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 third of these issues.
Multiple insurers and 'other insurance' clauses
As the Supreme Court of Canada noted in Family Insurance Corp v Lombard Canada Ltd,(3) in their policies, insurers can and often do attempt to limit their obligations to equitably contribute. While Family is an indemnity case rather than a duty to defend case, subsequent courts have consistently followed the basic principles set out in Family and applied them to duty to defend cases involving multiple insurers and allocation issues.(4) The Family decision affirmed the basic principle that where two or more insurers cover the same risk and each has attempted to limit its liability in such a scenario, since there is no privity of contract between the insurers, the "proper instrument to determine the liability of each insurer is the policy itself".(5) The exercise is one of contractual interpretation, determining the insurer's intentions with respect to the insured, not as between insurers:
Once the interest of the insured is not longer at stake, that is where the contest is only between the insurers, there is simply no basis for looking outside the policy. In the absence of privity of contract between the parties, the unilateral and subjective intentions of the insurers, unaware of one another at the time the contracts were made, are simply irrelevant.(6)
In Family, Michelle Patterson injured herself in a fall from a horse. Patterson sued the owner of the stable, Lesley Young, and settled with her for C$500,000, which was payable by Young's insurers. At the time of the accident, Family Insurance Corporation insured Young under a homeowner's policy with a limit of C$1 million, while Lombard Canada Ltd insured Young under a commercial general liability policy with a limit of C$5 million. Both insurers admitted that their respective policies covered the claim.
However, both policies stated that they were primary policies unless other valid insurance were available to cover the loss, in which case they were excess policies. Both insurers sought to use these 'other insurance' clauses to shield themselves from primary liability. Thus, the wordings gave rise to circular reasoning that did not resolve the problem of which policy provided the primary coverage. The court held that in the face of such an issue, a reviewing court must determine the most equitable means of resolving the issue that respects the intentions of the parties and the right of the insured to recover.(7)
Thankfully, in determining the most equitable means of resolving the issue, the court rejected a US approach known as the 'Minnesota approach', the modern manifestation of which involves assessing each insurer's 'closeness to the risk'. The court endorsed a criticism of the Minnesota approach, which described any attempt to apply it to specific wordings as "mental gymnastics".(8) The more sensible approach adopted by the court in Family involves first confirming whether the clauses are mutually repugnant. If the wordings of the other insurance clauses can be reconciled to give effect to both while still providing coverage for the insured, the process is simply one of giving effect to the intent of the insurers.(9) For example, in a different case where there were two potentially applicable policies, one insurer's policy had a 'pro rata' other insurance clause which described how liability should be apportioned between insurers if there were other "valid and collectible" insurance. The other insurer had an 'excess' or 'escape' other insurance clause which said that the insurer was liable only for the part of a claim in excess of the amount recoverable from other insurance. Since the pro rata clause simply described how allocation should work if there was other "valid and collectible" insurance, and the excess clause effectively stated that it was not "collectible" until other insurance had been exhausted, the court found that the policy containing the pro rata other insurance clause was primary.(10) The court in Family endorsed this view as the prevailing and preferable view in Canada.(11)
On the other hand, in Family, the clauses were both excess other insurance clauses. In such a case, the court held that it would be obviously absurd to interpret the clauses as leaving the insured without primary coverage at all. As such, if competing policies cannot be read in harmony, a court should treat the conflicting clauses as mutually repugnant and inoperative.(12) As stated above, the court confirmed that where that is the case, each insurer is independently liable to the insured for the full loss as if the other insurer does not exist.(13)
With both clauses rendered inoperative, the only thing left for the court to determine was how much each insurer should have to contribute. In Family, the court used the independent liability method described above, with the loss being borne equally by each insurer until the lower C$1 million policy limit was exhausted, with the C$5 million commercial general liability policy contributing any remaining amounts.(14)
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 third in a series on additional insured coverage and multiple insurers. For earlier articles in the series, please see:
- "'Additional insured' coverage and multiple insurers: overlapping and common defence coverage"; and
- "'Additional insured' coverage and multiple insurers: resolving overlapping coverage disputes".
(3) Family Insurance Corp v Lombard Canada Ltd, 2002 SCC 48 at paras 14 to 15 [2002] 2 SCR 695.
(4) See, for example, Aviva Insurance Company v Intact Insurance Company, 2018 ONSC 238 [2018] ILR and Markham (City) v AIG Insurance Company of Canada, 2020 ONCA 239 at paras 1 to 5, 22, 27, 445 DLR (4th) 405.
(5) Family, supra Endnote 3 at para 16.
(10) See, for example, Seagate Hotel Ltd v Simcoe & Erie General Insurance Co [1980] LR 1-1286, 22 BCLR 374 (BC SC).
