Can a butterfly fluttering its wings cause a hurricane on the other side of the world? In other words, can the after effect of a seemingly insignificant event build and build to result in a catastrophic outcome? When it comes to drafting contracts, it seems the answer is “YES”. One of the extreme examples of this is the so-called “Million Dollar Comma Case”- Rogers Communications v. Aliant Telecom, CRTC Decision 2006-45. In that case, the implications of the smallest of drafting errors resulted in a multi-million dollar outcome when Rogers convinced the CRTC that the insertion of a comma to separate a termination clause from a clause about future renewals allowed the contract to be terminated before its expiry date. Without the comma (which was not present in the French version), the right to terminate was unambiguous.
These days most companies are urging their employees to make due with less. Many employees wear multiple hats. So what is to stop an underwriter, a broker, a marketer, etc. from becoming a legal writer? Increasingly it seems nothing. On the other side of the table, are policy holders paying attention to the details of the contractual wording? Is there any legal oversight in the process? Insurance policies are significant commercial contracts yet oftentimes it seems that neither party is conducting the same due diligence they would afford a commercial contract. The fallout may seem as significant as a hurricane.
The goal in commercial contract drafting is to create a contract that the parties can use to enforce their rights and obligations without disputing any of its terms. Writing in clear, concise, unambiguous and consistent language is a real challenge. Multiple endorsements multiply the risks. Companies should treat their insurance contracts with the same importance they treat all commercial contracts. Legal drafting should not be left to “do it yourselfers”. Litigation over contractual wording can be expensive and the result may not be what you expected. Take the following Canadian insurance dispute examples:
- Onex Corporation v. American Home Assurance Company, 2013 ONCA 117: This dispute involved the issue of whether Onex was entitled to reimbursement of defence and settlement costs (in the amount of close to $44.25M) under various D&O policies. The issues were complicated and included noticing circumstances under a prior policy, tie-in of limits clauses, exclusionary language added by endorsement, and a run-off policy put in place on the eve of a subsidiary of Onex filing for bankruptcy in the U.S. The case highlights the implications of noticing circumstances under a prior policy; negotiating terms on an urgent basis without full due diligence; binding and issuing policies prior to finalizing the precise endorsement wording; and the difficulty of ensuring contract language properly captures the parties’ intentions, without ambiguity. After protracted and expensive litigation in Georgia(which began in 2005), and coverage litigation in Toronto (commenced in 2008), the Ontario Court of Appeal determined in February 2013 that coverage was properly considered under a 2002-2003 policy issued to Onex and not subsequent policies. However, the appellate court further determined there was insufficient evidence before it to determine the “factual matrix” necessary to interpret the ambiguous wording of an exclusionary endorsement. As a result, the matter was sent back to the trial court where, no doubt, considerably more money will be spent attempting to ascertain the parties’ intentions.
- Coventree Inc. v. Lloyds Syndicate 1221,  O.J. No. 2287 : In this contentious decision by the Ontario Court of Appeal, at issue were circumstances reported under a prior D&O policy, and the extent to which a subsequent policy would respond to a regulatory investigation relating to matters referred to in that prior notice. Of note was the fact that a “prior acts” exclusion on the previous policy had been removed and sub limited coverage for past acts was provided in the subsequent policy. Furthermore, the warranty questions in the renewal application (enquiring about knowledge of circumstances that may give rise to a claim, and any previous notices) were waived. Defence expenses of $12M had been incurred. The Court found coverage was triggered by resorting to a controversial examination of the surrounding circumstances in order to ascertain the parties’ intention, despite the apparent lack of ambiguity in the policy language. This case is a red flag for companies involved in difficult renewal negotiations in the face of potential claims and subsequent interrelated claims.
- Boliden Ltd. v Liberty Mutual Insurance Company, 2008 ONCA 288 ( CanLII): In the first Canadian appellate court decision to interpret how a pollution exclusion in a D&O Policy applied to a securities claim, the outcome surprised many and resulted in many insurers and policyholders reexamining their contractual wording. The Ontario Court of Appeal determined that the specific wording in dispute excluded pollution-related losses, but not pollution-related claims. Since the D&Os wrongful acts were alleged to have given rise to both pollution losses and nonpollution-related losses, the allocation clause was triggered resulting in 80% of the $3M defence costs being covered.
- Poole v. Lombard General Insurance, 2012 BCCA 434: This case dealt with whether a law firm’s professional liability insurance policy would respond to acts of employees at a non-traditional work event. An articling student sued an associate at the law firm when she sustained injuries as a result of a fall at a nightclub after a firm-sponsored dinner. Damages of almost $6M were awarded. The British Columbia Court of Appeal held that the policy did not respond. The analysis involved interpretation of clauses in the policy dealing with the “scope of”, the “course of” as well as “with respect to” employment.
These cases are illustrative of the significance small details in policy language can have on interpretation. Given the high stakes involved parties should apply the same diligence afforded to their other commercial contracts, including certainty of language prior to policy binding, and retention of legal advice from someone familiar with insurance wordings.