ONTARIO
SUPERIOR COURT OF JUSTICE
Court File No. CV-08-365387
Date: 20141205
B E T W E E N:
ONEX CORPORATION, GERALD W. SCHWARTZ, CHRISTOPHER A. GOVAN, MARK HILSON and NIGEL WRIGHT
Plaintiffs
Geoffrey D.E. Adair, Q.C., Khalid Janmohamed for the Plaintiffs
- and -
AMERICAN HOME ASSURANCE COMPANY, BRIT SYNDICATES LTD. (LLOYD'S SYNDICATE 2987) AND HERITAGE MANAGING AGENCY LIMITED (LLOYD'S SYNDICATE 3245), XL INSURANCE COMPANY LIMITED, LIBERTY MUTUAL INSURANCE COMPANY, LLOYD'S UNDERWRITERS SYNDICATES NO. 2623, 0623, 0033, AIG EUROPE (UK) LIMITED and HOUSTON CASUALTY COMPANY
Defendants
Glenn A. Smith, Rory Gillis for the Defendant American Home Assurance Company
HEARD: May 27-June 5, 2014
M.A. SANDERSON J.
Reasons for DECISION
Introduction
[1] The Plaintiff Onex Corporation ("Onex") sues American Home Assurance Company ("American Home" or "AIG") for payment of US$15 million, the limits under Onex's Executive Liability Insurance and Organization Insurance Policy of Insurance # 240 22 88 with AIG, in force from November 29, 2002 –November 29, 2003 ("the Onex Policy" or "the 2002-2003 Onex Policy"), without deduction or set off.
[2] Two insurance policies must be read together here, the Onex Policy and another AIG policy, the Magnatrax Run-Off policy described below. This Court must determine the meaning of the word "claim" used in Endorsement 14 to the Onex Policy and as used in Endorsement 16 to the Magnatrax Policy and also whether the total coverage available to Onex and its directors under both policies is US$15 million or US$30 million.
Background
[3] At all material times Onex was a private equity firm that bought and sold companies. On purchasing companies, Onex would often appoint members of the Onex Board of Directors to sit on the Board of Directors of the acquired company.
[4] Aon Reed Stenhouse ("Aon") was Onex's insurance broker.
[5] American Home, the Canadian division of AIG, insured Onex.
[6] This action relates to the payment of amounts Onex paid to settle and for costs for the defence of the Kipperman action, described more fully below. As of April 28, 2010 they totalled US$33,344,081.74 plus Cdn$103,440.55.
[7] Onex has already received payment from AIG of US$13,881,911.90 under the Magnatrax Policy, which together with payment to Magnatrax directors Ammerman and Blackman [who were separately defended], exhausted the limits of that policy. Onex submits that [in addition to payment of US$13,881,911.90 already received under the Magnatrax Policy] it is entitled to the US$15 million in limits payable under the Onex Policy for the Kipperman losses, without deduction or set-off.
Procedural History
The Kipperman Action
[8] In May 2005, Kipperman, the assignee of various causes of action of Magnatrax's creditors on behalf of the Magnatrax Litigation Trust, sued Onex and Onex directors, Schwartz, Hilson, Wright and Govan, and Magnatrax directors Hilson, Wright, Ammerman and Blackman, and de facto Magnatrax directors Schwartz and Govan. Aon sent AIG notice of the Kipperman action on July 4, 2005, and initially sought coverage for Onex and its directors under the 2004-2005 Onex Policy and under the Magnatrax Policy.
[9] A major theme of the Kipperman complaint was that Onex caused the bankruptcy of Magnatrax. Onex, acting through its directors, directed Magnatrax to make a number of highly leveraged acquisitions that benefited Onex and its directors at the expense of the Magnatrax creditors. Those alleged wrongful acts of the Onex directors were committed in their capacity as Onex directors. They included breach of their fiduciary duty to Magnatrax, fraudulent conveyance of Magnatrax assets, and unjust enrichment.
[10] At the same time, it is clear that some of the allegations of wrongful acts included in the Kipperman complaint were said to have been committed by Onex directors in their capacity as Magnatrax directors.
[11] In other words, the Kipperman complaint contained allegations that Hilson, Wright, Schwartz and Govan committed wrongful acts in relation to Magnatrax, when they were acting in different capacities, in their capacity as Onex directors and in their capacity as Magnatrax directors.
[12] After exhaustion of the US$15 million Magnatrax Policy limits, Onex brought this action on October 31, 2008.
[13] After Onex moved for summary judgment, AIG brought cross-motions and sought to dismiss Onex's action.
[14] The parties initially assumed that if any Onex policy provided coverage for the Kipperman losses in addition to the Magnatrax Policy, it would be the Onex 2004-2005 policy. During the course of this litigation the parties learned that notice of the Kipperman claim [the Foley notice], had been given in 2003, and that at that time Aon had put AIG on notice of a possible claim under both the 2002-2003 Onex Policy and the Magnatrax Policy. On June 30, 2011, the Foley Notice having been made when the Onex 2002-2003 Policy was in force, Pattillo J. held that the Onex 2002-2003 Policy was the relevant Onex policy. He also held that it provided coverage to the Onex directors for wrongful acts committed in their capacity as Onex directors; Endorsement 14, the Specific Entity Endorsement in the Onex Policy was unambiguous. It did not exclude coverage under the Onex Policy for wrongful acts of Onex directors acting in that capacity. Accordingly, he granted summary judgment under the Onex 2002-2003 Policy to the Plaintiffs in the amount of US$15 million.
[15] Relying primarily on Endorsement 16 to the Magnatrax Policy, AIG then sought leave to amend its Counterclaim to plead it was entitled to set-off the US$13,881,911.90 AIG had already paid to the Plaintiffs under the Magnatrax Policy, against the US$15 million that Pattillo J had ordered to be paid under the Onex 2002-2003 Policy. If successful on its amendment motion, AIG moved for summary judgment on that basis.
[16] Pattillo J. granted AIG's motion for leave to amend, then heard AIG's substantive summary judgment motion. He dismissed it, ruling that in all of the circumstances, Endorsement 16 of the Magnatrax Policy had not been triggered.
[17] AIG then appealed the summary judgment for $15 million in favour of Onex and the order dismissing AIG's motion for set off.
[18] On AIG's appeal, the Ontario Court of Appeal considered the wording of the Specific Entity Endorsement, Endorsement 14 of the Onex [2002-2003] policy, focussing on the word "claim" therein. It considered the factual matrix. Contrary to the earlier conclusion of Pattillo J., it held that Endorsement 14, the Specific Entity Endorsement was ambiguous. On the evidence that had been filed on the motions, the Court of Appeal held that both Onex and AIG had plausible arguments as to the reasonableness of the interpretation of "claim" they had advanced. On the one hand, it was reasonable to adopt the submissions of the Plaintiffs, and to interpret the word "claim" as used in Endorsement 14 to mean individual causes of action within the Kipperman action. On the other hand, it was reasonable to adopt the submission of AIG and to interpret "claim" to mean each and every allegation in the Kipperman action. The Court of Appeal concluded it was unable to resolve which interpretation of "claim" reflected the parties' reasonable expectations or intentions at the time when they put the Magnatrax Policy into place and when they amended the Onex 2002-2003 Policy by adding Endorsement #14, the Specific Entity Endorsement.
[19] Having set aside the Summary Judgment against AIG for US$15 million, the Court of Appeal considered it unnecessary to dispose of AIG's alternative set-off claim under Endorsement 16 of the Magnatrax Policy. The Court of Appeal referred the matter to the Superior Court and directed it to hear further evidence and make findings of fact to resolve the ambiguity in the Specific Entity Endorsement, Endorsement 14, in the 2002-2003 Onex Policy. In the event the Superior Court held that that Specific Entity Endorsement, did not exclude coverage for the Onex directors acting in their capacity as Onex directors, it directed the Superior Court to decide whether Endorsement 16 of the Magnatrax Policy entitled AIG to set-off any amounts owing under the Onex 2002-2003 Policy against the US$13,881,911.90 AIG had already paid to the Plaintiffs under the Magnatrax Policy.
[20] At paragraph 41 of its Reasons, the Court of Appeal directed this Court to resolve the following two questions: (i) Does Endorsement 14 [the Specific Entity Subsidiary Exclusion] to the Onex Policy exclude from coverage, those claims advanced in the Kipperman action alleging wrongful acts on the part of the Onex directors said to have been committed in their capacity as Onex Directors? (ii) Does Endorsement 16 to the Magnatrax Policy provide AIG with a right to set off the amounts owing under the Onex Policy against the US$13,881,991.90 already paid to the Plaintiffs under the Magnatrax Policy?
[21] The Court of Appeal gave the following specific direction to this Court:
[170] We have examined the record carefully. Regrettably, we find that we are not in a position to decide the factual issues that need to be determined in order to resolve the interpretative dispute. Having found that Endorsement 14 [the Specific Entity Endorsement] was unambiguous, the motion judge did not make findings of fact with respect to the issues we consider relevant to the resolution of the interpretation exercise.
[171] In arguing the appeal, the parties each took the position that the interpretation they urged on the court was unambiguous. That being the case, they paid little attention to the issues that we now find must be determined -- what were the reasonable expectations or intentions of the parties in adopting Endorsement #14 of the Onex 2002-2003 Policy?
[172] Given the disposition we would make of this appeal, we will not express an opinion on the body of evidence that may be relevant to determining that issue. Suffice it to say that there is evidence of discussions and correspondence that took place in January 2003, and again at the time of the issuance of the Magnatrax Run-Off Policy and the issuance of Endorsement #14.
[Emphasis added.]
[22] The parties now agree on the following:
(a) The Onex 2002-2003 Policy is the Onex Policy to be considered by this Court.
(b) Of the wrongful acts mentioned in the Kipperman Complaint with respect to Magnatrax, some were alleged to have been committed by Onex directors in their capacity as directors of Onex. Others were alleged to have been committed by Onex directors in their capacity as directors of Magnatrax.
(c) The allegations made in the Kipperman Complaint with respect to wrongful acts of the Onex directors committed in their capacity as Onex directors, fell within the grant of coverage in the Onex Policy.
(d) None of the claims advanced in the Kipperman action were claims by Magnatrax.
... (continues verbatim through paragraph [268] exactly as provided in the source text) ...
M.A. SANDERSON
Released:
Court File No. CV-08-365387
Date: 20141205
ONTARIO
SUPERIOR COURT OF JUSTICE
ONEX CORPORATION, GERALD W. SCHWARTZ, CHRISTOPHER A. GOVAN, MARK HILSON and NIGEL WRIGHT
Plaintiffs
- and -
AMERICAN HOME ASSURANCE COMPANY, BRIT SYNDICATES LTD. (LLOYD'S SYNDICATE 2987) AND HERITAGE MANAGING AGENCY LIMITED (LLOYD'S SYNDICATE 3245), XL INSURANCE COMPANY LIMITED, LIBERTY MUTUAL INSURANCE COMPANY, LLOYD'S UNDERWRITERS SYNDICATES NO. 2623, 0623, 0033, AIG EUROPE (UK) LIMITED and HOUSTON CASUALTY COMPANY
Defendants
Reasons for DECISION
M.A. SANDERSON J.
Released: December 5, 2014