Overview and Executive Summary
So-called “long-tail claims”, i.e. claims where the alleged damage spans a number of years, pose various coverage challenges for insurers and policyholders.
On February 27, 2024, the Ontario Court of Appeal released its decision in Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada, 2024 ONCA 145 (CanLII) (“Loblaw”), where it tried to bring some clarity to some of the material coverage issues that arise with these types of claims.
The decision arose out of the various opioid class actions in Canada. The policyholders sought coverage for the defence of the class actions from their various liability insurers, spanning several years. The issues on appeal were whether the “all sums” approach taken by the application judge was preferred over the time-on-risk approach advocated for by the insurers, the application of the self-insured retentions (“SIRs”) over multiple insurers, pre-tender costs, and a defence reporting agreement. Briefly, the Court of Appeal rejected the all sums approach, endorsed a time on risk approach, held that SIRs had to be exhausted before each insurer’s defence obligations commenced, applied pre-tender costs to the SIRs, and endorsed, but did not require, the defence reporting agreement.
What underscored much of the Court of Appeal’s reasoning was that multiple insurers over multiple policy periods did not have concurrent coverage obligations as multiple insurers on one overlapping policy period would. As such, the Court differentiated the concepts of equitable contribution from equitable time-on-risk allocation.
Both insurers and policyholders should carefully review the Loblaw decision as it touches not only on these issues, but on a number of coverage issues which are often hotly contested. Retainer of coverage counsel is strongly recommended when analyzing these issues as they often depend on the terms of the applicable policies and the analysis of a complex set of case law.
Factual Background
The decision arises out of the various Canadian class actions that relate to the manufacture, distribution, and sale of opioid drugs in Canada since 1996. The class actions claim billions of dollars in damages. The class periods go back to when Purdue Pharma began selling the opioid known as “OxyContin”. There are five class actions – two in British Columbia, one in Ontario, one in Quebec, and one in Alberta.
The defendants in the class actions at issue in this matter were Loblaw Companies Limited (“Loblaw”), Shoppers Drug Mart Inc. (“SDM”), and Sanis Health Inc. (“Sanis”). Loblaw acquired SDM in 2014. SDM has owned Sanis since 2009. Loblaw, SDM and Sanis brought coverage applications against their various primary and excess liability insurers. The application judge decided that the primary insurers owed concurrent duties to defend. The insurers appealed. The key issues in dispute related to the allocation of defence costs between insurers, dealing with SIRs, pre-tender costs, and a defence reporting agreement.
Appeal Decision
On the first issue, the application judge had held that each policyholder could unilaterally choose a single policy to defend it. That insurer could then seek equitable contribution from the other primary insurers, and still seek reallocation of defence costs at the end of the proceedings to the extent that they dealt solely with uncovered claims. The Court of Appeal disagreed. The Court noted that coverage was limited in each policy to the policy period. As such, the insurers were not concurrent. They insured discreet risks in successive time periods. They did not agree to indemnify risks outside of their time periods. Thus, principles applicable to overlapping or concurrent obligations of insurers did not apply. As a result, the “all sums” approach seemingly taken by the application judge – that each insurer is liable for the entire amount of defence costs and it is up to each insurer to seek contribution from the others – was expressly rejected by the Court. Accordingly, a time-on-risk allocation was the fairer outcome, as was agreed to by the insurers themselves.
On the issue of SIRs, the application judge concluded that no insurer had a duty to contribute to defence costs until its SIR had been exhausted. However, the application judge also held that once the SIR had been exhausted in the selected insurance policy, all SIRs would effectively be exhausted.
The Court of Appeal disagreed and concluded that since Loblaw, SDM and Sanis were looking to each policy for coverage for separate policy periods, the SIR of each policy had to be eroded before that insurer had a duty to defend. That does not mean that the SIRs of all policies had to be collectively exhausted before each policy is triggered. A separate trial will still proceed as to whether certain of the SIRs have already been exhausted.
On the issue of pre-tender costs, the Court agreed with AIG and RSA that Loblaw was not entitled to relief from forfeiture of costs incurred before providing notice of the claims. However, those costs could be applied to the SIRs. If the SIRs were exhausted prior to the tender of the claims, Loblaw would bear those costs.
Finally, on the issue of the defence reporting agreement, the insurers who did not wish to sign it were not mandated to. However, they had to ensure appropriate ethical screens were in place by the relevant claims examiners. The Court left the issue of whether those non-signing insurers could receive certain privileged defence information to another day to be dealt with on a case-by-case matter. The tripart relationship between insurers, defence counsel and policyholders, and the risks of conflicts of interest underscored the reasoning behind this part of the Court’s decision. We do not comment on this issue further as it could form the subject matter of its own article.
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