A condominium director who has knowledge of an illegal suite may be sued if he does not disclose the illegality to the condominium corporation.
The insured (“Boland”) was successful in his appeal from a decision dismissing his application for an order that the insurer (“Allianz”) defend him under a 2005 directors and officers liability policy where it was held that the application judge erred in her characterization of the negligence claims made in the Statement of Claim as derivative.
Boland was a director of a condominum corporation. He was sued in 2005 for negligence. He had knowledge of an illegal suite in 1994. He did not disclose this information to the Board, and was sued in 2005. The Court of Appeal determined that he was entitled to coverage under the insurance policy that was in place in 1994, not 2005.
This case was also summarized by the Canadian Underwriter, and at condohelp.org.
Boland v. Allianz Insurance Co. of Canada [2008] O.J. No. 3000 Ontario Court of Appeal W.K. Winkler C.J.O., K.N. Feldman J.A. and
Boland was a director of a condominium corporation. Allianz provided directors and officers liability insurance to the condominium corporation and to its directors and officers for “wrongful acts” that occurred during the policy period. The policy period of the policy was April 30, 2005 to April 30, 2006. The policy also contained an extension of coverage provision. The events that led to the claims in this case occurred during the 1990s. Boland was a developer of the condominium project along with Weldon. Each of them purchased a unit before the declaration date of the condominium. Prior to that declaration, Weldon illegally enlarged his unit into the attic space as a third floor living space. Boland, who was a director, was alleged to have known about the illegal unit, failed to disclose it to the corporation and stood by in January, 1998 when Weldon sold the illegal unit to another individual. The corporation issued a Statement of Claim dated June 1, 2005 against Boland. Boland sought a defence from Allianz but the application judge dismissed his application on the basis that the extension of the insuring agreement was not triggered and the Statement of Claim alleged primarily deliberate conduct.
The Court of Appeal reviewed the extension agreement noting that it required that the claim be made during the policy period but covered prior wrongful acts if, at the effective date of the policy, the directors and officers “had no knowledge of and could not reasonably foresee, any circumstances which might result in a claim”. Boland established to the court’s satisfaction that the 2005 policy was the next in a succession of policies with the same extension of coverage agreement beginning with the first Allianz policy in September, 1994. Citing Reid Crowther & Partners v. Simcoe & Erie General Insurance Co., [1993] 1 S.C.R. 252, the court agreed with the view that where an insurer provides continuous coverage by one year policies, this amounts to a “system of successive insurance coverage designed to provide liability coverage from year to year”. If this approach was applied to the current case, the effective date of the policy for the purpose of looking at the knowledge of the insured director would be the effective date of the first policy in succession. If the consideration of Boland’s knowledge was limited to what he knew in 1994, the effective date of the first policy, it could not be said that at that time Boland could reasonably foresee a claim. Based upon a reasonable inference from the pleading that in 1994, during Boland’s first term as director, Boland had asked Weldon to correct the problem, the court found that Boland could not reasonably foresee that the illegal space might result in a claim. Thereafter, the extension agreement was triggered.
The Court of Appeal also overturned the application judge’s finding with respect to whether or not the negligence claim was merely derivative of the claim for deliberate conduct. Although the negligence claim was a bare pleading, the court found that the issue was whether there was potentially a viable claim for negligence. In this case, although the force of the claim was for deliberate conduct, there was an alternative and independent claim that Boland had acted negligently. As this claim was available as a basis for Boland’s liability to the condominium corporation, the court held that Allianz had a duty to defend the claim.
This case was originally summarized by jmeadows@harpergrey.com and originally edited by dpilley@harpergrey.com
