Facts
Under Ontario’s Workplace Safety and Insurance Act (the "WSIA"), coverage is optional for executive officers.2
Wentworth chose to opt out its executives from workers’ compensation benefits, and in the alternative, insured their management team through private disability insurance. Wentworth found that the disability insurance was more affordable than the premiums for workers’ compensation benefits. It never informed its insurers or its insurance brokerages of this decision.
Wentworth then acquired a comprehensive business policy, which contained a $2 million commercial general liability ("CGL") policy, through Lombard (now "Northbridge").
In 1990, Mr. John Ferber was appointed as vice-president of Wentworth’s parent company. Eight years later he was involved in a serious accident on the job, resulting in severe permanent injuries.
Mr. Ferber sued Wentworth and a co-worker for damages in negligence. Wentworth in turn third partied Lombard, as well as Dalton Timmis and the individual broker, George McCarter ("McCarter").
Mr. Ferber eventually settled his action as against Wentworth for a total of $950,000. Both Dalton Timmis and Wentworth contributed to this amount, for $750,000 and $200,000 respectively, and Wentworth discontinued its action against Dalton Timmis and McCarter.
Wentworth and Dalton Timmis (through a counterclaim which made it a de facto plaintiff) sought indemnification from Lombard. Lombard refused based on an exclusion in the policy.
The main issue in |
The main issue in the case was the interpretation of whether an "executive officer" was considered an "employee". This point was relevant because the CGL policy included the following exclusion:
This insurance does not apply to:
d. "Bodily injury" to an employee of the Insured arising out of and in the course of employment by the Insured.
Wentworth and Dalton Timmis argued that an executive officer was not an "employee" for the purposes of the exclusion. McCarter testified that he strongly believed that the exclusion would not exclude the personal injury claims of executive officers who were not covered by workers’ compensation.3
Their argument was largely based on what Laskin J.A., writing for a unanimous Court, acknowledged was an "odd result":4
"The exclusion takes away coverage where an Ontario employer might wish to have it: for a workplace injury not covered by workers compensation legislation."
Despite this, the Court of Appeal rejected the argument that an executive officer was not an employee. The Court of Appeal found that the case law heavily supported an executive officer being an employee, and that these terms were not mutually exclusive.
As well, the Court of Appeal found that this type of exclusion was typical for a CGL and was commercially viable:5
"Commercial general liability coverage is intended to protect the insured against losses to third parties or to the public arising out of the operation of the insured’s business... The coverage is not intended to protect the insured against losses to its own employees from workplace injuries."
Further, the broker admitted that while there is an employer's bodily injury liability "extension" which would have broadened the policy to cover the claims of employees who are outside the coverage of the WSIA, this extension was never issued.6
While the broker felt that the extension was unnecessary, he also testified that he had no knowledge of Wentworth’s decision to remove its executives from workers’ compensation coverage.
The Court of Appeal ruled that Lombard could rely upon the exclusion, such that the CGL policy did not provide coverage to Wentworth in the event of a personal injury claim by an executive officer. Wentworth and the Dalton Timmis had to foot the bill of their settlement agreement with Mr. Ferber.
Importance
This ruling shows that, as an insurance broker, it is important to ensure there is adequate alternative coverage available for companies who choose to exclude their executive officers from the workers’ compensation scheme. Otherwise, as shown in this case, there can be severe financial consequences.
The broker and brokerage were unaware of the lack of workers’ compensation coverage (the settlement precluded a court-led determination of liability). While a corporation should be providing all significant details, the case law shows that insurance brokers bear a high onus to understand their clients’ business and insurance needs. If a broker does not understand his or her clients’ liabilities, the client will not be properly insured.
Had Dalton Timmis asked about Wentworth’s existing workers’ compensation coverage and recommended the additional "extension", it would have avoided the coverage gap that crystallized when Mr. Ferber was injured.
McCague Borlack LLP has experienced lawyers which specialize in errors and omissions and insurance coverage issues. We can ensure that your coverage is what you expect it to be, before accidents happen.
1 2013 ONCA 186, released March 28, 2013 [ONCA decision].
2 SO 1997, c 16, sch A, section 12(3).
3 2011 ONSC 6441 at paras 32-34 [ONSC Decision].
4 ONCA decision at para 44.
5 Ibid. at para. 26.
6 ONSC Decision at paras 32-34.
