An excess loss insurer was ordered to pay the primary insurer a portion of the costs incurred for the defence of an insured whom both insurers were required to defend

ING Insurance Company v. Federated Insurance Company of Canada, [2004] O.J. No. 2876, Ontario Superior Court of Justice

This was an application following a trial of an insured driver who caused a single-vehicle MVA in which three passengers were injured. ING Insurance Company (“ING”) was the primary loss insurer and sought a declaration that the excess loss insurer, Federated Insurance Co. of Canada (“Federated”), had a duty to defend the Insured. ING also sought a declaration that it was entitled to a 50% contribution of the legal defence costs incurred during the trial of the Insured and an order that Federated indemnify ING for this amount.

The parties agreed that they both had a duty to defend the Insured and so the issue was whether ING was entitled to recover some portion of the costs it incurred in the defence of the Insured. ING argued that Federated benefited from the efforts of its defence while Federated argued that it should not be responsible for any of the defence costs since it was clear that defence counsel did not act for Federated.

The court cited case law stating that the obligations of insurers disputing defence costs should be subject to and governed by principles of equity and good conscience. Where an excess insurer has a duty to defend and is put at risk by the claim, then that excess insurer should contribute to defence costs. The exact nature of the contribution between those insurers with a duty to defend will depend upon the equities of the specific case. As a result, the court granted ING’s application and held that the costs of the defence should be apportioned proportionately to the share of the damages paid. In this case, the parties agreed that Federated paid 31% of the damages paid by the insurers. Federated was therefore required to pay ING 31% of the defence costs which amounted to $37,503.72.

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