In a world of increasing business risks, insureds often purchase
one or more layers of excess coverage to secure additional
protection from the unknown. Such layering of coverage, however,
can trigger disputes between primary insurers and excess
In the recent decision of ACE INA Insurance v. Associated
Electric & Gas Insurance Services Ltd., 2012 ONSC 6248,
the Ontario Superior Court of Justice considered the issue of when
an excess liability insurer would have an obligation to contribute
to defence costs which are often borne by the insurer at the
In the ACE INA Insurance decision, the Ontario Superior Court of
Justice found no equitable duty to contribute to defence costs on
the part of the excess insurer where the excess insurer provided an
"indemnity policy" rather than a "liability
In this case, Toronto Hydro was insured by a CGL policy issued
by ACE and an excess policy issued by AEGIS. Toronto Hydro's
liability arose out of an explosion that occurred in the
underground parking area of a high-rise residential apartment
building in Toronto, Ontario. Although there was no express wording
in the AEGIS excess policy requiring the insurer to contribute to
defence costs, ACE brought an application to obtain a declaration
that AEGIS had a duty to pay defence costs pursuant to the doctrine
of equitable contribution.
In defending the application, AEGIS took the position that its
policy was an "indemnity policy" rather than a
"liability policy". Under its policy, AEGIS limited its
indemnity obligation where there was other insurance, and limited
its duty to indemnify to defence costs incurred by the insured,
thus excluding those incurred by a third-party such as ACE. On this
point, AEGIS argued that because defence counsel had been appointed
by ACE rather than the insured, AEGIS had no obligation to pay
defence counsel's fees.
There was a specific exclusion in the AEGIS policy for defence
costs included "in other valid and collectible
insurance", such as the ACE policy. As ACE had admitted that
it had a duty to defend, was required by its policy to pay for
defence costs and did so, it was AEGIS's position that the
defence costs at issue were "included in other valid and
collectible insurance" and were, therefore, specifically
excluded under the AEGIS policy.
Finally, AEGIS argued that if AEGIS were required to contribute
to the defence costs, there would be a serious prejudicial effect
to the insured, as there would be less coverage available for
damages and settlements. Under the ACE policy, defence costs were
in addition to the policy limits and were unlimited. However,
payment of defence costs eroded the limits of the AEGIS policy.
Justice C.J. Brown reviewed the policy wording and held that the
AEGIS policy, by its specific wording, had limited its liability to
indemnify the insured for the sums which the insured would become
legally obligated to pay as damage and defence costs incurred by
the insured, excluding expenses which are included as other valid
and collectible insurance. The Court also made mention of the
jurisprudence relied upon by the parties in which the Courts have
consistently held that there can be no equitable obligation to
contribute to defence costs, where the excess policy precludes a
duty to defend.
Not surprisingly, the Court was also mindful of the impact that
an imposition of an equitable duty to contribute would have on the
insured. Although not a party to the application, the Court
considered the prejudice to Toronto Hydro, were AEGIS required to
contribute to defence costs. Having considered these issues, the
Court held that the circumstances did not warrant or justify the
imposition of an equitable duty to contribute on the part of
The policy wording is typically a key determinant of who will
succeed on a coverage dispute. A Court will rely on the specific
wording of the policy to determine the intentions of the parties at
the outset with a plain reading of the document. This case confirms
that an excess insurer will not be required to contribute to
defence costs where the indemnity policy specifically excludes
defence costs "included in other valid and collectible
insurance", and such other valid collectible insurance is
indeed available. Often protective of the rights of an insured,
this Court was especially not prepared to erode the limits of the
excess insurance policy where the primary policy provides for
defence costs in addition to the policy limits.
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