Fire insurance - Multiple policies - Apportionment and contribution of claim - Excess liability - Rights and duties of insurer - Restitution - Unjust enrichment

Aviva Insurance Co. of Canada v. Lombard General Insurance Co. of Canada

An insurer was found liable for one half of judgment on the basis of equitable contribution and restitution.

[2013] O.J. No. 2851

2013 ONCA 416

Ontario Court of Appeal

R.A. Blair, M.H. Tulloch and p.D. Lauwers JJ.A.

June 20, 2013

A fire erupted in an apartment building. The owner of the building and the property manager were found liable for the fire. The owner and the property manager were jointly defended. Liability was not apportioned between the two at trial; instead they were found liable as “one defendant”.

Three policies of insurance were available to respond: a $1 million Lombard primary policy insuring both liable parties; a $9 million Lombard umbrella policy insuring both parties; and a $5 million Aviva policy that only insured the property manager. The two insurers, Aviva and Lombard, disagreed over the ranking of the policies. Both agreed the Lombard primary policy covered the first $1 million. Aviva argued the $9 million Lombard policy should respond next as it covered both liable parties. Lombard took the position the Aviva policy responded next until the $5 million limit was exhausted and only then was the umbrella policy triggered. Lombard obtained a declaration that Aviva's policy was next to respond after the $1 million pay-out, but its exposure was only limited to the liability coverage afforded to the property manager. The decision did not contemplate to what extent liability should be shared if the Aviva payment on behalf of the property manager covered the liability of both defendants jointly.

Aviva paid the entire amount of the judgment to the plaintiff and then sought contribution from Lombard. A trial judge ordered Lombard to pay half of the judgment because Aviva's policy only covered the property manager whereas the Lombard umbrella policy covered both.

Lombard's appeal of the trial decision was dismissed. Lombard argued that because of the initial order that Aviva was required to respond next after the Lombard primary policy and because this payment satisfied the liability claim in full, the excess umbrella coverage was never triggered and full responsibility therefore lies with Avivia. Avivia submitted that Lombard should be responsible for one-half of the payment after the primary policy because Aviva's policy only covered the property manager whereas the third ranked umbrella policy covered both and both were found liable on a "one defendant" basis.

The court held the issue was how to apportion responsibility for "one defendant" liability between multiple insurers rather than apportioning liability between two defendants. The court of appeal considered the rules imposed by equity, specifically equitable contribution and the restitutionary principle of unjust enrichment. Equitable contribution involves the need to avoid a windfall to other insurers because the selected insurer has paid the claim in full arising out of joint liability. Each of the insurers was equally obligated to respond to the plaintiffs’ claims in full. The fact that Aviva paid the judgment first did not detract from Lombard’s legal obligation to respond. For the purposes of the unjust enrichment argument, Lombard retained its obligation to pay on behalf of the owner, despite the ranking decision. When Aviva paid the judgment, it conferred a benefit to Lombard as it spared Lombard from incurring an expense it would otherwise have had to incur. These principles operated to obligate Lombard to contribute to the payment of the total loss. Lombard was not required to respond next to the loss on behalf of the property manager, but it was required to respond next to the loss on behalf of the owner. The court found it should contribute to the total loss on a 50/50 basis.