INTRODUCTION
Recently, in Loblaw Companies Limited v Royal & Sun Alliance Insurance Company of Canada, 2024 ONCA 145, the Ontario Court of Appeal considered the issue of the apportionment of defence costs amongst multiple insurers owing a duty to defend in the context of successive coverage periods and multiple class action claims.
FACTUAL BACKGROUND
Multiple class actions relating to the manufacture, distribution, and sale of opioid drugs in Canada were brought against the respondents, who included retailers, pharmacies and drug manufacturers and distributors (the "Respondents"). The Respondents held primary Commercial/Comprehensive General Liability policies issued by the primary insurers covering the Respondents for the entire class period spanning over 20 years. There were no concurrent policies.
The Respondents sought declarations that the primary insurers had a duty to defend the claims and that that they were entitled to select any single policy under which there was a duty to defend and to require that insurer to defend all the claims against it. The Superior Court of Justice rejected the primary insurers' argument that defence costs be payable based upon a pro rata "time-on-risk" calculation, and ordered that the selected insurer was required to defend and bear the costs of the entire defence. The selected insurer was required to defend all claims, including claims that fell outside its coverage periods, but entitled to seek a reallocation of the defence costs at the end of the proceedings to the extent that they dealt solely with uncovered claims, or exceeded the reasonable costs associated with the defence of the covered claims. The court reasoned that once an insurer assumed its obligation to defend or to pay defence costs, that insurer could then seek equitable contribution from the other insurers with a concurrent obligation to defend or pay.
APPORTIONMENT OF DEFENCE COSTS
One of the issues on appeal was the proper apportionment of defence costs amongst the primary insurers. The primary insurers appealed the lower court's ruling that the Respondents were entitled to select a policy and require the selected insurer to defend the claim for the entire class action period.
Firstly, the primary insurers argued that language of the policies limited the scope of the duty to defend to a portion of the class period. In considering this issue, the Court of Appeal looked to the insurance policy, read as a whole and giving effect to clear language, and determined that the duty to defend was limited to the policy period, based on the express language found in the policies linking the duty to the coverage. Specifically, the court stated: "[t]he policies are all limited to coverage "during the policy period" and the duty to defend in each case is qualified by the words "with respect to such insurance as is afforded by the policy" (or equivalent language)." A primary insurer would not be required to indemnify the Respondents outside of the policy period, thus the duty to defend would not be triggered.
In determining whether a duty to defend had been triggered, the court looked to the policy and the claims in the pleadings to determine the possibility of the claims falling within the coverage. The court agreed with the primary insurers' argument and found that the lower court failed to meaningfully assess the pleadings, which reflected a temporal nature. Although the claims fell outside of the policy periods, the policy periods were "readily identifiable." The court disagreed that the defence of the claims was inseparable between covered and uncovered claims. The court determined that a time-on-risk allocation reflects the temporal nature of the claims against the Respondents. Further, the court rejected the finding that the primary insurers were concurrent insurers. As such, equitable contribution was not available.
The court agreed with the primary insurers that the lower court misapplied the principles in Hanis v. Teevan, 2008 ONCA 678, which dealt with the apportionment of defence costs between "mixed" (i.e. covered and uncovered) claims. The case at hand involved multiple policy periods, not mixed claims and multiple theories of liability. The lower court placed an unreasonable and disproportionate burden on the selected insurers. Although the lower court allowed for the selected insurer to seek apportionment at the end of the proceedings, the Court of Appeal noted that this did not relieve the burden of the selected insurer to fund lengthy and costly litigation.
The Court of Appeal accepted the primary insurer's arguments that the proper approach to allocation of defence costs was the pro rata time-on-risk approach not the "all sums approach." This is the appropriate approach in the context of multiple policy periods and reflects the true nature of the policies, which are "time-limited bargains."
TAKEAWAY
The Court of Appeal's decision confirms the primacy of the policy language in determining the duty to defend. Further, In the context of multiple insurers and consecutive coverage periods, a pro rata time-on-risk allocation is the correct approach in the allocation of defence costs.
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