British Columbia Insurance Blog : Canada Insurance Lawyer & Attorney : Michael Thomas of Harper Grey Law Firm : British Columbia, Vancouver

Michelin was a manufacturer of tires with three manufacturing facilities in Nova Scotia.  In 1972, Michelin established a contributory pension plan for employees.  In 1990, the 1972 pension plan was merged with another Michelin pension plan for sales and head office employees.  In 2001, Michelin acquired Uniroyal Goodrich and the then-existing Michelin pension plan was merged with the Uniroyal Goodrich pension plan and continued as the Michelin Pension Plan (the "Plan").  From time to time, Michelin applied part of the surplus of its pension plan to fund its ongoing contribution obligations.  In 2003, Michelin received a letter from counsel retained by a group of Michelin pension plan members, indicating that it was reviewing Michelin's "current and past administration of the pension plan" and advising of the possibility of pending litigation.  Michelin had a CGL policy issued by ACE which included an Employee Benefit Liability endorsement (the "EBL Endorsement") which extended coverage under the policy to claims arising from the "administration" of Michelin's employee benefit programs.  Michelin gave notice to ACE of the potential claim against it by the pension plan members.  ACE denied coverage for the potential claim.

On June 20, 2005, E. Smith, a Michelin employee and Michelin pension plan member, commenced an application against Michelin.  The claims advanced by Smith sought an interpretation of the Michelin pension plan and amendments thereto to determine if Michelin was entitled to take contribution holidays to reduce or discontinue its annual contributions to the Plan during the periods in question.  Further, and in the event that the Court found that Michelin was not entitled to take such contribution holidays, Smith asked the Court to determine the amount, if any, which Michelin may be required to be remitted back to the Plan.  Michelin submitted the claim to ACE, seeking a defence which was denied.  Michelin then sought a determination from the Court.

The Court reviewed the definition of "administration" in the EBL Endorsement, noting that it did not cover all types of administration.  Rather, the defined term was confined to activities relating to giving counsel to employees with respect to the employee benefit programs, interpreting the programs, handling the records and effecting enrolment, termination or cancellation of employees under the benefit programs.  The EBL Endorsement covered claims "caused by any negligent act, error or omission" of Michelin in the "administration" of the programs.  The Court held that the application by Smith did not raise a claim or claims involving a negligent act, error or omission by Michelin and therefore, the claim was not covered by the EBL Endorsement.  The Court found that the essence of Smith's claims was in contract, not negligence.  The determination of whether Michelin was or was not entitled to reduce or discontinue its contributions to the Plan for the years in issue involved a determination of the terms and conditions of the Plan and amendments thereto which was a question of contract and not negligence.  The Court held that the claims asserted by Smith did not involve any acts of Michelin involving the "administration" of the Plan as that word was defined in the EBL Endorsement.  The Court further held that Michelin's decision to take a contribution holiday in respect of the years in issue, whether right or wrong, was an intentional act and could not be described as being accidental or fortuitous such that it would trigger coverage.

In the result, the Court concluded that there was no possibility that the claims advanced by Smith in the application fell within the coverage provisions contained within the EBL Endorsement.  Therefore, ACE did not owe a duty to defend.

This case was originally summarized by jmeadows@harpergrey.com and originally edited by dpilley@harpergrey.com