Umbrella policy to provide ‘drop down’ coverage when absent in the primary policy

Ontario’s Court of Appeal has ruled an ‘outside directorship liability’ (ODL) insurer had a duty to defend two lawyers and pay all related costs, despite the fact that the primary D&O policy also provided for a duty to pay for defence costs.
Andre Legrand, a governance and directors’ liability expert at Ogilvy Renault, examined Goodman v. AIG Commercial General Insurance Company of Canada in the article ‘Ontario Court of Appeal Addresses the Interplay Between D&O and ODL Coverage.’
In Goodman, two lawyers were sued in their capacity as directors of a corporation. Both had a D&O policy with AIG, as well as ODL coverage from Lloyd’s.
The D&O policy provided that the insurer did not have a duty to defend the insureds. It offered indemnity coverage for defence costs.
The Ontario Court of Appeal ruled the D&O policy is by nature, a primary policy and the ODL is umbrella insurance.
“If there is no coverage under the D&O policy, the role of the ODL policy is to fill that gap and to ‘drop down,'” Legrand wrote, interpreting the court’s findings. “According to the court, this is precisely the case here with regard to the duty to defend provided for in the ODL policy (and absent from the D&O policy),” wrote Legrand.