Generali S.p.A., 2022 ONCA 525, at footnote 1 at para. 1; and Vale Canada Limited v. Royal & Sun Alliance Insurance Company of Canada, 2022 ONCA 862, at footnote 5 at para. 7 (both citing Allmerica Financial Corp. v. Certain Underwriters at Lloyd’s, London (2007), 449 Mass. 621, 87 N.E. 2d 418).
[52] The impact of the follow form structure of the insuring agreement in the Second Excess Policy is that in order to understand the triggers to coverage under the policy, one looks not only to the coverage provided by the underlying First Excess Policy, but also to coverage limitations contained in other provisions of the Second Excess Policy.
[53] It is not necessary to come to a firm conclusion on the nature of the First Excess Policy in order to interpret the Second Excess Policy.[6] Even if the appellants are correct that the First Excess Policy is a claims made policy, the terms of the Second Excess Policy modify the language of the coverage grant in the First Excess Policy to clearly include claims made and reported triggers to coverage.
[54] Consistent with its follow form structure, the insuring agreement clause in the Second Excess Policy refers back to the coverage clause in the First Excess Policy and provides that coverage is subject to limits set out in the Second Excess Policy.
[55] After stating that coverage is in accordance with the terms and conditions of the First Excess Policy, the insuring agreement clause in the Second Excess Policy continues that coverage is “subject to the terms and conditions otherwise provided herein”. That is, the insuring agreement clause of the Second Excess Policy expressly conditions the grant of coverage on further terms and conditions in the Second Excess Policy. The insuring agreement clause in the Second Excess Policy is not simply a duplicate of the coverage clause in the First Excess Policy. The follow form language of the insuring agreement clause in the Second Excess Policy specifically anticipates that coverage triggers may be located in other provisions of the Second Excess Policy.
[56] The “terms and conditions otherwise provided” in the Second Excess Policy include a claims made and reported clause. Clause D of Part IV of the Second Excess Policy provides as follows:This policy only covers claims first made against the Insured and reported to the Insurer during the policy period and provided that such claim arises out of an act, error or omission committed or alleged to have been committed on or after the retroactive date set forth at Item. 6 of the Declarations. [Bold in original; underlining added.] [57] Reading together the insuring agreement clause of the Second Excess Policy and clause D of the policy, the terms are clear that the policy “only covers claims” which are both made against the insured and reported to the insurer “during the policy period”. In other words, clause D clearly indicates that to trigger coverage under the Second Excess Policy, a claim must be both made and reported during the policy period.
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[63] Second, the follow form nature of the insuring agreement clause in the Second Excess Policy and its specific wording explain why the triggers to coverage are not express in the insuring agreement clause. Although it is not essential that a claims made and reported clause be contained in the insuring agreement clause of a policy, in a primary policy, typically, the triggers to coverage are included in the insuring agreement clause for reasons of clarity.
[64] In a follow form excess insurance policy like the Second Excess Policy, the insuring agreement clause departs from the typical language of an insuring agreement clause. A comparison between the insuring agreement clauses in the First Excess Policy and the Second Excess Policy demonstrates the difference. The First Excess Policy sets out both the grant of coverage and the limitations on coverage:To pay on behalf of the ASSURED all sums in excess of the Retention or any Underlying Insurance (including a compulsory policy) (as described in the Conditions), and which the ASSURED shall become legally obligated to pay as DAMAGES as a result of CLAIMS first made against the ASSURED during the POLICY PERIOD… [Emphasis added.] . 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.
Here the court contrasts primary with excess insurers:[250] I will start with the role of excess insurers. In Trenton Cold Storage Ltd. v. St. Paul Fire and Marine Insurance Co. (2001), 2001 CanLII 20561 (ON CA), 146 O.A.C. 348 (C.A.), a contribution dispute between insurers, Charron J.A. described the distinction between primary and excess insurers, at para. 24:The distinction between primary and excess insurance is succinctly set out in St. Paul Mercury Insurance Company v. Lexington Insurance Company, 78 F. 3d. 202 (5th Cir. 1996) at footnote 23, quoting from Emscor Mfg. Inc. v. Alliance Ins. Group, 879 S.W. (2d) 894 at 903 (Tex. App. 1994, writ denied):Primary insurance coverage is insurance coverage whereby, under the terms of the policy, liability attaches immediately upon the happening of the occurrence that gives rise to the liability. An excess policy is one that provides that the insurer is liable for the excess above and beyond that which may be collected on primary insurance. In a situation where there are primary and excess insurance coverages, the limits of the primary insurance must be exhausted before the primary carrier has a right to require the excess carrier to contribute to a settlement. In such a situation, the various insurance companies are not covering the same risk; rather, they are covering separate and clearly defined layers of risk. The remote position of an excess carrier greatly reduces its chance of exposure to a loss. [Emphasis in original.] See also Markham, at paras. 50-52. . Northbridge General Insurance Company v. Aviva Insurance Company
In Northbridge General Insurance Company v. Aviva Insurance Company (Ont CA, 2022) the Court of Appeal considered an issue of excess insurance between two insurers, and whether 'equitable insurance' principles applied:[5] The Northbridge and Aviva Policies each include “other insurance” clauses that provide that their policies are excess to any other valid and collectible insurance.
[6] The parties do not dispute the availability of the doctrine of equitable contribution where two policies are irreconcilable – that is, where both cover the loss at issue and neither is clearly excess to the other. In those circumstances, both insurers may be required to contribute equally to an insured’s defence and indemnification. That is what Northbridge argues applies in this case. Aviva, by contrast, argues that the policies are reconcilable. Its policy clearly is excess to any professional liability policy that provides coverage to Mr. Daneshvari, and, consequently, it only has an obligation should the amount of the loss covered by Northbridge’s insurance be exceeded.
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B. ANALYSIS
[11] The appellant argues that the application judge erred in his interpretation of the Northbridge and Aviva Policies as irreconcilable, while the respondent contends that the application judge made no errors which would warrant appellate intervention.
[12] The parties take different views on the applicable standard of review for this appeal. According to the appellant, the application judge’s interpretation of the insurance policies is subject to a standard of correctness, based on Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, and Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23.
[13] In Sattva, the Supreme Court held that contractual interpretation is a question of mixed fact and law, which attracts deference. In Ledcor, however, Wagner J., writing for the majority, recognized an exception to this principle, noting that where an appeal involves “the interpretation of a standard form contract, the interpretation at issue is of precedential value and there is no meaningful factual matrix that is specific to the parties to assist the interpretation process,” the interpretation is better characterized as a question of law: at para. 24.
[14] The respondent argues that, as the application judge had to interpret two different policies with differently worded “other insurance” clauses in light of a specific factual matrix, this court should only interfere with his decision if he committed palpable and overriding errors.
[15] We do not agree that the “other insurance” and other relevant provisions of the policies at issue in this case are “standard form contracts” or contracts with significant precedential value. Rather, the wording of these provisions and interplay of the two policies makes the application judge’s interpretive decisions distinct. As such, the standard of palpable and overriding error applies.
[16] That said, for the following reasons, whether on this standard or the standard of correctness, we see no error in the application judge’s decision.
[17] The applicable legal standard for equitable contribution was set out in Family Insurance Corp. v. Lombard Canada Ltd., 2002 SCC 48, [2002] 2 S.C.R. 695, at paras. 14-15, and is based on the principle that parties under “coordinate liability,” to make good a loss, must share that burden on a pro rata basis. The policies must cover the same risk for the same insured and must not exclude one another. In short, the policies must both apply to an insured’s loss and be irreconcilable.
[18] The application judge found that the policies at issue in this case met these criteria, at paras. 21-22:[I am satisfied that both policies cover the same risk. The Northbridge Policy provides coverage for the professional liability of pharmacists who are members of the Ontario Pharmacists Association. The Aviva Policy, through the Pharmacy Professional Liability Endorsement, provides coverage for the professional liability of pharmacists employed with Ayda Pharmacy. At the time of the loss, Mr. Daneshvari was a member of the Ontario Pharmacists Association and an employee of Ayda Pharmacy. He was an insured under both policies. Both policies provide coverage for claims for bodily injury arising out of professional services.
I am also satisfied that both policies provide coverage at the same layer of coverage. [19] The application judge instructed himself on the interpretation of the “other insurance” provisions, at para. 27:In determining the intention of the insurers to limit their obligations, the court is to consider only the policy wording. The analysis is not to be based on the surrounding circumstances or which policy is more specific or closer to the risk. If the intention to limit the obligations is not clearly set out in the policy, or if the competing intentions of the insurers cannot be reconciled, the principles of equitable contribution require the parties to equally share the costs of defence and indemnity: Family Insurance, at paras. 19, 23-28. [20] We agree with the application judge’s conclusion that the “other insurance” clause in both the Northbridge and Aviva Policies was intended to achieve the same goal. The “other insurance” clause in the Northbridge Policy included a provision that it did not apply if the insurance purchased by the “insured” was an excess policy. The “insured” under the Northbridge Policy was Mr. Daneshvari. The Aviva Policy, however, was not purchased by Mr. Daneshvari but rather by Ayda Pharmacy. The Aviva Policy was not a true excess policy (relying on the importance of a contextual analysis of the “other insurance” clause as reiterated by this court in McKenzie v. Dominion of Canada General Insurance Company, 2007 ONCA 480, 86 O.R. (3d) 419, at para. 39).
[21] Nor do we accept the appellant’s argument that the reference in the Aviva Policy’s “other insurance” clause to the coverage being in excess of any valid and collectable policy available to “individual pharmacists” transformed the Aviva Policy into a secondary insurance policy. This language constituted a requirement that individual pharmacists covered under the general liability policy of the pharmacy were required to maintain a professional liability policy. The more specific language relating to individual pharmacists in the “other insurance” clause in the Aviva Policy did not alter its scope as compared to the general “other insurance” clause in the Northbridge Policy.
[22] The application judge correctly distinguished this case from Lawyers’ Professional Indemnity Company (LPIC) v. Lloyd’s Underwriters, 2016 ONSC 6196, relied upon by the appellants. In LPIC, the court found that the Lloyd’s policy, which provided general liability coverage, specifically provided that its coverage was excess to any professional liability coverage provided by any Law Society. The court contrasted this policy and the LPIC professional liability policy, which provided that if the insured had other insurance that was arranged to be excess insurance, the other policies were to be treated as excess. The court found that the Lloyd’s policy was a secondary policy in relation to the LPIC policy. Therefore, the two policies were not irreconcilable, and Lloyd’s was not required to contribute towards the defence or indemnity of the insured under the principle of equitable contribution.
[23] This court upheld the LPIC application judge’s decision, concluding, at para. 3, “Further, the appellant’s policy acknowledges that other policies, specifically arranged to apply as excess insurance over the appellant’s policy, were to be treated as being excess policies. We see no error in the application judge’s analysis”: 2017 ONCA 858.
[24] The application judge’s interpretations of the Aviva and Northbridge Policies were open to him, and the appellant has shown no error with his analysis or conclusion.
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