No coverage for claim that was reasonably foreseeable prior to inception of claims made policy

Insurance law – Liability insurance – Wrongful acts – Exclusions – Occurrence vs. claims-based policy

Colliers International Group Inc. v. Liberty Mutual Insurance Co., [2022] O.J. No. 4801, 2022 ONSC 6184, Ontario Superior Court of Justice, November 1, 2022, F.L. Myers J.

The insured sought indemnity under a claims made professional liability policy. The insurer denied coverage on the basis that the claim was excluded by an exclusion in the policy that excluded coverage for claims arising out of or resulting, directly or indirectly, from any wrongful act committed prior to the inception date if the insured’s claims department or chief legal counsel knew or could have reasonably foreseen that a wrongful act did or would result in a claim.

Prior to the first inception date of the policy, the insured’s client sent a letter to the insured advising of an investigation that might lead to litigation. That same day, the client fired the insured and requested that one of the insured’s employees, who was the lead contact for the client, submit to questioning. The letter did not include details of the alleged wrongdoing, or state that a claim would be brought. The questioning request was agreed to, and it revealed information to the insured of the alleged wrongdoing involving the lead contact. The insured hired an outside lawyer to investigate, and their chief legal counsel entered into a joint defense agreement with the lead contact’s separate counsel. Subsequently, the policy came into force and a claim was made by the complainant.

The court held that the exclusion applied, and the insured’s application was dismissed. The insured conceded the claim was possible but argued it was not certain, and certainty was required for the exclusion to apply. The court held that this interpretation ignored the meaning of the words “could have reasonably foreseen” and determined that the exclusion was not concerned with the certainty of a claim but whether it could reasonably be foreseen that a claim would result. The court held that the insured’s chief legal counsel had sufficient knowledge of the alleged wrongful acts that they could have reasonably foreseen a claim would result.

This case was digested by Mark A. McPhee, and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please contact Mark A. McPhee at [email protected].

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