Notice requirements for professional liability insurance: Trisura Guarantee Insurance Company of Canada v. Duncan, 2019 NSCA 54

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On June 18, 2019, the Nova Scotia Court of Appeal released its decision in the case involving Trisura Guarantee Insurance Company of Canada (Trisura) and Duncan et al. This decision is noteworthy, as it may lessen an insured’s obligation to notify and disclose potential claims, and increase the burden of diligence on the insurer.

Facts

Trisura provided professional liability coverage to Keybase National Financial Services Inc. (Keybase) from July 2008 to July 2012. Gregory Duncan and James White (Duncan and White) were Keybase advisors during this time.

Duncan and White assumed responsibility for John Allen’s (Allen) clients. Allen was also a Keybase advisor. He was dismissed by Keybase in September 2007. Allen was sued by his former clients in 2009. Allen was convicted for criminal offences, and his former clients were successful in their action against him (2014 NSSC 31 (CanLII)).

However, following the 2014 decision against Allen, the clients (Allen Clients) turned around and commenced a claim against Duncan and White as well, complaining of improper advice concerning mitigation of losses caused by Allen (2015 Action).

Duncan and White applied for, and were granted, an order compelling Trisura to defend the 2015 Action (2018 NSSC 92). Trisura appealed this decision. It asserted that the Court erred: (1) in its interpretation of notice obligations under the policy; (2) in finding that Duncan and White complied with those obligations; and (3) in finding that relief from forfeiture was available in the circumstances. The decision was upheld.  

The Appellate Court’s decision

Trisura stated that: (1) it was not notified of any claims or potential claims during the policy periods; and (2) Keybase knew or should have foreseen that Duncan and White had exposure when Keybase first applied for insurance in 2008.

With respect to Trisura’s first argument on notification, the Court disagreed. Although the 2015 Action arose after the Trisura policy expired, the policy afforded coverage if Trisura was notified during the policy period. In 2010, Keybase’s third party insurance consultant (the “Consultant”) had reported potential claims from the Allen Clients. Trisura argued that these reports were related to Keybase and Allen’s negligence. They argued that “notice” was not collective. Further, notice respecting one Duncan and White client could not be notice for all clients. The circumstances needed to be differentiated.

The Court stated that Trisura’s knowledge of what transpired between Keybase, Allen and the Allen Clients underpinned its understanding of how Duncan and White, as subsequent advisors, were exposed to claims of liability. Trisura, as a sophisticated player in the insurance industry, with the benefit of prior knowledge and context, should have known the potential for further claims. Without prior knowledge, it was safe to assume that Trisura would have sought more explanation in the reports.  

Trisura’s argument that notification with respect to potential liability regarding one client cannot be notification with respect to the others failed, because there was no material difference between the former Allen Clients’ claims against Duncan and White, and the losses sought.

In June 2010, the Consultant indicated there were seven client complaints against Allen and “two current agents”. Furthermore, on July 2, 2010, Trisura received an adjuster’s report stating:

“There could be exposure for the alleged failure by the subsequent Keybase advisors (Jim White and Greg Duncan) to rectify the situation or to have caused an aggravation of the situation”.

Trisura argued that the report was misconstrued. The actual focus was whether potential claims against Duncan and White should have been disclosed prior to placement of coverage with Trisura.

Nevertheless, on December 29, 2010, the Consultant wrote to Trisura’s adjuster:

“We confirm that any subsequent claims will be treated by Trisura as having arisen in the period in which these circumstances were reported … July, 1, 2009 to July 1, 2010.”

Trisura did not respond.

Trisura also argued that claims against Duncan and White were not commenced during the policy period, because Duncan and White themselves did not think they had any exposure. However, the Court noted that it was unnecessary for the insured to provide notice personally. Additionally, the Consultant was reporting to Trisura on behalf of Duncan and White, and Keybase. The purpose of notice was satisfied in light of the adjuster’s assessment of the potential exposure.

Takeaway

Considered alone, this is not a novel decision. However, it may form part of a broader legal framework, which will make it difficult for insurers to challenge the adequacy of notification and disclosure moving forward.

For more information about this case, please contact Deepshikha Dutt, Stevan Manojlovic, or another member of Dentons’ Insurance group.