Court File and Parties

COURT FILE NO.: CV-19-629363

DATE: 20221101

ONTARIO SUPERIOR COURT OF JUSTICE

RE: Colliers International Group Inc. and Colliers International - Atlanta, LLC, Applicants

-and-

Liberty Mutual Insurance Company, Allianz Global Risks US Insurance Company and Axis Reinsurance Company (Canadian Branch), Respondents

BEFORE: FL Myers J

COUNSEL: Christiaan A. Jordaan, for the applicants

Thomas J. Donnelly and Joyce Tam, for the respondents

HEARD: October 27, 2022

ENDORSEMENT

The Application and Outcome

[1] The applicants seek indemnity for claims made under a professional liability policy. It is a “claims made” policy. It only covers claims made during the term of the policy. The policy has a provision that excludes some claims made during the policy term if the applicants knew about the claims before the policy term and did not tell the insurer.

[2] Prior to the policy coming into force, the applicants knew that concerns had been raised about their conduct by a customer. The applicants did not tell the insurers. The customer made a claim against the applicants during the policy term.

[3] The facts are not in dispute. The case turns on the policy wording. Did the facts known by the applicants before the policy came into force trigger the exclusion? The applicants say that they did not know a claim was coming with sufficient certainty to trigger the exclusion. The insurers disagree.

[4] In my view, the exclusion applies by its unambiguous terms and the application is therefore dismissed.

The Exclusion

[5] The relevant clause in the insurance policy says:

We shall not cover claims: [ ... ]

N. arising out of or resulting, directly or indirectly, from any wrongful act committed prior to the first inception date if, as of the first inception date, your Global Claims & Insurance Department or Chief Legal Counsel knew or could have reasonably foreseen that such wrongful act did or would result in a claim against you; [ ... ] [Emphasis added.]

[6] The applicants rely on the underlined words and say that for the exclusion to apply they had to have known prior to the policy coming into force that a claim “would result”. They distinguish this wording from a clause in which the insured is required to disclose facts about claims that “might” result. The applicants say that they knew that a claim was possible, perhaps. But they did not know that a claim was sufficiently certain to know that it “would result” from the known facts.

[7] In Liberty Mutual Insurance Company v. Cronnox Inc., 2018 ONSC 1578, Cavanagh J. was dealing with a clause that required disclosure if the insured knew facts prior to the policy period that “might” result in a claim. At para. 66 of that decision, the judge distinguished the lesser “might” from proof of a more certain outcome:

However, in order to meet its burden of showing that the exclusion applies, Liberty does not need to show that Cronnox was negligent, or that Mr. Peric could have reasonably expected that a "Claim" would certainly, or even probably, follow from the acts alleged in the September 2013 correspondence.

[8] Mr. Jordaan submits that this case fits within the alternative identified by Cavanagh J. Rather than requiring mere proof that a claim “might” result, this policy says that claims are only excluded if the applicants knew that a claim “would result”. Unlike the policy before Cavanagh J., for a claim to be excluded under this policy, the insured had to have known with much more certainty or probability that a claim within the policy period would result from the matters known before the policy came into force.

[9] In Michelin North America (Canada) Inc. v. ACE INA Insurance, 2008 CarswellOnt 3470, Pattillo J. held that receipt of a “litigation hold” letter without more did not trigger even a clause excluding claims where the insured had information from which a claim “might” result. In discussing the letter received by the insured before the policy period, Pattillo J. found:

Although it raises the possibility of litigation, it makes no claim nor alleges any specific facts that could give rise to a claim. It provides no time period in question and gives no reference to a specific act or acts. Accordingly, based solely on the March 10, 2003 letter, I would not hold that Michelin was disentitled to coverage under the Policy for non compliance with Article II of the EBL Endorsement.

[10] The respondents submit that the applicants are ignoring the vital words that I have bolded in the exclusions clause above. They submit that it is wrong to look only at the degree of certainty of a claim. Rather, the clause looks at the facts known by the Chief Legal Counsel of the insured and excludes claims if she or he:

…could have reasonably foreseen that such wrongful act…would result in a claim…

[11] The test, they submit, is not whether a claim definitely would emerge, but whether a senior lawyer could have reasonably foreseen that a claim would be brought during the policy term. The word “would” in this usage does not imply an imperative. Rather it defines a future condition or possibility.

[12] Said differently, the issue here is not whether the insured knew that a claim would certainly be brought. Rather the issue is whether someone skilled in the art could reasonably foresee that a claim would be brought.

[13] The insurers submit that foresight allows for options. One can reasonably foresee that a claim would be brought at the same time as reasonably foreseeing that no claim would be brought. The introduction of foresight into the future provides a choice of future options or conditionality. The word “would” does not require certainty for one to reasonably foresee that something would happen. It might or it might not.

[14] I agree with the insurers. The clause focuses on an objective assessment of the reasonableness of what the Senior Legal Counsel could have foreseen based on the facts he or she knew.

[15] When considering the objective reasonableness of counsel’s foresight, the court must consider whether, based on what the Senior Legal Counsel knew, she or he could have foreseen circumstances in which a claim would definitely have been brought. But that just describes one optional outcome. It does not mean that a claim will always be brought. Counsel could also reasonably foresee a circumstance where a claim might be brought and another one where no claim is brought.

[16] The words “could have reasonably foreseen that such wrongful act…would result in a claim” do not carry the imperative meaning that the Chief Legal Counsel knew facts from which a claim would certainly result.

[17] All counsel agreed that the word “would” has different meanings when used in different senses and tenses. The use of “would” in this clause carries only the future conditional rather than the past or present imperative.

[18] This is just grammar. None of the cases recited is directly on point with the grammatical issue in this clause. There is no ambiguity. There are two possible meanings asserted; but only one fits the grammar of the sentence.

The Facts

[19] On March 30, 2016, counsel for a client of the applicants, referred to as MFRM, sent a litigation hold letter to the applicants. It gave no facts or details. Rather it said that MFRM was investigating circumstances that may lead to the applicants being involved in litigation.

[20] That day, MFRM fired the applicants as their real estate consultant. It also asked the applicants’ employee Alex Deitch to submit to interrogation. Mr. Deitch was the applicants’ lead contact for this customer.

[21] Mr. Deitch submitted to questioning. The topic was ostensibly about the actions of former senior officials of MFRM whom it had also fired recently.

[22] MFRM asked to take possession of Mr. Deitch’s cell phone to image his texts and emails. He refused the request.

[23] Mr. Deitch reported internally to the Senior Legal Counsel about the interrogation as follows:

It appears the former head of real estate and possibly former CEO [of MFRM] were engaged in multiple conflict of interest related real estate transactions involving [MFRM] real estate which either were not disclosed at all or breached the Company's code of conduct. It appears, after talking with [the applicants’ CEO], that there is a chance that Alex was either knowingly or unknowingly involved. The interrogation yesterday was along that vein - to the extent of [MFRM. asking Alex to give them his cell so that it could be forensically imaged - he refused to do this but did disclose quite a bit of information.

Some of the facts that I've now learned are as follows:

Alex essentially held the 'integrator' role for [MFRM]'s U.S. real estate needs.

Alex and the [MFRM’s] former head of real estate (Bruce _) over the years became good friends. Alex apparently has provided in the range of $20,000 in gifts to Bruce.

Alex has loaned money to Bruce for Bruce to purchase cars and for a trip to London. Bruce apparently has paid that money back.

Alex apparently invested in multiple (approximately 20) [MFRM] real estate development deals over the years. Colliers At[lanta] had a policy requiring disclosure of the same and written approval from the client. There doesn't appear to be a writing from the client approving of Alex's participation.

In Q4 2015, Bruce wrote to Alex asking that the company rebate funds back to Bruce's team on deals closed by Colliers. The funds were to be placed into a separate account to defray travel and related deal costs. We apparently cooperated in this regard.

[24] The client then wrote to the marketplace to advise that the applicants and its employee Alex Deitch were no longer its authorized representatives.

[25] On April 16, 2016, Alex Deitch’s lawyer proposed to the applicants’ Chief Legal Counsel that they enter into a joint defence agreement and cooperate on document management, “in order to combat claims being made by [MFRM]”.

[26] In the summer, the applicants hired a lawyer on contract specifically to review Alex Deitch’s emails. The emails were generally inconclusive but did confirm that Alex Deitch had participated in some of MFRM’s real estate transactions.[^1]

Analysis

[27] Based on these facts, prior to the policy commencing, the applicants did not know that MFRM would bring a claim against them during the policy term. MFRM never actually told the applicants any details of the wrongdoing they asserted or of any claims they might bring or when they might do so, if ever. They promised to give some notice to the applicants before suing them.

[28] If the exclusion required that the applicants know before the policy came on foot that claims would be brought within the policy term, then the applicants knew no such thing.

[29] But, the applicants’ Chief Legal Counsel had more than ample knowledge of alleged wrongful acts that he could have reasonably foreseen that the wrongful acts would result in a claim during the policy period.

[30] This does not strike me as a very difficult holding. The allegations could be uncharitably characterized to include conflicts of interest, paying bribes, and giving kickbacks. This is not a case where all that was known was that someone sent a litigation hold letter like the case before Pattillo J.

[31] While the applicants receive many litigation hold letters in a year, here they engaged in a joint defence agreement with Mr. Deitch’s counsel to combat MFRM’s claims. They hired a lawyer specifically to start document review processes.

[32] Mr. Jordaan distinguishes facts told to the applicants by MFRM from facts they learned internally. The exclusion clause does not distinguish among the sources of the applicants’ knowledge. I agree that facts and threats stated directly by MFRM would be more powerful facts in assessing the reasonableness of the Chief Legal Counsel’s knowledge. But here, the applicants had the facts from their own employee against whom allegations of complicity in wrongdoing by MFRM’s senior officers had been raised in an interrogation. No reasonable lawyer, especially one skilled and experienced in commercial real estate trading, could miss the import of the facts reported by Mr. Deitch. And the applicants’ Senior Legal Counsel did not miss the import. He acted on it.

[33] Looking at the words of the exclusion clause, no one doubts that the claim made by MFRM during the policy term is a claim arising out of wrongful acts committed prior to the policy commencement date. Based on the foregoing, I find that at the policy commencement date the applicants’ Chief Legal Counsel could have reasonably foreseen that such wrongful acts would result in a claim against the applicants during the policy term.

[34] As noted above, it is possible that the Chief Legal Counsel could have reasonably foreseen that no claim would be brought during the policy term. But he could also have reasonably foreseen that a claim would be brought and that is precisely what triggered the exclusion clause.

[35] The application is therefore dismissed. The applicants do not contest the quantum of costs claimed by the respondents on a partial indemnity basis. I find the rates and hours claimed to be reasonable and within market norms. The applicants shall therefore pay the respondents their costs of this application on a partial indemnity basis fixed at $26,285.71 all-inclusive.

FL Myers J

Date: November 1, 2022

[^1]: After the policy term commenced, it appears that approvals may have been located allowing Alex to invest in the client’s deals. That was not known at the date the policy term commenced, however.