In many industries, an entity will obtain “primary” insurance coverage and “excess” insurance coverage from different insurers. Assuming the loss in question is covered, the excess policy will only be triggered if the monetary policy limits of the primary cover are exceeded by the value of the loss.
Generali’s franchise policy contained what is colloquially known as a “tracking form” clause. Such a clause states that the policy is subject to the same terms and conditions as the main policy, subject to certain exceptions. The relevant clauses of the franchise policy are as follows. Notably, OEP is not listed as an exception (emphasis ours):
This policy is subject to the same terms, conditions, limitations and exceptions (except for premiumthe amount and limits of liability, any deductible or provision for self-insurance, the duty to investigate and defend, and the renewal agreement (if applicable)) as set out in the main policy. The main policy and the underlying policy will remain in full force during the term of this policy.
No change in the primary or underlying policy during the period of insurance, in respect of which the primary or underlying insurers charge an additional premium or deductible, will have the effect of extending the extent of coverage of this policy unless and until accepted in writing by the company.
Instead of renewal
The Motions Judge held that Cronos was entitled to OEP under the excess policy because: (1) the exclusion of “premium” in condition 2 did not relate to the OEP option; (2) the OEP Option has not resulted in a “policy renewal” that would fall within the exclusion of Condition 2 of a “renewal agreement”; and (3) the modification of the primary policy to extend it for an additional 13 months did not violate condition 8 of the deductible policy, which required Generali’s consent to certain modifications, as it did not modify the scope coverage to be provided by the excess policy. Generali appealed the decision.
The Court of Appeal upheld the motions judge’s decision and substantially reaffirmed her findings. Condition 2 of the Generali Franchise Policy did not prevent Cronos from exercising an OEP under that policy because the listed exclusions did not explicitly exclude an OEP. Further, the exercise of an OEP did not constitute a “renewal agreement” within the meaning of Condition 2 because the OEP was not a renewal; in fact it was the non-renewal of the
The court also agreed with the trial judge that Condition 8 of the Supplemental Policy did not operate to prevent Cronos from exercising the OEP under the Supplemental Policy because the OEP had not changed the “extent of coverage” as required by Condition 8. The type of wrongful conduct covered, the monetary limits of coverage and the period of coverage have not been changed by OEP; the only effect of OEP was to extend the claims discovery period.
Finally, Generali argued that if the OEP applied under its excess policy, then the OEP of the excess policy should not follow the shape of the 2:1 premium structure in the primary policy. On the contrary, the premium for the OEP of the excess policy should be identical to the
Judicial argument. First, Condition 2 of Generali’s excess policy used the word “premium” in the singular, which should refer to the initial premium paid for the excess policy. Had the word “premiums” been used or other language excluding additional premiums payable for extensions, the calculation of OEP premium under the excess policy would not have followed the form of the primary policy. Second, having the OEP premium under the excess policy follow the shape of the 2:1 premium structure of the primary policy was more in line with the plain language of the policies, the degree of risk known to the parties at the time of formation of the contract, and was the most commercially reasonable outcome.
In my recent blog post, I wrote about another decision that demonstrated that when insurers include clauses in their policies that are meant to act as exclusions or otherwise limit their liability or obligations, specificity is key. Although using broader language has the potential to capture more, the decision in
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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