In Backyard Media Inc. v. HDI Global Specialty SE, 2021 ONSC 2341, Mr. Justice Myers was faced with an application for coverage brought by an insured where the respondent Underwriters had denied coverage pursuant to an imperfectly drafted exclusion clause.
The insured received a demand letter from a former business partner on March 4, 2020 asserting the insured’s liability. Although the insured retained counsel in connection with the demand letter, the insured failed at that juncture to notify Underwriters, which in the ordinary course would be done through the insurance broker.
The “claims made” policy lapsed on April 18, 2020, when the policy renewed for another year. On April 24, 2020 the insured received a statement of claim from the same business partner, and in due course thereafter, the insured reported the claim to Underwriters.
There was no dispute that the claim was within the grant of coverage save for the operation of any exclusion.
Underwriters relied on Exclusion 20 to deny coverage, which read as follows:
20. Any “Claim” of which any director, officer, member, partner, manager or supervisory employee of an “Insured” entity is aware, as of the inception date of this “Policy” or of any fact, circumstance or situation which could reasonably give rise to any “Claim” being brought against any “Insured”;
As suggested by the lower case lettering, inception date was not among the 68 defined terms in the policy.
Underwriters reasoned that as the insured was aware of the claim before the renewal date i.e. April 18, 2020, Exclusion 20 properly permitted underwriter to deny coverage. Although the policy did not expressly require that a claim be reported by the insured when the claim was “first made”, such a requirement was, per Underwriters, imported by Exclusion 20 at least to the extent that the claim must be reported within the policy year that it was first made.
Underwriters argued that this was the only sensible interpretation of the policy given that the inception date could only refer to the annual renewal date, otherwise the policy wording would have referred back to the Retroactive Date, which was when the policy was initially issued.
This argument was undermined by the fact that the definition of Retroactive Date in the policy was non-grammatical and Myers J. could only speculate, without certainty, as to what it was intended to mean by the drafter. Compounding the difficulty was the reference in the defined term Retroactive Date to the inception date, which would thus be understood to predate the Retroactive Date.
Although highlighting that “claims made” coverage is inherently lacunary, and reiterating that it is not the role of the court to complete the coverage that the insured did not subscribe to, Myers J., in this instance, held that the insurer could not rely on an unclear and ambiguous exclusion at the expense of the insured. Exclusion 20 failed the requirement laid out by the Supreme Court in Progressive Homes Ltd. v. Lombard General Insurance Co. 2010 SCC 33 that an exclusion must be clear and unambiguous.
Myers J. indeed went further to find that, if he were required to interpret the clause, he would have preferred the insured’s reading that the inception date meant something other than the policy renewal date.
This serves as a timely reminder to Underwriters to ensure the clarity of policy wording, especially with regard to exclusions as otherwise coverage may be found to be more expansive than the parties had bargained for, or at least more than budgeted by Underwriters in their offering of coverage for the premium paid.