Court Of Appeal For Ontario Clarifies Key Coverage Concepts Including Allocation Of Defence Costs, Control Of Defence And Split File Protocols

• Published date: 14 March 2024
• Subject Matter: Insurance, Litigation, Mediation & Arbitration, Insurance Laws and Products, Trials & Appeals & Compensation
• Law Firm: Gowling WLG
• Author: Bevin Shores

The Court of Appeal for Ontario has released its decision in Loblaw Companies Ltd. v. Royal & Sun Alliance Insurance Co. of Canada,¹ a case that drew much attention in 2022² for, among other things, the application judge's direction as to costs allocation and information sharing where multiple insurers owe the same insured a duty to defend.

In its decision, the Court weighed in on four key issues, namely:

• Allocation of defence costs among multiple insurers.
• Exhaustion of self-insured retentions ("SIR"s) and deductibles where multiple policies are triggered.
• Relief from forfeiture for pre-tender defence costs.
• Defence reporting agreements and related matters.

Facts and procedural history

The case originated as a duty to defend application. The underlying litigation consisted of several class actions arising from the manufacturing, marketing, distribution and sale of opioids. The material time frame of the underlying claims dated back to 1996; and as such, there were multiple insurers and multiple responsive policies.

The insureds sought a declaration that they were entitled to a defence, and, in recognition of potential conflicts of interest, sought the institution of a defence reporting agreement detailing reporting, information sharing, and ethical screening protocols.

In a detailed decision, the application judge concluded:

• Regarding allocation of defence costs: a "time-on-risk" allocation was not appropriate. Rather each insured was entitled to select any single policy under which there is a duty to defend, and require the insurer to defend. The selected insurer would be entitled to seek an apportionment of the defence costs at the end of the proceedings. ³
• Regarding exhaustion of SIRs and deductibles: for the purpose of triggering the duty to defend, defence costs incurred by the insureds contribute toward the exhaustion of SIRs, even if they are reimbursed by another insurer.⁴
• Regarding pre-tender defence costs: the insured who sought coverage for those costs despite providing late notice of the claim was entitled to relief from forfeiture based on the test set forth in Monk v. Farmers' Mutual Insurance Company (Lindsay),⁵ and was thus entitled to those costs.⁶
• Regarding defence reporting agreements: it was appropriate for the defence reporting agreement to require "split-handing" between coverage and defence, with correspondingly different levels of disclosure. This was because in part, the insurers' reservations of rights gave rise to a...