Parents of multinationals should consider “insurable interest” when structuring multinational insurance programs with risks located in Canada

Parent companies of global multinationals may want to consider purchasing excess policies and consider “insurable interests” when structuring multinational insurance programs with risks located in Canada, according to a recent report by The ACE Group.
Co-authored by Suresh Krishnan, general counsel for ACE’s multinational client group, and Fernand Vartanian, general counsel for ACE Canada, the report is intended to help multinational enterprises operating in Canada understand and effectively navigate the country’s cross-border insurance regulations.
The report notes that in addition to local affiliates purchasing local policies in Canada, a parent company of a multinational may opt to purchase a “master” excess policy – be it a Difference in Condition (DIC) policy or a Difference in Limits (DIL) policy – to insure coverage gaps and provide adequate limits.
The report makes a number of suggestions “to provide a logical response to the regulatory and tax challenges in provinces that prohibit non-admitted insurance or impose conditions on brokers and insureds that use it.” They include:
•The policy should be issued to the parent company as the sole insured in the parent’s jurisdiction.
•The policy should exclude any of a parent’s subsidiaries, affiliates and joint ventures located in provinces that do not permit non-admitted insurance and in provinces that impose conditions on brokers and insureds when non-admitted insurance is procured.
In addition, the excess policy could insure the parent company’s insurable interest in the properties, shareholdings or legal and contractual obligations of the excluded subsidiaries, affiliates and joint ventures consistent with law of the parent company’s domicile. “However, certificates of insurance issued in Canada may only reflect the terms, conditions and limits of the local policy and may not include that of the excess policy,” the report cautions.
The principles of insurable interest are recognized under Canadian jurisprudence and could likewise be considered by a Canadian enterprise seeking a multinational insurance program for its risks outside Canada, the report notes.