Concurrent Duty To Defend And Control Of The Defence

The Ontario Court of Appeal released an important insurance coverage decision today in Markham (City) v. AIG Insurance Company of Canada, 2020 ONCA 239.

The decision addresses a common situation where an insured has its own insurance policy and is also an additional insured on another policy. In such circumstances, questions arise as to which insurance company has to defend the insured; the allocation of defence costs; and who controls the defence.

Background

The City of Markham rented a hockey rink to the Markham Waxers Hockey Club. A young boy was watching his brother play in a hockey game. The boy's jaw was broken after being struck by a puck. He sued the City of Markham and Hockey Canada for $150,000.

The City is insured by Lloyd's Underwriters ("Lloyd's") under a commercial general liability policy. The City is also an additional insured under Hockey Canada's insurance policy with AIG Insurance Company of Canada ("AIG").

On an application, the application judge held that: AIG must defend the action; AIG must pay defence costs subject to indemnification of costs, if any, from Lloyd's upon final resolution of the action; and AIG may not participate in the defence by retaining or instructing counsel.

The decision was overturned by the Court of Appeal.

Concurrent Duty to Defend

The Court of Appeal determined that both AIG and Lloyd's have a duty to defend the City.

There was no dispute that the AIG policy covers the City against all liability with respect to the operations of Hockey Canada and the Markham Waxers. There was also no dispute that the AIG policy is a primary insurance policy and that AIG has a duty to defend the City against all claims which fall within the scope of its policy.

However, AIG argued that Lloyd's is also a primary insurer and is the only insurer liable to indemnify the City against certain claims in the action. As a result, AIG submitted that Lloyd's also has a duty to defend.

Lloyd's relied on an excess insurance provision in its policy which states that "this insurance shall apply only as excess and in no event as contributing insurance and then only after all such other insurance has been exhausted".

The Court of Appeal stated that Lloyd's is an excess insurer only to the extent that claims are covered by the AIG policy. The AIG policy only covers the City for liability in respect of the operations of Hockey Canada and the Markham Waxers.

Certain allegations in the statement of claim may not be covered under...