The court concluded that the insurer had a duty to advance defence costs prior to the final disposition of the action.
 O.J. No. 3031
2011 ONSC 1142
Ontarior Superior Court of Justice
L.A. Pattillo J.
June 30, 2011
In May 2005 an action was started by Richard M. Kipperman against the plaintiffs claiming damages of $600 million (the "Kipperman Action"). The plaintiffs expended approximately $35 million in the defence of the Kipperman Action. On October 10, 2008, the plaintiffs commenced this action claiming reimbursement for their defence costs in the Kipperman Action pursuant to D&O liability insurance policies issued by the defendant American Home Assurance Company.
In this application, the plaintiffs moved for summary judgment in the action requiring American Home to pay defence costs they have incurred defending the Kipperman Action pursuant to the terms of the D&O insurance policy issued by American Home for the period 2004-2005 or alternatively pursuant to a similar policy issued for the 2002-2003 period. American Home moved for summary judgment against the plaintiffs requesing that the action be dismissed in its entirety.
The plaintiffs submitted that they, in their capacity as directors and/or officers of the company, were entitled to coverage for the Kipperman action pursuant to a D&O policy issued by American Home. They submitted that the Kipperman action was a "Claim" made and reported during the period of the 2004-2005 D&O policy and was therefore covered by that policy. Accordingly, the plaintiffs argued that American Home was required to indemnify the individual plaintiffs for their "Loss" arising from the Kipperman Action and in particular defence costs incurred.
The court held that the onus was on the plaintiffs to establish that their defence costs were covered either by the 2004-2005 policy or the 2002-2003 policy. The court held that it was clear the Kipperman action constituted a "Claim" as that term was defined in the policies and the directors and/or officers of the company were each "Insured Persons" as defined in those policies. Further, the court held that the alleged acts asserted in the Kipperman Action against the directors and officers of the company acting in their capacity as directors and/or officers of the company, constituted a "Wrongful Act(s)" as defined in the policy. As such, the court concluded that based on the plain wording of the policies, the claims asserted fell within the basic coverage section of each of the policies. The court held further that the policy imposed a duty on American Home to advance defence costs prior to the final disposition of the Kipperman action.
The court then considered the issue of what constitutes sufficient notice of circumstances under a D&O liability policy to entitle a subsequent claim arising out of such notice to be deemed to have occurred during the policy period. The court held that there were no Canadian authorities directly on point and, following consideration of various American authorities, held that in determining whether notice by an insured to an insurer is sufficient, an objective test should be applied having regard to the wording of the policy. The test is whether the insured objectively complied with the notice provision in the policy. The intention of the insured is not relevant to whether the notice provision is complied with.
In this case, the court held that a letter sent by the plaintiffs to the insured in November of 2003 set out the circumstances which may have reasonably been expected to give rise to the claim subsequently made against the directors and officers of the company. The court noted that the letter clearly listed the wrongful acts complained of and met the notice requirements of the insurance policy such that the action constituted a claim made during the policy period of the 2002-2003 Onex policy.
Under the terms of the 2004-2005 policy, claims covered by prior D&O liability policies are excluded from coverage under the current D&O liability policy. As such, as the claims in the Kipperman action were made during the currency of the 2002-2003 D&O liability policy, the plaintiffs could not rely on the 2004-2005 D&O liability policy. Thus, American Home was required to indemnify the individual plaintiffs for their defence costs in respect of the Kipperman action pursuant to the provisions of the 2002-2003 D&O liability policy.