An excess insurer must contribute to the cost of defending an insured

Excess insurer required to contribute to defence cost of its insured.

American Home Assurance Co. v. Temple Insurance Co., [2009] O.J. No. 249 Ontario Superior Court of Justice I.A. MacDonnell J. January 22, 2009

In American Home Assurance Co. v. Temple Insurance Co., [2009] O.J. No. 249 (Sup.Ct. of Justice), American Home Assurance Co. (“American Home”), an Ontario based insurer, applied for a declaration that Temple Insurance Co. (“Temple”), another Ontario based insurer, was required to contribute equitably to costs incurred by American Home to defend a Florida action brought against their mutual insured Tidan Inc.

The American Home commercial general liability policy provided for coverage of $1 million for bodily injury or death.  The Temple umbrella policy provided a further $9 million in coverage for claims exceeding the limit of the primary policy.

Tidan was sued in 2002 by the family of a man who drowned while swimming in the ocean adjacent to Tidan’s Florida oceanfront hotel.  American Home received notice of the Florida action in November 2003 and accepted its duty to defend Tidan, retaining a Florida firm to represent Tidan.  Notice of a $15 million settlement demand was provided to Temple in May 2006.  In March 2007, American Home tendered its policy limit of $1 million but Temple was not prepared to settle, so the firm retained by American Home continued to represent Tidan at American Home’s expense.  American Home no longer took part in the settlement discussions, which took place between the plaintiffs and Temple’s counsel.  The case was eventually settled for $2,273,000.  Temple paid the remainder owing after American Home’s $1 million was paid.  Temple refused to contribute to Tidan’s defence costs.

The Court found that Temple’s duty to defend Tidan was triggered when it received notice that the claim against Tidan was expected to exceed the limits of the primary American Home policy.  The Court found that American Home’s first in line status was counterbalanced by the significantly greater interest Temple had in continuing the litigation after its duty to defend was triggered.  Equity required Temple to pay its share of the defence costs.  The Court held that Temple was required to pay American Home 50% of the costs billed to American Home by counsel for Tidan from May 2006 onward to be reduced by 25% of the costs billed to Temple by the American firm it had retained.

This case was originally summarized by Cameron B. Elder and originally edited by David W. Pilley.

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