Onex Corp. et al. v. American Home Assurance Co. et al., (2013) 302 O.A.C. 301 (CA)

• Judge: O'Connor, A.C.J.O., Rosenberg and Simmons, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: June 20, 2012
• Jurisdiction: Ontario
• Citations: (2013), 302 O.A.C. 301 (CA);2013 ONCA 117

Onex Corp. v. Am. Home Assurance (2013), 302 O.A.C. 301 (CA)

MLB headnote and full text

Temp. Cite: [2013] O.A.C. TBEd. MR.006

Onex Corporation, Gerald W. Schwartz, Christopher A. Govan, Mark Hilson and Nigel Wright (plaintiffs/defendants by counterclaim/respondents/cross-appellants) v. American Home Assurance Company, Brit Syndicates Ltd. (Lloyd's Syndicate 2987), Heritage Managing Agency Limited (Lloyd's Syndicate 3245), XL Insurance Company Limited, Liberty Mutual Insurance Company, Lloyd's Underwriters Syndicates No. 2623, 0623, 0033 and AIG Europe (UK) Limited, and Houston Casualty Company (defendants/plaintiff by counterclaim) and American Home (respondents/appellant/respondent on cross-appeal)

(C54076; C54123; C55034; 2013 ONCA 117)

Indexed As: Onex Corp. et al. v. American Home Assurance Co. et al.

Ontario Court of Appeal

O'Connor, A.C.J.O., Rosenberg and Simmons, JJ.A.

February 25, 2013.

Summary:

Magnatrax Corp., a former subsidiary of Onex Corp., was involved in proceedings under Chapter 11 of the United States Bankruptcy Code. The Magnatrax Litigation Trust was established to pursue claims on behalf of the unsecured creditors of Magnatrax and its subsidiaries. In 2005, Onex Corp. and four of its directors and officers (the "personal defendants") were sued in Georgia (the Georgia Action) by the Trustee of the Magnatrax Litigation Trust. In defending the Georgia Action on behalf of itself and the personal defendants, Onex incurred close to US$35 million in costs. Onex and the personal defendants sued American Home Assurance Co. and various excess insurers for reimbursement for defence costs incurred in the Georgia Action under a US$15 million 2004-2005 American Home directors' and officers' ("D&O") liability insurance policy (the "Onex 2004-2005 Policy") and various excess D&O policies purchased for the 2004-2005 policy year (the "2004-2005 Excess Policies"). In the alternative, Onex and the personal defendants claimed reimbursement under a US$15 million 2002-2003 American Home D&O policy (the "Onex 2002-2003 Policy"). Competing motions for summary judgment were brought by Onex and the personal defendants and American Home and the Excess Insurers.

The Ontario Superior Court, in a decision reported at [2011] O.T.C. Uned. 1142, found that Onex and the personal defendants were not entitled to reimbursement for defence costs in connection with the Georgia Action under the Onex 2004-2005 Policy. It followed that the Excess Insurers were also excluded from liability under the 2004-2005 Excess Policies. The motion judge accordingly dismissed Onex's action against the Excess Insurers. However, the motion judge ordered American Home to pay Onex US$15 million on behalf of the personal defendants for defence costs in connection with the Georgia Action under the Onex 2002-2003 Policy. American Home moved to amend its counterclaim to have the monies owing under the Onex 2002-2003 Policy set-off against the US$13,881,991.90 that it had already paid to the personal defendants under a D&O liability insurance policy issued to Magnatrax (the "Magnatrax Run-Off Policy"). American Home also moved for summary judgment on the set-off issue.

The Ontario Superior Court permitted American Home to amend its pleadings, but dismissed the motion for summary judgment on the amended claim. American Home appealed from the motion judge's judgments requiring that it pay US$15 million to Onex and the personal defendants under the Onex 2002-2003 Policy and dismissing its claim for set-off. Onex and the personal defendants cross-appealed from the motion judge's dismissal of their action for indemnification under the Onex 2004-2005 Policy and the 2004-2005 Excess Policies. They also cross-appealed from the motion judge's judgment granting American Home leave to amend its pleadings to plead set-off.

The Ontario Court of Appeal allowed American Home's appeal, set aside the decision of the motion judge and returned the matter to the Superior Court. The court dismissed the cross-appeal.

Estoppel - Topic 377

Res judicata - As a bar to subsequent proceedings - When applicable - [See Practice - Topic 2139.3 ].

Insurance - Topic 790

Insurers - Liability - Where two or more policies cover risk - Notice of dispute - [See first Insurance - Topic 6833 ].

Insurance - Topic 1851

The insurance contract - Interpretation of contract - General - The Ontario Court of Appeal discussed the legal principles for interpreting the terms of an insurance policy - See paragraphs 100 to 108.

Insurance - Topic 1866

The insurance contract - Interpretation of contract - Construction in case of ambiguity - Reasonable interpretation - [See third Insurance - Topic 6833 ].

Insurance - Topic 6833

Liability insurance - Director's indemnification insurance - Defence costs - In 2005, Onex Corp. and four of its directors and officers (the "personal defendants") were sued in the state of Georgia by the Trustee of the Magnatrax Litigation Trust - The Georgia Action arose out of bankruptcy proceedings involving Magnatrax Corp. in the U.S. - Onex and the personal defendants sued American Home Assurance Co. and various excess insurers for reimbursement for defence costs incurred in the Georgia Action under various directors' and officers' ("D&O") liability insurance policies - One issue was whether Onex had provided notice to Amercian Home under clause 7(c) of the "Onex 2002-2003 Policy" - Clause 7(c) provided that the period of coverage could be extended beyond the policy period if an insured party provided notice during the policy period of circumstances that might lead to a future claim - On August 1, 2003, Foley and Lardner, counsel for the Magnatrax Creditors' Committee, had written to counsel for Magnatrax asserting that the Creditors' Committee believed that Magnatrax had various claims against Onex and its affiliates, and the officers and directors of Onex and Magnatrax - Magnatrax's counsel forwarded the Foley letter to Aon Reed Stenhouse (Aon), an insurance broker who acted for Onex and Magnatrax - On November 28, 2003, the day before the Onex 2002-2003 Policy was to expire, Aon faxed the Foley letter to American Home - In doing so, Aon referenced the Onex 2002-2003 Policy and stated that the Foley letter contained information on a situation which could give rise to a claim under that policy - A judge on a summary judgment motion concluded that Onex had given notice of the circumstances that gave rise to the Georgia Action pursuant to the Onex 2002-2003 Policy (and other policies therefore did not provide coverage) - On appeal, Onex argued that the Foley letter did not satisfy the specificity requirements of clause 7(c) of the Onex 2002-2003 Policy in that it did not set out full particulars as to dates, persons and entities involved - The Ontario Court of Appeal held that the Foley letter contained sufficient particulars to meet the requirements of clause 7(c) of the Onex 2002-2003 Policy such that the Georgia Action constituted a claim made during the policy period of the Onex 2002-2003 Policy - See paragraphs 82 to 95.

Insurance - Topic 6833

Liability insurance - Director's indemnification insurance - Defence costs - Onex Corp. and four of its directors and officers (the "personal defendants") were sued in the state of Georgia by the Trustee of the Magnatrax Litigation Trust - The Georgia Action arose out of bankruptcy proceedings involving Magnatrax Corp. under Chapter 11 of the United States Bankruptcy Code - The Magnatrax Litigation Trust was established during the Chapter 11 proceedings to pursue claims on behalf of the unsecured creditors of Magnatrax and its subsidiaries - Onex and the personal defendants sued American Home Assurance Co. and various excess insurers for reimbursement for defence costs incurred in the Georgia Action under various directors' and officers' liability insurance policies - American Home argued that the loss arising from the Georgia Action was excluded by Endorsement #14 of the "Onex 2002-2003 Policy" because the loss arose out of or in connection with a claim brought by Magnatrax - The judge on a motion for summary judgment rejected the argument - The Ontario Court of Appeal agreed with the motion judge's conclusion - The court concluded that the parties intended the exclusion in Endorsement #14 to apply only to loss arising from a claim brought by Magnatrax - Had the parties intended that the exclusion was to apply to loss arising from a claim brought by assignees, trustees, or other representatives asserting Magnatrax's claims, they would have specifically said so - See paragraphs 114 to 128.

Insurance - Topic 6833

Liability insurance - Director's indemnification insurance - Defence costs - Onex Corp. and four of its directors and officers (the "personal defendants") were sued in Georgia by the Trustee of the Magnatrax Litigation Trust - The Georgia Action arose out of bankruptcy proceedings under Chapter 11 of the United States Bankruptcy Code involving Magnatrax Corp., a former subsidiary of Onex - While serving as directors and officers of Onex, two of the personal defendants were also directors and officers of Magnatrax - In the Georgia Action, it was alleged that the other two personal defendants acted as de facto directors and officers of Magnatrax - Onex and the personal defendants sued American Home Assurance Co. and various excess insurers for reimbursement for defence costs incurred in the Georgia Action under various directors' and officers' liability insurance policies - According to American Home, the personal defendants' losses in the form of defence costs fell into the following exclusions in Endorsement #14 of the "Onex 2002-2003 Policy": (1) the Georgia Action was a claim made against Magnatrax or its executives; and (ii) the Georgia Action was a claim based on an act or omission of Magnatrax executives - The judge on a motion for summary judgment concluded that Endorsement #14 was unambiguous and it did not operate as an absolute exclusion in respect of all claims against Onex's directors and officers relating to Magnatrax - American Home appealed - The Ontario Court of Appeal held that Endorsement #14 was ambiguous - It was open to two reasonable interpretations: the one urged by American Home and the one adopted by the motion judge - Because there was ambiguity, it was necessary to turn to extrinsic evidence - The court considered the reasonableness of the competing interpretations of the term "Claim" in Endorsement #14 - Viewed objectively, either party's interpretation would produce a commercially sensible result - The court held that it was not in a position to decide the factual issues that needed to be determined in order to resolve the interpretative dispute - The court allowed American Home's appeal, set aside the motion judge's order, and returned the matter to the Superior Court - See paragraphs 130 to 173.

Practice - Topic 2105

Pleadings - Amendment of pleadings - Prejudice or presumed prejudice - What constitutes - [See Practice - Topic 2139.3 ].

Practice - Topic 2139.3

Pleadings - Amendment of pleadings - On summary judgment application - In 2005, Onex Corp. and four of its directors and officers (the "personal defendants") were sued in the state of Georgia by the Trustee of the Magnatrax Litigation Trust - The Georgia Action arose out of bankruptcy proceedings involving Magnatrax Corp. in the U.S. - Onex and the personal defendants sued American Home Assurance Co. and various excess insurers for reimbursement for defence costs incurred in the Georgia Action under various directors' and officers' (D&O) liability insurance policies - The judge on a summary judgment motion ordered American Home to pay Onex US$15 million on behalf of the personal defendants for defence costs in connection with the Georgia Action under the "Onex 2002-2003 Policy" - American Home moved to amend its counterclaim to have the monies owing under the Onex 2002-2003 Policy set-off against the US$13,881,991.90 that it had already paid to the personal defendants under a D&O liability insurance policy issued to Magnatrax (the "Magnatrax Run-Off Policy") - The motion judge permitted American Home to amend its pleadings - Onex cross-appealed the motion judge's order granting American Home leave to amend its pleadings - Onex submitted that the motion judge erred in failing to find that the set-off issue was res judicata - Onex also submitted that permitting the amendment would result in non-compensable prejudice because American Home was effectively allowed to bolster arguments that had already been considered and rejected by the motion judge - The Ontario Court of Appeal found no reason to interfere with the motion judge's exercise of discretion permitting American Home to amend its pleadings - The motion judge had not yet decided whether the limits of the Magnatrax Run-Off Policy were reduced by the Onex 2002-2003 Policy, nor the corollary issue of whether American Home was entitled to a refund of amounts paid under the Magnatrax Run-Off Policy - The court failed to see how Onex was prejudiced by the permitted amendments - See paragraphs 96 to 99.

Cases Noticed:

Continental Insurance Co. v. Superior Court Los Angeles County (1995), 37 Cal. App.4th 69, refd to. [para. 90].

McCullough v. Fidelity & Deposit Co. (1993), 2 F.3d 110 (5th Cir.), refd to. [para. 90].

Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, [2010] 2 S.C.R. 245; 406 N.R. 182; 293 B.C.A.C. 1; 496 W.A.C. 1; 2010 SCC 33, refd to. [para. 101].

Gibbens v. Co-operators Life Insurance Co., [2009] 3 S.C.R. 605; 396 N.R. 165; 278 B.C.A.C. 283; 471 W.A.C. 283; 2009 SCC 59, refd to. [para. 101].

Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada et al., [2006] 1 S.C.R. 744; 348 N.R. 307; 211 O.A.C. 363; 2006 SCC 21, refd to. [para. 101].

Scalera v. Lloyd's of London, [2000] 1 S.C.R. 551; 253 N.R. 1; 135 B.C.A.C. 161; 221 W.A.C. 161; 2000 SCC 24, refd to. [para. 101].

Brissette Estate v. Westbury Life Insurance Co., [1992] 3 S.C.R. 87; 142 N.R. 104; 58 O.A.C. 10, refd to. [para. 101].

Kentucky Fried Chicken Canada v. Scott's Food Services Inc. et al. (1998), 114 O.A.C. 357 (C.A.), refd to. [para. 103].

Dumbrell v. Regional Group of Companies Inc. et al. (2007), 220 O.A.C. 64; 85 O.R.(3d) 616; 2007 ONCA 59, refd to. [para. 104].

Lombard Canada Ltd. v. Zurich Insurance Co. (2010), 268 O.A.C. 317; 101 O.R.(3d) 371; 2010 ONCA 292, refd to. [para. 107].

Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., [1993] 1 S.C.R. 252; 147 N.R. 44; 83 Man.R.(2d) 81; 36 W.A.C. 81, refd to. [para. 108].

Dunn v. Chubb Insurance Co. of Canada et al. (2009), 266 O.A.C. 1; 2009 ONCA 538, refd to. [para. 108].

Twp. of Center, Butler County Pa. v. First Mercury Syndicate Inc. (1997), 117 F.3d 115 (3rd Cir.), refd to. [para. 121].

Combined Air Mechanical Services Inc. et al. v. Flesch et al. (2011), 286 O.A.C. 3; 108 O.R.(3d) 1; 2011 ONCA 764, refd to. [para. 169].

Counsel:

Geoffrey D.E. Adair, Q.C., and Alexa Sulzenko, for the respondents/cross-appellants;

Glenn A. Smith, Rory Gillis and Marcus B. Snowden, for the appellant and respondent on cross-appeal, American Home Assurance Company;

Alan L.W. D'Silva, Mark E. Walli and Ellen M. Snow, for the respondents, Brit Syndicates Ltd. (Lloyd's Syndicate 2987), Heritage Managing Agency Limited (Lloyd's Syndicate 3245) and XL Insurance Company Limited.

This appeal and cross-appeal were heard on June 20, 2012, before O'Connor, A.C.J.O., Rosenberg and Simmons, JJ.A., of the Ontario Court of Appeal. The following judgment of the Court of Appeal was delivered by O'Connor, A.C.J.O., and Simmons, J.A., and was released on February 25, 2013.