THE INSURANCE CONTRACT - Coverage provisions and exclusion clauses

Law360 Canada (November 11, 2022, 6:34 AM EST) -- Appeal by the Municipal Electric Association Reciprocal Insurance Exchange (MEARIE) from the decision that the respondents were entitled to coverage for legal costs incurred in two proceedings. MEARIE was an insurance reciprocal. Its subscribers were electricity distribution utilities in Ontario. The respondent EPCOR Electricity Distribution Ontario (EPCOR) was insured under the comprehensive liability insurance policy (the Policy) issued by MEARIE in 2018. EPCOR was an electricity distributor that provided electrical supply to municipalities. The respondent Houghton was the former president and CEO of the utility company acquired by EPCOR, and he was also the former acting Chief Administrative Officer of Collingwood. As an officer of EPCOR’s predecessor, he was also insured under the Policy. In response to public concerns about the sale of Collingwood’s electrical utility, Collingwood passed a resolution requesting a public judicial inquiry. Houghton applied to participate in the inquiry and was granted standing. Houghton participated in two phases of the inquiry. By the end of his involvement in the process in October 2019, he had incurred $591,115 in legal fees. His request to have MEARIE fund his participation in the inquiry was denied by MEARIE. When Houghton sought indemnity for his legal expenses from EPCOR, he was told that the inquiry did not fall within the scope of EPCOR’s corporate bylaws. Houghton commenced an application in the Superior Court of Justice claiming indemnity from EPCOR for his incurred and anticipated legal costs. By that time, he had received formal notice from the inquiry that his conduct was under scrutiny and that there might be findings of misconduct made against him. EPCOR was subsequently ordered to indemnify Houghton, and those two parties reached a settlement of Houghton’s legal expenses. EPCOR requested coverage from MEARIE for its own legal expenses in responding to the bylaw application commenced by Houghton. MEARIE denied coverage to EPCOR. The application judge found that Houghton was entitled to be indemnified by MEARIE pursuant to Coverage G. The application judge accepted EPCOR’s argument that its denial of indemnity to Houghton under the bylaw was an “error” and a “Wrongful Act” within the meaning of Coverage E. He found that the decision that EPCOR was required to pay Houghton’s legal expenses was based on the bylaw and not on statute or regulation and, therefore, those expenses were not excluded from coverage....
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