What happens when “other insured” policy clauses are irreconcilable

When two insurers offer coverage for the same loss, and each of their policies states their coverage is in excess of “other insurance” available, both insurers can be expected to split the cost for the insured’s defence and settlement costs, Ontario’s top court has ruled.

The decision addressed the question of when “equitable contribution” between insurers is available and appropriate.

“As outlined by the Court of Appeal [for Ontario], the doctrine of equitable contribution applies where two insurance policies apply to an insured’s loss and are considered ‘irreconcilable,’” as Cory Giordano of Supreme Advocacy LLP wrote in a July 13 blog post for CanLii Connects.

In Northbridge General Insurance Company v. Aviva Insurance Company, a pharmacist defended a lawsuit brought against him that contained allegations of professional misconduct (the allegations were never proven in court). His employer, Ayda Pharmacy, was also a defendant in the action.

Northbridge issued a professional liability insurance policy to members of the Ontario Pharmacists Association (OPA). As a member of OPA, the pharmacist was insured under the Northbridge policy.

Aviva issued a commercial general liability policy to Ayda Pharmacy, where the pharmacist worked. The policy included a Pharmacist Professional Liability Endorsement that extended liability coverage to pharmacists employed with Ayda Pharmacy. As an employee of Ayda Pharmacy, the pharmacist was also insured under Aviva’s policy.

Northbridge defended the pharmacist, while Aviva defended Ayda Pharmacy. On May 11, 2021, Northbridge settled the action for $115,000. Northbridge incurred $36,317 in legal expenses; Aviva did not contribute towards the settlement.

Northbridge asked the court to require Aviva to contribute equally to the defence and indemnification of the pharmacist.

Both the Northbridge and Aviva policies had “other insurance” clauses.

Northbridge’s clause states: “This insurance is excess over any other valid and collectible insurance available to the ‘insured,’ whether such insurance is stated to be primary, excess, contingent or otherwise. This does not apply to insurance which is purchased by the ‘insured’ to apply in excess of the policy.”

Aviva’s policy states: “The insurance provided under this endorsement is excess over any other valid and collectible insurance available to individual pharmacists for a loss we cover under this endorsement.”

A motions judge ruled the “other insurance” clauses in the Northbridge and Aviva policies were intended to achieve the same goal, which was to limit each other’s obligations to the insured. As such, they were irreconcilable, and thus the doctrine of equitable distribution came into play; that is, both insurers had to contribute to the pharmacist’s legal costs and indemnity.

The insurers both agreed the doctrine of equitable distribution arose in the case of irreconcilable policy statements, but Aviva held the “other insurance” clauses were not irreconcilable. For example, Aviva argued its policy was the true “excess” policy, because the monies under Northbridge’s policy were available to ‘individual pharmacists,” as stated by Aviva’s “other insurance” clause.

The motions judge disagreed, as did the Court of Appeal.

The Appeal Court noted, for example, the Aviva policy was a commercial general liability policy held by the pharmacy; it was not purchased by the pharmacist for excess cover. Also, Aviva’s ‘other insurance’ clause simply required “individual pharmacists” at the pharmacy to hold a professional liability policy; as such, the pharmacy’s CGL policy was not a true excess policy.

“The more specific language relating to individual pharmacists in the ‘other insurance’ clause in the Aviva policy did not alter its scope as compared to the general ‘other insurance’ clause in the Northbridge policy,” the court ruled.

Feature photo courtesy of iStock.com/kieferpix