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INSURERS - Duty to defend

Tuesday, May 26, 2020 @ 9:12 AM  

Lexis Advance® Quicklaw®
Appeal by AGI Insurance from a decision finding that it must defend the action, must pay the cost of defending the action subject to indemnification of costs, if any, from Lloyd’s upon final resolution of the action but could not participate in the defence by retaining or instructing counsel. The City and Hockey Canada were sued after a spectator was struck by a hockey puck while watching a hockey game at a City community centre. The City was insured by Lloyd’s under a commercial general liability policy. The Lloyd’s policy covered the City for all claims of bodily injury, personal injury or property damage caused by an occurrence during the Policy Period. The City was also an additional insured to Hockey Canada’s insurance policy with AIG Insurance Company pursuant to a commercial general liability policy. The AIG policy only covered the City for liability in respect of Hockey Canada operations. AIG argued Lloyd’s had a concurrent duty to defend and must pay an equitable share of the City’s defence costs. AIG also claimed it had a right to participate in the defence, including the right to retain and instruct counsel, alongside Lloyd’s.

HELD: Appeal allowed. The application judge’s determination that only AIG had the duty to defend the action was incorrect. Both AIG and Lloyd’s had a duty to defend. AIG was the primary insurer for claims resulting in bodily injury or property damage arising from the operations of Hockey Canada up to the $5 million policy limit because the AIG policy contained no excess provision. The $150,000 claim fell within AIG’s policy limit. To the extent the AIG and Lloyd’s policies covered the same claims, AIG had a duty to defend up to its policy limit, and Lloyd’s could be an excess insurer. At a minimum, Lloyd’s owed a duty to defend the City against claims which might fall outside the scope of the AIG policy and which fell within the scope of its own policy. The fact that AIG had a duty to defend the City did not, by itself, excuse another insurer from its duty to defend. In these circumstances where there were two primary insurers, the Lloyd’s policy was more comprehensive than AIG’s, and there was a concurrent duty to defend, the fairest and most equitable allocation of defence costs was to require each of AIG and Lloyd’s to pay an equal share of the defence costs pending final disposition of the action and the final determination of the allocation of defence costs. The application judge erred when she determined that there were no measures that could alleviate the City’s concerns short of removing AIG from the defence entirely. There was no reason to believe that appropriate counsel, who had an ethical obligation to defend the insured properly, would not conduct the defence in the best interest of the insured. There was also no evidence that any of the handlers had misused any confidential information or, with appropriate disciplinary measures put in place, would misuse confidential information. Counsel appointed was to be instructed to fully and promptly inform the City and Lloyd’s of all steps taken in the defence of the litigation against the City such that each would be able to monitor the defence effectively and address any concerns. Defence counsel was not to have any discussion about the case with either coverage counsel and counsel was to provide identical and concurrent reports to the insured and both insurers regarding the defence of the main action.

Markham (City) v. AIG Insurance Co. of Canada, [2020] O.J. No. 1369, Ontario Court of Appeal, D.H. Doherty, D.M. Brown and J.A. Thorburn JJ.A., March 31, 2020. Digest No. TLD-May252020004