When an insured has more than one insurance policy which each contain “other insurance” clauses, disputes sometimes arise over whether only one insurer has to respond to a loss, or whether multiple insurers have to respond. This was the situation in Northbridge General Insurance Company v. Aviva Insurance Company, 2022 ONCA 519.
The appeal arose from the judgment of the application judge granting a declaration sought by the Respondent, Northbridge General Insurance Company (“Northbridge”) that the appellant, Aviva insurance Company (“Aviva”) was required to contribute equally to the defence and indemnification of an insured party who was being sued in an underlying action.
The underlying insurance dispute involved Mr. Daneshvari, a pharmacist who was a defendant in an action brought against him for professional misconduct. Mr. Daneshvari’s employer, Ayda Pharmacy, was also a defendant in the action.
Northbridge issued a professional liability policy to members of the Ontario Pharmacists Association (“the Northbridge Policy”). Mr. Daneshvari is an insured under the Northbridge Policy.
Aviva issued a commercial general liability policy to Ayda Pharmacy (“the Aviva Policy”), which contained an endorsement extending coverage to pharmacists employed by the pharmacy. Mr. Daneshvari is an insured under the Aviva Policy.
The Northbridge and Aviva Policies each include “other insurance” clauses, which provide that their policies are excess to any other valid and collectible insurance.
Northbridge commenced an application seeking an order based in equitable contribution requiring Aviva to contribute an equal share of the cost of defending and indemnifying the pharmacist. The application judge found the two policies were irreconcilable, as they covered the same loss and each had equivalent “other insurance” clauses.
The issue on appeal was whether the application judge erred in his interpretation of the Northbridge and Aviva Policies as irreconcilable.
The Court of Appeal dismissed the appeal and upheld the application judge’s decision.
The Appellant argued that the application judge erred in his interpretation of both policies as irreconcilable where as, the Respondent asserted that the application judge made no errors which would require appellate intervention.
Standard of Review
The Court of Appeal disagreed that the “other insurance” and other relevant provisions of the Northbridge and Aviva Polices were “standard form contracts” or contracts with significant precedential value, which would attract a standard of correctness.
The Court of Appeal found that the wording of the provisions and the interplay of the policies made the application judge’s interpretation distinct. Therefore, the standard of palpable and overriding error applied.
The Court of Appeal referred to Family Insurance Corp. v. Lombard Canada Ltd., 2002 SCC 48, which set out the applicable legal standard for equitable contribution. Equitable contribution is based on the principle that parties under “coordinate liability”, to make a good loss, must share the burden on a pro rata basis. The policies must both apply to an insureds’ loss and be irreconcilable.
The Court agreed with the application judge’s conclusion that the “other insurance” clause in both the Northbridge and Aviva Policies were intended to achieve the same goal. The Court considered the “other insurance” clause in the Northbridge Policy, which stated that this clause did not apply if the other insurance purchased by the insured was an excess policy. Mr. Daneshvari was the insured under the Northbridge Policy. Mr. Daneshvari did not purchase the Aviva Policy. Rather, it was purchased by Ayda Pharmacy. As a result, the Aviva Policy was not a true excess policy.
The Court also rejected the Appellant’s argument that the reference in Aviva Policy’s “other insurance” clause to the coverage being in excess of any valid and collectable policy available to “individual pharmacists” resulted in the conversion of the Aviva Policy into a secondary policy.
When an insured has multiple insurance policies which contain “other insurance” provisions, an analysis must be undertaken on whether the policies cover the same risk at the same layer of coverage and whether the policies exclude one another.
If an insurer’s intention to limit its obligations under its policy is not clearly set out, or if the competing intentions of the insurers cannot be reconciled, then the principle of equitable contribution requires the insurers to equally share the costs of defence and indemnity.
 See McKenzie v. Dominion of Canada General Insurance Company, 2007 OCNA 480, which relies on the importance of a contextual analysis of the “other insurance” clause.