Top 5 Civil Appeals From The Court Of Appeal (December 2013)

ACE INA Insurance v. Associated Electric & Gas Insurance Limited 2013 ONCA 685 (Gillese, Juriansz and Strathy JJ.A), November 14, 2013 Smith v. Inco Limited, 2013 ONCA 724 (MacPherson, Watt and Pepall JJ.A.), November 29, 2013 Versailles Convention Centre Inc. (2074874 Ontario Inc.) v. William Ross Gilmour (Gilmour Barristers), 2013 ONCA 674 (Weiler, Gillese and Lauwers J.J.A.), November 5, 2013 Western Larch Limited v. Di Poce Management Limited, 2013 ONCA 722 (Gillese, Tulloch and Lauwers JJ.A.), November 29 Zavarella v. Zavarella, 2013 ONCA 720 (Gillese, Juriansz and Strathy JJ.A.), November 28, 2013 1. ACE INA Insurance v. Associated Electric & Gas Insurance Limited 2013 ONCA 685 (Gillese, Juriansz and Strathy JJ.A), November 14, 2013

In this decision, the Court of Appeal considered whether the principle of equitable contribution extends to a case where an excess insurance policy contains no duty to defend and defence costs erode the policy limit.

This dispute arose from lawsuits brought against Toronto Hydro Corporation with respect to a 2008 explosion. ACE INA Insurance was the primary insurer for Toronto Hydro under a general liability policy, with a limit of $1 million per occurrence. The policy contained a "duty to defend" clause and covered unlimited defence costs without eroding the policy limit. Associated Electric & Gas Insurance Services Limited was Toronto Hydro's excess liability insurer under an umbrella policy with a limit of $45 million in excess of the primary policy. That policy, which contained no duty to defend but held that AEGIS had the right to participate in the defence of any proceedings against the insured, provided that the insurer was liable for defence costs only where they were not included in other valid and collectible insurance. Payment of defence costs under the AEGIS policy eroded the policy limit.

The actions against Toronto Hydro, which included a class action, claimed more than $50 million in damages against the corporation. As of September 2012, ACE had paid all of Hydro's defence costs, in excess of the $1 million liability limit in its policy.

ACE brought an application for a declaration that AEGIS has a duty to contribute to defence costs incurred on behalf of Toronto Hydro. ACE argued that there was no practical distinction between an excess policy that contains a duty to defend and a policy, like the AEGIS one, that contained a duty to indemnify for defence costs. It claimed that the same equitable considerations ought to apply to both obligations and, where insurers share exposure to liability, they should share defence costs equally. ACE argued that it is inequitable to require it to pay to defend claims it will never be able to cover while protecting AEGIS from defence costs when it faces forty-five times the risk. ACE's application was dismissed.

ACE's appeal required the Court of Appeal revisit the principle of equitable contribution, which it addressed in Alie v. Bertrand & Frère Construction Co. (2002), 62 O.R. (3d) 345 (C.A.), leave to appeal to S.C.C. refused, [2003] S.C.C.A. No. 48. In that case, the Court held that in insurance contracts not governed by statute, the obligation of an excess insurer to contribute to defence costs must flow from a duty to defend or must be explicitly expressed in the policy. Importantly, the Court also noted in that case that a "duty to indemnify does not automatically impose a duty to defend."

Writing for the Court of Appeal, Strathy J.A. agreed with the application judge that contribution only arises when insurance policies cover the same risk. Strathy J.A. noted that there was no duty to defend under the AEGIS policy. Both policies contained a duty to pay defence costs; however, the AEGIS policy expressly excluded liability for these costs to the extent that they were covered by another policy. The liability for defence costs did not overlap: each insurer was responsible for different risks associated with the defence of their common insured. Because the ACE and AEGIS policies did not cover the same risk, the doctrine of equitable contribution did not apply.

Citing Trenton Cold Storage v. St. Paul Fire and Marine Insurance Co. (2001), 199 D.L.R. (4th) 654 (Ont. C.A.), Strathy J.A. held that the Court cannot invoke equitable principles where each party's respective liability is in accordance with what each had bargained for. While there is "some attraction" to the premise that the excess insurer be brought to the settlement table, Strathy J.A. held that it is not up to the Court to change the agreements made between the insurers and the insured. Moreover, these contracts were entered into by sophisticated parties through a large international insurance broker. The premiums suggested that Toronto Hydro wanted to be fully insured but did not want to spend more than necessary and therefore did not intend to purchase two insurance policies covering identical risks. Strathy J.A. also agreed with the application judge that requiring ACE to contribute to defence costs would erode the limits of the AEGIS policy, to the prejudice of Toronto Hydro.

The appeal was dismissed.

  1. Smith v. Inco Limited, 2013 ONCA 724 (MacPherson, Watt and Pepall JJ.A.), November 29, 2013

    In this decision, the Court of Appeal considered a number of submissions made with respect to a costs award in a class action proceeding.

    The underlying action, which was certified by the Court of Appeal as a class proceeding in Pearson v. Inco Ltd. (2006), 78 O.R. (3d) 641, was brought on behalf of thousands of property owners in and around Port Colborne, who claimed that the value of their homes had been negatively affected by nickel emissions from Inco's Rodney Street refinery. In Smith v. Inco Limited, 2011 ONCA 628, 107 O.R. (3d) 321, the Court of Appeal set aside the trial judge's finding that Inco was liable to the class members in private nuisance and pursuant to Rylands v. Fletcher in the amount of $36 million. Doherty J.A. remitted the matter back to the trial judge to assess costs with "regard to the decisions of this court." Henderson J. awarded Inco costs in the amount of $1,766,000.

    Inco appealed from this order, arguing that costs should have been awarded...

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