Alie v Bertrand Frere Construction
I'm having some trouble understanding this case, I will have a go...
1) Fact: Construction Company sued for using defective concrete in homes
2) Issue: Which policies are liable for losses? and, are excess/umbrella policies triggered for defence costs?
(for first issue) Insurer is responsible for losses that fall within the coverage period of the policy. (for second issue) Excess/umbrella policies are triggered when they don't explicitly exclude duty to defend. Is this good so far?
Also, I am having some issues with a specific battle card for this case, if you look at the "issues":
Defence cost allocation: how are defence costs allocated between primary and excess insurer?
but from reading the case provided in the supplement from CAS it states the two issues. The relevant one is worded like this "Are the excess insurers responsible for the payment of the insured's defence costs"? From reading this, the issue is not WHO is responsible between primary or excess, but rather ARE they responsible. Am I wrong?
Thanks Javid
Comments
Also, sorry I forgot to include this, but what does "follow the form" mean...?
Given that the duty to defend is a separate obligation from the duty to indemnify, in this case, with respect to the issues, there are two broad ones (given that there were a number of insurers involved):
1. A coverage issue: Which insurers are required to indemnify losses? (duty to indemnify)
2. A defence issue: Which insurers are required to pay defence costs, and in what proportion? (duty to defend)
These align with what you've said. Now, with respect to the second, I see you mentioned three phrases:
1. "Are excess/umbrella policies triggered for defence costs"
2. "How are defence costs allocated between primary and excess insurer"
3. "Are the excess insurers responsible for the payment of the insured's defence costs"
I see all of these as being the same theme as "allocating the defence costs amongst primary and secondary insurers" (a pre-requisite to allocating the costs would be determining who is first responsible for paying). In this case, the defence costs were split up amongst 2 primary + 6 excess insurers (one excess insurer did not have do pay).
Thanks Javid
why is excess insurers only responsible for defense cost and not indemnity costs?
Excess insurers are responsible for indemnity if it breaches their lower limit. However, in this specific scenario since it is below their lower limit, they would not have to cover any indemnity but they are still on the hook for defense costs
and they are on hook since the defense costs did breach the lower limit?
Basically the ruling of this case is that XS insurers need to cover defense costs regardless of whether the claim is within or beneath their lower limit
If another similar case that involves indemnity and XS/U comes up, can I assume a similar ruling would apply? or it is only for this flying ash land case?
Generally yes because I do not think the CAS expects you to know any other cases beyond what is in the source
This case's ruling shows that XS/U have duty to defend, but the answer given in the exam in 2019 Spring #5(c) shows the opposite (actually CAS's answer isn't very clear).
My understanding is that they do have a duty to defend regardless of whether the claim has exceeded the lower limit.
So, what is the correct answer?
The examiners' report actually provided 2 answers. The first answer said there was a duty for the excess insurer to defend, while the second answer said there was not a duty to defend unless the trigger for the excess policy was breached.
Here's a detailed explanation and interpretation of the Alie et al. vs. Bertrand & Frere, Lafarge Canada case, acknowledging that there may not be a definitive answer due to the complexities involved.
Generally, if an Insured (C) is being sued for negligence within the primary policy limits, the excess insurer (XYZ) would typically not have a duty to defend. This principle was emphasized in the Alie case, where the court stated that the duty to defend for an excess insurer is triggered only when there's potential for a claim to exceed the primary insurance limits.
However, this answer must be nuanced by recognizing that the exact wording and conditions of a specific excess insurance policy could alter this general interpretation. It's conceivable that the excess insurer may have a duty to defend even if the excess policy is not immediately triggered. This is due to the uncertainty at the outset of a trial; nobody can definitively predict whether the excess policy will eventually be triggered.
A scenario might arise where the anticipated settlement seems likely to fall under the excess trigger, so the excess insurer doesn't contribute to defense costs. This could potentially lead to a less robust defense for C. However, if the final settlement ends up high enough to trigger the excess policy, the excess insurer would then have to contribute. This could lead to an argument that the excess insurer should have contributed from the outset to enhance C's defense, potentially resulting in a lower settlement that might not have triggered the excess policy at all.
This analysis illustrates that while there are guiding principles derived from the Alie case, the exact obligations of an excess insurer regarding the duty to defend can be subject to interpretation and heavily dependent on the specific facts and policy language involved.
With these legal cases, it's probably more important to provide logical reasoning and an appropriate legal precedent. If you do that, the graders will give you wider berth for your conclusion, whatever it is.