Aviva Insurance Company of Canada et al. v. Lombard General Insurance Company of Canada

[Indexed as: Aviva Insurance Co. of Canada v. Lombard General Insurance Co. of Canada]

Ontario Reports

Court of Appeal for Ontario,

Blair, Tulloch and Lauwers JJ.A.

June 20, 2013

116 O.R. (3d) 161 | 2013 ONCA 416

Case Summary

Insurance — Equitable contribution — Insurer A insuring owner and property manager of apartment building under primary policy (with limits of $1 million) and umbrella policy — Insurer B insuring only property manager — Owner and property manager presenting common defence in tort actions resulting from major fire and being found liable as one defendant — Trial judge in subsequent priority proceeding finding that Insurer B's policy was next to respond after Insurer A's primary policy — Insurer B paying full amount of excess claim to tort plaintiffs before its appeal in priority proceeding was heard — Order in priority proceeding varied on appeal to clarify that Insurer B's exposure to respond next related solely to its coverage of property manager — Insurer B entitled to recover one-half of its payment to tort plaintiffs from Insurer A under doctrine of equitable contribution.

Restitution — Unjust enrichment — Insurer A insuring owner and property manager of apartment building under primary policy (with limits of $1 million) and umbrella policy — Insurer B insuring only property manager — Owner and property manager presenting common defence in tort actions resulting from major fire and being found liable as one defendant — Trial judge in subsequent priority proceeding finding that Insurer B's policy was next to respond after Insurer A's primary policy — Insurer B paying full amount of excess claim to tort plaintiffs before its appeal in priority proceeding was heard — Order in priority proceeding varied on appeal to clarify that Insurer B's exposure to respond next related solely to its coverage of property manager — Insurer B entitled to recover one-half of its payment to tort plaintiffs from Insurer A under doctrine of unjust enrichment.

Lombard insured the owner and property manager of an apartment building under a primary policy with limits of $1 million and an umbrella policy. Aviva insured only the property manager under a policy with limits of $5 million. The owner and property manager were sued following a major fire in the apartment building. They presented a common defence and were found liable as one defendant. Lombard then commenced a priority proceeding, seeking a declaration that, after Lombard's $1 million payment under its primary policy, Aviva's policy was next to respond to the damages. The trial judge found that Aviva's policy was a primary policy with an excess coverage clause ranking ahead of Lombard's true umbrella policy. Aviva appealed. Before the appeal was heard, it paid the full amount of the excess claim to the tort plaintiffs. The order in the priority proceeding was varied on appeal (the "ranking decision") to clarify that Aviva's exposure to respond next related solely to the liability coverage afforded to the property manager. Aviva then brought an action seeking to recover one-half of its payment to the tort plaintiffs from Lombard. Judgment was granted to Aviva. Lombard appealed. Aviva cross-appealed the costs order. [page162]

Held, the appeal and cross-appeal should be dismissed.

Aviva was entitled to recover from Lombard under the principle of equitable contribution. Lombard insured both the property manager and the owner. While it was not required to respond next to the loss on behalf of the property manager (in view of the ranking decision), it was required to respond to the loss on behalf of the owner. It should therefore contribute to the total loss on a 50/50 basis. Aviva was also entitled to recover from Lombard under the principle of unjust enrichment. The ranking decision did not negate Lombard's obligation under its umbrella policy to cover the liability of the owner. It simply ranked the competing policies in terms of responding to the property manager's liability. When Aviva covered Lombard's obligation to pay on behalf of the owner -- even though it did so in the course of covering its own obligation to the property manager -- it conferred a benefit on Lombard in the sense that the payment spared Lombard from incurring an expense it would otherwise have had to incur. Aviva suffered a corresponding deprivation. There was no juristic reason for conferring such a benefit on Lombard in the circumstances. The ranking decision only resolved the issue of whether Lombard's umbrella policy had to respond next (after its primary policy limits had been paid) for both the property manager and the owner, or whether Aviva's policy stood next in line in relation to the property manager's coverage. There could be no basis upon which Aviva's policy could rank ahead of the Lombard umbrella policy in relation to the liability of the owner, as Aviva did not insure the owner.

The trial judge did not err in declining to award costs on a substantial indemnity basis.

Aetna Insurance Co. v. Canadian Surety Co., 1994 ABCA 145, [1994] A.J. No. 399, 114 D.L.R. (4th) 537, 114 D.L.R. (4th) 577, [1994] 8 W.W.R. 63, 19 Alta. L.R. (3d) 4, 19 Alta. L.R. (3d) 317, 149 A.R. 321, 24 C.C.L.I. (2d) 257, [1994] I.L.R. 1-3119, 48 A.C.W.S. (3d) 413 (C.A.); Family Insurance Corp. v. Lombard Canada Ltd., [2002] 2 S.C.R. 695, [2002] S.C.J. No. 49, 2002 SCC 48, 2002 SCC 48, 212 D.L.R. (4th) 193, 288 N.R. 373, J.E. 2002-942, 167 B.C.A.C. 161, 38 C.C.L.I. (3d) 165, [2002] I.L.R. I-4092, 113 A.C.W.S. (3d) 1064, consd

Other cases referred to

Bakhtiari v. Axes Investments Inc., [2001] O.J. No. 4720, [2001] O.T.C. 855, 24 M.P.L.R. (3d) 248, 110 A.C.W.S. (3d) 293 (S.C.J.); Kerr v. Baranow, [2011] 1 S.C.R. 269, [2011] S.C.J. No. 10, 2011 SCC 10, 274 O.A.C. 1, 328 D.L.R. (4th) 577, 2011EXP-624, 411 N.R. 200, J.E. 2011-333, [2011] 3 W.W.R. 575, 64 E.T.R. (3d) 1, 14 B.C.L.R. (5th) 203, 300 B.C.A.C. 1, 93 R.F.L. (6th) 1, EYB 2011-186472; Lombard General Insurance Co. v. CGU Insurance Co. of Canada, 2004 CanLII 18638 (ON CA), [2004] O.J. No. 2269, 187 O.A.C. 178, 131 A.C.W.S. (3d) 747 (C.A.), varg 2003 CanLII 34147 (ON SC), [2003] O.J. No. 3385, [2003] O.T.C. 770, 3 C.C.L.I. (4th) 107, 125 A.C.W.S. (3d) 148 (S.C.J.); Peter v. Beblow, 1993 CanLII 126 (SCC), [1993] 1 S.C.R. 980, [1993] S.C.J. No. 36, 101 D.L.R. (4th) 621, 150 N.R. 1, [1993] 3 W.W.R. 337, J.E. 93-660, 23 B.C.A.C. 81, 77 B.C.L.R. (2d) 1, [1993] R.D.F. 369, 48 E.T.R. 1, 44 R.F.L. (3d) 329, 39 A.C.W.S. (3d) 646, EYB 1993-67100; Pettkus v. Becker, 1980 CanLII 22 (SCC), [1980] 2 S.C.R. 834, [1980] S.C.J. No. 103, 117 D.L.R. (3d) 257, 34 N.R. 384, 8 E.T.R. 143, 19 R.F.L. (2d) 165, 6 A.C.W.S. (2d) 263; Rathwell v. Rathwell, 1978 CanLII 3 (SCC), [1978] 2 S.C.R. 436, [1978] S.C.J. No. 14, 83 D.L.R. (3d) 289, 19 N.R. 91, [1978] 2 W.W.R. 101, 1 E.T.R. 307, 1 R.F.L. (2d) 1, [1978] 1 A.C.W.S. 225; Sorochan v. Sorochan, 1986 CanLII 23 (SCC), [1986] 2 S.C.R. 38, [1986] S.C.J. No. 46, 29 D.L.R. (4th) 1, 69 N.R. 81, [1986] 5 W.W.R. 289, 46 Alta. L.R. (2d) 97, 74 A.R. 67, [1986] R.D.F. 501, 23 E.T.R. 143, 2 R.F.L. (3d) 225, 39 A.C.W.S. (2d) 347; Trenton Cold Storage Ltd. v. St. Paul Fire and Marine Insurance Co., 2001 CanLII 20561 (ON CA), [2001] O.J. No. 1835, 199 D.L.R. (4th) 654, 146 O.A.C. 348, 28 C.C.L.I. (3d) 177, [2001] I.L.R. I-3990, 105 A.C.W.S. (3d) 522 (C.A.) [page163]

Authorities referred to

Billingsley, Barbara, General Principles of Canadian Insurance Law, 1st ed. (Markham, Ont.: LexisNexis, 2008)

Hardy Ivamy, E.R., General Principals of Insurance Law, 6th ed. (London, Butterworths, 1993)

APPEAL from the judgment of Grace J., [2012] O.J. No. 2454, 2012 ONSC 3219 (S.C.J.) for the plaintiff; CROSS-APPEAL from a costs order.

Ronald G. Slaght, Q.C., and Dena N. Varah, for appellant/respondent by way of cross-appeal.

Steven Stieber and Elizabeth Bowker, for respondent/appellant by way of cross-appeal Aviva Insurance Company of Canada.

The judgment of the court was delivered by

BLAIR J.A.: —

Overview

[1] Aviva Insurance Company of Canada and Lombard General Insurance Company of Canada disagree over the ranking of policies required to respond to losses arising from a fire in a Toronto apartment building. One of the corollaries to their respective manoeuvrings is this appeal.

[2] The tragic fire occurred in January 1995. Six people died and numerous others were seriously injured. Eight legal proceedings resulted, and among the various defendants held liable were the owner of the building, Axes Investments Inc., and the property manager, Tandem Group Management Inc. Axes and Tandem were jointly represented by one counsel at trial and liability was not apportioned between them; instead, they were found liable as "one defendant".

[3] There were three policies of insurance available to respond to their liability:

(i) a Lombard primary policy, with limits of $1 million, insuring both Axes and Tandem;

(ii) a Lombard umbrella policy, with limits of $9 million, insuring both Axes and Tandem; and

(iii) an Aviva policy, with limits of $5 million, insuring Tandem only.[^1] [page164]

[4] It was clear early on that the extent of the plaintiffs' claims in the tort actions would exceed the limits of the Lombard primary policy, and there was never any dispute about whether that policy would be responsible for the first $1 million in damages. Since the outset, however, Aviva and Lombard have engaged in a sophisticated and protracted contretemps over which insurer was responsible for what portion of the excess losses.

[5] Lombard took the position that the Aviva policy was required to respond next after the Lombard primary policy and that the Lombard umbrella policy was only triggered if and when the Aviva $5 million limits had been exhausted. Aviva took the opposite position, maintaining that the Lombard umbrella policy was next to respond completely because it covered both the owner and the property manager.

[6] Acting on the advice of experienced senior counsel, each insurer carefully planned its strategy and tactics to achieve their desired result, and much litigious ground has been ploughed to this end. At the end of the day, however -- in the circumstances I will describe below -- Aviva paid the entire amount of the excess claim to the tort plaintiffs.

[7] In this action, Aviva submits that Lombard should be responsible for one-half of that payment because Aviva's policy covered only Tandem (the property manager), whereas the Lombard umbrella policy covered both Tandem and Axes (the owner), and because Tandem and Axes were each liable to pay that portion of the damages assessed against them in the tort actions. Lombard argues that, because a previous proceeding determined that Aviva was required to respond next after the Lombard primary policy to the liability of their joint insured, Tandem, and because Aviva's payment satisfied the liability claim in full, Lombard's responsibility under its excess umbrella coverage was never engaged, and full responsibility therefore lies with Aviva.

[8] At trial, Grace J. agreed with Aviva and gave judgment against Lombard in the amount of $1,086,195.70, plus prejudgment interest and costs, representing 50 per cent of the amount paid by Aviva.

[9] I, too, agree, although not entirely for the same reasons, and I would dismiss the appeal. I would also dismiss Aviva's cross-appeal in relation to costs.

Background

[10] What happened is not in dispute and is well summarized by the trial judge in his reasons. [page165]

[11] Lombard's primary policy covered the first $1 million of the damages arising from the fire, and it paid that amount. The debate is about who is responsible for the significant excess amount needed to satisfy the portion of the judgments obtained by the tort plaintiffs for which Axes and Tandem (as a single defendant) were found responsible.

[12] The conundrum arises because of the way in which Aviva and Lombard decided to approach the defence of the tort actions. Lombard acknowledged that its primary policy was first to respond; it retained experienced counsel to defend the owner and property manager -- both covered under its policies -- and funded their defence. Although entitled to do so, Aviva did not participate in the defence of the tort actions or retain its own counsel for that purpose.

[13] There has been much blaming and finger pointing in both directions regarding why Aviva (itself acting on the advice of experienced counsel) chose not to defend and whether Lombard was taking advantage of Aviva by solely defending the tort actions and not appointing separate counsel for Axes and Tandem. Was Aviva simply "lying in the rushes" awaiting the outcome and hoping, if necessary, to be able to raise its "conflict of interest" arguments against Lombard and thus avoid making any payments altogether? Was Lombard attempting to take advantage of Aviva by bringing what is described below as the "priority proceeding", to avoid paying anything over and above its primary policy limits?

[14] Like the trial judge, I am somewhat puzzled by the rhetoric these issues have evoked. As he aptly observed, at para. 69:

Both insurers point self-righteous fingers at the other. I do not know why. They are sophisticated, knowledgeable and experienced. They tried to outwit the other. The priority proceeding made Aviva's objective of paying nothing on account of the tragic fire unattainable. The result of that proceeding before Hoilett J. seems to have been the catalyst for Lombard's attempt to avoid paying anything beyond that expended under the primary policy. I observe with interest but am unaffected by the insurers' approach.

[15] I am not persuaded that the allegations surrounding the parties' respective tactical and strategic manoeuvres have much relevance to the ultimate resolution of the issues before us. Each insurer was entitled to protect its own position.

[16] What emerges from these tactics, however, is that the parties presented a unified defence in the tort actions, with only one counsel representing both owner and property manager. They did not assert any cross-claims seeking an apportionment of liability as between them, should their insureds be found liable. In the result, Lane J. -- the trial judge in the test case that proceeded [page166] (called the Bakhtiari action)[^2] -- made no findings apportioning liability as between Axes and Tandem. He found them liable, as "one defendant", for a portion of the plaintiffs' damages.

[17] The judgment in Bakhtiari was appealed. Before that appeal was heard, Lombard commenced the priority proceeding, seeking a declaration that, after Lombard's $1 million payment under its primary policy, Aviva's policy was next to respond to the damages. On August 22, 2003, Hoilett J. ruled in Lombard's favour,[^3] finding that Aviva's policy was a primary policy with an excess coverage clause ranking ahead of Lombard's true umbrella policy. Lombard reads this decision as establishing that Aviva's policy is next to respond in relation to all of Lombard's umbrella policy obligations with respect to the Axes/Tandem unit, up to the point where Aviva's policy limits are exhausted.

[18] While Aviva was appealing Hoilett J.'s ruling in the priority proceeding, this court's decision on the judgment of Lane J. in the Bakhtiari action was released, on February 6, 2004. Lane J.'s findings as to liability were upheld, but his judgment was varied to decrease the percentage of responsibility assigned to the defendant unit of Axes and Tandem from 70 per cent to 45 per cent.

[19] At this point, the "games" between Aviva and Lombard peaked. The tort plaintiffs demanded payment. They could do so from either or both insurers. Aviva proposed a joint payment, sharing the claim equally. Lombard did not agree.

[20] Ultimately, in the words of Lombard's counsel -- Aviva "blinked". Without a decision on the appeal in the priority proceeding and faced with (a) a clear order that it was next to respond in relation to Tandem's liability, (b) the threat of enforcement and a potential claim for punitive and exemplary damages for failure to pay, and (c) Lombard's refusal to agree to a joint contribution by both insurers, Aviva paid the Axes/ Tandem portion of the plaintiffs' damages. The amount it paid was $2,493,343.13, including prejudgment interest and costs.[^4]

[21] After Aviva's payment, this court's decision in the priority proceeding was released. This court specifically varied Hoilett J.'s [page167] order to clarify that Aviva's exposure to respond next related solely to "the liability coverage afforded to [Tandem]". This decision, as varied, is known as "the ranking decision".[^5]

[22] The priority proceeding and the ranking decision did not touch on whether, or to what extent, liability would be shared if Aviva's payment on behalf of Tandem exhausted the liability of both defendants, jointly. This unresolved matter brought Aviva before Grace J., seeking -- and being granted -- recovery from Lombard for one-half of its damages payment. Lombard now appeals this decision.

Analysis

[23] For purposes of this analysis, it is significant that the two insurers agreed to present a common defence in the tort actions, with one set of counsel. It may be that in agreeing to this approach, Aviva's objective was to position itself so that it would end up paying nothing at all with regard to the fire losses. Attaining this objective was precluded by the ranking decision, as it turned out. At the same time, it can fairly be said that Lombard's objective was the opposite -- to position itself so that it would have to pay nothing over and above the limits of its primary policy. As the trial judge observed, each "tried to outwit the other".

[24] The result of this manoeuvring was Aviva and Lombard's decision to defend the tort actions as "one defendant", without seeking any decision as to contribution and indemnity as between them. As the trial judge correctly noted, at para. 38:

[T]he owner and property manager were treated both at trial and on appeal as if they were one defendant. No effort was made to distinguish between the acts or omissions of the owner and property manager. In other words, the process of allocation of fault between the owner and property manager did not fail. It was never engaged. By choice.

[25] Contrary to Lombard's contention, Aviva does not resile from that position here. Rather, it relies upon the "one defendant" determination in the tort action. It argues that because the tort action treated two distinct defendants (each with different insurers) as "one defendant" for the purpose of finding liability, and because the trial judge did not apportion liability as between them, the issue in this proceeding is not about how to apportion liability as between two defendants; it is about how to [page168] apportion responsibility for that "one defendant" liability as between the two insurers.

[26] In my opinion, these issues are properly resolved in the final analysis through the application of notions of equitable contribution, or some combination of equitable contribution and the restitutionary principles of unjust enrichment -- both simply examples of the fair play rules imposed by equity. These principles operate to require Lombard to contribute to Aviva's payment of the total loss. Payment of the loss was in reality a payment on behalf of both Tandem and Axes. Lombard insured both Tandem and Axes. While Lombard was not required to respond next to the loss on behalf of Tandem (in view of the ranking decision), it was required to respond to the loss on behalf of Axes. It should therefore contribute to the total loss on a 50/50 basis.

[27] I arrive at this conclusion on the following basis.

(a) Equitable contribution

[28] The trial judge did not find contribution to be an appropriate basis for recovery. In my view, however, principles of equitable contribution are germane to these circumstances.

[29] The traditional criteria for applying the doctrine of equitable contribution as between insurers are the following:

(i) All policies concerned must comprise the same subject matter.

(ii) All policies must be effected against the same peril.

(iii) All policies must be effected by or on behalf of the same assured.

(iv) All policies must be in force at the time of the loss.

(v) All policies must be legal contracts of insurance.

(vi) No policy must contain any stipulation by which it is excluded from contribution.

[30] These criteria were confirmed by the Supreme Court of Canada in Family Insurance Corp. v. Lombard Canada Ltd., [2002] 2 S.C.R. 695, [2002] S.C.J. No. 49, 2002 SCC 48, at para. 15, adopting the criteria set out in E.R. Hardy Ivamy's General Principles of Insurance Law, 6th ed. (London: Butterworths, 1993), at p. 518. I shall refer to them as "the Ivamy criteria" for purposes of these reasons.

[31] Equitable contribution in the insurance context has traditionally been applied to prevent over-recovery by an insured with more than one insurer covering the same risk, and to do so [page169] by calling on all relevant insurers of that same risk to share pro rata in payment of that loss. In her text, General Principles of Canadian Insurance Law, 1st ed. (Markham, Ont.: LexisNexis, 2008), at p. 317, Barbara Billingsley explains the concept in this way:

Where a given loss is covered by more than one insurance policy, the principle of indemnity still applies. In other words, despite the fact that the insured has multiple sources of insurance coverage, the insured is not entitled to recover more than the value of the loss. In order to prevent over-recovery by the insured, the doctrine of contribution applies. Contribution requires payment of the loss to be shared by the relevant insurers. This sharing of the loss ensures that the insured is not over-indemnified by recovering the full amount of the loss from multiple sources. Contribution also ensures that each insurer fulfills its indemnity obligation and is not relieved of its payment obligations by the existence of other applicable insurance.

(Emphasis added)

[32] As the Supreme Court of Canada put it in Family Insurance Corp., at para. 14: "The selected insurer, in turn, is entitled to contribution from all other insurers who have covered the same risk" (emphasis added).

[33] Here, Aviva is equivalent to the "selected insurer" because it has paid the damage claim in full; Lombard is another insurer "who [has] covered the same risk", i.e., the risk of indemnifying against the losses associated with the "one defendant" award made against Axes/Tandem.

[34] As I appreciate the way in which the doctrine of equitable contribution has been applied in the insurance context, two different considerations are at play. The first is the need to prevent over-recovery by an insured who can look to more than one insurer for payment. The second is the need to avoid a windfall to insurers other than the "selected insurer" because that selected insurer paid in full a claim arising out of shared liability. This latter goal is achieved by requiring the other insurers who cover the same risk to share pro rata in responding to that risk.

[35] In this case, that risk is the equal obligation on the part of Aviva and Lombard to respond to the tort plaintiffs' claim against the Axes/Tandem unit.

[36] Lombard and Aviva chose to put forward a "one defendant" case to the tort action trial judge. They invited and had a "one defendant" damage award made against them. As a result, the tort plaintiffs were entitled to enforce the portion of the damage award allocated to the Axes/Tandem unit against either Axes or Tandem for the full amount, and threatened to do so. To the extent they had sought to enforce the full amount of the claim against Axes alone, Lombard was obligated to respond in full because of its obligation to indemnify Axes; indeed, Aviva did [page170] not insure Axes at all. To the extent the tort plaintiffs had sought to enforce the judgment against Tandem alone, Tandem could potentially look to either Aviva or Lombard, because Tandem was insured by both, but with the ranking decision putting Aviva next in line to respond following Lombard's primary policy. Although Lombard had the benefit of the ranking decision for purposes of its umbrella policy, that did not discharge its obligation vis-à-vis Axes in terms of responsibility for the Tandem payment.

[37] In short, Lombard and Aviva were each equally obligated to respond to the plaintiffs' claims in full. The fact that Aviva "blinked" first does not detract from Lombard's legal obligation to respond, had the tort plaintiffs pursued Axes alone. "Blinking" cannot be the defining principle of insurance law upon which the respective responsibilities of Aviva and Lombard for responding to the losses are determined.

(i) The ranking decision

[38] I do not think the ranking decision affects this result.

[39] Much was said about that decision in argument. Lombard contended that its effect was to eliminate any obligation on the part of Axes or Lombard to respond to the losses unless and until Aviva's limits on behalf of Tandem had been exhausted. I do not read the ranking decision in that way. In my view, its only effect was to settle that Aviva was required to respond next to satisfy Tandem's liability. That was the case because Aviva's policy was a primary policy with an excess coverage clause, as opposed to a true umbrella policy. As such, it took priority over the Lombard umbrella policy also providing excess coverage to Tandem: see Trenton Cold Storage Ltd. v. St. Paul Fire and Marine Insurance Co., 2001 CanLII 20561 (ON CA), [2001] O.J. No. 1835, 199 D.L.R. (4th) 654 (C.A.). The ranking decision did not determine that Axes had no liability to pay until this had been done or that Lombard had no obligation to respond to the liability of Axes. I do not accept Lombard's submission to the contrary, and I do not think the ranking decision precludes the operation of the doctrine of equitable contribution here.

(ii) "The same assured"

[40] I recognize that the third Ivamy criterion stipulates that "[a]ll the policies must be effected by or on behalf of the same assured", and that there are two insured entities here, Axes and Tandem. However, I do not see this criterion as a rigid impediment to extending the doctrine of equitable contribution to the [page171] circumstances found in this case. Resort to principles of equity calls for flexibility.

[41] At its heart, the doctrine of equitable contribution as between insurers turns less on the existence of a single insured than on the fact that multiple insurers are responsible for the same liability of that insured arising out of the same risk. In Family Insurance Corp., at para. 14, the Supreme Court of Canada highlighted the basic principle underlying the doctrine of equitable contribution: "[the] doctrine of equitable contribution among insurers is founded on the general principle that parties under a coordinate liability to make good a loss must share that burden pro rata" (emphasis added).

[42] This is the rationale underpinning contribution as between insurers, which, in turn, is the means by which over-recovery is prevented. When two insurers insure the same risk, and choose -- as Aviva and Lombard did here -- to present a united front as "one defendant" in the tort actions arising from the occurrence of that risk, the two insurers (the "one defendant" (Axes/Tandem)) may in effect be viewed as though they are subject to a "coordinate liability" and, therefore, as if they were the "the same assured" for purposes of that particular risk, in my view.

[43] Just as it is not equitable to permit the second of two insurers to escape with no responsibility where the first insurer, covering the same loss on behalf of the same insured, pays the claim in full, it would be similarly inequitable to permit the second insurer to do so in the circumstances that exist here.

[44] In these circumstances, the fact that Aviva's policy was ranked ahead of Lombard's with respect to Tandem is not determinative of the result. In my view, the same result would flow if Lombard had only insured Axes and not Tandem at all. By putting forward a "one defendant" stance in the tort action, and inviting the trial judge to impose a single damage award against them both, without any attribution of liability as between them, Aviva and Lombard effectively created "one insured" for purposes of responding to the damages awarded against Axes/Tandem. They are equally obligated to pay the plaintiffs. They should share that obligation equally, in the absence of any contractual or statutory provision to the contrary (neither of which has been brought to our attention).

[45] In these circumstances, the Axes/Tandem defendant was liable to pay, and Aviva and Lombard had a coordinate liability to make good that loss in relation to that defendant. I do not see why Lombard ought not to be required to "fulfill[] its indemnity obligation" or why it should be "relieved of its payment [page172] obligations by the existence of other applicable insurance" (Billingsley, p. 317).

[46] Just as it does not lie in the mouth of an insurer covering the same risk in the single insured context to say "there is nothing to pay because the selected insurer has paid the full amount and therefore there is no outstanding liability", it does not lie in Lombard's mouth in these circumstances to say, in effect, "too bad, so sad: Aviva has paid the joint liability of Axes and Tandem by responding to the claim against Tandem, and as a result there is nothing left for Axes, nor therefore for us, to pay".

(b) Restitution

[47] There is another basis for upholding Lombard's responsibility to contribute equally to the damages awarded against Axes/Tandem, one that was relied upon by the trial judge in his alternative reasoning: the principle of restitution known as unjust enrichment.

[48] Recently, in Kerr v. Baranow, [2011] 1 S.C.R. 269, [2011] S.C.J. No. 10, 2011 SCC 10, at paras. 31-32, Cromwell J. summarized the rationale and legal framework underlying the unjust enrichment concept as it has evolved in Canadian law:

At the heart of the doctrine of unjust enrichment lies the notion of restoring a benefit which justice does not permit one to retain: Peel (Regional Municipality) v. Canada, 1992 CanLII 21 (SCC), [1992] 3 S.C.R. 762, at p. 788. For recovery, something must have been given by the plaintiff and received and retained by the defendant without juristic reason. A series of categories developed in which retention of a conferred benefit was considered unjust. These included, for example: benefits conferred under mistakes of fact or law; under compulsion; out of necessity; as a result of ineffective transactions; or at the defendant's request: see Peel, at p. 789; see, generally, G.H.L. Fridman, Restitution (2nd ed. 1992), c. 3-5, 7, 8 and 10; and Lord Goff of Chieveley and G. Jones, The Law of Restitution (7th ed., 2007), c. 4-11, 17 and 19-26.

Canadian law, however, does not limit unjust enrichment claims to these categories. It permits recovery whenever the plaintiff can establish three elements: an enrichment of or benefit to the defendant, a corresponding deprivation of the plaintiff, and the absence of a juristic reason for the enrichment: Pettkus; Peel, at p. 784. By retaining the existing categories, while recognizing other claims that fall within the principles underlying unjust enrichment, the law is able "to develop in a flexible way as required to meet changing perceptions of justice": Peel, at p. 788.

See, also, Rathwell v. Rathwell, 1978 CanLII 3 (SCC), [1978] 2 S.C.R. 436, [1978] S.C.J. No. 14, at p. 455 S.C.R.; Sorochan v. Sorochan, 1986 CanLII 23 (SCC), [1986] 2 S.C.R. 38, [1986] S.C.J. No. 46, at p. 34 S.C.R.; Pettkus v. Becker, 1980 CanLII 22 (SCC), [1980] 2 S.C.R. 834, [1980] S.C.J. No. 103; and Peter v. Beblow, 1993 CanLII 126 (SCC), [1993] 1 S.C.R. 980, [1993] S.C.J. No. 36.

[49] Cromwell J. also observed, at para. 34, that "while the underlying legal principles of the law of unjust enrichment are [page173] the same for all cases, the courts must apply those common principles in ways that respond to the particular context in which they are to operate". They must be applied with flexibility and common sense.

[50] In my view, the trial judge was correct in concluding that these criteria have been met in the circumstances of this case.

[51] Lombard argues that no case for a restitutionary remedy has been made out. Mr. Slaght submits that Lombard did not receive any benefit from Aviva's payment of the judgment because Lombard had no obligation to respond until after Aviva had paid on behalf of Tandem to the full extent of the Aviva policy limits. Once Aviva paid, there was no further obligation to the tort plaintiffs for Lombard to discharge. In these circumstances -- so the argument goes -- Aviva did not relieve Lombard from a legal burden that Lombard would otherwise have been obliged to assume; Aviva was simply complying with its own obligation to pay on behalf of Tandem. On a similar analysis, Aviva was not deprived of anything, because Aviva was obliged to respond to Tandem's obligation to the full extent of the Aviva policy limits as a result of the ranking decision.

[52] I disagree.

[53] As explained earlier in these reasons, the ranking decision did not negate Lombard's obligation under its umbrella policy to cover the liability of Axes. It simply ranked the competing policies in terms of responding to Tandem's liability. The variation of Hoilett J.'s judgment by this court, and Hoilett J.'s reasons themselves, make this clear: Aviva's obligation to respond next after the Lombard primary policy related to "the liability coverage afforded to the defendant Tandem".

[54] At the instance of the two insurers, Lane J. awarded damages against Axes/Tandem as one defendant, a single united tortfeasor. The tort plaintiffs had the right to pursue enforcement against either or both of Axes and Tandem. In this respect, it matters little whether that liability is described in the judgment as joint and several or not: both Axes and Tandem were obliged to pay the portion of the damages awarded against them in full. Tandem had the right to be indemnified by both Lombard and Aviva, but as a result of the ranking decision, Aviva was next to respond to that indemnity claim. At the same time, if the tort plaintiffs had decided to pursue Axes alone, as they would have been entitled to do, Axes was entitled to claim indemnity under the Lombard umbrella policy because Lombard remained fixed with the obligation to respond to that liability in relation to Axes. [page174]

[55] In such an event, Lombard would have been in exactly the same position as an insurer who paid the claim of an insured who was able to choose from several insurers of the same risk; it would be entitled to seek contribution from those other insurers. The reverse is true when the payment is made in these circumstances by Aviva.

[56] I observe in passing that this analysis overlaps in some aspects with the analysis leading to the adoption of equitable contribution principles. This is not surprising. Both equitable contribution and unjust enrichment have their roots in notions of equity, and what is at issue here, at its core, is whether it would be unfair for Lombard to be "relieved of its payment obligations by the existence of other applicable insurance", to adopt the equitable contribution language cited above from p. 317 of Billingsley's text.

[57] For purposes of the unjust enrichment analysis, the point is that Lombard retained its obligation to pay on behalf of Axes, notwithstanding the ranking decision. When Aviva covered that obligation -- even though it did so in the course of covering its own obligation in relation to Tandem -- it conferred a benefit on Lombard in the sense that the payment spared Lombard from incurring an expense it would otherwise have had to incur: see Kerr, at para. 38. Aviva also suffered a corresponding deprivation. I agree with the trial judge, at para. 68, that, "[t]o the extent Aviva paid more than the property manager's [Tandem's] proper share, the payments were to Aviva's detriment". Had Lombard complied with its obligation to indemnify Axes for its share of the damage award, Aviva would not have had to cover Lombard's share of the loss.

[58] Nor can I see any juristic reason for conferring such a benefit on Lombard in these circumstances. The ranking decision only resolved the issue of whether Lombard's umbrella policy had to respond next (after its primary policy limits had been paid) for both Tandem and Axes, or whether Aviva's policy stood next in line in relation to Tandem's coverage. There could be no basis upon which Aviva's policy could rank ahead of the Lombard umbrella policy in relation to the liability of Axes: Aviva did not insure Axes.

[59] For the reasons expressed above, in the words of Cromwell J. in Kerr, at para. 40, "there is no reason in law or justice" for Lombard's retention of the benefit conferred by Aviva.

[60] I would therefore uphold the trial judge's finding that Lombard is required to reimburse Aviva for one-half of the Axes/Tandem liability on unjust enrichment/restitutionary grounds. [page175]

(c) Aetna Insurance Co. v. Canadian Surety Co.

[61] Both Aviva and the trial judge relied on a decision of the Alberta Court of Appeal in Aetna Insurance Co. v. Canadian Surety Co., 1994 ABCA 145, [1994] A.J. No. 399, 149 A.R. 321 (C.A.) to support the conclusion that responsibility for payment of the Axes/ Tandem damages should be shared equally between Aviva and Lombard.

[62] In that case, damages were awarded in Montana proceedings as a result of a fatal tractor-trailer accident involving a trucking unit owned by Alberta parties. The tractor and the trailer were each insured by different insurers. It was the driver's negligence that caused the accident, and there was no other basis for attributing negligence to the tractor or the trailer. The Montana court made no apportionment of liability as between the two, in effect treating the tractor and trailer as "one defendant" for purposes of the damage award.

[63] Aetna ultimately paid the claim on behalf of its insured, the owner of the trailer, and commenced proceedings in Alberta against the insurer of the tractor for contribution and restitution. Acknowledging that it was impossible to apportion liability as between the owner of the tractor and the owner of the trailer, the Alberta Court of Appeal attributed half of the operator's negligence to the tractor and half to the trailer. The court concluded that, "for the purpose of assessing ultimate responsibility" (para. 119), "the only reasonable solution [was] to apportion responsibility for that negligence equally" (para. 121).

[64] Lombard submits that the Aetna decision is not helpful, arguing that it is distinguishable on a number of factual and statutory grounds. The trial judge recognized the factual distinctions, but concluded that the facts and analysis in the decision were "analogous". He pointed out, at para. 53, that in Aetna, the "allocation of responsibility involved the negligent operation of two things (the tractor and the trailer) by one person", whereas the case here "involves negligence in relation to one thing (the property) by two people (the owner and property [manager]". He therefore found the Alberta Court of Appeal's analysis with respect to the tractor and trailer applicable to Axes and Tandem here.

[65] Whether the distinguishing features render the Aetna decision inapplicable in this case or not matters little, in my view. It is simply an example of a decision that gives effect to the concept of coordinate liability in the context of equitable contribution. [page176]

[66] I am satisfied that the appeal may be disposed of on the basis of the equitable contribution and restitution analyses set out above.

Cross-Appeal as to Costs

[67] Aviva seeks leave to appeal and, if granted, to appeal from the trial judge's failure to award its costs on a substantial indemnity basis. He awarded $56,841.85, inclusive of disbursements, on a partial indemnity basis.

[68] Aviva's principal submission is that the trial judge erred in failing to consider a proposed resolution set in a letter of September 21, 2005 from Aviva's counsel to Lombard's counsel. Aviva says the outcome at trial was essentially the proposed resolution contained in the letter, and that Lombard wrongly ignored the letter. Lombard counters with the argument that the primary purpose of the letter was to initiate discussions about the quantum of damages, without addressing the issue of apportionment of responsibility between the insurers.

[69] I do not read the letter in quite the same way as Lombard does. In the letter, Mr. Stieber specifically outlined "the principles upon which it is suggested that the apportionment be carried out" -- essentially a 50/50 split between the Aviva policy and the Lombard umbrella policy, after payment of the initial $1 million under the Lombard primary policy. That said, the letter does not constitute an offer to settle on the basis outlined in it, only a "suggestion" as to how the apportionment should be carried out.

[70] While the trial judge does not appear to have addressed his mind to the letter in his endorsement on costs, and although he may have been entitled to give it some weight, I do not think his failure to do so constituted an error in principle that would justify our interfering with his decision not to award substantial indemnity costs. Nor do I think Lombard's refusal to respond to the letter was conduct of such an egregious nature that would justify such an award.

[71] Accordingly, while I would grant leave to appeal, I would dismiss the appeal as to costs.

Disposition

[72] For the foregoing reasons, I would dismiss the appeal and the cross-appeal.

[73] Counsel have agreed on costs. I would therefore fix Aviva's costs of the appeal and the cross-appeal, together, in the amount of $12,500, all inclusive, in accordance with the agreement of counsel.

Appeal and cross-appeal dismissed.

[^1]: In fact, the policies were with predecessors of Lombard and Aviva, but nothing turns on this distinction.

[^2]: Bakhtiari v. Axes Investments Inc., [2001] O.J. No. 4720, [2001] O.T.C. 855 (S.C.J.).

[^3]: Lombard General Insurance Co. v. CGU Insurance Co. of Canada, 2003 CanLII 34147 (ON SC), [2003] O.J. No. 3385, [2003] O.T.C. 770 (S.C.J.).

[^4]: This amount represents the outstanding portion of the damage award attributed to Axes/Tandem, after deduction of Lombard's $1 million primary policy coverage.

[^5]: Lombard General Insurance Co. v. CGU Insurance Co. of Canada, 2004 CanLII 18638 (ON CA), [2004] O.J. No. 2269, 187 O.A.C. 178 (C.A.).