Insurer has obligation to defend, Ontario Superior Court finds

Liberty International Underwriters Canada and ACE INA Insurance have been ordered to share the ongoing defence costs incurred by St. Marys Cement Company Inc. on a 50-50 basis, according to an endorsement by the Ontario Superior Court of Justice.

St. Marys sought a declaration that ACE had a legal obligation to contribute to St. Marys’ defence costs in 18 court actions arising from the supply of allegedly defective concrete. The defective concrete was linked to extensive property damage to residential properties, resulting in damage claims in excess of $27 million, according to the endorsement. ACE, the excess insurer in this case, responded it had no such duty to defend.

Liberty provided primary insurance coverage to a limit of $2 million to St. Marys for liability in property damage. Liberty’s policy also undertook to defend any legal actions until its applicable limit was “exhausted by payment of judgments or settlements or by the insurer’s tendering of the remaining applicable limits of liability,” the endorsement reads.

ACE provided umbrella liability coverage to a limit of $25 million and agreed to indemnify St. Marys for losses because of property damage, provided the “limits of liability of the underlying insurance [i. e. the Liberty policy or policies] are exhausted because of, inter alia, property damage …during the period of this policy.” The ACE policy also provides that where these conditions are met, ACE has the duty to defend any action, according to the endorsement.

The law states that when an excess insurer has a duty to defend as provided by the policy and is put at risk by the claim, then the excess insurers should properly contribute to defence costs. Therefore, the possibility that an excess insurer will be required to indemnify the insured if the claim is successful may be enough to trigger a duty to defend, the endorsement notes.

In this case, Ontario Superior Court Justice Peter Cumming found that there is a “a plain and realistic risk to St. Marys that it may be liable for damages in excess of $4 million [the limit of the Liberty policies if the claims relate to two Liberty policy periods], the maximum limit of indemnification for which Liberty could be obligated under its policies.”

As a result, Cumming found, “there is a realistic chance that the policy of ACE may be called upon by St. Marys for indemnity in respect of the claims advanced in the underlying actions.”

ACE thus had an obligation to defend in this case, Cumming found. •