Landmark opioid case wrestles with who defends among multiple insurers

When multiple commercial insurers are on the hook consecutively for long-tail claims spanning decades, defence costs should be allocated according to the proportion of time they were on risk, the Ontario Appeal Court ruled this week.

The court’s landmark decision in Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada overturns a lower court finding that each claimant in the high-profile opioid class actions could pick one of the insurers and have the selected insurer pay 100% of the defence costs — whether or not the claims happened outside the selected insurer’s policy terms.

But, as the Appeal Court observed in its ruling, the insurers’ policy coverage and duty to defend were undertaken concerning events that happened only during their policy periods.

“Premiums were set based on this assumption of risk,” the Court of Appeal stated in its decision. “The application of the [lower court’s reasoning] would oblige the [insurers] to compensate injured plaintiffs (and to pay associated defence costs) for bodily injuries sustained from 1986 to the present, a period long after the expiry of the policies.

“The unfairness of this result to the respondent insurers is evident, since they neither underwrote nor received any premium for such coverage.”

Case background

The Appeal Court’s 120-page decision is complex and deals with many different insurance questions. Chief among them was how defence costs should be allocated among the various primary commercial insurers in Loblaw.

The class actions brought by representative plaintiffs across Canada claim billions of dollars in damages. The class periods span more than two decades, beginning in 1996 when Purdue Pharma began selling the opioid “OxyContin.”

The class action involves three defendants:

• Loblaw Companies Limited is a Canadian grocery retailer operating pharmacies across Canada.
• Shoppers Drug Mart Inc. (SDM), acquired by Loblaw in 2014, is primarily a Canadian franchisor for retail pharmacies.
• Sanis Health Inc., a wholly owned subsidiary of Shopper’s since 2009, manufactures generic drugs, including two drugs classified as opioids.

The three businesses are variously facing five class action suits related to the manufacture, distribution, and sale of opioid drugs in Canada beginning in 1996. None of the claims against them has been proven in court.

Royal & Sun Alliance Insurance Company of Canada, AIG Insurance Company of Canada, Aviva Insurance Company of Canada, Liberty Mutual Insurance Company, and Zurich Insurance Company Ltd. all issued primary commercial CGL policies to one or more of the three class action defendants at various points during the class periods.

Chubb Insurance Company of Canada, and two Lloyd’s of London coverholders — Markel Canada Ltd., and QBE Syndicate 1886 — are excess insurers to the primary insurers.

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The five primary insurers issued primary CGL policies covering the liability of one or more of the three defendants in the class action cases. The policies applied to the following periods:

• Liberty insured Shopper’s Drug Mart from Apr. 1, 1995, to Feb. 4, 2000
• Aviva insured Shopper’s and Sanis from Feb. 4, 2000, to July 1, 2014
• AIG insured Loblaw from July 1, 1995, to May 1, 1997.
• RSA insured Loblaw from May 1, 1997, to Jan. 1, 1998
• Zurich insured Loblaw from Jan. 1, 1998, to Jan. 1, 2019, as well as Shopper’s and Sanis from July 1, 2014 (i.e., after they were acquired by Loblaw), to Jan. 1, 2019.

“As can be seen, these policies were consecutive in nature rather than concurrent, the shortest coverage period being eight months in the case of RSA and the longest being over 14 years in the case of Aviva,” the Court of Appeal decision states.

“The primary policies generally provide coverage for the [class action defendants’] legal liability to pay damages arising from ‘bodily injury’ sustained as a result of an ‘occurrence’ happening ‘during the policy period,’ or words to that effect.”

The three class action defendants sought a ruling in the lower court allowing each of them to select a single insurance policy owing a duty to defend (all five of the primary insurers have a duty to defend). The selected insurer would then be responsible for paying 100% of the defendant’s legal costs.

Under the lower court’s ruling, the single insurer selected by the claimant would, after the judgment, be entitled to go to the other insurers for contributory payments of unresolved or uncovered defence costs. The class action defendants proposed to select either RSA or AIG to defend Loblaw, and Aviva to defend SDM and Sanis.

The primary insurers appealed that decision, arguing instead for a proportional allocation of defence costs based on the time each of the insurers was on risk. They noted that they had already agreed on how to allocate the defence costs on a proportional basis between them.

What the decision means

Jason Mangano and Anthony Gatesby, both partners at Blaney McMurtry LLP, commented on the upshot of the Appeal Court’s decision in a blog post appearing on their law firm’s website. The firm represented QBE Syndicate 1886 both in the lower court and at the Court of Appeal.

“The critical issue addressed was whether an insured, in triggering multiple commercial general liability policies over time, is entitled to ‘select’ a single policy and ‘tag’ it for 100% of the defence costs,” the authors wrote.

“The application judge allowed the insureds to choose a single policy. The corollary to this was that the single policy was then saddled with 100% of the defence costs, even though any one policy may have only been on risk for eight out of 200+ months, and other insurers had more significant retentions.

“The application judge focused on specific passages from Court of Appeal decisions in distinguishable circumstances to reach that conclusion, which the insurers argued were inherently unfair and exposed them to costs for which a premium was never charged.

“The Court of Appeal declined to endorse this approach (rightfully so, in our view). The court favoured a non-selection policy and a pro-rata ‘time-on-risk’ allocation method.”

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