The claim by Lumbermen’s Underwriting Alliance (“LUA”) for equitable contribution from AXA Pacific Insurance Co. (“AXA”) in respect of forest fire expenses incurred by LUA’s Insured, Pacific Forest Products (“Pacific”), was dismissed where the Court held that the coverage under the AXA policy was complementary coverage rather than overlapping coverage and did not insure the same risk

Lumbermen’s Underwriting Alliance v. AXA Pacific Insurance Co., [2006] B.C.J. No. 1439, British Columbia Supreme Court

Pacific held a forest license near Bella Coola, British Columbia. Pacific’s logging contractor (“GBA”) was cutting logs on the site and subsequently a fire broke out at the area. Pacific’s manager received notice of the fire and directed the logging contractors to fight the fire. Pacific also brought in other helicopters and professional firefighters and requested water bombers to attend and fight the fire. The bill for the water bombers was approximately $800,000.

Pacific had a policy of insurance with LUA, which insured Pacific against “all risks of direct physical loss or damage from any cause other than as hereinafter excluded”. An extension to the policy provided coverage for expenses incurred by the Insured, or on their behalf, for fighting fire on lands being occupied by them, or their contractors.

GBA, the logging contractor, had obtained a commercial insurance policy from AXA. This policy provided coverage to GBA for, amongst other things, “all sums … which the Insured shall become obligated to pay by reason of the liability imposed by law”.

At trial, LUA took the position that Pacific was an unnamed Insured under the AXA policy and was, therefore, entitled to claim under it as primary insurance, or at least to cause it to contribute equally with LUA. LUA argued that, having paid the expenses associated with fighting the fire, it was entitled to contribution from AXA according to the principles enunciated in Family Insurance Corp. v. Lombard Canada Ltd., [2002] 2 S.C.R. 695. AXA maintained that the AXA policy was not engaged on the facts before the Court. The LUA policy was property insurance, whereas the AXA policy was general liability insurance. The AXA policy insured GBA only for sums that GBA became obligated to pay by reason of liability imposed by law. AXA argued that the AXA policy was not engaged, as GBA (or another insured, which arguably included Pacific) had not become legally obligated to pay a sum of money because of liability imposed by law or statute.

The Court rejected LUA’s argument that it was not necessary to have a judgment or an agreed settlement in order to give rise to “liability imposed by law”. LUA argued that the obligation to incur costs to fight the fire is clear under the Forest Practices Code and that an insured should not have to pursue litigation in order to obtain a determination of liability in order to engage the AXA policy. The Court found that there was no indication that the government ever attempted to recover any of its costs from Pacific. The expenses at issue in the lawsuit only related to costs paid out by Pacific itself to fight the fire. The Court held that the LUA policy covered Pacific’s own expenses in fighting the fire, whereas the AXA policy expressly excluded such coverage. The Court held that this was not a case of double insurance held by the same insured for the same risk or peril. The policies at issue covered different perils and did not insure the same risk. They operated in different circumstances to provide complementary coverage. In the result, the Court dismissed LUA’s claim for equitable contribution.

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