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  • Writer's pictureKirk Hartley

Global Choice of Law Issues for D & O Coverage – Contract Issues

This post at Kevin LaCroix’s D & O Diary covers an interesting new decision from Canada on global choice of law issues arising from D & O policies, and identifies contract clauses that might be changed to obtain better outcomes. Here’s an excerpt:

“The November 12 Opinion

In his November 12, 2009 decision (here), Justice Walker determined that British Columbia law is the proper law to be applied to the interpretation of the policy.

He began with the determination that the parties intended different laws to apply to different parts of the policy (a choice of law principle known as dépeçage). In reaching this conclusion, Justice Walker referenced several different parts of the policies at issue, including in particular the primary policy’s definition of “Loss,” which contained a provision specifying that the policy’s coverage for punitive and exemplary damages would be determined under the law most favorable to the insured. Justice Walker also referenced the policy’s Oregon state amendatory endorsements, which specified that Oregon law would govern any disputes regarding alleged misrepresentations in the insurance application.

Justice Walker determined that given these clause-specific choice of law provisions, and given the absence from the policies of any general choice of law provisions, the “proper law” governing the disputes arising under other policy provisions “is left to be determined by the court hearing the dispute to find based on the application of its own laws, taking into account the directing language in the policies.”

Reviewing these circumstances in this light, and discounting the policies’ various connection to jurisdictions in the United States, and applying British Columbia choice of law principles, Justice Walker concluded that “the policies have the closest and most substantial connection with BC,” and therefore BC law governs the coverage dispute presented by the receiver.

In substantiating this decision, Justice Walker stated that given the importance of the Canadian subsidiary, “most of the claims could be expected to arise from Canadian operations,” and he stressed that the P&T Ltd. employees’ wage claims are “unique to Canadian operations” and have “no equivalent in Oregon,” as a result of which Justice Walker concluded that “the proper law of the policies to determine the carriers’ coverage obligations for these claims is BC law.”

He added that the parties “would reasonably have expected BC law to apply to determine the insurers’ coverage obligations.”

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