SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-15-519719

DATE: 20150922

RE: Aquatech Logistics Inc. and Aviva
Insurance Company of Canada, Applicants

AND:

Lombard Insurance Company, ACE INA Insurance, Lloyd’s Underwriters under the Authority of Unique Market Reference Number B0701WNRBGH111067. Economical Mutual Insurance Company and Jevco Insurance Company, Respondents

BEFORE: Sean F. Dunphy J.

COUNSEL:
Patrick J. Monaghan and Christine Matthews, for the Applicants

William S. Chalmers, for the Respondent Lombard Insurance Company

Nicola Brankley, for the Respondents ACE INA Insurance Company et al.

HEARD: September 14, 2015

ENDORSEMENT

[1] On July 12, 2012 a very unfortunate accident occurred at a public pool in St. Catharines, Ontario. A delivery of chlorine was accidentally poured into a container of muriatic acid (also known as hydrochloric acid). The chemical reaction which quickly ensued produced a poisonous cloud of potentially deadly chlorine gas which infiltrated the public areas of the pool and the surrounding area.

[2] Two law suits arose from the accident, naming the company that delivered the chlorine (Aquatech Logistics Inc.) and the pool operator (the City of St. Catharines) as defendants. Liability has yet to be determined. This application has been brought by Aquatech and one of its insurers (Aviva) against two of Aquatech’s liability insurers seeking to compel them to share in the costs of defending the claims.

[3] The two non-defending insurers raise a number of defences relating to the exclusion clauses in their particular policies. There appears to be little dispute between the parties as to the underlying legal principles to be applied even if they arrive at diametrically opposite outcomes in their conclusions based on them.

[4] I have concluded that the Applicants should succeed for the reasons that follow.

Overview of Facts

[5] The first of the two actions arising from this incident, referred to hereafter as the “Class Action Claim”, was commenced on August 2, 2012 by Donald MacLennan et al as proposed class action plaintiffs under the Class Proceeding Act, 1992, c. 6 naming Aquatech and St. Catharines as defendants.

[6] The Statement of Claim in the Class Action Claim contains the following allegations:

a. “an Aquatech employee arrived at the facility to deliver chlorine for use in the Pool’s water purification and filtration system. The chlorine was to be stored in a tank located at the aforesaid chemical storage shed” (para. 19)

b. “While Aquatech was supposed to transfer chorine into a chlorine storage tank, instead Aquatech poured approximately 90 litres of chlorine into a tank containing approximately 900 litres of muriatic acid. Mixing the chlorine and muriatic acid produced large amounts of deadly chlorine gas. The Pool immediately became engulfed in a large cloud of chlorine gas which spread onto neighboring properties” (para. 21).

c. The plaintiffs plead that the release of chlorine gas was a spill which the defendants had an obligation under s. 93 of the Environmental Protection Act, R.S.O. 1990, c. E.19 to prevent, eliminate or ameliorate and that the defendants are liable to compensate the plaintiffs under s. 99 of the EPA (paras. 30-31);

d. The plaintiffs plead the tort of nuisance arising from the spill of chlorine gas that occurred (para. 32);

e. Various negligence allegations are made in paragraph 33 including:

i. “pouring or allowing the transfer of a large quantity of chlorine into a tank containing muriatic acid instead of using the tank designated for the chlorine” (para. 33(a));

ii. “failing to contain the chlorine gas once it was apparent that the chemical reaction had occurred” (para. 33(b));

iii. “Failing to have reasonable policies and procedures in place to prevent the transfer and storage of a potentially dangerous chemical into the wrong storage tank” (para. 33(c)); and

iv. “Failing to warn the plaintiffs and class members properly, adequately, sufficiently or at all” (paragraph 33(k)).

f. The remainder of the allegations concern the damages suffered by various class members, including those prevented from leaving the area by allegedly padlocked emergency exits and are not material to the issues on this application.

[7] A second statement of claim (referred to hereafter as the “Durrant Claim”) was commenced on July 11, 2014 by Marcie Durrant and Patricia Durrant against the same two defendants. The plaintiff Marcie Durrant was a lifeguard on duty at the time of the accident while her mother Patricia Durrant brought a claim under the Family Law Act, R.S.O. 1990, c. F.3.

[8] The Durrant Claim pleads various claims under the EPA, in nuisance and in negligence. While not identical to the Class Action Claim, the allegations are sufficiently similar that I may safely treat the Durrant Claim as being substantially identical to the Class Action Claim save and except for the date it was commenced for the purposes of this application at least.

[9] None of the claims have been proven at this point. This application is one brought to enforce the claimed obligation of two of the insurers to participate in the defence of the claims as outlined in their respective policies with the applicant Aquatech. It is common ground that there are no agreements as between the three insurers involved in this case – their sole link with each other is the fact that they each insured Aquatech.

[10] The applicant Aviva provided an automobile insurance policy to the co-applicant Aquatech. This is a prescribed policy and the terms are therefore standard. The terms of the policy are not material to this application. Aviva has agreed that it might have an obligation to indemnify the insured against the plaintiffs’ claims if the claims are proved and has accordingly made its decision to provide for the defence of its insured. Aviva has not conceded that its policy does respond to the claims as filed if proved – it has merely conceded that the allegations if proved by the plaintiffs may be covered by the Aviva policy and that, accordingly, its obligation to defend under the policy is engaged.

[11] Lombard provided a Comprehensive General Liability (or “CGL”) policy to Aquatech with a limit of $3 million. Since Lombard did not ultimately contest the existence of its obligation to defend as a result of my ruling (described below) regarding extrinsic evidence, the terms of the Lombard policy are not set forth in detail here. It is sufficient for present purposes to note that it contained in an obligation to defend claims which, if proved, would be covered under the policy. The policy contained an exclusion for claims arising from, among other things, the loading or unloading of a motor vehicle using equipment attached thereto providing that the injury was covered by the motor vehicle policy of the insured.

[12] Aquatech also held a “Pollution Incident Liability Insurance” policy with ACE/INA Insurance and Lloyd’s Underwriters et al with a limit of liability of $1,000,000. The covered business of the insured was described as “distribution of pool chemicals” with an Operational Coverage Endorsement providing that “coverage of this Policy is limited to the following operations of the Named Insured in Canada at the job sites: Operations: delivery of pool chemicals”.

[13] The insuring agreement relevant to this application is paragraph 1(c) which reads as follows:

“We will pay on behalf of the Insured for…those “defence expenses” incurred by the Insured with our written consent to defend claims made or “actions” brought in Canada against the Insured seeking compensatory damages payable under this policy for “bodily injury” or “property damage”.

[14] The term “action” is defined to mean “a civil proceeding in a Canadian Court in which compensatory damages to which this insurance applies are claimed” (Section V, s. 1). Pursuant to Section III, s. 1(a), the Aggregate Limit is reduced by the total of all claims, including defence costs, paid.

[15] The exclusion relevant to this application is in paragraph 3(k) which reads as follows:

“Bodily Injury”…arising out of the ownership, use or operation by or on behalf of any Insured of any self-propelled land motor vehicle…including accessories and equipment while attached to or mounted on such vehicle. However…this exclusion shall not apply to “pollution incidents” or “environmental damage”, as defined, covered by this policy to the extent that such coverage in not provided by any statutory owned or non owned automobile policy available to the Insured. Such coverage as is afforded by this provision shall not apply as excess or contributing coverage with any owned or non owned automobile policy available to the Insured.”

Issues

[16] At the outset of the hearing of this application, Lombard sought an adjournment to permit it to pursue a motion to seek extrinsic evidence by way of an examination of the driver of Aquatech’s delivery truck. I was advised that the purpose of this evidence was to seek to establish with precision the means by which the chlorine was delivered to the pool and placed in the wrong storage tank resulting in the chemical reaction that produced the escaping chorine gas. I denied the application for brief reasons endorsed upon Lombard’s motion record.

[17] In summary, the matter had been the argued before Master Haberman and the request to examine the driver was dismissed from the bench on August 11, 2015 with more detailed reasons to follow. Those reasons, consistent with the reasons delivered orally from the bench on August 11, 2015 were delivered on August 25, 2015. Lombard had sought an extension of time to appeal that ruling by motion returnable after the hearing of this application and thus sought an adjournment of the hearing before me. No advance notice of its intended adjournment application was given although clearly the issue giving rise to the request – the desire to examine the truck driver – had been raised and denied by Master Haberman more than a month prior to the hearing before me. I denied the application since (i) I was not convinced that any of the exceptions for the admissibility of extrinsic evidence on duty to defend cases were applicable in this case (as discussed further below) such that the evidence being sought would not have been admissible; (ii) the delay in seeking the adjournment; and (iii) the delay in processing the appeal of Master Haberman’s ruling.

[18] In light of Lombard’s inability to place extrinsic evidence before me, Lombard’s counsel conceded that it had no basis to dispute liability as regards the duty to defend. I underline here that no insurer has admitted that their policy responds to any claim that might be made arising from the two statements of claim filed in relation to the accident. The only issue before me on this application is the duty to defend which is an issue quite distinct from the obligation to indemnify should any claims be proved. While conceding liability to defend in light of my ruling denying it an adjournment to seek additional extrinsic evidence, Lombard reserved the right to dispute costs as well as the right to seek further directions from the court regarding the conduct of the defence of the claims if it was unable to negotiate satisfactory resolutions of these two issues with the applicants. Lombard’s counsel therefore made no submissions on the merits of the application and I have as yet made no disposition of the application as regards the claims for costs or directions, if any, regarding conduct of the defence of the two underlying claims, both of which issues are reserved to me.

[19] The following issues are raised by this application:

a. Does the Lombard CIGL Policy provide a basis not to defend?

b. Does the ACE INA Pollution policy provide a basis not to defend?

c. Can the duty to defend be invoked by Aviva in its own right as applicant in this case?

Analysis and Discussion

a. Lombard CIGL Policy

[20] As noted above, Lombard did not dispute the merits of the applicants’ claims beyond reserving its rights to make submissions on costs and to seek directions if needed regarding the conduct of the defence of the claims. As regards the question of liability, Lombard’s policy differently worded but materially identical to ACE INA considered below such that similar reasoning would have applied. Lombard did not concede any issues regarding the limitations defences it raised in its written argument and I agreed to make it clear in my reasons that my ruling here in no way comments upon those arguments, favourably or unfavourably.

b. ACE INA Pollution Policy

[21] At the outset of its argument, ACE INA submitted that its obligation to defend is differently worded than the clause found in many policies. Under its Pollution policy, ACE INA has only agreed to indemnify “those “defence expenses” incurred by the Insured with our written consent”. Having – to this point at least – withheld their consent, ACE INA claims that they have no obligation to defend. ACE INA admits that Aquatech asked it to provide defence costs and it has – until now at least – refused.

[22] I cannot agree with the respondents’ interpretation of the duty to defend in the ACE INA Pollution policy. The obligation to defend is one of the insuring agreements contained in the policy. Indeed, for many insured persons, this is the main insuring agreement since many businesses experience far more claims for damages than actually result in claims that are ultimately proved and paid out. Litigation costs can be a more material risk than ultimate liability for some. Suggesting that the defence cost indemnity is subject to the purely discretionary whims of the insurer to decide whether or not to pay would be to strip the insurance of any substance or meaning.

[23] In my view, the only commercially sensible interpretation of the ACE INA Pollution policy is that the defence expenses are subject to the agreement of the insurer, such agreement not to be unreasonably withheld. Clearly, ACE INA cannot be obliged to pay unreasonable defence costs – indeed, the ability of the insurer responsible for paying legal defence costs to have allegedly unreasonable defence costs assessed has long been established as a general principle. However, if the claims advanced in one or both of the underlying statements of claim are matters to which the ACE INA Pollution policy may be required to provide indemnity if proved and no exclusions can be shown at this preliminary stage to be plainly and obviously applicable, refusing to provide defence expenses now would be unreasonable.

[24] In short, the substantive question to be addressed is not whether ACE INA have consented to the incurring of any defence costs, the question is whether its policy can certainly be excluded from consideration at this early stage in the fact finding process. In my view if it cannot, the withholding of consent is unreasonable.

[25] ACE INA argued that the motor vehicle exclusion in paragraph 3(k) of its Pollution policy applies in this case. If the claim of the plaintiffs is excluded on this ground, then I would agree with the respondents that there can be no obligation to defend and this application must be dismissed as against ACE INA

[26] Responding to this question requires a broader discussion of the duty to defend and in particular, the admissibility of extrinsic evidence on such applications. ACE INA sought to refer to the contents of the cross-examination of the applicants’ affiant (Mr. Lance Farrell, President of Aquatech). The passages sought to be referenced were questions answered refused but answered under reserve of admissibility. The answers were intended to establish that the chlorine was brought to the site by Aquatech in a truck (i.e. a motor vehicle) and had been stored in large tanks on a truck.

[27] The Supreme Court of Canada considered the nature and extent of an insurer’s obligation to defend (as distinguished from the obligation to indemnify) in the case of Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49. Writing for the court, Iacobucci J. described the “traditional rule” in such cases as follows (at para. 28 and para. 31):

“28. The starting premise for assessing whether an insurer’s duty to defend has been triggered rests is the traditional “pleadings rule”. Whether an insurer is bound to defend a particular claim has been conventionally addressed by relying on the allegations made in the pleadings filed against the insured, usually in the form of a statement of claim. If the pleadings allege facts which, if true, would require the insurer to indemnify the insured for the claim, then the insurer is obliged to provide a defence. This remains so even though the actual facts may differ from the allegations pleaded.

31. Where pleadings are not framed with sufficient precision to determine whether the claims are covered by a policy, the insurer’s obligation to defend will be triggered where, on a reasonable reading of the pleadings, a claim within coverage can be inferred.”

[28] Having regard to these general principles, Iacobucci J. then considered the admissibility of extrinsic evidence in ascertaining the “true nature” of a claim (at para. 37):

“It should be recalled that the question whether an insurer is bound to provide defence coverage in an action taken against the insured arises as a preliminary matter. Of course, after trial, it may turn out that there is no liability on the insurer, and thus, no indemnity triggered. But that is not the issue when deciding the duty to defend. Consequently, we cannot advocate an approach that will cause the duty to defend application to become “a trial within a trial”. In that connection, a court considering such an application may not look to “premature” evidence, that is, evidence which, if considered, would require findings to be made before trial that would affect the underlying litigation” (emphasis added).

[29] The admissibility of extrinsic evidence in duty to defend cases since Monenco (supra) has been clarified in two subsequent cases by our Court of Appeal. In Halifax Insurance Co. of Canada v. Innopex Ltd., 2004 33465 (ON CA) Borins J. A. noted that duty to defend applications are similar to rule 21.01(1)(b) motions to strike pleadings for disclosing no action or defence. As such, he found that the court is entitled to consider the documents referred to and relied on in the pleadings (at para. 36).

[30] In McLean (Litigation Guardian of) v. Jorgenson, 2005 45188 (ON CA), the court admitted an affidavit which confirmed that all of the insured’s other vehicles were insured with TD (the insurer subject to the application). Weiler J.A. noted that the duty to defend “is triggered by the mere possibility that the claim could succeed” (at para. 5). While TD denied that it had insured the snowmobile in question, it admitted that its policy insured automobiles of the defendant, including newly acquired automobiles. The statement of claim alleged the defendants owned the snowmobile. The affidavit confirming that TD insured all of the other motor vehicles of the insured was admitted into evidence on the motion. In so finding, Weiler J.A. found (at para. 16):

“That statement does not offend the policy reasons for excluding evidence on a coverage motion, namely, the need to avoid making premature findings at a preliminary stage of that could affect the issue of liability and to avoid the protraction of proceedings by a trial within a trial. The statement was not controversial, affected only coverage and did not affect the issues of liability in the litigation. Consideration of this extrinsic evidentiary fact simply illuminated the question of law and is consistent with the reasoning in Monenco” (emphasis added).

[31] In the present case, the pleadings in the two underlying actions are the starting point for any analysis of the duty to defend. Neither statement of claim so much as mentions the existence of a motor vehicle in connection with the various torts and statutory causes of action pleaded as arising from the release of chlorine gas. Absent admission or extrinsic evidence, there would be no basis at all from the pleadings to infer that a motor vehicle was involved in the incident, directly or indirectly. While I might have been prepared to consider taking judicial notice of the exceptional rarity of commercial bulk transport of chemicals by oxcart or horse, at least in the City of St. Catharines, the admission by the applicants that motor vehicles are used by Aquatech in the delivery of pool chemicals avoids that issue and strikes me as just the sort of non-controversial matter that the Court of Appeal in McLean (supra) was referring to.

[32] Does that fact that the chlorine was brought to the site of the pool by motor vehicle answer establish that there is no “mere possibility” that ACE INA must indemnify Aquatech for the claims of the two plaintiffs as pleaded? In my view it does not.

[33] The pleadings in the underlying action are not yet closed and discoveries have not been held. At this point, it would be mere speculation to assert what facts the plaintiffs may succeed in proving at trial. Among other questions that remain open for a trier of fact on the main actions to examine and determine:

a. Was the chlorine brought in a single trip or more than one?

b. If a single load, was the chlorine unloaded directly from the tank in the Insured’s truck into the wrong tank at in the pool storage room or was there an intermediate step?

c. If unloaded directly into the muriatic acid tank, was it unloaded by means of a pump?

d. If by pump, was it a pump powered by the customer/pool operator or one powered by the systems on the truck?

e. If by pump, was the pump portable or permanently affixed on to the truck?

f. In light of the answers to (d) and (e) above, can the pump or other unloading device be qualified as “accessories and equipment while attached to or mounted on such vehicle” as defined in paragraph 3(k) of the ACE INA Pollution policy?

[34] The respondents to the application may well have a view as to what occurred. Lombard clearly sought leave to examine the driver of the truck in order to be in a position to answer some or all of the questions raised above. However, it cannot be said at this early stage that these are matters that are non-controversial and not relevant to the question of liability, to use the formulation suggested in McLean (supra). Even if the truck driver had been examined and provided affirmative answers to the questions the respondents wished to ask, it cannot be assumed that his or her evidence would have been accepted as the last word on the matter by the plaintiffs who may have entirely different evidence to adduce. This application cannot be converted to a “trial within a trial” to answer the questions posed above (among others) without violating the Supreme Court’s directions in Monenco (supra). Should it appear that the pool owner’s equipment or personnel were involved in any way in the unloading process, or that unattached equipment was used in some way, the question of liability may be directly impacted.

[35] While the court is not bound by the plaintiffs’ characterization of issues or headings used in the pleadings, the court is bound by the true nature of the claims laid out therein. The “true nature” of the claims is clearly that of a pollution incident. The exact means by which that incident was caused is not pleaded and remains for the plaintiffs to establish. At the moment, they have not ventured further than to assert that the defendant’s employee caused the mixture of the two chemicals by pouring one into the other. I cannot now find that the question of the means of causation will not be material or relevant to the court hearing either or both of those actions. Such an inquiry would clearly involve matters that extend beyond coverage under the various policies.

[36] The Court of Appeal in McLean found that the duty to defend is engaged where there is even the “mere possibility” that the claim alleged could succeed (Mclean, supra, at para. 5). In the present case, the coverage issue is whether the “motor vehicle” exclusion in paragraph 3(k) of the ACE INA Pollution policy applies. If there is even the “mere possibility” that the motor vehicle exclusion to coverage does not apply, the applicants are entitled to succeed.

[37] In my view, it is quite clear that there is at least a possibility that the motor vehicle exclusion in the ACE INA Pollution policy does not apply and thus that the claims advanced in the two statements of claim would possibly be covered claims (if proved).

[38] Firstly, the motor vehicle exclusion in the ACE INA Pollution policy only applies to the extent that there is actually coverage under the existing motor vehicle policy which in this case was provided by Aviva. Aviva has not admitted liability to indemnify. Until more facts are known and the plaintiffs have fully established liability, Aviva cannot know whether or not an exclusion from liability exists and can be relied upon. Based upon the pleadings as they currently stand and Aviva’s own investigation of the accident and consistent with their own good faith obligations to their customer the Insured, Aviva “blinked” in this case and agreed to provide coverage of defence costs. It is premature, however to conclude that liability will ever be proved or, if it can, that it can only be proved by the plaintiffs in this case by means of establishing facts that necessarily entail exposing Aviva’s motor vehicle policy. I cannot say that it is “plain and obvious” that a motor vehicle will be found to be involved in the chain of causation in terms which provide Aviva with no defence to providing an indemnity. Unless I can so find, I cannot conclude that ACE INA’s motor vehicle insurance exclusion is triggered.

[39] Secondly, the answers to the questions posed by me above are not presently known and will be part of the factual inquiry required of the trial judge hearing the claims on the merits. Until the answers to those questions are known, there is more than a mere possibility that the motor vehicle exclusion does not apply. The evidence might establish all of the chorine was brought in a single trip, was unloaded directly from a tank on the truck into the wrong container and the unloading occurred by means of a pump or other equipment permanently installed on the truck and operated by the truck’s own power. If so, Aviva may be unable to invoke any of the exclusions of liability contained in its motor vehicle policy. At this early stage in the fact finding process, I cannot conclude that it is plain and obvious that any of this is so nor can I conclude that conducting an adversarial fact-finding process to answer these questions at this early stage can be accomplished without interfering with the facts to be inquired into and established as part of the underlying litigation claims.

[40] I agree with and adopt Master Haberman’s characterization of the extrinsic evidence question in her reasons delivered in this matter on August 25, 2015 (at p. 8 of her reasons):

“If it were otherwise, insurers could safely deny their insured a defence on the basis of no or minimal information, and use the duty to defend application as an opportunity to examine how they might extract themselves from being bound.

Insurers have an obligation of utmost good faith towards their policy holders, thus must refrain from refusing to defend capriciously or without a sound basis. Permitting them to seek justification for their actions after the fact would ignore this. Allowing a more expansive factual exploration, the results of which could then be relied on, would encourage that approach and fly in the face of their obligation of utmost good faith”.

[41] In my view, there remains a possibility that the ACE INA Pollution policy may be required to indemnify Aquatech for the some or all of the claims advanced by the plaintiffs in the two underlying statements of claim. Accordingly, I cannot exclude ACE INA’s duty to defend.

c. Can the duty to defend be invoked by Aviva in its own right as applicant in this case?

[42] It therefore appears that each of Lombard and ACE INA have provided Aquatech with insurance policies that may possibly be required to indemnify the claims of the plaintiffs and both policies contain obligations to defend. Aviva has already conceded the point. What then is the nature of the contribution rights, if any, between these three insurers who otherwise have no contractual privity with each other?

[43] ACE INA argue that since Aviva is presently paying the costs, there is nothing for them to do. The insured is not out of pocket so they have nothing to indemnify. Not only does this ignore the insurer’s duty of good faith to its own insured, but it ignores the principle of equitable contribution established by the Ontario Court of Appeal in Broadhurst & Ball v American Home Assurance Co., (1990)1990 6981 (ON CA), 1 O.R. (3d) 225 (C.A.) and broadly followed since.

[44] Prior to Broadhurst & Ball (supra), there was considerable doubt as to whether one insurer who agreed to provide defence costs had any recourse against another insurer who had declined to do so. In Broadhurst & Ball (supra), the insured plaintiffs were lawyers with a relatively small primary policy ($500,000) and a much larger excess insurance policy ($9.5 million). The claim for which defence costs were sought was well beyond the limits of the primary policy. Both insurance policies contained indemnities for defence costs. After an extensive review of the relevant principles, Robins J.A. concluded (at para. 37-38) at “I am persuaded that the absence of any contractual nexus between the primary and excess insurers should not, in the present circumstances, preclude the court from ordering the excess insurer to pay its fair share of the costs of defence” and that “Guardian ought not to be entitled to excuse its non-performance of its obligations to defend by pointing to the defence being provided by another insurer and insisting that that insurer’s defence relieves it of any obligation to involve itself in the defence”. In the result, both insurers were ordered to contribute equally to the defence.

[45] The issue returned to the Court of Appeal recently in the case of Aviva Insurance Co. of Canada v. Lombaard General Insurance Co. of Canada., 2013 ONCA 416. In Aviva, Blair J.A. reviewed the elements of the doctrine of equitable and concluded (at para. 37) that ascertaining which insurer “blinked” by agreeing to provide defence costs is not the defining principle of insurance law upon which the respective responsibilities of the insurers in that case were to be ascertained.

[46] In the present case, all of the criteria for establishing a claim of equitable contribution among insurers are present. The three policies in issue were all in force, were all legal. None contains any clause excluding contribution to defence costs. All have been found to cover the same peril (in this case, the cost of defending these two claims). The fact that Aviva “blinked” in this case by honouring its good faith obligations to its client does not disentitle it to the remedy of equitable contribution.

[47] Since all three policies contain an independent obligation to provide for the costs of the defence of the two statements of claim, the principles of equitable contribution require that each is insurer is obliged to the other to contribute its pro rata share of such costs (i..e. an equal one-third share each). Aviva having paid 100% of such costs to date is entitled to be reimbursed from each of the other two insurers the one-third that they should have paid and, going forward, costs should be shared equally.

Disposition

[48] For the foregoing reasons, I find that each of the three insurers have an independent obligation to defend the two actions. Thus far, only the applicant Aviva has “blinked” and admitted its obligation to defend. The other two insurers have thus far refused to honour their commitments. They should do so.

[49] I accordingly grant the declaration and orders sought in paragraphs 1 (a) through (c) of the Notice of Application. The obligations of the respondents in respect of fees and expenses referenced in paragraphs (b) and (c) shall be fixed at one-third for Lombard and one-third for ACE INA Insurance et al. While I expect the successful applicants ought ordinarily be entitled to partial indemnity costs, the parties have yet to make submissions and I am not aware of what offers to settle, if any, may be relevant. Accordingly, I shall reserve on the matter of costs.

[50] I would request each party to provide their written submissions on costs (restricted to five pages each, excluding any Outline of Costs) to me within 21 days if the parties are unable to agree. The applicants should provide their submissions within 14 days to the respondents who shall collectively have seven days to reply thereto. I would request the applicants to gather up all submissions – of the applicants and the respondents – and provide them to me electronically (via email to my assistant).

[51] I shall also remain seized of any claims for further relief that may be required consequent upon this order by the applicants or respondents. In particular, if the parties are unable to reach agreement upon how to handle the matter of instructing counsel (or, if it is an issue, selecting counsel), I may be approached by motion for directions to resolve any such disputes as ancillary relief to this application. As well, the rights of the parties to dispute the reasonableness of any expenses is not affected by these findings. Should further clarification of the substance of those rights be required, directions may also be sought.

Sean F. Dunphy, J.

Date: September 22, 2015