Court File and Parties

Court File No.: CV-22-00691867-0000 Date: 20241125 Superior Court of Justice - Ontario

Re: MICHAEL PRYCE, Applicant And: LAWYERS’ PROFESSIONAL INDEMNITY COMPANY, Respondent

Before: Akazaki J.

Counsel: Alysha D. Bayes, for the Applicant Andrew Valela, for the Respondent

Heard: October 22, 2024

Reasons for Judgment

Overview

[1] Michael Pryce, a licensed paralegal, seeks coverage for a professional negligence suit under a 2019 policy that LawPro issued to Jamie Bruce, a lawyer at Mr. Pryce’s employer, the Oshawa law firm Kelly Greenway Bruce. The plaintiff in the lawsuit is a former client who hired that firm to advance accident benefits and tort claims arising from a motor vehicle accident. There is no dispute that Mr. Pryce was acting within the scope of his employment and provided legal services to the client under Mr. Bruce’s supervision.

[2] LawPro accepted coverage for the claim against Mr. Bruce and the firm and have afforded them a defence. It has declined coverage for Mr. Pryce. He is a separately named defendant in the suit. The rationale behind the former client’s suit against Mr. Pryce personally was left as an imponderable. The former client’s lawyers received the application record and notification of the hearing but did not attend.

[3] Mr. Pryce was insured under a mandatory Paralegal Professional Liability policy issued by Lloyd’s Underwriters. If Mr. Pryce is successful here, the only real consequence would be duplicate insurance and the basis of a dispute between insurers over priority or equitable contribution. The sole issue in the application hearing was coverage for Mr. Pryce under the LawPro policy. In any insurance coverage case, the wording governs. After considering the general principles of liability insurance policy interpretation, I will deal with three issues raised in the parties’ arguments regarding the coverage afforded by the LawPro policy:

1. Relevant policy wording
2. Commercial background
3. Vicarious liability of the employer

[4] The LawPro policy is not a comprehensive liability policy. It insures lawyers against most, but not all, claims arising from their professional legal work. It extends coverage to lawyers’ firms, but only because all lawyers in the firm are separately insured. The wording of the policy does not include coverage for a separate lawsuit against a paralegal, because the LawPro coverage grant does not cover him as an insured.

[5] The contractual background of the LawPro policy, in the context of a suit against a licensed paralegal, requires the court to consider that the paralegal was obligated by the Law Society of Ontario to obtain his own insurance from the private insurance market. This background is important because it supports the interpretation of the policies as separate parts of a regulated scheme of mandatory professional insurance. The result is no different than the case of two or more lawyers sued for negligence with the law firm. In that instance, the separate policies issued to the lawyers would respond. The fact that the insurers are different in the case before me does not alter this reasoning.

[6] Finally, the law of employer liability for the professional torts of its employees does not extend to a separate duty to defend arising from the employment contract. In fact, there are good reasons for the common law not to recognize such a duty. Even if there were such a duty, it would not extend to requiring LawPro to defend a party it does not insure.

[7] For the reasons that follow, the applicant’s arguments fail to establish that LawPro’s insurance policy to Mr. Bruce extends coverage to the licenced paralegal, Mr. Pryce.

Principles of Liability Insurance Policy Interpretation

[8] The structure of the LawPro policy follows a typical pattern for liability insurance described in Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 SCR 245, at paras. 26-28, and Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 SCR 23, at para. 49. For the sake of completeness, I will describe the three logical parts of this kind of insurance.

[9] The starting point is the insuring agreement, also known as the coverage grant. The grant will define the outside scope of what the policy insures. The scope of coverage can be limited by the language of the grant before any consideration of exclusions. However, it must be construed broadly in the sense of extending insurance to the full meaning of the words: Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., [1993] 1 SCR 252, at 269.

[10] If a claim comes within the insuring agreement, the next step is to determine whether it could be removed from coverage by an exclusion clause. The absence of an exclusion does not create coverage, however. In principle, exclusion should be read narrowly, in the sense of preventing a result that would “necessarily result in a substantial nullification of coverage”: Consolidated-Bathurst v. Mutual Boiler, [1980] 1 SCR 888, at 903.

[11] The inquiry does not end at exclusions. There can be exceptions to exclusions. These clauses restore coverage in subsets of circumstances otherwise falling into exclusions. The exceptions do not create coverage, either: Progressive Homes, para. 28.

[12] The alternating structure of coverage grants, exclusions, and exceptions to exclusions, are easy to follow where the express terms of the policy are clear. Occasionally, insurance policies contain ambiguous wordings, either in the meaning of words or the grammatical order in which they are used. Ambiguities are to be resolved first in relation to the reasonable expectations of the parties. If ambiguities remain, the contra proferentum rule is a judicial tool of final resort, to construe the policy unfavorably against the insurer: Ledcor, at para. 51.

[13] Mr. Pryce clearly does not come within the LawPro coverage grant because he is not a lawyer. The court need not and cannot consider exclusions or exceptions where the grant does not provide coverage.

[14] Finally, much of the traditional reasoning behind the development of general interpretive principles for insurance policy interpretation stems from the absence of negotiation of standard form insurance contracts: Ledcor, at paras. 27-32. This contrasts with manuscript policies, where the parties craft and tailor insurance suited to the specific needs of the policyholder: Coleman v. Great American Insurance Company, 2010 BCSC 1796, at para 60.

[15] The LawPro policy, as I will explain, cannot be considered a standard form. For example, it bore no resemblance to the Lloyd’s policy, which did follow a standard form. However, the LawPro policy must be considered a contract of adhesion, in the sense that the LSO requires every lawyer to purchase the coverage. Whereas the Lloyd’s coverage is a “take-it-or-leave-it” contract, as described in MacDonald v. Chicago Title Insurance Company of Canada, 2015 ONCA 842, at para. 33, the LawPro policy is a “take-it-or-face-licence-suspension” contract. The significance of the mandatory insurance coverage and the captive nature of LawPro’s pool of policyholders is that the policy must be construed as matching hand and glove with the LSO’s authority to require lawyers to take out liability insurance with LawPro on their own activities as lawyers.

Issue 1: Reading the LawPro Policy Wording

[16] It is clear from a reading of the LawPro policy that its intention is to insure lawyers, and that the extension of coverage to their firms arises from the fact that every lawyer in the firm is also insured under their own coverage. In this regard, the LawPro policy mirrors the organization of lawyer licensing in Ontario. The LSO regulates individual lawyers. Apart from administrative conveniences for operation of trust accounts the authorization of lawyers’ practices through law partnerships and corporations, the LSO does not license or regulate law firms.

[17] Mr. Pryce, a paralegal insured under a different insurance regime, does not qualify as an insured under the coverage grant. This is clear from a reading of the insuring agreement and its defined terms.

(a) Insuring Agreement

[18] Section A of the insuring agreement in the LawPro policy read as follows:

A. DAMAGES: To pay on behalf of the INSURED all sums which the INSURED shall become legally obligated to pay as DAMAGES arising out of a CLAIM, provided the liability of the INSURED is the result of an error, omission, or negligent act in the performance of PROFESSIONAL SERVICES for others.

[19] Section B of the insuring agreement also afforded a duty to defend the insured “in respect of such coverage as provided by this POLICY,” referring to the coverage under Section A. Coverage for Mr. Pryce therefore depends on the meaning of Section A. Section A, in turn, is limited by the definitions of the words spelled out in block capitals.

(b) Definitions of “INSURED,” “LAWYER,” and “PROFESSIONAL SERVICES”

[20] Interpretation of Section A requires the court to apply the policy definitions of the terms “INSURED,” “LAWYER,” and “PROFESSIONAL SERVICES.” The definitions reproduced below make it clear that the policy insures lawyers and their firms. I also underline the stipulations involving employees of the firm, and how the definitions restrict the meaning to employed lawyers of the firm:

(q) INSURED(S) means NAMED LAWYER(S) and UNNAMED LAWYER(S). NAMED LAWYER(S) means: (i) each LAWYER who is engaged in the practice of law and has applied for and been granted coverage under this POLICY and who is named in the Declarations as an INSURED; (ii) such other LAWYERS or former LAWYERS, as well as former members of the Law Society of Ontario … (iii) each LAW PARTNERSHIP, other than a MULTI-DISCIPLINE PARTNERSHIP or COMBINED LICENSEE FIRM , but only with respect to the rendering of PROFESSIONAL SERVICES by the partner(s) and/or employee(s) of such LAW PARTNERSHIP who are INSURED(S) under this POLICY and named in ITEM 1 of the Declarations as INSURED(S), and then only to the extent of coverage afforded to such partner(s) and/or employee(s) in their respective capacities as such; (iv) each LAW CORPORATION, and its officer(s), director(s), shareholder(s) and/or employee(s) who are LAWYERS , but only with respect to the rendering of PROFESSIONAL SERVICES by the officer(s), director(s), shareholder(s) and/or employee(s) of such LAW CORPORATION who are INSURED(S) under this POLICY and named in ITEM 1 of the Declarations as INSURED(S), and then only to the extent of coverage afforded to such officer(s), director(s) and/or employee(s) in their respective capacities as such.

(2) LAWYER(S) means each person who holds a Class L1 licence pursuant to the by-laws of the Law Society Act.

(gg) PROFESSIONAL SERVICES means the practice of law of Canada, its provinces and territories, where conducted on behalf of an INSURED in such INSURED’S capacity as a LAWYER or member of the law society of a RECIPROCATING JURISDICTION (not as a member of the Barreau du Québec), subject to Part II Special Provision A; and shall include, without restricting the generality of the foregoing, those services, for which the INSURED is responsible as a LAWYER arising out of such INSURED’S activity as a trustee, administrator, executor, arbitrator, mediator, patent or trademark agent.

[21] The references to employees of the firms, either as partnerships or as law corporations, as including only lawyer, contrasts with the definition in the Lloyd’s policy taken out by Mr. Pryce, which includes employees of Mr. Pryce if he had been a paralegal sole practitioner, without any restrictions on the qualifications of the employee (underline added):

2.7 “Insured” means any individual, firm, company or limited liability partnership specified in Item 1 of the Declarations , including any of their predecessors in business, its partners, principals, directors. Members, employees (including any former partner, director or member) and their legal representatives, estate or heirs in the event of their bankruptcy, incapacity or death.

[22] I need not consider whether the law firm is insured under the Lloyd’s policy, in respect of any liability on Mr. Pryce’s part. That policy is not before me for the purpose of interpreting the wording.

[23] LawPro’s professional liability policy differs from the language of many commercially available policies, in not including a general extension of coverage to firm employees. Instead, it extends coverage only to law firm employees who are lawyers. The plain and grammatical meaning of the definitions of insureds and law firm employees is to reflect the fact that all lawyers of a firm are insured under separate insurance policies, at least at the primary layer. This affords protection for all lawyers of the firm against joint and several liability arising from the fault of other lawyers of the firm.

[24] Finally, the extension of coverage to law partnerships is qualified by the words “other than a … COMBINED LICENSEE FIRM.” A combined licensee firm, as defined elsewhere, consists of lawyers and paralegals. This clearly implies that the policy covers only the joint and several liability of other lawyers and does not accept an indemnity obligation in respect of paralegals such as Mr. Pryce, whom the LSO requires to be insured under a separate insurance regime.

[25] Because the LawPro policy extends coverage only to the insured lawyer, to the law firm, and to the other lawyers for joint and several liability, it does not extend coverage to Mr. Pryce, who is not a lawyer. I need not resort to special interpretive rules, or refer to coverage exclusions or exceptions from exclusion, to arrive at this conclusion. Thus, the application fails under an ordinary contextual reading of the policy.

Issue 2: Commercial Background of the LawPro Policy

[26] Long before Ledcor and Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 SCR 633, the Supreme Court considered the surrounding circumstances of a contract, including insurance policies, to protect the reasonable expectations of the parties in the interpretive process. In Consolidated Bathurst, at pp. 901-02, it was the “commercial atmosphere in which the insurance was contracted.” In that 1979 case, the Supreme Court stated:

“the courts should be loath to support a construction which would either enable the insurer to pocket the premium without risk or the insured to achieve a recovery which would neither be sensibly sought nor anticipated at the time of the contract.

[27] LSO By-law 6, Part 1, as filed in the record, requires lawyers to apply for and obtain liability insurance coverage through LawPro as the insurance plan arranged for by the LSO. I can take judicial notice that LawPro is the successor brand name of a 1990 corporation, originally called LPIC and operated directly by LSO Convocation. The history of the reorganization and rebranding arose from a 1990’s funding crisis which is immaterial to this proceeding but should be known to all who were members of the Law Society of Upper Canada (the LSO’s former name) at the time. LawPro is now operationally separate from the LSO, but the fact that it is a single insurer providing mandatory primary insurance coverage to lawyers for the practice of Canadian law is relevant. Individual lawyers have no say in the wording of the LawPro policy.

[28] The consequence of this mandatory and captive insurance is that the court should read its terms broadly in favour of coverage for the insured. However, in view of the pains taken to restrict the class of persons who are insured to lawyers, the court cannot then extend the breadth of coverage to persons who are not lawyers.

[29] Mr. Pryce is not a lawyer. He is licenced under class P1 as a paralegal. LSO By-law 6, Part 2, s. 12, requires a paralegal to hold a policy of professional liability insurance comparable to a LawPro policy, but the insurance can be purchased from any insurer licenced in Ontario. Lloyd’s is such an insurer.

[30] By-law 6 does not require law firms, whether operating as partnerships or as law corporations, to insure themselves. Instead, every lawyer and paralegal must be insured personally. Law firms are afforded coverage from LawPro through the insurance levies charged to every lawyer. This regulatory structure means the two licensed professions require separate forms of mandatory primary professional liability insurance. There is no duplication of insurance. Rather, the insurance fulfils the LSO’s public protection role to make sure clients of these professionals have recourse if they incur damages from substandard service.

[31] Had two lawyers been named personally in the liability suit beside the law firm, LawPro would be liable to defend both and the firm, but it would do so under two policies. Such a typical case would not preclude instances where this symmetry and harmony create differences in coverage. In Cassels Brock & Blackwell v. Lawpro, 2007 ONCA 122, at para. 7, the Court of Appeal upheld the application judge’s finding that the LawPro policy did not cover the use of a law firm trust account used to provide investment services. One can readily imagine the coverage being afforded to a claim arising from the negligence of specific lawyers performing actual legal services. If the coverage for the law firm could be split between covered and uncovered claims against separate lawyers in the same firm, it would be because the insurance coverage was anchored in the protection of individual lawyers.

[32] Difference in coverage for different personnel in a law firm is no more unimaginable than other instances of separate insurance for different aspects of a common enterprise. In Derksen v. 539938 Ontario Ltd., 2001 SCC 72, [2001] 3 SCR 398, the Supreme Court considered the liability insurance implications of the death and injuries of occupants of a school bus, after a steel base plate flew off the tow bar of a haulage vehicle and through the windshield of the bus. The court held the automobile insurer and the general liability insurer separately covered liability for the projectile, one for the liability arising from the vehicle and the other arising from the failure to secure it to the vehicle as part of construction site clean-up.

[33] The principled coverage analysis as between Mr. Bruce and Mr. Pryce is no different. Each is a policyholder. It happens that, in the deliberations leading to paralegal licensing, the LSO and the province did not mandate insurance for paralegals by a common captive insurer. Instead, paralegals were permitted to buy insurance in the commercial market, as evident in By-law 6 and in the Lloyd’s policy filed in evidence here. This difference does not affect the legal result on the coverage question here. Mr. Bruce and Mr. Pryce were both insured. The insurers can later dispute the extent to which each’s insured contributed to the client’s loss, if they are found liable for the client’s loss. In contrast, duplication of insurance occurs when the same insured is covered under two or more policies for the same risk. If the LawPro policy covered P1 paralegal licensees working at law firms, they should be exempt from the insurance requirement and insurers such as Lloyd’s would indeed be pocketing a premium for primary insurance even though its exposure would only be excess.

[34] The commercial background to the LawPro policy therefore supports an interpretation that is harmonious with the regulatory background. L1 and P1 licensees both need to be insured against clients’ claims. The fact that lawyers must insure with LawPro at a fixed premium and paralegals can negotiate policies in the insurance market does not change the structure of the regulatory scheme. Mr. Bruce and Mr. Pryce both had to be insured under their own policies. The commercial reality does not favour a reading of the coverage as overlapping or contemplating insurer priority disputes. Rather, they were intended by all concerned to exist as separate insurance policies that the subject licensees had to carry.

Issue 3: The Applicant’s Theory of Coverage Arising from Employers’ Vicarious Liability

[35] There was no dispute that the law firm was vicariously liable for any negligence of Mr. Pryce during his handling of the claim, because he was an employee and not an independent contractor. The modern evolution of respondeat superior in the employment law context arose from the public policy reality that employers are better situated to manage the risk: London Drugs Ltd. v. Kuehne & Nagel International Ltd., [1992] 3 SCR 299, at 337.

[36] Relying on London Drugs, Mr. Pryce’s counsel argued that LawPro’s refusal to defend Mr. Pryce “risks upending decades of case law that obligates an employer to defend and indemnify their employee for actions performed in the course of employment.” London Drugs did not extend employer vicarious liability to an obligation to defend the employee in litigation. These are different duties.

[37] In practice, the risk of vicarious liability prompts employers to assume the cost and carriage of an employee’s defence to a lawsuit. There are often good reasons to defend the employee, such as the maintenance of a common front to avoid a plaintiff from exploiting a wedge in the defence at trial. In most instances where an insurer defends an employer, the comprehensive or commercial general liability (CGL) policies sold to businesses contain express coverage and defence obligations covering employees, like the one contained in the Lloyd’s policy sold to Mr. Pryce. The other case law cited by Mr. Pryce’s counsel derived their source from CGL disputes.

[38] There can also be good reasons for an employer not to defend an employee. In James-Bowen et al. v. Commissioner of Police, [2018] UKSC 40, at paras. 34-38, the U.K. Supreme Court has held that recognition of an employer’s duty to defend employees could place employers in unfair conflicts of interest and gave four public policy reasons against an implied duty to defend an employee. Of those, the first two are the most persuasive. The recognition of a duty to defend the employee could fetter the employer’s ability to defend itself as the real target and funder of indemnity for the claim, including the need to protect the employee from public criticism or embarrassment during the trial. The duty could also discourage employers’ settlement of civil claims separately from employees, where employees insist on defending at the employer’s expense. These arguments are by no means ironclad. However, potential limitations to arguments against recognizing a common law defence obligation do not amount to reasons for recognition.

[39] The only Canadian decision dealing with the point appears to be Williams v Mutual Life Assurance Co. (2000), 20 TLWD 2014-016. In that case, the employer had circulated a memorandum to employees purporting to provide insurance coverage to them. Somers J. held that the memorandum did not amount to an insurance policy but the employer’s promise to indemnify its employees. It did not carry with it an obligation to defend an action against employees.

[40] A similar argument recognizing an implied duty to defend arising from a duty to indemnify certainly does not exist in insurance law. In the absence of an express contractual duty to defend, the court cannot read one into an insurance policy: Alie v. Bertrand & Frere Construction Co. Ltd. (2009), 62 O.R. (3d) 345, at para. 219. Insurance and employment contracts are different in nature but are both contracts. The rationale in Alie was the courts’ lack of authority to rewrite the terms of contracts. By the same principle, the court has no authority to fill in the absence of coverage for Mr. Pryce in the LawPro policy. It is not a question of filling in a gap in express coverage where a non-lawyer employee could be construed as qualifying as an insured. Even if the common law recognized an implied duty to defend in the employment contract, the courts cannot impose an analogous duty on an insurer unless the policy expressly extended the duty to defend to such a duty. The LawPro policy contains no such wording.

[41] I therefore reject the argument made on behalf of Mr. Pryce, that he is covered under the LawPro policy because the law firm that employed him owes him a defence. Even if there were such a duty in employment law, it would not give rise to coverage under an insurance policy that does not provide analogous coverage. The vicarious liability argument therefore fails to establish that the LawPro policy insured Mr. Pryce in respect of the liability claim.

Costs

[42] LawPro was successful in opposing the application. Its costs were approximately double the comparable amounts stated in the applicant’s costs outline. This comparison is an important factor in assessing the reasonable expectations of the parties in bringing and resisting these types of cases, in accordance with the principles stated in Boucher v. Public Accountants Council for the Province of Ontario, at para. 37.

[43] Among the rule 57.01 considerations, there were no aspects of the case warranting a higher scale of costs, such as misconduct or improper step. Ultimately, what seems to have motivated the parties’ ties into clause 57.01(1)(d), the importance of the case to the parties.

[44] LawPro’s arguments, both written and oral, emphasized that the application was really a subrogated attempt by Lloyd’s to transfer the risk to LawPro. In this regard, I am cognizant of LawPro’s mandate to fully defend the application and to seal off any possibility of a court ruling in Mr. Pryce’s favour. LawPro is not a commercial entity and has a mandate to contain attempts to expand coverage beyond the premium it charges lawyers.

[45] Since the fixing of costs is intended to be an efficient exercise performed by the judicial officer who reviewed the materials and presided over the hearing, it is not to be an assessment of costs. The applicant’s bill of costs is also helpful in measuring proportionality, and parties are encouraged to submit them before they know the outcome. I therefore award costs to LawPro on a partial indemnity basis, in the amount of $25,000.00, inclusive of disbursements and HST.

Conclusion

[46] The application is dismissed, with costs payable by the applicant to the respondent in the amount of $25,000.00, inclusive of disbursements and HST.

Akazaki, J. Date: November 25, 2024