Fridays with Rogers Partners
At our weekly meeting, Jaaron Pullenayegem discussed the recent decision of the Ontario Court of Appeal in Live Nation Ontario Concerts GP, Inc. v. Aviva Insurance Company of Canada[1]. This case concerned an insurer’s duty to defend covered and uncovered allegations under an insurance policy. The Court clarified the analysis required to examine the true nature of claims and determine whether they are covered or not. It further held that equitable contribution cannot be used to recover defence costs from insureds.
Background
The case arose from an incident at a Live Nation concert in which a patron was injured by a security guard employed by NorthWest Protection Services. The plaintiff’s lawsuit targeted both Live Nation and NorthWest, raising two distinct but related claims: a “security negligence claim” against NorthWest and a “statutory negligence claim” against Live Nation. The security negligence claim alleged insufficient training, instruction, and supervision of security personnel. The statutory negligence claim alleged non-compliance with the Liquor License Act[2](“LLA”) and the Occupiers’ Liability Act[3](“OLA”) by overserving alcohol and creating an unsafe premise.
Aviva, the insurer for NorthWest, listed Live Nation as an additional insured under its Commercial General Liability Policy for claims arising out of the operations of NorthWest as a security company. Aviva’s policy did not cover contraventions of the LLA or OLA. Starr Indemnity and Liability Company insured Live Nation. The Starr policy had a self-insured retention (“SIR”) of $1 million.
The parties were unable to agree on whether the Aviva policy responded to the claim on behalf of Live Nation in light of the SIR on its own policy. Live Nation launched a coverage application against Aviva seeking reimbursement for all past and future defence costs. The application judge held that Aviva was responsible for 100% of Live Nation’s defence costs for two reasons. Firstly, the essence of the plaintiff’s claim stemmed from one factual cause, that she was struck by NorthWest personnel while they were removing an unruly person. Secondly, Live Nation was not an insurer against whom equitable contribution could be sought. Aviva appealed the decision.
Key Issues and Court’s Analysis
Aviva submitted that the lower court judge erred in two ways: (1) by not treating the pleaded claims as mixed claims, and (2) by finding that equitable contribution did not apply to Live Nation.
The Court of Appeal agreed that the lower court had erred by not properly distinguishing between the covered security negligence claims and the uncovered statutory negligence claims. This mischaracterization led to an improper allocation of defence costs. The Court reiterated that an insurer’s duty to defend is strictly limited to claims that, if proven, would fall within the policy coverage.[4]
However, the Court of Appeal upheld the lower court’s decision to hold Aviva responsible for 100% of the defence costs—subject to reallocation at the end of trial or upon settlement. The reason? No evidence was provided to show how the costs were allocated between the covered and uncovered claims.
The Court of Appeal also made it clear that an insurer cannot claim equitable contribution from anyone who is not an insurer – even if they have a “self-insured” retention. The Court commented that Aviva could pursue equitable compensation from Live Nation’s insurer, Starr, but not from Live Nation.
Implications for Insurers
The Live Nation decision highlights the importance of scrutinizing the true nature of claims to determine coverage. The insurer will be required to defend the insured from claims giving rise to at least a possibility of indemnity under their policy. Where there are truly a mix of covered and uncovered claims, generally an insurer will be required to fund 100% of the insured’s defence, with the ability to seek reallocation of the defence costs from the insured at the end of the case.
However, if the insurer is able to present evidence early in the litigation of an appropriate allocation of defence costs between the covered and uncovered portions of the claim, the court may consider such an allocation at that point.
Where an insured is covered under two policies for the same loss, but one contains an SIR, the insurer with the SIR will not be obligated to contribute to the defence of the insured until the SIR is exhausted. In such a case, the other insurer will be responsible for the insured’s entire defence. The insured does not become an insurer for the purposes of the SIR, and cannot be compelled to contribute to the cost of its defence as a matter of equitable contribution.
[1] 2024 ONCA 634.
[4] Non-Marine Underwriters, Lloyd’s of London v. Scalera, 2000 SCC 24 (CanLII), [2000] 1 SCR 551.