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By: Dylan J. Cox, Partner |
Introduction
In Puri Professional Corporation v. Lloyd’s Underwriters[1], an Ontario judge found that the underwriters of a professional liability policy (the “Underwriters”) had no duty to defend their insured in a lawsuit arising out of tax advice the insured gave to one of its clients. The lawsuit was excluded by virtue of the policy’s prior acts exclusions, which were put in place to ensure the Underwriters bore no liability for events occurring before they took over from the insured’s prior professional liability insurer. As discussed below, this case proves why it can be valuable for an insured to retain coverage counsel before moving to a different liability insurer, to try to avoid the coverage gap that occurred in this case.
Facts
Puri Professional Corporation was an accounting firm retained by a client in 2014 to provide advice regarding among other things, the client’s tax-free savings account (TFSA). The client then over-contributed to his TFSA during the 2015 and 2016 tax years. Throughout 2018, the client received notices from the Canada Revenue Agency regarding his over-contributions. Puri helped its client file a Notice of Objection March 2019.
The client subsequently retained another accounting firm to assist him with this matter. In September 2020, the client sued Puri, alleging that Puri had given him poor tax advice between 2014 and 2019, which resulted in the client over-contributing to his TFSA and the client having to pay additional tax.
Puri presented the lawsuit to the Underwriters, who had issued a claims made professional liability policy to Puri for the period of April 9, 2020 to April 9, 2021. The Underwriters denied coverage, relying on a provision that excluded coverage for any lawsuit arising out of any actual or alleged wrongful act by Puri committed or alleged to have been committed before April 9, 2020 (the “Retroactive Date Clause”).
Underwriters Entitled to Deny Coverage
Following the coverage denial, Puri sued the Underwriters. Puri and the Underwriters each brought motions for a summary determination of Puri’s coverage claim.
The judge hearing these motions found that the Underwriters were entitled to deny coverage. Under the Retroactive Date Clause, the Underwriters had no duty to defend or indemnify Puri with respect to any lawsuit arising out of wrongful acts alleged to have been committed before the “retroactive date” on the policy’s declarations page. The declarations listed April 9, 2020 as the retroactive date. Puri conceded that the wrongful acts its client were claiming were alleged to have taken place entirely before April 2020. The judge therefore held that the client’s lawsuit was fully excluded by Retroactive Date Clause.
Puri argued there was a typo on its policy, and that the retroactive date should have instead been set to April 6, 2020. The judge noted that even if that were true, the client’s lawsuit would be excluded by the Retroactive Date Clause, because the alleged events all took place before April 6, 2020.
Conclusion
The result in Puri is not surprising. The underlying lawsuit was based entirely on events alleged to have occurred before the retroactive date in the Underwriters’ policy. Like many other claims made (and claims made and reported) policies, the Underwriters’ policy excluded lawsuits based on events occurring before that retroactive date.
When an insured receives a lawsuit based on events alleged to have occurred before its current claims made liability insurer came on risk, the insured should first consult its policy language. In coverage disputes, policy language trumps everything. With that said, most claims made insurers include a retroactive date exclusion in their policy, which allows the insurer to deny coverage for lawsuits arising out of events occurring before the current insurer came on risk. If so, the insured will have no recourse against its current claims made insurer. Typically, claims in these kinds of circumstances must be made with the prior claims made insurer, who was on risk at the time of the underlying events. However, the prior claims made insurer will likely have no duty to defend the insured, unless prior to going off risk, the prior claims made insurer was made aware of the underlying facts, and that they may give rise to a subsequent claim.
For these reasons, before switching claims made insurers, it can be critical for the insured to work not only with its broker but also with competent coverage counsel, who can review the policy in place and help the insured report circumstances that may give rise to a future claim. This will often be the only way of ensuring the insured is protected, should historical events lead to a future claim. Theall Group LLP is happy to assist with such matters.
Footnotes
[1] 2024 ONSC 6997
Dylan Cox is a Partner at Theall Group LLP. He maintains a general civil and commercial litigation and alternative dispute resolution practice, specializing in insurance coverage and product liability matters. He has appeared before the Ontario Superior Court of Justice, Ontario Court of Appeal, and the Manitoba Court of King’s Bench, as well as in private arbitrations.
For more information, visit https://theallgroup.com/
Photo courtesy of Chuttersnap on Unsplash