How can a policyholder who purchased consecutive policies of professional liability insurance lose the benefit of insurance? On October 29, 2018, the Ontario Superior Court released its judgment in Cronnox Inc. v. Lloyd’s Underwriters, 2018 ONSC 6437 (CanLII), holding that the professional liability insurer did not owe the policyholder a duty to defend or to indemnify it in respect of a subrogated law suit. It was the second part of an insurance coverage dispute among an engineering company, two insurers and a law firm. In the first instalment, the same court also held earlier this year that the second insurer in the sequence was also not liable: Liberty Mutual Insurance Company v. Cronnox Inc., 2018 ONSC 1578 (CanLII).
In September, 2013, the policyholder chose not to act on letters and emails from counsel for subrogating insurers who had paid to repair damage to a Toronto-area hotel, allegedly in the millions of dollars. Unbeknownst to the policyholder, the same counsel issued a statement of claim without serving it immediately, a common practice employed by legal practitioners to toll the running of any limitation period while the underlying claim might be settled. The policyholder qua defendant did not report the potential claim to insurers.
In the meantime, the policyholder’s insurance broker recommended a change in insurers. The existing policy was cancelled, and a new policy took effect the same day. In February, 2014, the subrogating plaintiff served the statement of claim.
The events that ensued, well documented in the decisions, demonstrated how the policyholder had fallen into the only gap in insurance between two claims-made-and-reported policies otherwise containing provisions protecting insureds from losing the benefit of insurance. To find out how this happened, click on the above links to the decisions.