Allocation of Defence Costs
Dunn v. Chubb Insurance, 2011 ONCA 36, is part of the continuing saga of the failed Nortel Networks. There is nothing really new in this recent Court of Appeal of Ontario decision which discusses allocation of defence costs in directors and officers insurance when some claims are covered under a directors’ and officers’ liability policy and some are not. I say that because the Court looked at the wording in the policy and decided, on its plain meaning, that Chubb was responsible for paying 90% of the defence costs incurred in defending two former officers and directors of Nortel against allegations of misconduct in civil and regulatory proceedings.
After the demise of the company, an action was begun against Frank Dunn and Douglas Beatty alleging that they had committed certain Wrongful Acts, a term defined in the insurance policy issued by Chubb. The policy was a claims made policy and covered the 2001 period. There were allegations that wrongful acts were committed by Dunn and Beatty in both 2001 and 2003.
The insurer Chubb agreed to pay defence costs for Dunn and Beatty for proceedings relating to the 2001 conduct but refused to cover the full defence costs for other proceedings arising out of both the 2001 and 2003 conduct. Chubb argued that it was not responsible for the defence costs that related to the 2003 conduct. It was an important issue because the policy that covered the 2003 conduct had been rescinded by Chubb.
The issue before the Court arose out of a special endorsement to the policy that required Chubb to pay 90% of defence costs where there was a claim that included both covered and uncovered losses. Chubb argued that the claims still had to fall within the period of 2001 policy.
The Application’s Judge and the Court of Appeal agreed that the endorsement in the policy applied. The Court relied on the plain language of the endorsement and held that there was no condition that the whole claim relate to the 2001 policy period for the 90% allocation of defence costs to apply.
The words in the policy prevail!