"Other Insurance" Clauses and Overlapping Coverage

In a January 9, 2019, judgment, the Ontario Court of Appeal has reiterated Family Insurance v. Lombard Canada (Supreme Court of Canada, 2002) to the effect that the Canadian rule in relation to overlapping coverage is to determine whether the insurers intended to limit their obligation to contribute, by what method, and in what circumstances vis-à-vis the insured.

In this boating accident claim, the driver benefited from coverage under the boat-owner’s homeowner’s policy (Policy #1); the liability coverage extended to cover the driver since he had the owner’s permission to take the boat out.  Policy #1 contained an “other insurance” clause providing that in the event of other insurance held and which applied to a claim, Policy #1 would be considered excess insurance and would not pay until the amount of the other insurance would be used up. The defendant driver also held his own homeowner’s policy (Policy #2) which included liability cover and an identical “other insurance” clause.  Policy #1 contained a personal-liability extension that covered in relation to the specific boat, while Policy #2 merely contained a generic watercraft-operation cover.

The Policy #1 insurer sought a declaration that both insurers were on an equal footing and had to share equally in defence and indemnity of the driver.

The Court below had noted Policy #1’s specific boat extension, and that an additional premium was paid for it; for the Court below, this demonstrated an intention on the part of the Policy #1 carrier to cover a different type of risk than was covered by the basic watercraft coverage in both policies, and it was consequently “clear” that the Policy #1 insurer intended to provide the primary coverage.

The Policy #1 insurer appealed successfully.  The Ontario Court of Appeal reversed the lower Court, finding that the judge had wrongly applied a “closeness to the risk” approach which the Lombard case had rejected.  Since the identcal “other policy” clauses were irreconcilable, and both policies afforded primary coverage the proper application of Lombard meant that the two insurers must share the burden equally.