Tort judgment and costs in building fire can be apportioned between co-defendants

An Ontario court has ruled that a tort judgment and third-party costs arising from a building fire claim can be apportioned between a building owner and a property manager despite the fact the two parties defended the claim against them as one.

In Aviva Insurance Company v. Lombard General Insurance Company, a fire swept through a Toronto apartment building in 1995, killing two occupants and seriously injuring others. The Ontario Court of Appeal assigned responsibility for the fire to three parties: the City of Toronto, the owner of the unit in which the fire started, and the building’s owner/property manager (for failing to properly maintain self-closing devices that could have mitigated the effects of the fire).

The building owner, Axes Investments Inc., and the property manager, Tandem Group Management Inc., were found jointly and severally liable for approximately $3.8 million, inclusive of interest and costs.

Axes Investments had obtained two policies from Lombard. The primary policy had a limit of $1 million, while the second policy, an umbrella policy, had a limit of $9 million.

Tandem Group had a policy with Aviva, subject to a limit of $5 million. Aviva’s policy did not include the owner.

Lombard reached the limit of its primary policy. It then sought a declaration from the court that the Aviva policy, which covered the property manager, should be next in line to respond (i.e., prior to Lombard’s umbrella policy with the owner).

The Ontario Superior Court issued such a declaration on 2003, and the Ontario Court of Appeal rejected Aviva’s appeal on May 31, 2004.

Prior to resolution of the priority issue, on Feb. 6, 2004, the high court fixed liability for the building owner and property manager at $3.8 million.

Since Lombard had already reached the full $1-million limit of its primary policy, Aviva responded by paying the balance of the tort judgment (about $2.5 million).

Aviva then launched an action against Lombard, arguing that the costs between the building owner and property manager should be shared equally. Aviva noted it had overpaid by slightly more than $1 million, seeking reimbursement from Lombard.

The Ontario Superior Court agreed with Aviva, ordering Lombard to reimburse Aviva for the overpayment. “If Lombard’s position in this application is upheld, the owner, through its insurer, will have paid less than its share of the judgments,” the court ruled. “That simply cannot be.”