Travelers Casualty and Surety Company of Canada & Ors v Sun Life Assurance Company of Canada (UK) Ltd & Anor

An insurance warranty concerning facts that could give rise to a claim is construed in the context of the policy as a whole. It requires knowledge, or information, of facts which a reasonable person in the position of the identified insured would realise could give rise to a claim within the actual scope of cover, including any retention.

The relevant inquiry includes realistically possible worst-case outcomes, but does not require prophetic speculation. A notification provision in a master condition was not a condition precedent where the policy wording did not clearly make it one. The insurers were therefore not entitled to avoid liability for late notification.

The insurers sought a declaration that they were not liable under a Financial Institution Professional Liability Policy. Sun Life claimed indemnity for substantial costs and redress arising from a past business review required by the PIA and FSA following serious compliance concerns.

The insurers alleged breach of a warranty and failure to comply with notification provisions. The central issues were the construction of the warranty, the knowledge required for breach, whether the possible review fell within the scope of cover, and the legal effect of delayed notification.

1. Applicable law. The parties had impliedly chosen Ontario law. The principal connections included the Canadian insured parent, the Toronto broker and administration, the policy’s North American wording, Canadian underlying policies, and the place of delivery. Alternatively, Ontario was the country of closest connection.
2. Construction of the warranty. The warranty was not broken merely because facts existed which might ultimately lead to a claim. Nor was mere knowledge of facts enough. The identified individual had to know or have information of facts which a reasonable person in that individual’s position would realise could give rise to a claim. The phrase “within the scope of the proposed coverage” included the financial scope of the policy and therefore claims exceeding the retention.
3. The relevant assessment was prospective. The identified person had to consider realistically possible worst-case scenarios, without assuming that every remote possibility would occur. On the evidence, a reasonable person in the position of Mr Blackburn would have realised that the regulatory intervention could lead to a review costing more than US$25 million. The warranty was therefore breached. The position of Mr Melcher was materially similar. The court was not persuaded that a reasonable person in Mr Stewart’s position would have had the same appreciation, but that distinction did not affect the result.
4. Notification. The FSA letter of 10 October 2000 was not itself a “formal administrative or regulatory proceeding, Claim or investigation” for the purposes of the notification condition. The master general condition was not a term of the policy for the purposes of the policy’s express condition-precedent clause. At most, it was an innominate term. The insurers had not shown a sufficiently serious breach to discharge their obligation to indemnify.
5. The notification delay would not, in any event, have justified forfeiture. Under Ontario law, relief from forfeiture was available, and the delay caused no significant prejudice. The insurers’ declaration was granted and Sun Life’s counterclaim was dismissed because of the warranty breach.

The judgment records that Mr Jonathan Hirst QC, sitting as a Deputy Judge of the Commercial Court, had previously dismissed Sun Life’s jurisdictional challenge on forum non conveniens grounds. The present judgment was a first-instance determination of liability and quantum issues.