COURT FILE NO.: CV-20-00642253 DATE: 20201130 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Kik Interactive Inc. Applicant – and – AIG Insurance Company of Canada Respondent

COUNSEL: G. McGuire, for the Applicant D. Dutt and M. Bradley, for the Respondent

HEARD: September 15, 2020

chalmers, J.

endorsement

OVERVIEW

1AIG Insurance Company of Canada (“AIG”) insured Kik Interactive Inc. (“Kik”) pursuant to an AIG PrivateEdge Plus Directors, Officers and Private Company Liability Policy (the “Policy”). Kik brings this Application seeking indemnification for the legal expenses incurred in defending an action commenced on June 4, 2019 by the Securities Exchange Commission (“SEC”) in the United States District Court for the Southern District of New York (“SEC Complaint”).

2In 2017, Kik created a block-chain cryptocurrency called “Kin”. Between May and September 2017 Kik conducted a pre-sale of contractual rights to acquire Kin, pursuant to SAFTs (Simple Agreements for Future Tokens). After the pre-sales, Kik then sold Kin to the public in a worldwide offering. In June 2019, the SEC brought an action against Kik alleging that the cryptocurrency was a security and the sale to the public was an unregistered public offering of securities.

3Kik defended the SEC action. Kik tendered the claim to AIG and sought reimbursement of its legal expenses. Kik argued that the SEC claim is a securities claim and therefore falls within the grant of coverage. AIG denied coverage on the basis that coverage is excluded pursuant to exclusion 4(j) which excludes claims arising out of any public offering of securities. Kik argues that the exclusion is ambiguous and does not apply to the sale of Kin. In the alternative, Kik argues that it satisfied the conditions of the exception to the exclusion and as a result, AIG is bound to provide coverage.

4For the reasons set out below, I find that exclusion 4(j) applies to the SEC claim. I also find that the conditions of the exception to the exclusion are not satisfied. I dismiss the Application.

THE ISSUES

5The issue to be determined on this Application is whether Kik is entitled to reimbursement of its costs of defending the SEC Complaint. The parties agree that the claim brought against Kik falls within the grant of coverage. The parties also agree that the issue turns on the application of exclusion 4(j).

6The following two issues will be addressed in this endorsement:

i) Does the SEC claim fall within exclusion 4 (i)? ii) Has Kik satisfied the conditions of exception (ii)?

BACKGROUND FACTS

(i) Sale of Kin

7Kik is a private company. It was founded by two University of Waterloo students in 2009. Kik developed a social media “app” named Kik Messenger that by 2017 had roughly 300,000,000 users. In early 2017, Kik’s Board of Directors approved a plan to sell a blockchain-based cryptocurrency called “Kin”.

8Kik intended to sell Kin in two phases. The first phase was a pre-sale of contractual rights to accredited investors. The pre-sale was to take place in the summer of 2017. The pre-sale was capped at USD $50,000,000. The second phase was a sale to the public which was also capped at USD $50,000,000.

9After Kik decided to sell Kin, it retained a New York based consulting firm to determine whether the sale would be considered a sale of securities by the SEC. On April 3, 2017, Kik was advised that the SEC could potentially apply the Howey Test to determine whether Kin is an “investment contract” which is a type of security under section 2(1) of the Securities Act of 1933.

10The first phase took place between May and September 2017. Kik sold Kin to accredited investors through SAFTs. The sale to accredited investors was structured so it was exempt from registration under the SEC. In September 2017, Kik filed a Form D with the SEC to formalize the exemption. The sale to accredited investors was capped at USD $50 million.

11The second phase was an offering of Kin to the public. Between August and September 2017, Kik met with the Ontario Securities Commission (“OSC”) to discuss the prospective public offering. On September 5, 2017, Kik was informed that the OSC considered the sale of Kin to the public a public offering of securities. After receiving this information, Kik decided to prohibit Canadian residents from purchasing Kin.

12The public sale took place from September 12, 2017 to September 27, 2017. Kik took the position that Kin was not an investment contract or security and as a result, Kik did not register the sale with the SEC. Shortly after the public sale began, the SEC advised Kik that it had initiated an investigation into whether the sale of Kin violated U.S. securities laws.

(ii) The AIG Policy

a) Application for Insurance

13Kik had previously been insured pursuant to a private equity management liability policy issued by Encon Group Inc. (“Encon”). The Encon policy provided coverage for the period from December 1, 2016 to December 1, 2017. On June 16, 2017, Encon advised that it was not prepared to renew the policy. Kik’s insurance broker, Magnes Group Inc. (“Magnes”), sought coverage from a different insurer.

14Kik claims that in seeking new coverage, it made no secret of the fact that it was launching a cryptocurrency. On June 20, 2017, Chris Cameron, an account executive at Magnes, contacted Jonathan Weekes, an underwriter with AIG. Mr. Cameron advised that in the summer of 2017, Kik would be launching a cryptocurrency to be used in the Kik environment. He also advised that later in the fall of 2017, there will be an auction to Kik users to purchase Kin for their respective accounts. He invited the insurer to contact him if it required any further information. AIG did not request any further information.

15On June 22, 2017, Mr. Weekes provided Mr. Cameron with an application for insurance. The completed application was submitted to AIG on June 30, 2017. With the completed application, Mr. Cameron included Kik’s financial statements for the fiscal year ending March 2017, an organization chart and a list of directors. Kik did not provide to AIG the business plan or marketing materials with respect to the sale of Kin.

16In the Application, Kik answered “no” to the question as to whether any insurer refused, cancelled or did not renew any executive liability policy. AIG did not learn of Encon’s refusal to renew the policy until June 2020.

17The Application also asks whether Kik had any private placement or other offering of securities within the last 12 months or anticipate having any private placements or other offerings of securities within the next 12 months. Kik did not answer this question and did not advise AIG that the pre-sale to accredited investors through the SAFTs had started in May 2017, or that the sale of Kin would be offered to the public in the summer of 2017. In addition, Kik did not tell AIG that it had been advised in April 2017 that the SEC may take the position that the sale of Kin could be deemed to be an offering of securities.

b) Issuance of the Policy

18On July 7, 2017, AIG offered to insure Kik pursuant to its PrivateEdge Plus form which provided liability coverage for the directors and officers of private companies. The quote provided two options for an aggregate policy limit; $5 million or $10 million.

19Kik had some concern as to whether the sale of Kin would be covered by the Policy. By e-mail dated August 10, 2017, Angela Watkins at Kik e-mailed Mr. Cameron to ask whether the offering would be covered by the Policy. Without checking with AIG, Mr. Cameron responded that he could not identify any specific exclusions that would apply. After making this statement, Mr. Cameron contacted Mr. Weekes at AIG and asked if the there was a specific exclusion that applied to Kik’s operations involving the issuance and use of cryptocurrency. Mr. Weekes stated that the general exclusions would apply regardless of the insured’s operations.

20On August 11, 2017, Mr. Cameron sent an e-mail to Mr. Weekes and requested that AIG bind the Policy effective August 15, 2017 for an aggregate policy limit of $10 million. At that time, Mr. Cameron asked an additional question: “if the SEC determines Kik has wandered past token distribution and into an IPO, I assume an exclusion exists?” If such an exclusion existed, Mr. Cameron asked for the cost to remove the exclusion. Mr. Weekes responded on August 14, 2017. He advised that that the insurer is not looking to take on additional risk with respect to U.S. IPOs. He added that they would not be able to have that endorsement [exclusion] removed.

21On August 15, 2017, Mr. Cameron stated he would give him a call on the IPO question because they are not taking the company public. Later that day they had a telephone conversation at which time Mr. Cameron asked if AIG would provide coverage if the SEC considered the sale of Kin to be an IPO. Mr. Weekes advised Mr. Cameron that AIG is not seeking to take on a securities or a public offering risk.

22On August 16, 2017, AIG issued the Policy for the period from August 15, 2017 to December 1, 2018. AIG provided a complete copy of the policy to Mr. Cameron. Mr. Cameron provided the Policy to Kik on January 29, 2018.

c) The Policy Wording

i) The Insuring Agreement

23AIG issued a Directors, Officers and Private Company Liability Policy. The insuring agreement reads as follows:

1. INSURING AGREEMENTS

With respect to Coverage A, B and D and the Defence Provisions, solely with respect to Claims first made during the Policy Period or the Discovery Period (if applicable) and reported to the Insurer pursuant to the terms of this policy, and subject to the other terms, conditions and limitations of this policy, this D&O Coverage Sections affords the following coverage:

COVERAGE B: PRIVATE COMPANY INSURANCE

This D&O Coverage Section shall pay the Loss of the Company arising from a:

(i) Claim made against the Company, or […]

for any Wrongful Act, […] The Insurer shall, in accordance with and subject to Clause 7 of this D&O Coverage Section, advance Defence Costs of such Claim prior to its final disposition.

DEFENCE PROVISIONS

The Insurer does not assume any duty to defend; […] the Insurer shall advance Defence Costs of such Claim, excess of the applicable Retention amount, prior to its final disposition. Selection of counsel to defend a Securities Claim shall be made in accordance with Clause 9 of this D&O Coverage Section.

24Kik argues that the insuring agreement of the Policy provides broad coverage. The definition of claim includes any “securities claim”. A securities claim is defined as including a claim made against any insured alleging a violation of any regulation or statute regulating securities, including the purchase or sale of securities. The Policy includes a list of pre-authorized attorneys that the insured is expected to retain for securities claims.

ii) Exclusion 4(j)

25The Policy includes the following exclusion:

4. EXCLUSIONS

The Insurer shall not be liable to make any payment for Loss in connection with any Claim made against an Insured: […]

(j) alleging, arising out of, based upon or attributable to any public offering of securities by a Company, an Outside Entity or an Affiliate or alleging a purchase or sale of such securities subsequent to such public offering provided, however, this exclusion will not apply to:

ii. Any public offering of securities (other than a public offering described in subparagraph 4(j)(1) above), as well as any purchase or sale of such securities subsequent to such public offering, in the event that within thirty (30) days prior to the effective time of such public offering: (1) the Named Entity shall give the Insurer written notice of such public offering together with full particulars and underwriting information required thereto; and (2) the Named Entity accepts such terms, conditions and additional premium required by the Insurer for such coverage. Such coverage is also subject to the Named Entity paying when due any such additional premium. In the event the Company gives written notice with full particulars and under writing information pursuant to subpart 4(j)(ii)(1) above, then the Insurer must offer a quote for coverage under this paragraph; or

(iii) Information requested after the Policy was issued

26Mr. Cameron telephoned Mr. Weekes in or around September 1, 2017. He asked whether AIG would view Kin as an initial coin offering under its IPO exclusions. Mr. Weekes responded that AIG did not underwrite a securities risk or an IPO risk in the Policy.

(iv) The SEC Investigation

27On September 15, 2017, shortly after the public sale of Kin began, the SEC advised Kik that it had instituted an investigation to determine if there had been violations of any federal securities laws. On January 30, 2018, Magnes provided AIG with an e-mail from Kik’s general counsel which stated that the SEC had initiated a non-public fact-finding inquiry with respect to the offer and sale of Kin. On February 2, 2018, AIG responded and advised that since no claims or charges had been asserted by the SEC it was premature for AIG to assess coverage.

28On November 16, 2019, AIG was advised that the SEC recommended commencing an enforcement action against Kik and the Kin Foundation. The Kin Foundation is a separate legal entity and is insured by CNA Financial Corporation (“CNA”). By letter dated November 30, 2018, AIG advised Kik that since no claim for a Wrongful Act had been commenced, no coverage was triggered. CNA took the same position with respect to the Kin Foundation.

29On March 8, 2019, a conference call took place involving Mr. Cameron and claims specialists from AIG and CNA. Mr. Cameron wanted confirmation that the Policy issued by AIG would pay for the costs of defending any potential SEC action. Solomon Lam, the AIG claims specialist, advised that exclusion 4(j) may apply if the SEC alleges that Kik’s distribution of the Kin tokens was a securities distribution.

(v) The Complaint

30The SEC Complaint was issued on June 4, 2019. SEC alleges that the Kin cryptocurrency is a security and therefore Kik engaged in a public offering of securities without a registration certificate or an exemption from registration. Kik defended the action on the basis that its currency is not a security but instead an asset and that it complied with all applicable securities laws.

31Kik retained counsel in the U.S. to defend the SEC Complaint. As of the date of the Application, Kik had incurred more than USD $4,000,000 in defending the action. The action is ongoing.

32The relevant paragraphs in the SEC Complaint are:

1. From May to September 2017, Kik offered and sold one trillion digital tokens called “Kin”. More than 10,000 investors worldwide purchased Kin for approximately $100 million in U.S. dollars and digital assets. […]

2. Starting with the May 2017 announcement, Kik offered and sold the one trillion Kin tokens in a single offering aimed at both wealthy investors and the general public. […]

3. Under the federal securities laws, Kik offered and sold securities from the initial May 2017 announcement of Kin through September 2017. But, Kik has never filed with the SEC a registration statement for its offer and sale of securities. […]

4. Kik’s offer and sale of Kin from May to September 2017, including the sales through SAFTs and to the general public, constituted an ICO [Initial Coin Offering]. […]

5. […] Furthermore, the sale of Kin through the use of SAFTs and in the public sale should be treated as one offering, because Kik sold the Kin as part of a single plan of financing, for the same general purpose, at about the same time, without creating different classes of Kin, and for dollars or assets that were immediately convertible to dollars. […]

6. Investors’ purchases of Kin were an investment of money, in a common enterprise, with an expectation of profits for both Kik and the offerees, derived primarily from the future efforts of Kik and others to build the Kin Ecosystem and drive demand for Kin. Consequently, Kik’s offer and sale of Kin in 2017 was an offer and sale of securities. […]

7. By engaging in the conduct described above, Kik offered and sold securities without a registration statement in effect and without an exemption from registration.

8. From May to September 2019, Kik conducted an offering of securities, in the form of an offering of one trillion Kin tokens. […] The offering and component sales were required to be registered with the SEC unless an exemption applied. However, neither the offering nor component sales were registered with the SEC, and no registration exemption applied to the offering or to any of these sales. […]

(vi) AIG’s Coverage Position

33On July 12, 2019, AIG provided its coverage position with respect to the SEC Complaint. AIG stated that the Complaint alleges that the Kin tokens are securities and that Kik’s offer and sale of Kin tokens constituted a public offering of securities. AIG stated that exclusion 4(j) was triggered and as a result the claim was excluded.

34On July 18, 2019, Mr. Cameron stated that the exception in exclusion 4(j)(ii) does not apply because Kik had provided written notice of the public offering. By letter dated August 12, 2019, Mr. Lam wrote to Mr. Cameron and noted that no notice or particulars of a public offering of securities had been given by Kik and no quote was offered by AIG to remove the exclusion. Mr. Lam advised that AIG was maintaining its position that the Policy does not provide coverage for the Complaint.

ANALYSIS

(i) Has exclusion 4(j) been triggered?

a) Rules Governing the Interpretation of the Policy

35Both parties agree that the SEC Complaint falls within the grant of coverage. At issue is whether exclusion 4(j) is triggered, and if so, whether the exception to the exclusion applies. The insurer has the onus to establish that the exclusion to coverage applies. If the insurer is successful, the onus then shifts to the insured to prove that the exception to the exclusion applies: Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 S.C.R.245, at paras. 26-29, 51.

36In interpreting policies of insurance, the primary principle is that where the language of the policy is unambiguous, the Court must give effect to the clear language, reading the contract as a whole: Non-Marine Underwriters, Lloyd’s of London v. Scalera, 2000 SCC 24, [2000] 1 SCR 551, at para. 71, and Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, at para. 49.

37In determining whether the language of the policy is ambiguous, the words in the insurance policy are to be given their ordinary and literal meaning: Progressive Homes, at para. 22. If the meaning of the words used in the policy are clear, the court should not strain credibility to create an ambiguity where none exists: Chilton v. Co-Operators General Insurance Co. (1997), 32 OR (3d) 161, 143 D.L.R. (4th) 647 (C.A.), at p. 654.

38If the court determines that the language is ambiguous, the general rules of contract construction must be employed to resolve the ambiguity. The interpretation should be consistent with the reasonable expectations of the parties and supported by the language of the policy. In addition, the interpretation should not give rise to results that are unrealistic or that would not have been contemplated by the parties and should be consistent with the interpretations of similar policies: Ledcor, at para. 50.

39If the ambiguity remains, it must be construed against the insurer. The corollary of this rule is that coverage provisions in insurance policies are interpreted broadly and exclusion clauses narrowly: Ledcor, at para. 51.

b) Is the Exclusion Ambiguous?

40With these principles in mind, I turn to the wording of the exclusion. The operative wording is as follows:

The Insurer shall not be liable to make any payment for Loss in connection with any Claim made against an Insured: …

(j) alleging, arising out of, based upon or attributable to any public offering of securities by a Company, an Outside Entity or an Affiliate or alleging a purchase or sale of such securities to such public offering, …

41The first step in the analysis is to determine whether the language of the exclusion is ambiguous.

42Kik argues that the meaning of the word “securities” is ambiguous and that an average purchaser of insurance would interpret the words, “public offering of securities” as meaning an “initial public offering of shares”. As a result, the exclusion applies only when the company sells shares to become a public company. Kik argues that the exclusion is not a “securities” exclusion but instead is a “going public” or “IPO” exclusion.

43Kik also argues that the exclusion is ambiguous because the word “alleging” is susceptible to different interpretations. The word “alleging” could refer to an allegation that what was offered to the public was a “security”, or it may refer to an allegation that the security was “offered to the public”.

- “Public Offering of Securities”

44With respect to the words “public offering of securities”, Kik argues that the commonly understood meaning is the issuance of shares in an initial public offering or in taking a company public. Kik states that the public sale of Kin tokens was not an offering of shares and therefore does not fall within the exclusion.

45In support of this position, Kik refers to exception (iii) of the exclusion which refers to any claim alleging a wrongful act which occurred during the insured’s preparations to commence an initial public offering (“IPO”). This is the first reference in the Policy to an IPO. Kik states that from reading exception (iii), the purchasers of the Policy would expect that the public offering referred to in exclusion (j) refers to an initial public offering of shares. It is Kik’s position that because the exception to the exclusion includes the word “initial” to qualify public offering, the word “initial” should be read into the exclusion.

46I do not find this argument to be persuasive. The exception used the word “initial” to qualify public offerings, but the exclusion does not. As a result, the exclusion is broad and applies to all public offerings not just initial public offerings.

47Kik also argues that the term “public offering of securities” means an initial public offering of shares or an IPO. This would limit the exclusion to only those claims arising out of the company going public, which, Kik argues, would be more consistent with the broad grant of coverage as set out in the insuring agreement.

48I am of the view that the term, “public offering of securities” is not ambiguous. The term “public offering” refers to a sale to the public. The exclusion does not include the word “initial” to qualify public offerings. There is no justification for reading in or substituting words in the Policy when the words used have a clear meaning and are unambiguous: Sam’s Auto Wrecking Co. Ltd. (Wentworth Metal) v. Lombard Insurance Company of Canada, 2013 ONCA 186, 114 OR (3d) 730, at para. 43.

49Kik also argues that the reasonable interpretation of the exclusion is that the words “shares” and “securities” are to be used interchangeably.

50I am of the view that there is no basis for reading the word “shares” into the exclusion. The Policy refers to “securities”. The word “shares” is not used anywhere in the Policy. There is nothing inherently ambiguous about the word, “securities”. This is a term that encompasses a wide range of investment vehicles including asset backed securities, debt securities, derivatives as well as shares in a corporation. Shares are one type of securities. I am of the view that there is no basis for restricting the exclusion to only applying to “shares” when the Policy uses the broader term, “securities”. If the word, “securities” is replaced with the word “shares” it would have the effect of rewriting the contract. As stated above, there is no justification for substituting words in a policy when the words have clear meanings.

- “Alleging”

51Kik also argues that the word “alleging” is susceptible to different interpretations and is therefore ambiguous. Kik argues the word could refer to a claim where it is alleged that something the company did not describe as a security is in law a security. Kik characterizes this as a legal allegation. Kik also argues that “alleging” can be read as meaning a claim where there is no dispute that what the company issued are securities, but the issue is centred upon whether the company in fact issued them. Kik characterizes this as a factual allegation.

52Kik argues that the exclusion applies only to factual allegations. In support of its position, Kik refers to the second half of the exclusion which refers to “such” securities and argues that the use of the word “such” refers to the actual security as opposed to an alleged security. Kik argues that as a result of this wording, the exclusion is limited to claims arising out of the public offering of actual securities and not arising out of something alleged to be a security. Kik argues that the sale of Kin is not an actual security and therefore the allegation that Kin is a security does not trigger the exclusion.

53In my view there is nothing ambiguous about the word “alleging”. An allegation is an assertion or statement of a fact to be true as described: Black’s Law Dictionary, 8th ed. The distinction Kik makes between actual securities and alleged securities is not found in the Policy. Based on the unambiguous language used, the exclusion applies to all allegations, whether the allegations are legal or factual.

54The Complaint makes allegations. The Policy provides that as long as there is an allegation of a claim arising out of a public offering of securities, the claim is excluded. The exclusion is triggered not by proof of a public offering of securities but by the allegation. It is my view that there is no basis for the argument that the exclusion applies only to claims arising out of the sale of actual securities as opposed to the sale of something that is alleged to be a security.

c) Reasonable Expectations

55Kik argues that the parties would reasonably expect exclusion 4(j) to be triggered only if the claim is with respect to an initial public offering or if the company was going public. Kik argues that it would be perverse, and not reasonably expected by the parties, to interpret the exclusion broadly and thereby take away all or part of the coverage that has been expressly confirmed in the insuring agreement.

56Kik notes that the Policy defines “securities claims” as claims by any person or entity, “alleging, arising out of, or based upon or attributable to the purchase or sale, or offer or solicitation of an offer to purchase or sell, any securities of a Company”. Kik argues that if the exclusion applied to all public sales of securities, the grant of coverage would be effectively nullified.

57I do not agree. The Policy provides broad coverage for the purchase and sale of securities. The exclusion carves out a subset of all sales to exclude public sales. In other words, private sales of securities are not caught by the exclusion. Based on the plain wording of the Policy, the Policy is not intended to provide coverage for any claims arising out of the public sale of securities. The exclusion limits the broad coverage in the insuring agreement but does not nullify coverage.

58It is my view that in applying Kik’s interpretation, the Policy would provide greater coverage than was bargained for. It would only exclude claims involving an initial public offering of shares, instead of claims arising out of any public sale or offering of all types of securities. Such a limitation in the scope of the exclusion cannot be justified on the clear unambiguous language used in the exclusion.

d) Does Exclusion 4(j) Apply

59I am of the view that exclusion 4(j) is unambiguous. It is therefore not necessary to resolve any ambiguity based on the reasonable expectations of the parties or applying the contra proferentem rule.

60The plain meaning of the exclusion is that it applies to claims which allege a public offering of securities. The exclusion is not limited to an initial offering of shares when a company goes public. The exclusion applies to all forms of security and is not limited to shares or stock in a company.

61In the Complaint, it is alleged that Kik sold one trillion Kin tokens in a single offering to the general public. It is also alleged that the purchases of Kin were an investment of money with the expectation of profits and therefore was an offer and sale of securities. The SEC Complaint alleges that Kik offered and sold securities without a registration statement or an exception from registration and therefore is in breach of the applicable securities law.

62The SEC Complaint is a claim “alleging, arising out of, based upon or attributable to” the public offering and sale of Kin. The Complaint alleges that Kin is a security. It is my view that the allegations in the Complaint fall within the unambiguous wording of exclusion 4(j), and as a result, the claim is excluded.

(i) Has Kik satisfied the exception in 4(j)(ii)?

63Kik argues in the alternative that if the exclusion is triggered, Kik has satisfied the conditions of exception (ii) of exclusion 4(j). The onus is on the insured to establish that the exception to an exclusion applies: Ledcor, at para. 52.

64The exception applies if four conditions are met; (1) the insured gives written notice of a public offering with full particulars and underwriting information; (2) the notice is given at least 30 days prior to the effective time of the public offering; (3) the insurer offers a quote for coverage; and (4) the insured accepts the conditions and pays the additional premium for such coverage. All conditions must be satisfied for the exception to apply.

65Kik argues that all four conditions were met. Kik states that it gave notice that it was selling the Kin currency to the public in its first e-mail to AIG on June 20, 2017, and that it was planning to sell its cryptocurrency in its e-mail sent on June 30, 2017. Both e-mails were sent more than 30 days before the public offering of Kin began on September 12, 2017. Kik argues that after AIG received the notice of its intention to sell Kin to the public, AIG offered a quote for coverage on July 7, 2017. Kik accepted the quote and paid the premium when due.

66AIG argues that the exception does not create a new category of coverage. Instead it is a mechanism pursuant to which the insured can purchase additional coverage for claims arising out of a public offering of securities. AIG states that Kik did not provide notice of a public offering of securities. In fact, Kik has maintained its position that Kin is not a security and that the sale of Kin was not a public offering of securities. AIG also argues that it did not offer to provide coverage for public offering of securities and as a result, Kik did not purchase the additional coverage.

67It is my view that the communication between Kik and AIG did not meet the first condition of the exception. The e-mails referred to by Kik do not provide notice that there will be a public offering of securities. In addition, Kik did not provide any particulars or underwriting information to allow AIG to determine whether the sale of Kin is a public offering of securities. Kik did not provide the white paper or marketing material it had prepared for the sale of Kin to the public. Kik did not tell AIG that it had been advised by a New York based consultant firm that the SEC could find that Kin was an investment contract which is a type of security. Kik completed the Application for Insurance on June 30, 2017. One of the questions on the Application reads: “has the Applicant or any of its subsidiaries had any private placement or other offering of securities within the last twelve (12) months or anticipate having any private placements or other offering of securities within the next twelve (12) months.” Kik did not answer that question.

68I am also of the view that AIG did not provide a quote for additional coverage. On August 11, 2017, Mr. Cameron sent an e-mail to Mr. Weekes and asked if there is an exclusion which would apply if the SEC determines that the token distribution is an IPO, and if so, what was the cost to remove the exclusion. AIG refused to remove the exclusion. AIG did not provide a quote to remove the exclusion.

69Kik purchased the Policy which excluded coverage for public offerings of securities. No additional premium was charged or paid to provide coverage for a public offering of securities. I find that Kik did not satisfy the conditions of exception (ii).

DISPOSITION

70I am satisfied that the wording of the exclusion is not ambiguous. The Policy excludes coverage for claims alleging or arising out of a public offering of securities. The Complaint alleges that the sale of the Kin currency was a public offering of securities. The allegations fall within exclusion 4(j) and as a result, Kik’s claim for coverage for defence costs is excluded.

71I am also satisfied that the conditions for the exception (ii) to the exclusion were not met. Kik did not provide notice that there will be a public offering of securities. AIG refused to remove the exclusion when asked to do so, and no quote was provided for coverage for the public offering of securities.

72I dismiss the Application.

73The Respondent is presumptively entitled to its costs of the Application. If the parties are unable to agree on costs, the Respondent may deliver its written costs submissions of no more than three pages in length, excluding caselaw, within ten days of the date of this endorsement. The Applicant may deliver its reply costs submissions, on the same basis, within ten days of receiving the Respondent’s submissions.