What to do when there are two applicable insurance policies?

10. November 2020 0

Insurance law – Commercial general liability insurance – Duty to defend – Additional named insured – Duties and liabilities of insurer – Practice – Appeals

Markham (City) v. AIG Insurance Co. of Canada, [2020] O.J. No. 1369, 2020 ONCA 239, Ontario Court of Appeal, March 31, 2020, D.H. Doherty, D.M. Brown and J.A. Thorburn JJ.A.

A spectator was injured while watching a hockey game at a community centre.  The City and Hockey Canada were sued and they each cross-claimed against one another.  The City was insured by Lloyd’s Underwriters under a commercial general liability policy with a policy limit of $5 million.  Lloyd’s policy wording indicated it would apply only as excess if there was other insurance.  The City was also an additional insured to Hockey Canada’s insurance policy with AIG Insurance Company of Canada.  AIG’s policy had a policy limit of $5 million; it provided primary insurance and there was no excess provision in respect of claims occurring in Canada.

The Court held that there were some claims in the underlying action which may not be covered by the AIG policy and may only be covered by the Lloyd’s policy.  The Lloyd’s policy provided coverage in respect of all claims of bodily injury, personal injury or property damage caused by “an Occurrence”.  The AIG policy only covered the City for liability in respect of the operations of Hockey Canada and the hockey club.  Accordingly, both AIG and Lloyd’s owed a duty to defend the City.  As both insurers were primary insurers with concurrent duties to defend, it was held that they must share the defence costs equally, subject to a right to seek reallocation of the defence costs at the conclusion of the action.

An insurer who has a duty to defend an action also has the prima facie right to control the conduct of that defence.  In order to remove the insurer’s contractual right to defend and control the defence of the litigation, there must be a reasonable apprehension of conflict of interest on the part of counsel appointed by the insurer.  The onus is on the insured to establish a reasonable apprehension of conflict of interest on the part of the insurer.  Concern was raised that AIG may abuse its right to defend and settle to the prejudice of the City. The Court held that this concern could be addressed using a split file protocol and safeguards.

This case was digested by Dionne H. Liu, and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please contact Dionne H. Liu at dliu@harpergrey.com.

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