The Related Claim

On June 25, 2014, the Ontario Court of Appeal over-turned a decision of the lower court on the issue of whether or not a Statement of Claim, which alleged that a law firm had committed various acts of misconduct, could be considered a single, related claim pursuant to the terms of that firm’s professional liability policy.

The appellant decision, Simpson Wigle Law LLP v. Lawyer’s Professional Indemnity Co., provides a clear framework for analyzing the concept of “related claims” by stressing the importance of looking at the specific facts and remedy underpinning each alleged cause of action. The decision, which concluded that the claims were not related, is significant as it increased the potential amount of the law firm’s insured loss by $1 million.

Facts of the Case

Simpson Wigle is an Ontario law firm. In the early 1990s, it was retained by two brothers, Angelo and Frank Agro. The brothers operated a number of businesses together. Sometime in 1993, Angelo was diagnosed with Parkinson’s disease. As a result, Simpson Wigle drafted two different powers of attorneys, each naming Frank as the primary attorney. Angelo’s nephew, Richard Agro, was named as an alternative attorney.

Sometime after the powers of attorneys were executed, Frank refused to act for Angelo, and Simpson Wigle, along with the CIBC (who did not participate in the appeal) brought an application seeking to be appointed as Angelo’s committee. According to the Statement of Claim, Simpson Wigle did not disclose that Angelo had an alternative power of attorney in its application materials.

Frank would later pass away, appointing a partner of Simpson Wigle as his executor. This executor would ultimately arrange for the sale of six properties owned jointly by the brothers. The Claim alleged that the sale undermined the value of Angelo’s estate. Angelo then passed away and his estate, including Richard Agro, brought an action against Simpson Wigle and the CIBC, alleging a number of causes of action, including negligence, breach of contract and breach of fiduciary duty.

Court Proceedings

As a preliminary matter Simpson Wigle, who was insured by the Lawyers’ Professional Indemnity Co., sought a declaration from the court that the Statement of Claim alleged two different claims as opposed to a single related claim within the meaning of their insurer’s policy. Simpson Wigle was unsuccessful in its initial application. On appeal, the Court was asked to consider a single issue: whether the Statement of Claim disclosed a single claim under the policy. Justice Gillese authored the appellant decision.

In considering how to characterize the Claim, Justice Gillese held, as a starting point, that the court should review the terms of the insurance policy. After repeating several well established interpretation principles of insurance law, Justice Gillese identified the critical wording of the law firm’s insurance policy: “All CLAIMS… which arise from a single or related error(s), omission(s), or negligent act(s), shall be considered a single CLAIM regardless of the number of INSUREDS or the number of persons or organizations making a CLAIM or the time or times the error(s), omission(s) or negligent act(s) took place.”

Based on the wording in the policy, the key issue for the appellant court was the meaning of the term “related.” In considering the meaning of this term, Justice Gillese reviewed several historical decisions including: Simpson (Receiver of) v. Lloyd’s Underwriters (multiple consumer deposits lost due to thefts by real estate broker constituting unrelated claims); Elstrom, Smith, & Co. v. Kansa General Insurance Co., 1988 (allegation that accounting firm failed to consider benefits of amalgamation and failed to properly manage company property constituting unrelated claims) and Dunn v. Chubb Insurance Co. of Canada (allegation against Nortel arising from revenue recognition and earnings management scheme constituting unrelated claims).

Meaning of the Term “Related”

In light of these decisions, Justice Gillese suggested that the Court look to the dictionary for the appropriate meaning of the term “related.” Thus, to Justice Gillese, two claims are related “when there is a sufficient association or connection between them, reading the Policy as a whole and bearing in mind its objective. In determining whether there is a sufficient association or connection, the court must consider the similarities and differences between the nature and kind of the alleged misconduct which underlies each claim, and the kind and character of the losses for which recovery is sought in each claim.”

In considering the factual and legal connection between the claims, Justice Gillese stressed the importance of a detailed analysis. Courts should identify the specific facts that underpin each particular cause of action. In other words, a general analysis of a claim is insufficient. Many claims, at a general level, may appear to be related. For example, the parties, background facts and particular causes of action that are pled may all be the same. However, that does not mean, according to Justice Gillese, that the claims are related.

Applying this analysis to the case at hand, Justice Gillese characterized the claim against Simpson Wigle as involving primarily two allegations: a failure by the law firm to advise the court that Angelo had an alternative power of attorney; and the negligent administration of Angelo’s estate (resulting from the sale of the six properties).

To Justice Gillese, these allegations were, on their face, different. A court could find that it was negligent for Simpson Wigle to fail to report that Angelo had an alternative power of attorney but not find that the sale of land was conducted in a negligent manner. Justice Gillese came to a similar conclusion when reviewing the remedies being requested by Angelo’s estate.

The remedy flowing from the allegation relating to the power of attorney omission was the recovery of expenses charged by Simpson Wigle while acting as Angelo’s committee. Conversely, the remedy for the negligent administration of Angelo’s estate was compensation for any diminution in the estate’s value.

Given the different facts underpinning the legal allegations and the differences in remedy being requested, Justice Gillese concluded that Simpson Wigle was entitled to an Order that the Statement of Claim raised more than one claim. The decision reached by the Court represented a significant victory for Simpson Wigle as it could result in the firm receiving an additional $1 million of liability coverage.

Conclusion

Justice Gillese’s reasoning is an important reminder to insurers, and their counsel, to analyze the specific facts that comprise each allegation and cause of action alleged in a Statement of Claim. Although at a general level a Claim may appear to relate to the same course of conduct, at a more detailed level, the comparison breaks down.

It is also a reminder to insurers, in bringing subrogated actions where judgment enforcement or collection may be an issue, to frame claims with sufficient particularity to ensure defendants will be fully indemnified by their own insurers for a loss. Care should be taken to ensure that facts, remedies and legal allegations are not conflated in the claim where
they relate to different legal wrongs. 

Jared D. Epp is a lawyer with Robertson Stromberg LLP focusing on construction and insurance litigation. Robertson Stromberg LLP is a member of The Arc Group of Canada, a network of independent insurance law firms across Canada.