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No Insurance for Professional Advisor
Published in the February 2007 issue of Litigation Notes - View Article
Professional advisors and their insurers should both take note of an Ontario Court of Appeal decision, Cassels Brock & Blackwell v. Lawpro, released in February. The Court in that case sided with an insurer which had denied coverage under a professional indemnity policy. The Court agreed that the advice given by the insured professional was not professional advice of the sort covered under the policy.
The professional in question, Peebles, was a lawyer with the firm of Cassels Brock & Blackwell, which was insured by Lawpro. A client of Peebles sued the firm after receiving advice from Peebles regarding an investment that resulted in a loss. For the purpose of deciding whether an insurer is required to provide coverage for the costs incurred by an insured in defending a claim, the courts look to the wording of the claim as pleaded, rather than going further to examine the evidence. In this case it was pleaded that the client asked Peebles for advice about the soundness of the investment. Peebles acted as an agent for the group offering the investment. The client alleged that Peebles advised that the investment was safe and then received the client’s investment funds for deposit into the firm’s trust account.
After being served with the claim, Cassels Brock looked to Lawpro to provide for its defence under the firm’s professional indemnity policy. Lawpro declined coverage on the basis that the policy only covered claims relating to legal advice. Cassels Brock then brought a court application for a declaration that the firm was entitled to coverage for defence costs.
The application judge reviewed the case law regarding when an insurer is required to provide coverage for a defence. The law requires this issue to be resolved at the outset of a claim, usually well before the merits of the case are adjudicated. In many cases, claims are made on multiple grounds, some of which may be covered under the policy and others not. The case law states that an insurer has a duty to defend if there is a mere possibility that the insured could be found liable on the basis of an allegation of the sort that would trigger coverage for the insured’s loss. Whether or not the allegations are subsequently proven at trial is immaterial. The courts therefore look only at the nature of what is alleged, not at the strength of the allegations, or the existence of parallel allegations which are outside of coverage. The law is also clear that, when in doubt, any ambiguity in the terms of the policy should be resolved in favour of the insured. The Supreme Court of Canada has stated that “coverage should be interpreted broadly in favour of an insured and that exclusion clauses should be strictly and narrowly interpreted against the insurer.”
In the present case, the Lawpro policy provided that the insured firm was covered in respect of services performed “in such insured’s capacity as a lawyer . . . including services for which the insured is responsible as a lawyer arising out of such insured activity as a trustee . . . ” The policy also provided an exclusion with respect to “any claim in any way arising out of an insured providing investment advice and/or services, including without limitation, investment advice and/or services relating to or arising out of a business, commercial or real property investment unless as a direct consequence of the performance of professional services.
Cassels Brock argued that coverage should apply because the advice sought by the client was legal in nature. The firm further argued that the services in question were services provided by a lawyer acting as a trustee given that the investment went through the law firm’s trust account. The applications judge disagreed, as did the Court of Appeal. Both courts confined themselves to the wording of the pleading and concluded that the plaintiff client alleged negligence in connection with investment advice and made no allegation that legal advice was sought, or received. The Courts found that the use of the trust account in this case was nothing other than an investment service – providing a vehicle for receipt and distribution of funds. The Courts concluded that in these circumstances there was no ambiguity in the application of the policy terms and “that there should not be an unnatural forced stretching of the words of the policy beyond justifiable reason so as to require coverage.”
For insurers, the case is an indication that, while the courts will extend coverage to the insured in borderline cases, if the wording of the policy is clear and certain, it should be applied. For professional advisors the case is a reminder that providing services which fall outside of the normal activities of the profession may expose the person or firm to uninsured liability.
Cassels Brock & Blackwell v. Lawpro, 2007 ONCA 122 (CanLII)