Ontario Court Of Appeal Finds Insurance Coverage Does Not Apply To Cyber Hack

This article was originally published on E-TIPS™ For Deeth Williams Wall LLP on April 14, 2021.

On March 15, 2021, the Ontario Court of Appeal (the Court), in Family and Children’s Services of Lanark, Leeds and Grenville v Cooperators General Insurance Company, 2021 ONCA 159, reversed the lower court’s decision that found that Co-operators General Insurance Company (Co-operators) had a duty to defend Family and Children’s Services of Lanark, Leeds and Grenville (FCS) and Laridae Communications Inc. (Laridae) against two claims in relation to a cyber hack.

Laridae was retained by FCS to perform communication and marketing services, including working on FCS’ website. FCS subsequently discovered that its website had been hacked and that a report containing personal information of 285 clients and subjects of FCS’ investigations was disclosed on Facebook without authorization. Both companies were insured by Co-operators and claimed that Co-operators had a duty to defend against the following two claims that arose out of the event:

  1. a $75 million class action brought against FCS alleging that FCS was negligent in securing its website; and
  2. a third-party claim in that proceeding brought by FCS against Laridae for negligence and breach of contract.

Co-operators denied that it had a duty to defend because its policies excluded claims arising from the distribution of data by means of an internet website. All three parties brought applications to determine the rights that depend on the interpretation of the policies.

The Court disagreed with the lower court’s finding that the matter could not be addressed by way of application, stating that there were no material facts in dispute requiring a trial and that the policy provisions in issue were clear and unambiguous. Upon assessing the issue, the Court found that the substance and true nature of both claims arose from the wrongful appropriation and distribution of confidential personal information on the internet. The Court held that all claims asserted were covered by the clear and unambiguous language of the exclusion clauses, and therefore Co-operators had no duty to defend either claim.

The Court did not waver when faced with FCS and Laridae’s argument that applying the data exclusions would nullify meaningful coverage under the policy. The Court held that the policies clearly stated that Co-operators would not insure against all risks, and therefore, holding the parties to the terms of the agreement, aligned with the reasonable expectations of the parties.

Written by M. Imtiaz Karamat, Osgoode Alumnus and Student-at-Law at Deeth Williams Wall LLP.

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