Markham General Insurance Company was ordered wound up in July, 2002. The liquidator of Markham is now suing its former directors and officers, alleging that they negligently managed the company.
Those defendants, in turn, had D & O coverage with American Home Assurance Company (“AIG”). In a decision released on May 18, 2006, in Deloitte & Touche Inc. v. Bennett et al., Justice Peter Cumming of the Ontario Superior Court dismissed AIG’s application for an order, that coverage for the claim against the officers and directors was excluded by the “insured v. insured” exclusion. That exclusion applied to any claim brought against an Insured by any Insured or by the Company [Markham]. The idea behind the exclusion is to prevent collusive claims among insureds.
Although the claim against the directors and officers had been brought by Markham’s Liquidator, Deloitte & Touche Inc., AIG argued that, for purposes of the exclusion, the Liquidator was the equivalent of “the Company”. It contended that the action by Deloitte & Touche, as liquidator, amounted to a claim by “the Company” against various “Insureds” and was therefore excluded.
Justice Cumming rejected this argument. He distinguished U.S. caselaw that had applied the exclusion in similar circumstances, but where the exclusion had been worded to apply to claims by or on behalf of the Company. Here, His Honour concluded that Markham Insurance and its liquidator were separate entities and the exclusion did not apply.