IT Haven v. Certain Underwriters at Lloyd's, London

Ontario Reports Ontario Superior Court of Justice Edwards J. December 15, 2020 153 O.R. (3d) 441 | 2020 ONSC 7835

Counsel: Rebecca Huang and Zina Rita, for applicants. Jamie Spotswood, for respondent.

The judgement of the court was delivered by

EDWARDS J. : —

Overview

[1] The applicants IT Haven Inc. ("IT") and Ryan Hunt ("Hunt"), seek a declaration that the respondent Certain Underwriters at Lloyd's, London ("Lloyd's"), has a duty to defend IT and Hunt under an errors and omissions policy (the "policy") issued covering the time period September 2, 2018 to September 2, 2019.

The Facts

[2] Hunt is an information technology specialist who incorporated IT as an IT services company, part of which services included software development. Hunt is IT's sole director and has been employed since its inception on September 1, 2016.

[3] On September 2, 2016, Hunt applied for E & O insurance on behalf of IT.

[4] Lloyd's issued an E & O policy to IT for the policy period of September 2, 2016 to September 2, 2017, which policy was automatically renewed in September 2017 and September 2018.

[5] On June 14, 2019, Niantic Inc. ("Niantic") commenced legal proceedings in the U.S. District Court (North District of California) against Hunt. In this action Niantic, amongst other things, sought preliminary injunctive relief. On January 24, 2020, Niantic filed an amended claim in which IT was named as an additional defendant. Niantic alleges in the U.S. proceedings that IT is a mere instrumentality for Hunt's business over which he exercises sole ownership and control.

[6] Niantic further claims in the U.S. proceedings that Hunt is a leader of an association of hackers named Global ++ ("Global"), which sold subscriptions for an unauthorized derivative version of Niantic's Pokeman GO, Ingress and Harry Potter Wizards Unite mobile device electronic games. It is alleged that the Global library allows users to cheat at Niantic's games by allowing users to spoof their mobile device locations with false GPS coordinates.

[7] In this application, Hunt and IT seek a declaration that Lloyd's is required to provide a defence to the U.S. proceedings up to the policy limits of $1 million.

The Policy Wording at Issue

[8] In order for the reader to fully understand the issues raised in this application, relevant extracts from the policy are produced below. The policy, amongst other things, contains an obligation on the part of the insurer (Lloyd's), to defend the insured Hunt and IT in civil lawsuits where a claim is made for compensatory damages for a "wrongful act" committed anywhere in the world so long as the claim is brought under either Canadian or U.S. law.

[9] The policy contains the following insuring agreements:

1. INSURING AGREEMENTS 1.1 Insuring Clause Whereas the company, partnership or firm as stated in Item 1 of the Schedule (the "Named Insured") has made to Underwriters a Proposal, which is hereby agreed to be the basis of this Policy, which shall be deemed to be incorporated herein.

   We, the Underwriters, in consideration of the payment of the Premium stated in the Schedule, agree, subject to all the terms and conditions of this Policy, to pay on behalf of the Insured all sums which the Insured shall become legally liable to pay as Damages and Claimants' costs, fees and expenses as a result of any Claim first made against the Insured and notified to Underwriters during the Period of Insurance stated in Item 3 of the Schedule or during the Extended Reporting Period arising out of any Wrongful Act by the Insured or any negligent act, negligent error or negligent omission by others for whom the Insured is legally liable, in or about the conduct of the Named Insured's professional business as stated in the Proposal. However, coverage is not afforded to services or operations that are not specifically listed in the definition of Insured's Professional Business as contained in this Policy.

   1.2. Defence Costs With respect to the coverage afforded by this Policy, the Underwriters shall appoint legal counsel or other experts to take up the defence of the Insured and pay those Defence Costs. Defence Costs are included in the Limit of Liability for each Claim.

   1.4 Territory: This Policy applies to any Wrongful Act, or negligent act, negligent error, or negligent omission which was committed or was alleged to have been committed anywhere in the world.

   1.5 Jurisdiction: This Policy only applies to any Claims brought against the Insured under the laws of Canada, the United States, and any other jurisdiction as stated on the Schedule.

[10] As with any insuring agreement, there are defined terms. The relevant defined terms from the policy are reproduced below:

2.1 "Claim(s)" shall mean any demand received by the Insured for Damages including a civil action or suit or institution of arbitration proceedings. A Claim does not include criminal or regulatory proceedings or a request or demand seeking non-pecuniary relief including declaratory or injunctive relief or any other provisional remedy . . .

2.2 "Damages" shall mean any compensatory sum which the Insured is legally obligated to pay for any Claim to which this insurance applies and shall include judgments and settlements, negotiated with the Underwriters written consent. Damages shall not include fines, penalties, punitive or exemplary Damages, sanctions or any other Damages resulting from the multiplication of compensatory Damages, nor fees, commissions, expenses or costs for the professional business of the Insured. Damages shall also not include any matter, sum or award that is uninsurable under the law pursuant to which this Policy shall be construed nor any form of injunctive or declaratory relief.

2.3 "Defence Costs" shall mean reasonable costs and expenses incurred by the Insured with Underwriters' prior consent in the investigation, negotiation, meditation or defence or settlement of any Claim made against the Insured or the investigation of any circumstances of which the Insured shall become aware which might reasonably be expected to give rise to a Claim being made against the Insured, providing such Claims are indemnifiable under this Policy. (a) "Defence Costs" shall include all premiums on bonds to release attachments, all premiums on appeal bonds required in any such defended suit, but without any obligation to apply for or furnish any such bonds; (b) "Defence Costs" also shall include reimbursement for time and expenses incurred by an employee of the Insured for attendance at examination for discovery and the trial or hearing to determine the Insured's liability on the Claim. Reimbursement for time shall be for actual hours in attendance at discovery and trial and shall be limited to 50% of the customary hourly billing rate or $100.00 per hour, whichever is less, and reimbursement for expenses shall be limited to those amounts reasonably incurred for travel, accommodation and meals, for actual attendance at discovery and trial; (c) all costs taxed against the Insured in any civil action defended by the Underwriters and any interest accruing after entry of judgment (or, in those jurisdictions where state prescribes interest for some other date, from such prescribed date) upon that part of the judgment which is within the Limit of Liability; (d) all reasonable expenses (other than those stated above) incurred by the Insured at the Underwriters request.

2.8 "Proposal" shall mean a written Proposal made by or on behalf of the Insured to the Underwriters for the insurance evidenced by this Policy, including any statements, declarations, application forms, warranties or information upon which the Underwriters have relied on and, where a special form or presentation has been used for the purpose, bearing the date in item 10 of the Schedule.

2.12 "Wrongful Act" shall mean any actual or alleged breach of duty, neglect, error, negligent misstatement, misleading statement or omission committed by the Insured or on the Insured's behalf solely in the conduct of the Insured's Professional Business as stated on the Proposal but limited to only those services or operations as described in the definition of insured's Professional Business as contained in this Policy.

"Wrongful Act" shall include any actual or alleged unauthorized use or violation by the Insured of any copyright, trademark, service mark, trade name, or trade secret in the performance of the Insured's professional business as stated on the Proposal form, but does not include any actual or alleged unauthorized use or violation of any domestic or foreign patent or patent-related rights.

[11] The policy also contains a definition of "insurance and professional business". The definition from the policy is set forth below:

"Insured's Professional business" shall mean one or more of the following: (a) the development, design, installation, modification or maintenance of computers, computer hardware, firmware and/or software, computerized networks or Internet services; or (b) the provision of computer system consulting, analysis, programming, training or support; or (c) the provision of data processing, data storage and retrieval services; or (d) the sale, leasing, licensing, distribution of computers or computer hardware, firmware and software; or (e) any other computer related services provided for others as listed on the Proposal and accepted by Underwriters.

However, Insured's Professional business does not include the manufacture of any electronic or computer hardware, or any physical product or devices by the Insured.

Position of the Applicants

[12] The applicants argue that Lloyd's has a duty to defend the U.S. proceedings because the facts alleged in the U.S. proceedings fall within the coverage afforded by the policy. Specifically, it is argued that:

(a) The substance and the true nature of Niantic's claim is copyright infringement, which falls within the definition of wrongful act set forth in the Policy which defines copyright infringement as one of the enumerated types of wrongful acts covered by the police; (b) The definition of "insured's professional business", the coding of Global ++ software, it is argued, falls within the defined scope of the insured's professional business which includes custom software development; (c) Niantic seeks compensatory damages which falls within the Policy's defined scope of claim and damages as set forth in s. 2.1 and s. 2.2 of the Policy; (d) The U.S. jurisdiction of Niantic's claim falls within the Policy scope of "jurisdiction" as set forth in s. 1.5 of the Policy.

[13] The applicants argue that having met the initial burden to establish on a reasonable possibility basis, the onus then shifts to Lloyd's to show that Niantic's claim falls outside the coverage provided by the policy by reason of any applicable exclusion clause.

[14] As it relates to the arguments asserted by Lloyd's with respect to the retroactive date exclusion, the applicants argue that there is no clear and unambiguous evidence that the alleged misconduct asserted by Lloyd's was committed in 2016 and, as such, the exclusion does not apply.

[15] Responding to Lloyd's assertion that the applicants breached a duty to disclose information, the applicants argue that there is no clear and unambiguous evidence to establish that the applicants failed to disclose material information, and in any case the applicants argue that the evidence relied upon by Lloyd's is extrinsic evidence which this court is explicitly precluded from considering in a duty to defend application.

[16] With respect to the argument asserted by Lloyd's relating to the renewal condition endorsement, the applicants argue that there is nothing in the policy which indicates that the endorsement relied upon by Lloyd's operates as an exclusion or condition precedent to coverage. Furthermore, it argued that there is no evidence that Lloyd's disclosed this endorsement to the applicants prior to the service of its responding application record in this matter.

[17] At the core of the applicants' position proffered to this court, is the argument that Lloyd's duty to defend is triggered by reason of the mere possibility that Lloyd's will be called upon to indemnify the applicants on the claims asserted by Niantic in the U.S. proceedings. Furthermore, the applicants argue that much of what Lloyd's relies upon in this application is extrinsic evidence. Specifically, it is argued that it is improper for Lloyd's to rely on the following evidence in support of its various arguments:

(a) The Affidavit of Sheldon Bloomer (the Vice-President of Commercial Lines Premier Canada Assurance Managers authorized by Lloyd's to act as the cover holder to underwrite the Policy issued to IT Haven); (b) The expert opinion evidence of Peter Morris; (c) Post-claim statements made by Mr. Hunt to Lloyd's coverage counsel; and (d) The cross-examination of Mr. Hunt.

[18] With respect to the aforesaid extrinsic evidence, the applicants argue that in the context of a duty to defend application, it is improper to rely on extrinsic evidence in a duty to defend application unless the evidence relied upon is found in the underlying pleadings or the court determines that it is necessary to refer to the extrinsic evidence.

Position of the Respondent

[19] Lloyd's in its argument acknowledges that an insurer's duty to defend is broader than the duty to indemnify and that the mere possibility that a claim falling within the policy may succeed will suffice to meet that onus.

[20] It is also acknowledged that in order to determine whether Lloyd's duty to defend arises in relation to the allegations made in the U.S. proceedings, that the court must assess the substance and the "true nature" of each claim contained within the pleadings to see if it falls within the scope of coverage. To reach this determination Lloyd's accepts that this assessment must be made substantially on the facts as stated in the pleadings.

[21] Lloyd's further acknowledges in its argument that this Court following the warning of the Supreme Court of Canada in Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49, at para. 28, is precluded from fact finding on matters at issue in the U.S. proceedings.

[22] While Lloyd's makes the aforementioned acknowledgments in its argument, much of what is argued finds its grounding in the extrinsic evidence filed by Lloyd's and relied upon in its argument.

[23] Reduced to its core, Lloyd's argues as follows:

(a) The applicants made material misrepresentations in the application for insurance; (b) The applicants did not comply with the Policy's "material information" provision which excludes claims arising from undisclosed material changes to the conditions described in the application for insurance; and (c) Various exclusions including the retroactive date, trademark or passing off, infringement, unfair trade and anti-trust, and unauthorized use of another's name or product.

[24] Dealing specifically with the argument that the applicants made in the material misrepresentations in the application for insurance, Lloyd's points to the following in support of that allegation:

(a) The applicants did not provide products or services to the electronic games industry (in fact it is argued IT does provide such services); (b) The applicants derive 100 per cent of its gross revenues from Canada and not the United States (although it is argued that the majority of IT's revenue were generated in the United States); (c) The applicants always use written contracts with its clients (where now it is argued the applicants do not use written contracts); and (d) The applicants never incorporated any software or products designed by others into its design (evidence now argued by Lloyd's suggests that the allegations in the U.S. proceedings demonstrate that the applicants have done precisely to the contrary and thus infringed on the intellectual property of the plaintiff in the U.S. litigation).

Legal Principles

[25] In Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, at para. 19, the Supreme Court determined that an insurer owes its insured a duty to defend where there is the "mere possibility that a claim falls within the insurance policy". The onus is on the insured to first establish that there is a possibility that a claim falls within the insurance policy. Once that onus is established, the onus shifts to the insurer to show that an exclusion clearly and unambiguously excludes coverage for a claim against an insured: see Progressive Homes, at para. 51.

[26] The principles applicable to a duty to defend application such as the one before this Court, have recently been condensed in a decision of Perell J. in Lincoln (Town) v. A.I.G. Insurance Co. of Canada, 2020 ONSC 1456. I can do no better than reproduce those principles from para. 9, which will guide this court's analysis of this application. Those principles are as follows:

(a) The insurer has a duty to defend if the pleadings filed against the insured allege facts which, if true, would require the insurer to indemnify the insured. (b) The court must determine whether the factual allegations, if true, could possibly support the plaintiff's legal claims. (c) The pleadings govern the duty to defend, not the insurer's view of the validity or nature of the claim nor by the possible outcome of the litigation. (d) In a duty to defend application, the court must determine the substance and true nature of the claims based on the allegations in the pleadings taking the entire pleading into account and without engaging in a fanciful reading of the statement of claim for the purpose of requiring the insurer to defend. (e) If there is any possibility that the claim falls within the liability coverage, the insurer must defend. (f) The court must look beyond the labels used by the plaintiff to ascertain the substance and true nature of the claims. (g) If there is a claim that is outside or excluded from insurance coverage and a claim within insurance coverage, but the covered claim is entirely derivative of the uncovered claim, which is to say that the claims arise from the same actions and cause the same harm, then the derivative claim will not trigger a duty to defend. (h) If the pleadings are not sufficiently precise to determine whether the claims would be covered by the Policy, the insurer's obligation to defend will be triggered where, on a reasonable reading of the pleadings, a claim within coverage can be inferred. (i) In determining whether the Policy would cover the claim, the usual principles governing the construction of insurance contracts apply, namely: (a) the contra proferentem rule; (b) the principle that coverage clauses should be construed broadly and exclusion clauses narrowly; and (c) where the Policy is ambiguous, effect should be given to the reasonable expectations of the parties. (j) Extrinsic evidence that has been explicitly referred to in the pleadings may be considered to determine the substance and true nature of the allegations. (k) In the insurance policy contains an unqualified obligation to defend in respect of covered claims, the insurer is required to defend the entire claim; where there is an unqualified obligation to defend, the insurer is required to pay all reasonable costs associated with the defence of those claims, even if those costs further the defence of uncovered claims.

[27] In this case, Lloyd's sought to rely on extrinsic evidence. The Supreme Court of Canada in Monenco Ltd. v. Commonwealth Insurance Co., supra, makes clear that in determining a duty to defend the court should consider the allegations made against the insured (in this case the allegations in the U.S. proceedings) and the policy language. Where there is evidence that is explicitly referred to within the pleadings (in this case evidence from the U.S. proceedings), that evidence may be considered for the purposes of ascertaining the substance and the true nature of the claims.

[28] Monenco, in essence, establishes a two-pronged test, in part because the duty to defend is quite distinct from the question of coverage and indemnity under the policy. In Monenco, Iacobucci J. emphasized the preliminary nature of the defence issue and cautioned against examining extrinsic evidence that could impact the underlying litigation. In that regard, at para. 37, Iacobucci J. stated:

It should be recalled that the question whether an insurer is bound to provide defence coverage in an action taken against the insured arises as a preliminary matter. Of course, after trial, it may turn out that there is no liability on the insurer, and thus, no indemnity triggered. But that is not the issue when deciding the duty to defend. Consequently, we cannot advocate an approach that will cause the duty to defend application to become "a trial within a trial". In that connection, a court considering such an application may not look to "premature" evidence, that is, evidence which, if considered, would require findings to be made before trial that would affect the underlying litigation.

[29] Duty to defend applications such as the one before this court often engage what has been referred to as the pleadings rule. If evidence is not mentioned in the underlying action (in this case the U.S. proceedings), or if the evidence is not needed for the very purpose of ascertaining the nature of the claim, then the court should not consider extrinsic evidence in the duty to defend application.

[30] In Halifax Insurance Co. of Canada v. Innopex Ltd., at para. 36, the Ontario Court of Appeal, at para. 36, commented on the similarity of a Rule 21 motion to strike out a pleading in the context of a duty to defend application. In that regard, the Court of Appeal noted that in a motion under rule 21.01(2)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, the court when dealing with a motion to strike is entitled to consider documents that are referred to in the pleadings and, similarly, in a duty to defend application the court can consider documents referred to in the underlying statement of claim where it would assist the court in determining the substance and true nature of the claim.

[31] As with most rules, there are exceptions. In McLean (Litigation Guardian of) v. Jorgenson, the Court of Appeal allowed an affidavit as extrinsic evidence where the court concluded that the statement contained in the affidavit did not offend the policy reasons for excluding evidence on a coverage motion, because in that case the statement was not controversial and was consistent with the reasoning of the Supreme Court of Canada in Monenco, at pp. 717 and 718.

Analysis

Extrinsic evidence

[32] What has happened in this duty to defend application is what Iacobucci J. cautioned against in Monenco. Lloyd's may be proven correct with respect to the position it has taken regarding the alleged misrepresentations. Once all the evidence is heard at a trial and if the misrepresentations are established there will be no indemnity under the policy. The same may also be true with respect to the various exclusions emphasized as reasons why Lloyd's should not have to provide a defence to the applicants.

[33] Judges have been cautioned in the jurisprudence not to turn a duty to defend application into a coverage motion. The court should generally treat a duty to defend application much like it would a motion to strike a statement of claim under Rule 21 of the Rules of Civil Procedure.

[34] It is entirely appropriate for the court in a duty to defend application to refer to documents that are referenced in the underlying legal proceedings. None of the documents relied upon by Lloyd's can be found either directly or by implication in the U.S. proceedings.

[35] Lloyd's relies on statements made by Hunt to Lloyd's coverage counsel as well as the transcripts of Hunt's cross examination. The Ontario Court of Appeal in Cooper v. Farmer's Mutual Insurance Co., at para. 16, rejected the insurer's reliance on an insured's statement to demonstrate the underlying claim fell within a coverage exclusion. The Court of Appeal agreed with the motion judge's determination that the insured's statement was extrinsic evidence and thus granted the insured's application finding the insurer owed the insured a duty to defend.

[36] In this case Lloyd's cites the more recent decision of the Court of Appeal in McLean (Litigation Guardian of) v. Jorgenson, supra, in support of its argument that this court can reference extrinsic evidence in a duty to defend application. Factually McLean involved the introduction of an affidavit from the insured stipulating that all of the insured's vehicles were insured by the same insurer. Not only was the affidavit non contentious it did not offend the sound policy reasons for excluding evidence on this type of motion.

[37] If this court were to allow an insurer to rely on the kinds of evidence filed by Lloyd's on this motion it would turn what should be a relatively simple pleadings type motion into a trial within a trial. The expert evidence alone requires the court to consider whether the expert is properly qualified and whether the evidence is required. The fact that Lloyd's relies on the evidence of an expert to support its position demonstrates why the Supreme Court in Monenco cautioned that a motion judge should not look to "premature evidence", i.e., evidence which if admitted would require findings to be made before trial that could affect the underlying litigation.

[38] To allow an insurer to routinely file evidence like the evidence in this case on what is in essence a pleadings motion will unnecessarily complicate matters. The Supreme Court has made clear in Monenco that the "starting premise for assessing whether an insurer's duty to defend has been triggered rests in the traditional 'pleadings rule'". Thus it should be the norm that when the court is asked to determine whether a duty to defend exists the court should look to the pleadings in the underlying action (the U.S. proceedings), any documents referenced in the pleadings (again the U.S. proceedings) and the terms of the policy. It should be the rare case that the court should allow extrinsic evidence of the kind proffered by Lloyd's in this case. To do otherwise offends the long-standing principle that the duty to defend is triggered by the mere possibility that the claim could succeed. Furthermore to allow such extrinsic evidence will defeat the "need to decide the coverage issue expeditiously, and the need to avoid making premature findings at a preliminary stage that could affect the issue of liability as distinct from coverage". See: McLean v. Jorgenson, at para. 5.

[39] Dealing with the allegations made by Lloyd's that Hunt breached his duty to disclose relevant information engages the fundamental question of not only whether Hunt did breach such obligation but just as important it engages the question of whether the information he failed to provide was material. Lloyd's in part relies on expert opinion evidence to establish such materiality which at least in part demonstrates why the alleged breach of the material information clause in the policy cannot possibly be relied upon at this stage of the proceedings. A further reason to preclude reliance on this clause can be found in ss. 124(5) and (6) of the Insurance Act, R.S.O. 1990, c. I.8 which strongly suggests that issues of materiality should be proven at trial.

[40] If the evidence that Lloyd's seeks to rely upon is not contained in the pleadings then Lloyd's may only rely on extrinsic evidence if the purpose of the evidence is needed by the court to determine the nature of the claim against the applicants. The U.S. proceedings when distilled to its essence is a claim for breach of copyright where the plaintiff in that action claims damages for the sale of an unauthorized derivative version of the plaintiffs electronic games. There is no need in my view to rely on the extrinsic evidence to determine the nature of the claim against the applicants. For these reasons I exclude the extrinsic evidence referenced by Lloyd's and will determine the motion solely on the basis of the allegations against the applicants in the U.S. proceedings and the policy.

The duty to defend analysis -- absent extrinsic evidence

[41] Any analysis of whether an insurer owes its insured a duty to defend should begin with a determination of whether the party seeking a defence falls within the definition of insured as set forth in the relevant policy. If the party seeking the declaration is not an insured for all intents and purposes the analysis is over. In this case the policy defines the insured as "the named insured" and its "officer and director". The named insured is IT Haven and its officer and director is Hunt. Lloyd's does not dispute that the applicants fall within the definition of insured.

[42] The next step in the analysis of whether Lloyd's owes the applicants a duty to defend is the determination of whether the claims in the U.S. proceedings fall within the coverage afforded by the policy. In that regard the policy in para 1.1 provides that Lloyd's will pay any damages that the applicants are found legally liable for arising out of a "wrongful act" in connection with "the insured's professional business". The wrongful act could be committed anywhere in the world but the policy only applies to claims made under the laws of Canada or the United States.

[43] Wrongful act is a defined term of the policy. It includes any "unauthorized use or violation by the insured of any copyright . . . in the insured's professional business. . ."

[44] The insured's professional business is also a defined term of the policy and includes "software development".

[45] In determining whether Lloyd's owes the applicants a duty to defend the court must be satisfied that the claims made in the U.S. proceedings fall within the time period covered under the policy. If the claims made in the U.S. proceedings predate the coverage under the policy there is no duty to defend. The policy provides in para 3.1 for what is described as "the Retroactive date". Specifically the policy excludes any claim where the event that might have triggered coverage occurred before the retroactive date-which in this case was September 2, 2016.

[46] The claims made in the U.S. proceedings are alleged to have occurred on or after May 15, 2019. Lloyd's argues by reference to the extrinsic evidence that I have excluded that the alleged wrongful act occurred prior to September 2016. I have ruled the extrinsic evidence inadmissible. The pleadings in the U.S. proceedings on their face make clear that the alleged wrongful act occurred in May 2019. At para. 59 of the U.S. proceedings Niantic incorporates the terms of service as follows:

59. To obtain a limited license to access and use Niantic's services and games, users must agree to Niantic's Terms of Service. Attached as Exhibit A, and incorporated by reference, is a true and correct copy of the current version of Niantic's Terms of Service.

[47] The terms of service are dated as of May 15, 2019. A review of the U.S. proceedings does not specify an earlier date when Niantic alleges the applicants were in breach of Niantic's copyright in the software at issue. After all the evidence is heard it may well turn out that the claims made in the U.S. proceedings fall under the retroactive date exclusion and thus not covered under the policy. At this stage of the proceedings where the court is called upon to determine whether Lloyd's owes the applicants a duty to defend the court must be governed by what is pleaded in the U.S. proceedings. The date alleged by the Plaintiff in the U.S. proceedings when the applicants committed the wrongful act falls within the coverage period under the policy for which Lloyd's owes the applicants a duty to defend.

[48] Having determined that the policy on its face requires Lloyd's to provide a defence to the applicants the court must then determine if any of the policy exclusions relied upon by Lloyd's would negate the duty to defend. Lloyd's has relied almost exclusively on extrinsic evidence to trigger reliance on the various exclusions referenced above. I have for reasons already set forth above excluded that extrinsic evidence. With the exclusion of the extrinsic evidence Lloyd's has not met its onus to exclude its obligation to defend the applicants in the U.S. proceedings. The application is granted. Lloyd's shall defend the applicants in the U.S. proceedings. As part of its defence obligation Lloyd's shall forthwith reimburse the applicants for the legal costs that have been incurred to date in the U.S. proceedings.

[49] Neither party in this application raised any argument as to who shall be appointed as counsel to represent the applicants in the U.S. proceedings. If this issue cannot be resolved between the parties the court will entertain further written argument limited to no more than five pages.

[50] As for the question of the costs of these proceedings it is expected that counsel will confer in an effort to resolve the issue of costs. If counsel cannot agree on costs counsel may submit written argument to the court limited to five pages which is to be received no later than January 20, 2021. If no written argument is filed within that time frame the court will assume the issue of costs has been resolved.

Application allowed.