Court File and Parties

ONSC 6196 Court File No.: 15-65034 Date: October 5, 2016 Ontario Superior Court of Justice

Between: The Lawyers’ Professional Indemnity Company, Applicant And: Lloyd’s Underwriters, Respondent

Before: The Honourable Mr. Justice Martin James

Counsel: Stephen Cavanagh, Counsel for the Applicant Heather Gray, Counsel for the Respondent

Heard: June 10, 2016

Endorsement

James J.

[1] This is an application by an insurer, “LawPRO” for a declaration that another insurer, “Lloyd’s”, is obliged to contribute one half of the costs of defending their common insured, Joseph Borassa and Perley-Robertson, Hill & McDougal, against a claim (“the action”) brought against the insured by a third party.

[2] The action has not advanced to the trial stage despite the fact that the statement of claim was issued in May, 2006.

[3] Counsel for the applicant advises that the litigants in the action intend to pursue mediation as the next step.

Issues as stated by the Applicant

[4] The applicant states the issues as follows:

a) Does Lloyd’s have a duty to contribute to the cost of defending its insured in the action? b) Is this application timely?

Issues as stated by the Respondent

[5] The respondent states the issues as follows:

a) Is the relief sought by the applicant barred by the Limitations Act, 2002, S.O. 2002, c. 24? b) Does Lloyd’s have a duty to defend where the LawPRO policy has not been exhausted by the payment of claims? c) Are the “other insurance” clauses in the Lloyd’s policy and the LawPRO policy capable of being reconciled such that the Lloyd’s policy is excess?

Position of the Applicant

[6] The applicant says the relevant criteria for equitable contribution have been met in this case and the costs of defending the action ought to be shared by both insurers.

[7] The “other insurance” provisions of both policies are irreconcilable.

[8] The applicant acknowledges that its right to seek equitable contribution is a continuing right and that there would be greater clarity after a trial when the facts have been found and the basis of liability, if any, is known. For this reason the applicant requests that a provisional order, subject to possible readjustment in the future, be made at this time. The benefit to the applicant in making the request now is that a successful application would require the respondent to contribute to legal costs on an ongoing basis.

Position of the Respondent

[9] The respondent has two arguments in response to the applicant’s request. Firstly, the respondent says that the right of the applicant to seek a contribution from the respondent towards the costs of defending the action has expired. The respondent says that the applicant was aware of the terms of the Lloyd’s policy in 2010 and made a request in 2012 for an agreement on cost sharing. The applicant was aware of its rights to make a claim for contribution as early as 2010 and in any event by 2012, both dates being outside the applicable limitation period, this application having been commenced in July, 2015.

[10] Secondly, the respondent says Lloyd’s coverage is secondary and LawPRO has primary exposure. The respondent disputes the applicant’s suggestion that both policies have irreconcilable “other insurance” clauses. The respondent says that its policy has the status of excess insurance and Lloyd’s is only required to respond once the policy limits of the LAWPRO insurance have been exhausted. The respondent says that the doctrine of equitable contribution does not apply because the Lloyd’s policy, as an excess coverage policy, may be differentiated from the coverage offered by LawPRO and therefore the requirement that both insurers cover the same interest and the same risk is not satisfied.

Discussion

[11] On the issue of whether both policies are primary because the “other insurance” provisions are irreconcilable, the Lloyd’s policy provides as follows:

1.2 1.2.1 This insurance is in excess of any Insurance Coverage specifically, Lawyers Professional Liability coverage provided by any Law Society in Canada or elsewhere in the world. Coverage shall attach only after such insurance coverage has been exhausted by the payment of claim(s)…

8.1 The insurance provided by this Policy shall apply excess of the Deductible stated in Item V of the Declarations and excess of any other valid and collectible insurance available to the Insured whether such other insurance is stated to be primary, pro-rata, contributory, excess, contingent or otherwise, unless such insurance is written only as a specific excess insurance policy over the Limit of Liability of this Policy.

[12] The LawPRO policy provides as follows:

If the INSURED lawyer, and/or any other individual and/or INSURED relating to the same LAW FIRM, has insurance (other than that, with a self-insured retention of $1,000,000 per CLAIM or more, specifically arranged to apply as excess insurance over this POLICY or any RECIPROCATING JURISDICTION’S POLICY) under a policy which is not a RECIPROCATING JURISDICTION’S POLICY that applies to a CLAIM covered by this policy, this POLICY will apply only as excess insurance over such other insurance to the extent that the other insurance is valid and collectable, and will not be called upon in contribution or otherwise.

[13] In my view, the Lloyd’s policy is in an excess position in relation to the LawPRO policy. The “other insurance” provisions do not cancel each other out. As a matter of construction and interpretation, the specific language used contained in the Lloyd’s policy ought to prevail over the more generally-framed provisions in the LawPRO policy.

[14] Equitable contribution can apply in a contest between the primary and excess insurers in circumstances where it would be inequitable to allow the excess insurer to insist that the primary coverage be exhausted first (see Broadhurst and Ball v. American Home Insurance Co. (1990) , 1 O.R. (3d) 225 (C.A.)). In the Broadhurst case, one of several lawsuits spawned by the infamous Seaway Trust controversy of the 1980s, the contest was between American Home Insurance, at the time the primary insurer for Ontario lawyers and Guardian Insurance, an excess professional liability insurer, in relation to a 20 million dollar lawsuit brought against the insured law firm. The limit of the American Home coverage was $500,000 per occurrence. The limit of the Guardian coverage was $9.5 million. It was acknowledged by all parties that the litigation was highly complex, that the trial would be lengthy and if the plaintiffs were successful, the damages would be very substantial. Robins J.A. concluded that to require a primary insurer, whose financial exposure was significantly less than that of the excess insurer, to bear the entire burden of defending an action of this nature was contrary to the principles of equity and good conscience.

[15] The applicant has not shown that the present case is at all similar to the situation in Broadhurst. Although it is not clear, I infer from the language used by Robins J.A. that the American Home policy did not provide for defence costs to apply to, or count against, the coverage limits and that American Home was exposed to the full cost of the defence even if those costs exceeded $500,000. That is not the case here. Nor is it manifest that the potential judgment in this case will substantially exceed the policy limits. I am unable to say on the evidentiary record before me that Lloyd’s is plainly at risk.

[16] In my view, this application is premature and ought to be dismissed without prejudice to a renewal of the request at a later stage of the proceeding.

[17] The respondent has put the question of the application of the Limitations Act, in play on the facts of this case. While I have concluded that the application ought to fail on other grounds, I have considered the issue and am of the view that it is appropriate to deal with it at this time. To do so now will alleviate the need for another judge to cover the same material again and to consider the same issue a second time, as I have no doubt that if left unaddressed, it will surface at some later point in time.

[18] On the facts present here, the entitlement of the applicant to seek a contribution from the respondent has not proscribed. I base this view on my reading of section 5(1) of the Limitations Act and in particular sub-clause 5(1)(a)(iv). There is no mandated single point in time for the applicant to request a contribution from the respondent. For the Limitations Act to apply, it would be necessary to conclude that the claim, having been “discovered” and the request for compensation having been rejected by the opposing party, “a proceeding would be the appropriate means to seek a remedy”. Put another way, when the applicant requested a contribution from the respondent and the respondent declined the request, was it appropriate for the applicant to respond by commencing an action? I would say not. Not enough was known to say that the claim had been discovered. It could equally be appropriate to await further developments in the claim against the insured and to defer bringing the matter to a head until more information is known and the facts had emerged with greater clarity.

[19] The situation would be different if the litigation against the insured was at an end, when all the facts and circumstances would be known. It may be at that point that one could say that the claim has been “discovered” and the clock starts to run, but that is not the case here.

Disposition

[20] The application is dismissed without prejudice to a further application for the same relief at a later date on additional evidence.

[21] If the parties are unable to agree on costs, they may deliver further submissions in addition to the outlines provided at the hearing, within 30 days on a schedule agreed to by counsel.

Mr. Justice Martin James Date Released: October 5, 2016