At issue was was the extent of insurance coverage available for legal fees incurred by an insured. Specifically, the insurer and insured disagreed as to whether the proper interpretation of the legal expense rider was that the $500,000 limit available was per year or limited to a one time total aggregate of $500,000. The court held that limit of liability clause did not contain a provision stating that the insurer’s liability should not be cumulative from year to year or period to period, as appeared elsewhere in the policy, such that the coverage available to an insured was cumulative.

[2012] O.J. No. 4055

2012 ONSC 4920

Ontario Superior Court of Justice

M.L. Edwards J.

August 30, 2012

The issue in this case was the extent of available insurance coverage in respect of legal fees incurred by the applicants, former foster parents David and Heather Lyons. The Children’s Aid Society had purchased a public entity casualty policy from the respondent insurer, Frank Cowan Company Limited. As foster parents, the Lyons were named insureds under the Society’s policy. The Lyons were charged with criminal offences in connection with the operation of their foster home in 2008. They were terminated as foster parents when the charges were laid. They were acquitted in 2011 but had incurred approximately $750,000 in legal fees by that time. Pursuant to the legal expense rider of the Society's policy, foster parents were entitled to indemnity for legal fees incurred in their defence.

Two issues were before the Court:

  1. whether the proper interpretation of a legal expense rider was that the $500,000 limit available was per year or limited to a one time total aggregate of $500,000; and
  2. whether the Lyons were entitled to coverage under the policy after they ceased to be named insureds in 2008.

The legal expense rider read as follows:

To pay on behalf of any Insured (as defined herein) legal fees including disbursements incurred by any Insured in defence of a charge laid for an alleged offence under any ACT (as defined herein) but only until such time as:

  1. a finding of guilt under said ACT; or
  2. a pleading of guilt under said ACT.

The limit of liability clause in the legal expense rider read as follows:

Regardless of the number of Insureds under this policy or the number of claims made, the Insurer’s liability is limited to the amount stated in Item 1 of the Schedule of Coverage and in no event will the total liability in the policy period exceed the Aggregate amount stated in Item 1(b) of Part 1 of the Schedule of Coverage.

The Court noted that nowhere in the limit of liability was there a provision to the effect that the limit of the insurer’s liability should not be cumulative from year to year or period to period. The Court noted that it would have been a relatively simple task for the insurer in this case to have inserted words similar to those set out in other sections of the policy stating that the liability shall not be cumulative from year to year or period to period. As such, the Court concluded that the aggregate coverage for legal costs incurred was $2,000,000 spanning all policy periods from 2008 to 2011 and not be $500,000 as argued by the insurer.

However, the Court held that in order for the applicants to recover legal fees sought beyond the $500,000 aggregate during the policy period March 2008 to March 2009 the Lyons must fall within the definition of insured for dates after 2009. Foster parents were named insured under the policy. The Lyons were terminated as foster parents in October 2008. As such, the Court concluded that the Lyons did not fall within the definition of the insured in the policies that were issued in 2009, 2010 and 2011. Thus, while any other insured would have had access to aggregate policy limits of $2,000,000, the Lyons, because they did not fall within the definition of insured, were not entitled to recover anything more than the aggregate policy limits of $500,000 set forth in the legal expense rider of the policy of March 2008 through 2009.