Rajesh Kumar Datt

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.

A contractor brought a motion for summary judgment seeking dismissal of a tenant’s subrogated claim for water damage caused by vandalism in a shopping mall.

The tenant argued the contractor negligently failed to secure a construction area that allowed a trespasser to access a fire hose, causing flooding.

The contractor relied on a lease clause containing a mutual release and waiver of subrogation between landlord and tenant extending to parties “for whom the landlord is responsible in law.” Applying the principles from Fraser River and London Drugs, the court held the parties intended the waiver to extend to contractors performing renovation work for the landlord.

The court concluded the contractor fell within the protected class and that the claim was barred, making a trial unnecessary.