Ambiguous exclusions are meaningless

Insurance law – Liability insurance – Claims made policy – Renewals of policies – Duty to defend – Exclusions – Interpretation of policy – Duties and liabilities of insurer

Backyard Media Inc. v. HDI Global Specialty SE, [2021] O.J. No. 1583, 2021 ONSC 2341, Ontario Superior Court of Justice, March 29, 2021, F.L. Myers J.

The insured was sued by its former business partner and sought a defence from its insurer under a claims-made policy. Although the insurer agreed that the litigation fell within the policy’s grant of coverage, the insurer denied coverage on the basis of an exclusion for any claim which the insured was aware as of the inception date of the policy. The insured had received a demand letter from its former business partner before renewing its policy from the insurer, and was served with the notice of civil claim after renewal.

The insured argued that the inception date of the policy was when the insured first purchased the policy from the insurer, which was about three years prior to receiving the demand letter. The insured had renewed the policy each year since then. The insurer argued that the inception date of the policy was the renewal date of the current policy term. The insurer argued that the exclusion applied because the insured was aware of the claim before renewing the policy, as it had received the demand letter before renewal. The claim was not reported by the insured until the next policy year.

The Court noted that it was not for the Court to remake or expand coverage, and that there can be gaps in coverage in claims-made policies. However, the definition of “policy” in the exclusion was ambiguous. “Policy” could refer to the annual contract made each year at renewal, or could refer to the policy when it was first purchased by the insured three years prior. The ambiguity in the exclusion had to be resolved in favor of the insured. Moreover, the insurer’s interpretation would exclude all claims that took more than a year to mature from first complaint to litigation, or which happened to cross the renewal date, which would be a very major limitation on coverage.

This case was digested by Joe Antifaev, 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 Joe Antifaev at [email protected].

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