Précis: Underwriters were required to reimburse the assured for a settlement payment made in respect of an action for wreck removal costs.
The plaintiffs (the insureds) sought indemnity from the defendants (their insurers) for a settlement payment of $5 million made by them to the federal government related to the costs of raising the “Irving Whale”. The payment was made in settlement of a proceeding brought by the Crown for $42 million. The plaintiffs did not obtain the prior approval of their underwriters before making the settlement. The plaintiffs also claimed for sue and labour expenses of $3.6 million and defence costs of $1.8 million. The insurers denied coverage alleging the plaintiffs were not required to make the settlement payment and that there was no coverage under the policy.
Decision: Plaintiff awarded judgment, in part.
Held: With respect to the claim for sue and labour expenses, the trial Judge denied this claim on the basis that the expenses did not diminish or avert a loss under the policy. This was so because the estimated costs at the time the expenses were incurred were in excess of $21 million but the policy limit was only $5 million. Thus, the sue and labour expenses could not possibly have benefited the underwriter. With respect to the settlement payment, the trial Judge held that he was satisfied that the plaintiffs would have been held liable to the Crown in nuisance if the settlement payment had not been made. With respect to the claim for defence costs, the trial Judge was of the view that these should be apportioned between the plaintiffs and underwriters on the grounds that both benefited from these costs. He somewhat arbitrarily apportioned these defence costs 25% to underwriters and 75% to the plaintiffs.