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Coverage Denied to Lawyers Providing Investment Advice
Published in the May 2008 issue of Litigation Notes - View Article
Synopsis: Lawyers’ liability insurer did not have to provide coverage or a defence to a claim arising from investment advice. In determining whether there is a duty to defend, courts will disregard ‘labels’ and ‘manipulative pleadings’ and look at the substance of the claim.
The Ontario Superior Court of Justice recently considered an application by Sinclair Stevens, Noreen Stevens and the law firm of Stevens & Stevens that Lawyers Professional Indemnity Company (“Law Pro”) had a duty to defend the lawyers in connection with an action commenced against them. Sinclair Stevens is a well known former member of the Parliament of Canada and Law Pro is the professional liability insurer which provides first layer coverage for all lawyers practicing in the Province of Ontario.
In this case, Mr. & Mrs. Stevens and their law firm were sued in connection with an investment scheme which went bad. Law Pro denied coverage on two grounds: firstly that the claim did not fall within the meaning of “professional services” as defined in the policy and secondly because it was excluded under the “investment services” exclusion. The Court agreed. While accepting that it is necessary to “give the widest latitude to allegations in the pleadings in determining whether a claim is within the policy”, in this case it was clear that Mr. & Mrs. Stevens and their law firm did not provide any actual legal services and there was no pre-existing solicitor/client relationship. Although the Plaintiff described the solicitors as acting “in their capacities as lawyers” the Court held that this could not alter the fundamental character of the pleadings. “The Courts will disregard ‘labels’ and ‘manipulative pleadings’ and look at the substance of the claim.” In this case the Court could find nothing in the pleading to support the proposition that the defendants were acting as lawyers performing legal services.
Furthermore the Court held that even if the facts as alleged in the Statement of Claim could be said to support the notion that they were providing professional services, coverage was excluded by reason of the investment services exclusion, which excluded services provided by the insured in the nature of investment advice.
Stevens v. Lawyers’ Professional Indemnity Company, 2008 CanLII 23501