A Question of Priorities

By Dimitris Logothetis

Reviewed by Grant Ferguson

INTRODUCTION

“Priority” in the context of insurance law refers to the order of responsibility for insurers to pay out insurance claims to an insured. A priority dispute arises when there are multiple insurers or insurance policies, and more than one insurer/policy may cover the same loss.

Such a dispute arose in Rodriguez-Vergara v. Lamoureux, where the Ontario Court of Appeal (the “ONCA” or the “Court”) dealt with a priority dispute involving three insurance policies provided by two insurers.[1] Dismissing the appeal of one of the insurers, the Court found that automobile insurance policies, including Family Protection Endorsement coverages, take priority over non-automobile insurance policies with respect to claims arising from motor vehicle accidents.

FACTUAL BACKGROUND

Manuel Rodriguez-Vergara (“Vergara”) suffered a personal injury when struck by a vehicle. The at-fault defendants were the owner of the vehicle, Maria D’Souza (“D’Souza”), and the driver of the vehicle, D’Souza’s daughter.[2]

D’Souza was insured by Certas under two policies: one, a standard liability coverage with $300,000 in limits; two, a Personal Umbrella Liability Policy (the “PULP”) with $1 million in limits. The parties agreed that D’Souza’s standard liability coverage was the primary policy and would respond first to Vergara’s claims.[3] Vergara was insured by Royal & Sun Alliance Insurance Company of Canada (“RSA”) under Family Protection Endorsement coverage (the “OPCF 44R”) with limits of $1 million. This OPCF 44R provided coverage if the insured is involved in an accident with an underinsured motorist.[4]

Damages exceeded $300,000 and the parties disagreed on which excess policy should take priority after the standard liability coverage with $300,000 in limits was exhausted; specifically, whether the PLUP (a non-automobile insurance policy) or OPCF 44R (an automobile insurance policy) should respond second.

PROCEDURAL HISTORY

At the Superior Court of Justice, the motion judge interpreted the policies in light of Ontario’s automobile insurance legislation and held that Vergara’s OPCF 44R stood in priority to the PLUP.[5] The motion judge also rejected two requests from RSA: one, that the PLUP’s limits be deducted from the OPCF 44R’s limits; two, that RSA can subrogate against the at-fault defendants or Certas for the amounts paid under Vergara’s OPCF 44R.[6]

ISSUES ON APPEAL

RSA put forward the following three grounds of appeal:[7]

1. The motion judge erred in finding that the OPCF 44R stands in priority to the PLUP.
2. The motion judge erred in finding that RSA could not deduct the PLUP policy limit from payments under Vergara’s OPCF 44R.
3. The motion judge erred in finding that RSA could not issue a third-party claim against Certas, and in finding that RSA could not subrogate against the Certas insured D’Souza for the amounts paid under Vergara’s OPCF 44R.

ANALYSIS

All three grounds for appeal were dismissed, and the motion judge’s decision was upheld.

Issue 1:

The ONCA held that the motion judge correctly interpreted Vergara’s OPCF 44R to take priority ahead of the PLUP. The Court agreed with the motion judge in interpreting the relevant policies in the context of Ontario’s automobile insurance legislation.[8] Section 7(a) of the OPCF 44R stated:[9]

The amount payable under this change form to an eligible claimant is excess to an amount received by the eligible claimant from any source […] and is excess to amounts that were available to the eligible claimant from

(a) the insurers of the inadequately insured motorist […] given on behalf of the inadequately insured motorist;

The Court agreed that s. 7(a) only refers to other automobile insurances that are bound to the automobile, and does not capture “any and all types of insurance such as a PLUP.”[10] S. 7(a) only considers whether the OPCF 44R is in excess to other “motor vehicle liability insurance.”[11] Thus, the OPCF 44R stands in priority because the PLUP is not “motor vehicle liability insurance” nor a first-loss policy.[12]

The Court added two supporting observations. First, the foregoing interpretation was consistent with other relevant sections of the policy. Seeing that s. 4 of the OPCF 44R refers to the limits of “motor vehicle liability insurance”, a reasonable interpretation of s. 7(a) is that it also only refers to motor vehicle liability insurances.[13] Second, as established by precedent (See Benson v. Walt, 2018 ONCA 172), a PLUP does not fall under the priority scheme of motor vehicle insurance policies under the Insurance Act and, thus, only responds after the limits of a motor vehicle liability policy, such as the OPCF 44R, have been exhausted.[14]

Issues 2 and 3:

Having found that s. 7(a) does not implicate the PLUP, the ONCA quickly dismissed RSA’s second ground of appeal. RSA cannot reduce its limits or deduct from its payments paid under the OPCF 44R for any amounts under the PLUP policy limit.[15]

The ONCA then dismissed RSA’s third ground of appeal, holding that RSA has no right to subrogate against the Defendants, nor does it have the right to initiate a third-party claim against Certas.[16] Having lost on the priority front, the Court agreed with the motion judge that accepting RSA’s request would lead to an absurd consequence of permitting RSA to overstep the priority scheme set out by the OPCF 44R and “get through the back door of subrogation what it cannot get through the front door of priority.”[17]

TAKEAWAYS

In situations involving an underinsured, personal and other non-automobile insurance policies that are not bound to a particular vehicle cannot intercede in place of an OCF 44R. The policies need to be equivalent, not in value, but in insurable interest. Non-automobile umbrella policies fall outside the priority scheme of the Insurance Act.

A more general takeaway from Lamoureux is the importance of an insurance policy’s legislative context that informs the Court of when and how it is to be applied. Reflected throughout Lamoureux, the ONCA was not simply interpretating the “plain and ordinary meaning” of the relevant policies, but ensuring their interpretation was consistent and appropriate with respect to the context and purpose of the legislation that applied to their creation.

Insureds and insurers should bear this context in mind when interpreting their policies and faced with a priority dispute—especially in automobile insurance priority disputes.

[1] 2025 ONCA 620 [Lamoureux].

[2] Ibid at para 1.

[3] Ibid at para 3.

[4] Ibid at para 2.

[5] Ibid at para 5.

[6] Ibid at paras 4, 6.

[7] Ibid at para 7.

[8] Ibid at para 14.

[9] Ibid at para 16.

[10] Ibid at para 17.

[11] Ibid at paras 17–18.

[12] Ibid at para 15.

[13] Ibid at para 19.

[14] Ibid at para 20.

[15] Ibid at para 21.

[16] Ibid at paras 22–23.

[17] Ibid at para 22.