Insurer Entitled to Decline to Defend the Insured Lawyer

Errors & Omissions Insurer entitled to decline a defence to its insured, a lawyer, on the basis of a notwithstanding clause which allowed it to decline to defend an insured on the basis of a reasonable investigation rather than on the basis of the pleadings.

Juroviesky and Ricci LLP v. Lawyers Professional Indemnity Co., [2014] O.J. No. 40, January 6, 2014, Ontario Superior Court of Justice, W.M. Matheson J.

In Juroviesky and Ricci LLP v. Lawyers Professional Indemnity Co., the insured was a lawyer who had been sued for $1.2 Million in damages by a client. The insurer denied coverage under an errors and omissions policy on the basis that the exclusion in the policy regarding investment advice applied. The insured sought an order requiring that the insurer defend him and his law firm.

The Court found that aspects of the amended statement of claim appeared to be indirect complaints about investment advice. However, the Court did not conclude that the claim was obviously a claim for negligent investment advice and therefore found that there was the possibility of coverage under the policy.

The court held that the investment exclusion clause would exclude coverage entirely, even if the claims related in part to investment advice and in part to legal advice. The insured had submitted that the claims regarding legal advice should be covered. The Court found that there would be no reason to exclude coverage for investment advice when there is no coverage for investment advice in the first place unless the intention was to exclude all claims for negligent investment advice, even if accompanied by claims of negligent legal advice.The investment exclusion included an exception, which provides that the exclusion clause does not apply if the investment advice arose as a direct consequence of the performance of professional services. Since the claim did not expressly allege whether the investment advice was a consequence of prior professional services the Court found that there was a possibility that the exception applies.

The investment exclusion included an exception, which provides that the exclusion clause does not apply if the investment advice arose as a direct consequence of the performance of professional services. Since the claim did not expressly allege whether the investment advice was a consequence of prior professional services the Court found that there was a possibility that the exception applies.

The Court ultimately concluded that the insurer had the right to decline to defend the insured on the basis of a notwithstanding clause which provided it with the ability to decline to defend when it determines on reasonable grounds that the claim does not arise from an error, omission or negligent act in the performance of or failure to perform professional services or is excluded pursuant to the policy. The Court found that the insurer had reasonable grounds to decline to defend.

This case was originally summarized by Cameron B.P. Elder and originally edited by David W. Pilley of Harper Grey LLP.

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