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CGL Policy Does Not Respond to Claim For Refund of Employer’s Pension Plan Contributions
Published in the June 2008 issue of Litigation Notes - View Article
Summary: Tire manufacturer Michelin asks its insurer to defend a claim by former employees for refund of a “contribution holiday” taken by Michelin in respect of its contributions to employee pension funds. Michelin’s decision to take a contribution holiday was an intentional act and a matter of contract, not negligence. The claim was not covered under a CGL policy and there was no obligation to provide a defence.
Michelin North America (Canada) Inc. (“Michelin”) is a tire manufacturer, with three manufacturing facilities in the Province of Nova Scotia. Michelin established a pension plan for its employees at those plants and during two periods, from 1984 through 1988 and again from 1996 through 2000, actuarial variations determined that the pension plans were in surplus and Michelin applied part of the surplus to fund its ongoing contribution obligations to the pension plans.
On March 10, 2003 a firm of solicitors wrote to Michelin advising that it had been retained by a group of Michelin pension plan members and that it was reviewing the “current and past administration of the pension plan”. The letter advised Michelin that there was a possibility of pending litigation and that no documents in connection with the pension plan should be destroyed. Michelin did not respond to that letter and on September 29, 2003 the same firm sent Michelin another letter advising that there were concerns with the contribution holidays which Michelin had taken in respect of its contributions to the pension plans and suggesting that the contribution holidays were not permissible within the terms of the pension plans.
Michelin had a comprehensive general liability insurance policy issued by Ace INA Insurance (“Ace”) which included an employee benefits liability endorsement (the EBL endorsement) which provided coverage for any “negligent act, error or omission of the Insured… in the administration of the insured’s employee benefit programs as defined herein”.
On May 20, 2004 Michelin notified its insurance broker of the March 10 and September 29 letters and expressing the opinion that these letters triggered coverage pursuant to the EBL endorsement.
On June 20, 2005 a Michelin employee commenced an application against Michelin requiring an interpretation of the pension plan and seeking an order that Michelin refund approximately $187 million for the years 1984 to 1988 and $166 million for the years 1995 to 2001. On July 25, 2005, Michelin sent a copy of the Originating Notice of the Application to its insurance broker and asked that it be provided with a defence under the terms of its policy with Ace. Ace responded that no defence was available under the policy for a number of reasons including that Michelin was aware of a circumstance which might give rise to a claim at the inception date of the policy, that the Application sought only declaratory relief which was not covered under the policy, that the Application did not seek the payment of damages as required by the policy, that the relief sought in the Application could not be characterized as a “negligent act, error or omission” and that the EBL endorsement applied only to third party liability claims and was intended to cover only fortuitous events.
Ace applied to the Ontario Superior Court of Justice for an order requiring Ace to provide a defence.
The Court considered firstly whether or not coverage was precluded by reason of Michelin having had knowledge of circumstances which might give rise to a claim at the inception date of the policy of August 1, 2003. Ace’s position was that the solicitors’ letter of March 10, 2003 disclosed a circumstance which might give rise to a claim. On this point the Court disagreed, concluding that the letter did not provide sufficient circumstances or facts such that it could be said upon receipt of the letter that Michelin knew or could have reasonably foreseen a claim or suit. In the Court’s view the letter was written “not to advise Michelin of a claim but to ensure… that no documents be destroyed.” Although the letter raised the possibility of litigation it made no claim and alleged no specific facts that could give rise to a claim.
As to whether a defence was owed to Michelin, the Court agreed with Ace. The Court considered that there was no negligent act, error or omission on the part of Michelin. It was the Court’s view that the determination as to whether or not Michelin was entitled to reduce or discontinue its contributions to the pension plan was a matter of contract, not negligence.
Furthermore, the Court considered that Michelin’s decision to take a contribution holiday was not a matter of “administration” of the plan. In the Courts view the term “administration” related to acts “… incurred in respect of relatively routine, ministerial or clerical acts performed in relation to Michelin’s employee benefit program” and did not include “discretionary management decisions concerning Michelin’s obligations under the terms of the Michelin pension plan to contribute to it”.
Finally, the Court felt that Michelin’s decision to take a contribution holiday was an intentional act and was consequently not accidental or fortuitous and could not be covered under a comprehensive general liability policy.
Michelin North America (Canada) Inc. v. Ace Ina Insurance, 2008 CanLII 28224