Executive Summary: Key Legal and Evidentiary Issues

• The dispute arose over insurance coverage for class action settlement costs related to defective airbag components.

• Honda sought reimbursement from Tokio under its commercial general and umbrella liability policies.

• The arbitration tribunal found that Class Counsel Fees were covered under the UL policy but not Settlement Administration Costs.

• On appeal, the court upheld the tribunal’s interpretation, finding that Class Counsel Fees fell under a separate covenant in the UL policy.

• Settlement Administration Costs were deemed excluded as recall-related expenses not tied to covered injuries or damages.

• Both appeals were dismissed, confirming the tribunal’s interpretation of policy language and coverage scope.

Background and dispute

In Tokio Marine & Nichido Fire Insurance v. Honda Canada, 2025 ONSC 2856, the Ontario Superior Court reviewed an arbitration award concerning an insurance dispute between Honda Canada Inc. and its insurer, Tokio Marine. The disagreement stemmed from Honda’s efforts to recover costs it incurred in settling several class actions over defective airbag inflators. Specifically, Honda sought reimbursement for Class Counsel Fees and Settlement Administration Costs under commercial general liability (CGL) and umbrella liability (UL) insurance policies issued by Tokio.

The class actions were resolved by a settlement agreement that required Honda to pay over $5.4 million in Class Counsel Fees and close to $2.9 million in costs related to the administration of the settlement. Honda claimed these amounts fell within the coverage provided by the CGL and UL policies.

Tokio denied coverage for both cost categories, leading to arbitration. The arbitration tribunal ruled that only the Class Counsel Fees were recoverable under the UL policy. Honda and Tokio both appealed the decision—Honda seeking coverage for the administration costs, and Tokio challenging its obligation to pay the Class Counsel Fees.

Findings on class counsel fees

The court affirmed the tribunal’s interpretation that the UL policy included a Supplementary Payments clause that created a separate obligation to pay certain litigation-related costs, including taxed costs in a “suit” the insurer was obligated to defend. Because the underlying class actions involved allegations of bodily injury or advertising injury—risks covered by the policy—and because Tokio had a duty to defend, the conditions for supplementary payments were met.

The court emphasized that the phrase “to which this insurance applies are alleged” was critical, distinguishing this policy from others that limited coverage only to proven covered losses. Tokio’s refusal to defend could not be used to avoid its payment obligations once a duty to defend was established. The judge found no ambiguity or absurdity in the policy language and concluded that Class Counsel Fees were a recoverable cost under the UL policy.

Findings on settlement administration costs

Honda’s appeal on the denial of Settlement Administration Costs was rejected. The court agreed with the tribunal’s view that these costs were related to product recall or withdrawal programs and fell within explicit exclusions in both the CGL and UL policies. These included exclusions for damage to the insured’s own product, impaired property, and recall-related expenses.

Although Honda argued that the administration costs were litigation-related and necessary to fulfill the settlement terms, the court found that they were fundamentally part of a product recall mechanism and thus not tied to covered bodily injury or property damage claims. As such, they could not be considered “costs taxed against the insured” under the Supplementary Payments clause, nor were they part of “ultimate net loss” as defined in the policy.

Outcome and implications

Justice Penman dismissed both appeals. He confirmed that Honda was entitled to reimbursement of $5.4 million in Class Counsel Fees under the UL policy, including post-judgment interest of over $416,000. However, he upheld the tribunal’s finding that the $2.87 million in administration costs were not recoverable due to clear policy exclusions.

This ruling highlights the nuanced interpretation of commercial liability policies in complex, high-value litigation scenarios. It reinforces that policy wording governs, and that supplementary payment provisions can create distinct insurer obligations, even outside indemnity limits, provided the duty to defend has been triggered. Conversely, it also underscores that recall-related costs remain uninsurable under standard policy exclusions, regardless of their connection to broader litigation settlements.