Canadian Underwriter

Excess of loss case should be heard in Canada, not New York: court

January 10, 2022   by David Gambrill

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Several excess insurers have lost their bid to have a lawsuit take place in New York instead of Ontario in a mining insurance case brought before the Ontario Superior Court of Justice.

Nine of 22 excess insurers argued that the Ontario court lacked jurisdiction in a case involving the nickel mining giant Vale Canada.

Ultimately, the court decided the action based in part on the fact that most of the excess insurers were “carrying on business” in Canada when they sold the policies, even though much of the excess insurance was issued as part of a global “tower” insurance program based in New York.

By selling the global program in Canada, the court ruled, the excess insurers created the expectation that they would be called to account in Canada.

The excess insurers to whom the decision applied included Travelers; U.S. Fire and Northbrook (by merger into Allstate Insurance Company); Zurich Insurance plc (UK Branch), the successor to Midland Assurance Ltd.; and Riverstone Insurance (U.K.) Limited (as successor to Zurich).

All of the above excess insurers “are properly found to have been carrying on business here through their own licensure, international operations, or purchase of Midland policies [as described in Vale Canada’s factum],” the Ontario Superior Court ruled in Vale Canada Ltd. V. Royal & SunAlliance, released Jan. 4.

“All had objectively available facts supporting a finding that in selling their polices in issue, they were carrying on business here for the purpose of considering whether there are sufficient links between the defendants and the issues in the lawsuit to support a reasonable expectation that they would be called to account on their insurance policies here [in Ontario].”


The background

International Nickel Company of Canada, later re-named Inco Limited, has had a head office located in Toronto for more than 80 years. Inco was purchased in 2006-07 by Vale S.A. Inco Limited, which has since changed its name to Vale Canada Limited.

Inco/Vale Canada has claimed insurance coverage for costs incurred while cleaning up environmental losses related to 26 of its sites around the world. Of those, 22 are in Canada, and 19 are in Ontario. Vale also has claims for sites operated through subsidiaries in Japan, Indonesia, New Jersey, and Wales.

Over several decades, Inco placed 92 policies of insurance worldwide to cover the types of liabilities in issue. They are “occurrence” policies that respond to losses that may have arisen or been caused by events that occurred during the policy term. The claims were not made for losses arising from those events until many, many years later.

For the past 20-30 years, Inco/Vale Canada has been remediating environmental damage allegedly caused by its operations. For example, it was required to spend about $500 million to modernize its refinery in Sudbury, Ont. It has also been sued for environmental damage.

The claims advanced by Vale Canada and its subsidiaries under the insurance policies relate mostly to environmental expenditures incurred in Ontario by its Ontario operations. Vale Canada has also made claims for costs incurred for the clean-up of foreign sites, too.

RSA and Aviva provided the primary layer of insurance for Inco’s Canadian operations. RSA has claimed against the excess insurers, asking the courts to determine the excess insurers’ responsibilities for coverage under the “tower” insurance program. The Ontario Superior Court ruled the matter should be heard before the court in Ontario.

The complicated decision is a primer on “forum conveniens” law for excess insurers. It notes, for example, the place where the damage occurred should not alone determine the proper location of the court proceedings.

The decision

“The difficulty with considering the location of damages as a presumptive connecting factor for a jurisdictional analysis is that it is generally synonymous with the location of the plaintiff or the plaintiff’s ultimate parent company,” the court ruled. “No matter where Vale Canada or its subsidiaries carry on business throughout the world, Vale Canada is always the ultimate party damaged economically by breaches of contract suffered or torts committed upon it or one of its subsidiaries elsewhere.

“That would mean that this court’s jurisdiction presumptively extends to the resolution of all disputes that an Ontario resident or any of its affiliates has with anyone, anywhere. This would exceed the constitutional limits of this court’s jurisdiction, to say the least.”

Some of the excess insurers, most notably Travelers, argued the connection should be the location where the policy was created and issued, in this case New York.

“The moving excess insurers rely heavily on out-of-court negotiations that were conducted among Vale Canada and many of the insurers from 2018 to 2021,” the court found. “The negotiations were conducted under the terms of a tolling agreement. The agreement and the negotiations were held and managed largely in the U.S. The excess insurers argue that the initial issuance of the policies in the U.S. and the recent negotiations in the U.S. show that the ‘centre of gravity’ of Inco’s global insurance programs is in the U.S.”

Ultimately, the court rejected that argument, because the excess insurers were carrying on business in Canada, thereby creating an expectation that Ontario would be the place where the policy would be challenged.


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