Written By Ethan Schiff and Maisah Syed

The Ontario Superior Court has held that claims made insurance policies issued to directors and officers upon a company filing for protection under the Companies' Creditors Arrangement Act, RSC 1985, c C-36 (the CCAA) could not provide coverage for past unpaid wages and benefits that were the subject of a class proceeding that was scheduled for trial only months after the CCAA filing. In In the Matter of the Companies’ Creditors Arrangement Act and a Plan of Compromise or Arrangement of 14487893 Canada Inc., 2024 ONSC 5220 the Ontario Superior Court held that insurers are not responsible for providing coverage to pay claims of class members in a separate but related class action seeking past unpaid wages for employees of defendant companies (Just Energy) between 2012 and 2016.

Just before the class action certified on July 27, 2016 was scheduled to commence on November 15, 2021, Just Energy was granted CCAA protection. This had the effect of staying the class proceeding. On the same day, three insurance policies were issued providing coverage for directors and officers of the companies, which specifically included loss resulting from a statutory claim for unpaid wages. The claims made policies apply to claims first made during the policy period, March 9, 2021, until Just Energy’s emergence from Bankruptcy. But the insurance policies came with a “Prior Acts Exclusion” endorsement, ostensibly excluding coverage for Just Energy’s pre-March 9, 2021, misconduct.

The plaintiff in the class action filed a proof of claim in the CCAA proceeding asserting that the directors were jointly and severally liable for the approximately $105 million sought in the class action. The plaintiff’s proof of claim was denied, so the plaintiff brought a motion for an order directing the insurers to pay amounts owed under the policies and the insurers brought the motion at issue seeking a declaration that the coverage sought was excluded.

Justice Cavanagh concluded that, consistent with its plain language, the Prior Acts Exclusion precluded the insurers’ potential coverage of the class members’ damages. He rejected the plaintiffs’ argument that the Prior Acts Exclusion could not exclude their claims because that interpretation resulted in other exclusions within the policies becoming effectively redundant. He also rejected the plaintiff’s argument that the Prior Acts Exclusion should be ignored because it would be contrary to reasonable expectations for failing to provide sufficient director and officer coverage. Justice Cavanagh concluded that the exclusion was “not inconsistent” with the purpose of the insurance and declared that the insurers would not have covered the damages alleged in the class action.

The decision applies fundamental interpretive principles of insurance coverage analysis to interpret the function of the policies in the CCCA context. In so doing, it preserves the commercial efficacy of their intent.

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• Just Cavanagh held that “where the language of an exclusion is unambiguous, the court should give effect to clear language, reading the contract as a whole.” He further held, that he did “not regard the fact that there are two exclusions in the Policies that may overlap with the Prior Acts Exclusion, which was added to the XL Policy as an endorsement, as a reason not to give effect to the clear language of the Prior Acts Exclusion.”
• Considering the commercial context of the insurance policies, Justice Cavanagh wrote, “in the context of the surrounding circumstances, particularly Just Energy’s CCAA filing, I accept the Insurers’ submissions and conclude that the surrounding circumstances are consistent with the interpretation of the Prior Acts Exclusion advanced by the Insurers.”
• Finding that the nullification of coverage doctrine did not apply, Justice Cavanagh concluded, “it is clear that protection of D&Os for their post-filing liability during Just Energy’s insolvency is the main purpose of the insurance coverage provided by the Policies. The interpretation of the Prior Acts Exclusion advanced by the Insurers is not inconsistent with this purpose of insurance coverage. Given this main purpose of the insurance coverage, it would not be contrary to the reasonable expectations of the ordinary person as to the coverage purchased to exclude coverage for loss resulting from claims based upon or arising out of any act or omission, committed by anyone, prior to Just Energy’s filing for protection under the CCAA on March 9, 2021.”