The Court will not interpret coverage under an insurance policy so generously so as to amount to ignoring the terms and wording of a policy

Agreements are a two-way street: while coverage under an insurance policy is to be interpreted generously as a matter of public policy, the Court will not favour an interpretation that amounts to ignoring the terms and wording of a policy.

Insurance law – Commercial general liability insurance – Excess liability – Interpretation of policy – Duties and liabilities of insurer

Kestenberg Siegal Lipkus LLP v. Royal & Sun Alliance Insurance Co. of Canada, [2023] O.J. No. 2368, 2023 ONSC 3132, Ontario Superior Court of Justice, May 26, 2023, E.M. Morgan J.

The insured law firm sought a declaration of coverage in respect of a professional liability claim against it.  The insurer had issued an excess professional liability policy to the insured for the year 2018.  The policy was a claims made and reported policy containing the following conditions, among others:

Condition “C”

As a condition precedent to its rights under this policy, an insured must provide written notice of any claim as soon as practicable…

Condition “D”

This policy only covers claims first made against the Insured and reported to the Insurer during the policy period and provided that such claim arises out of an act, error or omission committed or alleged to have been committed on or after the retroactive date set forth at Item. 6 of the Declarations.

Once the insured became aware of the claim against it, it gave notice to its primary insurer and asked its broker to notify its excess insurers, including RSA.  The broker reported the claim to the insurer almost three years later, outside of the policy period.  The insurer denied coverage on that basis.

In seeking a declaration of coverage, the insured argued that the entire rationale for insurance is coverage, and that as a matter of public policy coverage must be interpreted generously.  The Court acknowledged that is correct as a starting point for analysis and as a generally applicable principle, but it is not one-sided.  Both parties to an insurance contract are entitled to expect that well-established principles will be reflected in the interpretation and application of an insurance contract.  One such principle is that the explicit terms of an insurance policy are to be adhered to.  The Court references Stuart v. Hutchins, 40 O.R. (3d) 321 (C.A.) where, in similar circumstances, the Court of Appeal commented that the insured could have protected itself in a number of ways, including purchasing extended reporting period endorsement, renewing its policy, or purchasing another policy from a different insurer with retroactive coverage.  The Court in this case commented that the insured was essentially asking the Court to ignore the terms and wording of the policy, with no viable grounds to do so.  The application was dismissed, with costs.

This case was digested by Mollie A. Clark, 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 Mollie A. Clark at mclark@harpergrey.com.

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