Individuals and businesses sometimes have more than one insurance policy that can cover the same subject matter. In the recent Court of Appeal for Ontario decision of Northbridge v Aviva,[1] the court interpreted language in two insurance polices that covered the same loss where both purported to be excess insurance over the other.
Background
Mr. Daneshvari was a pharmacist sued in an action for professional misconduct. His employer, Ayda Pharmacy, was also a defendant in that action. Mr. Daneshvari was an insured under Northbridge’s professional liability policy and was also an insured under Aviva’s commercial general liability policy issued to Ayda Pharmacy. Both policies contained an “other insurance” clause stating that the policy was excess to any other applicable insurance. The respective clauses read as follows:
Northbridge:
SECTION VII – GENERAL CONDITIONS. (4) Other Insurance:
This insurance is excess over any other valid and collectible insurance available to the “insured”, whether such insurance is stated to be primary, excess, contingent or otherwise. This does not apply to insurance which is purchased by the “insured” to apply in excess of the Policy.
Aviva:
The insurance provided under this endorsement is excess over any other valid and collectible insurance available to individual pharmacists for a loss we cover under this endorsement.
The action against Mr. Daneshvari settled. Northbridge defended him in the litigation and paid the settlement funds. On the basis of its other insurance clause, Northbridge sought a declaration that Aviva contribute equally to the defence and indemnification costs.
The application judge held in Northbridge’s favour. He found that both policies covered the same loss and purported to be excess to each other. As the policies covered the same loss and were irreconcilable, the doctrine of equitable contribution applied and Aviva was required to equally split the cost of Mr. Daneshvari’s defence and indemnification. Aviva appealed the decision.
The Court of Appeal Decision
On appeal, the parties disagreed on the applicable standard of review. While the Court of Appeal held that whether on the standard of correctness or the standard of palpable and overriding error it would have upheld the application judge’s decision, it concluded that matters of contractual interpretation are questions of mixed fact and law unless they involve the interpretation of standard form contracts or contracts with precedential value and there is no meaningful factual matrix relevant to the interpretation. In this case, that the wording of the two insurance clauses differed and the interpretive exercise involved the interplay of two polices meant that the deferential standard of palpable and overriding error applied.[2]
The court explained that for the doctrine of equitable contribution to apply, the policies “must cover the same risk for the same insured and must not exclude one another. In short, the policies must both apply to an insured’s loss and be irreconcilable.”[3] Here, the two policies were intended to achieve the same goal. Since the competing intentions of the insurers could not be reconciled, the doctrine of equitable contribution applied.
The court contrasted this with a prior decision involving two policies with competing but reconcilable other insurance clauses. In LPIC v Lloyd’s Underwriters, Lloyd’s general liability policy specifically provided that its policy was excess to any professional liability coverage, and the LPIC professional liability policy provided that if the insured had other insurance that was stated to be excess, then it would be treated as excess. As such, the Lloyd’s policy was secondary and it was not required to contribute toward the defence or indemnity of the insured.[4] The other insurance clauses in the Northbridge and Aviva policies lacked this specificity. Accordingly, the court dismissed the appeal.
Conclusion
This decision provides two important takeaways.
First, when a case involves the interpretation and comparison of differently worded clauses in two or more contracts, the standard of review will likely be the deferential standard of palpable and overriding error. This may be the case even when the clauses being compared are the same type of clause and contain some similar language.
Second, the decision is a signal to insurers that when it comes to other insurance clauses and clauses aimed at limiting insurer obligations, specificity is key. Where two applicable contracts both contain general clauses purporting to limit or exclude liability for the same loss, both insurers may be left splitting the difference.
[1] 2022 ONCA 519.
[2] Northbridge v Aviva, 2022 ONCA 519 at paras 15-16.
[3] Northbridge v Aviva, 2022 ONCA 519 at para 17.
[4] Northbridge v Aviva, 2022 ONCA 519 at para 22, citing LPIC v Lloyd’s Underwriters, 2016 ONSC 6196, affirmed 2017 ONCA 858.
