What Class Action Settlement Costs Will A Defendant’s Insurer Cover? The Ontario Superior Court of Justice Provides Some Answers

Written By Ethan Schiff and Phoebe Goldig

In Tokio Marine & Nichido Fire Insurance v Honda Canada, 2025 ONSC 2856, the Ontario Superior Court upheld an arbitral panel's conclusion that an umbrella insurance policy covered settled class counsel fees, but not settlement administration costs related to an enhanced recall. The underlying class action alleged airbag defects and the settlement provided certain benefits to reimburse class members. The decision reminds defendants that insurance may not cover a recall program within a settlement if the recall program does not respond to a risk that could actually result from litigation of a consumer claim.

In respect of class counsel fees, the insurer conceded that its umbrella liability (UL) policy provided Honda with coverage, and that it had breached its duty to defend the defendant. However, it argued that the UL policy’s application to class counsel fees should be interpreted the same as a parallel commercial general liability policy, which provided coverage conditional on the insurer being under a duty to indemnify. Justice Penman’s analysis, however, focused on the UL Supplementary Payments clause’s use of the phrases “when the duty to defend exists” requiring coverage for “all costs taxed against the Insured in the ‘suit’”, with “suit” being defined as a civil proceeding in which certain damages “to which this insurance applies are alleged”. This wording provided coverage of costs taxed when there was a duty to defend (even if, as in this case, the insurer breached its duty by failing to defend the action in fact). 

The Court also held that coverage of class counsel fees was not limited to the insurer’s obligation to indemnify. The Court concluded that the arbitral panel properly construed the UL Supplementary Payments clause as a separate covenant, which created the insurer’s obligation to pay the taxed costs outside the limits of insurance when the duty to defend was triggered.

The Court, however, upheld the arbitral panel’s exclusion of settlement administration costs under the UL policy. The court rejected Honda’s argument that these costs should be construed in the same way as class counsel fees (i.e., as costs “taxed against the insured”) because the claims in respect of the enhanced recall program did not relate to covered bodily injury, property damage, personal injury or advertising liability, unlike the claims underlying the class action (and so were not “suits”). The court also relied on an explicit exclusion in the UL policy for recall programs.

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• The class counsel fees at issue totaled $5,401,094.86, including disbursements and taxes. The settlement administration fees at issue totaled $2,873,072.37, excluding HST.
• The language of the UL policy in this case was distinguished from other cases (such as Hersh v Wawanesa Mutual Insurance Co. (1994), 89 B.C.L.R. (2d) 255 (SC) and Rayman v Ontario Assn. of Architects, [1997] O.J. No. 2567, aff’d 1998 CanLII 17739 (ON SCDC)), where the language of the policies at issue did not cover third party costs.
• The arbitration agreement prescribed (and Justice Penman applied) a correctness standard of review to the questions of law.
• Given the finding that Honda was entitled to be reimbursed in respect of class counsel fees under the UL policy, the panel’s interest award (which was discretionary, and as such reviewable on a standard of palpable and overriding error) was upheld.

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