CITATION: Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of  
Canada, 2022 ONSC 449  
COURT FILE NO.: CV-20-00649597-0000  
DATE: 20220119  
ONTARIO  
SUPERIOR COURT OF JUSTICE  
)
BETWEEN:  
)
LOBLAW COMPANIES LIMITED,  
SHOPPERS DRUG MART INC. and  
SANIS HEALTH INC.  
) Lawrence G. Theall and Jeffrey A. Brown,  
) for the Applicants  
)
)
Applicants )  
Mark O’Donnell and Cameron Foster, for  
the Respondent Royal & Sun Alliance  
Insurance Company of Canada  
)
)
)
)
)
)
)
)
)
and –  
ROYAL & SUN ALLIANCE  
Nina Bombier and Sean Lewis, for the  
Respondent AIG Insurance Company of  
Canada  
INSURANCE COMPANY OF CANADA,  
AIG INSURANCE COMPANY OF  
CANADA, AVIVA INSURANCE  
COMPANY OF CANADA, LIBERTY  
MUTUAL INSURANCE COMPANY,  
Steven Stieber, for the Respondent Aviva  
Insurance Company of Canada  
ZURICH INSURANCE COMPANY LTD., )  
CHUBB INSURANCE COMPANY OF  
CANADA, CERTAIN UNDERWRITERS  
AT LLOYD’S as represented by their  
coverholder MARKEL CANADA  
)
)
)
)
James P. Thomson and Ronald Silverson, for  
the Respondent Liberty Mutual Insurance  
Company  
LIMITED, ALLIANZ GLOBAL RISKS US )  
Jamie Macdonald, for the Respondent  
Zurich Insurance Company Ltd.  
INSURANCE COMPANY, CERTAIN  
UNDERWRITERS AT LLOYD’S as  
represented by their coverholder ELLIOTT  
SPECIAL RISKS, CERTAIN  
UNDERWRITERS AT LLOYD’S as  
represented by their coverholder CATLIN  
CANADA INC., XL INSURANCE  
COMPANY SE, TEMPLE INSURANCE  
COMPANY, SENTRY INSURANCE  
COMPANY, NATIONAL UNION FIRE  
INSURANCE COMPANY OF  
)
)
)
)
)
)
)
)
)
)
)
)
John Nicholl, Heather Gray and Emma  
Nicholl, for the Respondent Chubb Insurance  
Company of Canada  
Marcus Snowden and Akash D. Brijpaul, for  
the Respondent Certain Underwriters at  
Lloyd’s as represented by their coverholder  
Markel Canada Limited  
PITTSBURGH, PA., TEVA CANADA  
Douglas Stewart, for the Respondents XL  
Insurance Company SE and Certain  
LIMITED and QBE SYNDICATE 1886 AT )  
LLOYD’S OF LONDON  
)
)
Page: 2  
Respondents ) Underwriters at Lloyd’s as represented by  
) their coverholder Catlin Canada Inc.  
)
) Dominic T. Clarke and Anthony Gatensby,  
) for the Respondent QBE Syndicate 1886 at  
) Lloyd’s of London  
)
) Alan P. Gardner, Christine Viney and Meg  
) Bennett, for Teva Canada Limited  
)
) Debbie Orth, for Sentry Insurance Company  
)
)
)
) HEARD: July 5-8, 2021, with supplementary  
) written submissions delivered on December  
) 20, 2021  
REASONS FOR JUDGMENT  
VERMETTE J.  
[1]  
The Applicants make application for:  
a. declarations that various insurers have a duty to defend certain claims against some  
or all of the Applicants, and that this duty has been breached;  
b. a declaration that each of the Applicants is entitled to select any single policy under  
which there is a duty to defend that Applicant and require the Respondent insurer  
to defend or, in the alternative, an order allocating the respective share of defence  
costs that should be paid by each Respondent insurer;  
c. a declaration that only those insurers who provide the disclosure, and sign the  
undertaking, contemplated by the Defence Reporting Agreement (defined below),  
will be entitled to associate in the defence of the claims in issue and receive  
defence-side reporting;  
d. if necessary, an order directing a trial as to whether the aggregate deductible or self-  
insured retention (“SIR”) under any applicable insurance policy has been  
exhausted.  
[2]  
Certain Underwriters at Lloyd’s as represented by their coverholder Markel Canada  
Limited (“Markel”) have also commenced a separate but related Application (Court File No. CV-  
Page: 3  
20-651208-0000) which addresses issues similar to those raised by the Applicants’ request for a  
Defence Reporting Agreement, and seeks certain declarations about the disclosure of information  
and the right to participate in the Applicants’ defence.  
[3]  
A third and related Application was brought by Markel against Aviva Insurance Company  
of Canada (“Aviva”), Shoppers Drug Mart Corporation, Shoppers Drug Mart Inc. (“SDM”) and  
Sanis Health Inc. (“Sanis”) (Court File No. CV-20-00646236-0000). On January 26, 2021, Justice  
Chalmers signed an order on consent that resolved Markel’s Application, except for the issue of  
the costs sought by Aviva, which were reserved to be spoken to at the hearing of this Application.  
I was advised at the hearing that the issue of costs had been dealt with and no longer needed to be  
spoken to.  
[4]  
The Applicants’ Application was heard over the course of four days. Counsel agreed to  
organize the issues into three categories: (1) the duty to defend and the issue of equitable allocation  
as between insurers; (2) the exhaustion of SIRs/deductibles; and (3) the defence protocol/defence  
reporting agreement. Markel’s Application was dealt with as part of the third category of issues.  
[5]  
My reasons below follow a similar organization. I first review the relevant factual  
background.  
A. FACTUAL BACKGROUND  
1. The Applicants  
[6]  
Loblaw Companies Limited (“Loblaw”) is a Canadian grocery retailer, which operates  
pharmacies at various locations throughout Canada. Loblaw opened its first pharmacy in 1979.  
Prior to May 1997, Loblaw was insured separately from its parent, George Weston Limited  
(“Weston”). Since May 1, 1997, Loblaw has been a named insured under insurance policies issued  
to Weston.  
[7]  
SDM is primarily a Canadian franchisor for retail pharmacies, but also had some company-  
owned pharmacies that operated in Canada from time to time. SDM was initially a subsidiary of  
Imasco Limited (Imasco) and was an insured under policies issued to Imasco. As of February  
4, 2000, SDM was no longer owned by Imasco and became insured under policies issued to SDM.  
[8]  
Sanis was incorporated in 2009. It is a wholly-owned subsidiary of SDM and is a generic  
drug manufacturer. Sanis manufactures and sells Sanis-branded generic drug products in Canada  
in accordance with contract fabrication agreements entered into with several generic drug  
manufacturers acting as contract fabricators. Sanis has manufactured and sold two drugs classified  
by Health Canada as opioids. Both drugs were manufactured under a contract fabrication  
agreement with Teva Canada Limited (Teva). Sanis has been insured under SDM’s insurance  
policies since Sanis was formed in 2009.  
[9]  
On March 28, 2014, Loblaw acquired all the issued and outstanding shares of SDM. At  
the time of the acquisition, SDM retained the insurance coverage it then had in place, until those  
Page: 4  
policies expired at the end of their terms on July 1, 2014. At that time, SDM and Sanis became  
insured entities under Weston’s insurance policies.  
2. The Underlying Claims  
[10] Loblaw, SDM and Sanis have each been named as defendants in one or more class action  
lawsuit(s) relating to the alleged negligent manufacturing, distribution and/or sale of opioid drugs  
in Canada. The five class actions in issue are the following:  
a. Her Majesty the Queen in Right of the Province of British Columbia commenced a  
class action against Loblaw, SDM, Sanis and others on August 29, 2018 in the  
Supreme Court of British Columbia (“BC HMQ Action”). It seeks damages from  
Loblaw, SDM, Sanis and others arising from the alleged negligent manufacturing,  
marketing, distribution and sale of opioid drugs or opioid products. In addition to  
negligence, other causes of action are pleaded, including breach of the Competition  
Act, R.S.C. 1985, c. C-34, fraudulent misrepresentation and deceit, unjust  
enrichment and fraudulent concealment. The BC HMQ Action is brought on behalf  
of all federal, provincial and territorial governments and agencies that paid  
healthcare, pharmaceutical and treatment costs related to opioids during the class  
period, which is the period from 1996 to the present. The BC HMQ Action was  
discontinued as against Loblaw on July 6, 2021, i.e. on the second day of the  
hearing of this Application. Compared to the other actions in issue on this  
Application, the BC HMQ Action is the action with respect to which the Applicants  
have incurred the highest amount of legal costs.  
b. An anonymous representative plaintiff (M.W.) commenced a class action on  
December 18, 2019 in the Supreme Court of British Columbia against Loblaw,  
SDM, Sanis and others for damages related to the alleged negligent manufacturing,  
marketing, distribution and sale of opioid drugs or opioid products (“BC MW  
Action”). In addition to negligence, other causes of action are pleaded, including  
breach of the Competition Act, breaches of the B.C. Business Practices and  
Consumer Protection Act, S.B.C. 2004, c. 2, fraudulent misrepresentation and  
deceit, unjust enrichment and fraudulent concealment. The BC MW Action is  
brought on behalf of all Canadians or, alternatively, all British Columbians who  
consumed any one or more of the opioids manufactured, marketed, distributed and  
sold by the defendants during the class period, which is the period from 1996 to the  
present, as well as the direct heirs of any deceased persons who met this description.  
c. On May 15, 2019, Darryl Gebien commenced a class action in the Ontario Superior  
Court of Justice against Sanis and others for damages arising from the alleged  
Page: 5  
negligent research, development, manufacture, testing, regulatory licensing,  
distribution, sale and marketing of opioids (“Ontario Action”). In addition to  
negligence, other causes of action are pleaded, including breach of the Competition  
Act, fraudulent misrepresentation and deceit, unjust enrichment and fraudulent  
concealment. The Ontario Action is brought on behalf of all persons in Canada who  
were prescribed opioids and subsequently developed an addiction to opioids, as  
well as all persons in Canada who by reason of their relationship to a class member  
have standing pursuant to section 61(1) of the Family Law Act, R.S.O. 1990, c. F.3.  
The statement of claim does not define the class period, but the allegations it  
contains are very similar to the allegations in the other actions. Loblaw and SDM  
are not parties to the Ontario Action.  
d. On May 23, 2019, an anonymous representative plaintiff (E.V.) commenced a class  
action in the Superior Court of Quebec against Sanis and others for damages arising  
from the alleged negligent research, development, manufacturing, testing,  
regulatory licensing, distribution, sale, marketing, and after-market surveillance of  
opioids in Quebec (“Quebec Action”). In addition to negligence, other causes of  
action are pleaded, including breaches of the Competition Act, breaches of the Civil  
Code of Quebec and breaches of the Quebec Charter of Human Rights and  
Freedoms. The Quebec Action is brought on behalf of all persons in Quebec who  
have been prescribed and consumed any one or more of the opioids manufactured,  
marketed, distributed and/or sold by the defendants during the class period, which  
is the period from 1996 to the present, and who suffer or have suffered from opioid  
use disorder, as well as the direct heirs of any deceased persons who met this  
description. Loblaw and SDM are not parties to the Quebec Action.  
e. On June 3, 2020, the City of Grande Prairie commenced a class action in the Court  
of Queens Bench of Alberta against Loblaw, SDM, Sanis and others for damages  
arising from the alleged negligent manufacturing, marketing, distribution and sale  
of opioid drugs or opioid products (“Alberta Action”). In addition to negligence,  
other causes of action are pleaded, including conspiracy, common law public  
nuisance, common law fraud and unjust enrichment. The Alberta Action is brought  
on behalf of all Canadian municipalities and local governments who collect taxes  
and/or provide services to their communities. The statement of claim does not  
define the class period, but the allegations it contains are similar to the allegations  
in the other actions, although more detailed.  
[11] Collectively, the BC HMQ Action, the BC MW Action, the Ontario Action, the Quebec  
Action and the Alberta Action are referred to as the Underlying Claims.  
[12] The Underlying Claims seek billions of dollars in damages. There are 45 defendants in the  
BC HMQ Action, 38 defendants in the BC MW Action, 37 defendants in the Ontario Action, 25  
defendants in the Quebec Action and 42 defendants in the Alberta Action. In addition, similar  
litigation is pursued in the United States of America.  
Page: 6  
3. The insurance policies  
[13] Aside from Teva and its insurers (discussed below), the Respondents are all licensed  
insurance companies that issued commercial/comprehensive general liability (“CGL”), umbrella,  
excess and integrated insurance policies that insured one or more of Loblaw, SDM and/or Sanis  
for some period between January 1, 1996 and the present.  
[14] Five of the Respondents issued primary CGL policies that covered one or more Applicants  
during the relevant period (“Primary Insurers”):  
a. Liberty Mutual Insurance Company (Liberty) insured SDM for the period April  
1, 1995 to February 4, 2000;  
b. Aviva insured SDM and Sanis for the period February 4, 2000 to July 1, 2014;  
c. AIG Insurance Company of Canada (AIG) insured Loblaw for the period July 1,  
1995 to May 1, 1997;  
d. Royal & Sun Alliance Insurance Company of Canada (RSA) insured Loblaw for  
the period May 1, 1997 to January 1, 1998; and  
e. Zurich Insurance Company Ltd. (Zurich) insured Loblaw for the period January  
1, 1998 until January 1, 2019,1 and SDM and Sanis for the period July 1, 2014 (i.e.  
after they were acquired by Loblaw) to January 1, 2019.  
[15] Each of the Primary Insurers also issued excess liability policies to one or more of the  
Applicants from time to time. The other Respondents (who are not related to Teva) issued excess  
liability policies which covered one or more of the Applicants during the relevant period.  
[16] The Applicants are also insured under policies issued to Teva by QBE Syndicate 1886 at  
Lloyd’s of London (QBE) and potentially by other insurers, i.e. Sentry Insurance Company and  
National Union Fire Insurance Company of Pittsburgh, PA. These policies are not discussed in  
this decision as it was agreed that the issues related to these insurers would be dealt with at a  
subsequent date. However, QBE did take a position and participate in the argument regarding the  
defence protocol/defence reporting agreement sought by the Applicants.  
1
Some qualifications apply with respect to the policy periods 1998-2000 and 2001-2004. These are  
discussed below.  
Page: 7  
[17] Except for two policies issued by Zurich for the policy periods 1998-2000 and 2001-2003,  
each primary insurance policy contains an express duty to defend any claim for bodily injury  
against an insured. The specific wording in the relevant policies is as follows:  
a. Liberty: “With respect to such insurance as is afforded by this policy, [Liberty]  
shall: (a) If claim is made or suit brought within Canada or the United States of  
America, their territories or possessions, defend any such claim or suit against the  
Insured […].”  
b. Aviva: “As respects such Insurance as is afforded by this policy the Insurer also  
agrees: (1) To defend in the name of and on behalf of the Insured, allegations,  
claims, demands or suits, which may at any time be instituted against the Insured  
even if such allegations, claims, demands or suits may be groundless [sic] false or  
fraudulent; or to make settlement of such claims as may be deemed expedient by  
the Insurer, or if the Insurer is prevented by law or otherwise from defending the  
Insured as aforesaid, the Insurer will reimburse the Insured for defense costs and  
expenses incurred with the consent of the Insurer; but the Insurer shall not be  
obligated to pay any claim or judgement or to defend suit after applicable limit of  
Insurers liability has been exhausted by payment of judgements or settlements.2  
c. AIG: “With respect to such insurance as is afforded by this policy, [AIG] shall: (A)  
Defend any suit against the Insured alleging such injury, sickness, disease or  
destruction and seeking damages on account thereof, even if such suit is groundless,  
false or fraudulent; but [AIG] may make such investigation, negotiation and  
settlement of any claim or suit as it deems expedient;”  
d. RSA: “With respect to such insurance as is afforded by this policy, [RSA] shall:  
(A) Defend any suit against the Insured alleging Bodily Injury, Personal Injury or  
Property Damage and seeking damages on account thereof, even if such suit is  
groundless, false or fraudulent; but [RSA] may make such investigation,  
negotiation and settlement of any claim or suit as it deems expedient;”  
e. Zurich, for the policy period 2004-2006 and subsequent periods (with minor  
changes that do not change the substance of the clause): “As respects such  
Insurance as is afforded by this policy Zurich also agrees: a) to defend in the name  
of or on behalf of the Insured, allegations, claims, demands, suits or other  
proceedings which may at any time be instituted against the Insured for any  
accident or Occurrence, even if such allegations, claims, demands or suits may be  
2
Minor changes that do not change the substance of this clause were made to this wording in the 2006-  
2007 policy and appear in the subsequent policies.  
Page: 8  
wholly groundless, false, or fraudulent; or to make settlement of such claims as may  
be deemed expedient by Zurich.”  
As stated above, Zurich’s policies for the policy periods 1998-2000 and 2001-2003  
do not include a duty to defend. However, these policies provide that Zurich is  
liable to pay for “ultimate net loss” in excess of the SIR and/or underlying  
insurance. “Ultimate net loss” includes defence expenses incurred by the insured.  
4. Notice of the Underlying Claims and insurers’ responses  
[18] The Applicants provided notice of the Underlying Claims to the Respondents and asked  
the Primary Insurers to defend the litigation as required by their respective policies. By June 2020,  
none of the Primary Insurers had made any contributions to defence costs. At that time, the  
Applicants had incurred more than $1 million in defence costs. The Applicants are represented by  
a single law firm, Osler, Hoskin & Harcourt LLP (“Osler”), with respect to all Underlying Claims.  
[19] Some of the insurers have taken the position that they have deductibles or SIRs that would  
apply to the Underlying Claims. All the Primary Insurers as well as some excess insurers have  
reserved their rights to deny coverage based on “intentional acts” exclusions, among others. Some  
insurers have yet to take a coverage position.  
[20] Sanis and SDM have chosen to require Aviva to defend the Underlying Claims, subject to  
any order the Court may make with respect to equitable allocation as between insurers. Loblaw  
has chosen to require RSA or, in the alternative, AIG, to defend the Underlying Claims, subject to  
any order the Court may make with respect to equitable allocation as between insurers.  
[21] By February 2021, the Applicants had paid more than $2.6 million to Osler to defend the  
Underlying Claims.  
[22] At the time of the hearing, Aviva and Liberty had made payments for a share of defence  
costs.  
5. Defence reporting agreement  
[23] On July 14, 2020, counsel for the Applicants wrote to the Respondents, noting that all the  
Primary Insurers had reserved their rights to later deny coverage based on certain exclusions,  
including intentional acts exclusions. He also noted that the Applicants understood that many  
insurers were involved with the defence of other parties in the Underlying Claims. As a result, the  
Applicants proposed a detailed defence protocol involving two levels of reporting (coverage-side  
and defence-side) and requiring all insurers that have potential conflicts issues to erect ethical  
screens that include employees or officers of the insurer, with the full authority to authorize all  
payments under the respective policies, to their full limits, without having to consult anyone who  
is not included in the ethical screen.  
Page: 9  
[24] The Applicants have entered into defence reporting agreements with a number of insurers,  
including Zurich, Aviva and Allianz Global Risks US Insurance Company. Further, some, like  
Liberty, have indicated a willingness to sign a similar agreement. However, some insurers have  
rejected the Applicants’ proposed terms and suggested that their internal systems were adequate  
to address any concerns (“Non-DRA Insurers”).  
[25] The main terms of the Defence Reporting Agreement with Zurich (“DRA”), which the  
Applicants are putting forward as the model DRA that other insurers should have to enter into, are  
the following:  
a. The Applicants agree that they will provide “Privileged Defence Information”  
(defined below) to Zurich’s authorized representatives, and that the authorized  
representatives will be entitled to participate in the defence of the Underlying  
Claims, including negotiating settlement.  
b. An “authorized representative” is a person designated in writing by Zurich, who  
will associate in the defence of the Underlying Claims, and who will receive and/or  
have access to Privileged Defence Information.  
c. Privileged Defence Information” means “information and documents of any  
kind, whether verbal, electronic or in writing, developed by the [Applicants] and/or  
their legal counsel in the defence of the Underlying Claims and/or the Opioid  
Claims, that are subject to litigation privilege and/or solicitor-client privilege as  
between the [Applicants] and their legal counsel.” This includes reports from  
defence counsel on the status of the litigation, assessments of the claims and  
evidence, legal analysis, proposed strategies and anticipated future steps.  
Privileged Defence Information also includes any other documents or information  
that are created from or in relation to Privileged Defence Information, including  
documents and information of any kind created by Zurich's authorized  
representatives.  
d. Privileged Defence Information does not include “public-facing information”.  
Public-facing information means documents and information relating to the  
Underlying Claims that are not privileged and confidential, and includes, for  
example, information regarding procedural steps, documentary productions,  
discovery transcripts, expert reports that have been served, motion records,  
mediation briefs, pretrial briefs and decisions of the Court and any related  
judgments and orders.  
e. The Applicants agree that they will make public-facing information available to  
Zurich without restriction to authorized representatives, as requested.  
Page: 10  
f. Zurich will maintain ethical screens to ensure that Privileged Defence Information  
is not received by or available to any person or entity other than the authorized  
representatives.  
g. In the event of a development in the Underlying Claims that would require a  
substantial reserve change or a payment (for example, the scheduling of a mediation  
or in anticipation of an offer to settle), and upon request from an authorized  
representative, the Applicants agree to provide a “reserve reportthat would  
support such a reserve change or payment. The reserve report will be used solely  
to support a reserve and/or payment request in excess of the authorized  
representativesfinancial authority, and for no other purpose (including, but not  
limited to, the determination of coverage for the Underlying Claims).  
h. Zurich and the authorized representatives agree not to use any Privileged Defence  
Information or any reserve report for any purpose other than the defence and/or  
settlement of the Underlying Claims against the Applicants. This includes  
establishing appropriate legal and indemnity reserves, including obtaining reserve  
and settlement authority as required.  
i. The authorized representatives will not have any involvement of any kind with  
respect to the assessment or determination of coverage issues or the defence of any  
other person or entity in relation to the Underlying Claims, unless the Applicants  
provide their prior written consent.  
j. In the event of any dispute between Zurich and the Applicants with respect to  
insurance coverage for the Underlying Claims, Zurich will never seek to use or rely  
on Privileged Defence Information or any reserve report in any way, including but  
not limited to attempting to have Privileged Defence Information or any reserve  
report admitted into evidence in a proceeding.  
k. The Defendants agree that they will continue to provide “coverage reportingto  
Zurich in respect of all Underlying Claims whenever a major step occurs in any of  
the Underlying Claims, such as, but not limited to, the completion of pleadings, the  
scheduling or completion of discoveries, the scheduling or completion of any  
motion, trial or other hearing, or the scheduling of mediation. The Applicants also  
agree to provide additional coverage reporting to Zurich from time to time as  
reasonably requested. “Coverage reporting” means the provision of public-facing  
information to Zurich without restriction of access to only authorized  
representatives.  
l. The DRA does not modify or restrict any obligations owed under the Zurich  
Policies, or any rights available under the Zurich Policies, nor may it be relied upon  
in respect of any dispute regarding the interpretation or application of any of the  
Zurich Policies or in any proceeding related thereto.  
Page: 11  
B. DISCUSSION  
1. Duty to defend and equitable allocation of defence costs as between insurers  
a. Positions of the parties  
[26] The Applicants’ position is that they are entitled to a defence from each Primary Insurer,  
subject to the deductibles/SIRs. They state that since more than one policy provides defence  
coverage, they are entitled to select any one policy and that insurer is contractually bound to  
provide a full defence of all covered claims, even if this furthers the defence of uncovered claims.  
That insurer is then entitled to seek equitable contribution from other insurers with overlapping or  
concurrent defence obligations.  
[27]  
Aviva has acknowledged that it owes SDM and Sanis a duty to defend all five Underlying  
Claims with respect to its years on risk, i.e. for the period it provided coverage to SDM and  
Sanis (February 1, 2000 to July 1, 2014). Aviva’s position is that it has no obligation to defend  
Loblaw, who it never insured, and no obligation to defend claims that fall outside its coverage  
period. Aviva submits that where the Underlying Claim allege injury that may have occurred in  
one or more successive policy periods, defence obligations should be allocated in proportion to  
the insurer’s number of years on risk. It further submits that the insured does not have the right to  
choose which policy ought to defend as the case law relied upon by the Applicants on this point  
does not apply to a case where different insurers were on risk for different timeframes. Finally,  
Aviva argues that the SIRs under the policies issued by other insurers should not alter these  
insurers’ obligation to contribute to the defence costs and the allocation of such costs. Subject to  
the defence obligations of Teva and its insurers (which are not before me at this time), Aviva  
proposes a time-on-risk allocation between Aviva and Zurich for Sanis, and between Liberty,  
Aviva and Zurich for SDM. The proposed allocations have been agreed upon by Zurich and  
Liberty.  
[28] Liberty submits that it does not have any duty to defend or contribute to the defence costs  
of any entity other than SDM, nor any duty to defend or contribute to the defence costs of SDM  
for damages for bodily injury which allegedly occurred either before or after Liberty was on risk  
(i.e. from January 1, 1996 to February 4, 2000). Liberty further submits that the allocation of  
defence costs should include SDM in that SDM should have to contribute to its defence for the  
years when its insurance contracts provide for an SIR (with respect to Liberty, $1 million SIR  
under Liberty’s 1998-1999 policy).  
[29] Zurich has acknowledged that, in relation to the Underlying Claims: (a) it has an obligation  
to indemnify Loblaw for defence costs for the 1998-2000 and 2001-2003 policy periods, upon the  
exhaustion of the applicable SIRs; (b) it has a duty to defend Loblaw for the 2004, 2007, 2010,  
2013 and 2016 policy periods, upon the exhaustion of the applicable SIRs; and (c) it has a duty to  
defend SDM and Sanis from July 2014 for the 2013 and 2016 policy periods, upon the exhaustion  
of the applicable SIRs. Zurich disagrees that the Applicants are entitled at law to select a single  
insurer to defend and that it is the responsibility of the selected insurer to look to the other insurers  
Page: 12  
for equitable contribution. With respect to the proper allocation of defence costs as between  
insurers, Zurich’s position is that the Court should use the “time-on-risk” approach, and that  
insurers should not be responsible for those policy years in which the Applicants failed to obtain  
any primary CGL coverage.  
[30] RSA’s position is that it has an obligation to contribute to the costs of the appropriate  
defence of Loblaw alone with respect to the three Underlying Claims to which Loblaw is a party  
for only eight months out of the total 272-month “time-on-risk period”. This is because its duty  
to defend arises solely with respect to bodily injuries alleged to have been occurring during the  
policy period. Further, this obligation is subject to a deductible that applies to defence costs.  
According to RSA, the law in Canada for complex multi-year exposure cases is that the appropriate  
allocation approach is time-on-risk. It argues that the Applicants are proposing an “all-sums  
approach3 and that the Court should not give any consideration to such an approach, which,  
according to RSA, is arbitrary, inequitable and unprincipled. RSA states that the case law relied  
upon by the Applicants regarding the scope of the duty to defend does not apply to cases involving  
allocation of defence costs over multiple years of risk. It also submits that Loblaw must participate  
in funding the defence costs in respect of all the months for which liability insurance coverage is  
unavailable or not responding for any reason, including (but not limited to) deductibles or SIRs.  
It argues that the defence costs incurred by the Applicants prior to RSA receiving first notice of  
the Underlying Claims are not covered by RSA’s policy.  
[31] AIG does not dispute that the three Underlying Claims to which Loblaw is a party contain  
allegations that would trigger possible coverage under its policy and a duty to defend. However,  
AIG’s position is that the policy has a significant SIR that must be satisfied by Loblaw before any  
liabilities, including the duty to defend, arise for AIG. AIG also submits that its duty to defend is  
not unqualified and must be equitably allocated with other Primary Insurers for Loblaw. It argues  
that the case law relied upon by the Applicants does not apply to this case as it deals with defence  
of “mixed claims” by a single insurer as opposed to a trigger of multiple responsive insurance  
policies over time. AIG also argues that the Applicants’ “all-sums approach” to defence  
obligations should be rejected and that, in any event, the issue of whether the Applicants have a  
unilateral right to select a single policy for defence duties is moot because the issue of the fair and  
equitable allocation for defence duties over multiple policy periods is before this Court. According  
to AIG, where a loss is alleged to span multiple policies and policy periods, the prevailing approach  
to equitable allocation in Canada is time-on-risk, where insurers contribute to defence based on  
3 The Court of Appeal described the “all-sums approach” as follows in Goodyear Canada Inc. v. American  
International Companies (American Home Assurance Company), 2013 ONCA 395 at para. 17:  
Under this all-sums approach” to liability allocation, a single insurer could be required  
to pay the entire amount of an asbestos injury claim, notwithstanding that multiple  
policy periods are triggered by the applicable claim. In effect, the all-sums approach  
imposes joint and several liability on all insurers whose policies have been triggered.  
Page: 13  
their respective policy periods relative to the total allocation period. AIG states that it is only “on  
risk” for less than 6% of the total period, and that any greater allocation of defence costs to AIG  
(including an equal-shares approach) would be grossly unjust. Finally, AIG takes the position that  
Loblaw is not entitled to “pre-tender defence costs”, i.e. defence costs incurred prior to providing  
notice to AIG, and that relief from forfeiture should not be granted.  
[32] At the hearing, I was advised that the Primary Insurers agree that, with respect to the  
defence costs incurred as of the date of the hearing, one third should be allocated to each of the  
Applicants, subject to reallocation at a later time. The discontinuance of the BC HMQ Action as  
against Loblaw during the hearing may affect the insurers’ position for the period between the  
hearing and the release of this decision. I was also advised that AIG, RSA and Zurich are prepared  
to fund Loblaw’s defence costs on the basis of the following time-on-risk allocation, subject to  
SIRs and the appointment of independent, unconflicted counsel for Loblaw: AIG 6%, RSA –  
3%, Zurich 91%.  
b. General principles regarding the interpretation of insurance policies and the duty  
to defend  
[33] The relationship between an insured and an insurer is a contractual one that is primarily  
governed by the terms of the insurance policy. The proper instrument to determine the liability of  
each insurer is the contract itself: see Markham (City) v. AIG Insurance Company of Canada, 2020  
ONCA 239 at para. 44; leave to appeal refused: [2020] S.C.C.A. No. 170 (“Markham”).  
[34] The Supreme Court of Canada has outlined general principles that apply when interpreting  
an insurance policy. The primary interpretive principle is that when the language of the policy is  
unambiguous, the court should give effect to clear language, reading the contract as a whole.  
Where the language of the insurance policy is ambiguous, general rules of contract construction  
apply. For example, courts should prefer interpretations that are consistent with the reasonable  
expectations of the parties, so long as such an interpretation can be supported by the text of the  
policy. Courts should avoid interpretations that would give rise to an unrealistic result or that  
would not have been in the contemplation of the parties at the time the policy was concluded.  
Courts should also strive to ensure that similar insurance policies are construed consistently. When  
these rules of construction fail to resolve the ambiguity, courts will construe the policy contra  
proferentem against the insurer. One corollary of the contra proferentem rule is that coverage  
provisions are interpreted broadly, and exclusion clauses narrowly. See Progressive Homes  
Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33 at paras. 21-24 (“Progressive  
Homes”).  
[35] Thus, the language of an insurance policy is to be construed in accordance with the usual  
rules of construction, rather than inferred expectations unapparent on a fair reading of the  
document. This is particularly so in the case of commercial insurance policies involving  
sophisticated parties. The insurer must explicitly state the basis on which coverage may be limited.  
See Family and Children’s Services of Lanark, Leeds and Grenville v. Co-operators General  
Insurance Company, 2021 ONCA 159 at para. 55.  
Page: 14  
[36] The duty to defend is broader than the duty to indemnify and constitutes a separate and  
independent contractual obligation. The outcome of the trial is irrelevant to the duty to defend.  
The duty would be a hollow one if the insurer’s only obligation were to indemnify its insured at  
the end of the day. Thus, issues related to the duty to defend must be determined expeditiously,  
on the basis of the allegations in the underlying litigation, read with the insurance coverage. See  
Carneiro v. Durham (Regional Municipality), 2015 ONCA 909 at paras. 26, 29 (“Carneiro”).  
[37] An insurer is required to defend a claim where the facts alleged in the pleadings, if proven  
to be true, would require the insurer to indemnify the insured for the claim. It is irrelevant whether  
the allegations in the pleadings can be proven in evidence. That is to say, the duty to defend is not  
dependent on the insured actually being liable and the insurer actually being obligated to  
indemnify. What is required is the mere possibility that a claim falls within the insurance  
policy. Where it is clear that the claim falls outside the policy, either because it does not come  
within the initial grant of coverage or is excluded by an exclusion clause, there will be no duty to  
defend. See Progressive Homes at para. 19. Any doubt as to whether the pleadings bring the  
incident within the coverage of the policy ought to be resolved in favour of the insured: Monenco  
Ltd. v. Commonwealth Insurance Co., 2001 SCC 49 at para. 31.  
[38] Where two insurers have an obligation to defend the same claim, the insured is entitled to  
select the policy under which to claim indemnity, subject to any conditions in the policy to the  
contrary: see Markham at para. 78. See also Family Insurance Corp. v. Lombard Canada Ltd.,  
2002 SCC 48 at para. 14 (“Family Insurance”). The insurer selected by the insured to defend the  
claim may be entitled to contribution from all other insurers who have a concurrent duty to defend  
the insured: Markham at para. 79. The allocation of defence costs as among insurers who have a  
concurrent obligation to defend is essentially a matter of fairness as among those insurers. As  
such, the allocation of costs is not an exact science: see Markham at para. 83.  
c. Discussion of cases on duty to defend referred to by the parties  
[39] The Applicants’ submissions regarding the scope of the duty to defend in this case are  
largely based on the decision of the Court of Appeal in Hanis v. Teevan, 2008 ONCA 678, 82 O.R.  
(3d) 594; leave to appeal refused: [2008] S.C.C.A. 504 (“Hanis”).  
[40] In Hanis, the Court of Appeal summarized the issue before the court and its answer as  
follows:  
[1] How, if at all, should the costs of defending a lawsuit be apportioned between  
the insurer and insured when some, but not all, of the claims made in the lawsuit  
are covered by the applicable insurance policy?  
Page: 15  
[2] I would hold that the question of apportionment of costs should be  
determined by the operative language in the policy. Where there is an  
unqualified obligation to pay for the defence of claims covered by the policy, as  
in this case, the insurer is required to pay all reasonable costs associated with the  
defence of those claims even if those costs further the defence of uncovered  
claims. The insurer is not obliged to pay costs related solely to the defence of  
uncovered claims.  
[41] Writing for the Court, Doherty J.A. anchored his analysis in the contract between the  
parties and rejected an approach that turned on considerations of fairness or equity:  
[22] I also favour the contractual analysis. The relationship between an insured  
and an insurer is contractual and must be governed primarily by the terms of the  
relevant policy of insurance. The insurer’s obligations are found first and  
foremost in the policy. Those obligations may include the obligation to pay all  
or some of the costs associated with the defence of covered claims. It makes  
eminent sense that any inquiry as to the nature and scope of the insurer’s duty to  
pay those costs should start with the language of the policy. I agree with the  
observations of Newbury J.A. in Coronation Insurance, at para. 42, where, in  
the course of approving the contractual analysis approach, she stated:  
In my view this approach construes the language of the policy in a  
manner consistent with the usual rules of construction rather than  
according to some inferred “expectations” not apparent on a fair reading  
of the document; and it provides insureds with the full benefit of their  
policy. It requires an insurer to state explicitly the basis, if any, on which  
coverage may be limited, and it avoids lengthy hearings designed to  
explore “metaphysical” underpinnings of why a corporation or its  
directors and officers might have acted as they did. (Citation omitted)  
[23] I see no unfairness to the insurer in holding it responsible for all reasonable  
costs related to the defence of covered claims if that is what is provided for by  
the language of the policy. If the insurer has contracted to cover all defence costs  
relating to a claim, those costs do not increase because they also assist the insured  
in the defence of an uncovered claim. The insurer’s exposure for liability for  
defence costs is not increased. Similarly, the insured receives nothing more than  
what it bargained for -- payment of all defence costs related to a covered claim.  
[24] An analysis based on an interpretation of the language of the policy also  
demonstrates the inappropriateness of the analogy drawn by the New Zealand  
Court of Appeal to cases involving apportionment issues between insurers.  
Apportionment between insurers does not arise in the context of a contractual  
relationship that specifically addresses the obligation of one party to pay the  
defence costs of the other party.  
Page: 16  
[25] […] However, in the context of defending covered and uncovered claims  
in the same suit, a distinction must be drawn between cases where defence costs  
are related exclusively to the defence of either covered or uncovered claims, and  
cases where the same costs are incurred in the defence of both covered and  
uncovered claims. In the former circumstance, an allocation of costs would be  
required, barring a policy which provided for payment of defence costs relating  
to uncovered claims. In the latter case, allocation would not be necessary unless  
the policy provided for allocation where the costs related to both covered and  
uncovered claims. […]  
[29] For the reasons set out above, I do not think that the nature and extent of the  
insurers obligation to pay defence costs is a question of fairness or unfairness.  
Rather, it is a question of what the insurer has agreed to do in the policy. The  
answer to that question lies in the language of the policy, not in judicial notions  
of fairness.  
[42] I pause to note that as reflected in paragraph 17 above, none of the policies of the Primary  
Insurers provide for allocation where the defence costs relate to both covered and uncovered  
claims.  
[43] Hanis was applied by the Court of Appeal in Tedford v. TD Insurance Meloche Monnex,  
2012 ONCA 429, 112 O.R. (3d) 144 (“Tedford”). In that case, the insured was sued for negligent  
misrepresentations that were alleged to have caused both repair costs and health consequences.  
Only the health consequences were covered by the insurance policy. The Court of Appeal  
concluded that an apportionment of the costs of the defence between covered and uncovered claims  
was appropriate in that case, but it did not order a particular allocation. The Court held as follows:  
[24] I would direct, unless the parties otherwise agree, that the [insurer]s counsel  
be instructed to defend both the covered and the uncovered claims, in a manner  
commensurate with the aggregate amount claimed, and that the [insured] bear  
the costs of the defence, to the extent they exceed the reasonable costs associated  
with the defence of the covered claims. In determining the reasonable costs  
associated with the defence of the covered claims, it is appropriate to consider  
the quantum of the covered claims. It would be unfair to the insurer to fix it with  
defence costs that are disproportionate to the extent of its potential liability for  
the covered claim.  
[25] If the parties are unable to agree on an allocation of the costs, the appellant  
insurer shall be entitled to apply to the Superior Court of Justice for a  
determination of the allocation, in accordance with Hanis, after the matter is  
concluded or at such other time as the parties agree.  
Page: 17  
[44] Thus, in Tedford, in the event the parties could not agree on an allocation of the defence  
costs between covered and uncovered claims, the insurer was to pay all defence costs and apply  
for a determination of the allocation after the matter was concluded.  
[45] Hanis and Tedford were both considered by the Court of Appeal in Carneiro. In that case,  
the Court of Appeal ordered the insurer to defend the action in its entirety, but stated that the  
insurer was entitled to seek an apportionment of the defence costs at the end of the proceedings,  
“to the extent they deal solely with uncovered claims, or exceed the reasonable costs associated  
with the defence of the covered claims” (para. 28). [Emphasis in the original.]  
[46] The Hanis, Tedford and Carneiro cases dealt with claims that were not covered by the  
insurance policy because of their natureand not because they fell outside of the policy period.  
In the present case, the insurers have not attempted to demonstrate that any defence costs have  
been or will be spent defending solely claims that are not covered by the policies because of their  
nature. While one insurer emphasized in oral argument that the Underlying Claims alleged many  
types of claims that could not possibly be covered by the insurance policies, none of the insurers  
proposed a way in which the defence of the claims set out in the pleadings could be reasonably,  
practically and realistically separated or allocated between covered and uncovered claims. The  
argument that an apportionment of defence costs between covered and uncovered claims is  
possible remains open to the Primary Insurers in the future based on the principles set out in Hanis  
and Carneiro, but there is no evidence supporting such an argument before me at this stage of the  
class actions. Based on the pleadings in the Underlying Claims, I agree with the Applicants that  
allegations of intentional acts, which some insurers may seek to exclude, are inextricably  
interwoven with the negligence claims.  
[47] While some insurers argued that their liability was likely to be non-existent or very  
restricted given the limited role of their insured (Loblaw) and/or the fact that their coverage period  
was at the very beginning of the class period, this type of analysis is not permitted at this stage to  
determine whether a duty to defend exists because, as stated above, such determination is based  
on the pleadings and it is irrelevant whether the allegations in the pleadings can be proven in  
evidence.  
[48] Rather than being focused on the nature of the claims alleged against the Applicants, most  
of the insurers’ arguments on this Application were focused on the temporal scope of the  
Underlying Claims which is broader than their respective coverage periods. In their view, the  
principles set out in Hanis do not apply to this kind of situation.  
[49] A similar situation was discussed in Lombard General Insurance Company of Canada v.  
328354 B.C. Ltd., 2012 BCSC 431 (“Lombard”), where Butler J. of the Supreme Court of British  
Columbia (as he then was) applied the principles set out in Hanis in the context of an action where  
the damage was alleged to have occurred over a period of time that was, in part, outside of the  
coverage period and uninsured. Butler J. stated that the issue before him was whether “an insurer’s  
obligation to fund the costs of the defence can be apportioned prospectively prior to trial on a ‘time  
on risk’ basis.” (para. 4)  
Page: 18  
[50] Butler J. found that some of the property damage claims in the action were covered and  
some were not because they occurred outside of the coverage period. In his view, the principles  
set out in Hanis applied to this situation. He stated the following:  
[57]  
Although the circumstances in Hanis involved a different sort of  
“mixed” claim than in the instant case, the approach to the basic principles  
regarding apportionment is persuasive. In my view, the contractual  
interpretation analysis is particularly well suited to the circumstances of a pre-  
trial application for apportionment between an insurer and an insured, at which  
stage there is only limited information available. Moreover, this approach  
embraces all of the established principles regarding the duty to defend and the  
rules of construction just as an insured cannot expect to receive any greater  
benefit than what he or she contracted for, an insurer cannot seek to limit its  
defence obligation beyond what is expressly stated in the policy.  
[58]  
I do not accept Lombard’s submission that Hanis is limited to claims  
involving separate but overlapping causes of action, and inapplicable to cases in  
which the pleadings allege continuous or progressive damage, where the  
essential cause of action is the same but the occurrence of damage is alleged to  
have taken place both within and outside the policy period. That distinction is  
irrelevant to the issue before this Court. What is important is that in both  
situations, defence costs are intertwined and it is difficult to separate them as  
between covered and uncovered claims in one situation because the essential  
causes of action are intertwined, and in the other, because the defence costs may  
be incurred regardless of the length of the period during which damage was  
caused.  
[59]  
In summary on this issue, I conclude that the equitable concept of  
fairness does not require a court to order an apportionment of defence costs in  
all cases of continuous or progressive damage. Rather, an insurer’s duty to  
defend and the extent to which it must pay for or contribute to the cost of that  
defence are to be determined according to the terms of coverage and the  
circumstances of the underlying litigation.  
[51] Ultimately, Butler J. declined to apportion defence costs. He concluded as follows:  
[67]  
I conclude on the basis of the material before me that there is no  
reasonable or practical means of apportioning defence costs at this stage of the  
proceedings. The pleadings do not specify the extent to which damage is alleged  
to have occurred within or outside the policy period, and there is no useful  
evidence regarding the costs associated with defending the claims falling within  
coverage and those not. Accordingly, there is no basis upon which I can infer  
that the defence costs bear a direct proportion to the parties’ time on risk. Indeed,  
it is evident to me that this proposition is without merit. All of the property  
Page: 19  
damage claims have their genesis in the same allegations of water ingress due to  
construction deficiencies and defects. The fact that some of the damage is  
alleged to have occurred outside the period of coverage does not necessarily lead  
to separate and readily ascertainable costs of defence. Rather, I conclude it is  
likely that a substantial amount of the defence costs that will be incurred would  
have been incurred even if the period of continuous or progressive damage ended  
when the insurance coverage terminated. Furthermore, there is no evidence  
before the Court that allows me to fairly apportion the costs of defence on any  
other basis. In my view, any apportionment at this time would be arbitrary and  
premature.  
[…]  
[70]  
As the express wording of the Policies provides that Lombard has a duty  
to defend any action seeking compensatory damages because of property  
damage occurring within the policy period, it follows that Lombard must pay all  
reasonable costs of defending such claims, regardless of whether they also assist  
in the defence of claims in respect of damage falling outside the policy  
period. This conclusion imposes no greater obligation on Lombard than what it  
contracted for in the first place. This interpretation accords with the clear  
language in the insuring agreements.  
[71]  
This conclusion does not amount to providing the Developers with a  
“free defence” for the claims in respect of damage falling outside the period of  
coverage. To the extent that the defence of those claims results in separate and  
readily ascertainable costs of defence, it will be open to Lombard to seek  
reimbursement for such costs as they are incurred or at a later stage in the  
proceedings. Accordingly, there is no unfairness to Lombard in requiring it to  
provide a full defence at this time.  
[52] The Primary Insurers describe Lombard as an “outlier” and seek to rely on different cases  
which allowed an apportionment of defence costs. Before turning to these cases, I will discuss  
briefly a few other decisions of the Court of Appeal for Ontario that are relied upon by the  
Applicants.  
[53] In St. Paul Fire & Marine Insurance Co. v. Durabla Canada Ltd., 1996 494, 29  
O.R. (3d) 737 (C.A.) (“Durabla”), the insurer was seeking to pay defence costs on some pro rata  
basis with respect to a large number of claims alleging injuries caused by exposure to asbestos  
products manufactured by the insured. The Court of Appeal refused to order the insured to pay a  
portion of the defence costs, even though it was uninsured for part of the relevant period. The  
Court stated the following:  
Having regard to the fact that the insured did not have insurance coverage  
throughout the entire period covered by the claims asserted against it, we can see  
Page: 20  
an element of fairness in the appellantssubmission that the respondent should  
be obliged to make some contribution to the costs of its defence. But it is clear  
that, unlike as in some of the American authorities to which we were referred, a  
simple declaration of the fairness of proration will not suffice. Rather, the court  
would have to devise some mathematical formula as a basis for such proration.  
We do not find ourselves in a position to articulate an equitable formula for such  
proration at this stage of the proceedings. The impediments to a formulation that  
would fairly reflect the competing interests of the insurer and the insured at this  
stage of the proceedings are the imprecision of the allegations asserted by the  
claimants in the underlying actions and the absence of any firm factual  
foundation for whatever proration formula might be selected. In these  
circumstances, we have concluded that the [insurers] should bear the sole cost of  
discharging their duty to defend, subject to such entitlement as they have in law  
to recover all or an appropriate portion of their costs of defence from the insured  
following the ultimate disposition of the underlying actions.  
[54] Later that same year, the Court of Appeal also declined to apportion defence costs between  
an insurer and an insured in Daher v. Economical Mutual Insurance Co., 1996 639, 31  
O.R. (3d) 472 (C.A.) (“Daher”). The Court of Appeal referred to its conclusion in Durabla and  
found that the same considerations applied in Daher. Writing for the Court, Rosenberg J.A. stated  
the following:  
The appellant submits that, even if there was a duty to defend the third party  
claim, the costs of the defence should be apportioned between it and the  
respondents. The appellant argues that, even if the claim alleges negligence on  
the part of the respondents as shopkeepers, the principal claim is against the  
respondents in their role as parents. The appellant submits that the issue should  
be referred to the assessment officer at Windsor to hear evidence and then  
apportion the defence costs.  
In a proper case it may be possible to apportion the defence costs where only  
certain claims fall within the terms of the policy […]. This is not a case,  
however, of multiple causes of action where it is possible to divide the costs of  
defending the various causes of action. The third party claim alleges only a  
single cause of action with different theories of liability. The facts giving rise to  
the multiple theories of liability are so intertwined that I cannot see any  
principled basis upon which this court or an assessment officer could unravel  
them to apportion costs to one theory rather than another. The appellant did not  
place before us any material to demonstrate how this might be done and offered  
no theory upon which the assessment officer could fairly apportion the costs.  
[…]  
Page: 21  
In my view, it is simply not practical to divide the defence costs in these  
circumstances. As Harding L.J.S.C. observed in St. Andrew’s Service Co. v.  
McCubbin (1988), 1988 2926 (BC SC), 31 C.C.L.I. 161 at p. 165  
(B.C.S.C.), there is no means of readily distinguishing the costs of defence  
between the covered and not covered items. The possible ways to apportion  
an expense between two parties submitted by the third party cannot apply in  
these circumstances” […]. [Emphasis added.]  
[55] In my view, the principles that informed the decisions in Durabla and Daher are the same  
than those set out in Hanis. An argument that a particular allocation (or absence thereof) is fair or  
unfair is insufficient in the face of a contract. Any proposed allocation between an insured and an  
insurer must be principled, based on the allegations in the claim, have a factual foundation and be  
consistent with the terms of the policy, including the insurer’s duty to defend covered claims.  
[56] It is important to distinguish the issue of the duty to defend between the insured and the  
insurer(s), which is a contractual issue, and the issue of the allocation of defence costs among  
multiple insurers under a concurrent obligation to defend, which is dealt with based on equitable  
principles as a result of the absence of a contractual nexus between them. This was made clear by  
the Court of Appeal back in 1990 in Broadhurst & Ball v. American Home Assurance Co., 1990  
6981, 1 O.R. (3d) 225 (C.A.) (“Broadhurst”):  
This brings me to the question raised by the cross-appeal. Accepting that  
Guardian, as the excess insurer, and American Home, as the primary insurer, are  
under concurrent obligations to defend the respondents against the claims  
asserted in the Lumsden Building action, should the costs of defending the action  
be apportioned between these insurers, as American Home contends, and if so in  
what proportions?  
In dealing with this issue, Anderson J. recognized that it would be “consistent  
with equity and good conscience, to say that because both insurers have a duty  
to defend, albeit a duty arising under separate contracts with the plaintiff, to each  
of which the other is a stranger, each should contribute to the costs of defence”.  
Nevertheless he concluded that, since American Home and Guardian are  
separate insurers with no contractual nexus between them, there is no legal basis  
for such contribution. He accordingly refused the order sought by American  
Home requiring Guardian to share in the costs of the defence.  
There are few Canadian or English decisions that offer any assistance on this  
subject. There are, however, numerous American decisions in which the  
reciprocal obligations of several insurers to bear the costs of defending a  
common insured have been considered. […]  
Some of the cases to which we have been referred involve multiple insurers, each  
providing primary coverage and each bound under its policy to defend the  
Page: 22  
insured. The traditional view in these cases has been that, even among two or  
more primary insurers, an insurer that has paid defence costs cannot recover  
them from a co-insurer on the rationale that the duty to defend is personal to the  
particular insurer. However, in a growing number of cases, the courts have  
invoked the principle of equitable subrogation to allow the insurer who has  
performed the duty to provide a defence to compel contribution for a share of  
the cost of the defence from another insurer who has a similar obligation to the  
same insured but fails to perform it.  
[…]  
Returning to the instant case, I am persuaded that the absence of any contractual  
nexus between the primary and excess insurers should not, in the present  
circumstances, preclude the court from ordering the excess insurer to pay its fair  
share of the costs of defence of the Lumsden Building action. […]  
On the facts of the present case, it appears to me that, as a simple matter of  
fairness between insurers under concurrent obligations to defend, and, as well,  
in fairness to the insured, Guardian should pay a proper share of the costs of  
defence. It follows that American Home should be able to compel such payment.  
Since these insurers have no agreement between themselves with respect to the  
defence, their respective obligations cannot be a matter of contract. Nonetheless,  
their obligations should be subject to and governed by principles of equity and  
good conscience, which, in my opinion, dictate that the costs of litigation should  
be equitably distributed between them.  
[…]  
On what basis, then, should the costs of defending the Lumsden Building action  
be apportioned between these insurers? In American Homes submission, they  
should be shared pro rata in proportion to the coverages afforded by each insurer,  
that is, 95 per cent of costs should be borne by Guardian and 5 per cent by  
American Home. I cannot accept that submission. The underlying action here,  
unlike the situation in most of the American cases, has not yet been tried or  
settled; it remains outstanding and its final outcome will not likely be known for  
some time. In this situation, I do not think it appropriate to allocate costs simply  
by reference to the respective policy limits, although I would add, in other  
situations, this may well be a fitting basis for the allocation. The costs of  
providing the defence here are clearly not necessarily related to the monetary  
limits of the policies. It seems to me, in viewing the matter broadly and as best  
I can, that the fairest, most reasonable and most equitable allocation of costs that  
can be made in the overall circumstances of this case is to apportion them equally  
between the insurers.  
Page: 23  
[57] The difference between the contractual approach applicable to the insured-insurer  
relationship and the equitable approach applicable among multiple insurers with no contractual  
nexus was at the center of the analysis in St. Paul Fire and Marine Insurance Company v. AIG  
Insurance Company of Canada, 2019 ONSC 6489 (“St. Paul”), one of the cases relied upon by  
the insurers. In St. Paul, Sossin J. (as he then was) addressed the issue of how defence costs should  
be allocated where sequential insurers of a defendant have a duty to defend a single claim. The  
application before Sossin J. was brought by one of the insurers for a declaration that other insurers  
had a duty to defend the insured, and for a declaration that the costs of defending the action were  
to be allocated among the insurers involved in proportion to their time on risk.  
[58] Sossin J. noted at paragraph 77 that the allocation of defence costs among insurers was a  
question of fairness within the Court’s equitable jurisdiction. After reviewing a number of  
authorities, he found that the time-on-risk approach was an appropriate approach to allocate  
defence costs in this case at first instance. He stated the following:  
[90] In light of this analysis, and relying on Hay Bay and Goodyear, I find the  
time on risk approach to be appropriate as an allocative approach for defence  
costs at first instance. Assuming the damage is continuous, this approach reflects  
a proportionate pro rata calculation of which insurer will be responsible for  
defence costs based on the months or years of covered damage under its policies.  
[91] This approach, however, does not represent a final allocation of defence  
costs. Based on evidence in the trial, or findings on interlocutory motions, the  
actual damage occurring during actual time periods may clarify the proportion  
of damage for which each insurer actually was responsible. At that time, such  
findings may well merit a recalculation of defence costs.  
[59] Sossin J. was also asked to determine whether an insurer (Zurich) was entitled to apply the  
SIR under its insurance policy to its obligation to contribute to defence costs so that any duty to  
defend would only be triggered after the SIR clause was satisfied. The insured’s position was that  
the SIR only applied to the duty to indemnify, not the duty to defend. Ultimately, Sossin J. declined  
to determine the SIR issue in the context of this particular application. He stated the following:  
[96] Lockerbie [the insured] further argues that St. Pauls application against the  
other insurers for contributions to the defence costs is a claim in equity, not  
contract, and therefore the SIR provision, and the contractual rights or burdens  
to which it gives rise, does not constitute a basis on which to alter the allocation  
of defence costs as between the various insurers.  
[97] I share this view. I find that St. Pauls application is not the appropriate  
proceeding to address the possibility of a contractual dispute between Zurich and  
Lockerbie respecting the SIR. For purposes of this application, the only issues  
are whether Zurich has a duty to defend and what its allocation of defence costs  
should be.  
Page: 24  
[98] If Zurich seeks to invoke the SIR against Lockerbie, this may be the subject  
of a separate proceeding between those parties at some point in time.  
[60] Thus, Sossin J. granted St. Paul’s application with respect to the time-on-risk approach for  
allocating the defence costs among the four insurers who had a duty to defend, and found that  
Zurich’s obligation under this allocation scheme was not affected by the SIR in its policy.  
However, this finding was without prejudice to this issue being the subject of a separate proceeding  
between Zurich and the insured: see paras. 99-100.  
[61] Aside from the issue of the SIR, which is discussed further below, it is my view that St.  
Paul does not assist the Primary Insurers with respect to their arguments vis-à-vis the Applicants.  
In St. Paul, Sossin J. was dealing with an issue of apportionment among insurers, based on an  
equitable approach. He expressly declined to deal with issues of contractual rights between the  
insured and individual insurers because such issues were not before him. Thus, St. Paul is not  
authority for the proposition that the principles set out in Hanis do not apply between an insured  
and an insurer in a situation where sequential insurers have a duty to defend the same claim. To  
the contrary, the insurer who brought the application in St. Paul acknowledged its duty to defend  
and, prior to bringing its application against the other insurers, covered all expenses relating to the  
insured’s defence even though it was only responsible for approximately seven per cent of the  
defence costs under a time-on-risk approach. As for the issue of equitable allocation among  
insurers, all the Primary Insurers in this case agree on a time-on-risk allocation, so the relevant  
principles set out in St. Paul are not in dispute.  
[62] Many of the Primary Insurers rely heavily on the case Goodyear Canada Inc. v. American  
International Companies (American Home Assurance Company), 2013 ONCA 395 (“Goodyear”).  
In Goodyear, the parties agreed to have certain interpretive issues regarding the relevant insurance  
policies determined on a motion prior to trial. The underlying litigation in this case was asbestos-  
related. The bodily injuries at issue potentially spanned the period from 1969 to the present, but  
Goodyear only had insurance coverage between 1969 and 1980. The evidence showed that after  
1985, Goodyear was unable to obtain insurance coverage at commercially reasonable rates for  
asbestos-related liability due to a decision by the insurance industry to cease underwriting such  
risks (“Coverage Cut-off”). Based on a U.S. decision dealing with similar circumstances,  
Goodyear argued that the insurers should be held responsible for any asbestos injuries that  
occurred after 1986, i.e. after the Coverage Cut-off (the so-called Stonewall principle).  
[63] The Court of Appeal rejected Goodyear’s argument and refused to follow the U.S. decision  
in question and to import the Stonewall principle into Ontario law, primarily because adopting this  
principle would offend the express terms of the insurance policies and expand the scope of the  
coverage that was contractually agreed upon. As noted by the Court of Appeal, there was no  
contractual foundation or consideration for the deemed transfer of risk argued by Goodyear (para  
.71).  
[64] For the purpose of the motion in Goodyear, the parties agreed that the pro rata approach  
and the continuous trigger theory would apply with respect to the allocation of losses spanning  
Page: 25  
multiple policy years (see para. 23). Given this agreed-upon assumption, the Court of Appeal did  
not have to make any ruling with respect to this issue, but it discussed briefly certain liability  
allocation approaches, including the “all-sums approach”, at paragraphs 14-21. See also Alie v.  
Bertrand & Frere Construction Co. Ltd., 2002 31835 at paras. 93-104 (C.A.) (“Alie”).  
The Respondents argue that rules governing the duty to defend and the allocation of defence costs  
should be inferred from the Court of Appeal’s general discussion. I disagree.  
[65] As a preliminary matter, it is important to note, as did the motion judge in Goodyear, that  
the adoption of a particular trigger theory to determine which insurance policies responded and  
how responsibility for payment of the claims should be allocated amongst the parties is an issue  
for the trial judge: see Goodyear Canada Inc. v. American International Companies (American  
Home Assurance Company), 2011 ONSC 5422 at para. 4. In Alie, the Court of Appeal suggested  
that the appropriate trigger theory in a particular case should be selected based on “the  
requirements of the policy language together with the facts of the specific case, including the  
evidence of when the injury actually occurred, when it was manifest and how many insurance  
policies are potentially available and liable to respond”: see para. 104. In Durabla, the Court of  
Appeal held that it was neither appropriate nor essential to the disposition of the determination of  
a duty to defend issue to determine the appropriate theory of liability and choose among competing  
theories. See also Royal & Sun Alliance Insurance Co. of Canada v. Fiberglass Canada Inc., 1999  
CarswellOnt 977 at para. 13 (Gen. Div.). As stated above, the Court of Appeal in Goodyear did  
not select a trigger theory or allocation approach they were agreed-upon assumptions for the  
purpose of the motion.  
[66] It is my view that the discussion in Goodyear is not directly relevant to the issues before  
me regarding the duty to defend and that the Respondents give to this case an unjustifiably broad  
interpretation that is unsupported. Goodyear relates to the allocation of loss and the duty to  
indemnify, and does not discuss the scope of the duty to defend owed by an insurer to an insured.  
The issue before the Court was quite narrow whether the Stonewall principle applied in Ontario  
and the Court did not discuss defence costs nor any of the appellate case law dealing with the  
duty to defend. Further, there is nothing in Goodyear that contradicts the general principles set  
out in Hanis. To the contrary, the Court of Appeal in Goodyear once again emphasized that the  
contract governs the relationship between the insurer and the insured and that arguments based on  
fairness are insufficient to change the parties’ contractual obligations.  
[67] Some of the Respondents also rely on decisions of this Court that precede Hanis where  
insurers were ordered to pay defence costs based on their “time on risk”: see, e.g., Royal & Sun  
Alliance Insurance Co. of Canada v. Fiberglass Canada Inc., 1999 CarswellOnt 977 at para. 34  
(Gen. Div.) and Hay Bay Genetics Inc. v. MacGregor Concrete Products (Beachburg) Ltd., 2003  
CarswellOnt 3355 at paras. 46-47 (S.C.J.) (“Hay Bay”). These cases contain very limited  
discussion as to the legal basis for the allocation decision, and they do not refer to the insured’s  
contractual rights. As a result, I give them very little weight as I prefer the principled approach  
set out in Hanis, which, in my view, is more consistent with “first principlesand the contractual  
approach (as opposed to an equitable approach) adopted by the Supreme Court of Canada in  
Page: 26  
Family Insurance and other cases with respect to the relationship between the insurer and the  
insured.  
[68] International Comfort Products Corp. (Canada) v. Royal Insurance Co. of Canada, 2000  
CarswellOnt 806 (S.C.J.) (“International Comfort”) is another case that is referred to by some  
Respondents. This case dealt with the allocation of defence costs among a number of policies  
issued by the same insurer after the litigation ended. The main issue concerned the deductibles  
under these policies. I similarly give little weight to this case given that it was decided before  
Hanis and its circumstances are significantly different from the circumstances here (e.g., there was  
only one insurer and the allocation took place after the end of the litigation).  
[69] Finally, General Electric Canada Co. v. Aviva Canada Inc., 2010 ONSC 6806; aff’d on  
other grounds: 2012 ONCA 525 (“General Electric”) is also cited in support of the Primary  
Insurers’ position. In that case, the application judge performed an equitable allocation of defence  
costs: see paras. 66, 82. This is clear from his reference, among other things, to Broadhurst. The  
judge concluded that it was inappropriate in that case to base the allocation purely on the number  
of “years on risk”: see para. 81. He held that “the fairest, most reasonable and most equitable  
allocation of defence costs that can be done in the circumstances is to apportion the costs equally”  
between the two insurers and the insured, who was uninsured for part of the relevant period. This  
preliminary allocation was without prejudice to the partiesability to revisit the issue after the  
conclusion of the matter or before in the event that further evidence leading to a different  
conclusion became available: see para. 84.  
[70] In my view, General Electric is of limited utility on this Application. The application judge  
in that case adopted an equitable approach to allocation which does not apply between an insured  
and an insurer. Further, he did not perform any contractual analysis of the duty to defend and did  
not refer to Hanis. The discussion in support of his decision to include the insured in the equitable  
allocation is very short and appears to be based on Hay Bay (discussed briefly above). I also note  
that while the insurers attempt to rely on this case for certain purposes, it does not support their  
position regarding the broad adoption and application of a time-on-risk approach, which was  
rejected by the application judge.  
[71] In light of the above, I conclude that the general principles set out in Hanis apply to this  
case and in the context of sequential insurers with a duty to defend. There is no principled or  
logical basis, in my view, to find that the discussion of covered and uncovered claims in Hanis  
does not apply to cases where the reason for which claims are uncovered is because they fall  
outside of the coverage period as opposed to another reason. Thus, I agree with the reasoning in  
Lombard on this point.  
[72] Applying the principles set out in Hanis, the Primary Insurers have not argued that certain  
defence costs relate solely to uncovered claims that fall outside of a particular insurer’s coverage  
period. They have not proposed a way that is based on the pleadings or facts in which the defence  
of the Underlying Claims could be reasonably, practically and realistically separated or allocated  
between claims/damages that fall within a particular coverage period and claims/damages that fall  
Page: 27  
outside of that period. The reality is that the allegations in the Underlying Claims do not allow for  
a temporal segregation that would have the necessary degree of precision. The defence costs are  
intertwined and are not based on a particular period. The proposed time-on-risk allocation is not  
based on the pleadings, a factual foundation or the relevant policies: it is based on equity and  
fairness and not on the contractual relationships between the parties.  
[73] As a result, I conclude that each of the Applicants is entitled to select any single policy  
under which there is a duty to defend that Applicant and require the Respondent insurer to defend:  
see Hanis and Markham at para. 78. The selected insurer is entitled to seek an apportionment of  
the defence costs at the end of the proceedings to the extent that they deal solely with uncovered  
claims, or exceed the reasonable costs associated with the defence of the covered claims: see  
Carneiro at para. 28. The selected insurer can also seek an equitable allocation of defence costs  
among the insurers who have a concurrent obligation to defend the insured.  
[74] I reject the submission of some of the Respondents that this approach to the duty to defend  
is the “all-sums approach”. The “all-sums approach” relates to the duty to indemnify. This  
approach is based on the words “all sums” that often appear in indemnity provisions. Here, the  
Applicants are simply asking the Court to apply the principles set out in Hanis regarding the duty  
to defend, and the unqualified promise to defend any action where there is the mere possibility that  
any of the allegations, if proven, would trigger the duty to indemnify. While there cannot be an  
obligation on the part of the insurer to indemnify an insured for an uncovered claim, there may be  
an obligation to pay costs that further the defence of uncovered claims if those costs are also  
associated with the defence of covered claims. Again, the duty to defend is broader than the duty  
to indemnify. It does not depend on whether the insurer is ultimately required to indemnify the  
insured or the quantum of such indemnity.  
d. Other Insurance Clause  
[75] AIG argues that the “Other Insurance” clause in its policy prevents an “all-sums approach”  
and has the effect of excluding the Hanis principles. It states that this clause requires consideration  
of other policies and provides that AIG’s liabilities will be limited to its proportionate share of  
total limits of liability of all valid and collectible insurance against such loss. That provision reads  
as follows:  
Other Insurance If the Insured has other insurance against a loss covered by this  
Policy the Company shall not be liable under this policy for a greater proportion  
of such loss than the applicable limit of liability stated in the declarations bears  
to the total applicable limit of liability of all valid and collectible insurance  
against such loss. [Emphasis in the original.]  
[76] I have already addressed the “all-sums” argument above, and I disagree that this clause  
somehow overrides the principles set out in Hanis.  
Page: 28  
[77] First, it is not possible to apply this clause at this stage of the litigation, when the value of  
any “loss” is unknown. Second, this clause does not refer to the duty to defend which, again, is  
broader than the duty to indemnify In the duty to defend clause, AIG undertakes the obligation to  
defend any suit against Loblaw alleging such injury, sickness, etc., for which insurance is afforded  
under the policy. This obligation is unqualified and, as acknowledged by AIG, it has been  
triggered in this case (subject to the SIR issue). This duty is triggered even when there may be no  
loss at the end of the day because it applies to lawsuits that are groundless, false of fraudulent.  
Further, as stated above, the duty to defend clause does not provide for allocation where the  
defence costs relate to both covered and uncovered claims.  
[78] In addition, I do not interpret the word “loss” in the “Other Insurance” clause as including  
defence costs. “Loss” is not defined in the policy and is used loosely throughout. In any event, if  
there is any ambiguity regarding the meaning of “loss”, the “Other Insurance” clause should be  
interpreted narrowly, based on the rules of interpretation set out above, and as not impacting the  
duty to defend.  
[79] I also note that the “Other Insurance” clause does not put forward a “time-on-risk”  
allocation, contrary to AIG’s position on this Application. Rather, the proportional approach set  
out in this clause is based on the limits of liability. AIG cannot rely on this clause partially and  
only when it suits it.  
[80] Ultimately, as discussed further below, this decision does not represent a final allocation  
of defence costs. AIG may seek to rely on its “Other Insurance” and ask for a rateable proportion  
sharing of liability at the end of the proceedings.  
e. Duty to defend an uninsured entity  
[81] The Applicants argue that the Primary Insurers may be required to fund the defence of all  
three Applicants as a result of their duty to defend one or more Applicants.  
[82] The two cases relied upon by the Applicants on this point are Coronation Insurance v.  
Clearly Canadian Beverage, 1999 BCCA 11 (“Coronation Insurance”) and New Zealand Forest  
Products Ltd. v. New Zealand Insurance Co. Ltd., [1997] 3 N.Z.L.R. 1 (J.C.P.C.) (“New Zealand”)  
(both referred to in Hanis). These cases dealt with situations where: (a) the same law firm  
represented both a corporation and directors/officers; and (b) the issue of allocation arose after the  
underlying litigation had settled. In both cases, the same conclusions were reached:  
a. costs which wholly and exclusively related to the insured’s defence fell within the  
scope of the policy;  
b. costs which in no way related to the defence of the claim against the insured were  
not covered by the policy; and  
Page: 29  
c. costs which reasonably related to the defence of the claim against the insured but  
did not exclusively do so were covered by the policy even though they also related  
to the defence of some other party who was not insured.  
See New Zealand at 9 and Coronation Insurance at para. 43. These principles mirror the principles  
set out in Hanis with respect to “mixed claims”.  
[83] Contrary to the situation in New Zealand and Coronation Insurance, this Application is not  
taking place after the conclusion of the litigation. While I accept the principles set out in New  
Zealand and Coronation Insurance, I do not find any basis in this case to apply them in a  
presumptive manner. Based on the pleadings, I am unable to conclude as I did with respect to  
covered claims and potentially excluded claims that the allegations against each Applicant are  
inextricably interwoven with the allegations against the other Applicants. This is not a situation  
similar to a corporation and its directors/officers. The three Applicants had different and separate  
operations. This would require separate factual investigations on the part of counsel and could  
give rise to separate defences. Given the absence of evidence on this point, I do not accept that  
most or even the majority of the costs associated with the defence of one Applicant would further  
the defence of the other two Applicants. Thus, an insurer cannot be obligated, on a going-forward  
basis and without an agreement to do so, to pay for the defence costs of a party who is not an  
insured under the insurance policy issued by the insurer.4 Given this, the insurers can insist on  
separate representation for their respective insureds.  
[84] However, with respect to the legal fees that have already been incurred by the Applicants  
as a result of the Primary Insurers’ failure to defend the Underlying Claims on behalf of the  
Applicants, I conclude that it is open to the Applicants to argue, based on the principles set out in  
New Zealand and Coronation Insurance, that some of these fees should be paid by one insurer  
even though such fees also related to the defence of an uninsured entity, as long as the fees  
reasonably related to the defence of the claim against the insured.5 Such arguments would require  
evidence and, to some extent, a dissection of the work done by the Applicants’ counsel so far in  
response to the Underlying Claims. The record before me is insufficient to deal with this kind of  
argument and it may not be necessary to do so if the Primary Insurers agree on how the fees  
incurred so far should be apportioned as among the three groups of insurers (i.e. insurers for  
Loblaw, SMD and Sanis).  
f. Equitable allocation among insurers  
4 This decision does not represent a final allocation of defence costs and the Applicants may seek a different  
allocation at a later time.  
5 I note that such arguments would not be possible with respect to the Ontario Action and the Quebec Action  
which only name Sanis as a defendant.  
Page: 30  
[85] As stated above, all Primary Insurers agree that, as amongst the insurers for each insured  
Applicant, a time-on-risk allocation is appropriate and equitable. I agree as well in the  
circumstances of this case.  
[86] As Sossin J. noted in St. Paul at paragraph 91, this decision does not represent a final  
allocation of defence costs. Based on evidence in the trial, or findings on interlocutory motions,  
the actual damage occurring during actual time periods may clarify the proportion of damage for  
which each insurer was actually responsible. At that time, the Primary Insurers may seek a  
different calculation of defence costs.  
[87] This decision is also subject to any future determination of the issues raised regarding any  
obligation to contribute to defence costs that may be owed by Teva’s insurers.  
[88] I now turn to the question of the impact of SIRs and deductibles on the allocation of defence  
costs.  
g. Impact of SIRs and deductibles on equitable allocation among insurers  
[89] The Primary Insurers’ positions on this issue were unclear and not always consistent. Some  
argued that this Court should follow St. Paul and find that SIRs and deductibles have no impact  
on the allocation of defence costs among insurers. However, some also argued in the same breath,  
and contrary to the situation in St. Paul, that an insurer should not have to pay for his time-on-risk  
share of the defence costs until its SIR was exhausted, thereby forcing the insured to pay itself part  
of the defence costs until the relevant SIR has been exhausted. Some insurers were adamant that  
defence costs paid by another insurer could not contribute to the exhaustion of another insurer’s  
SIR.  
[90] I reject this position.  
[91] In my view, St. Paul is not determinative of the issue before me. The issue of the SIR was  
not properly before Sossin J. in St. Paul as the only application before him was St. Paul’s  
application for a time-on-risk allocation among the insurers. The insurer who raised the issue of  
the SIR, Zurich, had not brought a separate application for the determination of the contractual  
dispute between Zurich and the insured regarding the SIR. Sossin J.’s conclusion that Zurich’s  
obligation under the allocation scheme of defence costs was not affected by the SIR in its policy  
was expressly without prejudice to the SIR issue being the subject of separate, subsequent  
proceedings between Zurich and the insured.  
Page: 31  
[92] Here, all issues are before me the contractual relationships between the insureds and the  
insurers, and the equitable allocation of defence costs among insurers.6 Thus, it is my view that  
the issue of the impact of the SIRs on the allocation of defence costs should not be deferred.  
[93] As stated above, the issue of the allocation of defence costs among multiple insurers under  
a concurrent obligation to defend is based on equitable principles as a result of the absence of a  
contractual nexus between them. In my view, if a particular insurer’s duty to defend has yet to be  
triggered because its SIR has not been exhausted, there is no basis to impose on that insurer an  
obligation to contribute to defence costs until the SIR has been exhausted. There is no contractual  
basis to impose such an obligation. Further, I am of the opinion that it would not be equitable to  
impose on an insurer an obligation vis-à-vis other insurers when it owes no obligation in law to  
these other insurers and still owes no obligation to its insured. I do not see why fairness and equity  
would require a contribution to defence costs on the part of an insurer who does not yet have a  
concurrent obligation to defend: see Markham at para. 83. While the other insurers may want to  
have their respective shares of defence costs reduced by having as many insurers as possible  
participate in the payment of defence costs, these insurers have independent contractual obligations  
to pay defence costs to their insured, which they voluntarily assumed.  
[94] The fact that an insurer whose SIR has not been exhausted does not have to contribute to  
defence costs does not mean that the insured has to pay for defence costs if another insurer has a  
contractual obligation to do so. Based on the principles set out in Hanis, if defence costs are  
associated with the defence of a covered claim, a Primary Insurer whose SIR has been exhausted  
has an obligation to pay them, even if those costs further the defence of claims covered by another  
insurer whose SIR has not been exhausted. Thus, I reject the position that the insured has to pay  
defence costs on account of SIRs if another insurer already has a contractual obligation to pay for  
the defence costs. As stated in Hanis, holding an insurer responsible for all reasonable costs related  
to the defence of covered claims does not increase that insurer’s exposure and only provides to the  
insured what it bargained for, i.e. payment of all defence costs related to a covered claim (after the  
exhaustion of that insurer’s SIR). An insured should not be in a worst position because they  
contracted and paid for more insurance. That would be the case if the Primary Insurers’ position  
was accepted: they are arguing, in effect, that even though the insured would be contractually  
entitled to full defence costs under a policy with one insurer, it should be denied this benefit  
because it has an SIR under a different policy with a different insurer.  
[95] I also find that, for the purpose of triggering the duty to defend, defence costs incurred by  
the Applicants contribute toward the exhaustion of SIRs, even if they are reimbursed by another  
6
While none of the insurers brought a separate application requesting an equitable allocation of defence  
costs among the Primary Insurers, it was agreed by all parties before the hearing of the Application that this  
issue was going to be determined on this Application without the need for a separate application.  
Page: 32  
insurer.7 In my view, the governing factor is whether the Applicants were liable to pay the defence  
costs; if they were, it does not matter that someone else paid on their behalf or that they were later  
reimbursed for such costs. No authority was provided in support of the position that an insured  
had to pay itself the entire amount of the retained limit and/or could not be reimbursed for such  
payments. This is not required by the wording of the insurance policies. For instance:  
a. The endorsement in Liberty’s policy with respect to the SIR provides that the SIR  
shall be eroded by payments for covered damages and defense, legal and loss  
adjustment costs. It does not require that the payments be made by the insured itself  
or that the insured cannot be reimbursed for such payments.  
b. The language in AIG’s policy with respect to the SIR provides that the policy shall  
not attach until the insured “becomes legally obligated to pay the amount of the  
Retained Limit as damages and/or Expenses [which include defence costs] resulting  
from an event to which this policy otherwise applies.” The Applicants have been  
contractually obligated to pay the defence costs incurred to far.  
c. The deductible endorsement in RSA’s policy provides that a certain sum “shall be  
deducted for claims arising from any one occurrence including the costs of legal  
investigation and adjusting fees and other expenses incurred in connection  
therewith and which sum shall be payable by the Insured.” As stated above, the  
Applicants have been liable to pay the defence costs incurred so far. Further, a sum  
that is payable by a person can be paid on that person’s behalf by someone else or  
can later be reimbursed to that person.  
[96] In light of the foregoing, the percentages for the “time-on-risk” allocation among the  
insurers will have to be adjusted for periods where a particular insurer does not have an obligation  
to contribute to defence costs as a result of a non-exhausted SIR.  
[97] The Applicants’ position is that they only have to exhaust the SIR under one policy to  
trigger an insurer’s duty to defend, even if a particular insurer may have issued more than one  
policy with different SIRs. The Applicants submit that the other SIRs may have to be exhausted  
at the time of indemnity.  
[98] I agree with this position. In my view, this flows from the principles set out in Hanis and  
the fact that each policy is a separate contract.  
7 Further to the discussion above regarding the duty to defend an uninsured entity, only the defence costs  
that reasonably related to the defence of a particular insured can contribute to the exhaustion of the SIRs  
applicable to that particular insured.  
Page: 33  
[99] At the hearing, it was agreed that counsel would work cooperatively to do the relevant  
calculations based on this Court’s decision on the general issues raised by this case. If counsel are  
not able to agree, they can contact my assistant to schedule a case conference with me.  
h. Issues specific to Zurich  
[100] One issue was raised regarding the policies issued by Zurich for 1998-2000 and 2001-2003  
periods. Zurich argues that Loblaw did not have any primary CGL coverage for those policy  
periods and that Zurich’s integrated policies act as excess insurance.  
[101] When analyzing this issue, it is important to look at the wording of the policies themselves.  
The policies state that the limits of liability, which are inclusive of defence expenses, “shall be  
excess of Retained Amount(s) and/or underlying insurance…” [Emphasis added.] The policies  
also state: “Our liability under this policy for ‘ultimate net loss’ in excess of the ‘retained amount’  
and/or underlying insurance […]. [Emphasis added.]  
[102] The policies provide coverage for “Third Party Liability Damages for General Liability”,  
including bodily injury and personal injury. The policies state the following with respect to this  
coverage:  
We will pay on behalf of the Insuredthat part of ultimate net lossin excess  
of the retained amountand/or underlying insurance that comprises any of the  
following third party liability damagesand/or covered payments (and/or  
defense expensesrelating thereto): […] [Emphasis added.]  
[103] Based on the language of the policies, in the absence of “underlying insurance”, Zurich has  
an obligation to pay as soon as the applicable SIR has been exhausted. Given that there was no  
other primary CGL coverage for Loblaw for the 1998 and 2001 policy periods, Zurich’s policies  
effectively acted as such after the satisfaction of the “retained amount”. Thus, I disagree with  
Zurich’s submission that Loblaw has to be treated as “self-insured” for the period 1998-2003.  
[104] While I find that Zurich’s 1998 and 2001 policies, based on their wording, are engaged in  
the absence of other insurance (subject to the exhaustion of the SIR), we also have to look at the  
wording of the policies themselves to determine Zurich’s obligations with respect to defence costs.  
As stated above, Zurich’s policies for the policy periods 1998-2000 and 2001-2003 do not include  
a duty to defend. Rather, they provide that Zurich is liable to pay defence expenses incurred by  
the insured as part of the “ultimate net loss”.  
[105] Another issue involving Zurich relates to the applicable SIRs. The Applicants and Zurich  
disagree on the number of SIRs upon which Zurich can rely due to a “Single Retention  
Endorsement” found in each of the Integrated Policies issued by Zurich starting with the 2007-  
2009 policy period.  
[106] The Single Retention Endorsement in issue provides as follows:  
Page: 34  
Notwithstanding anything expressed to the contrary in the General Terms and  
Conditions, it is agreed that only one Retention shall apply to a single Loss  
which is covered under two or more individual Policies Involved, and such  
Retention shall be equal to the highest of the Retentions provided for in the  
Policies Involved.  
For the purpose of this endorsement,  
Policies Involved shall mean the following policies including their subsequent  
renewals:  
1) Policies Number 8833432 […].  
Retention shall mean deductible and/or self-insured retention as more fully  
described in the Controlling Policies issued by Zurich. [Emphasis in the  
original.]  
[107] The Single Retention Endorsements in the Integrated Policies covering the period 2007-  
2019 each provide for an effective date, which corresponds to the beginning of the policy period,  
i.e. January 1, 2007; January 1, 2010; January 1, 2013; and January 1, 2016.  
[108] The Applicants take the position that the Single Retention Endorsement applies  
retroactively, more specifically that it applies to policy number 8833432 issued in 2004. As a  
result, they say that only one SIR applies for the 2004-2019 period. While Zurich accepts that  
there is a single $1 million SIR for the 2007, 2010, 2013 and 2016 policy periods, its position is  
that Loblaw has additional SIRS for the 2004 policy period, as well as for the 1998 and 2001 policy  
periods.  
[109] I find that there is no basis to apply the Single Retention Endorsement to the 1998 and 2001  
policy periods as the policies for these two periods are not listed as “Policies Involved” in the  
Single Retention Endorsement.  
[110] The answer is less clear with respect to the 2004 policy period. Starting in 2004, Zurich  
issued CGL policies covering a three-year period, each bearing the policy number 8833432. This  
policy number is listed as a “Policy Involved” in the Single Retention Endorsement. While this is  
the case, I conclude that the Single Retention Endorsement does not apply to the 2004-2006 policy  
period. The various Single Retention Endorsements have an effective date and provide that they  
apply to certain policies and “their subsequent renewals”. In light of this language, I am of the  
view that they cannot be applied retroactively to policies that precede the first Single Retention  
Endorsement. As a result, the terms of the 2004-2006 policy apply, unchanged by the Single  
Retention Endorsement subsequently entered into by the parties.  
[111] This finding may not have an impact at the duty to defend stage given my earlier finding  
that the Applicants only have to exhaust the SIR under one policy to trigger an insurer’s duty to  
defend, even if a particular insurer may have issued more than one policy with different SIRs.  
Page: 35  
i. Pre-tender defence costs  
[112] Both RSA and AIG have taken the position that Loblaw is not entitled to “pre-tender  
defence costs”, i.e. defence costs incurred prior to providing notice. However, only AIG has  
included arguments on this point in its Factum, including on the issue of whether relief from  
forfeiture can and/or should be granted. Accordingly, the discussion below focuses on AIG, but it  
would apply mutatis mutandis to RSA.  
[113] After being served with the Statement of Claim in the BC HMQ Action, Loblaw searched  
its historical files to locate all relevant policies and was initially unable to locate CGL policies for  
1996-1998. Loblaw gave notice under these policies once they were “tracked down”. Thus,  
Loblaw only gave notice of the BC HMQ Action to AIG and RSA under their CGL policies on  
July 25, 2019. However, Loblaw had given them prior notice of this claim pursuant to other excess  
policies issued by them. There is no evidence that the delay in giving notice under the AIG and  
RSA CGL policies was intentional or that Loblaw knew about these policies and chose not to give  
notice earlier.  
[114] AIG only responded to Loblaw’s request for coverage on March 9, 2020, more than seven  
months after receiving notice. Among other things, AIG took the position that AIG’s liability  
“under the Policy does not attach until the Insured becomes legally obligated to pay the amount of  
the Retained Limit [SIR] as damages and/or Expenses resulting from an event to which the Policy  
otherwise applies.” AIG has also indicated that it does not intend to control the defence.  
[115] Under AIG’s policy, Loblaw has the obligation to give notice to AIG “as soon as  
practicable” in the event of an occurrence which is reasonably likely to involve any coverage under  
the policy in excess of $200,000.00. Further, Loblaw “shall not, except at his own cost, voluntarily  
make any payment, assume any obligation or incur any expense” other than a few exceptions that  
are irrelevant in this case.  
[116] In Monk v. Farmers’ Mutual Insurance Company (Lindsay), 2019 ONCA 616 at para. 79  
(“Monk”), the Court of Appeal for Ontario summarized as follows the principles regarding relief  
from forfeiture in the circumstances of a claim under an insurance policy:  
a. Relief from forfeiture under s. 129 of the Insurance Act, R.S.O. 1990, c. I.8 is  
available where there has been “imperfect compliance with a statutory condition as  
to the proof of loss to be given by the insured or other matter or thing required to  
be done or omitted by the insured with respect to the loss”, thereby restricting the  
availability of the section to instances of imperfect compliance with terms of a  
policy after a loss;  
b. Relief from forfeiture pursuant to s. 98 of the Courts of Justice Act, R.S.O. 1990, c.  
C.43 is available to contracts regulated by the Insurance Act;  
c. Section 98 of the Courts of Justice Act generally operates where the breach of the  
policy occurred before the loss took place;  
Page: 36  
d. Although relief under s. 129 of the Insurance Act and s. 98 of the Courts of Justice  
Act are not available where the breach consists of non-compliance with a condition  
precedent to coverage, a court should find that an insured’s breach constitutes  
noncompliance with a condition precedent only in rare cases where the breach is  
substantial and prejudices the insurer. In all other instances, the breach will be  
deemed imperfect compliance, and relief against forfeiture will be available.  
e. Where relief from forfeiture is available, an insured must still make three showings  
that his or her conduct was reasonable, that the breach was not grave, and that  
there is a disparity between the value of the property forfeited and the damage  
caused by the breach in order to prevail.  
[117] It is argued that Loblaw did not comply with the policy and lost the benefit of the insurer’s  
obligation to defend for the period preceding July 25, 2019 as a result of the late notice of the  
claim. Assuming that Loblaw did not provide notice to AIG “as soon as practicable”, as required,  
it is my view that this case is not one of the rare cases where the insured’s breach constitutes  
noncompliance with a condition precedent. This is because, further to point (d) above, there is no  
evidence of prejudice in this case. AIG has filed no evidence on this Application and has not  
argued that it has been prejudiced by the late notice. Accordingly, relief against forfeiture is  
available.  
[118] AIG relies on the decision of the British Columbia Court of Appeal in Lloyd’s  
Underwriters v. Blue Mountain Log Sales Ltd., 2016 BCCA 352 (“Blue Mountain”) to argue that  
an insured is not entitled to defence costs incurred prior to providing notice to its insurer, and that  
relief from forfeiture should not be granted where an insured has incurred such costs.  
[119] I have not been referred to any Ontario decision holding that relief from forfeiture is not  
available for pre-tender defence costs. While Blue Mountain was referred to in HMQ v. AIG  
Insurance, 2019 ONSC 2964 at footnote 3, relief from forfeiture is not discussed and does not  
appear to have been requested by the insured in that case.  
[120] In my view, Blue Mountain can be distinguished on a number of grounds, including the  
following:  
a. Contrary to the insurer in Blue Mountain, AIG did not immediately provide a  
defence going forward after receiving notice of the claim and it has not contributed  
to the defence costs.  
b. Relief from forfeiture in Ontario is not only available under section 129 of the  
Insurance Act [the provision in Ontario equivalent to the provision in issue in Blue  
Mountain], but also under section 98 of the Courts of Justice Act. Section 98 is “a  
remedial section and merits a correspondingly broad interpretation.” See Kozel v.  
Personal Insurance Co., 2014 ONCA 130, 119 O.R. (3d) 55 at paras. 52-58.  
Page: 37  
c. It is unclear whether the principles set out by the Ontario Court of Appeal in Monk  
with respect to the availability of relief from forfeiture also apply in British  
Columbia. I am bound by Monk, which was decided a few years after Blue  
Mountain.  
[121] As stated above, where relief from forfeiture is available, an insured must still show that:  
(1) their conduct was reasonable; (2) the breach was not grave; and (3) there is a disparity between  
the value of the property forfeited and the damage caused by the breach. In my view, these three  
conditions have been satisfied.  
[122] Loblaw’s conduct was reasonable and, as stated above, there is no evidence that the delay  
was willful or intentional: see Monk at para. 82. It is understandable that there could be difficulties  
locating documents that are more than 20 years old in a large organization with employees who  
come and go. Loblaw certainly did not conceal the action as it gave notice to AIG pursuant to an  
excess policy.  
[123] With respect to the second factor, i.e. gravity of the breach, it needs to be assessed by  
looking at both the nature of the breach itself and the impact of that breach on the contractual rights  
of the other party: see Monk at para. 95. Here, there is no evidence of prejudice, and the breach  
has not had any serious impact on AIG’s rights as it is its position that it does not currently have a  
duty to defend as a result of the applicable SIRs and it has not contributed to the defence costs.  
There is no reason to believe that AIG would have behaved any differently had it received notice  
earlier. Thus, I conclude that the breach was not grave. See International Comfort at para. 17.  
[124] The third factor, the disparity between the value of the property forfeited and the damage  
caused by the breach, requires a court to conduct a kind of proportionality analysis which, in an  
insurance case, involves comparing the disparity between the loss of coverage and the extent of  
the damage caused by the insured’s breach: Monk at para. 104. Since there is no evidence of any  
prejudice or damage to AIG in this case, the proportionality analysis favours Loblaw.  
[125] Accordingly, Loblaw is entitled to relief from forfeiture with respect to pre-tender defence  
costs. Thus, these costs should either be reimbursed or contribute to the exhaustion of SIRs.  
j. Conclusion on the duty to defend and the equitable allocation of defence costs as  
between insurers  
[126] In summary, my main findings on this issue are as follows:  
a. Subject to the exhaustion of the relevant SIRs/deductibles, Primary Insurers are  
required to pay all reasonable costs associated with the defence of the Underlying  
Claims, even if those costs further the defence of uncovered claims (including  
claims that fall outside of an insurer’s coverage period).  
b. As a result, in the circumstances of this case and in light of the allegations in the  
Underlying Claims, each Applicant is entitled to select any single policy under  
Page: 38  
which there is a duty to defend that Applicant and require the Respondent insurer  
to defend. The selected insurer is entitled to seek an apportionment of the defence  
costs at the end of the proceedings to the extent that they deal solely with uncovered  
claims, or exceed the reasonable costs associated with the defence of the covered  
claims: see Carneiro at para. 28. The selected insurer can also seek an equitable  
allocation of defence costs among the insurers who have a concurrent obligation to  
defend the insured.  
c. On a going-forward basis, and unless there is an agreement to the contrary, the  
Primary Insurers cannot be obligated to pay for the defence costs of a party who is  
not an insured under their insurance policy. With respect to legal fees already  
incurred by the Applicants, it is open to the Applicants to argue that some of these  
fees should be paid by one insurer even though such fees also related to the defence  
of an uninsured entity, as long as the fees reasonably related to the defence of the  
claim against the insured entity.  
d. As amongst the Primary Insurers for each insured Applicant, a time-on-risk  
equitable allocation of defence costs is appropriate. The Primary Insurers may seek  
a different calculation of defence costs at a later stage, based on the evidence in the  
trial or findings on interlocutory motions.  
e. A Primary Insurer whose SIR/deductible has not been exhausted does not have to  
contribute to the defence costs, either contractually or equitably, until the  
SIR/deductible has been exhausted. However, an insurer’s duty to defend and to  
contribute to the defence costs is triggered once its SIR/deductible has been  
exhausted under one policy only, not all its policies for all policy periods. The other  
SIRs/deductibles under the other policies may have to be exhausted at the time of  
indemnity.  
f. The percentages for the time-on-risk allocation among the insurers will have to be  
adjusted for the periods where a particular insurer does not have an obligation to  
contribute to defence costs as a result of a non-exhausted SIR/deductible.  
g. Defence costs incurred by each of the Applicants contribute toward the exhaustion  
of SIRs of their respective insurers, even if they are reimbursed by another insurer.  
h. The fact that an insurer whose SIR has not been exhausted does not have to  
contribute to defence costs does not mean that the insured has to pay defence costs  
if another insurer has a contractual obligation to do so under the principles set out  
in Hanis.  
i. A reallocation of defence costs based on “Other Insurance” clauses can also be  
sought at the end of the proceedings.  
Page: 39  
j. Zurich’s Single Retention Endorsement only applies to the 2007-2009, 2010-2012,  
2013-2015, and 2016-2018 policy periods.  
k. Loblaw is entitled to relief from forfeiture with respect to pre-tender defence costs,  
and these costs should be reimbursed or contribute to the exhaustion of SIRs.  
l. This decision is subject to any future determination of the issues raised regarding  
any obligation that may be owed by Teva’s insurers to contribute to defence costs.  
[127] As stated above, if counsel do not agree on the specific relief that flows from the  
conclusions above or are unable to agree on the relevant calculations, they can contact my assistant  
to schedule a case conference with me.  
2. Exhaustion of the SIRs/deductibles of AIG, RSA and Liberty  
[128] There is a dispute between the Applicants and certain Respondents as to whether some of  
the applicable SIRs/deductibles have been exhausted.  
[129] RSA and Loblaw disagree as to whether RSA’s aggregate deductible has been exhausted  
and about the total amount incurred by Loblaw for covered losses during RSA’s coverage period  
(i.e. between May 1, 1997 and January 1, 1998). Further, RSA and Loblaw disagree with respect  
to the applicable amount of the aggregate deductible as there are two versions of the relevant  
endorsement attached to the policy: the signed original version provides for an aggregate  
deductible for Loblaw in the amount of $3,750,000, and an unsigned version provides for an  
aggregate deductible in the amount of $3,355,000.  
[130] In addition, SDM and Liberty disagree as to whether Liberty’s SIR under its 1998-1999  
policy has been exhausted, and AIG and Loblaw disagree as to whether AIG’s aggregate SIR has  
been exhausted.  
[131] The parties differ as to whether certain records put forward by the Applicants are  
admissible as business records and/or constitute reliable evidence. Among other things, the  
Applicants rely on data extracted from claims management software systems for which underlying  
supporting records no longer exist. The first version of this data, which was in a spreadsheet  
format, included a series of errors and irrelevant claims. Further, the meaning of some of the  
fields/information is not always clear.  
[132] The issues related to the spreadsheet do not apply to Liberty because, following the  
acquisition of SDM by Loblaw, the Applicants do not have records that contain detailed claims  
history from the time period when Liberty’s policies were in force. However, the Applicants rely  
on other documents or evidence in support of their position that the SIR in Liberty’s policy has  
been exhausted. Liberty disputes the sufficiency and the reliability of this evidence.  
[133] While the evidentiary issues regarding the records put forward by the Applicants are the  
most significant issues in relation to the exhaustion of the SIRs, some of the relevant insurers have  
Page: 40  
raised additional issues, including the failure to report claims in non-compliance with the policies,  
whether relief from forfeiture is available in the circumstances, and the application of the 15-year  
ultimate limitation period in section 15 of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B.  
[134] The extent to which the relevant insurers have disclosed what they know and have in their  
files with respect to the exhaustion of the SIRs/deductibles varies from insurer to insurer. On one  
end of the spectrum, Liberty produced its underwriting and claims records, while on the other end  
of the spectrum, AIG has not filed any evidence on this Application.  
[135] Under Rule 38.10 of the Rules of Civil Procedure, a judge may, on the hearing of an  
application, order that any issue proceed to trial and give such directions as are just. The following  
factors are relevant to the determination of whether an application should proceed as an action: (1)  
whether there are material facts in dispute; (2) the presence of complex issues requiring expert  
evidence and/or a weighing of the evidence; (3) whether there is a need for the exchange of  
pleadings and for discoveries; and (4) the importance and impact of the application and of the relief  
sought. See Collins v. Canada (Attorney General) (2005), 76 O.R. (3d) 228, 2005  
19819 at para. 5 (S.C.J.) (“Collins”) and Family and Children’s Services of Lanark, Leeds and  
Grenville v. Co-operators General Insurance Company, 2021 ONCA 159 at para. 48.  
[136] Here, there are material facts in dispute regarding the exhaustion of the SIRs/deductibles  
and the evidence put forward by the Applicant. Some of the factual issues raised are complex,  
require the weighing of the evidence and would benefit from further documentary and oral  
discovery. Efforts could also be made to locate individuals who are more knowledgeable or have  
direct knowledge about certain matters. Finally, the relief sought has a significant economic  
impact given the amounts in issue.  
[137] I am not confident that I can make the necessary findings of fact required in order to fairly  
resolve the dispute on the basis of the record filed and the evidence relied upon by the parties:  
see Hazelton Homes Corporation v. Katebian, 2019 ONSC 4015 at para. 13 and Jansari v.  
Jansari, 2020 ONSC 2473 at para. 39. In my view, the issue of the exhaustion of the SIRs has  
been presented like a “trial in a box”, which has been described as follows (RNC Corp. v.  
Johnstone, 2020 ONSC 7751 at paras. 4, 17):  
In those cases, the motion judge is asked to make findings on some or all the  
same facts and evidence as would be before the trial judge -- but with no trial.  
The judge hears a few hours of submissions at a high level of abstraction. He or  
she is then left to wade through the bankers box(es) of material [here, hundreds  
and hundreds of pages on CaseLines] to make detailed findings on contested  
evidence without having heard the detailed evidence led by counsel and  
contextualized by the trial narrative unfolding over several days.  
[…]  
Page: 41  
[W]here a judge is required to make detailed findings on contested evidence of  
years of human conduct, the process of counsel leading evidence through live  
witnesses over several days gives order and context to the complexities and  
nuances of the interactions. It is not fairly replicated by the judge rooting  
through decontextualized boxes on his or her own, in chambers, after a quick  
motion hearing at 30,000 feet.  
See also Henry Hill & Associates Inc. v. Santos, 2021 ONSC 6051 at paras. 31-32.  
[138] I conclude that the issue of the exhaustion of the SIRs/deductibles cannot be resolved fairly  
without a trial, and that it should proceed to trial. Counsel should contact my assistant to schedule  
a case conference with me after they have had the opportunity to discuss a detailed trial  
plan/schedule.  
3. Defence Protocol/DRA  
[139] The Applicants seek an order that only those insurers who sign a DRA will be entitled to  
associate in the defence of the Underlying Claims and receive defence-side reporting, which  
includes Privileged Defence Information, i.e. information and documents subject to litigation  
privilege and/or solicitor-client privilege as between the Applicants and defence counsel.  
[140] As stated above, Markel commenced a separate Application addressing the same issue and  
seeking, among other things, a declaration that, with the exception of coverage-related inquiries or  
advice contained in lawyer-client privileged communications with SDM’s coverage counsel,  
Markel is entitled to full unfettered disclosure of all relevant information, documentation, facts  
and reports in the possession, power or control of SDM and Sanis. It also seeks a declaration that  
it is entitled to instruct and have its own counsel participate with SDM in the defence of the  
Underlying Claims, provided that such counsel: (i) is funded solely by Markel for such  
participation; (ii) acts in a cooperative manner which honours the joint litigation privilege attaching  
to all data disclosed; and (iii) gives input only but otherwise does not attempt to direct SDM and  
appointed defence counsel in regard to defence strategy.  
[141] Given the overlap between the two Applications and the fact that they are two sides of the  
same coin, they are dealt with together below.  
a. Positions of the parties  
[142] The Applicants. The Applicants’ position is that some or all of the Respondents have  
actual or perceived conflicts of interest arising from: (a) insuring other entities adverse or  
potentially adverse to the Applicants in the Underlying Claims (i.e. party-based conflict); and/or  
(b) reservations of rights on coverage issues (i.e. coverage-based conflict). According to the  
Applicants, the central management of the Underlying Claims by the insurers and their  
reservations regarding intentional acts create a reasonable apprehension of a conflict of interest.  
While such a conflict may entitle the insured to require the appointment of independent defence  
counsel who would not report to the insurers, the Applicants have proposed a protocol in an effort  
Page: 42  
to achieve an appropriate balance between the right of the insured to a conflict-free defence and  
the insurers’ right to participate in the defence of the Underlying Claims.  
[143] In the Applicants’ view, the internal systems of most insurers are inadequate because,  
despite having something in place at the lower levels, all defence and coverage information  
eventually flows to the same decision-maker. Further, Markel and other insurers have taken the  
position that they would use Privileged Defence Information obtained from litigation counsel to  
assess their coverage position, including to deny coverage if the information received provided  
grounds to do so. The Applicants submit that the DRA reflects a reasonable approach to balancing  
the interests of the insured and insurers and that each insurer that wishes to associate in the defence  
should be required to sign a DRA on the same terms. The Applicants further submit that if an  
insurer is unable or unwilling to do so, then that insurer should not be entitled to associate in the  
defence, but will still otherwise be bound by its obligations under the policy and be entitled to  
receive “coverage-side” reporting, which includes full disclosure of all non-privileged materials,  
e.g. the documents, motions, affidavits, orders and discovery transcripts.  
[144] AIG. AIG denies that there is any coverage-based conflict. It submits that an early  
reservation of rights regarding coverage by an insurer does not automatically give rise to a conflict.  
Further, AIG points out that the case law on conflicts is focused on any impairment of the conduct  
of the defence, as opposed to information that will be shared with the insurer in the defence. AIG  
notes that it only seeks to associate with Loblaw’s defence and does not seek to direct or control  
it. It also stresses the fact that an insured has a duty to disclose all facts material to the insurer’s  
risk, and that disclosure is required to fulfil the insured’s duty to cooperate in connection with a  
claim for which coverage is sought.  
[145] With respect to party-based conflicts, AIG has confirmed in a letter to the Applicants’  
counsel and in its Factum that it will implement its “split-file protocol” in its administration of  
Loblaw’s defence at the handler level, which includes “an ethical wall at the handler level between  
insured files, separate instruction by the handlers, and relevant protection of confidential  
information at that level (where it might influence instructions given to defence counsel).” While  
AIG did not adduce any affidavit evidence on this Application, it pointed out that its protocol had  
been accepted by Ontario courts in the past, notably in Markham. In addition to implementing its  
split-file protocol, AIG is prepared to enter into a confidentiality agreement to confirm that all  
information from Loblaw will be protected and kept confidential. AIG argues that the additional  
requirements and safeguards sought in Loblaw’s proposed DRA are unnecessary and excessive  
because they will unduly and improperly interfere with the business and operations of AIG and its  
right to: (a) administer the claims; (b) reasonably expect ongoing cooperation and disclosure from  
the insured regarding the material facts of the claim and risks; and (c) be able to assess its  
indemnity exposure on an ongoing basis.  
[146] Chubb Group. AIG also joined in a common brief submitted by Chubb Insurance  
Company of Canada (“Chubb”), QBE and Markel (“Chubb Group”). The Chubb Group submits  
that the Applicants fail to distinguish primary insurers with a duty to defend, umbrella/excess  
insurers with no such duty but which have a right to associate, and insurers who are merely  
Page: 43  
reimbursing defence costs and do not seek to associate in the defence (like QBE). The Chubb  
Group argues that there can be no reasonable apprehension of coverage-based conflict with respect  
to an insurer which associates in but does not seek to control the defence of an action or an insurer  
who is only reimbursing defence costs. They assert that, with the exception of privileged advice  
or communications between the Applicants and their coverage counsel regarding insurance  
coverage, they8 have a contractual entitlement to full disclosure, which they define as follows:  
all documents or information of any kind, in whatever form, whether verbal,  
electronic or in writing, relevant to the [Underlying Claims] SDM and [Loblaw]  
currently face and any others that may surface, including defence counsels  
strategic and analytical quantum and liability assessment reports on the status of,  
evidence developed in and anticipated future steps in the litigation of the  
[Underlying Claims].  
(“Full Disclosure Information”)  
[147] The Chubb Group argues that the true purpose of the DRA proposed by the Applicants is  
to improperly restrict the insurers’ ability to take all Full Disclosure Information into account when  
considering coverage under their respective policies. They state that in addition to being  
contractually entitled to Full Disclosure Information, they reasonably require such disclosure in  
order to assess their contractual obligations to one or more Applicants, and as a matter of law to  
comply with the statutory and regulatory obligations imposed on all property and casualty insurers  
in Canada to maintain an adequate margin of assets over liabilities.  
[148] The Chubb Group states that they have the right and good faith duty to use Full Disclosure  
Information for all purposes, including the assessment of insurance coverage, and the good faith  
duty to update their respective policyholders on that assessment for indemnity under their  
respective policies. They also submit that to assess “liabilities”, an insurer must understand its  
exposure to potential indemnity, and that this is of particular importance when assessing a very  
large potential exposure. The Chubb Group asserts that notwithstanding internal silos and split-  
file protocols, Full Disclosure Information (including privileged information) and coverage issues  
must ultimately come together at some level to permit insurers to assess their exposure and update  
the policyholders on that exposure. They state that an insurer’s exposure and reserves are  
necessarily informed by its coverage position.  
[149] According to the Chubb Group, the DRA proposed by the Applicants would be new law  
as it would in effect require that all liability insurers in Canada, regardless of their role, maintain  
8
This includes insurers who associate in the defence and insurers who are merely reimbursing defence  
costs.  
Page: 44  
entirely independent silos for (a) Full Disclosure Information and (b) a subset excluding privileged  
information for assessing coverage issues, right up to and through the senior management level.  
[150] Chubb. Chubb has confirmed that its internal files have been split between: (a) the claims  
handler handling the Underlying Claims as against the Applicants and the claims handler handling  
the Underlying Claims as against one other insured; and (b) the claims handler handling the  
coverage portion and the claims handler handling the defence portion. However, Chubb  
acknowledges that the defence and coverage information for all insureds is available to one person  
who is one or two steps removed from the handler in the hierarchy. Chubb argues that this person  
has a “legitimate need to know” Full Disclosure Information in order to obtain authority with  
respect to Chubb’s policy obligations and to set appropriate financial reserves. Chubb’s position  
is that its internal procedures are a reasonable and appropriate response to the Applicants’  
concerns, and that the Applicants’ proposed DRA is unnecessary, unprecedented and unsupported  
by any authority.  
[151] Markel. Markel has not implemented split-handling between coverage and defence. It  
argues that its handling protocols address party-based conflicts and that, on the evidence, there is  
no coverage-based conflict. Markel submits that its remoteness (i.e. Markel seeks no control over  
the defence), its code of conduct and the involvement of its coverage counsel protect against the  
risk of coverage assessment steering the defence in Markel’s favour. Markel has confirmed that it  
intends to use any Full Disclosure Information to inform, update and convey Markel’s coverage  
position, including advising if there is a potential basis for a coverage denial. It argues that the  
Applicantsproposed DRA constitutes partial performance of their obligations under the policy  
and impedes Markel’s good faith duty to timely, accurately and effectively update and convey its  
indemnity position to its policyholders.  
[152] Markel acknowledges that the claims examiners who handle the files of Markel’s two  
insureds who are involved in the Underlying Claims report to the same person, who has access to  
all the information. However, it points out that the claims examiners are required to sign a  
document acknowledging their review of, and agreement to abide by, a claims-handling manual  
and associated code of conduct (which are not in evidence).  
[153] QBE. QBE argues that concerns related to coverage-based conflict do not apply to it as its  
involvement is limited to the reimbursement of defence costs, and there will be no influence  
whatsoever by QBE on how legal counsel who are currently defending the Applicants conduct the  
defence of the Underlying Claims, now or in the future. Thus, QBE is further removed from the  
defence than other insurers. Despite its limited involvement, QBE’s position is that it requires Full  
Disclosure Information in order to provide it with: (a) an understanding of the risk assessment in  
the Underlying Claims, (b) candid dialogue on the chances of any successful defences, and (c) an  
understanding of the basis for a reasonable compromise of the Underlying Claims.  
[154] QBE submits that it has addressed party-based conflicts, notably conflicts related to Teva,  
by implementing a protocol internally. It has proposed a defence reporting agreement that provides  
that Privileged Defence Information will only be received by or available to persons designated as  
Page: 45  
authorized representatives, and no-one else. QBE’s proposed defence reporting agreement also  
provides that in the event of any dispute between QBE and the Applicants respecting coverage in  
relation to the Underlying Claims, QBE will never seek to use or rely on Privileged Defence  
Information in any way in that dispute, including but not limited to attempting to have Privileged  
Defence Information admitted into evidence in a proceeding. The main difference between the  
DRA and QBE’s proposed defence reporting agreement is that QBE’s proposed agreement does  
not include a term that QBE’s authorized representatives will not have any involvement of any  
kind with respect to the assessment or determination of coverage issues in relation to the  
Underlying Claims, unless the Applicants provide their prior written consent.  
[155] RSA. RSA did not expressly take a position on the issue of the proposed DRA, but its  
position is that Loblaw should be represented by unconflicted independent legal counsel going  
forward.  
b. General principles regarding the reciprocal duty of utmost good faith  
[156] An insured and an insurer owe each other a reciprocal duty of utmost good faith. The duty  
of utmost good faith and fair dealing between insurer and insured has developed with a view to  
facilitating the honest, fair, and expeditious resolution of insurance claims: Trial Lawyers  
Association of British Columbia v. Royal & Sun Alliance Insurance Company of  
Canada, 2021 SCC 47 at para. 36 (“TLABC”).  
[157] Pursuant to this duty, an insured must act in good faith by disclosing facts material to the  
insurance policy and the claim, including all the facts that are material to the risk: see  
Bhasin v. Hrynew, 2014 SCC 71 at paras. 55, 86; TLABC at para. 35; and Canadian Newspapers  
Co. v. Kansa General Insurance Co. (1996), 30 O.R. (3d) 257, 1996 2482 (C.A.)  
(“Kansa”). In TLABC, the Supreme Court indicated that an insured has a duty to disclose any  
information in his possession which might have voided their coverage (the consumption of alcohol  
in that case): see para. 36.  
[158] In Kansa, the Court of Appeal stated that the insured’s duty of co-operation required that  
it inform an insurer with a right to defend the action of significant developments in the litigation  
so as to allow the insurer to make an informed decision about the continued defence of the action.  
c. General principles regarding conflicts between the interests of the insured and  
the interests of the insurer  
[159] Where a lawyer is appointed by an insurer to defend its insured, the lawyer’s primary duty  
is to the insured, even though the lawyer is paid by the insurer and the insurer may eventually have  
to pay the claim against its insured. The lawyer owes a duty to fully represent and protect the  
interest of the insured and must represent and act on behalf of the insured with the utmost loyalty.  
See Hoang v. Vicentini, 2015 ONCA 780 at para. 14 (“Hoang”). See also Reeb v. The Guarantee  
Company of North America, 2017 ONCA 771 at para. 13 and Mallory v. Werkmann Estate, 2015  
ONCA 71 at para. 29.  
Page: 46  
[160] The case law recognizes that the potential for conflict between the interests of an insurer  
and its insured invariably exists because of the insurer’s separate obligations to defend and to  
indemnify. However, not every potential conflict between the interests of the insurer and its  
insured requires the insurer to yield the right to control the defence, a right it contracted for in the  
policy of insurance. To require the insurer to yield control, the insured must meet the reasonable  
apprehension of conflict of interest test. See Hoang at paras. 15-16.  
[161] The issue of conflict of interest between an insurer and an insured was discussed in detail  
by the Court of Appeal in Brockton (Municipality) v. Frank Cowan Co., 2002 7392, 57  
O.R. (3d) 447 (C.A.) (“Brockton”). In that case, the central issue was whether the insured had the  
right to take over the control of the defence of civil actions from its insurer and had the corollary  
right to appoint counsel for this purpose at the insurer’s expense (see para. 3). The insured argued  
that the circumstances, including a reservation of rights by the insurer, created an appearance of  
impropriety requiring the insurer to surrender control of the defence. The Court of Appeal  
disagreed with the insured’s position.  
[162] The Court of Appeal stated that, in the first instance, the insurer has the right to control the  
defence, which includes the appointment of counsel. However, the insurer’s right to control the  
defence is not absolute as stated above, it can be removed if there is a reasonable apprehension  
of conflict of interest on the part of counsel appointed by the insurer. See Brockton at paras. 31-  
32, 38, 43.  
[163] After discussing the decision of LeBel J.A. (as he then was) in Zurich of Canada v. Renaud  
& Jacob, 1996 5801 (Que. C.A.), Goudge J.A. stated the following:  
[42] In coming to this conclusion, LeBel J.A. noted that American jurisprudence  
had moved towards a similar position and away from the broader basis for  
shifting control of the defence to the insured that was articulated in Cumis. For  
example, after Cumis, in Foremost Insurance Co. v. Wilks, 253 Cal. Rptr. 596  
(1988), the California Court of Appeal made clear that not every case where the  
insurer elects to defend the insured under a reservation of rights creates a conflict  
of interest requiring the insurer to furnish independent counsel. If the reservation  
of rights arises because of coverage questions which depend upon an aspect of  
the insureds own conduct that is in issue in the underlying litigation, a conflict  
exists. On the other hand, where the reservation of rights is based on coverage  
disputes which have nothing to do with the issues being litigated in the  
underlying action, there is no conflict of interest requiring independent counsel  
paid for by the insurer.  
[43] I agree with the approach taken in Zurich and Foremost. The issue is the  
degree of divergence of interest that must exist before the insurer can be required  
to surrender control of the defence and pay for counsel retained by the insured.  
The balance is between the insureds right to a full and fair defence of the civil  
action against it and the insurers right to control that defence because of its  
Page: 47  
potential ultimate obligation to indemnify. In my view, that balance is  
appropriately struck by requiring that there be, in the circumstances of the  
particular case, a reasonable apprehension of conflict of interest on the part of  
counsel appointed by the insurer before the insured is entitled to independent  
counsel at the insurers expense. The question is whether counsels mandate  
from the insurer can reasonably be said to conflict with his mandate to defend  
the insured in the civil action. Until that point is reached, the insureds right to  
a defence and the insurers right to control that defence can satisfactorily co-  
exist.  
[…]  
[47] The reservation of rights by the respondents was based on the monetary  
limits of the policy and its exclusion of punitive and exemplary damages. The  
reservation was not based on any conduct of the insured that would be in issue  
in the underlying litigation. Hence, defence counsel was under no mandate to  
show that the insured had acted in a way which would remove the insurers  
indemnity obligation. Moreover, the insurer had appointed separate coverage  
counsel, thereby removing any conflict that could have arisen from the  
reservation of rights in this case.  
[48] Counsel appointed by the respondents to defend the civil action was not  
under any set of contradictory mandates in defending the civil actions. Counsels  
single mandate was simply to provide a sound defence to those actions. This  
counsel proceeded to do.  
[49] The appellants complaint is really about the way counsel proposed to  
conduct that defence. However, the tactics used in the defence remain the  
province of the insurer where the insurer retains the right to control that defence.  
One can sympathize with the appellant, given the catastrophic circumstances  
which faced the community of Walkerton. However, absent an insurance  
contract providing specific terms (for example, allowing the insured to direct  
counsel appointed by the insurer in defence of claims arising from an  
environmental disaster) the insurers right to control the defence remains unless  
there is a reasonable apprehension of conflict of interest.  
[50] I would therefore conclude that in the circumstances of this case the  
respondents had not surrendered the right to control the defence of the civil  
actions and were not obliged to pay for independent counsel retained by the