In Dunn v. Chubb Insurance, 2011 ONCA 36, the Court of Appeal recently upheld an application judge's decision requiring the insurer Chubb to pay 90% of certain defence costs of the respondents Dunn and Beatty, pursuant to a directors’ and officers’ liability insurance policy.
This proceeding arose out of allegations against Dunn and Beatty, former Nortel directors and/or officers. They allegedly committed some "Wrongful Acts" (a term defined in the policy) in 2001 and then again in 2003. The policy was a "claims made" policy and covered the period 2001.
The insurer Chubb agreed to provide defences for Dunn and Beatty for proceedings relating to the 2001 conduct. However, the insurer refused to pay the full defence costs for other proceedings arising out of both the 2001 and 2003 conduct. The insurer argued that it was not responsible for the defence costs to the extent that those costs relate exclusively to the 2003 conduct.
There was however in the policy a special endorsement requiring the insurer to pay 90% of defence costs where there is a claim that includes both covered and uncovered matters. However, the insurer took the position that the claims still had to fall within the period of 2001 and that the endorsement applied to allegations against insureds of wrongful conduct engaged in by an insured which is excluded from coverage, e.g. allegations of wrongful conduct in some capacity other than as a director and/or officer.
In the result, the application's judge and the Court of Appeal agreed that the endorsement in the policy applies and that the insurer is to pay 90% of defence costs per the terms of the endorsement.
This case emphasizes once again the importance of the terms of the policy itself.
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