Mr. Novak's ensuing lawsuit named three defendants: Mr. Patel personally, Mr. Patel's engineering firm, and Mr. Patel's numbered company. Accordingly, three insurance policies were potentially triggered to respond to the loss:

1. Mr. Patel's personal insurer via a homeowner policy (Intact),
2. the engineering firm's insurer through a CGL policy (RSA), and
3. the numbered company's insurer by way of a different CGL policy (Aviva).

Mr. Novak's personal injury claim settled at mediation based on an equal three-way liability split between Mr. Patel, his engineering firm, and his numbered company. But with coverage issues lurking, the true fight lay behind the scenes.

Coverage Issues

All three insurance policies contained standard "other insurance" clauses. Intact covered Mr. Patel in his personal capacity, but not with a commercial policy. RSA and Aviva each covered Mr. Patel as officer/principal in relation to his respective companies, but not in any personal capacity.

Intact denied coverage and chose not to provide a defence for Mr. Patel. RSA and Aviva took the opposite approach, and shared in all defence and indemnity costs.

The question ... was whether Intact could be compelled to contribute its proportionate share to the settlement and defence costs.

The question before Justice Morgan was whether Intact could be compelled to contribute its proportionate share to the settlement and defence costs.

Conflicting Decisions

Two earlier applications were brought by various parties involved in the dispute. The first application was brought by Mr. Patel against Intact.³ Prior to mediation in the personal injury suit, Mr. Patel applied for a finding that Intact had a duty to defend. While Justice Mew agreed that the duty was triggered in principle, he reasoned that RSA's policy should provide primary coverage for the loss, with Intact's policy only obligated to cover as excess insurance.⁴

Intact chose not to participate in mediation, presumably bolstered by Justice Mew's decision. Following settlement, they refused to pay their share of the defence or settlement costs. Aviva brought an application for Intact to do just that. Justice Kristjanson ruled in favour of Aviva, and found that Intact must contribute proportionally to the settlement and defence costs.⁵

The "other insurance" clauses in the relevant policies were essentially identical. The practical effect was that Justice Kristjanson and Justice Mew had come to opposite conclusions on the impact of the exact same insurance clause.

The Legal Test

In the present case, Justice Morgan resolved the contradictory decisions in favour of Justice Kristjanson's interpretation. Justice Morgan relied on the Supreme Court of Canada's test from Family Insurance Corp. v. Lombard Canada Ltd.⁶ Notably, the test had not been put before Justice Mew in the first application.

Per Family Insurance, "other insurance" clauses are only applicable if the policies at stake are overlapping. For policies to overlap, they must cover "the same level of risk."⁷ The policies must comprise the same subject matter and protect against the same perils.⁸ It is not enough for the policies to partially overlap or to complement each other.

In the case at hand, there was no true overlap. As noted above, Intact covered Mr. Patel personally, while RSA and Aviva covered him in a corporate capacity pursuant to CGL policies. These were plainly different risks.

Lessons Learned

For an "other insurance" clause to be accepted by a court on a coverage denial, the relevant policies must genuinely overlap by covering the same risks.

Broadly speaking, this case serves as a reminder that denying coverage outright can be a perilous gamble. With a broad duty to defend in play, Ontario insurers must carefully analyze the risk of standing by and watching litigation progress without having a say in the matter, regardless of their ultimate stance on indemnity. It also highlights the dangers of not bringing before one judge all the issues that one can foresee will be in dispute.

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1. 2019 ONSC 1339.
2. As described by Justice Kristjanson in the related decision of Aviva v. Intact, 2018 ONSC 238, at para. 1.
3. Patel v. Intact, 2016 ONSC 521.
4. Ibid.
5. Aviva v. Intact, Supra Note 2.
6. 2002 SCC 48. See a more detailed discussion of the Family Insurance test in our other recent case study "Court of Appeal Clarifies Approach to Overlapping Insurance Coverage: TD v. Intact".
7. McKenzie v. Dominion of Canada General Insurance Co., 2007 ONCA 480, at para. 21.
8. Family Insurance, Supra Note 6, at para. 15 (quoting Ivamy's General Principles of Insurance Law, 6th ed.).

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