SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: 12-CV-454500

Heard: August 23, 2013 and May 15, 2014

RE: JBI et al. v. ACE Ina Insurance et al.

BEFORE: Master Joan Haberman

COUNSEL: Forrest, B. for the moving party, plaintiff

Mason, J. for JBI

Sanche, A. for ACE

REASONS

Master Haberman:

[1] This motion raises the following question: In what circumstances can an insurance broker crossclaim against an insurer?

BACKGROUND

[2] The issue arises in the context of an action by an insured and two of its officers (“JBI”) against their broker (“the broker”) and insurer (“ACE”), in which they claim a sum of $3 million.

[3] The relationship between the principals of JBI and the broker dates back to 2008. Over the course of the years that followed, JBI grew the business, such that their insurance needs expanded. It is alleged that the broker was kept current as changes were made in order to address them with proper coverage, and that he ultimately became a shareholder, himself, in JBI. It is further alleged that JBI did not give detailed or explicit instructions to the broker, as they relied on his skill and expertise to ensure that appropriate coverage was put in place to meet the needs of the company as it evolved.

[4] In February 2010, the broker arranged for ACE to issue a directors & officers liability policy to JBI, effective February 10, 2010, for a one-year period, providing coverage of up to $3 million. JBI alleges they were not told at that time that there were terms in that policy that restricted or limited this coverage.

[5] On May 27, 2010, the United States Securities and Exchange Commission (“SEC”) issued a subpoena, requiring JBI to produce restatements of their audited financial statements for two previous tax years. JBI forwarded a claim to ACE to cover this cost, and ACE denied coverage, on the basis that this expense did not constitute “a Claim” and was also related to a “Wrongful Act,” both defined terms under the policy. Discussions ensued between JBI and ACE through 2010 and 2011, with ACE ultimately agreeing, in May 2011, to recognize and cover a portion of JBI’s defence costs. In the interim, the policy was renewed in February 2011 for a further year.

[6] On July 4, 2011, during year two of the policy and after this settlement, SEC issued Wells Notices to JBI and its principals, advising all three plaintiffs that SEC enforcement staff had recommended instituting enforcement proceedings against each of them. On January 4, 2012, enforcement proceedings were, in fact, issued.

[7] In the interim, a class action was commenced against JBI on July 28, 2011 by all JBI shareholders. They claimed they suffered losses as share prices dropped due to the restatements and the issuance of the Wells Notices. They claim, further, that both SEC-initiated events were triggered by false and/or misleading statements initially made by JBI and by their failure to disclose material facts about the business, its operations and its prospects.

[8] On November 2, 2011, ACE denied coverage with respect to the SEC proceedings as well as the class action, on the basis of an exclusion clause in the policy. JBI now sues on the policy, alleging that ACE repudiated the 2011 settlement by denying such coverage. In the alternative, JBI claims that if they do not have the appropriate coverage, that lies at the feet of the broker, who was obligated to ensure that they did.

[9] The claim against the broker sounds in negligence, and runs the gamut from having recommended the policy to having failed to explain the “gaps” it in. JBI also accuses the broker, among other things, of having failed to be informed of the plaintiffs’ needs and requirements and to understand the nature of the plaintiffs’ business.

[10] ACE defended the action by relying on the terms of its policy. They claim that JBI’s losses arise from Wrongful Acts, as defined by the policy and excluded from it. They also assert that they have not repudiated the settlement but stand by it, subject to JBI fulfilling a condition precedent set out therein. Their pleading was delivered in August 2012.

[11] The broker defended in October 2012 by setting out the history of their dealings with JBI, including what they assert were their efforts to get JBI’s attention regarding whether their D & O coverage was adequate. They also include a list of questions they put to JBI in January 2010, just before the ACE policy was put in place.

[12] The broker asserts that the plaintiffs were well aware of their coverage position going in. They also state that no policy would have been available to JBI that did not contain the exclusion clause that ACE now relies on, in view of their history with the SEC.

[13] They submit further that the plaintiffs were the authors of their own misfortune, and particulars of that are provided at length.

[14] The broker’s statement of defence in this action contains no express assertion of wrongdoing against ACE, either as their primary or an alternative defence. The only reference to ACE being obliged to provide coverage is certainly not a forceful one, found at paragraph 29 of the defence, as it currently stands, which reads as follows:

The defendants pleading state that the Plaintiff’s’ claim to the extent that coverage is afforded pursuant to the ACE Policy, including any coverage afforded to the plaintiffs as a result of any ambiguities that my (sic) exist in the ACE policy documents (including but not limited to the policy wording, the endorsement, and the declaration pages), is as against the Co-Defendant, ACE, and not against the Defendants pleading, pursuant to the ACE policy.

[15] There is, in fact, no assertion that the policy documents are ambiguous or that coverage is being wrongfully withheld. This is simply a statement to the effect that any claim for coverage must go against ACE, not the broker. The question to be resolved is whether this is a sufficient and sound basis on which to advance a crossclaim.

THE MOTION and the POSITION of the PARTIES

THE FIRST HEARING

[16] The brokers now seek leave to amend their statement of defence to add a crossclaim against ACE. No changes to the defence portion of the pleading are proposed. There is no explanation in their materials explaining why the amendment is sought now, though they defended after ACE so were aware of ACE’s position at the time they pleaded.

[17] In the draft crossclaim, the broker seeks a declaration that ACE is liable to defend and indemnify JBI for both the class action and the SEC proceedings. Costs of defending this action and maintaining the crossclaim are also sought. JBI stressed the fact that nowhere in the proposed pleading does the broker say why ACE is liable as alleged.

[18] The broker’s proposed draft pleading was provided to JBI in March 2013. Two months later, the broker was advised by JBI that they had entered into a Mary Carter Agreement (“the Agreement”) with ACE and a redacted copy of same was provided to the broker. Therefore, it was not the Agreement that triggered this motion, as it had been proposed earlier.

[19] The broker makes 3 general submissions:

1. They state that the amendment should be permitted as the Agreement anticipated the possibility of this crossclaim, in this very form, by providing for it in several respects:

a. Item 1(e) defines crossclaim as: the Broker Defendants’ (i) crossclaim faxed to counsel for ACE and counsel for the Plaintiffs on or about March 12, 2013 and identified as Schedule “A” to the “Consent” form provided in said letter, and/or (ii) any crossclaim, together with any amendments thereto, actually filed in the Action.

b. Item 4 speaks of ACE using the holdback to pay reasonable legal fees, costs, and other disbursement in connection with the defense and /or continuation of the action and the Crossclaim;

c. Item 6 requires JBI to hold ACE harmless and to indemnify them from any Judgment in the action, including costs. However, indemnity will not apply to costs or expenses incurred by ACE in defending the action and/or the crossclaim. Presumably, that is why ACE has supported JBI in is opposition to this motion;

2. They rely on Rule 26.01 which requires the Court to grant amendments sought on terms that are just unless prejudice that cannot be compensated for by costs would result;

3. They rely on Rule 28.01(1)(b), which provides that a party may pursue by crossclaim “other relief”, in this case, costs and a declaration. They then discuss the availability of a declaration as a form of “other relief” they can seek.

[20] In terms of seeking this declaration, the broker states that the Court must be satisfied that real issues are raised, and if a substantial question exists which one party has a real interest in raising and another in opposing, the Court has discretion to order a declaration. They rely on Solosky v. R, 1979 9 (SCC), [1980] 1 SCR 821 for this proposition.

[21] In Solosky the Supreme Court had to assess whether a declaration should issue to ensure that letters written by counsel to clients in penitentiaries should be classified as privileged, and therefore, not opened before being forwarded to inmates.

[22] It was in that context that the Court described the availability of declaratory relief as follows:

Declaratory relief is a remedy neither constrained by form nor bound by substantive content, which avails persons sharing a legal relationship in respect of a “real issue” concerning the relative interests of each has been raised and falls to be determined.

[23] While the facts here are not helpful, the discussion is, as it raises the question of whether ACE and the broker share a legal relationship in respect of a real issue.

[24] The broker states that as the claim against them has been framed as alternative relief (see paragraph 43 of the statement of claim), apart from other defences raised, a declaration to the effect that there is coverage against ACE would provide them with a full defence to the action. They claim that the issue of coverage is the “real issue” raised and the fact that they and ACE are co-defendants in this action puts them in a “shared legal relationship.”

[25] In response, JBI claims that as they have settled issues with ACE, there is no longer any lis between them. They claim:

• The crossclaim is therefore not tenable at law;

• That in view of the terms of the settlement reached with ACE, they will be irremediably prejudiced if the crossclaim is permitted; and

• The proposed crossclaim does not meet the requirements of Rule 28.02(1).

[26] The fact that any amendment proposed must be legally tenable is trite law. The Court approaches the exercise by assuming all facts as pleaded are capable of being proven and then assesses whether the facts as pleaded disclose a cause of action, such that amendments should only be refused where the claim asserted is clearly incapable of success (see Atlantic Steel Industries Inc. v. CIGNA Insurance Co. of Canada (1997), 1997 12125 (ON SC), 33 OR (3d) 12).

[27] In this regard, JBI claims that the proposed crossclaim contains no tenable cause of action, in that the broker seeks only a declaration that Ace is liable to defend and indemnify the plaintiffs, pursuant to the terms of the policy. As there are no allegations or facts pleaded that would support a cause of action as between the broker and ACE, there is no lis between them that could give rise to a crossclaim, whether for declaratory relief or otherwise.

[28] This raises the question of whether there must be a cause of action as between two co-defendants in order for one to crossclaim against the other.

[29] JBI relies on Sadie Moranis Realty Corp. v. Ontario (registrar, Real Estate & Business Brokers), 2010 CarswellOnt 6966. This case has no application to the facts at hand as it does not involve a crossclaim, and the issue before the Court had become moot before the hearing date. On that basis, the Court found there was no lis between the parties any longer. There was no discussion in that case as to what lis means so all that I take from it is that once the only matter in issue at a hearing has been resolved, no lis remains.

[30] JBI took this a step further, arguing that once JBI and ACE had settled their dispute, there was no longer any lis between the two of them, such that the broker should not now be permitted to raise the now defunct cause of action regarding whether there is, indeed, coverage under the ACE policy for this loss.

[31] They also claim that the broker’s legal position and rights in the action are in no way affected by the presence or absence of this crossclaim, as the broker remains free to raise issues regarding the policy at trial in any event. ACE need not be named as a defendant in a crossclaim to be found liable on the policy.

[32] In terms of irremediable prejudice, JBI says if the crossclaim proceeds, it will force ACE to defend itself, thereby dissipating the holdback to which JBI would otherwise be entitled under the Agreement. This position, however conflicts with what JBI asserts in the preceding paragraph and in paragraph 32, where they claim that the broker can raise the validity and applicability of the policy, in any event, in the absence of a crossclaim,

[33] JBI then notes that, while declaratory relief may constitute “other relief” as referred to in Rule 28.01(1) (b), the remaining requirement of that subrule must still be met for it to apply. As the crossclaim does not allege facts on which to ground an independent cause of action between the broker and ACE, that subrule cannot apply.

[34] ACE also filed a factum and made brief oral submissions at the first hearing, which effectively added nothing to JBI’s submissions.

[35] These are the issues that were raised in the parties’ initial factums and at the first hearing.

[36] When I began to write my decision, it was apparent to me that the parties were taking very different positions regarding whether or not there was a lis between JBI and the broker. JBI raised the issue, declaring that no lis existed, while the broker claimed that was not the case. Neither side, however, supported its position, either factually or legally – each simply made an assertion.

[37] Accordingly, on August 23, 2013, I wrote an endorsement, requiring the parties to submit further materials with respect to the issue of lis, noting that if the written submissions did not suffice, there would be a further oral hearing to allow each side to expand on its position in this regard. The last of the materials was to have been and was filed by October 13, 2013.

THE SECOND HEARING

[38] Having reviewed the package of new materials on October 16, 2013, I concluded that a further oral argument was required and I instructed the parties to proceed to schedule time before me on a motions list. My concern at that time was that the two sides were coming at this problem from very different angles and neither appeared to be addressing what the other had raised. The responding parties had also strayed beyond what I had asked them to address, so in my view, an oral hearing was the only fair way to ensure that both sides were fully heard. The second hearing took place on May 15, 2014.

[39] Neither side was able to locate a case dealing with a crossclaim so what they presented was said to apply by analogy. The broker explained that lis is generally defined as a piece of litigation, as per Black’s Law Dictionary, 9th edition. Cases where a lis was or was not found not exist were then reviewed.

[40] In the Sadie Moranis case, supra, the Court of Appeal considered whether there was a lis between a real estate brokerage and the Registrar of Real Estate and Business Brokers with respect to a question of interpretation of the Registrar’s governing legislation. The issue had arisen in the context of the termination of a Sadie Moranis broker. That issue, however, was resolved before the hearing, such that it was no longer a live issue. On that basis the Court found there was no longer a lis between the parties, in that case meaning any live issue between the parties to be resolved.

[41] No lis was found to exist for very different reasons in Schofield v. Minister of Consumer and Commercial Relations (1980), 1980 1726 (ON CA), 28 OR (2nd) 764, where a lawyer was trying to intervene in litigation where he acted for neither party. He sought standing in the case because he acted for others in two separate suits involving similar issues, such that they would be affected by the Court’s decision in this particular case.

[42] Not surprisingly, Wilson, J. held that there was no lis as the applicant had to have an interest in the actual lis between those parties to become part of the action. The fact that the decision might be applied in the cases this lawyer was handling was not an adequate basis to justify granting him standing and obviously could have set an unfortunate precedent had it been permitted.

[43] In K & L Multi Trades Inc. v. Bank of Nova Scotia, 2012 Carswell Ont 2556, the Court of Appeal had to decide if a shareholder of a company that was a bank customer had a sufficient lis to sue the bank. Though he was a guarantor of various company obligations, the shareholder’s status in that regard was with respect to third parties, not the bank, so no lis was found to exist.

[44] In these cases, the Court treated the existence or non-existence of lis as a basis for whether or not a litigant had standing to do what he was trying to do. What the Court is effectively saying is that if he is a stranger to the case, he cannot add himself to it, simply because it might have an indirect impact on him down the road.

[45] The last, and perhaps most factually relevant of the cases relied on by the broker is Nuvo Electronics Inc. v. London Assurance (2000), 2000 50973 (ON SC), 23 CCLI (3rd) 231, in which MacFarland J. had to deal with costs following a trial. The plaintiff in that case sued for damages as a result of lost cargo. They sued both their insurer and their broker amongst others, succeeding against the insurer but not the broker at trial.

[46] The broker, Buckley, sought their costs and the Court had to analyze whether they should get them and, if so, from whom. Ultimately it was the insurer that was ordered to pay the broker’s costs:

It seems to me that Buckley was joined simply because of the position taken by London (the insurer) in respect of the policy. Had London accepted its obligation under the policy, Buckley would not have been joined. There was no lis between Buckley and Air Canada. There is no evidence that London is unable to pay the costs of Buckley. In the circumstances, it seems to me that Buckley is entitled to its party and party costs of the action directly from London. Similarly, Emery (the freight company) was involved in the litigation throughout by the position taken by Air Canada. In my view, Emery should have its costs directly from Air Canada. In my view, Emery should have its costs directly from Air Canada rather than by way of the Plaintiff.

[47] JBI’s response was to focus, again, on whether there is a cause of action between the broker and ACE as a basis for establishing whether or not there is a lis between them. Absent a valid cause of action, they maintain, there can be no lis In JBI’s submission, the broker failed to allege facts that are capable of supporting a cause of action and having failed to do so, they have not raised an issue that requires a crossclaim against ACE. They say the only issue raised by the crossclaim is one to be resolved as between JBI and ACE at trial. As the Agreement requires ACE to have its representative present at trial, he will be available for them to cross-examine.

[48] JBI also take issue with the nature of the relief claimed by the broker. They assert that the remedy sought, a declaration regarding coverage, is part of the broker’s defence against JBI.

[49] Finally, JBI submits that the law of Ontario does not condone a crossclaim for only costs or discovery purposes.

[50] As submissions regarding the lis issue only had been sought, JBI clearly strayed beyond the boundaries of my request.

[51] They, too, rely on case law to support their approach. In Innisful (Township) v. Vespra (Township) 1978 CarswellOnt 502, the Court of Appeal provided what I believe is the most appropriate way to view the concept of lis:

Lis, of course, implies the conception of an issue joined between two parties. The decision of a lis, in the ordinary use of language, is the decision of that issue.

[52] JBI relies, as well, on re MacKechnie Estate, 2986 CarswellMan 65, a decision of the Manitoba Court of Appeal which, in my view, does not add to the discussion, There, six shareholders asserted entitlement to a corporation’s remaining assets on winding up against another shareholder. Three of the plaintiffs were represented by the estate trustees of the corporation. The defendant sought to add the beneficiaries of the plaintiff estates as plaintiffs or as other parties to the action.

[53] Unlike ACE, the beneficiaries in MacKechnie were not already involved in the dispute. The Court held that they should not be forced to put their assets at risk by being added against their will as plaintiffs. Further, the Court found no basis to add them as defendants as there was no substantive cause of action asserted against them. The Court’s view was that if the issue for the moving defendant was one of cost, he should move for security for costs against the existing plaintiffs.

ANALYSIS and CONCLUSION

[54] Having reviewed the case law and submissions of both parties, I conclude as follows:

[55] The broker has a real interest in the outcome of the issue of coverage, as the existence of coverage amounts to a full defence for them. Whether or not there is coverage is a straightforward question of the interpretation of a contract. The broker’s defence is otherwise a complex and largely factually-based one, involving considerable evidence and issues of credibility as the history of the relationship between them and JBI will have to be explored.

[56] As a result, the broker’s interest in the outcome of the coverage issue is direct, immediate and critical to their position. Unlike Schofield, surpa and K & L Multi Trades, this broker has a real and direct interest in the outcome of this litigation as it could determine whether or not the broker is liable to JBI. Further, regardless of the whether or not the allegations against the broker can be proven at trial, if coverage is found, that will suffice to extricate them from a finding of liability.

[57] Unlike the facts of Sadie Moranis, supra, the issue is not moot simply because JBI and ACE have entered into an Agreement. JBI has repeatedly stated throughout its materials that the issue of coverage remains to be determined. The broker has also asserted in their defence that their liability only arises if there is a finding of no coverage. There is no admission of liability or resolution regarding coverage in the Agreement, only an agreement to pay.

[58] Therefore, unlike Sadie Moranis, supra, this is not a case where the only lis between the parties has been resolved. The issue of coverage affects the broker directly and the Agreement does not resolve it.

[59] Accordingly, there is, in my view, a sufficient connection between ACE and the broker for the Court to find that there is, indeed, a lis between them and that it remains to be resolved.

[60] JBI has taken the position that one party asserting a crossclaim against the other must have an independent cause of action. That is not a correct statement of the law, as there is no such requirement in order to seek indemnity and relief over. A crossclaim often amounts to nothing more than an assertion to the effect that “it’s not my fault, it’s his.”

[61] By way of example, it is not unusual, in the context of a slip and fall accident, for a plaintiff to sue several entities that may be legally responsible for the upkeep of the location of the fall. Each will often crossclaim against the others, not because they have an independent claim to assert, but simply to deflect responsibility from them onto the others.

[62] In such cases, the party who crossclaims asks only that the others be found wholly or partially at fault, so that he is completely or partially exonerated. The party asserting a crossclaim are not required to assert a separate list of wrongs but often relies solely on what the plaintiff has asserted.

[63] That is effectively what the broker has done in paragraph 29 of their pleading and that is all that is needed for one party to assert a crossclaim against another. The broker has as much interest in resolving this issue as JBI does, not only because of costs, as JBI asserts, but because it goes to the very heart of who is actually liable for this alleged loss. If ACE is found liable to provide coverage, that is all the defence that the broker need advance.

[64] JBI seems to be confusing the concept of a crossclaim with a counterclaim. In the latter case, a cause of action is required as a party seeks an independent form of relief for themselves. In a crossclaim, a party is generally seeking only to be exempted from liability, so the crossclaim is asserted as part of their defence.

[65] JBI claims, further, that the only issue they raised by the crossclaim is one to be resolved as between JBI and ACE at trial. This, too, is not correct. As stated, this issue has a direct impact on the broker, too, so it an issue to be resolved between ACE and the broker as well.

[66] I see no impediment to the broker seeking a declaration regarding coverage in their crossclaim, as obtaining that relief would resolve a real issue in the context of this litigation. As the Court states in Solosky, supra, declaratory relief is not constrained by form or bounded by substantive content. All that is required is that the party who seeks it shares a legal relationship in respect of a “real issue” with the party against whom it is sought.

[67] There can be no doubt that ACE and the broker share a legal relationship, in that they have both been named as defendants in the context of a claim for insurance coverage and the outcome of the coverage issue will affect them both, though in very different ways.

[68] The broker has as much interest in obtaining this declaration as JBI does, as they could be left “holding the litigation cost bag” at the end of the day in the absence of a finding that coverage exists.

[69] I am also not concerned about the lack of explanation as to why this relief is sought now. Having concluded that there needn’t be an independent cause of action to assert a claim for declaratory relief by way of crossclaim, and to assert it at this time, I return to Rule 26.01, which dictates that allowing an amendment is mandatory unless it causes prejudice that cannot be compensated for by way of costs. The only other restriction on that rule comes from case law, which requires that what has been pleaded is tenable at law – and I have already found that to be the case. There is no need to provide an explanation in the context of Rule 26.01 and the timing involved here.

[70] In terms of prejudice, I do not accept JBI’s position that to allow the amendment would cause them to suffer irremediable prejudice, as their argument here amounts to speaking out of both sides of their proverbial mouth at the same time. On the one hand, JBI states repeatedly that the issue of coverage will be before the Court at trial, as will an ACE representative, so the broker can explore it without the need for a crossclaim.

[71] On the other, however, they say if a crossclaim is permitted, it will force ACE to defend itself, dissipating the holdback to which JBI would otherwise be entitled under the Agreement. JBI also claims that, while these issues can be raised at trial as the pleadings currently stand, the broker needn’t involve ACE and ACE need not be bound. These two positions are not consistent, and are only compatible if the coverage issue remains but JBI does not assert it with any vigour at trial, such that ACE needn’t defend it.

[72] This approach is short sighted for two reasons: JBI, at least, was aware that this motion was going to be brought before they entered into the Agreement with ACE. While entering into this Agreement may have been a clever move strategically in some respects, it is unlikely a Court would allow it to deprive an innocent broker of its defence costs, if, at the end of the day, the broker is found to have done nothing wrong.

[73] Further, the broker’s current pleading raised the issue of coverage affording them a complete defence to the action, so the issue was still going to remain on the table in a very real sense at trial. Thus, despite the terms of the Agreement and who pays what to whom, the Court’s finding in this regard would still bind ACE, though their Agreement with JBI would limit their exposure.

[74] The MacKechnie case is completely distinguishable. It involved adding a new party as either a plaintiff or a defendant, not asserting a crossclaim against an existing party. Of course, in that context, there would have to be an independent cause of action. That has no application to these facts at all and simply muddied the waters.

[75] At the end of the day, my sense is that JBI, having learned of the possibility of a crossclaim, took the offer in the hand, which they hoped to better after trial on the basis of holdback. This would still leave the door to recovery against the broker open at trial, allowing them to hedge their bets in regards to both defendants while attaining a level of certainty with respect to ACE.

[76] I note that ACE has taken a back seat with respect to this motion, supporting JBI but adding little. They have made their deal and believe they have limited exposure from hereon in so why incur further costs dealing with this motion in a significant way?

[77] However, while the Agreement may provide ACE with a certain degree of closure vis a vis JBI, they have made no deal such with the broker. Though the Agreement requires JBI to indemnify ACE for costs, costs incurred by ACE for having to defend itself in the action and/or the crossclaim have been carved out as an exception to that provision, so ACE still has cost exposure associated with this trial.

[78] One can only surmise that it was tacitly understood that JBI would throw few resources at trying to prove coverage, so that ACE could limit its role at trial, thereby reducing its costs. This could leave a sizable retention for JBI to scoop afterwards. A crossclaim by the broker would scuttle these arrangements.

[79] Paragraph 29 of the broker’s current pleading, though not as eloquently drafted as it could have been, makes the point and opens a path to this amendment. In view of the amendment, a motion for summary judgment on the interpretation of the policy would now be more clearly available to the broker, if their research takes them in that direction. If successful, that would avoid the need for a full blown trial exploring their history with JBI and all that followed. On the basis of all of the above, it is clear why JBI felt compelled to resist this amendment,

[80] One of the issues I raised with counsel is why the broker feels the need to assert a crossclaim, in view of JBI’s position that the coverage issue will have to be dealt with by the Court in any event. The broker was candid in pointing out that there was nothing to stop JBI from discontinuing the action against the ACE, thereby depriving the broker of its ability to seek costs from ACE, on the same basis as in the Nuvo, supra case.

[81] While this would not necessarily be a wise move by JBI, as it could leave them exposed to the broker’s costs if the latter prevails, JBI indicated they were not in a position to give an undertaking to refrain from taking this step without instructions when I asked about it.

[82] While I have no evidence as to JBI’s financial position at this time, the evidence indicates that they have had to refile financial statements with SEC and that they faced a class action from their shareholders as a result of reduction in their share prices caused, among other things, by their dealings with SEC.

[83] As a result, the broker may, perhaps, feels safer in this context of the facts of this case, seeking their costs from ACE, the party who kept them in the law suit, rather than from JBI.

[84] In view of all of the above, I find that there is no impediment to the broker asserting a crossclaim, in the form of a declaration of coverage at this stage of the litigation, as they have laid an adequate foundation for doing so in paragraph 29 of their current pleading. I find that what they assert is tenable at law and will not cause prejudice that cannot be compensated for by way of costs. JBI put itself in this situation, cognizant of the fact that the broker was seeking to take this step. They were or ought to have been aware of the risks involved.

[85] Leave to amend the statement of defence as proposed is therefore granted.

[86] If the parties are unable to agree as to costs, I can be spoken to within 30 days.

Master Joan M. Haberman

Released: May 30, 2014