Jennifer E. Kelly
Partner

By Jennifer E. Kelly

In ACE INA Insurance v. Associated Electric, the Ontario Court of Appeal upheld an Ontario Superior Court of Justice decision which held that unless prescribed otherwise by statute, an excess insurer is only required to contribute to defence costs if it has a duty to defend or if such contribution is expressly stated in the policy.

The court looked at the doctrine of equitable contribution and its application to an excess policy which contained no duty to defend.

ACE insured Toronto Hydro through a comprehensive general liability policy, which had a $1M per occurrence limit. AEGIS was Toronto Hydro’s excess liability insurer, the excess policy had limits of $45M.

Following an explosion in the electrical vault of an apartment building, damages in excess of $50 million were sought as against Toronto Hydro. The ACE policy contained a duty to defend clause and provided for unlimited defence costs without eroding the $1M policy limit. AEGIS did not have a duty to defend except when defence costs were not otherwise provided for in another valid insurance policy. Its payment of defence costs would have eroded the $45M policy limit.

AEGIS argued that the doctrine of equitable contribution applies only when the same risk is covered by two policies. ACE contended that it would be unfair for AEGIS not to contribute to defence costs, when it faces a larger proportion of the exposure.

The Court of Appeal agreed with the interpretation of equitable contribution put forth by AEGIS in holding that if the policy covers a different risk, then the doctrine does not apply, "Equitable contribution is not a free-standing method of apportioning losses between different levels of insurance according to a court’s view of what would be fair in the circumstances".