Court of Appeal for Ontario

Date: 2022-07-07 Docket: C70016

Judges: Benotto, Zarnett and Sossin JJ.A.

Between:

Northbridge General Insurance Company Applicant (Respondent)

And:

Aviva Insurance Company Respondent (Appellant)

Counsel: Deborah Berlach and Michael Connolly, for the appellant Donald Dacquisto and James Tausendfreund, for the respondent

Heard: June 17, 2022

On appeal from the order of Justice William S. Chalmers of the Superior Court Justice, dated October 13, 2021, with reasons reported at 2021 ONSC 6873.

Reasons for Decision

[1] This is an appeal 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”), be required to contribute equally to the defence and indemnification of an insured party who is being sued in an underlying action. The appeal raises the question of when the doctrine of equitable contribution between insurers is available and appropriate.

A. Overview

[2] The underlying action to this insurance dispute involves Mr. Daneshvari, a pharmacist who is a defendant in an action brought against him involving professional misconduct. Mr. Daneshvari’s employer, 2169623 Ontario Inc., operated by Ayda Pharmacy, is also a defendant in the action. Northbridge defended Mr. Daneshvari and Aviva defended Ayda Pharmacy. On May 11, 2021, Northbridge settled the action in the amount of $115,000, all-inclusive of claims, interest, costs and disbursements. Northbridge incurred $36,317 in legal expenses in defending Mr. Daneshvari. Aviva did not contribute towards the settlement.

[3] Northbridge sought a declaration to have Aviva contribute equally to the defence and indemnification of Mr. Daneshvari.

[4] The facts may be briefly stated. Northbridge issued a professional liability insurance policy to members of the Ontario Pharmacists Association (“the Northbridge Policy”). As a member of the Ontario Pharmacists Association, Mr. Daneshvari is an insured under the Northbridge Policy. Aviva issued a commercial general liability policy to Ayda Pharmacy (“the Aviva Policy”). The Aviva Policy includes a Pharmacist Professional Liability Endorsement that extended liability coverage to pharmacists employed with Ayda Pharmacy. As an employee of Ayda Pharmacy, Mr. Daneshvari is also an insured under the Aviva Policy.

[5] The Northbridge and Aviva Policies each include “other insurance” clauses that provide that their policies are excess to any other valid and collectible insurance.

[6] The parties do not dispute the availability of the doctrine of equitable contribution where two policies are irreconcilable – that is, where both cover the loss at issue and neither is clearly excess to the other. In those circumstances, both insurers may be required to contribute equally to an insured’s defence and indemnification. That is what Northbridge argues applies in this case. Aviva, by contrast, argues that the policies are reconcilable. Its policy clearly is excess to any professional liability policy that provides coverage to Mr. Daneshvari, and, consequently, it only has an obligation should the amount of the loss covered by Northbridge’s insurance be exceeded.

[7] The application judge found the two policies were irreconcilable, as they covered the same loss and each had an equivalent “other insurance” clause.

[8] The Northbridge Policy included the following “other insurance” clause:

SECTION VII - GENERAL CONDITIONS (4) Other Insurance This insurance is excess over any other valid and collectible insurance available to the “insured”, whether such insurance is stated to be primary, excess, contingent or otherwise. This does not apply to insurance which is purchased by the “insured” to apply in excess of the Policy.

[9] The Aviva Policy was a commercial general liability policy and excluded coverage for liability arising out of professional services. As a result, a Pharmacy Professional Liability Endorsement was added to the Aviva Policy to provide liability coverage for claims arising out of the professional services provided by pharmacists employed with Ayda Pharmacy. The endorsement included an “other insurance” clause, which provided:

ADDITIONAL CONDTIONS [sic] (applicable to this endorsement) The following is added to the Other Insurance clause The insurance provided under this endorsement is excess over any other valid and collectible insurance available to individual pharmacists for a loss we cover under this endorsement.

[10] On the basis of the application judge’s conclusion that both policies covered the loss at issue in the underlying action, and each purported to be excess to other valid and collectible insurance, he applied the doctrine of equitable contribution. As a result, the application judge granted Northbridge’s application for the declaration that both insurers split equally the cost of Mr. Daneshvari’s defence and indemnification.

B. Analysis

[11] The appellant argues that the application judge erred in his interpretation of the Northbridge and Aviva Policies as irreconcilable, while the respondent contends that the application judge made no errors which would warrant appellate intervention.

[12] The parties take different views on the applicable standard of review for this appeal. According to the appellant, the application judge’s interpretation of the insurance policies is subject to a standard of correctness, based on Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, and Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23.

[13] In Sattva, the Supreme Court held that contractual interpretation is a question of mixed fact and law, which attracts deference. In Ledcor, however, Wagner J., writing for the majority, recognized an exception to this principle, noting that where an appeal involves “the interpretation of a standard form contract, the interpretation at issue is of precedential value and there is no meaningful factual matrix that is specific to the parties to assist the interpretation process,” the interpretation is better characterized as a question of law: at para. 24.

[14] The respondent argues that, as the application judge had to interpret two different policies with differently worded “other insurance” clauses in light of a specific factual matrix, this court should only interfere with his decision if he committed palpable and overriding errors.

[15] We do not agree that the “other insurance” and other relevant provisions of the policies at issue in this case are “standard form contracts” or contracts with significant precedential value. Rather, the wording of these provisions and interplay of the two policies makes the application judge’s interpretive decisions distinct. As such, the standard of palpable and overriding error applies.

[16] That said, for the following reasons, whether on this standard or the standard of correctness, we see no error in the application judge’s decision.

[17] The applicable legal standard for equitable contribution was set out in Family Insurance Corp. v. Lombard Canada Ltd., 2002 SCC 48, [2002] 2 S.C.R. 695, at paras. 14-15, and is based on the principle that parties under “coordinate liability,” to make good a loss, must share that burden on a pro rata basis. The policies must cover the same risk for the same insured and must not exclude one another. In short, the policies must both apply to an insured’s loss and be irreconcilable.

[18] The application judge found that the policies at issue in this case met these criteria, at paras. 21-22:

[I am satisfied that both policies cover the same risk. The Northbridge Policy provides coverage for the professional liability of pharmacists who are members of the Ontario Pharmacists Association. The Aviva Policy, through the Pharmacy Professional Liability Endorsement, provides coverage for the professional liability of pharmacists employed with Ayda Pharmacy. At the time of the loss, Mr. Daneshvari was a member of the Ontario Pharmacists Association and an employee of Ayda Pharmacy. He was an insured under both policies. Both policies provide coverage for claims for bodily injury arising out of professional services. I am also satisfied that both policies provide coverage at the same layer of coverage.

[19] The application judge instructed himself on the interpretation of the “other insurance” provisions, at para. 27:

In determining the intention of the insurers to limit their obligations, the court is to consider only the policy wording. The analysis is not to be based on the surrounding circumstances or which policy is more specific or closer to the risk. If the intention to limit the obligations is not clearly set out in the policy, or if the competing intentions of the insurers cannot be reconciled, the principles of equitable contribution require the parties to equally share the costs of defence and indemnity: Family Insurance, at paras. 19, 23-28.

[20] We agree with the application judge’s conclusion that the “other insurance” clause in both the Northbridge and Aviva Policies was intended to achieve the same goal. The “other insurance” clause in the Northbridge Policy included a provision that it did not apply if the insurance purchased by the “insured” was an excess policy. The “insured” under the Northbridge Policy was Mr. Daneshvari. The Aviva Policy, however, was not purchased by Mr. Daneshvari but rather by Ayda Pharmacy. The Aviva Policy was not a true excess policy (relying on the importance of a contextual analysis of the “other insurance” clause as reiterated by this court in McKenzie v. Dominion of Canada General Insurance Company, 2007 ONCA 480, 86 O.R. (3d) 419, at para. 39).

[21] Nor do we accept the appellant’s argument that the reference in the Aviva Policy’s “other insurance” clause to the coverage being in excess of any valid and collectable policy available to “individual pharmacists” transformed the Aviva Policy into a secondary insurance policy. This language constituted a requirement that individual pharmacists covered under the general liability policy of the pharmacy were required to maintain a professional liability policy. The more specific language relating to individual pharmacists in the “other insurance” clause in the Aviva Policy did not alter its scope as compared to the general “other insurance” clause in the Northbridge Policy.

[22] The application judge correctly distinguished this case from Lawyers’ Professional Indemnity Company (LPIC) v. Lloyd’s Underwriters, 2016 ONSC 6196, relied upon by the appellants. In LPIC, the court found that the Lloyd’s policy, which provided general liability coverage, specifically provided that its coverage was excess to any professional liability coverage provided by any Law Society. The court contrasted this policy and the LPIC professional liability policy, which provided that if the insured had other insurance that was arranged to be excess insurance, the other policies were to be treated as excess. The court found that the Lloyd’s policy was a secondary policy in relation to the LPIC policy. Therefore, the two policies were not irreconcilable, and Lloyd’s was not required to contribute towards the defence or indemnity of the insured under the principle of equitable contribution.

[23] This court upheld the LPIC application judge’s decision, concluding, at para. 3, “Further, the appellant’s policy acknowledges that other policies, specifically arranged to apply as excess insurance over the appellant’s policy, were to be treated as being excess policies. We see no error in the application judge’s analysis”: 2017 ONCA 858.

[24] The application judge’s interpretations of the Aviva and Northbridge Policies were open to him, and the appellant has shown no error with his analysis or conclusion.

C. Disposition

[25] For these reasons, we dismiss the appeal.

[26] As the parties have agreed on the quantum of costs, Aviva will pay Northbridge costs of $8,000, all-inclusive.

“M.L. Benotto J.A.” “B. Zarnett J.A.” “L. Sossin J.A.”