Cassels Brock & Blackwell v. LawPRO

85 O.R. (3d) 318

Court of Appeal for Ontario,

Simmons, MacFarland JJ.A. and Pardu J. (ad hoc)

February 26, 2007

Professions -- Barristers and solicitors -- Professional liability insurance -- Duty to defend -- Professional liability insurance policy excluding claims arising out of provision of investment advice and/or services, unless as direct consequence of performance of professional services -- Use of lawyer's trust account as vehicle for receipt and distribution of investment funds not amounting to performance of professional services.

The professional liability insurance policy issued by the insurer contained an exclusion with respect to claims arising out of the provision of investment advice and/or services, unless as a direct consequence of the performance of professional services (defined as the practice of law). The insured law firm appealed the dismissal of its application for a declaration that the insurer had a duty to defend it in a particular action, arguing that the claim was founded, at least in part, on the fact that the insured provided legal advice and services to the parties with whom the plaintiff invested by preparing joint venture documents and by using its trust account as a vehicle for receipt and distribution of the funds to be invested.

Held, the appeal should be dismissed.

The use of a law firm's trust account as a vehicle for the receipt and distribution of investment funds does not of itself amount to the performance of professional services, nor does it make misuse of the investment vehicle a "direct consequence of the performance of Professional Services". Moreover, even if the exception to the exclusion clause could extend to professional services performed for someone other than the plaintiff in the underlying action, the plaintiff's claim could not be characterized as being a direct consequence of the performance of professional services by the insured. It amounted to an assertion that the plaintiff approached the insured because it wanted what was essentially business advice concerning the safety and security of the investment. Its claim for losses could not be said to be a direct consequence of any prior professional services the insured may have provided to the promoters of the investment in setting up the structure of the investment.

APPEAL from the order of Farley J. of the Superior Court of Justice, dated March 16, 2006, dismissing a claim for a declaration that the insurer had a duty to defend the insured.

Steve Stieber and Elizabeth Bowker, for appellant Cassels Brock & Blackwell. Warren H. Mueller, Q.C., for respondent LawPRO. [page319]

Endorsement by THE COURT

[1] Endorsement by THE COURT: -- The application judge dismissed the appellant's claim for a declaration that the respondent has a duty to defend the appellant in relation to an action commenced by Bruno Appliance and Furniture, Inc. The respondent's policy of insurance provides coverage with respect to:

all sums which the INSURED shall become legally obligated to pay as DAMAGES arising out of a CLAIM, provided the liability of the INSURED is the result of an error, omission or negligent act in the performance of or the failure to perform PROFESSIONAL SERVICES for others.

[2] Under the terms of the policy, Professional Services "means the practice of the Law of Canada . . . and specifically, those services performed, or which ought to have been performed, by or on behalf of an INSURED in such INSURED'S capacity as a lawyer and as a member of the Law Society of Upper Canada . . . and . . . include . . . those services for which the INSURED is responsible as a lawyer arising out of such INSURED'S activity as a trustee . . ."

[3] However, the policy also provides an exclusion with respect to "any CLAIM in any way arising out of an insured providing investment advice and/or services, including without limitation, investment advice and/or services relating to or arising out of a business, commercial or real property investment unless as a direct consequence of the performance of PROFESSIONAL SERVICES".

[4] In dismissing the appellant's claim the application judge noted that the Bruno statement of claim does not include any explicit allegation of a retainer for legal services. Further, although he recognized that the mere possibility that a claim within the policy may succeed is sufficient to impose a duty to defend, in terms of any advice Bruno received from the appellant, the application judge concluded that the only reasonable interpretation of Bruno's claim is that Bruno "wanted to determine the soundness and safety (in the sense of return of capital and income thereon) of this investment scheme". Finally, the application judge concluded that it would not be a reasonable interpretation of the statement of claim to find that the appellant was providing any legal services to Bruno in connection with holding the funds to be invested in its trust account.

[5] It is implicit in the application judge's reasons that he concluded that the allegations relied on by Bruno in its statement of claim fall within the exclusion in the policy relating to providing investment advice and/or services.

[6] The appellant's primary argument on appeal is that the application judge erred in failing to recognize that on a plain reading of the exclusion clause the exception contained within it is not restricted to circumstances in which investment advice or [page320] services were provided by the insured as a direct consequence of the performance of legal services for the plaintiff in the underlying action. In particular, the appellant contends that Bruno's claim against it is founded, at least in part, on the fact that the appellant provided legal advice and services to the parties with whom Bruno invested by preparing joint venture documents and by using its trust account as a vehicle for receipt and distribution of the funds to be invested. The appellant accordingly submits that the portions of Bruno's claim alleging that the appellant failed to properly monitor its trust account and to follow Bruno's instructions concerning the release of funds from its trust account fall squarely within the exception to the exclusion.

[7] We disagree. While use of a trust account can constitute professional services, based on the claim as pleaded, we see no basis for concluding that the use of the trust account in this case was anything other than an investment service. As noted, the trust account was merely a vehicle for receipt and distribution of the funds to be invested. In our view, the fact that a law firm's trust account is used as an investment vehicle does not of itself amount to the performance of Professional Services; nor does it make misuse of the investment vehicle a "direct consequence of the performance of Professional Services". Accordingly, based on the claim as pleaded, use of the trust account fell within the investment services exclusion in the policy.

[8] Further, even if the exception to the exclusion clause can extend to professional services performed for someone other than the plaintiff in the underlying action, on the facts of this case, Bruno's claim cannot be characterized as being a direct consequence of the performance of professional services by the appellant. As noted by the application judge, at its core, Bruno's claim amounts to an assertion that it approached the appellant because it wanted what was essentially business advice concerning the safety and security of the investment. Having satisfied itself on that score, it proceeded with the investment. In these circumstances, its claim for losses cannot be said to be a "direct consequence" of any prior professional services the appellant may have provided to the promoters of the investment in setting up the structure of the investment.

[9] The appeal is therefore dismissed.

[10] Costs on a partial indemnity scale fixed at $12,500 inclusive of GST and applicable disbursements.

Appeal dismissed.