November 1, 2003 by Paul Famula, Crawford Adjusters Canada
There are two significant recent court decisions on the subject of “concurrent” or “overlapping coverage” providing guidance in dealing with this dilemma. The first is the Supreme Court of Canada’s decision in Family Insurance Corp. vs. Lombard Canada Ltd., (2002) SCC 48 where the court dealt with a dispute between two insurers both invoking an “other insurance” clause.
In this instance, a woman was injured by falling from a horse. The stable owner where the accident occurred was insured under a commercial general liability (CGL) policy obtained through the provincial horse council. The injured party was insured under her homeowners/residential insurance policy. Justice Bastarache, writing for the court, established a framework for the analysis of such disputes:
Do both insurers invoke an “other insurance” clause;
If so, is liability is to be determined based on the insurers’ intentions vis–vis the insured;
If the insurers’ intentions are irreconcilable, conflicting clauses are to be treated as mutually repugnant and inoperative, and the dispute is to be resolved by the most equitable means available; and
The court is to interpret the contracts of insurance to determine if the insurers intended to limit their obligations, and in the absence of such limitations, the doctrine of equitable contribution is to be applied.
The second important decision to consider is that of the Ontario Court of Appeal in Canadian Universities’ Reciprocal Insurance vs. Halwell Mutual Insurance Co., (2002) 61 O.R. (3d) 113. Again, we find two insurers disputing the issue of primary versus “excess coverage” as a result of the application of “other insurance” clauses. The court followed the decision in Family Insurance, and applied the analytical framework endorsed by the Supreme Court of Canada. This case involved a university student who was injured during “frosh week” activities. The contest was between the university’s policy and the student’s homeowners’ policy. Justice Feldman concluded that it was not necessary to consider whether the two “other insurance” clauses were repugnant and inoperative as the court felt that the homeowners policy did not provide coverage for the incident.
Both court decisions outline the basic analytical framework critical to determining concurrent coverage. The first step requires analysis of whether the two policies cover the same risk. This is determined by answering the following questions as set by Justice Bastarache in Family Insurance:
All the policies concerned must comprise the same subject matter;
All the policies must be effected against the same peril;
All the policies must be effected by or on behalf of the same assured;
All the policies must be in force at the time of the loss;
All the policies must be legal contracts of insurance; and
No policy must contain any stipulation by which it is excluded from contribution.
These are basic questions that must be affirmatively answered to move forward with an enquiry. Indeed, in the Canadian Universities decision, the court concluded after analysis that under “item 6” of the above that there was no coverage under the homeowners policy. The second question is whether the insurers intended to contract out of the obligation. In this respect, the policies have to be examined. In doing so, Justice Bastarache notes: “…the respective liabilities of the insurers must rest upon a construction of the language employed by the respective insurers, and not upon the so-called ‘primary tort-feasor doctrine’, or upon any other arbitrary rule or circumstance”. He further quoted from the Seagate Hotel Ltd. vs. Simcoe & Erie General Insurance Co. case (1981), 27 B.C.L.R. 89 (B.C.C.A.): “…the court is not asked to interpret a contract made between the appellant and the respondent companies. The issue depends upon the interpretation and the application of the two contracts, both insurance policies, the first being a contract between the appellant and the insured and the second the contract between the respondent and the insured”.
As such, Justice Bastarache observes that, although it is appropriate to look to surrounding circumstances where ambiguity exists in interpreting the intentions between the insurer and the insured, such is not the case when the dispute is between insurers. In that instance, the exercise is limited to an interpretation of the policy itself.
In the historic words of Lord Mansfield in Godin vs. London Assurance Co. (1758), 97 E.R. 419 (Eng. K.B.): “If the insured is to receive but one satisfaction, natural justice says that the several insurers shall all of them contribute pro-rata, to satisfy that loss against which they have all insured.” Such a principle, however, is not always viewed as the most equitable method by which contribution ought to be determined. Consequently, several mechanisms have been developed by both the courts, insurers and legislatures. These are:
The equitable contribution doctrine. The Supreme Court of Canada found that an “un-equitable” situation would be where there is no insurance coverage as both insurers invoke “other insurance” clauses. If this position is accepted, the result would be two policies providing excess coverage and no policy that provides primary coverage. The typical policy wording provides that there is primary coverage unless there is “other insurance”. Thus, the clauses become irreconcilable and inoperative. This concept forms the basis for the application of the “doctrine of equitable contribution”. The courts have developed this doctrine to resolve the question of what each insurer should contribute where there is concurrent coverage without other mechanisms to establish the contribution determination.
The Minnesota, or “closest to risk” approach. The Supreme Court of Canada in Family Insurance rejects the so-called “Minnesota approach” which pro-rates the contributions by limits of coverage. The Ontario Court of Appeal also went against the Minnesota approach’s more modern manifestation, the “closeness to the risk” approach which is based on a comparison of the risks insured in general and specific policies. In the Marchand vs. Dominion of Canada General Insurance Co., (1999) O.J. No. 329 case, the court stated: “There is no real suggestion in Canadian jurisprudence that a ‘closest to the risk’ policy should be embraced, and no consensus in the American authorities. Commercial efficacy and the avoidance of litigation between insurance companies supports a split responsibility and the avoidance of litigation as to which policy is closer to the risk or the coverage.”
Regimes for contribution in policies. This is the basic principle adopted in the highly regulated Ontario automobile policy (OAP) insurance market. The object of such policies is to insure against the same risks of bodily injury, death and property damage in the use of automobiles. However, the mechanism in OAP policies in dealing with multiple coverages is unambiguous.
Statutory regimes. The following provisions are outlined in the Ontario Insurance Act under 277. (1), subject to section-255. These provisions indicate that the person named in an insurance contract relating to liability arising from/or occurring in connection with the ownership, use of an automobile owned by the insured named, which is attached under any other valid motor vehicle liability policy is “excess insurance”. Furthermore, subject to section-255 and section-268, if the insured named in a contract has other valid insurance, whether against liability for loss of ownership, use or damage to an automobile, the insurer is liable only for its “ratable proportion” of any liability, expense, loss or damage.
The “ratable proportion” means, if there are two insurers liable and each has the same policy limits, each of the insurers shall share equally in any liability, expense, loss or damage. If two insurers are liable with different policy limits, the insurers shall equally share the limit of the smaller policy limit. However, if there are more than two i
nsurers liable, the clauses above apply with necessary modifications.
The owner’s policy definition in section-1 of the Ontario Insurance Act reads as follows: “Owner’s policy means a motor vehicle liability policy insuring a person in respect of the ownership, use or operation of an automobile owned by that person and within the description or definition thereof in the policy and, if the contract so provides, in respect of the use or operation of any other automobile.” Two issues are raised by these provisions of the legislation.
The first involves the interpretation of “owner’s policy”. It is important to determine whether the policies in the automobile context are owner’s policies. Non-owner policies are excess only. This is another basis on which concurrent liability can be defended. The second issue is if there is overlapping coverage – should the contributions be determined under the policy wording, that is pro-rata in accordance with s. 277 (3), which is to share equally the limit of the lower limit policy. In my view, on this last point the policy wording should govern as the legislation does not prohibit contracting out of its provisions in this matter.
The analysis of the concurrent or overlapping coverage within the framework adopt by the Supreme Court of Canada has provided an analytical framework by which concurrent or overlapping coverage can be determined. The exercise requires a detailed review of the policies in question in accordance with the criteria established by the Supreme Court of Canada.