The Court of Appeal today released an interesting decision, dealing with the interaction of three policies: auto, boat and homeowner’s. In Axa Insurance v. Dominion of Canada (the reasons can be viewed at http://www.ontariocourts.on.ca/decisions/2004/november/C40387.htm), the underlying litigation arose from a bungee cord that had been used to secure the load on a boat that was about to be towed by a car. The bungee cord became dislodged and injured a bystander. The owner of the boat and the car had three insurance policies with three separate insurers. The issue in this case was, which of the three policies was obliged to respond to the claim?The homeowner’s policy was held not to be triggered, because of an exclusion. Thus, the dispute came down to the auto and the boat insurers.
The Court of Appeal agreed with the trial-level court, that the auto policy had to respond to the claim. It cited the leading case, Amos v. I.C.B.C., in which the Supreme Court of Canada had interpreted the insuring agreement of an auto policy and, in particular, the words, “arises out of the ownership, use or operation of a vehicle”. The court in Amos had held that, for there to be coverage, two questions had to be answered:
1. Did the accident result from the ordinary and well-known activities to which automobiles are put?
2. Is there some nexus or causal relationship (not necessarily a direct or proximate causal relationship) between the appellant’s injuries and the ownership, use or operation of his vehicle, or is the connection between the injuries and the ownership, use or operation of the vehicle merely incidental or fortuitous?
The court in Axa v. Dominion held that both requirements had been met here. In particular, it observed that “an ‘ordinary and well-known’ activity for automobiles in Ontario is to transport boats secured to trailers from waterways to homes and cottages”.
Perhaps a more interesting part of todays’ decision had to do with the priorities as between the auto and boat insurers. Axa (the auto carrier) argued that even if its policy had to respond, Dominion’s boat policy should also be triggered, pro rata. Dominion admitted that its policy was triggered, but it relied on an “other insurance” provision in support of an argument that the boat policy was excess to the auto policy. The court agreed that because Dominion’s policy contained a provision making that policy excess, Dominion did not have to respond, for indemnity or defence, until Axa’s limits had been used up. Dominion’s “other insurance” clause read as follows:
“If you have other insurance not insured with us which applies to a loss or claim … our policy will be considered excess insurance and we will not pay any loss or claim until the amount of such other insurance is used up.”
More commonly, a court is faced with a situation where both policies contain this sort of provision, each purporting to make itself excess to other insurance. The Supreme Court of Canada resolved this problem a few years ago, in Family Insurance Corp. v. Lombard Canada. It held that “Where the competing policies cannot be read in harmony, the conflicting clauses should be treated as mutually repugnant and inoperative, as this accords with the expectations of both the insured and the insurers.” The court in Family v. Lombard ruled that if the two policies cannot be read in harmony, then both policies must respond.
In the Axa case, the Court of Appeal was presumably satisfied that the absence of an “other insurance” clause in the auto policy meant that the two competing policies could be read in harmony, such that the Axa auto policy was primary and the Dominion boat policy was, as that policy’s wording said, excess.
This result might be viewed as a little unfair to the auto insurer, whose policy wording is, after all, largely mandated by statute. Undoubtedly, any auto insurer would also prefer that its policies be treated as excess to other policies covering the same risk. But in the absence of an express provision to this effect in the auto policy, it is clear that Ontario courts will not allow this to happen.