Tom Donnelly and Joyce Tam successfully defended a motion in which the plaintiffs were seeking indemnity under a professional liability policy (the “Policy”).
The Policy provided coverage for claims brought against the plaintiffs during the policy term. However, the Policy contained an exclusionary clause (the “Clause”) denying coverage if the insured was aware of the claim(s) prior to the commencement of the policy term but failed to inform the insurer thereof. The Clause states: We shall not cover claims: [ … ]
arising out of or resulting, directly or indirectly, from any wrongful act committed prior to the first inception date if, as of the first inception date, your Global Claims & Insurance Department or Chief Legal Counsel knew or could have reasonably foreseen that such wrongful act did or would result in a claim against you; [ … ] [Emphasis added]
Before the Policy came into effect, a client of the plaintiffs, MFRM, sent a litigation hold letter on March 30, 2016, stating that it was leading investigations that could result in a claim against the plaintiffs. MFRM then dismissed the plaintiffs and interrogated Mr. Deitch, an employee who had been the plaintiffs’ lead contact with MFRM. They also sought access to his phone to document text and email messages.
The plaintiffs’ Chief Legal Counsel was informed of the interrogation and of the potential involvement of Mr. Deitch in wrongdoing committed by MFRM’s former CEO. In the summer of 2016, the plaintiffs retained counsel to review Mr. Deitch’s email correspondence and entered into a joint defence agreement with his lawyer.
The sole issue in dispute was the degree of knowledge regarding the potential claim that was necessary in order for the Clause to apply.
The Court rejected the plaintiffs’ argument that they were required to possess knowledge that a claim “would result” for the Clause to apply. It held that the term “would” was not used as an imperative in the Clause, but rather described a future condition or possibility. The Court ruled that the test was objective, and asked whether Chief Legal Counsel for the insured could have reasonably foreseen that a claim would be brought during the duration of the policy.
The Court noted that, while the plaintiffs frequently received litigation hold letters, this time they had hired a lawyer to review documents regarding the alleged wrongdoing. The plaintiffs had even entered into a joint defence agreement with counsel for Mr. Deitch to defend claims from MFRM.
The Court accepted the arguments made by TGP and found that Chief Legal Counsel’s knowledge of Mr. Deitch’s interrogation and the actions that he took in response demonstrated that he could have reasonably foreseen that a claim would arise during the policy term. As such, the Court held that the exclusionary clause applied and dismissed the plaintiffs’ application.