Malic v Zurich Insurance Company Ltd., 2021 ABQB 308

Court of Queen’s Bench of Alberta Citation: Malic v Zurich Insurance Company Ltd., 2021 ABQB 308 Date:20210420 Docket: 1903 16940 Registry: Edmonton Between: Gordon Malic and Mackie Research Capital Corporation Applicant - and - Zurich Insurance Company Ltd Respondent _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice M.

Hayes-Richards _______________________________________________________ Introduction [ 1 ] The Applicant, Gordon Malic (“Malic”), purchased errors and omissions insurance coverage through Advocis Protective Association (“APA”), which is underwritten by the Respondent, Zurich Insurance Company Ltd. (“Zurich”). Malic was sued and sought to have Zurich defend him in the underlying action.

Zurich declined, taking the position that the type of insurance coverage purchased by Malic does not cover him for the allegations made in the underlying action, and even if the allegations are found to fall within the coverage, there are exclusions in the Master Policy that apply in the circumstances. [ 2 ] Malic’s position is that he is able to bring the allegations in the underlying action within coverage under the insurance policy and as such, he is entitled to a defence of the underlying action unless Zurich can demonstrate that an exclusion applies or that there is another valid reason to deny his claim.

Malic submits that Zurich cannot discharge that burden as Malic never received a copy of the Master Policy, and therefore Zurich is precluded from relying on the exclusions in the policy.

[ 3 ] Mackie Research Capital Corporation (“Mackie”), also named in this Originating Application, is a Co-Defendant in the underlying action, but does not seek relief against Zurich.

Summary of the Facts [ 4 ] The facts are not in dispute. Malic was registered with the Alberta Insurance Council as a Certified Financial Planner, a “Life-Designated Representative” and an “Accident & Sickness – Designated Representative”. He conducted his life and accident and sickness insurance business through Charter Wealth Management Inc. (“Charter”).

Malic was also a securities registrant with the Investment Industry Regulatory Organization of Canada (“IIROC”), and conducted business as an investment advisor through Mackie. [ 5 ] Malic purchased errors and omissions insurance through the APA and was issued a Certificate of Insurance by Zurich. There were two types of coverage available, Coverage A and Coverage B. Malic purchased Coverage A through the APA website’s online portal and was issued a Certificate of Insurance for Coverage A. Malic had purchased Coverage A online through the APA website since at least 2007.

Malic had never purchased Coverage B until after he was denied coverage for the underlying action. Coverage A provides insurance for activities related to the sale of life insurance products and mutual funds. Coverage B provides insurance for activities related to a securities registrant registered with IIROC. Malic did not receive a physical copy of the Master Policy from Zurich until after he reported the underlying action, however, the policy was at all times available on the APA website, including when Malic purchased his coverage. Analysis [ 6 ] There are two issues before the court.

First, do the allegations in the underlying action attract coverage under policy Coverage A? And second, if so, do the exclusions in the Master Policy apply such as to exclude the duty to defend. Do the allegations in the underlying action attract coverage under policy Coverage A? i. What are the allegations in the underlying action? [ 7 ] The Statement of Claim in the underlying action was filed October 11, 2018. The parties do not agree on the substance of the underlying allegations. Each party has set out their position on the substance of the underlying allegations in their written briefs.

As summarized in oral argument, from Malic’s perspective, the key facts are that Malic was an employee or contractor of Mackie who provided investment advice and services to the clients of Mackie. Malic acted as the investment advisor to the plaintiff in the underlying action for several years. The plaintiff alleges that he relied on Malic’s advise and purchased shares in a real estate venture in which Malic had an interest. The underlying claim outlines that Malic is a certified financial planner and has acted in this capacity throughout their relationship.

In short, the underlying action is the plaintiff’s claim against Malic for various alleged breaches of duties in relation to this investment, set out in detail in the statement of claim. [ 8 ] Zurich’s position is that in their true nature and substance, the allegations in the underlying action relate to alleged advice given by Malic on an unapproved, off-book real estate development known as The Willows and an associated share purchase, loan, and line of credit, in which Malic had a personal financial interest. ii.

What is included under Coverage A? [ 9 ] The policy issued by Zurich has an insuring agreement which sets out coverage for professional liability. It reads in part: “The “Claim” arises out of a negligent act, error or omission of the “Insured” in rendering or failing to render “Professional Services” for “Clients” and such negligent act, error or omission occurred on or after the “Retroactive Date” and before the end of the “Certificate Period”...”. Professional Services is defined as follows: ... R. “Professional Services” means with respect to the following coverage option purchased: 1.

Coverage A: those activities related to the conduct of the business of a licensed life insurance agent or licensed accident and/or sickness insurance agent or a representative registered with the Mutual Fund Dealers Association of Canada to sell mutual funds, including: ... iii. activities relating to estate plans, personal financial plans , employee benefit plans, group plans, pension plans (including Registered Retirement Savings Plans and Registered Retirement Income Funds), profit sharing plans, retirement annuities, life health and disability plans, including guaranteed investment funds to any of the foregoing.

Such guaranteed investment funds, as used herein, refer to funds consisting of property insured by the Canadian Deposit Insurance Corporation, other than insurance contracts such as investment vehicles of banks and trust companies; ... 2. Coverage B: (

A) Those activities related to a securities registrant registered with the Investment Industry Regulatory Organization of Canada,

including: ... iii. activities relating to estate plans, personal financial plans , employee benefit plans, group plans, pension plans (including Registered Retirement Savings Plans and Registered Retirement Income Funds), profit sharing plans, retirement annuities, life health and disability plans, including guaranteed investment funds to any of the foregoing.

Such guaranteed investment funds, as used herein, refer to funds consisting of property insured by the Canadian Deposit Insurance Corporation, other than insurance contracts such as investment vehicles of banks and trust companies; ... (emphasis added) [ 10 ] Professional Services for Coverage A relates to activities involving insurance and mutual funds. For Malic, those were activities he conducted through Charter. Coverage B relates to security activities through IIROC. For Malic, those activities were conducted as part of his employment as an investment advisor with Mackie. iv.

Are the allegations in the underlying action covered by Coverage A? [ 11 ] The principles that apply to the duty to defend are well-established and were recently reviewed by the Alberta Court of Appeal in Intact Insurance Company v Clauson Cold & Cooler Ltd. , 2020 ABCA 161 (“ Intact ”).

The following basic propositions apply in this case: • The insurer is required to defend the claim on behalf of an insured where the facts alleged in the Plaintiff’s pleadings, if proven true, would require the insurer to indemnify the insured; • The duty to defend is broader than the duty to indemnify; • It is trite that coverage provisions are to be interpreted broadly while exclusion provisions are to be construed narrowly; • The allegations in the underlying action are to be interpreted broadly to determine whether the Plaintiff’s claims come within coverage.

Once an insured demonstrates that the Plaintiff’s allegations come within coverage, the onus shifts to the insurer to show that the claims fall outside of the coverage because of an applicable exclusion.

Intact , at paras 14-17 [ 12 ] The parties agree on the law, but disagree on whether the allegations in the underlying action come within coverage. [ 13 ] Malic says the allegations in the underlying action fall within Coverage A because the policy is clear that he is insured for all claims arising out of his negligent acts, errors or omissions in providing Professional Services for clients while in the business of being a licensed insurance agent as set out in Coverage A. Those Professional Services include activity relating to personal financial plans, a term he points out is not defined.

Malic says that a broad reading of both the pleadings in the underlying action and the insuring agreement, leads to the conclusion that it is alleged that he caused damage to the client (Plaintiff) in connection with investments related to the client’s personal financial plans. He submits that as such, he has satisfied his onus to establish that the claims in the underlying action, if proven, trigger coverage. I disagree.

This argument fails to recognize that the term “personal financial plans” is included in the definition of Professional Services under both Coverage A and Coverage B, but relates to different activities under each coverage. [ 14 ] As Zurich points out, in order to fall within coverage and trigger the duty to defend, the allegations must fall within the definition of “Professional Services” for Coverage A.

Even a broad reading of the pleadings shows that the true substance of the underlying action against Malic is one for damages arising from an alleged failed residential real estate development, in which he is alleged to have given advice and made recommendations on a share purchase, letter of credit and loan agreement. The premise of the underlying action is that in dealing with the Plaintiffs, Malic was conducting an outside business activity, without the knowledge of his employer Mackie.

The Plaintiff was a client of Mackie. [ 15 ] I find that none of the allegations against Malic concern activities which fall within the definition of Professional Services in Coverage A, which provides insurance for activities related to the conduct of the business of a licensed life insurance agent, or licensed accident and/or sickness insurance agent or a representative registered with the Mutual Fund Dealers Associate of Canada to sell mutual funds. This was business Malic conducted through Charter not Mackie. Simply put, Malic was not dealing in any of those capacities in his dealings with the Plaintiffs.

Coverage A was the only coverage Malic had in place at the time the claim against him was made. Coverage B was the policy that covered activities relating to the conduct of a securities registrant registered with IIROC, but Malic did not purchase that coverage.

Coverage B was an option available to Malic, and both the APA website and the renewal application forms clearly indicated that Coverage B applied to securities and IIROC registrants, and that Coverage A only applied to fee for service planning and specific listed products (life insurance, segregated funds, accident and sickness, mutual funds and GIC products). [ 16 ] I agree with Zurich that while coverage provisions are to be construed broadly, it is not appropriate to read a portion of the definition of “Professional Services” in isolation from the surrounding words and the other parts of the policy in order to suggest ambiguity in the policy wording.

The words must be read in the context of the Master Policy as a whole, and in light of the opening words of the definition of “Professional Services” for Coverage A which state: “those activities related to the conduct of the business of a licensed life insurance agent or licensed accident and/or sickness insurance agent or a representative registered with the Mutual Fund Dealers Associate of Canada to sell mutual funds...” Coverage A covers professional services related to life insurance, accident and/or sickness insurance, or the sale of mutual funds, it does not cover Professional Services related to securities, which are the subject of Professional Services under Coverage B.

[ 17 ] Even taking Malic’s position on the substance of the allegations at its highest, I find he has not brought himself within the coverage of Coverage A as the allegations do not fall under the definition of Professional Services in Coverage A. Consequently, I find that the allegations in the underlying action do not attract coverage under Coverage A and there is no duty to defend. It is not necessary to go on to consider whether the Master Policy exclusions apply.

Malic’s application is dismissed. [ 18 ] If the parties cannot agree on costs within 30 days of this decision, they may provide me with a two-page submission on the issue, following which I will issue a written endorsement. Heard on the 19 th day of March, 2021. Dated at the City of Edmonton, Alberta this 20th day of April, 2021. M. Hayes-Richards J.C.Q.B.A. Appearances: Mr. S. Graham for the Applicant Gordon Malic Ms. J. L. Cairns, Q.C. for the Respondent Zurich Insurance Company Ltd.