The Ontario Court of Appeal has recently determined the priority of insurance policies when insurers structure their policies to include low limits on a primary policy and larger limits on an umbrella liability policy.

In Benson v. Walt,[1] Paul Robert Walt was sued for negligence in relation to a motor vehicle accident. He had two policies with State Farm: an automobile policy with limits of $300,000.00 and a personal liability umbrella policy (“PLUP”) with limits of $1,000,000.00. Mr. Walt was also a named insured under a policy issued by Economical Mutual Insurance Company with limits of $1,000,000.00, on another automobile.

Mr. Walt was operating the vehicle insured by State Farm at the time of the accident.

State Farm sought a declaration that the primary policy with limits of $300,000.00 was followed by the policy issued by Economical. The practical effect of this would be to limit State Farm’s exposure to only the primary policy, despite the presence of the umbrella policy. The motion judge agreed with State Farm’s position. That finding was upheld on appeal.

Both automobile policies were issued in the standard OAP‑1 form. The State Farm PLUP, however, was a general liability policy and did not follow the highly regulated statutory framework of an auto policy.

Only policies that insure people “in respect of the ownership, use or operation of an automobile” are owner’s policies within the meaning of section 277(1) of the Insurance Act R.S.O. 1990, c. 1.8. As the PLUP was a general liability policy, it did not qualify as an owner’s policy.

Economical also argued that its policy was excess insurance as it was issued on a different vehicle and thus met the definition of “any other valid insurance” as set out in section 277(2) of the Insurance Act. This submission was also rejected by the Court of Appeal, as s.272(2) of the Act does not include motor vehicle liability policies.

The decision may change the manner in which insurers in Ontario structure and market policies of insurance for their customers. The use of low limits on a motor vehicle liability policy, supplemented by higher limits on a general liability policy, may insulate the insurer when another policy of automobile insurance is available to the insured, subject of course to the limits on that policy.