Insureds which suffer a loss may find that they are covered by multiple insurance policies for that loss. Such situations can arise inadvertently, or the existence of multiple overlapping policies may be by design. For example, the prudent insured may have purchased several distinct types of coverage, one or more of which overlap to cover a risk. Or the insured may have required another entity to name it as an additional insured, while also having its own coverage for the risk. In the context of liability claims, having multiple insurance policies can cause disputes over which insurers have a duty to defend and, if more than one, how associated defence costs should be allocated. It is not uncommon for the insured to get caught up in these fights, although they most frequently involve disputes between the insurers.
Where a party is an additional insured, it will often have its own insurance that covers some or all of the claim. That other coverage may be intended to act as primary insurance or solely as excess to the other policy. For example, large retail vendors often require their suppliers to add them as an additional insured but will also have a corporate global programme intended to provide umbrella coverage.(1) There are also many different policy wordings that may add a party as an additional insured. That wording may have a direct impact on the scope of coverage afforded. For example, one common endorsement provides that the party is added only for vicarious liability which it may have for the acts of the named insured. Other wordings may extend to cover all liabilities arising from the named insured's activities. Others cover the additional insured for all forms of liability arising from the sale or distribution of the named insured's products (commonly known as a 'vendor's endorsement'). A consideration of the scope of coverage provided under these various wordings is a subject for another article. However, these various wordings underscore the importance of each policy's wordings.
A number of issues may arise with the duty to defend, where there are overlapping or concurrent insurance policies – namely:
- identifying situations of overlapping or concurrent coverage;
- how courts resolve overlapping or concurrent coverage absent a clause in one or more of the policies that deals with the issue;
- how courts resolve overlapping coverage where there is one or more 'other insurance' clauses; and
- how courts apply these principles to the allocation of defence costs.
This article focuses on the first of these issues.
The first step in any coverage analysis starts with the policies. Where two or more policies may respond to the claim, it is critical to consider how each policy applies and then how they relate to one another. As the Supreme Court of Canada has noted, when undertaking a coverage analysis, it is always important to focus on the particular wording of a policy and not be misled by the labels that may be used or attempts to pigeonhole the policy into a particular category.(2) The same holds true for terms commonly used in this area of law. Having said this, this article briefly discusses different ways in which two policies might interrelate, as it can and will affect the coverage analysis.
As with any insurance claim – but particularly where multiple insurance policies potentially cover the same risk – the guiding principle of indemnity requires that the insured must not recover more than the value of the loss.(3) If that principle were ignored, it would create a moral hazard, incentivising insureds to obtain more coverage than necessary and potentially contrive their losses in an attempt to make a profit.(4) Thus, as a general rule, the insured with multiple insurance policies can never recover more than the loss by claiming the full loss from more than one insurer.
According to the Supreme Court, two or more policies may be 'overlapping' where they:
- comprise the same subject matter;
- are effected against the same peril;
- are effected by or on behalf of the same assured;
- are in force at the time of the loss; and
- are legal contracts of insurance.(5)
The policies must also cover the same interest in the subject matter for there to be overlapping coverage.(6)
On the other hand, 'concurrent' coverage refers to policies that may cover the same subject matter but for different risks, but both policies provide defence coverage for the same claim. They are not necessarily 'overlapping', but they both may require the insurer to provide a defence to the insured. In addition, the scope of the defence required under one policy may be broader than the scope provided under the other. It is important to note that some cases may use the term 'concurrent coverage' when in fact they are referring to overlapping coverage, so it is again important not to be misled by the labels.
One should not try to 'pigeonhole' the policies. They do not have to be one or the other. It is possible that a policy can be both overlapping and concurrent.
For example, in Re Wawanesa Mutual Insurance Co, a husband and wife jointly owned a home and the husband obtained coverage on behalf of both of them for the whole property. After the couple separated, the wife obtained a policy covering the home with a different insurer. A fire destroyed the house, and the wife's insurer was liable only for the wife's half-interest. Therefore, the only issue of overlapping coverage was with respect to the wife's half-interest, which both the husband and the wife insured.(7) This issue can also arise regarding partnership property.(8)
Often, it will not matter whether coverage is overlapping or concurrent, but the distinction becomes important when courts need to consider 'other insurance' provisions. When advising a party on how multiple policies may respond to a loss, the first step is to confirm that there is overlapping or concurrent defence coverage, as it may not be immediately clear.
In the context of the duty to defend, it is important to remember that the duty to defend is broader than the duty to indemnify. Insurers have a duty to defend all claims where there is the mere possibility that any damages awarded may be covered by the policy, even if such claims are false, groundless or fraudulent.
(1) True umbrella coverage differs from excess coverage. Umbrella coverage 'drops down' to provide primary coverage where there is no underlying primary insurance for that risk, whereas excess coverage does not.