The Supreme Court of Canada decision of Family Insurance Corp. v. Lombard Canada did not eliminate the distinction between primary insurance policies and excess insurance policies

The Court allowed the appeal of the Plaintiff Insured after finding that a personal liability policy was a true excess or umbrella policy and was not required to respond to the claims until the limits of the primary policy were exhausted.  The Court emphasized that Family Insurance Corp. v. Lombard Canada [2002] 2 S.C.R. 695 did not eliminate the distinction between primary and excess insurance.

McKenzie v. Dominion of Canada General Insurance Co., [2007] O.J. No. 2518, Ontario Court of Appeal, E.A. Cronk, R.P. Armstrong and J.L. MacFarland JJ.A., June 27, 2007

This was an appeal by the Plaintiff Insured, Mr. McKenzie from an order that the Defendant Insurers, Dominion of Canada General Insurance Company (“Dominion”) and State Farm Fire and Casualty Company (“State Farm”), as primary insurers, were required to contribute equally in respect of claims made against Mr. McKenzie, Mr. Tischler and a third party following a boating accident. The trial judge ordered that a boat owner’s liability policy issued to Mr. Tischler by State Farm provided primary coverage. The judgment further declared that after coverage under the boat owner’s policy had been exhausted, Dominion, pursuant to a home owner’s policy issued to Mr. McKenzie’s father, and State Farm, pursuant to a personal liability umbrella policy (“PLUP”) issued to Mr. Tischler, were required to contribute equally in respect of claims made against Mr. McKenzie. Mr. McKenzie was insured in respect of the claims against him under all three policies.

The issue on appeal was the order in which the State Farm PLUP and the Dominion home owner’s policy were required to contribute to the claims against Mr. McKenzie. Mr. McKenzie argued that once the limits of the boat owner’s policy were spent or exhausted, it fell to the homeowner’s policy issued by Dominion to pick up any losses and that the State Farm PLUP was required to contribute only if amounts remained to be paid after the Dominion policy limits were spent or exhausted. The Respondent, Dominion, argued that Mr. McKenzie’s approach in characterizing the policies at issue as either being primary, excess and/or umbrella was flawed and contrary to the reasoning of the Supreme Court of Canada in Family Insurance Corp. v. Lombard Canada, [2002] 2 S.C.R. 695. Rather, the proper approach was to first determine whether the “other insurance” clauses in the Dominion homeowner’s policy and the State Farm PLUP could be reconciled. If they could not, then according to Family Insurance, the policy should rateably contribute to the claims against Mr. McKenzie.

The Court of Appeal found that the application Judge erred in accepting Dominion’s arguments as to the contribution obligations of the State Farm PLUP and the Dominion homeowner’s policy. The coverage provided by State Farm’s PLUP was as a true excess or umbrella policy while Dominion’s homeowner’s policy was required to provide primary coverage. The Court also found that the application Judge and Dominion misinterpreted Family Insurance, supra, and that if the Supreme Court of Canada had intended to do away with any distinction among primary, excess and/or umbrella policies of insurance, it would have done so in a clear and expressed language to that effect.

The Court allowed the appeal holding that the Dominion policy and the State Farm PLUP were not, by their language, required to contribute equally to the claims against Mr. McKenzie. Rather, the State Farm PLUP was a true excess or umbrella policy and was not called upon to respond to the claims until the limits of the Dominion homeowner’s policy were exhausted.

This case was originally summarized by Steve Vorbrodt and originally edited by David W. Pilley.

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