A mining company is entitled to defence costs arising from misrepresentations in a prospectus
An appel by Liberty Mutual Insurance Co. of the decision of the Superior Court of Justice concerning directors' and officers' liability policy. The initial plaintiff, now respondent mining company indemnified the directors and officers for defence costs they incurred in connection with a class action brought against them by shareholders for prospectus misrepresentation. This class action was settled The plaintiff mining company looked to the insurer to cover the paid legal costs.
Boliden Ltd. v. Liberty Mutual Insurance Co. April 17, 2008. Ontario Court of Appeal.
The plaintiff and now respondent mining company Boliden, indemnified the directors and officers for legal costs incurred in a class action lawsuit by shareholders.
Boliden sold shares on the Canadian market, and had mining operations in Spain, where a tailings dam broke causing pollution damage to nearby lands. Shareholders who had purchased their shares in the initial public offering commenced a class action in Ontario and British Columbia courts alleging misrepresentation in the offering prospectus, as no mention of potential environmental damage was made in that prospectus.
The main issue concerns an exclusion clause found in the D&O policy. The exclusion reads: Liberty shall not be liable under this policy to make any payment for loss respecting a claim for and in respect of a pollution loss. Under the heading of pollution loss coverage, it reads: The exclusion does not apply to defence costs incurred in relation to a claim respecting a pollution loss made against any director or officer in a derivative action. The Court of Appeal upheld the lower court's ruling that the exclusion clause applied to some but not all of the losses to be paid on each allegation of misrepresentation found in the Amended Statement of Claim. Alleged misrepresentation in the Statement of Claim included that environmental protection and pollution prevention were priorities at Boliden, and that Boliden believed it would become the fifth largest zinc producer in the Western world.
The D&O policy included an allocation endorsement regarding defence costs. The endorsement reads as follows: In the even that a claim involves a loss that is covered by this policy and a loss or payment not covered by this policy with respect to defence costs to create certainty 80% of all defence costs which must otherwise be allocated as described above shall be allocated to cover loss and shall be advanced by Liberty International Canada. The motion judge held that the exclusion clause excludes pollution related losses not pollution related claims. This ambiguity triggered a strict and narrow interpretation against the insurer, which in turn triggered the allocation endorsement to become effective.