When the duty to defend is triggered in an Errors & Omissions policy

Where an insured receives a demand that specific action be taken, failing which remedies will be pursued in court, this is sufficient notice of a potential claim, within the terms of an errors and omissions policy, such that if the claim is ultimately pursued in court, no duty to defend will be triggered.

In Trisura Gurarantee Insurance Co. v. Belmont, 2008 NSCA 87, the insured was the administrator of pension plan.  A pension plan member requested information concerning the transfer of the commuted value of his pension to an RRSP.  The administrator provided information that proved incorrect.

The pension plan member retained counsel, who wrote to the insured demanding transfer of the commuted value of the pension to the RRSP, failing which the member would pursue his remedies in court.

The insured pension plan administrator had previously purchased a policy of errors and omissions insurance.  In the course of applying for the policy, the insured replied “no” to a question inquiring whether he had knowledge of any circumstance that could reasonably give rise to a claim covered by the proposed insurance.

The insurer declined to respond to the claim on the basis that the letter from the member’s lawyer was sufficient notice of a possible claim, and was thus excluded.

The Nova Scotia Court of Appeal applied the rulings of the Supreme Court of Canada in Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., [1993] 1 S.C.R. 252 and Jesuit Fathers
of Upper Canada v. Guardian Insurance Co. of Canada, [2006] 1 S.C.R. 744, in finding that a “claim” requires only that a third party communicate an intention to hold the insured responsible for damages.  No formal notice is required, and the test is simply what the reasonable insured would conclude.

In this case, the reasonable insured would have consulted counsel upon receipt of the pension member’s demand, and accordingly, the insurer was not required to respond to the claim.