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BC COURT OF APPEAL UPHOLDS E&O DENIAL
In Agresso Corporation v. Temple Insurance Company 2007 BCCA 559, the BC Court of Appeal has upheld a denial of coverage on an Information Technology Errors and Omissions policy based on the insured's failure to disclose a potential claim on the insurance application. The case does not create new law but serves as a warning to insureds about the perils of withholding information.
Agresso designed, installed and maintained computer software systems. In September and October, 2000, the company entered into software licence, implementation and maintenance agreements with Sault College of Applied Arts and Technology for an academic management information system. The maintenance agreement was to continue until September 24, 2005 unless cancelled earlier by one of the parties.
On January 14, 2002, Agresso applied for an Information Technology Errors and Omissions insurance policy from Temple Insurance Company. The policy covered the period from February 28, 2002 to February 28, 2003.
Agresso ran into problems implementing the academic management information system. By January 20, 2003, Agresso was aware Sault College was not satisfied with Agresso's progress on solving a major problem. An internal Agresso e-mail bearing that date reflected Sault College complaints including an expressed belief that Agresso could not solve the problem and a suggestion that Agresso use outside resources.
On February 21, 2003, Agresso applied for a second E&O policy from Temple Insurance. The application included these questions:
Please attach a list and status of all claims, disputes, suits or allegations of non-performance made during the past five years against the Applicant or any director, officer, employee or partner of the Applicant.
Is the Applicant or any of his/her employees aware of any facts, circumstances or situations which may reasonably give rise to a claim other than as advised above?
The application also stated that if there was knowledge of any such fact, circumstance or situation, any claim or action subsequently emanating therefrom was excluded from coverage under the proposed insurance.
Agresso answered in the negative to both questions 42 and 43.
In April, 2003, Sault College abandoned the Agresso contract. On June 30, 2003, counsel for Sault College notified Agresso of a potential claim and requested a mediated settlement. On February 10, 2004, Temple Insurance advised Agresso there was no coverage due to the non-disclosure of this potential claim in the application form on February 21, 2003. Sault College commenced an action against Agresso on August 12, 2004. Temple Insurance denied coverage and Agresso commenced a coverage action.
The trial judge in the coverage action concluded that Agresso had provided an inaccurate response to question 43. She found that a reasonable person in Agresso's position at the time of the application for insurance would have been of the opinion that the circumstances indicated there was a reasonable likelihood that a claim would be made by Sault College. The trial judge was satisfied that if Temple Insurance had been informed of the situation, the insurer would have acted differently by refusing to accept the risk or by imposing special conditions. The judge declared the policy void pursuant to section 13 of the Insurance Act.
The trial judge did not consider Agresso's answer to question 42 to be inaccurate. She found that the phrase "allegations of non-performance" was very broad and quite ambiguous. Given that the phrase followed the words, "claims", "disputes", and "suits" and because question 43 asked about "circumstances or situations which may reasonably give rise to a claim other than as advised above", the judge interpreted "allegations of non-performance" narrowly so as to require some sort of active legal matter.
The BC Court of Appeal agreed with the trial judge regarding Agresso's answer to question 43 but, in a puzzling turn, disagreed regarding question 42. The Court of Appeal ruled that the same "fact, circumstance or situation" that required an affirmative answer to question 43, similarly required an affirmative answer to question 42. This is perplexing since question 43 specifically addresses itself to facts, circumstances or situations "other than as advised above".
In the end result, both the trial judge and the Court of Appeal ruled there was no coverage and Agresso presumably learned to be more forthcoming with its insurers.
The full text of the Court of Appeal decision can be found here:
www.courts.gov.bc.ca/Jdb-txt/CA/07/05/2007BCCA0559.htm
If you have any questions about this case or any other insurance matter, please contact R. Glen Boswall at tel: 604-643-3125 or e-mail: rgb@cwilson.com, or any other member of the Clark Wilson LLP Insurance Practice Group.
