Marie-Pier Gagnon Nadeau

The Court of Appeal for Ontario dismissed Surefire Dividend Capture, LP’s appeal from the Superior Court’s decision denying insurance coverage for losses suffered in a Ponzi scheme perpetrated by Brenda Smith, CEO of Broad Reach Capital, LP.

The court held that the fidelity bond did not cover losses caused by fraudulent acts of a sub-advisor’s directing mind, as the bond’s language did not extend “Employee” status to such individuals.

The court also found no coverage for “Theft of Customer Property” because SDC no longer had a property interest in the funds once invested in BRC.

The trial judge’s interpretation of the bond was entitled to deference, and no reversible error was found.

SureFire Dividend Capture LP (SDC) sought indemnification from Berkshire Hathaway Specialty Insurance under a fidelity bond for losses incurred due to a Ponzi scheme perpetrated by Brenda Smith, manager of Broad Reach Capital, LP (BRC), in which SDC had invested.

SDC claimed coverage under three insuring agreements (A)(1), (A)(4), and (B)(1)(b) of the Bond.

The court found that SDC failed to establish that its loss fell within the initial grant of coverage under any of the agreements, primarily because the stolen funds belonged to BRC, not SDC or its investors, and Brenda Smith was not an "Employee" of SDC as defined by the Bond for the purposes of SDC's direct claim.

The court also noted that SDC failed to disclose a material "in-kind" transfer of interests from other funds to SDC, which would have excluded coverage for that portion of the loss.

SDC's claim for punitive damages for bad faith was also dismissed.

This appeal concerned an actionable encroachment on an easement.

The appellants built a swimming pool and amenities over a ten-foot strip of land subject to an easement held by the respondents, which prohibited the erection of any building or structure.

The application judge found an actionable encroachment and ordered removal.

The appellants appealed, arguing the easement was not intended to prohibit such structures, that the 'substantial interference' test was misapplied, and that the easement was abandoned or proprietary estoppel applied.

The Court of Appeal dismissed the appeal, affirming that the express prohibition in the easement constituted an actionable encroachment, and rejected arguments of abandonment or proprietary estoppel.