Exemption clauses under professional liability policies

April 1, 2020 | Chris T.J. Blom

First Condo Group Ltd. (“First Condo”) carries on business as a reserve fund planner for condominiums in Ontario. It was insured by Lloyd’s Underwriters under a Professional Insurance Policy from March 2010 to March 2014 on a claims-made basis.

In November 2013 First Condo prepared a Reserve Fund Study for Durham Condominium Corporation No. 62. In 2018 the condominium corporation alleged that the study was prepared negligently.

First Condo was insured by another insurer from March 2014 to September 2015. It then secured a new policy with Lloyd’s Underwriters from September 2015, renewed annually to September 2019.

In October 2015 a worker was injured while working on a lamppost on the property of the condominium corporation. He pursued a claim for damages against the condominium corporation, which, in turn, pursued a claim against First Condo on the theory that it performed the Reserve Fund Study negligently. The corporation alleged that the lamppost was prone to collapse at the time of the study, as a result of corrosion, and that First Condo misrepresented the state of the lampposts.

First Condo sought coverage under the policy which was in force at the time the claim was made in 2018. The policy carried an exemption clause which excluded any claims arising from any incident occurring prior to September 11, 2015.

In the decision of First Condo Group Ltd. v. Lloyd’s Underwriters, 2020 ONSC 146, the condominium corporation argued that the word “incident” refers to the date on which the worker was injured. The matter was brought by way of application before Justice P. Perell.

The issue turned on the interpretation of the word “incident”. Perell J. concluded the that word is not ambiguous. It denotes a discrete event or occurrence. Perell J. determined that the incident which gave rise to the claim was the preparation of the Reserve Fund Study and not the injury of the worker in 2015. The incident was reported in September 2018.

If there was no exemption clause, the policy would have responded to the claim. However, Perell J. concluded that, by reading the policy as a whole, giving the words used in the policy their ordinary meaning and having in mind the surrounding circumstances, the insurer and the insured agreed that some claims-made incidents would be excluded from the policy, notwithstanding that the claims were made during the policy period.

The word “incident” therefore referred to the preparation of the Reserve Fund Report in 2013 and not the events leading to the injury in 2015. As a result, First Condo was not entitled to coverage under the policy.

This decision underscores the importance of clarity in policy language. Perell J. had little difficulty interpreting the word “incident” in the context of the policy for two reasons: one, the choice of the word, and two, the context in which it was used. The word does not lend itself to ambiguity. The context in which it was used reinforced its meaning.

 

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