ING Insurance Company of Canada et al. v. Federated Insurance Company of Canada

[Indexed as: ING Insurance Co. of Canada v. Federated Insurance Co. of Canada]

75 O.R. (3d) 457

[2005] O.J. No. 1718

Docket: C42222

Court of Appeal for Ontario,

Sharpe, Blair and MacFarland JJ.A.

May 3, 2005

Insurance -- Excess insurance -- Costs of defence -- Excess insurer's obligation to contribute to defence costs premised on existence of duty to defend -- Excess insurer's policy requiring insured to give notice of claim made on account of accident -- Excess insurer only receiving notice of claim four and one-half years after accident -- Primary insurer indicating that it was considering paying its limits -- Excess insurer not sitting back with knowledge of claim and benefiting from work of primary insurer -- To require excess insurer to contribute to defence costs would be unfair.

The insured was involved in a motor vehicle accident in November 1996 in which two of his passengers suffered serious injuries and one died. The [page458] insured's vehicle was insured under a standard automobile policy with liability limits of $2 million issued by ING. The insured's company was insured under two policies of insurance issued by Federated, one a standard garage automobile policy and the other a standard owner's fleet policy or umbrella policy, each with limits of $1 million. ING was the primary insurer and Federated was the excess insurer. Three actions were commenced against the insured and his company claiming combined damages of $9,370,000. Federated was given no notice of those actions until March 2001, and it was not apparent that the claims might exceed the ING policy limits until counsel retained by ING to defend the insured wrote to Federated in July 2001 suggesting that it was of "considerable importance" that someone from Federated attend the settlement conference scheduled for August 27, 2001. The trial was scheduled to proceed on October 9, 2001. Counsel subsequently informed Federated that ING might consider offering their policy limits to settle the claim. Ultimately, the actions were settled with ING contributing $2,178,000, the Ministry of Transport $1,125,000 and Federated $900,000. Both Federated and ING reserved their rights as against one another in respect of payment of defence costs. ING brought an application for a declaration that it was entitled to equitable contribution from Federated equal to 50 per cent of the legal defence costs. The application judge held that where an excess insurer has a duty to defend and is put at risk by the claim, then that excess insurer should contribute to defence costs, and that the exact nature of the contribution will depend upon the equities of the specific case. The application judge ordered Federated to pay 31 per cent of the defence costs. Federated appealed.

Held, the appeal should be allowed.

An excess insurer's obligation to contribute to defence costs is premised on the existence of a duty to defend. Statutory condition 3(1)(a) of both Federated policies required the insured to give written notice of any claim made on account of an accident. A duty to defend will only arise where notice of a claim is given. Where there is a duty to defend, an excess insurer may be obligated to contribute to the costs of defending a suit, as a matter of equity or fairness. Section 257(4) of the Insurance Act, R.S.O. 1990, c. I.8 had no application in this case, since it contemplates a situation where a matter has proceeded to judgment against an insured, rather than being settled, as it was in this case, and since s. 257 contemplates a situation where both or all insurers have notice of and are aware of the claims being made against their common insured. It was not apparent to Federated until August 2001 that the claims might exceed the ING policy limits and that ING was contemplating paying its limits, in which case ING and Federated would be adverse in interest. This was not one of those cases where the excess insurer, knowing of the claim, sat back and was able to benefit from the work of the primary insurer. In the circumstances, it would not be fair to require Federated to pay any portion of ING's defence costs.

APPEAL from the judgment of Ducharme J. of the Superior Court of Justice, reported at [2004] O.J. No. 2876, [2004] O.T.C. 599 (S.C.J.), ordering the excess insurer to contribute to costs of defending an action against the insured.

Broadhurst & Ball v. American Home Assurance Co. (1990), 1990 6981 (ON CA), 1 O.R. (3d) 225, [1990] O.J. No. 2317, 42 O.A.C. 161, 76 D.L.R. (4th) 80, [1991] I.L.R. para. [1](https://www.canlii.org/en/on/onca/doc/1