Primary v. Excess Layers - The Battle Continues

Updated: Mar 25, 2019

Overlapping coverage. “Other Insurance” clauses in the insurance policies. Do these terms sound familiar?

As a claim professional, one would come across these terms quite often. And the best part is, almost every insurance policy has an identical clause with respect to “Other Insurance”. There are various types of other insurance clauses, and depending upon the wordings, the policy containing the clause could provide primary or excess layer coverage. However, for this clause to be relevant to a specific claim, the coverage under both the policies must:

  1. Cover the same subject matter; and

  2. Provide identical coverage against the same peril.

Thus, when two or more insurers get involved in the same claim, its not unusual to get into arguments as to whose policy would respond, or for that matter, which policy would provide primary coverage, and which would provide excess coverage. Or, will all the involved policies provide contributory/proportionate coverage, sharing proportion of the loss according to the limits of the sum insured under each policy (Policy Limits). These matters have been the subject matter of several lawsuits, discussed by almost every level of court in Canada.

In the leading case of Family Insurance Corp. v. Lombard Canada Ltd., 2002, the Supreme Court of Canada provided guidance on the doctrine of equitable contribution and stated:

It is a well-established principle of insurance law that where an insured holds more than one policy of insurance that covers the same risk, the insured may never recover more than the amount of the full loss but is entitled to select the policy under which to claim indemnity, subject to any conditions to the contrary. The selected insurer, in turn, is entitled to contribution from all other insurers who have covered the same risk. This doctrine of equitable contribution among insurers is founded on the general principle that parties under a coordinate liability to make good a loss must share that burden pro rata.

The Supreme court further stated the following principles from Ivamy’s General Principles of Insurance Law (6th ed. 1993), with respect to establishing the right of contribution among insurers when faced with overlapping coverage/policies:

1. All the policies concerned must comprise the same subject‑matter.

2. All the policies must be effected against the same peril.

3. All the policies must be effected by or on behalf of the same assured.

4. All the policies must be in force at the time of the loss.

5. All the policies must be legal contracts of insurance.

6. No policy must contain any stipulation by which it is excluded from contribution.

In a recent decision by the Ontario Superior Court of Justice, substantial discussions took place on these issues. In Royal & Sun Alliance Insurance Co. v. Intact Financial Corp., 2019 (“The Case”), the applicant RSA sought an order requiring Intact (the Respondent) to contribute its proportionate share to a claim settlement that was awarded in favor of the plaintiff Stephen Peter Novak (“Novak”) against the defendant, Sanjay Patel (“Patel”), in an underlying action pertaining to the injuries sustained by Novak when he fell off a ladder at the premises of Lakeland Engineering (“Lakeland”). The premises were in a building owned by 1062220 Ontario Inc. (“106”), a company controlled by Patel.

The roles of the Insurers involved in this claim are summarized below:

RSA [CGL Insurer for Lakeland]

AVIVA [CGL Insurer for 106 (Patel’s Corporation)]

INTACT [Personal Liability Insurer for Patel (Homeowners Comprehensive Policy)]

The personal liability coverage provided to Patel by Intact under the “Homeowners Comprehensive Coverage” insurance policy included protection against legal liability arising out of Patel’s “personal actions anywhere in the world.”

All the policies had their respective “Other Insurance” clause.

Patel brought an application earlier against Intact seeking an order that it defend and cover the claim. The application was heard in 2016 and the court found that Intact’s policy would only provide excess coverage for the costs incurred over and above the limits available in the RSA’s policy, as both these policies provide overlapping coverage.

Aviva brought in an application against Intact in a separate action and was successfully able to argue that Intact should contribute its proportionate share to the settlement award.

In Aviva Insurance Co. v. Intact Insurance Co., 2018, Kristjanson J. confirmed that Intact must reimburse Aviva for Intact’s proportionate share of the settlement including defence costs. She described the Intact’s policy and Aviva’s policy as “not overlapping policies but complementary policies, and as such, the Intact policy could never sit as excess coverage over the Aviva policy.” She stated:

The RSA policy considered by the application judge insured Patel in his capacity as an officer of Lakeland, expressly excluding coverage for his personal liability. The Intact policy covered Patel’s personal liability, expressly excluding coverage for any business pursuits of Patel. A similar analysis applies to the Aviva policy, which insured Patel in his capacity as a principal of 1062220 and expressly excluded coverage for personal liability.

The case (RSA v. Intact) was decided in favor of the applicant RSA, granting the order sought, stating:

The Applicant’s policy and the Respondent’s policy each provide primary coverage for different risks – the Applicant’s policy applies to Patel’s business and premises and the Respondent’s policy applies to Patel’s household and person..………………. The two policies may overlap somewhat but they are not identical. They therefore are on par with each other and share coverage between them rather than one standing behind the other as excess insurer.

Its in the best interests for the claim professionals to be aware what policies may respond from the outset of a claim and to notify the relevant parties accordingly. Sometimes its also in the best interest of the participating insurers to share expenses and claim investigation costs, rather than arguing who would be responsible for what proportion. A legal opinion may be taken at the outset if any doubts prevail on whether the coverage are overlapping or contributory in nature. The “other insurance” clauses in the respective policies must be reviewed in detail and if needed, be scrutinized in the light of the decisions made in the leading and recently published court cases in Canada.

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