Getting Help With That Defence: Contribution Among Insurers
We learn from an early age that sharing is virtuous. In the litigation sandbox, as counsel, we are often called upon to enforce the sharing of burdens through the familiar mechanisms involving the establishment and apportionment of liability, contributory negligence or the failure to mitigate. Less familiar perhaps is the concept of enforcing against an unwilling insurer the obligation to defend or indemnify an insured or to share in the concomitant defence expense.
Having been retained to defend an action, it is common for counsel to avoid examining coverage (absent learning any new and substantially different information than was apparently known to the insurer). Often, counsel will automatically, even mechanically set about defending the action – assembling the facts, drafting the pleadings, exchanging productions, retaining experts, and attending discoveries, mediation, pre-trial, even trial, although this last step seems to occur far less common than historically.
But wait! You find out some years into the dispute that there is other insurance coverage out there that stands in priority to the policy pursuant to which you have been defending. Your principal should be a bit player, or on the sidelines altogether. Your hefty accounts rendered and paid, although accurately reflective of your prodigious efforts, were entirely unnecessary and now even present an E&O threat against your firm. An unhappy state of affairs from such a promising start.
Your mistake, it turns out, was that you did not, as part of that initial analysis, take the time to understand properly the context of your principal’s defence and indemnity obligation in terms of the potential interaction of those obligations with any other insurance that may be out there that might be called upon to contribute (that is, share) or even outright own the obligation to provide a defence and ultimately, indemnity.
In Canada, we love insurance. There is a lot of it here and it comes in many different forms. In the auto context, there is insurance for drivers, owners, passengers, renters of businesses, fleets, manufacturers and repairers. In the property and casualty world, we have builders risk insurance for construction projects, CGL policies, pollution policies, E&O policies as well as additional insured cover, excess and umbrella policies. Each type of policy comes with its quirks, exclusions and proposed method of sharing if other insurance exists.
The first task is to find out what insurance exists that might be obliged to participate in the defence obligation, firstly, and the indemnity obligation eventually. This ought to be done as early as possible since there are limitation period consequences and a strong judicial bias in favour of sorting out the defence obligation early and expeditiously. Look through any denials of coverage and read the policies. Recall that as far as the defence obligation is concerned, it is not necessary to show that there will ultimately be an obligation to indemnify as the duty to defend is a much wider net and one far easier to set. [Is it possible, reading the statement of claim and the insurance coverage together, that the insurer may ultimately be obliged to indemnify?].
As a practical result, although once the facts are resolved at trial the indemnity obligation may very well clearly fall to one insurer, the obligation to defend and its corollary, the obligation to share the costs of defence, will far more commonly arise as an obligation to be shared until the conclusion of that trial.. And it is counsel’s obligation to ferret out and pursue these opportunities to obtain contribution.
As an example, in Aquatech Logistics et al. v. Lombard Insurance et al., 2015, ONSC 5858, a recent decision of Justice Dunphy of the Ontario Superior Court, a chemical reaction in a public pool was alleged to have resulted from a mix-up of the chlorine and hydrosulfuric acid intakes. The result was a bilious green cloud of vapour, alleged in the class action lawsuit that followed to have unhealthy attributes.
The company in question was well insured, with the relevant auto, CGL and pollution coverage, all up-to-date. The CGL and pollution insurers declined to participate, citing the auto and the pollution exclusions, among other things.
The auto insurer defended the action, and along the way defence counsel became aware of those other policies — off to the races! Result: Defence costs to be shared equally by all three insurers.
There was the possibility (accepted by the auto insurer and imposed on the others) that the indemnity obligation may be triggered by the result at trial for all three of these diverse insurance policies.
A careful review of all available insurance sources that may be asked to participate in the defence of a claim is imperative right from the start. Defence costs can be significant as a proportion of any claim. And there may be unhappy consequences for the procrastinator.
This blog entry has been placed on our website to inform readers in a general way of the authors’ view of the law at the time of its presentation. It is not intended as legal advice and no reliance may be placed on its contents. Some principles of law or procedure may have changed and may no longer be applicable since its publication. The authors and our firm disclaim any liability arising from reliance on any part of this blog entry.