The Court considered the indemnity and defence obligations of an insurer under a project professional liability policy and held that: the practice policies of the insureds were required to be disclosed to the insurer on a confidential basis; payment for covered claims should be made according to the first-come, first-served principle until the Policy limits were exhausted; and that the insurer required the consent only of the insured making the claim for coverage which was the subject of a recommended settlement, rather than the consent of all of the insureds
Commerce & Industry Insurance Co. Canada, Inc. v. Singleton Associated Engineering Ltd., [2005] A.J. No. 886, Alberta Court of Queen’s Bench
Commerce & Industry Insurance Company of Canada, Inc. (“Commerce”) applied to the Court for the following orders and declarations concerning its indemnity and defence obligations under a project professional liability insurance policy: an order compelling the insureds to disclose their professional liability practice policies; a declaration setting out the process Commerce should follow to settle or pay out the clams; and a declaration that once the liability limit is reached, the defence and indemnity obligations of Commerce are exhausted.
Commerce issued a project professional liability insurance policy (the “Policy”) for architects and engineers in relation to claims arising from the construction and operation of a high pressure natural gas pipeline carrying natural gas from British Columbia, to Chicago, Illinois and of the Aux Sable gas processing plant located in Illinois (the “Project”). Singleton Associated Engineering Ltd., Universal Ensco Inc. (“UEI”), Jacobs Canada Inc., Washington Group International (“WGI”) and Colt Engineering Corporation (“Colt”) were named as insureds under the Policy. Veco Canada was an unnamed insured under the Policy. The Policy provided coverage in the amount of $10,000,000 USD per claim and $10,000,000 in the aggregate for all covered claims during the Policy period. The Policy was the primary layer of insurance.
Reliance Insurance Company (“Reliance”) issued a following form insurance policy in respect of the Project which provided excess coverage of $15,000,000 USD per claim which was the second layer of insurance. Liberty International Underwriters Canada (“Liberty”) and Lumbermen’s Mutual Casualty Company (“Lumbermen’s”) also issued project professional liability insurance policies in respect of the Project. These policies formed the third layer of coverage providing $75,000,000 USD coverage per claim.
The third issue was whether the consent of all the insureds was required in order for Commerce to settle any of the Project claims. The Court held that the only reasonable interpretation of the Policy was that Commerce required the consent only of the insured making the claim for coverage which was the subject of the recommended settlement, rather than the consent of all of the insureds.
As a result of several arbitration and litigation proceedings commenced in Canada and the United States against Colt, UEI, Jacobs, WGI and Veco in relation to the Project, these insureds made claims for liability insurance coverage against the Policy.
The damages claimed in the proceedings commenced against the various insureds claiming under the Policy exceeded the Policy’s $10,000,000 USD liability coverage limit.
The Court addressed three issues. The first issue was whether Colt, UEI, Jacobs, WGI and Veco should disclose to Commerce their professional liability practice policies in force at the time of the events giving rise to their respective claims or the time they were given notice of the claims against them. Commerce noted that condition 6 of the Policy required the insureds to cooperate with Commerce for the purpose of investigation and/or defence. The Court found that the Policy required disclosure to the insurer by any party claiming under it of any policies in force that may have provided other valid and collectable insurance. Accordingly, the practice policies were ordered to be disclosed to Commerce on a confidential basis.
The second issue was whether in accordance with the terms of the Policy, Commerce should pay claims by settlement, award or judgment according to the first-come, first-serve principle or some other procedure. The Court noted that the first-come, first-serve approach has been approved twice in Canada by the Ontario Superior Court. The Court was not persuaded that the fact that the Policy was a project policy constituted a good reason for departing from the general rule of first-come, first-serve. Moreover, commercial efficiency considerations should encourage reasonable settlement at an early stage of the claim. Accordingly, the Court ordered that payment for covered claims should be made according to the chronology of their making until the Policy limits were exhausted.
The third issue was whether the consent of all the insureds was required in order for Commerce to settle any of the Project claims. The Court held that the only reasonable interpretation of the Policy was that Commerce required the consent only of the insured making the claim for coverage which was the subject of the recommended settlement, rather than the consent of all of the insureds.
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