Law Times

Law timeS • SEPTEMBER 29, 2008 FOCUS Use all available tools and information BY JULIUS MELNITZER For Law Times COST CONTAINMENT "The best leading edge strategy for cost con- tainment of litigation liabilities is to use all the tools and information available to you," says James Deaver, an insurance coverage lawyer who focuses on long tail liability issues at Wilson Elser's New York office. But fundamentals are important to the management of long-tail liabilities. "The first step is to have the right dam- age team in place, a team that should in- clude coverage counsel, insurers, and the relevant consultants and experts," says An- drea Tecce, managing director in Navigant Consulting Inc.'s Washington office. Equally critical is doing an early case as- sessment and strategy formulation. "Companies have to decide whether to defend a case or look to settle quickly and get out of it," Tecce says. "These de- cisions, of course, will be impacted by the exposure and the insurance available, which is why it's so important to involve coverage lawyers early on." Unfortunately, Tecce adds, too many businesses focus on a substantive defence strategy and don't deal with coverage is- sue until a dispute arises. "Without un- derstanding your coverage, it's difficult to formulate a proper strategy," she says. Data management is also a key feature of cost containment. quired down the road can save a company a lot of money," Tecce says. Depending on the scope and complexity of the data management involved, compa- nies can either outsource this function or delegate it to national or regional coordinat- ing counsel. "There are groups who special- ize in this sort of thing," Tecce says. "Defense costs can be significantly minimized by shar- ing information and providing the proper tools for its dissemination." Using innovative alternatives to the for- "Looking at what information will be re- ROUND-UP Insurance Company of Canada, released by the court in July 2008. The insurer provided directors' and offi- The policy contained an extension clause that covered wrongful acts prior to the policy period provided that the di- rectors and officers had no knowledge of and could not reasonably foresee any circumstances when the policy took effect. In this case, the events that led to the claims occurred during the 1990s. Lawrence Boland, along with a man cers' insurance to a condominium corpora- tion and its officers and directors for claims made for wrongful acts occurring during the policy period. The policy period was April 30, 2005 to April 30, 2006. mal tort system, quite apart from the usual ADR mechanisms such as arbitration and mediation, can also be advantageous. Inven- tory agreements are one example. "In the asbestos field, for example, major plaintiff's law firms have been willing to negotiate agreements that cap the number of claims they will file and provide assurances that they will only file quality claims," Deaver says. "A so- phisticated corporation looking at long- tail liabilities may find that the avail- ability of an inventory agreement is the key to whether a particular strategy or economic gamble makes sense." Not to be ignored are exotic insurance arrangements, some of which — like ring- fencing techniques that limit exposure — approach self-funding techniques. "In some cases, for example, a company could prepay $75 million to cover liabilities with net present values in the $60 to $80 million range," Deaver says. Simply having an insurer take a look at the situation and decide to gamble on it could have collateral advantages, particu- larly if there's a merger or acquisition on the horizon. "A person doing due diligence on a company with long-tail liabilities will take comfort from the fact that an insurer has assessed the situation," Deaver says. In other words, while exotic insur- ance can be expensive, it can have indirect benefits that facilitate other things. DUTY TO DEFEND The Ontario Court of Appeal has ruled that an insurer has a duty to defend the director of a condominium corporation even where the "force of the claim" is for deliberate con- duct excluded under the policy. The issue arose in Boland v. Allianz named Weldon, was a developer of the con- dominium project. Each purchased a unit before the condominium's declaration date. Before the declaration, however, Wel- don illegally enlarged his unit into the common area. Boland, who was a direc- tor of the corporation was alleged to have known about the illegal unit, failed to dis- close it to the corporation, and stood by when Weldon sold the unit to one Orr. The corporation sued Orr, seeking a dec- laration that she return the unit to its origi- nal condition. Orr sued the corporation and Boland for $4.5 million in damages. The corporation issued a statement of claim against Boland. It alleged he intention- ally or negligently breached his legal duties to the corporation and was liable to indemnify the corporation for the Orr claim. Boland sought coverage under the 2005 D&O policy. But Justice Carolyn Hopkins of the Su- perior Court of Justice found the insurer had no duty to defend. She reasoned that the ex- tension was not triggered so that the claim was not covered. She also concluded that the statement of claim was directed primarily to deliberate conduct and that the allegations of negligence were derivative. But Justice Kathryn Feldman, writing for a bench composed also of Chief Justice Warren Winkler and Justice Joan Lax, dis- agreed with Hopkins. As it turned out, the 2005 policy followed on a policy effective in September 1994. That policy contained the same extension of coverage term found in the 2005 policy. "The issue for determining if the exten- GI FFIN KOERTH ANNOU NCEM ENT It takes Leaders to follow the Money Giffin Koerth proudly announces the launch of its Forensic Accounting Group Whether it's about preventing or exposing fraud. Or accurately assessing damages. Almost every matter comes down to the money. You may have to dig deep beneath the numbers. Trace a tangle of transactions. Crack open computers. Or look at the economics of your file as a whole – and act accordingly. That takes exceptional expertise. Led by Edward Nagel, The Group offers the outstanding depth and multidisciplinary skills needed to handle: • Fraud Investigations • Computer Forensics • Loss and Damage Quantification • Anti-Money Laundering Risk Management • Anti-Fraud Consulting sion of coverage applies is, what is the 'ef- fective date of the policy' for the purpose of considering the knowledge of the insured director?" Feldman wrote. On the authority of the Supreme • Compliance Audits And Disputes • Anton Piller Orders Court of Canada's 1993 decision in Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., the effective date of the policy for the purpose of determin- ing Boland's knowledge was September 1994, the date of the first policy. But here part of the allegations on If you'd like to know what the numbers can tell you, call us at 416.368.1700 which Hopkins relied in determining that Boland could reasonably foresee a claim, related to his knowledge and ac- tions up to January 1998. "If the con- sideration of his knowledge is limited to what he knew in 1994, the effective date of the policy, it cannot be said that at that time he could reasonably foresee a claim," Feldman wrote. "Although the statement of claim is not explicit on the date, it is a reasonable inference from the pleading that in 1994, during his first term as director, [Boland] asked Weldon to correct the problem. He did not know then that Weldon would not do that before selling the unit in 1998." The allegations in the claim, then, if taken to be true, were not sufficient to deny coverage under the extension clause. enagel@giffinkoerth.com www.giffinkoerth.com Kim Manchester Anti-Money Laundering Richard Stahl B.Ap.Sc., Ph.D., M.Sc., P.Eng. Damage Quantification John Young Computer Forensics Edward Nagel CA·IFA, CBV Principal, Forensic Accounting Group PAGE 19 Giffin Koerth is one of Canada's largest and most respected forensic services firms – uniquely integrating forensic engineering and accounting. I t is located in downtown Toronto at 40 University Avenue, Suite 800. LT www.lawtimesnews.com Giffen_LT_Sep29_08.indd 1 9/23/08 9:54:14 AM

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