Rio Algom Ltd. v. Liberty Mutual Insurance Co.

88 O.R. (3d) 557

Court of Appeal for Ontario,

Simmons, MacFarland and Epstein JJ.A.

November 29, 2007

Insurance -- Excess insurance -- Interpretation and construction -- Section I.B. of commercial umbrella liability policy providing "claims made" coverage trigger -- Trial judge not erring in finding that Endorsement to umbrella policy provided coverage on occurrence basis -- Endorsement operating as coverage trigger and superseding s. I.B. of policy with respect to specified coverage.

An employee of the plaintiff was injured at work in Ohio in December 1995. The employee sued the plaintiff, and the claim was settled for $1,350,000. A primary policy covered the first $1 million of the settlement. The plaintiff sued the defendant insurer for the amount of the settlement in excess of the primary coverage. The accident occurred before the defendant's Commercial Umbrella Liability policy came into effect. There was no dispute that s. I.B. of the defendant's umbrella policy provided a "claims made" coverage trigger and that the claim was made within the policy period. The trial judge found that Endorsement No. 4 of the defendant's umbrella policy was triggered by an occurrence during the policy period and not by the making of a claim during that period and that it superseded s. I.B. of the policy with respect to the specified coverage. The plaintiff appealed.

Held, the appeal should be dismissed.

The trial judge did not err in holding that Endorsement No. 4 provided coverage on an occurrence basis. When read as a whole and in the context of the policy, rather than constituting an exclusion, Endorsement No. 4 operated as a coverage trigger and superseded s. I.B. of the policy with respect to the specified coverage.

APPEAL from the judgment of Frank J., 2006 CanLII 2190 (ON SC), [2006] O.J. No. 329 (S.C.J.), in an action by the insured against excess insurer.

John Lloyd and Anthony Cole, for appellant/plaintiff Rio Algom Limited. Brian J.E. Brock, Q.C. and Ann Christian-Brown, for respondent/defendant Liberty Mutual Insurance.

[1] Endorsement by THE COURT: -- The main issue on this appeal is whether the trial judge erred in holding that Endorsement No. 4 to a Commercial Umbrella Liability policy issued by Liberty Mutual Insurance Company to Rio Algom Limited provides coverage on an occurrence basis. [page558]

Background

[2] An employee of a Rio Algom subsidiary located in Ohio was injured while at work on December 2, 1995. The employee served a claim against Rio Algom on May 30, 1997, after successfully challenging an Ohio workers' compensation provision that would have prevented his claim from proceeding. The employee's claim was eventually settled for a total of $1,350,000. A primary policy (the "TIC primary policy") covered the first $1 million of the settlement. Rio Algom sued Liberty for $350,000, being the amount of the settlement in excess of the primary coverage (the "excess amount"). [See Note 1 below]

[3] The Liberty umbrella policy period is May 1, 1997 to May 1, 1998. At trial, Rio Algom claimed that this policy provides "claims made coverage" (requiring that the claim be made during the policy period) and that it therefore covers the excess amount. In response Liberty claimed that Endorsement No. 4 to its umbrella policy provides coverage on an "occurrence basis" (requiring that the occurrence giving rise to the claim take place during the policy period) and that it does not cover the excess amount.

Discussion

[4] There is no dispute that s. I.B. of the Liberty umbrella policy provides a "claims made" coverage trigger:

I. Coverage

B. This insurance applies to Personal Injury, Property Damage or Advertising Injury only if a claim for such damages:

1. is first made in writing against the Insured during the policy period and written notice of such claim is received by the insured, the underlying insurer or us, whichever comes first, AND

2. is attributable to an occurrence which occurred on or after the Retroactive Date shown in the Declarations. [page559]

[5] However, Endorsement No. 4 to the Liberty umbrella policy states the following:

FOLLOW FORM EMPLOYERS LIABILITY

It is agreed that this policy shall not apply to loss arising out of Personal Injury, including death, by accident or disease of any employee of the Insured arising out of any occurrence in the course of his employment by the Insured unless at the time of injury or death there is underlying Employer's Liability Insurance as set out in the schedule of Underlying Insurance, and then only for such hazards for which coverage is afforded under said underlying insurance.

[6] The Schedule of Underlying Insurance in the Liberty umbrella policy lists several policies of various types, including the following:

[QL:GRAPHIC NAME="88OR3d557-1.jpg"/]

[7] StopGap insurance is a form of insurance that covers employee liability claims that might have been covered by a workers' compensation scheme but are not. There is no dispute that this coverage is triggered by an occurrence during the policy period rather than by a claim made during the policy period.

[8] Further, we note that although the Schedule of Underlying Insurance in the Liberty umbrella policy refers to a Liberty StopGap policy, no Liberty StopGap policy was filed as an exhibit at trial. In addition, the StopGap policy number set out in the Schedule is the same as the policy number of the TIC primary policy that covered the first $1 million of the employee's claim. However, the policy period of the TIC primary policy was January 1, 1995 to January 1, 1996.

[9] In our view, the trial judge made no error in holding that "Endorsement No. 4 is triggered by an occurrence [during the policy period] and not by the making of a claim [during the policy period]".

[10] As was explained by the trial judge, "[Endorsement No. 4] provides coverage" and does so "only if, at the time of the injury giving rise to the claim, 'there is underlying Employers Liability Insurance as set out in the Schedule of Underlying Insurance'" (emphasis in the original). In this respect, we agree that when read as a whole and in the context of the policy, rather than constituting an exclusion, Endorsement No. 4 operates as a coverage trigger and, in that regard, supercedes s. I.B. of the policy with respect to the specified coverage. [page560]

[11] In our view, in addition to the specific language of Endorsement No. 4, this is made clear by the "Follow Form" heading to Endorsement No. 4 and by the nature of insurance that Liberty was providing. As was observed by the trial judge, it makes sense that the Liberty umbrella policy provides coverage that is excess to specified insurance and that it does so based on the same coverage trigger.

[12] We see no merit in the appellant's assertion that Condition 9 of the policy (Maintenance of Underlying Insurance) affects the interpretation of Endorsement No. 4. Condition 9 imposes an obligation on the Insured to maintain the insurance specified in the Schedule of Underlying Insurances and, in addition, stipulates that while failure to comply will not invalidate the policy, the insurer will only be liable to the extent it would have been had the policy(s) been maintained. In our view, Condition 9 does not alter the coverage provided by the policy and therefore does not affect the interpretation of Endorsement No. 4.

[13] Further, we are not persuaded that the trial judge's interpretation of Endorsement No. 4 gives rise to the possibility of a gap in coverage that would be detrimental to the insured. In our view, the evidence at trial did not establish the policy period of the underlying StopGap insurance. Moreover, even if the policy period of the StopGap insurance referred to in the Schedule of Underlying Insurance was January 1, 1997 to January 1, 1998, the Schedule referred to coverage for the period May 1, 1997 to May 1, 1998 -- accordingly, there could only be a gap in coverage if the Insured failed to renew the specified underlying coverage.

[14] Based on the foregoing reasons, the appeal is dismissed with costs to the respondent as agreed by the parties of $35,000 on a partial indemnity scale inclusive of disbursements and applicable GST.

[15] Given our conclusion on the appeal, it is unnecessary that we address the cross-appeal. Accordingly, we should not be taken as expressing any opinion on the trial judge's conclusion that this proceeding was the proper subject of a subrogated claim.

Appeal dimissed.

Notes ----------------

Note 1: Rio Algom advanced the claim against Liberty for the excess amount on behalf of American Home Assurance Co. American Home provided commercial umbrella liability coverage to Rio for the period during which the employee was injured (May 1, 1995 to May 1, 1996) on terms very similar to the terms of the Liberty umbrella policy. American Home entered into an agreement with Rio Algom to fund the excess amount on terms that required Rio Algom to attempt to recover the excess amount from Liberty. The trial judge found that Rio Algom was entitled to advance the claim for the excess amount against Liberty on behalf of American Home as a subrogated claim. Liberty challenged this finding by way of cross-appeal.