DATE: 20050503
DOCKET: C42222
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B E T W E E N : |
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ING INSURANCE
COMPANY OF CANADA AND DAVID BLAKE |
David Z. Zuber |
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- and - |
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FEDERATED INSURANCE
COMPANY OF CANADA |
Michael I. Burgar |
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Heard: April 14, 2005 |
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On appeal from the judgment of Justice Todd Ducharme of the Superior Court of Justice dated July 6, 2004.
[1] This is an appeal from the judgment of the Honourable Mr. Justice Ducharme dated July 6th, 2004.
[2] The issue raised in this appeal is when will an excess insurer be required to contribute to defence costs incurred by a primary insurer in defending an action against a common insured.
[3] The facts which give rise to this appeal are as follows. On November 8th, 1996 David Blake was operating a motor vehicle owned by Lamsar Mechanical Contractors Ltd. (“Lamsar”) on Highway 17 near Thunder Bay, Ontario. He lost control of the vehicle and struck a rock embankment. At the time of the collision, there were four passengers in the vehicle, one of whom died. Three separate actions were commenced against Blake, Lamsar and others with combined damages in the pleadings claimed at $9,370,000. The injuries sustained by two of the surviving passengers were of a serious nature. John J. Healy suffered multiple fractures of the pelvis and hip as well as broken ribs while Peter Joseph Healy was rendered quadriplegic. All three actions had been commenced by November 6, 1998. The Lamsar vehicle which David Blake was operating was insured under a standard automobile policy with liability limits of $2,000,000 issued by ING Insurance Company of Canada (ING). ING retained Geoffrey D.E. Adair, Q.C. to defend Blake and Lamsar.
[4] David Blake carried on business as a tire dealer under the name, Sarnia Tire. Federated Insurance Company of Canada (“Federated”) issued two policies of insurance to Sarnia Tire, one being a standard garage automobile policy and the other a standard owner’s fleet policy or umbrella policy, each with limits of $1,000,000.
[5] The parties agree that the ING policy is first loss insurance and the Federated policies are excess insurance only.
[6] Soon after the accident David Blake contacted Federated in respect of his own claim for accident benefits. At the time nothing was said about any possible tort claim against David Blake. The file was adjusted and closed as an accident benefits claim only.
[7] The first Federated had any notice of a tort claim against David Blake was on March 14, 2001 when a law clerk from Mr. Adair’s office telephoned and advised that as part of an undertaking given in a civil action against David Blake, his counsel had agreed to provide copies of any insurance policies issued to him by Federated. The policies were eventually provided by Federated to Mr. Adair’s office after they were provided with David Blake’s authorization to release same, in June, 2001.
[8] In a telephone conversation with Ms. Springstead of Mr. Adair’s office on June 1, 2001 Jacy Giannini of Federated was told:
1. that Lamsar’s policy limits were $2,000,000;
2. the trial was to begin October 1, 2001;
3. the co-defendant, Ministry of Transportation had extensive policy limits and were likely to be found partially liable for the accident;
4. Mr. Adair was of the view that the total damages for all plaintiffs was $2,000,000 or less and that there would be significant liability attached to the co-defendant Ministry, probably in the range of 25%.
[9] On June 27,2001 Mr. Giannini spoke to Mr. Adair who indicated that it was possible the damages could exceed the $2.000,000 policy limits of Lamsar but that Mr. Adair himself was not convinced that the damages would reach $2,000,000 and he was confident of a finding of up to 25% liability on the part of the Ministry.
[10] It was not until Mr. Adair’s letter of July 17, 2001 to Federated that it was suggested for the first time that it was of “considerable importance” that someone from Federated be in attendance at a full-day settlement conference scheduled for August 27, 2001 and that such person be fully up to speed on the facts of the case. The trial was scheduled to proceed just over one month later on October 9, 2001.
[11] Donald J. Daquisto, in house counsel to Federated, responded to Mr. Adair’s July 17 letter. He pointed out that to date Federated had little current information on which to get up to speed. He said if there was coverage, Federated would expect:
- to be fully and completely apprised of the upcoming trial situation by Mr. Adair including the provision of unedited copies of his opinions to his principal since the beginning of the litigation;
- copies of any formal offers to settle between the parties;
- indication as to whether or not any of the defendants have offered their policy limits in order to settle the claim.
[12] Mr. Adair responded to Mr. Daquisto’s letter on August 7, 2001. He said that in the circumstances where Federated had neither acknowledged coverage nor offered to share in the defence costs, he (on behalf of his client) owed no obligation to Federated. He went on in his letter to then, on a purely voluntary basis, offer to assist Federated and share material on certain terms. He added that he would look to Federated for fifty percent of the defence costs from the inception of the case.
[13] Subsequently it was agreed between Mr. Adair and Mr. Daquisto that for tactical reasons Federated would not send a representative to the settlement conference scheduled for August 27, 2001. The day following the conference Mr. Adair provided Mr. Daquisto with a copy of his file memorandum which briefly set out the plaintiffs’ demands and the defence response.
[14] On August 29, 2001 Mr. Adair in a telephone discussion informed Mr. Daquisto that ING might consider offering their policy limits to settle the claim in which event, in return for an undertaking not to pursue personally Lamsar and Blake, the latter would assign his rights against Federated to the plaintiffs. It was clear to Mr. Daquisto that if ING proceeded in this way Federated would be on its own in terms of defending any excess claims.
[15] By letter dated September 19, 2001 Mr. Adair informed Federated that the case was to be mediated before Mr. Justice Winkler on October 10, 2001 and that the trial date had been moved back to accommodate that event.
[16] By letter dated October 1, 2001 Mr. Adair provided Mr. Daquisto with his assessment of the various claims which totalled just under $3,000,000. In the same letter he said that his client would “in the next day or so” make every effort to resolve the matter by paying their limits in return for a promise that Lamsar and Blake would not be personally pursued but would assign any right they had to indemnity from Federated. By October 5, 2001 such an offer was made by Mr. Adair on behalf of his client. In respect of that letter, Mr. Daquisto has sworn in his affidavit:
If it was not already abundantly clear the point was hammered home that not only was Mr. Adair representing ING’s interests to the exclusion of Federated’s, but in fact we were in an adversarial position While it was always in our common interest to minimize damages, at this point Mr. Adair was offering his client’s limits and it was clear that Federated was on its own.
[17] As is not uncommon in cases of this nature developments began to occur quickly as the trial date approached. Federated had much to do in a short period of time.
[18] Following the mediation before Winkler J. Mr. Adair’s office informed Federated that the parties were looking to Federated to contribute $1.4 million dollars to settle the claim. Thereafter Mr. Daquisto became directly involved in the negotiations among counsel.
[19] Letters passed among Mr. Adair’s office, Mr. Daquisto and the other parties to the proceedings. Ultimately the actions were settled with ING contributing $2,178,000, the Ministry of Transport $1,125,000, and Federated $900,000. Both Federated and ING reserved their rights as against one another in respect of payment of defence costs. The settlement was concluded in November, 2001 and ING commenced the within proceeding by Notice of Application issued July 30, 2003. ING sought a declaration that it was entitled to equitable contribution from Federated equal to fifty percent of the legal defence costs incurred during the course of the defence of David Blake and an order requiring Federated to indemnify ING for the cost of the defence of Mr. Blake in the sum of $60,422.66. The application judge concluded:
It seems obvious from Broadhurst & Ball that where an excess insurer has a duty to defend and is put at risk by the claim, then that excess insurer should contribute to defence costs. The exact nature of the contribution as between those insurers with a duty to defend will depend upon the equities of the specific case. In this case, the cost of the defence will be apportioned proportionately to the share of the damages paid. The parties are agreed that Federated paid 31% of the damages paid by the insurers and that 31% of the defence costs would be $37,503.72.
[20] He then ordered the respondent, Federated to pay to the applicant, ING the sum of $37,503.72 plus prejudgment interest from the date of the settlement.
[21] In requiring Federated to pay a percentage of the entire defence costs incurred I am of the view that the application judge erred in principle.
[22] As set out in Federated’s factum, Federated takes no issue with Mr. Adair’s opinions or conduct in relation to the actions brought against David Blake. He represented his client ably and skilfully.
[23] In interpreting Broadhurst & Ball v. American Home Insurance Company (1990), 1 O.R. (3d) 225 to mean that “where an excess insurer has a duty to defend and is put at risk by the claim, then the excess insurer should contribute to defence costs” the application judge erred. As this court stated in Alie v. Bertrand & Frere Construction Co. (2002), 62 O.R. (3d) 345 at paragraph 203:
Broadhurst & Ball does not hold that an excess insurer with a duty to defend will be compelled to contribute to defence costs in each and every case where a claim exceeds the limits of the primary insurer. Robins J.A. recognized that the excess insurer’s obligation to contribute, if any, was a “matter of equity” or “fairness” as among the insurers who were under a duty to defend the claim. The determination of the equities depends on the circumstances of the particular case.
[24] An excess insurer’s obligation to contribute to defence costs is premised on the existence of a duty to defend. In this respect paragraph 221 of the Alie decision is apposite:
The principle in Broadhurst & Ball which holds that excess insurers may be required to contribute to defence costs is premised on the existence of a duty to defend on the part of the excess insurer. Without that duty, one does not reach the “equities” of the matter as among various insurers with a duty to defend.
Guardian had no duty to defend. The trial judge erred in requiring Guardian to contribute to the costs of the defence.
[25] The duty to defend provisions in the Federated policies mirror the statutory language of s. 245 of the Insurance Act and provide:
1.5 Where indemnity is provided by this Part, the insurer shall:
1.5.1 upon receipt of notice of loss or damage caused to persons or property, make such investigations, negotiations or settlements of any resulting claims on behalf of any person insured by the policy as may be deemed expedient by the insurer;
1.5.2 defend in the name and on behalf of any person insured by this policy and at the cost of the insurer any civil action which may be brought against such person on account of such loss or damage to persons or property;
1.5.3 pay all costs assessed against any person insured by this policy in any civil action defended by the insurer and any interest accruing after judgment upon that part of the judgment which is within the limits of the insurer’s liability;
1.5.4 if the injury is to a person, reimburse any person insured by this policy for amounts paid for such medical aid as is immediately necessary at the time of such injury.
[26] Statutory condition 3(1)(a) of both Federated policies requires the insured to “give to the insurer written notice, with all available particulars, of any accident involving loss or damage to persons or property and of any claim made on account of the accident.”
[27] The language of the policies, which incorporates the relevant provisions of the statute as well as common sense, dictate that a duty to defend will arise only where notice of a claim is given. An insurer can hardly have a duty to defend a claim of which it has had no notice. As Wallace J. (as he then was) noted in Bacon v. McBride (1984), 6 D.L.R. (4th) 96 (B.C.S.C.) at page 99:
The pleadings govern the duty to defend – not the insurer’s view of the validity or nature of the claim or by the possible outcome of the litigation. If the claim alleges a state of facts which, if proven, would fall within the coverage of the policy the insurer is obliged to defend the suit regardless of the truth or falsity of such allegations. If the allegations do not come within the policy coverage the insurer has no such obligation: see Couch on Insurance, 2nd. Ed. (revised) p. 706 §51:149. In this respect the duty to defend may well be broader than the insurer’s obligation to indemnify the insured for liability imposed by law. The insurer’s obligation to defend arises when notice of the claim is received and continues as long as it is outstanding even though the insurer may consider the allegations to be groundless.
[28] It is clear that Federated was notified of claims against David Blake in a telephone conversation with Mr. Adair’s office on March 14, 2001.
[29] In a subsequent telephone conversation on June 1, 2001 Federated learned among other things, that Mr. Adair was of the view that the total damages would be $2,000,000 or less and he remained of that view until his letter of October 1, 2001.
[30] In considering the equities between or among primary and/or excess insurers this court has stated that whether an excess insurer is “plainly at risk” to indemnify the insured is a crucial consideration. As the court noted in Alie v. Bertrand, supra at paragraph 238:
As indicated in Broadhurst & Ball, contribution as among the insurers with a duty to defend is a matter of fairness. A crucial consideration is whether the particular insurer was “plainly at risk” to indemnify the insured.
The risk that the claim posed to the coverage provided by Chubb and Hartford was a matter for the trial judge. He had to make a realistic appraisal of the chance that either policy would be required to indemnify Lafarge. As Broadhurst & Ball indicates, the realistic appraisal involves more than a mere consideration of whether the claim is for an amount which would reach the policies of Chubb and Hartford. It also entails an assessment of whether there is any realistic chance that those policies would be reached by the claim .
[31] In summary, the insurer’s duty to defend arises on being given notice of the claim. There can be no obligation to contribute to defence costs absent a duty to defend. Where there is a duty to defend an excess insurer may be obligated to contribute to the costs of defending a suit – as a matter of “equity” or “fairness”. As the court stated in Broadhurst & Ball:
On the facts of the present case, it appears to me that, as a simple matter of fairness between insurers under concurrent obligations to defend, and, as well, in fairness to the insured, Guardian should pay a proper share of the costs of defence. It follows that American Home should be able to compel such payment. Since these insurers have no agreement between themselves with respect to the defence their respective obligations cannot be a matter of contract. Nonetheless, their obligations should be subject to and governed by principles of equity and good conscience, which, in my opinion, dictate that the costs of litigation should be equitably distributed between them.
[32] Mr. Burgar submits that section 257(4) of the Insurance Act provides support for his position that motions judge’s decision is correct and that Federated should pay its pro-rata share of the entire defence costs.
[33] That section provides:
257(4) Where indemnity is provided to the insured under two or more contracts and one or more of them are excess insurance, the insurers shall, as between themselves, contribute to the payment of expenses, costs and reimbursement for which provision is made in section 245 in accordance with their respective liabilities for damages awarded against the insured.
[34] Section 257(4) contemplates a situation where a matter has proceeded to judgment against an insured. In this case the matter was settled and did not proceed to trial. Further, s. 257 contemplates a situation where both or all insurers have notice of and are aware of the claim or claims being made against their common insured.
[35] The section addresses the situation where two or more insurers cannot agree on which of them will have carriage of the defence of the insured. In my view it has no application to the situation before us, where until March 19, 2001 Federated was not even aware there was any claim made against its insured.
[36] In my view it was not apparent that the claims in this case may exceed the ING policy limits until Mr. Adair’s telephone conversation with Mr. Daquisto on August 29, 2001 following the settlement conference on the 27th and his (Mr. Adair’s) letter on the 28th although Mr. Adair personally remained of the view that the claims could be settled for $2,000,000 or less when the Ministry’s contribution was taken into account. It was further apparent following that conversation that ING was contemplating paying its limits and that in that event ING and Federated were adverse in interest. Mr. Adair’s representation was not directed towards advancing or protecting Federated’s interests, and Federated was required to fend for itself and settle. This is not one of those cases where the excess insurer, knowing of the claim, sat back and was able to benefit from the work of the primary insurer. In such circumstances, it would not be fair to require Federated to pay any portion of ING’s defence costs.
[37] In the result I would allow the appeal and set aside the order dated July 6, 2004 and in its place there should be an order dismissing the application.
[38] The appellant should have its costs of this appeal which I would fix in the sum of $10,000.00 inclusive of disbursements and GST.
“J. MacFarland J.A.”
“I agree Robert J. Sharpe J.A.”
“I agree R. A. Blair J.A.”