The Court was asked to determine the order in which and to what extent three insurers were responsible for indemnifying and defending the insured under three different policies. The Court found that one policy was the primary insurance policy, and the other two were excess insurance policies. The primary Insurer would have to indemnify and defend the Insured up to the policy limits, after which point the excess insurance would be required to contribute equally up to the respective policy limits.

McKenzie v. Dominion of Canada General Insurance Co., [2006] O.J. No. 3475, Ontario Superior Court of Justice

The Insured was the operator of a boat involved in a serious accident. The Insured was covered under three policies. The first was a boat owner’s policy issued by State Farm to the boat’s owner. The second policy was a personal liability umbrella policy issued by State Farm, also to the boat’s owner. The third policy was a home owners policy issued to the Insured’s father. The parties agreed that all three policies provided coverage to the Insured. The two issues were to what extent each policy provided indemnity to the Insured, and to what extent each policy created a duty to defend.

The Court found that the interpretation of Family Insurance Corp. v. Lombard Canada Ltd., [2002] 2 S.C.R. 695 was key to resolving the dispute, and quoted the principles of Family Insurance as they appeared in Canadian Universities’ Reciprocal Insurance v. Halwell Mutual Insurance Co. (2002), 61 O.R. (3d) 113 (“Canadian Universities“):

(1) If the two clauses are irreconcilable and effectively cancel each other out, then both insurers are liable and must share the obligation rateably as between themselves.

(2) However, if the two clauses can be read as working together so that they do not effectively cancel each other out, then the policies apply as they are stated with one primary and the other either excess or excluded as the case may be.

(3) In interpreting the policies, one determines the intent of each insurer by an examination of the policy language and not by otherwise attempting to determine the subjective intentions of the insurers.

The Court found that the boat owner’s policy was a primary coverage policy. That policy contained a formula which created a situation where the policy shared rateably with other insurance by dividing the coverage under its policy by the total coverage of all applicable policies. The umbrella policy and homeowner’s policy were found to be policies of excess insurance, which were in conflict and irreconcilable. They thus fell under the first principle enunciated in Canadian Universities, and would be equally liable after the limits of the first policy were reached.

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