Insureds which suffer a loss may find that they are covered by multiple insurance policies for that loss. Such situations can arise inadvertently, or the existence of multiple overlapping policies may be by design. For example, the prudent insured may have purchased several distinct types of coverage, one or more of which overlap to cover a risk. Or the insured may have required another entity to name it as an additional insured, while also having its own coverage for the risk. In the context of liability claims, having multiple insurance policies can cause disputes over which insurers have a duty to defend and, if more than one, how associated defence costs should be allocated. It is not uncommon for the insured to get caught up in these fights, although they most frequently involve disputes between the insurers.
Where a party is an additional insured, it will often have its own insurance that covers some or all of the claim. That other coverage may be intended to act as primary insurance or solely as excess to the other policy. For example, large retail vendors often require their suppliers to add them as an additional insured but will also have a corporate global programme intended to provide umbrella coverage.(1) There are also many different policy wordings that may add a party as an additional insured. That wording may have a direct impact on the scope of coverage afforded. For example, one common endorsement provides that the party is added only for vicarious liability which it may have for the acts of the named insured. Other wordings may extend to cover all liabilities arising from the named insured's activities. Others cover the additional insured for all forms of liability arising from the sale or distribution of the named insured's products (commonly known as a 'vendor's endorsement'). A consideration of the scope of coverage provided under these various wordings was discussed in an earlier article.(2) However, these various wordings underscore the importance of each policy's wordings.
A number of issues may arise with the duty to defend, where there are overlapping or concurrent insurance policies – namely:
- identifying situations of overlapping or concurrent coverage;
- how courts resolve overlapping or concurrent coverage absent a clause in one or more of the policies that deals with the issue;
- how courts resolve overlapping coverage where there is one or more 'other insurance' clauses; and
- how courts apply these principles to the allocation of defence costs.
This article focuses on the second of these issues.
Methods to resolve overlapping coverage disputes
In Family Insurance Corp v Lombard Canada Ltd, the Supreme Court of Canada noted that it is a well-established principle of insurance law that the insured may select the policy under which to claim indemnity, subject to any policy conditions to the contrary (discussed below),(3) as each insurer is severally liable to the insured.(4) Under the doctrine of equitable contribution, the insurer which the insured has selected is in turn entitled to contribution from other insurers which insured the same risk.(5) This doctrine applies in the context of the duty to defend and allocation of defence costs in overlapping and concurrent coverage situations, but some insurers have sought to argue equitable contribution is available only where the policies are overlapping, not concurrent. However, courts often allocate where insurers have concurrent defence obligations, but their policies do not overlap. This argument against equitable allocation for concurrent defence obligations was expressly rejected in a recent Ontario decision, Aviva Insurance Company v Intact Insurance Company.(6)
In Aviva, the insured defendant's friend sustained injuries when he fell off a ladder during a jam session at the insured's engineering firm. The insured was potentially covered by three policies:
- the firm's liability policy with Aviva relating to the building which it owned (which excluded personal liability of the insured);
- the firm's liability policy with RSA relating to its operations; and
- the insured's personal homeowner's policy with Intact that covered his personal liability (but excluded the insured's business liability).
The insured was sued in both his personal and business capacities. The court held that the Aviva and Intact policies did not cover the same subject matter, that both policies applied, and that they did not overlap. As a result, the court also found that the policies provided common defence coverage, and that each insurer owed the insured a duty to defend.(7) Such 'concurrent' policies do not fall within the prescribed requirements for 'overlapping' insurance, but they do result in a common defence. The court accepted the proposition that in Family Insurance Corp, the Supreme Court was dealing with overlapping policies, but went on to find that equity would assist an insurer with concurrent defence obligations,(8) although the court preferred to rely on unjust enrichment. This can be problematic because some courts may argue that an insurer may not be able to satisfy the requirements of unjust enrichment. However, the court in Aviva also noted the broader proposition that equity will assist an insurer with concurrent defence obligations, relying on the Ontario Court of Appeal's earlier decision in Broadhurst & Ball v American Home Assurance Co, which involved equitable allocation between a primary and excess insurer.(9)
Absent a clause in the policy that modifies an insurer's obligation to equitably contribute, the method for calculating the proportion which each insurer must contribute varies according to the policies.(10) There is some precedent for a method called the 'maximum liability method', where one simply takes the amount of one insurer's limits, divides it by the total of all insurers' limits and then multiplies that number by the loss.(11) However, the Supreme Court of Canada has held that the prevailing and preferable method is that each insurer bears the loss equally until the lower policy limit is exhausted, with the policy with the higher limit contributing any remaining amounts.(12) This is called the 'independent liability method'.(13) The rationale for the independent liability method lies in the fact that the risk being underwritten is at its greatest with smaller claims and at its least with larger claims. Higher limits are often provided with only a small increase in premiums. If two insurers have different upper limits for claims, the court will draw an inference that they both accepted the same level of risk up to the lower of the limits.(14) This generally results in an 'equal shares' approach to contribution.
Endnotes
(1) True umbrella coverage differs from excess coverage. Umbrella coverage 'drops down' to provide primary coverage where there is no underlying primary insurance for that risk, whereas excess coverage does not.
(2) This article is the second in a series on additional insured coverage and multiple insurers. For the first article in the series, please see "'Additional insured' coverage and multiple insurers: overlapping and common defence coverage".
(3) Family Insurance Corp v Lombard Canada Ltd, 2002 SCC 48 at paras 14-15 [2002] 2 SCR 695.
(4) Craig Brown et al, Insurance Law in Canada (Toronto: Thomson Reuters, 2019) at Section 14.3.
(5) Family Insurance Corp, supra Endnote 3 at para 14.
(6) Aviva Insurance Company v Intact Insurance Company, 2018 ONSC 238 [2018] ILR I-6032.
(9) Broadhurst & Ball v American Home Assurance Co (1990) 1 OR (3d) 225, 76 DLR (4th) 80 (Ont CA).
(10) Brown et al, supra Endnote 4 at Section 14.3.
(12) Family Insurance Corp, supra Endnote 3 at para 39.
(13) Brown et al, supra Endnote 4 at Section 14.3; for a more complete discussion of the specific methods of apportioning liability in these instances, see Brown, supra Endnote 2 at Section 14.
