Reasons for Judgment

Court File No.: CV-24-00719561-0000
Date: 2025-05-12
Ontario Superior Court of Justice

Between:
Tokio Marine & Nichido Fire Insurance Ltd., Appellant
and
Honda Canada Inc., Respondent

Heard at Toronto: April 10, 2025

Counsel:
Andrew Evangelista and Jennifer L. Kent, for the Appellant
Marcus B. Snowden and Dean P. Bartlett, for the Respondent

Judge: J.K. Penman

Released: May 12, 2025

Overview

[1] This is an appeal from a private Arbitration Award that determined insurance coverage issues under commercial general liability and umbrella liability policies between the parties, Honda Canada Inc. ("Honda") and Tokio Marine & Nichido Fire Insurance Co., Ltd. ("Tokio").

[2] In the Arbitration, Honda sought to recover indemnity under policies of commercial general liability and umbrella liability in relation to several class actions issued in various provincial courts seeking damages and other relief as against Honda and other automobile manufacturers for deficiencies in air bag actuator components that were installed in their vehicles. The class actions were resolved by way of settlement agreement.

[3] Specifically, Honda sought to recover indemnification for amounts paid in respect of the settlement, costs to administer the settlement ("Settlement Administration Costs") and costs of the Plaintiff’s class counsel ("Class Counsel Fees") from Tokio, alleging that there was coverage for same pursuant to the commercial general liability and umbrella liability policies.

[4] The Arbitration proceeded before Arbitrators George R. Strathy, Dennis O'Connor and Mary Jane Stitt (the “Tribunal") on January 25, 2024. The Arbitrators rendered their Reasons for Decision and Award of Arbitrators, dated March 15, 2024 (the "Award").

[5] The Tribunal dismissed Honda’s claims for amounts paid in respect of the settlement and the Settlement Administration Costs. The Tribunal ordered Tokio to indemnify Honda only in respect of Class Counsel Fees, with interest, and ordered Tokio to pay Honda’s costs of the Arbitration.

[6] In this Appeal, Tokio seeks an Order and Declaration setting aside the Order requiring it to pay Class Counsel Fees, with interest and costs; an Order dismissing Honda’s claim for Class Counsel Fees, with interest and costs; and an Order dismissing the claim of Honda for Class Counsel fees, interests and costs.

[7] The Arbitration Award found that the legal costs of Class Counsel in the underlying class action are a covered risk under the umbrella liability policy. This issue is the basis of this appeal.

[8] Honda has also brought an Application appealing the Arbitrators’ dismissal of its claim for Settlement Administration Costs.

Agreed Facts

[9] The following are agreed facts as relied on by the parties at the Arbitration and on this appeal.

[10] Honda is a federally incorporated Canadian company headquartered in Markham, Ontario, and is a subsidiary of a Japanese corporation, Honda Motor Co., Ltd., headquartered in Tokyo, Japan. The Honda Entities are involved in the research, engineering, design, development, manufacturing and marketing of Honda vehicles.

[11] Tokio is a foreign property and casualty insurance company, which maintains an office in Toronto and is licensed to transact insurance in Ontario. Tokio is a subsidiary of Tokio Marine Holdings, Inc., an insurer headquartered in Tokyo, Japan.

Background and Insurance Policies

[12] Honda is insured by Tokio pursuant to certain primary commercial general liability (“CGL”) and umbrella liability (“UL”) policies of insurance, being the “Insurance Policies”.

[13] The following are the relevant CGL and UL policies:

a) CGL Policy No. 0872180, on a claims-made basis, with policy periods from April 1, 2014 to April 1, 2015 and from April 1, 2015 to April 1, 2016, with policy limits in the sum of US $4,000,000.00 inclusive of each accident or occurrence and in the general aggregate, in excess of the self-insured retention in the sum of $100,000.00;

b) CGL Policy No. 3511380, on an occurrence basis with policy limits of $15,000,000.00 per “occurrence” and in the aggregate in excess of a $100,000.00 deductible, renewed continuously including from March 31, 2000/01 to March 31, 2002/03;

c) Umbrella Liability Policy No. 0872184, on a claims-made basis, with policy periods from April 1, 2014 to April 1, 2015, with policy limits in the sum of US $21,000,000.00 for each occurrence and in the aggregate in excess of a self-insured retention in the amount of US $10,000.00 for each occurrence and from April 1, 2015 to April 1, 2016 with policy limits in the sum of US $21,000,000.00 for each occurrence and in the aggregate (subject to sharing with a global program) in excess of a self-insured retention in the amount of US $10,000.00 for each occurrence.

The Underlying Actions and the Underlying Class Action

[14] Class actions were filed or issued in various provincial Superior Courts seeking damages and other relief against Honda and others, for alleged deficiencies in air bag actuator components.

[15] Honda sought a defence of the Underlying Actions and Underlying Class Action from Tokio pursuant to the Insurance Policies.

[16] There were some initial coverage issues. Tokio acknowledged that it had a duty to defend Honda in respect of the scope of some of the allegations in the pleadings in the Underlying Actions and the Underlying Class Action. Tokio offered to do so subject to a reservation of rights.

[17] No agreement was reached between the parties for Tokio to assume carriage of Honda’s defence in the Underlying Actions and the Underlying Class Action. Honda retained and instructed its own counsel in its defence of the Underlying Actions and Underlying Class Action.

[18] On June 22, 2018, Tokio denied indemnity for any payments in the proposed settlement agreement.

[19] The Underlying Actions and Underlying Class Action were resolved by Honda pursuant to the Honda Canada Takata Airbag Inflator Class Action Settlement Agreement, dated January 14, 2019, being the “Underlying Settlement”.

[20] The Underlying Settlement was approved by Justice Perell in Reasons for Decision dated December 22, 2020, in Des-Rosiers v. Takata Corporation, 2020 ONSC 8043.

[21] Completion of the Underlying Settlement also entailed payment of:

a) Settlement Administration Costs (i.e. costs related to the administration of the settlement by the Honda Administrator, including the Notice Plan, the dissemination of the Notice, the handling and processing of Settlement Claims, the distribution of Cash Reimbursement Payments, and the general administration of the Underlying Settlement); and

b) Plaintiff Class Counsel Fees (i.e. the amount Honda paid to Plaintiff counsel in respect of Class Counsel Fees, Disbursements, and Taxes pursuant to the Underlying Settlement).

[22] On March 5, 2021, Tokio agreed to reimburse Honda’s defence costs. The defence costs are not at issue in this appeal.

[23] The amount at issue in Tokio’s appeal is Honda’s payment of $5,401,094.86 for Class Counsel fees, disbursements and taxes (“Class Counsel Fees”).

[24] The Tribunal found that Tokio owed Honda a duty to defend the Underlying Actions because the pleadings alleged one or both of “bodily injury” or “advertising injury” sufficient to trigger the Insurance Policies. The Tribunal found, and it is not contested that, Tokio breached its duty to defend.

[25] Tokio did not dispute the reasonableness of the Settlement Agreement, which led to the Tribunal’s consideration of the amounts Honda paid as part of the settlement.

[26] With respect to the Class Counsel Fees, the Tribunal found that they were covered by the UL Policy Supplementary Payments, Coverage A and B because:

• The Underlying Actions were “suits” as defined in the UL policy, which covered alleged damage or injury;
• Tokio’s reimbursement of Honda’s defence costs meant the Underlying Actions were covered “suits” against Honda which Tokio defended; and
• Tokio had a duty to defend the Underlying Actions.

[27] The Tribunal found that the Supplementary Payments, Coverage A and B of the UL Policy, is a separate covenant that creates the insurer’s obligation to pay the taxed costs and to do so outside the limits of insurance.

[28] With respect to the Settlement Administration Costs, Honda has paid and seeks to recover the sum of $2,873,072.37, excluding HST.

[29] The Underlying Settlement releases Honda along with affiliates, advertisers and marketers:

a) From claims, demands loss or “relief of any kind” including in “tort”, “equity” or “contract” “including but not limited to claims for negligent design, manufacture, installation, investigation, recall, failure to warn..”. “some or all of which allegedly resulted in property damage, diminished vehicle value, lower vehicle resale value, loss of use of vehicles… emotional distress, pain and suffering, mental anguish, and consequent loss” and “excluding any claim for or relating to bodily injury or its sequelae arising from the deployment of an inflator in a Subject Vehicle that is subject to a Recall”.

[30] The administration of the settlement by the Honda administrator is the Settlement Administration Costs Honda is seeking to recover. The Underlying Settlement provides as follows:

SECTION 10 - ADMINISTRATION OF THE SETTLEMENT BY THE HONDA ADMINISTRATOR

10.1 Honda will bear all costs and expenses of the Honda Administrator, including all costs incurred in connection with the Notice Plan and dissemination of the Notice, the handling and processing of Settlement Claims, distribution of Cash Reimbursement Payments, and general administration of the Settlement.

[31] The Settlement Administration Costs relate to the administration of the four programs in the Underlying Settlement: the Customer Out of Pocket Expense Program, the Outreach Program, the Customer Support Program, and the Automotive Recycler Program.

[32] The Tribunal found that these four programs are properly characterized as an enhanced recall or product withdrawal program, not covered under the Insurance Policies.

Principles of Contractual Interpretation

[33] Contractual interpretation is an exercise in discovering the “objective intentions of the parties as expressed in the words of the contract”: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, at para. 57.

[34] The court is required to “read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract”: Sattva, at para. 57; Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, at para. 27; Consolidated-Bathurst Export v. Mutual Boiler.

[35] When determining the intent of the parties, the court should also consider the factual matrix and general context surrounding the creation and signing of the agreement. This extends to its genesis, purpose, and the commercial context in which the agreement is made: Onex Corp. v. American Home Assurance Co., 2013 ONCA 117, at paras. 103 and 105.

[36] Courts should not interpret a contract in such a way that no rational commercial actor would agree to it or in a way that would lead to an absurd, unjust, or commercially unreasonable result: Guarantee Co. of North America v. Gordon Capital Corp., at para. 61.

[37] The Supreme Court has made clear, however, that it is the words of the contract that govern. The surrounding circumstances must “never be allowed to overwhelm the words of that agreement”: Sattva, at para. 57.

[38] Conduct that takes place after the execution of the contract is not part of the factual matrix. Subsequent conduct only becomes admissible if, after considering the text and factual matrix, the contract remains ambiguous: Shewchuk v. Blackmont Capital Inc., 2016 ONCA 912, at paras. 41 and 46.

[39] Subsequent conduct can be probative where it supports an inference or “sheds light” on the meaning the parties gave to the words in the contract. It poses risks, however, as parties’ conduct can change over time, the evidence itself may be ambiguous, and the parties may conduct themselves in a manner consistent with their preferred interpretation of the contract: Shewchuk, at paras. 43-45, and 48.

Standard of Review

[40] The parties are agreed that questions of standard company form contract interpretation are questions of law subject to a correctness standard, “where the interpretation at issue is of precedential value, and there is no meaningful factual matrix specific to the particular parties to assist the interpretation process”: Ledcor, at para. 46; Sattva, at paras. 50 and 53.

[41] The arbitration agreement also prescribes a standard of review of correctness on questions of law.

[42] Whether Class Counsel Fees are covered under the UL policy is a question of law, appealable on a correctness standard under the Arbitration Agreement.

[43] Whether Settlement Administration Costs are covered under the UL policy is also a question of law, appealable on a correctness standard under the Arbitration Agreement.

[44] The Interest Award is discretionary, and the standard of review on questions of mixed fact and law is palpable and overriding error.

Did the Arbitrators Err in Finding that Tokio is Obligated to Indemnify Honda for Class Counsel Fees Under the UL Policy?

[45] The Arbitrators concluded that Class Counsel Fees were not recoverable under the CGL policy but were recoverable under the UL policy. Tokio argues that a correct interpretation of the UL policy shows that there is no coverage for Class Counsel Fees paid in the Underlying Action for recovery of non-covered claims.

[46] In cases where there is a duty to defend, the UL Policy states as follows:

SUPPLEMENTARY PAYMENTS – COVERAGE A AND B

1. We will pay, with respect to any claim we investigate or settle, or any “suit” against an insured we defend, when the duty to defend exists:

• a. All expenses we incur.
• e. All costs taxed against the Insured in the “suit”.
• f. Prejudgment interest awarded against the insured on that part of the judgment we pay. If we make an offer to pay the applicable limit of insurance, we will not pay any prejudgment interest based on that period of time after the offer.
• g. All interest on the full amount of any judgment that accrues after entry of the judgment and before we have paid, offered to pay, or deposited in court the part of the judgment that is within the applicable limit of insurance.

These payments will not reduce the limits of insurance.

[47] The term “suit” is defined in the relevant part of the UL policy to mean:

a civil proceeding in which damages because of “bodily injury” … or “personal and advertising injury” to which this insurance applies are alleged.

[48] Tokio concedes and I agree that the UL policy applies.

[49] Tokio argues that coverage for Class Counsel Fees is conditional on having a duty to “indemnify”, which is only triggered by civil proceedings that in fact result in covered liabilities. Honda argues that this in effect ignores the language, “to which this insurance applies are alleged.”

[50] Tokio’s argument was raised before the Tribunal. Tokio argued that the phrase “to which this insurance applies” is the same as “as respects insurance afforded by this policy” in the CGL policy. Tokio therefore argues that the UL policy should be interpreted in the same way.

[51] The Tribunal correctly determined that the UL policy was worded quite differently. The wording in the UL policy includes the language, “when the duty to defend exists”. This is different from the language in Clause B of the CGL policy, which states the insurer shall “pay all costs taxed against the Insured in any civil action defended by the Insurer…”. This is different language and has different implications.

[52] The words “when the duty to defend exists” create the condition that engages the insured’s right to coverage for the costs taxed against it in a “suit”. The definition of “suit” includes damages because of “bodily injury”, “property damage”, or “personal and advertising injury” to which this insurance applies are alleged.

[53] However, the inclusion of the language “to which this insurance applies” in the definition of “suit” in the UL policy is not a proviso that qualifies the obligation to pay the taxed costs. It is in fact the operative qualification to engage the insured’s right to coverage for the costs taxed in a “suit”. Tokio’s argument ignores the words “are alleged”.

[54] Tokio breached its duty to defend. This cannot now provide a basis for Tokio to avoid liability owing under the contract. If the wording supports the payment of Class Counsel Fees, Tokio cannot refuse to defend the action to then avoid paying those costs.

[55] Tokio argues that the CGL and UL policy should be read the same way. They are not the same and the wording matters. The parties could have agreed to exclude Class Counsel Fees from coverage and drafted language to reflect any such agreement. They did not do so.

[56] Tokio refers to Endorsement 1 in the UL policy to suggest that the UL coverage is an identical form of coverage as that in the CGL policy. The Endorsement reads:

In the event of loss for which the underlying insurance applies, notwithstanding anything contained herein to the contrary, this policy is amended to follow the terms and conditions, including but not limited to, Standard Provisions, Policy Conditions…Definitions, Coverage Parts, Coverage Forms and Endorsement of the applicable underlying insurance in respect of such loss.

This clause does not intend to limit the coverage afforded by this policy.

[57] The Tribunal rejected Tokio’s argument and, in my view, correctly found that “the UL policy ‘potentially drops down’ to provide additional coverage at a primary level but also expressly provides excess coverage in the event of a difference between the primary CGL policy and the UL policy.” The terms of the policy govern, and in this case the language chosen, reflect that coverage is not tethered solely to indemnity.

[58] Tokio also argues that the Tribunal’s interpretation of the UL policy results in an “absurdity” if the insurer is required to pay interest before or after a judgment on claims that it does not have to pay if no indemnification is found under the policy.

[59] This is not an accurate reading of the words used in the policies. The terms of the policies are clear and expressly distinguish between indemnity limits coverage and Supplementary Payments clause coverage. The UL coverage provision explicitly states:

No other obligation or liability to pay sums or performs acts or services is covered unless explicitly provided for under Supplementary Payments – Coverages A and B.

[60] The terms of the Supplementary Payments clauses (f) and (g) specifically tie pre and post judgment interest to a judgment or settlement. The Tribunal’s finding does not result in an absurdity: Surespan Structures Ltd. v. Lloyds Underwriters, 2021 BCCA 65, at paras. 97-98.

[61] The obligation to pay Class Counsel Fees is not limited to the insurer’s defence of the action. The Tribunal was correct in their finding in this regard. This is so irrespective of the Tribunal’s own comment that this finding is “anomalous” considering Hersh v. Wawanesa Mutual Insurance Co. (1994), 89 B.C.L.R. (2d) 255 (SC).

[62] In Wawanesa, the sole issue was whether Wawanesa was obligated to pay the taxable costs which the Petitioners were ordered to pay, in a claim for breach of contract, nuisance, trespass and misrepresentation. The court held that the policy limited the obligation to pay Plaintiff counsel’s costs, even if there was some connection between providing a defence and payment of Plaintiff’s costs, referring to the clause in the policy: “As respects insurance afforded by this policy”.

[63] The court found that if there is a duty to defend based on claims in the pleadings for which there was coverage, it would not make sense to require the insurer to make payment if the circumstances giving rise to the expense were not covered by the policy.

[64] However, the Tribunal in this case noted the guidance provided by the Court of Appeal for Ontario in Alie v. Bertrand & Frere Construction Co. Ltd.. In Alie, the court reinforced that it is the terms of the policy that govern. An obligation to pay third party costs is not limited to the obligation to indemnify and may be provided for in a separate covenant: Alie, at para. 247.

[65] The Tribunal also found the Supplementary Payments provision to be an example of a separate covenant which creates an insurer’s obligation to pay the taxed costs and to do so outside the limits of insurance. The Tribunal found that Honda had already absorbed a $100,000 deductible in connection with the reimbursement of its defence costs, such that there was no further retention in respect of the amount recoverable for Class Counsel Fees.

[66] Tokio argues that if you substitute the definition of “suit” into the provision in the UL policy, it cannot be correctly characterized as a separate covenant. In my view, Tokio’s argument does not recognize that the Supplementary Payments clause is a separate covenant where the phrase “duty to defend exists” outside the limits of the insurance.

[67] In Rayman v. Ontario Assn. of Architects, [1997] O.J. No. 2567, the court followed the reasoning in Wawanesa. The issue was whether the Association’s insurance policy was subject to the same interpretation as the policy in Wawanesa. The court found that although the Association was obligated to pay for the defence of the action, it was not required to pay for the costs order because that was not a type of claim covered by the policy.

[68] Tokio argues that the same consideration applies here, relying on the terms of the CGL policy. I do not agree. The language in the UL policy is different from the language referred to in Wawanesa, Rayman, and the CGL policy. Here, the UL policy explicitly connects the Supplementary Payments coverage for costs taxed against the insured to Tokio’s duty to defend, by stating coverage is owed when damages “are alleged” and “when the duty to defend exists.”

[69] I am satisfied that the Tribunal correctly found that the Supplementary Payments clause is an example of a separate covenant that creates the insurer’s obligation to pay the taxed costs and to do so outside the limits of insurance.

[70] The Tribunal was correct in finding that Honda is entitled to be reimbursed in respect of the Class Counsel Fees under the Umbrella Liability policy. Tokio’s appeal is dismissed.

[71] Given this finding, the Interest Award is not set aside.

Honda Appeal

Are Settlement Administration Costs a Covered Cost of Settling?

[72] Honda appeals from part of the Arbitration Award rejecting a $2,873,072.37 Settlement Administration Costs claim. These costs relate to the cost of administering the product recall and withdrawal programs called for in the Underlying Settlement.

[73] There is no dispute between the parties that the Settlement Administration Costs are not recoverable under the CGL policy.

[74] The Tribunal found that the Settlement Administration Costs were not within the Insuring Agreements or Supplementary Payment provisions of the policies, and that the costs associated with the product recall program were excluded from coverage.

[75] Honda argues that if the duty to defend triggers the requirement for Tokio to pay Class Counsel Fees, then Settlement Administration Costs which were not an enhanced recall cost, but a necessary cost of litigation, properly construed are “costs taxed against the insured.”

[76] Honda also argues that the Tribunal erred in law by differentiating Settlement Administration Costs from Class Counsel Fees in the contractual context where the UL policy contemplated both as part of the separate covenant obligation.

[77] Tokio argues the Tribunal was correct in finding that an interpretation of both policies shows there is no coverage for recall programs, and as such there is no coverage for the associated costs paid to implement and administer the settlement of those non-covered claims.

[78] The relevant provisions from the UL Supplementary Payments – Coverages A and B are the following:

SUPPLEMENTARY PAYMENTS - COVERAGES A AND B

1. We will pay, with respect to any claim we investigate or settle, or any “suit” against an insured we defend, when the duty to defend exists:

• a. All expenses we incur.
• b. Up to $2000 for cost of bail bonds (including bonds for related traffic law violations) required because of an “occurrence” we cover. We do not have to furnish these bonds.
• c. The cost of bonds to release attachments, but only for bond amounts within the applicable limit of insurance. We do not have to furnish these bonds.
• d. All reasonable expenses incurred by the insured at our request to assist us in the investigation or defense of the claim or “suit” including actual loss of earnings up to $250 a day because of time off from work.
• e. All costs taxed against the insured in the “suit”.
• f. Prejudgment interest awarded against the insured on that part of the judgment we pay. If we make an offer to pay the applicable limit of insurance, we will not pay any prejudgment interest based on that period of time after the offer.
• g. All interest on the full amount of any judgment that accrues after entry of the judgment and before we have paid, offered to pay, or deposited in court the part of the judgment that is within the applicable limit of insurance.

These payments will not reduce the limits of insurance.

[79] “Suit”, as previously outlined, is defined as “civil proceedings in which damages because of “bodily injury”, “property damage” or “personal and advertising injury” to which this insurance applies are alleged.

[80] Ultimate net loss is also triggered and is defined as:

23. “Ultimate net loss” means the total sum, after reduction for recoveries or salvages collectible, that the insured becomes legally obligated to pay by reason of settlement or judgments or any arbitration or other alternative dispute method entered into with our consent or the “underlying insurer’s” consent.

[81] With respect to bodily injury and property damage liability, the UL Policy was subject to the following exclusions:

2. Exclusions

This insurance does not apply to:

• n. Damage to Your Product
  "Property damage" to "your product" arising out of it or any part of it.

• p. Damage to Impaired Property or Property Not Physically Injured
  "Property damage" to "impaired property" or property that has not been physically insured, arising out of:
  (1) A defect, deficiency, inadequacy or dangerous condition in "your product" or "your work"; or
  (2) A delay or failure by you or anyone acting on your behalf to perform a contract or agreement in accordance with its terms.
  This exclusion does not to the loss of use of other property arising out of sudden and accidental physical injury to "your product" or "your work" after it has been put to its intended use.

• q. Recall of Products, Work or Impaired Property
  Damages claimed for any loss, cost or expense incurred by you or others for the loss of use, withdrawal, recall, inspection, repair, replacement, adjustment, removal or disposal of:
  (1) "Your product";
  (2) "Your work"; or
  (3) "Impaired property";
  If such product, work, or property is withdrawn or recalled from the market or from use by any person or organization because of a known or suspected defect, deficiency, inadequacy or dangerous condition in it.

[82] With respect to personal and advertising injury, the UL Policy was subject to the following exclusion:

Exclusions

This insurance does not apply to:

• a. “Personal and advertising injury”
  • (7) Arising out of the failure of goods, products or services to conform with any statement of quality or performance made in your “advertisement”
  • (9) Committed by an insured whose business is advertising, broadcasting, publishing or telecasting…

[83] The Tribunal correctly found that the Supplementary Payments provision is an example of a separate provision creating an insurer’s obligation to pay taxed costs. “Costs taxed against the insured” are related to alleged damages because of bodily injury, property damage or personal injury and advertising liability to which the insurance applies, that the insurer defends, and when the duty to defend exists.

[84] The program at issue was an enhanced recall or product withdrawal program. The money paid to administer this program was not related to claims of bodily injury, property damage or advertising liability. On the plain wording of the policies, the Tribunal was correct in finding that the Settlement Administration Costs were excluded.

[85] Honda argues that they only agreed to these costs as part of the settlement, and that the costs go beyond ordinary product recall but are “litigation-specific”. Honda argues that the UL policy defines Ultimate Net Loss in a way that is directed at indemnity for covered damages under the insuring agreements, not costs.

[86] Honda relies on Justice Perell’s reasons approving the settlement in this case:

The fees, disbursements and tax amounts will be paid by the Defendants in addition to the benefits available to Class Members, not deducted from the benefits available to Settlement Class Members and be in addition to the costs paid by the Defendants for notice and claims administration: Des-Rosiers v. Takata Corporation, at para. 34.

[87] The Tribunal recognized that Honda settled the lawsuit by way of agreeing to pay the following:

• Administration of the settlement by the Honda Administrator;
• Customer out of pocket Expense Program;
• Outreach Program;
• Customer Support Program; and
• Automotive Recycler Program.

[88] The Tribunal went on to state that where an insured has breached its duty to defend, and the insured has settled the underlying claim on its own, there are two steps in determining whether an insured can recover the amount of compensation paid in order to settle the claims. First, the insured must establish the settlement was reasonable in the circumstances. Second, the insured must show that the loss or losses being compensated fall within the grant of coverage under the insurance policy and are not excluded under any of the provisions.

[89] There is no dispute the settlement was reasonable. The Tribunal conducted this analysis and concluded on a plain reading of the language of the policies, read as a whole, that there was no coverage for the claims in the settlement. The Tribunal found that none of the money was paid to compensate for loss resulting from bodily injury, property damage or advertising liability. This is a correct reading of the Underlying Settlement, summarized above.

[90] Honda relies on Adams v. Apple Inc., 2023 ONSC 2957 where the court found on the facts of that case that the Settlement Administration Costs were not a disbursement incurred by counsel, but a by-product of the settlement. This case is distinguishable because the retainer agreement was silent as to settlement administration costs: Adams, at paras. 85-86.

[91] In Trudelle c. Ticketmaster Canada, 2024 QCCS 3853, the court found that disbursements and settlement administration costs are necessary components of class actions. As in Adams, there was no discussion of whether the settlement administration costs were covered by the policy: Trudelle, at paras. 66-69.

[92] In the present case, the Tribunal relied on Wawanesa which considered whether Wawanesa was obligated to pay the taxable costs the Petitioners were ordered to pay. Similar to Honda’s argument here, Hersh argued that the obligation to pay the taxable costs flowed from the right and duty of Wawanesa to defend the action.

[93] The court held that even if there was some connection between providing a defence and payment of the plaintiff’s costs, the policy limited the obligation to pay the costs with the clause, “As respects insurance afforded by this policy”. The court considered other cases that found liability for third party costs. In all of the cases, liability for the payment of costs was only found in circumstances where the claim was found to be within the coverage of the policy: Wawanesa, at pp. 10-11.

[94] As outlined earlier, Rayman followed the reasoning in Wawanesa. In that case, the Applicant was sued for his role as arbitrator, and had costs assessed against him. The insurance company argued that the costs order was not a claim for which coverage was provided as set out in the policy. The court found it was not required to pay for the costs ordered against Rayman because that was not the type of claim covered by the insurance policy: Rayman, at p. 9. This decision was upheld by the Divisional Court: Rayman v. Assn. of Architects (Ontario).

[95] As summarized earlier in these reasons, the Tribunal in this case referred to the Court of Appeal for Ontario’s decision in Alie. There, the court found that an insurer’s obligation to pay third party costs does not flow automatically from a finding that an insurer has a duty to defend. The court did not accept that the obligation to pay third party costs is necessarily part of and limited to the obligation to indemnify. The terms of the policy govern: Alie, at para. 247.

[96] None of the claims in the Underlying Settlement were covered by the CGL or UL policies. The Tribunal was therefore correct in finding that the costs incurred by Honda to implement and complete the recall program were not covered by the Insurance Policies. Clause (q) of the exclusion provision clearly states that there is no coverage for a recall program. There is no ambiguity in the wording of the exclusions. Because of this finding, the Tribunal correctly concluded that Tokio had no obligation to reimburse Honda for any Settlement Administration Costs.

[97] Honda argues that the Settlement Administration Costs are “costs taxed to an insured” in the same way as Class Counsel Fees. This ignores, however, the finding that Settlement Administration Costs were not one of the enumerated types of payment that could conceivably be covered under the Supplementary Payments Coverage - A and B of the UL.

[98] The Tribunal correctly found that the amounts paid by Honda under the recall programs were either not in respect of any actual injuries falling within the coverage under the policies or were excluded under the provisions of the insurance policies. The Tribunal correctly characterized the programs for which Honda paid as enhanced recall or product withdrawal programs.

[99] Administering these programs is not covered in the policy. This is clear in the wording of the Supplementary Payments Coverage – A and B of the UL.

[100] Therefore, there is no error in the finding that the Settlement Administration Costs would have to fall within the insuring Agreements if they were to be recoverable. The Tribunal was correct in its interpretation of the language of the provisions, and no error has been identified by Honda. Honda’s appeal is dismissed.

Interest

[101] As I have found that the Tribunal did not err in finding that the Settlement Administration Costs are not covered, no pre-award interest rate applies.

[102] With respect to the Class Counsel Fees, Honda requests and Tokio does not take issue with a calculation of accrued interest in accordance with the Interest Award.

[103] Honda takes the pre-judgement interest in the amount of $404,194.23 and post-judgment interest at the weekly prime rate of 7.2% per annum current as of the week of the Interest Award. No errors of law or palpable and overriding errors have been alleged by either party in the exercise of discretion by the Tribunal in arriving at the Interest Award.

[104] The Interest Award post-judgment on the Class Counsel Fees to the date of the hearing is set at $416,579.79.

Costs

[105] The parties are agreed as to costs.

J.K. Penman
Released: May 12, 2025