Superior Court Rules on D&O Insurance Case

The Superior Court of Justice released its decision on June 30, 2011, in a large directors and officers insurance claim brought by Onex Corp. and certain of its officers and directors against several of their insurers for indemnification of defence costs incurred in an action brought against them in the state of Georgia. Onex Corp., in the result, was awarded the full policy limits of US$15 Million against Chartis Insurance Co. (formerly American Home Assurance Co.) under a 2002-2003 primary policy.

The remainder of the claim valued at approximately $5 million was dismissed against several of Onex's excess insurers for the 2004-2005 policy year. The action arose out of the restructuring of Magnatrax Corporation, a former Onex subsidiary, in 2003 in the United States. The insurers took the position that the underlying claims asserted again Onex and its directors and officers in the Georgia Action were covered only under a different policy issued to Magnatrax Corp pursuant to which American Home had already paid its full policy limits of US$15 million.

Central to the decision was a 2003 letter uncovered during the course of discovery and cross-examinations sent by the insurance broker of the directors and officers. This letter advised the directors and officers of the plaintiff corporation of certain claims and potential claims a committee of Magnatrax creditors allegedly had against them. Accordingly, the insurers cross-moved for summary judgment, seeking to have the action against them dismissed in its entirety on the basis that the letter constituted notice of a “claim” or “circumstances giving rise to claim” that was given in a prior policy year and therefore excluded as a “claim” under the 2004-2005 policy.

In his reasons, Justice Laurence Patillo found that notice of the Georgia claims against Onex had been given in a prior policy year. The action was accordingly allowed in respect of the earlier American Home policy issued to Onex for the year 2002-2003 but dismissed against the excess insurers in the later 2004-2005 year.

Alan D'Silva, Ellen Snow and Paloma Ellard of Stikeman Elliott LLP acted for the defendants Brit Syndicates Ltd. (Lloyd's Syndicate 2987), Heritage Managing Agency Limited (Lloyd's Syndicate 3245), XL Insurance Company Limited, Liberty Mutual Insurance Company and Houston Casualty Company.

Marcus Snowden and Fabia Wong of Blaney McMurtry LLP acted for the defendant American Home Assurance Company.

Geoffey Adair and Alexa Sulzenko of Adair Morse LLP acted for the plaintiffs Onex Corporation, Gerald Schwartz, Christopher Govan, Mark Hilson and Nigel Wright.