Simon's Megalomaniacal Legal Resources

Insurance - Excess Insurance

. 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.