November 18, 2013 by Canadian Underwriter
The Court of Appeal for Ontario ruled last week against ACE INA Insurance over legal costs associated with class action lawsuits arising from an explosion at a Toronto apartment building.
Court records indicate the explosion occurred July 20, 2008, in an electrical vault owned by Toronto Hydro Corp., which had a primary policy, with a $1-million limit, written by ACE and an excess policy, with a $45-million limit, written by Associated Electric & Gas Insurance (AEGIS) Ltd.
ACE had applied to the Ontario Superior Court of Justice for a declaration that AEGIS “has a duty to contribute to defence costs incurred” for lawsuits, including a class action claiming more than $50 million for property damage and personal injuries.
ACE’s application was dismissed in November, 2012 by Madam Justice Carole Brown. As of 2012, Toronto Hydro’s legal defence costs had already exceeded $1 million. ACE had paid all defence costs other than Toronto Hydro’s self-insured retention of $100,000.
In a decision released Nov. 14, 2013, the Court of Appeal for Ontario announced it had dismissed ACE’s appeal of Justice’s Brown’s ruling.
“Unlike ACE’s primary policy, the AEGIS excess policy does not contain a duty to defend clause,” according to background information provided in the appeal court ruling. “Nor is there an obligation to indemnify for defence costs, unless those costs are not covered by other insurance – in which case, the AEGIS policy ‘drops down’ to cover defence costs.”
The primary policy written by ACE includes a clause requiring ACE to pay, “in addition to the applicable limit of liability .. all expenses incurred by the Company, all costs taxed against the Insured in any suit defended by the Company and all interest on the entire amount of any judgement therein which accrues before or after entry of the judgement and before the Company has paid or tendered or deposited in court that part of the judgement which does not exceed the limit of the Company’s liability thereon.”
The AEGIS policy, on the other hand, stipulated that AEGIS “shall not be called upon to assume charge of the settlement or defense of any CLAIM made against the INSURED, but the COMPANY shall have the right and shall be given the opportunity to associate with the INSURED, or the INSURED’S underlying insurer(s), or both, in the defense and control of any CLAIM where the CLAIM involves or may involve the COMPANY in which event the INSURED and the COMPANY shall cooperate in all things in the defense of such CLAIM.”
ACE had argued that the “doctrine of equitable contribution” applied in the case of Toronto Hydro, but the Court of Appeal disagreed. In their unanimous decision, Mr. Justice George Strathy, Madam Justice Eileen Gillese and Mr. Justice Russell Juriansz noted that ACE and AEGIS are not covering the same risk because the AEGIS policy excludes defence costs.
“ACE argues that it is simply unfair to give AEGIS a free ride on defence costs, when it faces forty-five times the exposure of the primary insurer,” the Court of Appeal noted, suggesting ACE took the position that bringing AEGIS into the defence of the lawsuits against Toronto Hydro “is good policy, because it will promote the settlement of this complex multi-party litigation by ensuring that all affected insurers are at the table.”
But the Court of Appeal added: “It is not this court’s function to do so by changing the contract made between the insurers and their insured.”
Published reports indicate the explosion, which occurred at 2 Secord Avenue (west of Victoria Park Ave. and north of Danforth Ave.), forced more than 900 residents to evacuate for weeks.