Loblaws Decision – Top 4 Takeaways

One of the most significant coverage decisions of the last decade has just been issued by the Court of Appeal for Ontario.

A critical (and lengthy) read for the Canadian insurance industry, the Court’s decision in Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada, 2024 ONCA 145 will be the go-to authority on the payment of defence costs, conflicts of interest, and an insurer’s entitlement to defence information.

This article highlights essential “takeaways” from the decision. Watch for our upcoming series of articles that will take an in-depth look at the case, each issue, and comment on practical considerations.

Essential Takeaways

1. A pro-rata time-on-risk allocation is the appropriate method for long-tail claims where there are multiple insurers issuing consecutive policies to an insured.  This results in each insurer paying defence costs proportionally based on their time on risk. This method may also apply to the exhaustion of any self-insured retention or deductible.
2. Unless coverage has been denied, relief from forfeiture is not available where an insured has incurred defence costs prior to providing their insurer with notice of the claim.
3. Not just any reservation of rights will give rise to a reasonable apprehension of conflict. It will depend in every case on the nature of the reservation.  Where there is a reasonable apprehension of conflict, mechanisms must be implemented to protect an insured’s entitlement to a conflict-free defence. However, there is a “continuum” of mechanisms that may be considered appropriate, from a form of “split-file” protocol to the appointment of independent counsel at the insurer’s expense.
4. Whether an excess insurer has exercised its right to associate in the defence of the underlying litigation will inform the insurer’s ability to access privileged information and the scope of information or documents that may be disclosed must be considered on a fact-specific basis. Insurers do not have a blanket entitlement to all privileged defence information.

The decision is nuanced, and its impact will need to be carefully considered.  Should you have any questions, we would be pleased to assist.