CITATION: Dustbane v. Gifford, 2015 ONSC 1036 OTTAWA COURT FILE NO.: 12-55444 A1
DATE: 20150218 ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN: )
) Dustbane Products Ltd., Dustbane
Enterprises Ltd., Dustbane Holdings Inc.
Plaintiff – and –
Gifford Associates Insurance Brokers Inc., Lisa Lyons
Defendant – and –
AXA Insurance (Canada)
Third Party ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )
Michael S. Rankin and Kyle Lambert, for the Plaintiff
Barry Papazian and A. Benson Forrest, for the Defendant
Christopher F. Reil, for the Third Party
)
) HEARD: January 8 and 9, 2015 REASONS
EDWARDS J.: Overview
[1] A serious motor vehicle accident occurred on September 7, 2010 which has generated at least two civil actions (“The Actions”) involving alleged serious personal injury. The alleged at fault vehicle was a leased vehicle which was leased to Dustbane Products Ltd. by Ryder Truck Rental Canada Ltd. (“Ryder”). I will refer throughout to this tractor trailer as the Ryder vehicle.
[2] The Ryder vehicle was being driven by an employee of Dustbane. The Ryder vehicle was insured under a primary policy of insurance through the Old Republic Insurance Company, alternatively referred to as (“The Primary Policy” or the “Old Republic Policy), which is said to have provided coverage up to $1,000,000. The totality of the claims in the actions may very well exceed the primary policy limits of $1,000,000.
[3] Dustbane alleges in this action that it had engaged the defendant, Gifford Associates Insurance Brokers Inc. (“Gifford”) and Lisa Lyons (“Lyons”), an employee of Gifford, to arrange various policies of commercial insurance, which amongst other things would provide $10,000,000 of umbrella insurance over and above the primary policy limits on the Ryder vehicle. The insurer which provided insurance to Dustbane, AXA Insurance (Canada) (“AXA”), has denied coverage to Dustbane. Dustbane has now commenced this action against Gifford for allegedly failing in its duty of care to arrange adequate insurance coverage for the Ryder vehicle. Gifford has commenced a third party claim against AXA asserting that the policy does in fact provide umbrella coverage for the Ryder vehicle.
[4] The motion before me seeks a determination of whether the AXA policy does or does not provide umbrella coverage. If there is a determination that AXA does not provide umbrella coverage up to $10,000,000 in policy limits, then Dustbane seeks summary judgment against Gifford and Lyons based on an alleged breach of duty of care for failing to ensure that the Ryder vehicle was covered by an umbrella policy of insurance affording policy limits up to $10,000,000. If there is a finding of liability against Gifford and/or Lyons, then Gifford’s errors and omissions insurer may be at risk of providing coverage to Gifford, apparently up to $5,000,000 in policy limits which may then be available to respond to the actions.
[5] Prior to Gifford’s involvement with Dustbane, Dustbane’s insurance needs were placed with Aon Reed Stenhouse Inc. (“Aon”). Dustbane asserts that it believed that it had umbrella coverage on the Ryder vehicle. In reality, Dustbane’s coverage with Aon likely did not provide umbrella coverage. From the submissions made to me in argument, it is more likely than not that Dustbane did not know of the gap in its coverage. Nonetheless, Dustbane asserts in this action that regardless of what coverage it did have with Aon, that the mandate given to Gifford was to ensure that there was umbrella coverage on the Ryder vehicle.
[6] There was a mediation scheduled for January 27 and 28, 2015 in which the parties involved in the actions and this action attended in an effort to reach an out of court settlement. Counsel for Dustbane and AXA both believe that an early determination of the motion before me may facilitate a resolution of the actions. I advised counsel that I would endeavour to get them a decision prior to the scheduled mediation. My decision has already been communicated to counsel by way of a brief handwritten endorsement. Where the facts are borne out by the evidence filed on this motion and to complete my reasons in a timely fashion, I have often drawn at length from one or other of the parties’ factums as it relates to the facts of this matter.
Nature of Dustbane’s Business
[7] Dustbane is based in Ottawa and is described in the materials as a leading manufacturer and distributor of sanitation products. Dustbane Enterprises Ltd. and Dustbane Holdings Inc. are
related companies to Dustbane Products Ltd. The Dustbane companies have approximately 45 employees with annual gross sales of approximately $15,000,000.
[8] For many years Dustbane had leased a tractor and trailer(s) from Ryder which was used for the delivery of their products to customers in the Montreal/Toronto corridor. There is a dispute in the evidence as to whether Gifford was advised that the Ryder vehicle was not only subject to a long-term lease, but also did long haul deliveries to Toronto.
[9] Benjamin Merkley (“Merkley”) was produced as the affiant for Dustbane. He is an officer and director of Dustbane. By way of background he is a chartered accountant. Merkley started working at Dustbane in 2002. He is the Executive Vice-President of Finance and Treasurer, and has been an officer of the company since in 2008. When he started with Dustbane he was in the position of Vice-President of Operations.
The Cold Call to Merkley from Lyons
[10] In November 2008 Merkley received a telephone cold call from Lyons, a licenced insurance broker with Gifford. Lyons asked whether Gifford could participate in quoting for Dustbane’s insurance business.
[11] When Lyons made her cold call to Merkley in November 2008, Dustbane had been using Aon as its insurance broker for a number of years. Dustbane had many policies of insurance in place with Aon, with many specialized endorsements that applied to protect it against the risks associated with its operations including: Property, Crime, Directors and Officers Liability, Commercial General Liability and Umbrella insurance.
[12] Lyons acknowledged on her examination for discovery that she was experienced in the area of commercial insurance, and that she presented herself as capable of handling all of Dustbane’s insurance needs. She accepted that she was engaged by Dustbane to provide a customized/tailored policy of insurance and to obtain the best possible coverage for Dustbane to address the risks identified by its business operations. She accepted that it was her duty to fully inform herself as to Dustbane’s business so as to assess foreseeable risks and that risk assessment was part of her job.
Identification of the Risk Associated with the Ryder Vehicle
[13] At the initial meeting with Lyons, Merkley reviewed the general nature of Dustbane’s business operations. Merkley maintains that he discussed with Lyons the tractor and two trailers that Dustbane had leased through Ryder and which made deliveries in the Montreal-Toronto corridor. Merkley says that he told Lyons that the Ryder vehicles had primary insurance through Ryder. Merkley further asserts that Lyons advised him that the umbrella insurance that they were discussing would provide additional insurance over and above the primary coverage provided by Ryder through its insurer. For the most part these facts are denied by Lyons.
[14] Contrary to Merkley’s evidence, Lyons asserts that Merkley never gave any indication that he wanted or expected umbrella coverage to extend over the vehicles Dustbane leased from Ryder and that she understood from this he did not want this coverage.
[15] Lyons consistently testified on her examination for discovery that she never represented to Merkley that the umbrella policy would extend over the Ryder truck.
[16] Despite the fact that Lyons was an experienced insurance broker, as the evidence unfolded it would appear that Lyons did not ask Merkley for a copy of the insurance policy respecting the Ryder vehicle at this point or, indeed, until after the motor vehicle accident of September 7, 2010. Lyons did not ask Merkley who the Ryder insurer was at this time and only saw the policy for the first time after the accident.
[17] Gifford handled all communications with AXA concerning the placement of coverage. AXA had no contact with the plaintiffs or Merkley throughout this process.
[18] Consistent with her evidence referenced above, Lyons indicates after meeting with Merkley and ascertaining Dustbane’s needs that Gifford prepared the Schedule of Underlying Insurance for its proposal to AXA in December 2008, and again in January 2009 for the Commercial Insurance Binder which identified AXA’s CGL Policy, its NOA policy and the owned auto policy as the specified underlying insurance for the umbrella policy. She confirmed that the Schedule of Underlying Insurance did not include the Old Republic policy which insured the leased Ryder vehicle.
[19] Throughout much of her evidence on discovery Lyons repudiated the admission made on her behalf, and on behalf of Gifford, in paragraph 18 of the Statement of Defence that:
It was always contemplated and intended that the umbrella coverage would include coverage for liabilities arising out of the Plaintiff’s automobile risks including the risks associated with the operation of the vehicles leased from Ryder in excess of the coverage under the Ryder policy.
I will refer to this throughout these reasons as the “admission in the Statement of Defence”. [20] There is little doubt from a review of the evidence that Lyons was aware that Dustbane had been dealing with Aon for many years and she was eager to gain Dustbane’s account. Further, she was aware that Merkley was comparing insurance proposals being prepared by Gifford and by Aon simultaneously.
[21] In addition to its various insurance needs Dustbane asserts that it required a commercial package policy that would include commercial general liability coverage (“CGL”), non-owned automobile liability coverage (“NOA”) and umbrella liability coverage (“Umbrella”). In his meeting notes of December 23, 2008, Merkley advised Lyons that he was prepared to reduce the umbrella coverage from $12,000,000 (which he had been considering) to $10,000,000.
Merkley’s Knowledge Regarding Insurance Matters
[22] While Merkley was clearly well-educated and can safely be described as a sophisticated business person, there is nothing in the evidence to suggest he had any special knowledge about commercial insurance. Dustbane’s evidence is that Merkley fully relied upon the professional
expertise that Gifford and Lyons held out to him. Dustbane and Merkley argue that they relied upon Gifford and Lyons to fully explain to Merkley the details and nuances of the commercial insurance policies that Gifford was negotiating on Dustbane’s behalf.
[23] Lyons advised Merkley in a meeting on December 23, 2008 that she intended to seek quotations from AXA. Merkley’s understanding was that Lyons was dealing directly with AXA with respect to providing them with all the information necessary to customize a quote for their insurance needs. Merkley had no involvement or interaction with AXA at any point in time while the policies were being quoted and negotiated. His first contact with AXA was not until after the accident had occurred.
[24] A commercial insurance submission was prepared by Gifford and submitted to AXA, but not provided to Merkley (until the litigation ensued). It is dated November 19, 2008 and was submitted by Ms. McSorley (“McSorley”), also a licenced insurance broker at Gifford who left their employ in 2009. There is no affidavit from McSorley filed on this motion, nor was she examined as a witness pursuant to Rule 39.
[25] On December 10, 2008, AXA provided an initial quote for Dustbane’s commercial insurance to Gifford. This quote did not include pricing for umbrella insurance.
[26] In seeking an insurance quote from AXA on Merkley’s behalf, Lyons and McSorley worked together to produce the information required by AXA to produce a quote. As Merkley had almost no dealings with McSorley, all of the information that she obtained to seek the quote from AXA was obtained through Lyons.
[27] At 1:40 p.m. on December 22, 2008, AXA transmitted a revised quotation to McSorley which included pricing for a $12,000,000 umbrella policy. The documents bear a handwritten note from McSorley reading as follows:
“NOA doesn’t cover long-term leased vehicles s/b on OPF 1 2 tractors
2 trailers
long-term lease $80K tractor $30K trailer”
Neither McSorley nor Mr. Brady from AXA can recall their e-mail communications on December 22, 2008. The evidence given on AXA’s discovery was that Brady believes that McSorley’s inquiry was with respect to short-term rented vehicles. McSorley also believes that she was asking about short-term rented vehicles.
[28] Merkley and Lyons exchanged emails between December 23, 2008 and January 7, 2009 respecting Gifford’s commercial insurance proposal that they had been preparing. Merkley received the first copy of a commercial insurance proposal from Gifford on January 7, 2009. The proposal was attached to an email dated January 7, 2009, sent to him by McSorley at 2:20 p.m.
[29] In the proposals sent to Merkley by Gifford a description of umbrella liability coverage was provided on page 16 thereof as follows:
1. Provides additional limits over and above primary and stated underlying policies such as... Non-Owned automobile policies.
2. Provides broader coverage... Some insurers may exclude certain broader coverages.
3. Provides an aggregate drop down feature, that is, it drops down to cover losses where the underlying policy aggregate has been exhausted. There is no mention of the requirement to schedule underlying policies in order to obtain coverage. [Emphasis added]
[30] In any event, based on AXA’s quotation McSorley prepared a commercial insurance proposal. Lyons met with Merkley on December 23, 2008 to deliver and review the proposal. Based on her usual practice, Lyons evidence is that she is certain that she brought to Merkley’s attention that the proposed non-owned auto coverage would be subject to an exclusion for long-term leased vehicles, and that the proposed umbrella coverage would extend over scheduled underlying policies which would include commercial general liability, non-owned auto and owned policies that were being arranged with AXA.
[31] On January 7, 2009, Merkley sent an email to Lyons setting out a number of questions respecting the proposal. Lyons replied on January 8, 2009 that “I will be able to address all of these questions when we meet later today and answer any other questions that you may have”. [32] On January 7, 2009, Merkley was provided with an updated version of the insurance proposal for Dustbane’s commercial policy. The proposal again noted that non-owned automobile coverage was subject to the long-term leased vehicle exclusion, and that umbrella liability coverage would be subject to a schedule of underlying insurance. Merkley responded to this proposal by e-mailing a list of detailed and specific questions to Lyons. Merkley did not, however, make any inquiries in respect of either the exclusion of long-term leased vehicles from the non-owned auto coverage or the schedule of underlying insurance for the purposes of umbrella liability coverage.
[33] Lyons met again with Merkley on January 8, 2009 to review the January 7, 2009 proposal. During that meeting Lyons says that she carefully and fully reviewed the proposal with Merkley, addressing his particular inquiries in respect of same. During that review Lyons says that she alerted Merkley to the fact that, amongst other things, the proposed non-owned automobile liability insurance would be subject to an exclusion for long-term leased vehicles. Lyons says that she also reviewed the portion of the proposal dealing with umbrella liability coverage and pointed out that it would be issued subject to the schedule of underlying insurance. This evidence flies in the face of the admission made in the Statement of Defence referenced at paragraph 19 above.
[34] On January 9, 2009 Merkley provided Lyons with a comparison proposal prepared by Aon dated January 2009, which purported to set out the differences between the insurance quotations which Aon was obtaining and those which were obtained by Gifford.
[35] Given the timing Merkley arranged for an extension(s) of his previous insurance underwritten by Aon to January 14, 2009. On January 12, 2009, Merkley had further communications with Lyons respecting the Gifford proposal. A revised proposal was delivered to him by Gifford dated January 13, 2009.
Reference to the Ryder Vehicles in the Proposals
[36] Gifford had various communications with AXA throughout January 13, 2009, and Dustbane was eventually able to secure a binding contract of insurance late in the day on January 13, 2009. A commercial insurance binder (“The Insurance Binder”) was prepared by Gifford and delivered to Merkley on January 14, 2009. This binder sets out the details of the policies that Gifford had arranged on Dustbane’s behalf through AXA at an annual policy premium of $30,558. Significantly, there are handwritten notes made by Lyons on the insurance binder that reference the “Ryder trucks”.
[37] In the various commercial insurance proposals prepared by Gifford and delivered to Merkley, Gifford had specifically identified the Ryder vehicles on page four thereof under the category of “Special Circumstances”: “Insured leases two tractors and trailers from Ryder to do local deliveries. Remainder of shipping is done by common carrier”. The reference to local deliveries was incorrect. The Ryder truck was, in fact, used for long haul deliveries to Toronto. [38] Merkley asserts that he advised Lyons from the outset and in his email of January 7, 2009 that the Ryder vehicles were not involved in local deliveries, but that they transported Dustbane’s goods in the corridor between the greater Montreal and greater Toronto areas. Despite very specific clarification on that issue Lyons and Gifford continued to inaccurately represent the radius of the deliveries being made by the Ryder vehicles in the proposals that they sent to Merkley. When questioned about this issue at her discovery, Lyons first stated that she only found out about the correct delivery radius of the vehicles after the policy was bound. When confronted with the evidence to the contrary she blamed the error on McSorley for not making changes to the proposal, but accepted that it was her job to ensure correctness which she did not.
Alleged Advice from Lyons Respecting the SEF 99 and the Scheduling of Underlying Insurance_____________________________________________________________________ [39] Merkley asked Lyons in his email of January 7, 2009 to clarify exclusions that would apply under the commercial insurance proposal. Lyons did not provide any explanation for the long-term leased vehicle exclusion (“SEF 99”). At the time Merkley maintains he had no understanding whatsoever as to the application or scope of this exclusion. Merkley had never been provided with any policy wordings by Lyons up to this point in time.
[40] Contrary to Merkley’s evidence regarding this time frame, Lyons maintains that she did review the long-term lease exclusion with Merkley on several occasions. This evidence is contrary to the admission in the Statement of Defence quoted in paragraph 19 above.
[41] At her discovery Lyons confirmed that she did not discuss the SEF 99 exclusion with Merkley.
[42] Lyons further confirmed at her discovery and cross-examination that she had never read the wording of the SEF 99; that she never had obtained a copy of the Ryder lease and was not aware of the definition of a “hired automobile” under the NOA policy as amended by the SEF 99.
[43] Merkley denies that Lyons ever specifically advised him that the non-owned automobile (“NOA”) liability insurance would be subject to an exclusion for long-term leased vehicles SEF 99. Merkley similarly denies that Lyons ever gave him any such advice at the time the policy was bound in 2009, or at the time of renewal in 2010 or, indeed, at any point in time when they happened to review the policy declarations or the policy itself. Merkley’s denials are consistent with the admissions made in the defendant’s Statement of Defence.
The Schedule of Underlying Insurance
[44] In the commercial insurance proposals provided by Gifford, under the category of umbrella insurance it says, “Underlying insurance, as per attached schedule”, but no schedule was provided with the proposals. There is the same reference to underlying insurance on the last page of the proposal wherein it indicates, “double-click to activate schedule”, but no schedule was attached.
[45] When Merkley was provided with the insurance binder by Lyons he did not go through its terms in any intimate detail, as most of this information had already been disclosed in the proposals that he had received previously. Merkley continued to believe that Dustbane had NOA coverage of $5,000,000 and $10,000,000 of umbrella coverage which would sit on top of all of their existing coverages including the Old Republic policy. This, Merkley understood, was in addition to the primary insurance that was in place respecting the Ryder vehicle. This understanding is also consistent with the defendant’s admission in their Statement of Defence. [46] Included in the insurance binder was an umbrella liability schedule of “underlying insurance”, which lists the three AXA policies that had been negotiated by Lyons on Dustbane’s behalf; CGL, NOA and Owned Automobiles. Merkley claims that he did not have any understanding at that time, nor was he ever advised by Lyons that the Ryder insurance policy needed to be included in the schedule of “underlying insurance”.
[47] Lyons testified at her discovery that she had not given any thought to the scheduling of the Ryder primary insurance policy under the AXA umbrella insurance at the time the policy was bound or renewed. She had never obtained a copy of the Ryder policy at the time and was not sure if there was any excess coverage in place beyond the primary limit. She admitted on her cross-examination that it was a mistake not to have investigated further.
[48] On January 13, 2009 a further version of Gifford’s insurance proposal was provided to Merkley which again noted that non-owned automobile insurance, NOA, would be subject to the long-term leased vehicle exclusion and that the underlying insurance for the umbrella liability coverage would be listed on an attached schedule. Merkley instructed Lyons to implement coverage in accordance with same effective January 14, 2009.
[49] Coverage was bound with AXA in the form of two new policies – the AXA Commercial Policy and an owned auto policy. The AXA Commercial Policy included, amongst other things, commercial general liability insurance, non-owned automobile insurance and umbrella liability insurance. I will refer to this throughout as the AXA policy.
The Umbrella Policy Application to AXA (Which was not delivered to AXA)
[50] It was not until after the AXA policy was bound that Lyons advised Merkley that he was still required to complete an umbrella policy application and crime policy application for AXA. Merkley was not aware at the time that these applications are ordinarily completed prior to the insurance being bound. On February 27, 2009, Merkley sent an email to Lyons requesting that she provide him with copies of these applications as Merkley did not have them.
[51] On March 2, 2009, Lyons provided him with copies of the requisite applications. On March 16, 2009, Merkley provided Lyons with a copy of the completed umbrella policy application. Merkley maintains in his evidence that he was not sure how to complete some of the information sought on the application and, therefore, requested advice from Lyons. With respect to items 5 and 6 in the form dealing with “underlying insurance”, he was not clear what to insert but states in his evidence that he was advised by Lyons to simply put “with AXA”, which he did. In item 14, dealing with automobile liability and underlying policies, and in response to the question, “Do underlying policies cover all of these exposures?” Merkley replied, “Yes. Tractor trailers insured by Ryder”. When he submitted the application to Lyons, Merkley asked her, “Please review the attached and let me know if you see any additions or changes that should be made. I didn’t fill in some info as their policies answered the questions”. She replied by email on March 16, 2009 indicating, “I will review and get back to you if there are any concerns”. There was no further advice given by Lyons with respect to the umbrella policy application. [52] In the examinations for discovery it became apparent that the umbrella application was likely never delivered by Gifford to AXA. Gifford’s file notes confirmed that this was an item to be followed up on. Neither Gifford nor AXA have any information in their files to confirm delivery and/or receipt of Dustbane’s application from Gifford to AXA. AXA’s productions confirm that receipt of the AXA umbrella application was still identified as “pending”.
[53] Lyons forwarded the completed umbrella application to McSorley. In the normal course, McSorley should have then forwarded the document on to AXA’s underwriting department. This does not appear to have been done by anyone at Gifford.
[54] By March 23, 2009, Merkley had still not received from Lyons copies of the actual insurance policies together with the wordings thereof.
[55] Lyons advised Merkley on March 23, 2009 that she had finally received the policies and wanted to make arrangements to drop them off. This was eventually done on March 26, 2009. Lyons confirmed on her discovery that she had never obtained the AXA policy wordings prior to the policy being bound and that Merkley had not seen them until this time.
[56] Lyons wrote to AXA on March 30, 2009 to advise she had delivered the policy to Dustbane and stated, “…all looks good with one minor thing missing…” pertaining to Dustbane’s crime coverage. There is no mention of the outstanding umbrella application which Lyons had given to McSorley.
Potential Purchase of Tractor
[57] Merkley met with Lyons on January 14, 2009 to obtain a quote for the purchase of a new tractor and trailer that he was considering to assist with Dustbane’s operations. Merkley provided details of the make and year of the trailer at that time and confirmed again that the vehicle was to be involved in trips to Toronto and Montreal.
[58] By email dated January 19, 2009, Merkley asked Lyons to obtain a quote for the new tractor insurance. On January 23, 2009, McSorley wrote to AXA to ask about a quote on a new vehicle. She stated, “He currently rents trucks from Ryder but is considering purchasing this new tractor/trailer”. McSorley requested $5,000,000 for third party liability coverage. The same request had been made of other insurers that Lyons was trying to get quotes from on Dustbane’s behalf. Lyons agreed in her discovery evidence that $5,000,000 was the industry standard at the time. AXA declined to quote indicating that, “We cannot write vehicle carrying dangerous goods”, and that their long haul department could not help out.
[59] As part of this process Lyons asked Merkley to provide an experience letter respecting the lease of the Ryder vehicle. On February 10, 2009, Merkley provided to Lyons a copy of a letter dated February 9, 2009 from Ryder. This letter confirmed that the insurance requirements for the leased Ryder vehicle were through Old Republic Policy Z-35727-07. This evidence in my view makes it beyond dispute that Lyons, and therefore Gifford, had particulars of the primary insurance on the Ryder vehicle prior to the accident on September 7, 2010.
[60] On February 11, 2009, Lyons wrote to AXA to enquire about Dustbane’s potential purchase of the tractor and obtaining insurance for it. She advised:
The insured currently has two tractors that he leases from Ryder, and they have always purchased their insurance in the past from that facility. I have attached an experience letter for your reference.
[61] A quote was eventually obtained and on February 24, 2009 Merkley advised Lyons that he would not proceed with purchasing an additional tractor based on cost/benefit that he had considered.
Enquiries Re Coverage of Rental Cars
[62] In April of 2009 Merkley made an enquiry of Lyons as to whether Dustbane had coverage for their sales representatives when they rent a car and, if so, under what part of the policy. In response to this inquiry Lyons asked McSorley for clarification:
K−Do you know if the CGL covers NOA coverage (liability and physical damage) − I am always confused on this coverage. Pls. help. [Emphasis added]
McSorley responded on the same day indicating that:
NOA covers the liability. The SEF94 covers the physical damage. I believe it would have to be rented in the name of the company (Dustbane). I don’t remember specifically on this one if they have the coverage. I would have to look at the policy.
On April 8, 2009 Lyons replied to Merkley saying,
You do have the coverage for a rental vehicle under the non-owned automobile (NOA) coverage of the commercial general liability. If you look at the AXA policy you will see the NOA coverage at the limit of $5,000,000 for liability…
[63] In May of 2009, Merkley made further enquiries of Lyons respecting the extension of insurance coverage under the commercial policy to rental vehicles. Lyons advised him that the “simplest and easiest method to settle the insurance matter of extending coverage to a rental vehicle is to add OPCF27B endorsement to the auto policy.” Merkley was advised that the vehicle would not be registered in the business name and that additional coverage could be provided for a modest premium which he agreed to. A list of authorized drivers was provided to Gifford.
[64] In response to the various enquiries about ensuring that Dustbane had coverage for these rental vehicles, AXA confirmed in an email dated July 10, 2009 to Gifford that the auto policy “is not long haul (AXA does not write long haul)”. Despite the fact Gifford clearly by this time had access to the necessary information to confirm the status of the Ryder vehicle, Gifford never replied that in fact the Ryder vehicle was long haul.
The Policy Renewal
[65] On October 14, 2009, Merkley received an email from Lyons asking whether there were any changes in operations that should be taken into consideration in respect of the upcoming policy renewal. On October 20, 2009, Merkley replied that there were not. On December 7, 2009, Lyons sent Merkley a letter with proposed renewal premium for 2010-2011.
[66] As part of the process of renewal Merkley provided ongoing information that was requested by Lyons of him as needed. This included a full copy of the Directors and Officers
Liability Insurance Renewal Application which had detailed financial statements of the business attached.
[67] Lyons and Merkley had a meeting at Merkley’s office on December 10, 2009 to discuss the renewal. As part of that meeting Merkley maintains that he had a specific discussion with her about how liability would be treated in circumstances where an employee of Dustbane was driving for work purposes and got into an accident. In response to this enquiry Merkley says that Lyons specifically advised him that while liability would rest with the employee, if Dustbane was brought in the NOA provisions under the CGL policy would cover Dustbane up to $5,000,000. Lyons testified on discovery that her memory of this meeting is vague.
[68] Merkley was not advised by Lyons at the meeting of December 10, 2009 that there were any concerns or issues with respect to coverage for the Ryder vehicles. He continued to believe that Dustbane had coverage up to $5,000,000 under the NOA portion of the AXA policy and $10,000,000 of umbrella coverage sitting on top of that coverage, all in addition to the primary insurance coverage of $1,000,000 available through Ryder.
Potential Buy-Out of the Ryder Lease
[69] On March 9, 2010, Merkley sent an email to Lyons advising her that Dustbane was likely going to buy its trailer off lease effective May 1, 2010. Merkley advised that Dustbane still had a tractor and another trailer that were still leased and insured by Ryder. The trailer that Dustbane intended to buy out would need insurance. Merkley asked Lyons to provide a quote and provided her with the trailer details. Merkley later confirmed with Ryder that they can’t insure the trailer if they do not own it. As a result, Merkley asked Lyons to try to get a quote respecting the tractor and the two trailers and provided her with full details pertaining thereto.
[70] On March 18, 2010, Lyons wrote to AXA to ask for a quote with respect to the potential purchase of the tractor and two trailers. She advised, “The insured is currently leasing from Ryder”. Lyons further stated that, “The coverage the insured is seeking on the vehicles is $1,000,000 liability (as he has an Umbrella in place that would sit on top of this limit)…” [Emphasis added]
[71] Lyons made a series of efforts with various underwriters attempting to obtain a quote for a potential purchase but these were unsuccessful. Lyons completed an application to Jevco Insurance on April 12, 2010. Jevco subsequently advised in an email to Lyons on April 19, 2010 that it would be unable to quote the risk, stating that, “It appears to be decent risk that unfortunately doesn’t quite fit at this time”. Based on the marketing efforts that had been made that were unsuccessful, Merkley decided against buying out either the tractor or trailers from Ryder.
The Motor Vehicle Accident of September 7, 2010
[72] Merkley became aware that there was a motor vehicle accident on September 7, 2010. [73] On September 8, 2010, Merkley reported the accident to Lyons in a telephone call. Merkley advised Lyons that he had been contacted by a lawyer who was appointed by Ryder as
defence counsel under the terms of the insurance policy that Ryder held. Merkley asserts that he was advised by Lyons at the time that:
(a) The terms of Dustbane’s umbrella policy with AXA ($10 million) would pick up any additional liability arising from this accident;
(b) Dustbane should fully cooperate with Ryder and the lawyer they had assigned to the case; and
(c) It was acceptable for Dustbane to advise Ryder’s lawyer that AXA was its CGL and umbrella insurance carrier and also the amount of the insurance coverage that it held through AXA.
[74] Lyons agrees that she first learned of the accident giving rise to these proceedings by way of a telephone call from Merkley on September 8, 2010. She says that the conversation was brief. Lyons denies telling Merkley that the umbrella coverage under the AXA commercial policy would pick up any additional liability arising out of the accident over and above that insured under the Old Republic policy. This evidence is quite to the contrary of the admission in the Statement of Defence.
[75] Merkley spoke again with Lyons by telephone on September 16, 2010. She advised him that she had discussed the accident with her boss following their last conversation. She told him that she had not told AXA yet of the accident details, but was obligated to advise of any serious incidences that may lead to a claim. She said that she would send a quick email to AXA to advise and would copy him on it. Lyons confirmed to him at that time that there would be a $10,000 deductible on the umbrella policy.
[76] On September 16, 2010, Lyons reported the details of the motor vehicle accident to AXA. In her email Lyons stated that:
…I wanted to send you an email on the above numbered policy to advise you of an auto loss that could give rise to a potential claim under the Umbrella coverage we are insuring with AXA. …the insured has a transport truck leased and insured with Ryder and they have $1 million primary third party liability coverage… [Emphasis added]
[77] AXA replied to Lyons by email dated September 17, 2010, and indicated that the accident could affect the renewal rating under the policy. Lyons replied to AXA by email dated September 20, 2010.
[78] By email dated September 29, 2010, Merkley provided Lyons with the details regarding the Ryder tractor-trailer insurance policy.
[79] Lyons followed up with AXA with respect to the motor vehicle accident by email dated October 5, 2010 to provide further information. She advised that:
As far as the insured knows, the insured parties are recovering well and the vehicle is being fixed. Again, we do not anticipate that the Umbrella coverage will be called upon however, in the event that it does I wanted to provide the auto carrier policy number and expiry date for your file. I do not know if this has to be scheduled under the schedule of underlying coverages but if so you will have the info on file. The truck is insured through Ryder Truck Rental Canada and the insurance carrier is Old Republic, Policy No. Z-35727-0809A. Please advise. [Emphasis added]
[80] Merkley had no knowledge at the time the AXA policies were negotiated, renewed or thereafter (until this exchange with Lyons), that there was any significance attached to having the Ryder insurance with Old Republic listed in the schedule of underlying insurance in the AXA umbrella policy if coverage was to follow. Lyons had never explained to Merkley anything to this effect. Merkley takes the position that he believed the AXA umbrella insurance policy sat on top of all of Dustbane’s existing insurance coverage.
[81] Contrary to the clear admission made in the Statement of Defence to the effect that it was always intended that there should be umbrella coverage on the Ryder vehicle, Lyons takes the position in her evidence in the motion that she did not actually believe that the umbrella policy afforded coverage for the loss pertaining to the Ryder vehicle. She admits that she did not tell Merkley this at the time and certainly led him to believe that he did have coverage.
Gifford & Lyons Pleadings
[82] As previously noted in paragraph 19 above, the defendants have admitted in their Statement of Defence that it was always intended that the AXA umbrella insurance would extend over the Ryder vehicles. The defendant’s amended Statement of Defence at para. 18 elaborates further on the admission as follows:
The Defendants plead and the fact is that the Plaintiffs are entitled to indemnity for any excess liability claim arising out of the accident under the Umbrella coverage portion of the Commercial Policy. The Commercial Policy did not have a Schedule of Underlying Insurance attached thereto. It was always the intent and expectation of the Plaintiffs that the Umbrella coverage would extend to risks arising out of the Plaintiffs’ operation of both its owned and leased motor vehicles. The Umbrella coverage was issued subject to the SPF #7 endorsement in order to reflect this intent and expectation. AXA was aware that the Plaintiff leased a tractor and trailers from Ryder and that Ryder arranged insurance for these vehicles. AXA
further knew that the Plaintiffs considered the insurance arranged by Ryder for the said leased vehicles to be underlying insurance for the purposes of the Umbrella coverage included in the Commercial Policy. [Emphasis added]
[83] In the third party action Gifford pleaded against AXA as follows: At all times, AXA knew or ought reasonably to have known that from the perspective of both the Plaintiff’s and the Defendants, it was the intention and expectation that the policies being arranged would include coverage for liabilities arising out of the Plaintiff’s automobile risks, including the risks arising out of the operation of the Ryder owned vehicles in excess of the coverage that Ryder had itself arranged for those two vehicles.
In light of the formal pleading by Gifford and Lyons as reproduced above, it is very difficult to understand Lyons evidence that essentially asserts quite an opposite position.
[84] Gifford attempted to withdraw the admission unsuccessfully by motion to the Master. An appeal was also unsuccessful. Gifford is therefore legally bound by the admission.
Post-Loss Dealings
[85] On October 15, 2010, Lyons provided AXA with details of the Old Republic policy that Ryder had arranged for the leased vehicles.
[86] Contrary to AXA’s position on coverage asserted in this motion, on October 15, 2010 a representative of AXA e-mailed Lyons and would appear to have mistakenly advised that the vehicles involved in the accident would be covered under the non-owned portion of the AXA Commercial Policy, and that umbrella coverage would be triggered through the non-owned auto coverage.
[87] Merkley spoke with Lyons to get an update by telephone on October 20, 2010. He was advised that there was no need for any additional change respecting Dustbane’s three personal vehicles since they were already covered under both the $2,000,000 automobile policy with Dominion Insurance and the $10,000,000 umbrella policy with AXA. Lyons further advised that the Ryder truck could not be listed under the umbrella policy since the NOA policy picked it up for $5,000,000, and then the $10,000,000 umbrella policy would apply after that. Lyons also advised that if Dustbane wanted to get the Ryder truck included under AXA’s insurance on a going-forward basis they would need to remove the long-term lease exclusion SEF 99 under the NOA policy. Merkley maintains that he had not previously understood that there had been any reason to be concerned about the long-term lease exclusion under the NOA policy. This issue, he says, had never been brought to his attention by Lyons until this date.
[88] Merkley, in his evidence, says that he was advised by Lyons that Gifford was going to try and get the long-term lease exclusion removed from the policy terms. He goes on in his evidence to say he was not sure how this was going to be resolved and awaited further advice from Lyons.
[89] On October 21, 2010, Lyons wrote to Merkley to address the issue of the long-term lease exclusion under the NOA policy. She stated, “In terms of removing the long-term lease exclusion on the CGL policy, I have asked my manager to speak to the underwriting department and will keep you posted on this element”.
[90] Lyons sought advice from a partner in the Gifford firm, Tim Tokrud (“Tokrud”), as to how to address AXA’s position respecting coverage for the Ryder vehicle involved in the motor vehicle accident. She sent an email to Tokrud on October 21, 2010 setting out the background circumstances and the exchanges she had had with AXA. In response to this Tokrud wrote to AXA attempting to seek a resolution on behalf of Dustbane. He advised:
We are looking to ensure an exposure has the benefit of the limit we have for either owned or non-owned vehicles. Given this clients need to lease a vehicle from Ryder and our inability to place the vehicle under the existing Commercial Auto policy. We have a gap in coverage… As it stands, there is a gap in limit as the vehicle in question has its own policy and it does not enjoy the umbrella nor can it be picked up under non-owned. There was an underwriting reason at AXA for this. [Emphasis added]
AXA responded that they were not prepared to remove the long-term lease vehicle exclusion from their policy and that they were not prepared to assume the risk.
[91] Tokrud responded to Lyons on November 3, 2010 to advise of AXA’s response. He advised, “I am not comfortable with this situation as I know you are not either”. [Emphasis added]
[92] Merkley spoke with Lyons on November 9, 2010. He told her how uncomfortable he was with the situation Dustbane found itself in, as it was becoming clear to him that the coverage Dustbane believed had been in place was in serious question. Lyons offered him repeated assurances that that would not occur. She said it was clear to the broker and to Dustbane that there was coverage so that Dustbane would be successful. Merkley was told that corporate liability would not be an issue in any event, and that they had the matter under control.
[93] Lyons provided Merkley with a further update on November 10, 2010. She did not provide him with the details of the email exchange between Tokrud and AXA on November 3, 2010, where AXA had refused to remove the SEF 99 or assume the risk to insure the Ryder vehicles. She advised that:
...We are still awaiting a response from AXA in relation to the removal of the long-term lease exclusion on the non-owned auto under the CGL policy. My boss is speaking with the VP of Operations at AXA and I will keep you posted once we have more info.
Lyons went on to say in her note to Merkley that he should not really have any issues with the accident and exposure to Dustbane given the various laws in place in the Province of Ontario. She further stated:
If a lawsuit did come forward, we feel that the courts would probably make AXA pay to defend Dustbane as it was intended that the Umbrella policy extend over the Ryder policy. [Emphasis added]
While this statement made by Lyons is consistent with Gifford’s admission in its Statement of Defence, it is quite to the contrary of Lyon’s sworn evidence previously discussed.
[94] Gifford then sent an e-mail to AXA requesting deletion of the long-term leased vehicle exclusion from the non-owned portion of the AXA Commercial Policy. AXA denied this request.
[95] Regarding Lyons’ letter to Merkley of November 10, 2010, and their various conversations following the accident of September 7, 2010, Lyons never advised Merkley that the position she was taking in writing to AXA respecting coverage of the Ryder vehicles under the umbrella policy was one that she either did not believe in, or was being stated simply to advocate on his behalf or appease him. Based on his conversations with Lyons and the written communications that she sent to AXA on his behalf, Merkley now argues that Lyons was asserting coverage under the umbrella policy based on the consistent understanding that she and Merkley had from the outset of their dealings, which was that the umbrella policy was intended to provide coverage for the Ryder vehicles.
[96] Gifford continued to try to reach a resolution with AXA respecting the long-term vehicle exclusion issue. To this end Jim Mahood (“Mahood”), a senior partner of Gifford, was in touch with Patty Carlson of AXA.
[97] On December 3, 2010 Lyons sent Merkley an email to advise that, “I have not heard back from AXA on the leased trailers”. Lyons thereafter went on maternity leave and turned over Merkley’s file to Mahood. Merkley never received any further update on their discussions with AXA about this major issue.
[98] Merkley spoke further with Mahood later in December 2010 to discuss the renewal of the insurance at year-end. Mahood advised Merkley that AXA no longer wanted to insure the auto portion of the policy and that he did not want to split the business. They discussed the outstanding dispute with AXA over coverage and he advised him that Dustbane should try and have a long-term lease exclusion removed from the AXA NOA policy. Mahood, according to Merkley, then advised Merkley that he should sue Gifford if it turned out that Dustbane was not
covered under the term of their existing policies for the damages arising from the motor vehicle accident.
[99] On January 4, 2011, Mahood sent Merkley an email to advise that their claim specialist was reviewing the case involving the motor vehicle accident and would have a report soon on the matter.
[100] On January 11, 2011, Mahood sent Merkley an email to provide a preliminary report on the motor vehicle accident from the claim expert they had hired. This report stated that, “…It does not look as if the total damages will exceed the Ryder policy based on our current information.”
[101] On June 10, 2011, Merkley received a letter from Old Republic Insurance Company advising that they anticipated a series of lawsuits would be brought against Dustbane, Semlitsch and Ryder.
[102] On June 16, 2011, Merkley received a copy of the Statement of Claim in the Finlay action. Merkley provided a copy to Mahood together with the Old Republic notice letter by email dated June 16, 2011.
[103] Mahood and Merkley arranged a meeting at Dustbane’s office on June 21, 2011. They discussed the issue of the “gap” in insurance coverage involving the long-term lease exclusion. Mahood advised Merkley that AXA had been sold to Intact effective January 1, 2012. He stated that there was an umbrella exclusion pertaining to the SEF 99 under the commercial package policy. This was reflected in the NOA long-term lease exclusion. He further advised him that the Old Republic notice letter had been forwarded to Gifford’s Errors and Omissions Policy Adjuster. Merkley maintains that Mahood recommended that Merkley deliver a notice of intention letter against AXA and Gifford advising of his intention to sue both of them arising from these circumstances. Mahood denies the substance of this conversation.
[104] Mahood met with Merkley on June 21, 2011. By this point it was clear that the claim arising out of the accident would likely exceed the available limits under the Old Republic policy that Ryder had arranged for the leased vehicles. Mahood advised Merkley that Dustbane should consider retaining counsel to protect its interests. This prudent advice was given in light of AXA’s ongoing refusal to accept responsibility under its commercial policy. It was Mahood’s view that AXA was missing the drop-down feature of its umbrella coverage and that this needed to be considered. Mahood maintains that he was not intending to, nor did he acknowledge any liability or responsibility on the part of Gifford for any lack of coverage under the AXA Commercial Policy.
[105] On July 6, 2011 Mahood sent Merkley an email, which provided him with a copy of a letter prepared by AXA to him dated July 6, 2011, advising that there was no coverage under the AXA policy. Mahood advised that:
…If the claim goes beyond $1,000,000 liability limit on the Ryder policy and all the parties have been notified as
such the discussion then revolves around the determination of liability of those parties involved.
[106] Merkley had a further email exchange with AXA about coverage under the policy between July 28, 2011 and August 9, 2011. AXA advised that there was no coverage for this accident under any of the policies Dustbane held with them. Merkley spoke to Mahood on August 9, 2011. He advised Merkley at that time that the long-term lease exclusion that AXA had relied upon in the August 2, 2011 email to Merkley (OEF98B) applied to the AXA NOA policy.
[107] Merkley had a further meeting with Mahood on December 16, 2011. He provided Merkley with an update on the issue of the “gap” in insurance coverage with AXA. He stated that Lyons had met with their errors and omissions lawyers and that there had been no change to her story following this interview. She was specifically asked by the lawyers, “Were you aware of the risk?”, and responded, “Yes”. She was further asked, “How did you believe it was going to be covered?”, and she responded, “Under the Umbrella policy”. Mahood told Merkley that based on those answers that they (Gifford) were “done”. He further stated that he stood by his previous statements to Merkley that Gifford had made a mistake in obtaining proper insurance coverage for Dustbane. Mahood does not accept in his evidence the substance of Merkley’s recollection of December 16, 2011.
[108] According to Merkley’s evidence Mahood had been very forthright in his many discussions with Merkley, stating that he had reviewed the Gifford file and it was clear to him that Gifford had exposure based on how the case had been handled. He said it was clear to him that Merkley had identified the risk associated with the Ryder vehicles, and that Dustbane had wanted coverage beyond the $1,000,000 limit under the Ryder insurance policy. He said that the broker’s job was to understand the client’s business and to develop a proposal to address those risks, and to point out to the client if the risk was not being addressed by the proposal. He went on to say that AXA should have pointed out the gap in coverage to Gifford as it had knowledge of the Ryder vehicles.
[109] On October 15, 2012, Merkley received a letter from Intact Insurance confirming that they were in receipt of a Statement of Claim issued in the Tarrington action on June 26, 2012, and advising that there was no insurance under the AXA policy.
[110] Mahood was examined for discovery and made numerous admissions, including that:
(1) Gifford’s internal investigation post-accident had determined that sufficient coverage and policy limits were not in place;
(2) a mistake had been made resulting in insufficient coverage which may have been contributed to by Lyons, McSorley or another staff person at Gifford; (3) the operation of the Ryder vehicles was a known risk at the time the policy
was bound;
(4) Lyons had a professional obligation to clarify with Merkley what his intentions were with respect to the Ryder vehicles and that she may not have done so;
(5) Mahood recommended that Dustbane issue a Notice of Intention letter against Gifford so as to protect Dustbane’s interests;
(6) Mahood never advised Merkley that the mistake that occurred was not one made by Gifford; and
(7) Lyons was not directly supervised in respect of the Dustbane file she was handling.
Giffords Position Regarding Coverage Under the AXA Commercial Policy
[111] It is Gifford’s position that Dustbane is insured under the umbrella liability portion of the AXA Commercial Policy for claims which exceed the $1,000,000 primary policy limit available on the Old Republic policy that Ryder had arranged for the tractor/trailer involved in the accident.
[112] Clause 1 of AXA’s umbrella liability form sets out the basic insuring agreement in subparagraph (a) as follows:
Subject to all the terms of this Policy, the Insurer agrees to pay on behalf of any “insured” the “ultimate net loss” which the “insured” shall be obligated to pay by reason of liability…
[113] Subparagraph (b) of the clause 1 insuring agreement deals with coverage for automobile liability on the following terms:
Insurance for liability arising from the ownership, use or operation by or on behalf of the “Insured” of an “automobile” is provided only if a Standard Excess Automobile Policy is attached to and incorporated into this Policy. The “automobile” must be registered in a province or territory of Canada. Such insurance is subject to all the term, conditions, limitations and exclusions of the Standard Excess Automobile Policy.
[114] The SPF No. 7 Standard Excess Automobile Policy is listed under the heading “Other Clauses” in the declaration pages for the liability portion of the AXA Commercial Policy.
[115] Gifford retained an insurance expert, Frank Szirt, who has opined in his initial report of October 28, 2014 on the normal interplay between umbrella liability coverage and the SPF No. 7 as follows:
In Ontario, automobile insurance must, by law, be provided by approved policy for which are enshrined in the Insurance Act of Ontario. As a result, insurers isolated the excess automobile liability coverage – some for Canada only, others worldwide – and took two simultaneous steps to comply with the law: (i) removed automobile liability from the umbrella; and (ii) transferred the excess automobile liability coverage to the Standard Excess Automobile form, SPF No. 7. The SPF No. 7 is a pure excess liability policy which maintains the individuality of the automobile liability exposure, and the excess coverage is wholly dependent upon the coverage of the underlying policy. In other words, the SPF No. 7 follows the Insuring Agreement(s), Exclusions and Conditions of the primary automobile policy(ies). The umbrella, on the other hand, had its own Insuring Agreement, Exclusions and Conditions and, therefore, the coverage is independent of the underlying policies. (Certain elements of the umbrella may be written on an “excess following form basis”, for example employers and watercraft liability, in which case the excess coverage is contingent on coverage in the underlying insurance). Although both the SPF No. 7 and the umbrella may be written as separate policies, insurers have been marketing them together, basically for the sake of convenience. The combination of the two policies replaced the original umbrella, although the automobile liability, being pure excess, is narrower coverage. Therefore, despite the reference to the umbrella as a “policy”, the umbrella marketed in Canada comprises two physically attached policies the combination of which provides complimentary but mutually exclusive coverages. The umbrella, then, is a “policy” only in a sense that it is a single document – which is perhaps a more apt description of it.
To remove automobile liability, insurers tend simply to exclude it from the umbrella altogether and place it under the SPF No. 7. The SPF No. 7 must be “attached” to the umbrella “policy” (i.e. the document) in order for the umbrella policy to provide excess automobile liability. This is the approach, for example, of Royal Sun Alliance (“RSA”) and, significantly,
Intact Insurance Company (“Intact”) which recently purchased AXA’s Canadian portfolio, among others.
[116] Szirt then draws significant distinctions between AXA’s umbrella coverage form and the industry norm. He notes that AXA’s umbrella form does not contain a specific automobile liability exclusion. Instead, in accordance with subparagraph (b) of the insuring agreement cited above, AXA’s umbrella form makes the provision of automobile liability coverage “subject to the attachment and incorporation of the standard excess automobile policy in the policy”. Szirt comments on this as follows:
To the best of my knowledge, AXA’s is the only umbrella wording that uses the word “incorporate” …Given the conjunctive “and” following “attached” – by which I understand a physical inclusion in the document – I do not take “attached” and “incorporated” as synonyms; in my view, “incorporated” signifies something more profound than mere physical inclusion. In fact, “incorporate” is defined in the Webster’s dictionary as “to unite thoroughly with or work indistinguishably into something already existent”. Consequently, the incorporated SPF No. 7 in the umbrella is subsumed in it, thereby losing its separate identity as a separate policy from the umbrella with its “stand alone” and distinct coverage. In effect, the SPF No. 7 becomes “indistinguishable” from the “already existent” umbrella. This arrangement transforms a single document made up of two policies into a single policy, thereby replicating the original umbrella policies, whose terms, conditions and definitions apply to the full range of coverages. Thus, the terms, conditions and definitions of the umbrella apply equally to the automobile liability coverage.
[117] Gifford argues that the SPF No. 7 form is present in the AXA commercial policy in order to facilitate coverage but is subordinate to, and superseded by, the umbrella policy. If AXA had wanted to separate the SPF No. 7 coverage from the umbrella form, the clear path would have been to simply attach it as a stand-alone policy and then exclude auto-related risks from the umbrella form. It did not do this.
[118] Gifford argues that considered on its own the SPF No. 7 Standard Excess Automobile Policy issued by AXA in connection with its commercial policy is confusing and ambiguous. The first page of the form is headed “Application”. Item four purports to deal with the limit of coverage and refers to a “Declaration Page” and a “Schedule of Underlying Insurance”, neither of which are attached. The sentence dealing with the “Declaration Page” appears to be incomplete. The term “Schedule of Underlying Insurance” is stated as being “the amount of loss
and underlying excess insurance described in item 5”. Item 5 then purports to provide a description of the application “first loss motor vehicle liability insurance” and “underlying excess insurance(s), if any”. Neither of those terms are defined anywhere. Then beside those entries the words, “As Per Schedule of Underlying Insurance” appear. There is no schedule of underlying insurance appended to the standard excess automobile policy.
[119] Turning then to AXA’s umbrella liability form, Gifford argues that it clearly contemplates that the coverage would have what is described as a drop-down component. For example, clause 4(b) deals with AXA’s defence obligations in situations “for which no insurance is provided by any underlying insurance collectible by the “insured” and for which insurance is provided by this coverage”. Clause 5(b) specifically excludes coverage for a list of described risks unless “insurance is provided by the underlying insurance specified in the ‘Schedule of Underlying Insurance’ and then for no broader coverage than is afforded by such underlying insurance”. This, Gifford argues, implies that there would be coverage for non-excluded risks even if there was no underlying insurance for same. It is noteworthy that liability arising from the ownership and use of automobiles is not included in clause 5(b).
[120] Clause 2 of the umbrella form states that AXA shall be liable only for the “ultimate net loss” in excess of the greater of either the “underlying limit” or the “Deductible”, which in this case was $10,000.
[121] The term “ultimate net loss” is defined to mean the amount payable by the insured “after making proper deduction for all recoveries, salvage and contribution from other sources”.
[122] The term “underlying limit” is defined as: …an amount equal to the sum of:
(i) the limit of liability of the underlying insurance specified in the “Schedule of Underlying Insurance”; and
(ii) any other underlying insurance collectible by the “insured” or the “individual insured”.
[123] The term “Schedule of Underlying Insurance” is defined as the Schedule of Underlying Insurance attached to the “declarations”.
[124] In this instance Gifford points out that the AXA Commercial Policy, both at initial issuance and on renewal, did not have a Schedule of Underlying Insurance attached to its declarations. The only reference to underlying insurance is on the declaration page headed “Other Liability Coverages”, which bears the heading “Underlying Insurance Policies” and then lists both the AXA Commercial Policy and owned auto policy.
[125] In any event, Gifford argues that the Old Republic policy would qualify as any other underlying insurance collectible by the “insured”… and, accordingly, the “underlying limit” for the subject loss would be $1,000,000. In his opinion letter Szirt states:
