Complementary Policies: Can One Insurer Compel the Defence of Another Insurer Based on (Hypothetical) Unjust Enrichment?

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In Royal & Sun Alliance Insurance Company of Canada v. Wawanesa Mutual Insurance Company, 2020 ABQB 720, Royal & Sun Alliance Insurance Company of Canada (“RSA”) brought an application seeking a declaration that The Wawanesa Mutual Insurance Company (“Wawanesa”) had a duty to defend a claim made against its insured, Cole Penson (“Cole”). The application turned on whether RSA had standing to bring the application.

The Underlying Litigation

Devon Goodvin (“Devon”) suffered injuries when his ATV collided with a truck driven by Cole. Cole’s dad, Russell Penson (“Russell”) owned the truck. The accident occurred on land owned by Russell and his wife Shelley Penson (“Shelley” and the “Penson Lands”).

Devon started an action against Cole, Russell and Shelley, alleging that Cole was impaired while driving the truck negligently (the “Motor Vehicle Allegations”) and that Russell and Shelley were negligent in allowing and failing to supervise a social event at their property where drugs and alcohol were consumed to the point of intoxication and motor vehicles were being operated (the “Social Host Allegations”).

RSA was the third party liability insurer for the truck driven by Cole. Russell and Shelley were the named insureds (the “RSA Policy”). Wawanesa insured the Penson Lands, providing coverage for liability for compensatory damages due to bodily injury arising out of personal actions of an insured or an insured’s ownership, use or occupancy of the Penson Lands.

The Application

Both RSA and Wawanesa agreed that for the purposes of the application, Cole was insured with respect to third party liability under their respective policies.

At the time of the application, a Statement of Defence was filed on behalf of Cole and Russell by counsel instructed by RSA. A Statement of Defence was filed on behalf of Russell and Shelley by counsel instructed by Wawanesa. Devon filed an Amended Statement of Claim to include Cole with respect to the Social Host Allegations. Counsel instructed by Wawanesa successfully applied for summary dismissal of the action against Shelley and Russell with respect to the Social Host Allegations. No Statement of Defence to the Amended Statement of Claim had been filed to defend Cole against the Social Host Allegations.

RSA sought a declaration that Wawanesa had a duty to defend Cole with respect to the Social Host Allegations and to reimburse RSA for its proportionate share of defence costs and expenses incurred by RSA and into the future.

Wawanesa opposed on the basis that RSA did not have standing. RSA, after all, was not a party to the contract between Wawanesa and its insureds.

RSA took the position that it had a right in equity to make the application and, specifically, that it would be inequitable for RSA to bear the full burden of defending Cole pursuant to unjust enrichment. That is, by defending Cole against the Motor Vehicle Allegations without Wawanesa’s participating defence on the Social Host Allegations, RSA confers a benefit on Wawanesa who is spared the expense of defending their mutual insured and ultimately RSA may be required to indemnify Cole against liability arising from the Social Host Allegations without contribution from the Wawanesa Policy. Second, without Wawanesa’s involvement in defending the Social Host Allegations, RSA is deprived in paying the costs of defending the insured against liability arising from the Social Host Allegations and RSA may be required to indemnify Cole for liability arising from same.

The Court found that RSA had not made out its unjust enrichment claim because RSA had not actually indemnified Cole with respect to the Social Host Allegations. The fact that RSA may be required to indemnify Cole – the mere possibility that a payment may have to be made – is not enough to create an unjust enrichment. Further, if RSA has no legal obligation to defend Cole on the Social Host Allegations, as was RSA’s position and with no defence filed in relation to same, RSA was not actually defending Cole with respect to the Social Host Allegations and there can therefore be no unjust enrichment.

Since RSA had no claim for unjust enrichment, the court found RSA had no standing to bring the application. An application to compel Wawanesa to defend Cole on the Social Host Allegations would have to be brought by Cole.

Given that RSA was found to have no standing, the Court said there was no need to consider whether Wawanesa has a duty to defend Cole on the Social Host Allegations.

Implications for Insurers

While case law does support the proposition that one insurer may recover from another insurer with a complementary policy, based on the equitable doctrine of unjust enrichment (see Aviva Insurance Company v. Intact Insurance Company, 2018 ONSC 238), for that to occur, one insurer would have to have already indemnified or made a payment such as towards settlement. Unjust enrichment requires more than the possibility that payment may have to be made in the future.