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Why this insurer had to pay $187K for ex-Ontario PC leader’s legal defence


January 28, 2021   by David Gambrill


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An Ontario court has ordered Sovereign General to pay $187,313 to cover the legal costs of former Ontario Progressive Conservative Party leader Patrick Brown, who personally incurred the expenses while defending a defamation lawsuit arising from the publication of his 2018 book, Takedown: The Attempted Political Assassination of Patrick Brown.

Brown, now the mayor of Brampton, Ont., published the book in November 2018, after a political furor caused him to step down as the leader of the Ontario PC party in January 2018. In response to the book, Ontario MPP Vic Fedeli, now the province’s minister of economic development, job creation and trade, launched a libel action against Brown and his book publisher, Optimum Publishing, owned by J.F. Moore Lithographers.

J.F. Moore was covered by Sovereign General under a Media Professionals Insurance Policy with errors and omissions coverage for up to $2 million. Brown expected to be added as a named insured to the policy, but he wasn’t. (The reasons for the omission are not contained in the Ontario Superior Court decision, Brown v. Sovereign General Insurance Company, released Jan. 21, and the court did not consider them to be relevant to the decision.)

Sovereign General denied Brown coverage for his legal defence costs because Brown was not listed as a named insured under J.F. Moore’s policy. Brown sued Sovereign General for the $187,313 to cover the costs he contributed to his own legal defence.

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Sovereign’s policy wording says the policy will cover “any individuals or personal corporations who from time to time have been retained [by J.F. Moore] under personal services contracts or personal services agreements.”

The policy also states it would cover the services of “independent contractors,” but only “with respect to insured’s [J.F. Moore’s] professional business performed by such independent contractor on behalf of the named insured.”

In a letter to J.F. Moore’s president and CEO Dean Baxendale, dated in February 2019, Sovereign denied coverage to Brown because he was not a named insured in the policy. Optimum Publishing was also not a named insured under the policy.

In addition, in its letter to Baxendale, Sovereign took the position that “Brown was not retained under a personal service contract. Mr. Brown entered into an agreement with J.F. Moore to publish a specific work of nonfiction. It is [the] underwriters’ position that the agreement is a book publishing contract and it is neither a personal services contract nor a personal services agreement.”

Similarly, Sovereign’s letter stated that Brown “is not an independent contractor” because his agreement with Optimum “is a book publishing contract: it is not an employment contract or a contract for services.”

In court, Sovereign portrayed a book publishing contract as a type of “manufacturer’s contract,” in which case the publisher was simply distributing a “good” produced by Brown. [i.e. not a “personal service” performed by Brown]. As such, Sovereign argued, the “good” produced by Brown did not fall under the definitions of a “personal services agreement,” nor did Brown classify as an “independent contractor” for J.F. Moore in carrying out its “professional business” as a book publisher.

The court was not convinced and sided with Brown against Sovereign’s interpretation of the policy wording.

“I disagree with Sovereign’s argument that the publishing agreement between an author and a book publisher in the immediate case is akin to a manufacturing contract for the production of a product,” Ontario Superior Court Justice Paul Perell wrote. “I disagree with Sovereign’s argument that the publishing business does not include the acquisition of the intellectual content that is edited, then typeset, then printed, and then distributed.

“A publishing agreement is an intellectual property agreement in which an author, licenses or assigns the right to make copies of his or her intellectual property. A publishing agreement is not about tangible goods; it is about intangible property. The business of a publishing company is to make copies of an author’s work and sell them for which the author receives royalties.

“If the author was an employee of the publishing company, then the publishing company would already own the copyright and there would be no need for a publishing agreement and no need to pay the author/employee anything other than his or her salary. In the immediate case, Mr. Brown was not an employee and he sold his copyright. Since he was not an employee, he was an independent contractor with respect to that copyright. And that independent contracting was an engagement in Optimum Publishing’s professional business of publishing copyrighted works.

“I disagree with Sovereign argument’s that would equate a publisher to nothing more than a printer or photocopier of an author’s work.”

 

Feature image courtesy of iStock.ca/Avosb