Top court to review landmark case regarding “time on risk”

Canada’s top court has agreed to review a recent ruling that multiple insurers who are on the hook consecutively for long-tail claims spanning decades only have a duty to pay legal defence costs for the proportion of time their insurance policies were on risk.

As is customary, the Supreme Court of Canada does not provide reasons for why leaves to appeal are either accepted or rejected.

In Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada, the Ontario Court of Appeal in March overturned a lower court finding that each claimant in the high-profile opioid class actions could pick one of the insurers and have the selected insurer pay 100% of the defence costs — whether or not the claims happened outside the selected insurer’s policy terms.

“Premiums were set based on this assumption of risk,” the Court of Appeal stated in its decision earlier this year. “The application of the [lower court’s reasoning] would oblige the [insurers] to compensate injured plaintiffs (and to pay associated defence costs) for bodily injuries sustained from 1986 to the present, a period long after the expiry of the policies.

“The unfairness of this result to the insurers is evident, since they neither underwrote nor received any premium for such coverage.”

The appellate court’s 120-page decision is complex and deals with a variety of insurance questions. Chief among them is how defence costs should be allocated among the various primary commercial insurers in Loblaw.

The class actions brought by representative plaintiffs across Canada claim billions of dollars in damages. And they relate to a period spanning more than two decades, beginning in 1996 when Purdue Pharma began selling the opioid OxyContin.

The class action involves three defendants:

Loblaw Companies Limited, a Canadian grocery retailer operating pharmacies across Canada.
Shoppers Drug Mart Inc. (SDM), acquired by Loblaw in 2014, which is primarily a Canadian franchisor for retail pharmacies.
Sanis Health Inc., a wholly owned subsidiary of Shopper’s since 2009, which manufactures generic drugs, including two drugs classified as opioids.

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The three businesses variously face five class action suits related to the manufacture, distribution, and sale of opioid drugs in Canada beginning in 1996. None of the claims against them has been proven in court.

Royal & Sun Alliance Insurance Company of Canada, AIG Insurance Company of Canada, Aviva Insurance Company of Canada, Liberty Mutual Insurance Company, and Zurich Insurance Company Ltd. all issued primary commercial general liability policies to one or more of the three class action defendants at various points during the class periods.

Chubb Insurance Company of Canada, and two Lloyd’s of London coverholders — Markel Canada Ltd., and QBE Syndicate 1886 — are excess insurers to the primary insurers.

All five primary insurers covered the risk consecutively — i.e., there was no overlap in their policy periods — between 1995 and 2019.

The three class action defendants sought a ruling in the lower court allowing each of them to select a single insurance policy owing a duty to defend (all five of the primary insurers have a duty to defend). The selected insurer would then be responsible for paying 100% of the defendant’s legal costs.

The lower court agreed, finding the single insurer selected by the claimant could then go to the other insurers for contributory payments of unresolved or uncovered defence costs.

The class action defendants proposed to select either RSA or AIG to defend Loblaw, and Aviva to defend SDM and Sanis.

The primary insurers appealed that decision, arguing instead for a proportional allocation of defence costs based on the time each of the insurers was on risk. They noted that they had already agreed on how to allocate the defence costs on a proportional basis between them.

Feature image courtesy of iStock.com/ozayo