At our weekly meeting, Michael Kryworuk discussed the recent decision in Northbridge General Insurance Company v. Aviva Insurance Company, 2021 ONSC 6873, which concerned an application for equitable contribution between insurers.
History of the Litigation
The applicant, Northbridge General Insurance Company (“Northbridge”) sought a declaration that the respondent, Aviva Insurance Company (“Aviva”), was required to contribute equally to the defence of a pharmacist, in an underlying action.
The pharmacist was alleged to have incorrectly labeled medication that cause a woman to collapse, fall and break her hip. In the underlying action that ensued, the pharmacist was named personally alongside his employer, the pharmacy itself.
In the underlying action, Northbridge defended the pharmacist, who was covered under a professional liability insurance policy from Northbridge issued to members of the Ontario Pharmacists Association. Meanwhile Aviva defended the pharmacy, through a commercial general liability policy issued to the pharmacy.
The Aviva policy included a pharmacist professional liability endorsement, that extended coverage to pharmacists employed with the pharmacy. Northbridge ultimately settled the underlying action. Aviva did not contribute towards the settlement.
Both the Northbridge and Aviva Policies included an “other insurance” clause that provided that their policies were excess to any other valid and collectible insurance. Northbridge commenced an application against Aviva, seeking an order based in equitable contribution requiring Aviva to contribute an equal share of the cost of defending and indemnifying the pharmacist.
Northbridge argued that the “other insurance clauses” were irreconcilable, and as a result both insurers were required to contributed equally to the defence of the pharmacist under the doctrine of equitable contribution. Aviva argued that it’s policy was excess insurance only, in the circumstances.
The Legal Test
The doctrine of equitable contribution was set out in Family Insurance Corp. v. Lombard Canada Ltd., 2002 SCC 48,  2 S.C.R. 295:
It is a well-established principle of insurance law that where an insured holds more than one policy of insurance that covers the same risk, the insured may never recover more than the amount of the full loss but is entitled to select the policy under which to claim indemnity, subject to any conditions to the contrary. The selected insurer, in turn, is entitled to contribution from all other insurers who have covered the same risk.
More recently, Ivamy’s General Principles of Insurance Law (6th ed. 1993) set out at p. 518 the general principles concerning the right of contribution among insurers as follows:
1. All the policies concerned must comprise the same subject-matter.
2. All the policies must be effected against the same peril.
3. All the policies must be effected by or on behalf of the same assured.
4. All the policies must be in force at the time of the loss.
5. All the policies must be legal contracts of insurance.
6. No policy must contain any stipulation by which it is excluded from contribution.
Following his review of the law relating to equitable contribution, Justice Chalmers examined whether the two policies covered the same risk, and the same layer of coverage.
Regarding the risk, Northbridge provided coverage for professional liability of pharmacists who are members of the Ontario Pharmacists Association (OPA). Meanwhile the Aviva policy, through the professional liability endorsement, also provides professional liability coverage for employees of Ayda Pharmacy. As a member of the OPA and an employee at Ayda, the pharmacist was insured under both policies for the same kind of coverage.
His Honour was also satisfied that both policies provided coverage at the same layer of coverage. The Northbridge Policy operated as a ‘primary policy,’ with the “other insurance clause” not applying if the insured purchased additional insurance separate to the policy. There was no evidence that the pharmacist had purchased such additional insurance.
Meanwhile, the Aviva Policy was purchased by the pharmacy itself and extended to pharmacists in their employ. In the application, Aviva argued that its policy was in fact an ‘excess policy,’ and that since the pharmacist had his own liability coverage through the Northbridge policy as a pharmacist under the OPA, Aviva would only be required to respond after the limits of the Northbridge Policy were exhausted.
Justice Chalmers then briefly reviewed the law surrounding the distinction between a true ‘excess policy’ and a ‘primary policy with another insurance clause’ citing the Court of Appeal’s statement in McKenzie v. Dominion of Canada General Insurance Company, 2007 ONCA 480 that:
“Primary insurance coverage is insurance coverage whereby, under the terms of the policy, liability attaches immediately upon the happening of the occurrence that gives rise to the liability. An excess policy is one that provides that the insurer is liable for the excess above and beyond that which may be collected on primary insurance. In a situation where there are primary and excess insurance coverages, the limits of the primary insurance must be exhausted before the primary carrier has a right to require the excess carrier to contribute to a settlement. In such a situation, the various insurance companies are not covering the same risk; rather, they are covering separate and clearly defined layers of risk. The remote position of an excess carrier greatly reduces its chance of exposure to a loss. This reduced risk is generally reflected in the cost of the excess policy.”
Having found that both policies provided primary liability coverage at the same risk and layer, the next step in the analysis was to determine whether the “other insurance” clause in the policies limited Aviva’s obligation to contribute.
Justice Chalmers noted that that the mere existence of “other insurance” clauses in two different primary policies does not automatically result in the application of equitable contribution. Instead, the court must look solely to the wording of the specific policies to see if the two policies “cannot possibly reconcile”. The court should not look at the surrounding circumstances or which policy is more specific or closer to the risk.
Northbridge argued that the wording in both policies was effectively the same and could not be reconciled, so the doctrine of equitable contribution applied. In opposition, Aviva argued that that the wording of its policy specifically limited its coverage to being excess of any professional liability policies available to the individual pharmacist.
Justice Chalmers disagreed with Aviva’s position, and found that the Aviva policy itself, without the added professional liability endorsement, would have excluded liability arising out of professional services. Furthermore, if the Aviva policy required the insured to maintain an underlying policy or specify that the limits of such an underlying policy must be exhausted, then it could justifiably argue that it was not a primary insurer at the same level of insurance as Northbridge.
However, the inclusion of the professional liability endorsement into the Aviva policy effectively put Aviva in the same primary position as Northbridge with effectively the same “other insurance” clauses. As such, these two “other clauses” were irreconcilable and the doctrine of equitable contribution applied.
After reviewing the case law and the text of both the Northbridge and Aviva policies, Justice Chalmers found that both policies provided primary liability coverage at the same risk and layer.
Furthermore, the specific wording of the “other insurance clauses” in both policies were effectively the same, and were irreconcilable. As such, the doctrine of equitable contribution applied, and Aviva was found to be required to equally contribute to the defence and indemnification of the pharmacist.
Northbridge was entirely successful on this application.
This decision stands for the proposition that in an application for equitable contribution, the court’s analysis will proceed in two steps. First, it will look to whether the various policies cover the same risk, at the same layer of coverage.
If this is satisfied, the court will then look solely to the wording of any “other insurance” clauses that would possibly limit an insurer’s obligation to contribute.
If none of the policies are determined to be excess to or limited by the other, then the “other insurance” clauses will be deemed irreconcilable, and insurers will be required to contribute equally to the loss.
 Northbridge General Insurance Company v. Aviva Insurance Company, (“Northbridge”) 2021 ONSC 6873 at para 19.
 McKenzie v. Dominion of Canada General Insurance Company, 2007 ONCA 480, 86 O.R. (3d) 419, at para. 39.
 Northbridge, supra note 1, para 28.