Is a Personal Liability Umbrella Excess To An Owner's Policy or Vice Versa? Benson v. Walt

By Matthew C. Owen Jun 29, 2017

The Superior Court decision Benson v. Walt confirms that a pure personal liability umbrella policy (PLUP) is not an owner’s policy as defined in the Insurance Act and therefore is an excess policy that will respond only after all other available owner’s policies are exhausted.

Economical Insurance and State Farm insurance disagreed about the priority of responding insurance policies where an owner’s policy, driver’s policy, and PLUP were all separately available to respond to the plaintiff’s action.

The Dispute

The plaintiff was a passenger in a vehicle involved in an accident. It would appear that this was a single vehicle accident, and the driver of that vehicle was liable. The vehicle was owned by a second defendant who was insured by State Farm with third party liability limits of $300,000.00. It State Farm also issued a personal liability umbrella policy to the owner with a liability limit of $1,000,000.00.

Economical issued a policy to the at-fault driver of the vehicle with personal liability limits of $1,000,000.00. To be clear, this policy was attached to a vehicle that was not involved in the accident.

There was no dispute that the driver and owner were both covered under the owner’s State Farm auto policy up to the third party liability limits of $300,000.00.  The dispute centred on the order in which the remaining policies ought to respond after that coverage was exhausted: the $1,000,000 PLUP issued by State Farm attached to the owner, the separate $1M auto policy issued by Economical to the driver, or both policies in equal shares.

Section 227(1) states:

Subject to section 255, insurance under a contract evidenced by a valid owner’s policy of the kind mentioned in the definition of “owner’s policy” in section 1 is, in respect of liability arising from or occurring in connection with the ownership, or directly or indirectly with the use or operation of an automobile owned by the insured named in the contract and within the description or definition thereof in the policy, a first loss insurance, and insurance attaching under any other valid motor vehicle liability policy is excess insurance only. 

The dispute therefore revolved primarily around whether or not the State Farm PLUP was an ‘owner’s policy’ as defined in section 1 of the Insurance Act. An ‘owner’s policy’ is defined as:

“a motor vehicle liability policy insuring a person in respect of the ownership, use or operation of an automobile owned by that person and within the description or definition thereof in the policy and, if the contract so provides, in respect of the use or operation of any other automobile.”

Economical argued in the first place that the PLUP was an ‘owner’s policy’ and that their policy constituted ‘excess insurance’ and would only respond after both State Farm policies were exhausted. In a second alternative, it argued that if the PLUP was not an owner’s policy, but rather ‘excess insurance,’ then both policies were excess and would respond equally upon exhaustion of the $300,000.00 State Farm auto policy.

For its part, State Farm argued that the PLUP should not respond until the $300,000 auto policy and the Economical policy, which would then owe an additional $700,000,  were exhausted.

The Decision

Justice Shaughnessy noted that in cases involving the nature and extent of competing insurance policies, the analysis turns on the wording of the respective policies (Trenton Cold Storage Ltd. v. St. Paul Fire and Marine Insurance Co. [2001] O.J. No. 183).

To that end, it was observed that the PLUP specifically provided that it was excess over any other valid insurance and specifically required that the holder carry automobile insurance with minimum limits of $300,000.00 as a condition of coverage. The result was that the PLUP was designed to pay excess only after the total limits of any underlying primary insurance was exhausted, while the underlying auto policy was intended itself to be that primary coverage. In that respect, the policies provided different layers of coverage. Justice Shaughnessy also observed that the PLUP did not attach to any specific vehicles, and did not provide for accident benefits coverage as the Insurance Act mandated for motor vehicle policies.

Justice Shaughnessy was influenced by a 2002 Court of Appeal case, Keelty v. Bernique, in which it was held a PLUP was not part of the automobile insurance scheme and was not a motor vehicle liability policy. In that case, the plaintiff’s uninsured/underinsured policy was required to respond in priority to the umbrella policy.

Given that decision, it is not surprising that Justice Shaughnessy also held that the PLUP was not a motor vehicle policy as defined in the Act. As such, it could not constitute an ‘owner’s policy’ and was properly categorized as excess insurance.

With respect to whether the Economical policy could also be construed as excess insurance, Justice Shaughnessy also looked to the wording of the policy. The policy indicated that it was a ‘personal auto’ policy and insured a specific vehicle that was not involved in the accident. It provided third party liability coverage, accident benefits coverage, and uninsured/underinsured motorist coverage as required by the Act. The liability coverage was provided as per the Standard OAP. It specifically insured the driver in both the vehicle described in the policy and vehicles he was operating with the owner’s consent.

Consequently, the Economical policy was an owner’s policy and provided the same coverage provisions of the State Farm auto policy, with each required to respond as first loss insurance. It would only be after the $1M of coverage afforded under the Economical owner’s policy was exhausted that the PLUP would need to respond, to a maximum of a further $300,000.