August 19, 2020 by David Gambrill
A recent Ontario Court of Appeal decision, in which a fan was injured by a hockey puck during a game, may lead to a shift toward joint claims handling at the outset of a claim when two insurers are potentially liable, says one legal commentator.
“The finding that both insurers had a concurrent duty to defend may…have an impact on insurers’ handling of occupier’s liability claims where commercial contracts such as rental agreements or maintenance contracts are involved,” Crystal Gillis of Clyde & Co. wrote about Markham (City) v. AIG Insurance Company of Canada in a blog for Mondaq. “These contracts typically require the renter or maintenance provider [i.e. a hockey association] to purchase insurance naming the owner of the premises [i.e. a city or municipality] as an additional insured for liability coverage arising out of the renter or maintenance provider’s activities on the premises.”
In Markham, two insurers, Lloyds and AIG Canada, disputed a concurrent obligation to defend a bodily injury claim that happened during a hockey game at the Angus Glen Community Centre in Markham, Ont. A young boy watching his brother’s hockey game at the community centre was injured when a hockey puck flew into his face, breaking his jaw. Through his litigation guardian, the boy sued the city, the owner of the rink, and the renter, Hockey Canada, for $150,000 in damages for pain and suffering.
The court has not yet determined the facts or rendered a decision about liability in the case.
The City of Markham owns and maintains the hockey rink, which it rented to the Markham Waxers Hockey Club, the Markham Waxers Minor Hockey Association, and the Markham Minor Hockey Association (collectively referred to as the “Waxers”) in February 2015. The Waxers’ activities fall under the umbrella of Hockey Canada, which oversees hockey programs in Canada.
The city is insured by Lloyd’s Underwriters under a commercial general liability policy. The city is also an additional insured to Hockey Canada’s insurance policy with AIG Insurance Company of Canada.
AIG’s policy is the primary policy, and the insurer conceded its duty to defend the city. But AIG contended that Lloyd’s also had a concurrent duty to defend the city for claims made that did not fall under AIG’s policy.
Lloyd’s, on the other hand, took the position that its policy was an excess policy only. It argued that none of the claims made against the city fell outside of AIG’s policy coverage, and that AIG’s primary policy limits were adequate to cover the claim. Therefore, Lloyd’s was not obligated to defend the claim.
At trial, a motions judge ruled that AIG had the sole duty to defend the case, but also found that the insurer had a conflict of interest. Not only was AIG defending the city, it was also defending Hockey Canada. And both were trying to minimize each other’s liability.
The motions judge refused to allow AIG to use a “split file” protocol, in which separate claims handlers would be appointed to instruct defence counsel for the City and the other defendants in the actions (such as Hockey Canada), as well as to handle any coverage issues against the City. Consequently, the motions judge ruled that AIG could not have any oversight over the case, thus turning management of the defence over to Lloyd’s.
AIG successfully appealed the ruling of the motions judge at the Ontario Court for Appeal.
“Lloyd’s has a duty to defend the city in respect of all claims of bodily injury, personal injury or property damage caused by ‘an occurrence,’” as the Court of Appeal for Ontario explains in its decision, citing Lloyd’s policy. “The AIG policy only covers the City for ‘liability in respect of [Hockey Canada and Waxers’] operations.’
“AIG expressly limited its obligation as ‘[n]o other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for.’ All other occurrences that cause bodily injury, personal injury, or property damage are not covered by the AIG policy but are covered by the Lloyd’s policy.
“Thus, for example, the alleged failure on the part of the city to ‘ensure the reasonable safety of spectators through the use of reasonable safety measures, including a net around the rink to prevent hockey pucks from striking spectators’ and the failure to ‘put into place proper and sufficient systems for the safety of spectators’ may be covered by the Lloyd’s policy but may not be covered under the AIG policy.
“As a result, both AIG and Lloyd’s have a duty to defend.”
The Appeal Court further concluded that AIG’s proposal for a ‘split file’ protocol would be workable, particularly since counsel who failed to abide by it would face discipline. The trial judge had erred in not recognizing that there would be consequences for claims handlers and counsel failing to follow the protocol, the court ruled.
The outcome in Markham means insurers will need to be be cognizant early about whether other insurers could potentially have concurrent duties to defend in a case, Gillis said.
“Where the allegations in a claim do not completely overlap with coverage afforded under the primary policy, the court has signalled it expects full and early participation of all insurers who may face exposure in the defence and settlement of those claims,” Gillis commented in her blog. “As a result, clients can now expect to see more tenders for coverage and joint defence situations.”