Zurich Insurance Co v Ison [2011] ONSC

Zurich Insurance Co v Ison [2011] ONSC

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  Four cornerstones of insurance law
  
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    Insurable interest
    
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    Utmost good faith
    
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    Contract of indemnity
    
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    Subrogation
    

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  Counsel from Zurich subsequently applied to court for instructions on how to proceed w.r.t. protection of insurer’s interests
  
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    Court refused to micro-manage, left parties to decide what they should do under common law obligations
    

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  Justice Strathy did not specifically decide whether he had discretion as to who should have carriage
  
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    Justice Strathy did state, however, that there may be cases where the insurer’s interest is so vastly disproportionate to the insured’s interest that it would be unreasonable to allow the latter to have control of the litigation – Such was not the case here
    
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  Further, Justice Strathy noted that in cases of large losses, it is prudent and common for the insurers and insureds to discuss subrogation and conduct of the recovery litigation at the time they are resolving the insurance claim
  
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    “If the insurers have failed to take these simple and basic steps, they can hardly complain if their insured insists on its common law rights. Thus, the insured had the right to control the litigation with counsel of its choice.”
    
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  Do keep in mind that whoever may have control of the litigation will have duties of utmost good faith to include the claim of the other party and to exercise good faith in the prosecution of those claims to the conclusion
  

1. 
   Subrogation opportunities should be considered at the outset of the investigation and adjustment of any claim.
   

2. 
   Whether counsel should be involved will likely be driven by the potential quantum of the claim.
   

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  The role of counsel will be to assist in guiding the investigation and also with respect to preserving privilege for the investigation.
  
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  In order to claim privilege, the dominant purpose of the investigation and creation of documents must be either for anticipated litigation or for solicitor client communications. It will generally not be possible to claim privilege for those documents which were created for the dominant purpose of adjusting the first party claim.
  
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  In all claims, the fundamental guiding principle must be a good faith investigation.
  

3. 
   In claims which may exceed a monetary threshold of an amount set by you, and where subrogation opportunities have been identified, I would suggest the early retention of counsel with instructions to the adjuster to open two files: one for the dominant purpose of adjustment of the first party loss and the second for the dominant purpose of legal advice and anticipated litigation. Reports thereafter should be directed to counsel with a copy to the examiner.
   

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  Although this is not a foolproof technique for preserving privilege, it should be helpful in most cases in which the insurer does not want to be in a position where it must eventually produce the whole of its investigation to the opposing party.
  

4. 
   Whether counsel is retained or not, the adjuster will wish to obtain as much information about the possible sources of recovery as possible.
   

5. 
   The investigation and adjustment should proceed diligently, both as an obligation the insurer owes to the insured, and also to preserve the evidence for potential subrogation.
   

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  The adjuster will wish to preserve the evidence, obtain statements from all critical witnesses, and retain the appropriate experts for the investigation.
  
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  The adjuster and the examiner will need to consider whether it is best to obtain oral or written preliminary opinions from the experts keeping in mind that everything in the experts file may eventually have to be produced.
  

6. 
   Consideration must be given to whether there are bars to recovery such as waivers of subrogation or covenants to insure.
   

7. 
   The opposing party should be placed on notice once subrogation has been identified as a realistic opportunity supported by the evidence.
   

8. 
   Reasonable timelines should be set for cooperation and discussion with the opposing party or insurer. In the event that the insurer is not receiving cooperation in moving towards possible resolution, I would recommend that the insurer consider retaining counsel to move the matter forward. Too many of the files we receive from insurers pursuing subrogation are received on the eve of the limitation date. The limitation periods must be flagged in all files.
   

9. 
   Insurers should cultivate relationships with law firms where they are encouraged to seek preliminary advice on the multiple issues that may arise in the adjustment and investigation of potential subrogated claims.
   

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  We have long acted as general counsel for a number of insurers in which we are frequently consulted on an informal basis. Keep in mind that such consultations may not be effective in claiming privilege for your files generally.
  

10. 
    Once a determination has been made to retain counsel, consideration should be given to the terms of the retainer as to whether it should be on an hourly rate or contingency fee basis. It may be premature at the outset to make this determination.
    

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  Initial retainers on an hourly rate can be changed to contingency retainers in the future if such is reasonable to both insurer and law firm. In the Princess Crescent subrogation claims, for example, recovery appeared to be probable and it was my opinion that an hourly rate was likely in the best interests of the insurer. Contingency rates are generally in the range of 20 to 40% depending on the complexity of the claim, the amount involved, and the stage at which the claim is resolved.
  

Brown:

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  More than one contract may cover the loss
  
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  May be multiple contracts for property and liability
  
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  Are there multiple policies?
  
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  As a general rule, policies must cover the same risk, same subject matter and same time period, with exceptions such as long-tail claims.
  

The legislation:

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  See Section L of exemplar wordings
  
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  Duty to Defend: Hilliker
  

2. Excess Coverage

3. Several policies

4. Alternative coverage

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  Where there are overlapping policies, they will respond to the same item of loss
  
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    If there is excess coverage, primary insured usually has conduct of this litigation unless the claim exceeds primary limits. If the excess coverage is claimed, other insurers will contribute to defence and indemnity on a pro rata basis
    
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    Sometimes, one policy will respond to one portion of the claim, and another policy responds to another portion of the claim
    
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    May be alternative coverage – one or the other coverage responds to the loss, but not both
    

1. 
   If the clauses are irreconcilable, then they cancel each other out and share the loss
   

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  Might have two policies that say the same thing, they will both cover the loss (Family v Lombard)
  

2. 
   If they can be read as working together, then effect is given to both
   

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  Must see if one was intended to be primary, and another the excess
  

3. 
   The insurers’ intentions are to be determined from the policy wordings, according to the usual principles of interpretation - not extrinsic evidence
   

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  Excess Insurance
  
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    Law of bad faith arose in context of primary insurer that didn’t defend well…
    
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    Shea v Manitoba Public Insurance Company: P agreed to accept a sum, insurer refused, at trial P got an award. Insurer said award was greater than coverage, P said it was bad faith and took assignment of judgment from insured, then sued insurer for bad faith
    
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      Finch J agreed, if insured is in breach of good faith to insurer, that insurer will be exposed to judgment for the whole amount
      
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  Role of primary insurer
  
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  Duty towards excess insurer and insured
  
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  Duty to share costs of defence
  
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  Exhaustion of primary limits
  
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  Generally speaking: insurer with greater risk gets to defend
  

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  E.g. P severely injured in motor vehicle accident, only $1 mill coverage, P’s counsel went to ICBC and accepted the $1mill at the policy limits. ICBC did not accept policy limits, went to trial, judgment was for $4 mill.
  
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    Harmon would say that ICBC was in breach of duty of good faith to D (who was suffering from stress after the action), so he sued defence counsel and ICBC
    

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  E.g. P went near truck where a dog was caged, P was bit and she suffered emotional injury, what policy was applicable to this loss? (ICBC policy w.r..t. use of truck, or homeowner’s policy insuring for claims of bodily injury arising from occurrence during policy period).
  
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    Counsel couldn’t agree as to source of claim, judge held that accident fell under both policies – arose in part out of ownership and use of motor vehicle, also arose from personal activities
    

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  Per Brown:
  
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    Contracts of insurance may give rights to third parties: assignments
    
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    Assignments to mortgage holders and the mortgage clause