Two separate insurers insured two defendants in a tort action. The defendants’ were presented as one party in the tort action, and were represented by one counsel. No crossclaims were made. Following judgement, one insurer sought a declaration that the two defendants should bear equal responsibility for the tort judgments. The court held that by melding the positions of the two defendans, the insurers represented to the court that their liability was indivisible. By taking a passive role, the second insurer participated in and became a party to that representation. As such, it was no longer feasible to allocate liability between the two of them in a conventional manner and the only reasonable solution was to apportion responsibility for the negligence of the defendants equally.
Aviva Insurance Co. of Canada v. Lombard General Insurance Co. of Canada,  O.J. No. 2454, June 1, 2012, Ontarior Superior Court of Justice, A.D. Grace J.
In January 1995, a fire swept through a Toronto apartment building causing injury and damage to several plaintiffs. Eight actions were brought against various defendants including the building’s owner and property manager. The building’s owner was insured by Lombard General Insurance Company of Canada ("Lombard") with both a primary and umbrella policy with monetary limits of $1 million and $9 million per occurrence respectively. The property manager was named as an additional insured on both Lombard policies. The property manager was also insured by Aviva Insurance Co. of Canada ("Aviva") to a limit of $5 million. Aviva’s policy did not include the owner.
Lombard, Aviva and their counsel discussed which policies would respond prior to the trial of the actions. Lombard acknowledged that its primary policy was the first to be utilized. Lombard retained counsel to defend the owner and property manager’s interest in the first tort action to be tried. Aviva did not retain counsel to represent the property manager separately in the action.
The first tort action was tried and the trial judge concluded that the owner and property manager, amongst other defendants, were liable (the "Tort Action"). Liability was not apportioned between the owner and property manager. They had not crossclaimed against one another. On appeal, the owner and property manager were found to be jointly and severally liable for approximately $3.8 million inclusive of interest and costs.
Lombard then sought a declaration that the Aviva policy was the next to respond for its insured, the property manager ("the Priority Proceeding"). Lombard obtained a favourable result. Aviva appealed. The Court of Appeal disposed of Aviva’s appeal in the Priority Proceeding holding that Aviva’s policy was to answer for the liability of the property manager and the Lombard insurance policy was to address the liability of the owner.
Plaintiff’s counsel in the Tort Action then prepared to enforce its judgments against the owner and property manager. The limits of Lombard’s primary policy had been fully utilized. Aviva responded paying approximately $2.5 million representing the balance owing to judgment creditors.
In the within action, Aviva sought a declaration that the owner and property manager should bear equal responsibility for the tort judgments. Aviva claimed to have overpaid by approximately $1 million and asked for judgment against Lombard in that amount.
Aviva made three arguments in this respect. The first was that Lombard should be liable because it failed to appoint separate counsel for the property manager. The court dismissed this argument stating that Aviva could have played a more active role and could have appointed separate counsel if they had so wished. Instead, they chose to maintain a watching brief for strategic reasons relating both to liability at trial and preservation of their argument that Lombard should satisfy the entire judgment.
Secondly, Aviva argued that the approach taken at trial tacitly acknowledged that all risks would be equally shared. The court dismissed this argument stating that it was clear from the evidence that Aviva always intended to argue that any liability for damages or costs in excess of Lombard’s primary policy would be covered by the Lombard umbrella policy. The court held that equal sharing was not a part of any agreement or understanding between Lombard and Aviva.
Finally, Aviva argued that s. 4 of the Negligence Act was triggered. The court rejected this argument stating that this could only be triggered if separate liability of the owner and property manager in tort was an issue during the trial and that evidence led with respect to their acts or omissions did not allow the court to differentiate between them. The court held that the process of allocation of fault between the owner and property manager was never engaged such that s. 4 of the Negligence Act was not in play.
The court relied on the Alberta Court of Appeal decision in Aetna Insurance Co. v. Canadian Surety Co. (1994), 114 DL.R. (4th) 577 (Alta. C.A.). In that case, a tractor and trailer operated by one driver was involved in a motor vehicle accident. Liability was imposed due to the operator’s negligence in the operation of the tractor-trailer as a unit. The Alberta court concluded that the only reasonable solution was to apportion the fault equally between the tractor insurer and trailer insurer. The court in Aviva v. Lombard held that the Aetna case was analogous to the one at bar. The court held that by melding the positions of the owner and property manager, Lombard represented to the court that their liability was indivisible. By taking a passive role, Aviva participated in and became a party to that representation. As such, it was no longer feasible to allocate liability between the two of them in a conventional manner and the only reasonable solution was to apportion responsibility for the negligence of the parties equally.
The court held that Aviva’s claim was also supportable on the principles of restitution. Tort judgment imposed joint and several liability on the owner and property manager. Aviva’s payment on behalf of its insured satisfied the tort judgment granted against the owner and property manager. Nothing was left for the owner, or Lombard, to pay. As between the owner and property manager, the owner was primarily liable to answer for one-half of the tort judgment. Aviva’s payments benefited Lombard. To the extent that Aviva paid more than the property manager’s proper share, the payments were to Aviva’s detriment. Furthermore, there was no juridical reason for Lombard to retain the benefit of payments Aviva made.
The court concluded that Aviva should have judgment against Lombard for the principal amount of approximately $1 million.