June 28, 2007 by Canadian Underwriter
There is a distinction to be made between primary, excess and/or umbrella policies when other insurance policies are called upon to respond in situations when primary coverage has been exhausted, the Ontario Court of Appeal ruled recently.
In McKenzie v. Dominion of Canada General Insurance Company, a policyholder, Michael McKenzie, was involved in a serious boating collision in the Georgian Bay area while he was driving a boat with the consent of the boats owner, Warren Tischler.
Three policies of insurance provided coverage to McKenzie:
a boat owners liability policy issued by State Farm to Warren Tischler,
a personal liability umbrella policy (PLUP) also issued by State Farm to Tischler, and
a home owners policy of insurance issued by Dominion to McKenzies father.
At trial, it was undisputed that State Farms boat owners policy would pay first, up to the maximum limits of the policy. The question before the court, therefore, was which of the other two policies the Dominion homeowners policy or the State Farm PLUP would pay next, once the boat owners policy had reached its limit?
Dominion argued the two policies should contribute equally or pro rata to the losses, if any, that exceed the liability limits of the boat owners policy.
The trial judge agreed with Dominion, concluding that the umbrella policy [PLUP] and the homeowners policy [Dominion] provide that each will cover the loss only if there is no other applicable insurance and that the other insurance clauses for each, although drafted slightly differently, seek to accomplish identical goals. Consequently, they conflict with each other and are irreconcilable.
On this basis, the trial judge ruled, PLUP and Dominion policies should contribute equally to the losses exceeding the main policy.
But writing for the Court of Appeal, Justice Jean McFarland said the trial judge misinterpreted the Supreme Court of Canadas decision in the case, Family Insurance Corp. v. Lombard Canada (which, MacFarland added, dealt with an entirely different set of circumstances).
To be clear, I respectfully disagree with the respondent Dominions submission, and the application judges conclusion, that the other insurance clauses in the PLUP and the home owners policy are irreconcilable, MacFarland wrote. Such a conclusion is only possible where the policies in question cover the same level of risk. The two policies in issue before this court do not.
The PLUP is a true umbrella policy while the homeowners policy is a primary policy, which pays first dollar insurance coverage unless there is other insurance.
The reference to other insurance in a primary policy can only reasonably refer to other primary insurance. Were it otherwise, the other insurance clauses in primary policies would make them excess or umbrella policies, which is clearly not the intent of a primary policy.
MacFarland went on to disagree with the trial judges representation of the Supreme Courts decision in Family Insurance. It seems to me that if the Supreme Court of Canada had intended to do away with any distinction among primary, excess and/or umbrella policies of insurance, it would have done so in clear and express language to that effect, she wrote.