COURT OF APPEAL FOR ONTARIO

CITATION:
Onex
    Corporation v. American Home Assurance Company,

2013 ONCA 117

DATE: 20130225

DOCKET: C54076, C54123, C55034

OConnor A.C.J.O., Rosenberg and Simmons JJ.A.

BETWEEN

Onex Corporation, Gerald W. Schwartz, Christopher
    A. Govan, Mark Hilson and Nigel Wright

Plaintiffs/Defendants by Counterclaim

(Respondents/Cross-Appellants)

and

American Home Assurance
    Company
,
Brit Syndicates Ltd. (Lloyds Syndicate 2987), Heritage
    Managing Agency Limited (Lloyds Syndicate 3245), XL Insurance Company Limited
,
    Liberty Mutual Insurance Company, Lloyds Underwriters Syndicates No. 2623,
    0623, 0033 and AIG Europe (UK) Limited, and Houston Casualty Company

Defendants/Plaintiff by Counterclaim American Home

(
Respondents
/
Appellant/Respondent on Cross-Appeal
)

Geoffrey D. E. Adair, Q.C. and Alexa Sulzenko, for the
    respondents/cross-appellants

Glenn A. Smith, Rory Gillis and Marcus B. Snowden, for
    the appellant and respondent on cross-appeal, American Home Assurance Company

Alan L. W. DSilva, Mark E. Walli and Ellen M. Snow, for
    the respondents Brit Syndicates Ltd. (Lloyds Syndicate 2987), Heritage
    Managing Agency Limited (Lloyds Syndicate 3245) and XL Insurance Company
    Limited

Heard:  June 20, 2012

On appeal and cross-appeal from the judgment of Justice
    Laurence A. Pattillo of the Superior Court of Justice, dated June 30, 2011,
    with reasons reported at 2011 ONSC 1142, 98 C.C.L.I. (4th) 228, with
    supplementary reasons dated August 4, 2011, and on appeal from the judgment of
    Justice Laurence A. Pattillo of the Superior Court of Justice, dated January
    20, 2012.

OConnor
    A.C.J.O. and Simmons J.A.:

A.

Overview

[1]

The main issues before this court concern whether Onex Corporation is
    entitled to reimbursement for defence and settlement costs (defence costs)
    under various directors and officers (D&O) liability insurance
    policies.

[2]

In 2005, Onex, four of its directors and officers  Gerald W. Schwartz,
    Christopher A. Govan, Mark Hilson and Nigel Wright (the personal defendants)
    - and others were sued in the state of Georgia by the Trustee of the Magnatrax
    Litigation Trust (the Georgia Action).

[3]

The Georgia Action arose out of bankruptcy proceedings involving
    Magnatrax Corporation under Chapter 11 of the United States Bankruptcy Code.
    Magnatrax was a former subsidiary of Onex. The Magnatrax Litigation Trust was
    established during the Chapter 11 proceedings to pursue claims on behalf of the
    unsecured creditors of Magnatrax and its subsidiaries.

[4]

In the Georgia Action, the Trustee of the Magnatrax Litigation Trust
    alleged that Onex and the personal defendants used their control of Magnatrax
    to enrich themselves at the expense of Magnatrax and ultimately caused
    Magnatrax and its subsidiaries to become insolvent.

[5]

The Georgia Action eventually settled for US$9.25 million. In the course
    of defending the Georgia Action on behalf of itself and the personal
    defendants, Onex incurred close to US$35 million.

[6]

Like many corporations, Onex regularly purchased D&O liability
    insurance and excess D&O liability insurance to protect both its own
    directors and officers, and also the directors and officers of its
    subsidiaries, from claims arising from their actions while acting in their
    capacity as directors and officers.

[7]

In 2008, Onex and the personal defendants commenced this action (the
    Onex Action) against American Home Assurance Company
[1]
and various excess insurers
    (Excess Insurers). Onex and the personal defendants claimed they were
    entitled to reimbursement for defence costs incurred in the Georgia Action
    under a US$15 million 2004-2005 American Home D&O policy (the Onex
    2004-2005 Policy) and under various excess D&O policies purchased for the

2004-2005 policy year (the 2004-2005 Excess
    Policies).
[2]

[8]

In the alternative, Onex and the personal defendants claimed they were
    entitled to reimbursement under a US$15 million 2002-2003 American Home D&O
    policy (the Onex 2002-2003 Policy).

[9]

While serving as directors and officers of Onex, the personal
    defendants, Wright and Hilson, were also directors and officers of Magnatrax.
    In the Georgia Action, it was alleged that the personal defendants, Schwartz
    and Govan, acted as
de facto
directors and officers of Magnatrax.

[10]

Before
    Onex and the personal defendants commenced the Onex Action, American Home paid
    out US$15 million  the full limit of liability  under a D&O policy issued
    to Magnatrax (the Magnatrax Run-Off Policy) to defray the Georgia Action
    defence costs of the personal defendants and two other directors and officers
    of Magnatrax.

[11]

The
    Magnatrax Run-Off Policy was issued on May 12, 2003  on the eve of Magnatraxs
    insolvency. It was issued in anticipation of Magnatrax ceasing to be an Onex
    subsidiary and therefore ceasing to be covered under the Onex 2002-2003 Policy.
[3]

[12]

In
    defending the Onex Action, American Home and the Excess Insurers claimed that
    Onex learned about the possibility of the Georgia Action in August 2003 and
    gave notice to American Home of that possibility (the notice of
    circumstances) in compliance with clause 7(c) of the Onex 2002-2003 Policy, as
    well as clause 7(c) of the Magnatrax Run-Off Policy. Accordingly, under clause
    4(d) of the Onex 2004-2005 Policy, if Onex was entitled to any coverage for
    defence costs in connection with the Georgia Action under its American Home
    D&O policies, it could only be under the Onex 2002-2003 Policy and not
    under the Onex 2004-2005 Policy or the 2004-2005 Excess Policies.

[13]

Further,
    American Home relied on Endorsement #14 of the Onex 2002-2003 Policy, which was
    added effective on the date the Magnatrax Run-Off Policy was issued. American
    Home denied coverage under the Onex 2002-2003 Policy based on its position that
    Endorsement #14 of that policy excludes any Magnatrax-related claims from
    coverage.

[14]

On
    competing motions for summary judgment, Pattillo J. accepted American Homes
    argument that Onex gave notice of circumstances under clause 7(c) of the Onex
    2002-2003 Policy. Therefore, under clause 4(d) of the Onex 2004-2005 Policy,
    Onex and the personal defendants were not entitled to reimbursement for defence
    costs in connection with the Georgia Action. It followed that the Excess
    Insurers, who had agreed to follow the form of the Onex 2004-2005 Policy, were
    also excluded from liability under the 2004-2005 Excess Policies for any loss
    in respect of the Georgia Action. The motion judge accordingly dismissed Onexs
    action against the Excess Insurers in reasons dated June 30, 2011 and reported
    at 2011 ONSC 1142, 98 C.C.L.I. (4th) 228 (the reported reasons).

[15]

However,
    in his reported reasons, the motion judge rejected American Homes argument
    that Endorsement #14 of the Onex 2002-2003 Policy excluded Onexs claim for
    reimbursement of defence costs in connection with the Georgia Action. He
    concluded that Endorsement #14 does not exclude any claim by a third party against
    Onexs directors and officers in their capacity as such for their wrongful acts
    in relation to Magnatrax.

[16]

The
    motion judge therefore ordered American Home to pay Onex US$15 million on
    behalf of the personal defendants for defence costs in connection with the
    Georgia Action under the Onex 2002-2003 Policy.

[17]

Following
    the original summary judgment motions, American Home moved to amend its
    pleadings to further particularize its claim for legal or equitable set-off of
    amounts that it paid under the Magnatrax Run-Off Policy against amounts owing
    under the Onex 2002-2003 Policy. American Home also moved for summary judgment
    on its amended counterclaim. In unreported reasons dated January 20, 2012 (the
    unreported reasons), the motion judge permitted American Home to amend its
    pleadings, but went on to dismiss the motion for summary judgment on the claim
    as amended.

[18]

American
    Home appeals from the motion judges judgments requiring that it pay US$15
    million to Onex and the personal defendants under the Onex 2002-2003 Policy and
    dismissing its claim for set-off.

[19]

Onex
    and the personal defendants cross-appeal from that part of the motion judges
    judgment dismissing their action for indemnification under the Onex 2004-2005
    Policy and the 2004-2005 Excess Policies. They also cross-appeal from the
    motion judges judgment granting American Home leave to amend its pleadings to
    plead set-off (collectively, the Onex cross-appeal).

[20]

For
    the reasons that follow, we would allow American Homes appeal, set aside the
    decision of the motion judge and return the matter to the Superior Court. In
    addition, we would dismiss the Onex cross-appeal.

B.

facts

(i)

Onex and Magnatrax

[21]

Onex
    is an Ontario corporation that regularly acquires operating businesses with a
    view to creating value and subsequently either retaining them or disposing of
    them.

[22]

To
    the knowledge of its D&O insurers, Onexs directors and officers often
    serve in a dual capacity as directors and officers of its subsidiaries while
    they remain directors and officers of Onex.

[23]

Onex
    incorporated Magnatrax in Delaware in 1999. Between May 1999 and March 2000,
    Magnatrax and/or its subsidiaries purchased several U.S. and Canadian
    manufacturing companies. Three of these transactions were the subject matter of
    the allegations against Onex and the personal defendants in the Georgia Action.

(ii)

Aon Reed Stenhouse

[24]

Aon
    Reed Stenhouse is an insurance broker who acted as agent and broker for both
    Onex and Magnatrax in obtaining and negotiating the various policies of
    insurance at issue.

(iii)

Onexs D&O Coverage

[25]

As
    we have said, Onex regularly purchased D&O liability insurance to protect
    both its own directors and officers and also the directors and officers of its
    subsidiaries from claims arising from their actions while acting in their
    capacity as directors and officers. These policies were generally claims made
    and reported policies, meaning they provide coverage for claims first made
    against an insured party during the policy period and reported to the insurer
    within a time frame defined in the policy.

[26]

The
    specific language of all relevant policy provisions referred to in these
    reasons is set out in the Appendix.

(iv)

Onex 2002-2003 Policy

[27]

In
    2002, American Home, which is a member of the American International Group
    (AIG), issued the Onex 2002-2003 Policy. The policy covered the period from
    November 29, 2002 to November 29, 2003 and had a US$15 million limit of
    liability.

[28]

Among
    other things, the Onex 2002-2003 Policy provided Executive Liability
    Insurance and Organization Insurance. Put briefly, Executive Liability
    Insurance coverage requires an insurer to pay defence costs incurred by
    directors and officers of a corporation arising from a proceeding against them
    based on their wrongful conduct as directors and officers of the corporation.
    Organization Insurance entitles a corporation to be reimbursed by the insurer
    for defence costs it pays on behalf of its directors and officers for such
    proceedings.

[29]

More
    specifically, the Onex 2002-2003 Policys Executive Liability Insurance
    coverage provision provides that American Home would pay the Loss of any
    Insured Person arising from a Claim made against the Insured Person for
    any Wrongful Act of the Insured Person. The Organization Insurance coverage
    provision provides that American Home would pay the Organization for such
    loss only to the extent that the Organization has indemnified such Insured
    Person.

[30]

In
    the definition section of the Onex 2002-2003 Policy, Loss is defined to
    include Defence Costs. Insured Person is defined to include any Executive
    of Onex or its subsidiaries. Executive is defined to include directors and
    officers, and
de facto
directors and officers, of a corporation, which
    would include Onex and its subsidiaries.

[31]

The
    definitions of Claim and Wrongful Act are important for the purposes of
    this appeal. The relevant portions of these definitions read as follows:

Claim means:

(1)   a written demand for monetary, non-monetary or injunctive
    relief;

(2)   a civil  proceeding for monetary, non-monetary or
    injunctive relief which is commenced by: (i) service of a Writ of Summons,
    Statement of Claim or similar originating legal document;

Wrongful Act means:

(1)   any actual or alleged breach of duty, neglect, error,
    misstatement, misleading statement, omission or act :

(i) with respect to any Executive of an Organization, by
    such Executive in his or her capacity as such or any matter claimed against
    such Executive solely by reason of his or her status as such;

...

[32]

Clause 7(c) of the Onex 2002-2003 Policy permits an Insured to
    give written notice to the Insurer of any circumstance which may reasonably be
    expected to give rise to a Claim to enable the insured to obtain coverage for
    a Claim during the policy period even though the Claim is not advanced until
    after the expiry of the policy period.

[33]

Endorsement
    #10 of the Onex 2002-2003 Policy excludes coverage under the policy for Loss
    in connection with any Claim made against any Insured in any bankruptcy
    proceeding by or against an Organization, when such Claim is brought by the
    examiner, trustee, receiver, creditors committee, trust, liquidator or
    rehabilitator (or any assignee thereof) of such Organization.

[34]

In
    addition to the Onex 2002-2003 Policy, Onex also obtained US$45 million in
    excess follow form D&O insurance for the 2002-2003 coverage period from
    various excess insurers other than those involved in these proceedings. Onex
    renewed its D&O policies in each policy year between 2002 and 2005. The
    level of excess coverage increased over this time frame.

(v)

The Magnatrax Run-Off Policy and Changes to the Onex
    2002-2003   Policy

[35]

In
    January 2003, Onex contemplated selling Magnatrax to a third party. The
    proposed sale would have ended Magnatraxs status as an Onex subsidiary. This,
    in turn, would have removed Magnatrax and its executives from coverage under
    the Onex 2002-2003 Policy.

[36]

In
    the face of this possibility, Aon on Onexs behalf, requested a quote from
    American Home for a run-off D&O policy. The proposed run-off policy would
    protect Magnatrax and its executives for a period of six years against claims
    commenced after Magnatrax ceased to be an Onex subsidiary (and therefore ceased
    to be protected under Onexs D&O policies), but which claims related to the
    executives conduct or status before Magnatrax ceased to be an Onex subsidiary.

[37]

As
    noted by the motion judge, American Homes quote proposed a number of
    endorsements to the run-off policy, including #13  Non-Pyramiding of Limits;
    and #14  Absolute Onex Corporation Exclusion  Carve-out for co-defendant with
    Onex Corporation. Underneath the listed exclusions, the following
    appeared:

NOTE: Endorsements to be added to Onex Corporation Policy

1. Absolute Exclusion from Magnatrax Corporation;

2. Non-Pyramiding of Limits.

[38]

The
    motion judge found that Aon had concerns about American Homes quote. However,
    the contemplated sale of Magnatrax was abandoned before the concerns were fully
    resolved.

[39]

On
    May 11, 2003, Aon was advised by the Magnatrax board of directors that
    Magnatrax was intending to file for bankruptcy protection. Aon asked American
    Home to bind coverage for a run-off D&O policy for Magnatrax on an urgent
    basis. On May 12, 2003, American Home issued a Temporary and Conditional Binder
    of Insurance (Binder) that described the coverages and endorsements to be
    included in the US$15 million Magnatrax Run-Off Policy.

[40]

As
    noted by the motion judge, 13 endorsements were listed in the Binder. In
    particular, Endorsements #12 and #13 were: 12. Non-pyramiding of Limits (To Be
    Manuscripted) and 13. Absolute Onex Corporation Exclusion  Carve-put (sic) for
    co-defendant with Onex Corporation (To Be Manuscripted). To Be Manuscripted
    means that the wording of these endorsements had not yet been finalized.

[41]

The
    Binder also indicated that two endorsements were to be added to the Onex
    2002-2003 Policy. The following language appeared under the listed exclusions:

NOTE: Endorsements to be added to Onex Corporation Policy

1. Non-pyramiding of Limits (To Be
    Manuscripted)

2. Absolute Exclusion from Magnatrax
    Corporation (To Be Manuscripted)

[42]

Although
    the Binder indicated that two endorsements were to be manuscripted for the
    Magnatrax Run-Off Policy and two endorsements were to be manuscripted and added
    to the Onex 2002-2003 Policy, ultimately Endorsements #16 and #4 were added to
    the Magnatrax Run-Off Policy and only one endorsement was added to the Onex
    2002-2003 Policy, namely, Endorsement #14. All of these endorsements are
    significant for the purposes of this appeal.

[43]

Endorsement
    #16 of the Magnatrax Run-Off Policy deals with coordinating the limits of
    liability between the Magnatrax Run-Off Policy and other American Home or AIG
    policies. The relevant portions of Endorsement #16 read as follows:

ENDORSEMENT #16

COORDINATION OF AIG
    LIMITS

In consideration of the premium charged, it is hereby
    understood and agreed that, with respect to any Claim under this policy for
    which coverage is provided by one or more other policies issued by the Insurer
    or any other member of the American International Group (AIG),  the Limit of
    Liability provided by virtue of this policy shall be reduced by the limit of
    liability provided by said other AIG policy.

[44]

Endorsement
    #4 of the Magnatrax Run-Off Policy is important because it provides coverage
    for Onex Executives in certain circumstances:

ENDORSEMENT #4

DEFINITION
    OF ORGANIZATION AMENDED TO INCLUDE ENTITY

(CO-DEFENDANT ONLY)

In consideration of the premium charged, it is hereby
    understood and agreed that the term "Organization" is amended to
    include the following entity, subject to the terms, conditions and limitations
    of this endorsement and this policy.

ENTITY

Onex Corporation

Coverage as is afforded under this policy with respect to a
    Claim made against Onex Corporation or any Insured Persons thereof shall only
    apply if: (1) such Claim relates to a Wrongful Act committed by an Insured
    (other than Onex Corporation or an Insured Person thereof); and (2) an Insured
    (other than Onex Corporation or an Insured Person thereof) is and remains a
    defendant in the Claim along with Onex Corporation or any Insured Person
    thereof.

In all events coverage as is afforded under this policy with
    respect to a Claim made against Onex Corporation or any Insured Person thereof
    shall only apply to Wrongful Acts committed or allegedly committed prior to May
    12, 2003.

[45]

Neither
    Onex nor Magnatrax obtained excess insurance for the Magnatrax Run-Off Policy.

(vi)

Endorsement #14 to the Onex 2002-2003 Policy

[46]

Endorsement
    #14 is central to the issues on appeal. It was added to the Onex 2002-2003 Policy
    as part of finalizing the terms of the Magnatrax Run-Off Policy. It is a
    Specific Entity/Subsidiary Exclusion, which excludes continuing coverage
    under the policy for certain Magnatrax-related losses:

ENDORSEMENT #14

SPECIFIC
    ENTITY/SUBSIDIARY EXCLUSION

(Claims brought by or
    made against)

In consideration of the premium charged, it is hereby
    understood and agreed that the Insurer shall not be liable for any Loss
    alleging, arising out of, based upon or attributable to or in connection with
    any Claim brought by or made against the Entity listed below and/or any
    Insureds thereof.

1.

MAGNATRAX
    Corporation (including any subsidiary or affiliate thereof)

It is further understood and agreed that the Definition of
    Subsidiary shall not include MAGNATRAX Corporation. Further, the Insurer shall
    not be liable to make any payment for Loss in connection with any Claim made
    against an Insured alleging, arising out of, based upon or attributable to any
    breach of duty, act, error or omission of MAGNATRAX Corporation, or any
    director, officer, member of the board of managers or employee thereof.

(vii)

Magnatraxs Chapter 11 Bankruptcy Proceedings

[47]

Magnatrax
    sought Chapter 11 bankruptcy protection on May 12, 2003. A Creditors Committee
    was formed on May 22, 2003. The Creditors Committee selected the law firm of
    Foley & Lardner to act as its counsel.

[48]

On
    August 19, 2003, the Creditors Committee reached an agreement with Magnatrax
    and its subsidiaries on a plan of reorganization. The Magnatrax Plan of
    Reorganization was subsequently confirmed by the U.S. Bankruptcy Court on
    November 17, 2003. Magnatrax emerged from Chapter 11 protection on January 20,
    2004. After that date, Onex no longer had any ownership interest in Magnatrax.

(viii)

Notice of Circumstances  The Foley Letter

[49]

On
    August 1, 2003, Foley and Lardner, counsel for the Magnatrax Creditors
    Committee, wrote a letter to counsel for Magnatrax asserting that the
    Creditors Committee believed that Magnatrax had various claims against Onex
    and its affiliates, and the officers and directors of Onex and Magnatrax.

[50]

As
    described in the Foley Letter, the purported claims were against those parties
    involved in the May 1999, September 1999, and March 2000 transactions, as well
    as the credit facilities and related agreements supporting those transactions.
    The letter refers to numerous claims, including breach of fiduciary duty,
    aiding and abetting breach of fiduciary duty, unjust enrichment, preference
    claims and possibly other claims yet to be identified.

[51]

The
    Foley Letter requested confirmation that Magnatrax would prosecute all of these
    claims or, in the alternative, sought confirmation that the Committee could
    pursue the claims on Magnatraxs behalf.

[52]

After
    receiving the Foley Letter, counsel for Magnatrax forwarded it to Aon on August
    7, 2003 and inquired about what notice should be sent to Magnatraxs insurers.

[53]

On
    November 28, 2003, the day before the Onex 2002-2003 Policy was to expire, Aon
    faxed the Foley Letter to American Home. In doing so, Aon referenced both the
    Onex 2002-2003 Policy and the Magnatrax Run-Off Policy and stated that the
    Foley Letter contains information on a situation which could in future give
    rise to a claim under [those] polic[ies].

(ix)

Onexs 2004-2005 D&O Coverage

[54]

Onex
    renewed its US$15 million D&O coverage with American Home in 2003-2004 and
    in 2004-2005. As it had done in other years, Onex also obtained excess follow
    form D&O coverage for 2004-2005.

[55]

The
    coverage provisions under the Onex 2004-2005 Policy are the same as the
    coverage provisions under the Onex 2002-2003 Policy.

[56]

Clause
    4(d) of the Onex 2004-2005 Policy is significant to this appeal. It creates an
    exclusion from coverage where a Claim is covered under a prior policy:

4.       EXCLUSIONS

The Insurer shall not be liable to make any payment for Loss in
    connection with any Claim made against an Insured:

...

(d) alleging, arising out of, based upon or attributable to
    the facts alleged, or to the same or related Wrongful Acts alleged or contained
    in any Claim which has been reported, or in any circumstances of which notice
    has been given, under any policy of which this policy is a renewal or
    replacement or which it may succeed in time;

...

(x)

Removal of the Specific Entity/Subsidiary
    Exclusion Endorsement

[57]

The
    policy wording for the Onex 2004-2005 Policy was not sent to Aon for review
    until May 10, 2005. After receiving the policy language, Aon requested that
    American Home delete the endorsement containing the Specific Entity/Subsidiary
    Exclusion, which was Endorsement #14 in the Onex 2002-2003 Policy and
    Endorsement #13 in the Onex 2003-2004 Policy, and replace it with a Prior Acts
    Exclusion to provide coverage under the Onex 2004-2005 Policy for wrongful acts
    committed by Magnatrax directors and officers during the period May 12, 2003 to
    January 20, 2004 when Magnatrax and its subsidiaries were in Chapter 11
    protection.

[58]

The
    Onex 2004-2005 Policy was later re-issued with the Prior Acts Exclusion
    replacing the Specific Entity Exclusion. The Prior Acts Exclusion appears in
    the 2004-2005 Policy as Endorsement #13, which states in part:

PRIOR ACTS EXCLUSION FOR LISTED ENTITIES

In consideration of the premium charged, it is hereby
    understood and agreed that the term Subsidiary is amended to include the
    entity(ies) listed below, but only for Wrongful Acts committed by such
    entity(ies) and/or any Insureds thereof which occurred subsequent to such
    entitys respective acquisition/creation date listed below and prior to the
    time the Named Entity no longer maintains Management Control of such
    entity(ies), respectively, either directly, or indirectly through one or more
    other Subsidiaries.  Loss arising from the same or related Wrongful Act shall
    be deemed to arise from the first such same or related Wrongful Act.

ENTITIES                  ACQUISITION/CREATION
    DATE

Magnatrax Corporation []
May
    12, 2003

[59]

Significantly,
    the Excess Insurers never agreed to this change in the policy provisions.

(xi)

The Georgia Action

[60]

On
    May 10, 2005, the Trustee of the Magnatrax Litigation Trust commenced the
    Georgia Action.

[61]

The
    Magnatrax Litigation Trust was established under s. 4.21 of the Magnatrax Plan
    of Reorganization, which was approved by the U.S. Bankruptcy Court, to pursue
    causes of action on behalf of the Litigation Trust beneficiaries, who are
    defined as unsecured creditors of Magnatrax.

[62]

Of
    the 19 counts asserted in the Georgia Action, four are asserted against the
    personal defendants, as well as against two directors of Magnatrax: i) breach
    of fiduciary duty; ii) aiding and abetting breach of fiduciary duty; iii) civil
    conspiracy; and iv) unjust enrichment. These four counts were also asserted
    against Onex and various Onex-related companies. The remaining 15 counts in the
    Georgia Action are pleaded only against Onex and Onex affiliates.

[63]

The
    breach of fiduciary duty count alleges that Onex was the
de facto
board and
alter ego
of Magnatrax and its subsidiaries. The count
    further alleges that the defendants exploited their positions as directors and
    officers of Magnatrax, as
de facto
directors and officers of
    Magnatrax, or as the
alter ego
to the board of Magnatrax, to further
    their own benefit and in breach of their duties owed to the Debtors
    (Debtors refers to Magnatrax and Magnatrax-related companies).

[64]

The
    aiding and abetting breach of fiduciary duty count alleges that each of the defendants
    knowingly induced, participated in and substantially assisted the other
    defendants breaches of fiduciary duty owed to the Debtors.

[65]

The
    civil conspiracy count alleges that the defendants wilfully conspired to embark
    on a scheme to divert value from the Debtors to themselves; to fraudulently
    transfer assets and value from the Debtors to the benefit of themselves; and to
    breach fiduciary duties.

[66]

The
    unjust enrichment count alleges that the defendants used their complete
    domination and control of the Debtors to receive a benefit from their
    management of the Debtors, and this benefit inured to the detriment of both the
    Debtors and the Debtors creditors.

(xii)

Notice of the Georgia Action to American Home and the Coverage
    Provided by American Home

[67]

On
    July 4, 2005, Aon sent on Onexs behalf a copy of the complaint in the Georgia
    Action to American Home as notice of a Claim under the Onex 2004-2005 Policy.

[68]

On
    September 15, 2005, American Home denied coverage under that policy because the
    allegations in the Georgia Action pre-dated May 12, 2003. According to American
    Home, the Prior Acts Exclusion in Endorsement #13 of the Onex 2004-2005 Policy
    limited coverage to Wrongful Acts committed after May 12, 2003.

[69]

American
    Home also contended that the Claim is excluded because the allegations relate
    to the personal defendants actions in a capacity other than as an Executive of
    Onex and subsidiaries of Onex. Finally, American Home raised the possibility
    that coverage was not available because the allegations in the Georgia Action
    involved intentional acts that are excluded from coverage by clauses 4(a) and
    (c) of the Onex 2004-2005 Policy.

[70]

Initially,
    American Home also denied coverage under the Magnatrax Run-Off Policy. However,
    on August 28, 2006, American Homes counsel indicated that coverage would be
    available for the personal defendants under that policy based on Endorsement
    #4. In counsels view, this co-defendant endorsement afforded coverage with
    respect to a Claim against Onex Executives provided an Insured under the policy
    remained as a co-defendant in the Claim along with Onex or an Insured Person of
    Onex.

[71]

As
    we have said, Onex and the personal defendants were jointly represented by
    counsel throughout the Georgia Action and incurred defence costs totalling
    approximately US$35 million and settlement costs of over US$9 million. American
    Home paid out US$15 million  the limit of liability under the Magnatrax
    Run-Off Policy  to reimburse the personal defendants and two other Magnatrax
    directors and officers for their defence costs. Of this US$15 million,
    US$13,881,991.90 was paid to reimburse the personal defendants and the
    remaining US$1,118,008.10 was paid to reimburse the two other Magnatrax
    directors and officers. As noted, Onex and Magnatrax did not obtain excess
    insurance for the Magnatrax Run-Off Policy.

(xiii)

The Onex Action Against American Home and the
    Excess Insurers

[72]

Onex
    and the personal defendants commenced this action in 2008 against American Home
    and the various Excess Insurers seeking coverage under the Onex 2004-2005
    Policy and under the 2004-2005 Excess Policies.  In the alternative, the
    plaintiffs sought coverage under the Onex 2002-2003 Policy. American Home and
    the Excess Insurers defended and also counterclaimed for declarations that they
    had no obligation to provide coverage.

[73]

Onex
    and the personal defendants, American Home and the Excess Insurers brought
    competing motions for summary judgment.
[4]

C.

Motion judgeS reasons

[74]

In
    his reported reasons dated June 30, 2011, the motion judge held as follows:

·

The Foley Letter constituted notice of circumstances under clause
    7(c) of the Onex 2002-2003 Policy with respect to the Georgia Action.

·

Clause 4(d) of the Onex 2004-2005 Policy operates to exclude
    American Home from having to pay any defence costs in connection with the
    Georgia Action under the Onex 2004-2005 Policy. The follow-form 2004-2005
    Excess Policies also excluded the Excess Insurers from any liability in respect
    of the Georgia Action.

·

Endorsement #14 of the Onex 2002-2003 Policy does not exclude
    coverage for any claim by a third party against Onexs directors and officers
    in their capacity as such for their wrongful acts in relation to Magnatrax, and
    thus, under the Onex 2002-2003 Policy, American Home is required to indemnify
    Onex and the personal defendants for defence costs incurred in in relation to
    the Georgia Action.

[75]

In
    reaching these conclusions, the motion judge found, at para. 97, that the terms
    of the D&O policies in issue are clear and unambiguous and that evidence of
    intention adduced by the various parties was inadmissible.

[76]

After
    receiving the motion judges decision, American Home brought a motion to amend
    its counterclaim to have the monies owing under the Onex 2002-2003 Policy
    set-off against the US$13,881,991.90 already paid to the personal defendants
    under the Magnatrax Run-Off Policy. American Home also moved for summary
    judgment on the set-off issue.

[77]

The
    motion judge granted American Home leave to amend. However, on the motion for
    summary judgment, he dismissed American Homes counterclaim. In his unreported
    reasons dated January 20, 2012, he found that Endorsement #16 of the Magnatrax
    Run-Off Policy does not reduce the limit of liability of the Magnatrax Run-Off
    Policy, and thus American Home was not entitled to repayment of amounts
    previously paid to the personal defendants under the Magnatrax Run-Off Policy.
    Given his conclusion that American Home was not entitled to repayment, he did
    not consider American Homes claim for set-off.

D.

issues

The Appeal by American Home

[78]

American
    Home raises two issues on the appeal:

(1)     Did the motion judge err in concluding that Endorsement
    #14 of the Onex 2002-2003 Policy does not exclude coverage for defence costs of
    the personal defendants in connection with the Georgia Action?

(2)     Did the motion judge err in concluding that Endorsement
    #16 of the Magnatrax Run-Off Policy does not entitle American Home to set-off
    amounts owing under the Onex 2002-2003 Policy against payments made under the
    Magnatrax Run-Off Policy?

[79]

It
    is worth noting that American Home accepts that, but for Endorsement #14, it
    would be liable to pay the personal defendants the amounts claimed under the
    Onex 2002-2003 Policy. Thus, American Home accepts that the coverage provisions
    in that policy include the payment of defence costs of the personal defendants
    arising from the Georgia Action.

The Onex Cross-Appeal

[80]

On
    the cross-appeal, two issues need to be considered:

(1)     Did the motion judge err in concluding that the Foley
    Letter complied with the requirements of clause 7(c) of the Onex 2002-2003
    Policy?

(2)     Did the motion judge err in granting American Home
    leave to amend its Amended Amended Statement of Defence and Counterclaim?

[81]

We
    will deal with the Onex cross-appeal first.

E.

THE

onex cross-appeal

(1)

The Foley Letter and clause 7(c) of the Onex 2002-2003 Policy

[82]

On
    its cross-appeal, Onex argues that the motion judge erred in concluding that
    the Onex 2004-2005 Policy and the 2004-2005 Excess Policies did not provide
    coverage because Onex had previously given notice of the circumstances that
    gave rise to the Georgia Action pursuant to the Onex 2002-2003 Policy.
[5]

[83]

The
    Onex 2002-2003 Policy and the Onex 2004-2005 Policy are claims made and
    reported policies. Losses resulting from a Claim are eligible for coverage
    under a policy if the Claim is made and reported during the policy period.

[84]

Clause
    7(c) of the Onex 2002-2003 Policy provides that the period of coverage can be
    extended beyond the Policy Period if an insured party provides notice during
    the Policy Period of circumstances that may lead to a future Claim.  Clause
    7(c) states in relevant part:

If during the Policy Period ... an Organization or an Insured
    shall become aware of any circumstances which may reasonably be expected to
    give rise to a Claim being made against an Insured and shall give written
    notice to the Insurer of the circumstances, the Wrongful Act allegations
    anticipated and the reasons for anticipating such a Claim, with full
    particulars as to dates, persons and entities involved, then a Claim which is
    subsequently made against such Insured and reported to the Insurer alleging,
    arising out of, based upon or attributable to such circumstances or alleging
    any Wrongful Act which is the same as or related to any Wrongful Act alleged or
    contained in such circumstances, shall be considered made at the time such
    notice of such circumstances was given.

[85]

Clause
    7(c) dovetails with clause 4(d) of the standard exclusions in American Homes
    D&O policies, including the Onex 2004-2005 Policy. Clause 4(d) excludes
    from coverage under the present policy Loss from any Claim arising out of
    Wrongful Acts of which notice has been given under a previous policy.

[86]

The
    cross-appeal turns on whether Onex provided American Home with notice of
    circumstances during the policy period for the Onex 2002-2003 Policy that
    complied with clause 7(c) of that policy. If it did, then coverage under the
    Onex 2004-2005 Policy is excluded pursuant to clause 4(d) and, consequently,
    coverage under the excess insurance follow-form policies would also be
    excluded.

[87]

As
    we have said at paras. 49-53, on August 1, 2003, Foley and Lardner, counsel for
    the Magnatrax Creditors Committee, wrote a letter to counsel for Magnatrax
    asserting that Magnatrax had claims against Onex, the directors and officers of
    Onex, and the directors and officers of Magnatrax. These claims were said to
    arise from the May 1999, September 1999, and March 2000 transactions, as well
    as the credit facilities and related agreements supporting those transactions.
    The letter refers to numerous claims, including breach of fiduciary duty,
    aiding and abetting breach of fiduciary duty, unjust enrichment, and possibly
    other claims yet to be identified.

[88]

On
    November 28, 2003, the day before the Onex 2002-2003 Policy was to expire, Aon
    faxed the Foley Letter to American Home. In doing so, Aon referred to both the
    Onex 2002-2003 Policy and the Magnatrax Run-Off Policy and stated that the
    Foley Letter contains information on a situation which could in future give
    rise to a claim under [those] polic[ies].

[89]

Onex
    argues that the Foley Letter does not satisfy the specificity requirements of
    clause 7(c) of the Onex 2002-2003 Policy in that it does not set out full
    particulars as to dates, persons and entities involved.  Onex contends that the
    letter did not describe the nature of the commercial transactions or Onexs
    role in them, did not specify any wrongful act that might be alleged, nor did
    it set out the names of the directors and officers who were involved in the
    transactions.

[90]

The motion judge rejected these same arguments. In his
    reported reasons, he indicated that he was in agreement with U.S. cases holding
    that, in determining whether a notice by an insured to an insurer is
    sufficient, an objective test should be applied having regard to the wording of
    the policy. He held, at para. 136:  The test is whether the insured
    objectively complied with the notice provision in the Policy, citing
Continental
    Insurance Co. v. Superior Court Los Angeles County
, 37 Cal
.
App.
    4th 69, 80 (1995) and
McCullough v. Fidelity & Deposit Co.
, 2 F.3d
    110, 113 (5th Cir. 1993).

[91]

We
    see no reason to interfere with the motion judges finding that the Foley
    Letter contains sufficient particulars to meet the requirements of clause
    7(c).  We agree with the motion judges conclusion, at para. 150, that it sets
    out the specific transactions and agreement involved, the dates of the
    transactions, the claims which are alleged to exist and the entities and
    individuals involved. What is important here is that Onex, through Aon,
    provided American Home with the specifics of the threatened litigation as those
    specifics were provided to it. It was not necessary for the insured to
    speculate about the names of the individual directors or officers who might be
    named in the threatened litigation. As found by the motion judge, when viewed
    objectively as a whole, the Foley Letter contains sufficient particulars of the
    dates, persons and entities involved to comply with clause 7(c) of the Onex
    2002-2003 Policy.

[92]

We
    share the motion judges view that the claims being advanced in the Georgia
    Action are the same as or related to the claims asserted in the Foley Letter.
    The Foley Letter referred to claims arising out of transactions in May 1999,
    September 1999 and March 2000. The Georgia Action is based on corporate
    acquisitions by Magnatrax of American Buildings Company in May 1999, Republic
    Builders Products in August 1999, and Jannock Limited in March 2000.

[93]

Further,
    the claims asserted in the Georgia Action against the personal defendants are
    breach of fiduciary duty, aiding and abetting breach of fiduciary duty, civil
    conspiracy and unjust enrichment. The Foley Letter sets out a number of claims,
    including breach of fiduciary duty, aiding and abetting breach of fiduciary
    duty and unjust enrichment. Thus, the Foley Letter alleges the same or related
    claims against Onex and the personal defendants as were alleged in the Georgia
    Action.

[94]

We
    therefore agree with the motion judge that the Foley Letter meets the
    requirement of clause 7(c) of the Onex 2002-2003 Policy such that the Georgia
    Action constitutes a Claim made during the Policy Period of the Onex 2002-2003
    Policy.

[95]

As
    a result of clause 4(d) of the Onex 2004-2005 Policy, coverage is excluded
    under that policy. Coverage is also excluded under the 2004-2005 Excess
    Policies.

(2)

Leave to Amend American Homes Pleadings

[96]

Onex
    cross-appeals the motion judges order granting American Home leave to amend
    its Amended Amended Statement of Defence and Counterclaim and to further
    particularize its claim for legal or equitable set-off. Onex submits that the
    motion judge erred in failing to find that the set-off issue raised by American
    Home was
res judicata
. On appeal, Onex advances the same arguments
    that were made to the motion judge on the issue of
res judicata
. Onex
    also submits, as it did on the motion, that permitting the amendment would
    result in non-compensable prejudice because American Home was effectively
    allowed to bolster arguments that had already been considered and rejected by
    the motion judge.

[97]

The
    motion judge dealt with these arguments at para. 30 of his unreported January
    20, 2012 reasons:

In my view,
res judicata
does not apply to American
    Homes proposed amendments. Cause of action estoppel is not applicable. Nor, in
    my view, is issue estoppel. The issues of whether the limits of the Magnatrax
    Policy were reduced by the limits of the 2002-2003 D&O Policy and whether
    American Home was entitled to a refund of amounts paid under the Magnatrax
    Policy were not decided by me. The former issue was pleaded but not argued. The
    latter issue is a corollary which arises only on a determination of the first
    issue. The Action, and specifically the counterclaim has not been concluded.

[98]

We
    see no reason to interfere with the motion judges exercise of discretion
    permitting American Home to amend its pleadings. The motion judge had not yet
    decided whether the limits of the Magnatrax Run-Off Policy were reduced by the
    Onex 2002-2003 Policy, nor the corollary issue of whether American Home was
    entitled to a refund of amounts paid under the Magnatrax Run-Off Policy. We
    fail to see how Onex was prejudiced by the permitted amendments.

[99]

For
    the foregoing reasons, we would dismiss the Onex cross-appeal.

F.

american homes appeal

(1)

Legal Principles

[100]

The issues
    raised by American Home relate to the proper interpretation of certain
    endorsements in the Onex 2002-2003 Policy and the Magnatrax Run-Off Policy.
    American Home does not argue that the motion judge erred in setting out the
    legal principles for interpreting the terms of an insurance policy. However, we
    include a summary of these principles because they inform our analysis of the
    issues raised by American Homes appeal.

[101]

The Supreme
    Court of Canada has canvassed the principles of insurance policy interpretation
    on several occasions: see
Progressive Homes Ltd. v. Lombard General
    Insurance Co. of Canada
, 2010 SCC 33, [2010] 2 S.C.R. 245, at paras.
    21-24;
Co-operators Life Insurance Co. v. Gibbens
, 2009 SCC 59, [2009]
    3 S.C.R. 605, at paras. 20-28;
Jesuit Fathers of Upper Canada v. Guardian
    Insurance Co. of Canada
, 2006 SCC 21, [2006] 1 S.C.R. 744, at paras.
    27-30;
Non-Marine Underwriters, Lloyds of London v. Scalera
, 2000 SCC
    24, [2000] 1 S.C.R. 551, at paras. 67-71; and
Brissette Estate v. Westbury
    Life Insurance Co.
, [1992] 3 S.C.R. 87, at pp. 92-93.

[102]

The primary
    interpretative principle is that when language of the policy is unambiguous,
    the court should give effect to the clear language, reading the contract as a
    whole:
Scalera
, at para. 71. The terms of the policy must be examined
    in light of the surrounding circumstances, in order to determine the intent of
    the parties and the scope of their understanding:
Jesuit Fathers
, at
    para. 27.

[103]

In
Kentucky
    Fried Chicken Canada v. Scotts Food Services Inc.
, 114 O.A.C. 357, at
    para. 25, this court referred to the need to examine the language of a contract
    in light of the surrounding circumstances:  While the task of interpretation
    must begin with the words of the document and their ordinary meaning, the
    general context that gave birth to the document or its factual matrix will
    also provide the court with useful assistance.  In cases of insurance
    contracts, the evidence of the factual matrix may be of more assistance when
    the contract is an individually negotiated contract rather than a standard form
    contract resulting from a routine purchase of an insurance policy.

[104]

Be that as it
    may, before reaching a finding that a contractual provision is ambiguous, the
    court must assess the words of a contract in light of the factual matrix in
    which the agreement was written. As Doherty J.A. stated in
Dumbrell v. The
    Regional Group of Companies Inc.
, 2007 ONCA 59, 85 O.R. (3d) 616, at para.
    54:

A consideration of the context in which the written agreement
    was made is an integral part of the interpretative process and is not something
    that is resorted to only where the words viewed in isolation suggest some
    ambiguity.  To find ambiguity, one must come to certain conclusions as to
    the meaning of the words used.  A conclusion as to the meaning of words used
    in a written contract can only be properly reached if the contract is
    considered in the context in which it was made:  see McCamus,
The Law
    of Contracts
(Toronto:  Irwin Law, 2005) at 710-11.

[105]

It is important
    to distinguish what is meant by the factual matrix from extrinsic evidence that
    is admissible to resolve an ambiguity. The factual matrix is gleaned from the
    context of the transaction. Doherty J.A. explained in
Dumbrell
, at
    para. 55, that the factual matrix clearly extends to the genesis of the
    agreement, its purpose, and the commercial context in which the agreement was
    made.

[106]

Where the
    language of an insurance policy is found to be ambiguous, the court will rely
    on general rules of contract construction. As explained in
Progressive
    Homes
, at para. 23:

For example, courts should prefer interpretations that are
    consistent with the reasonable expectations of the parties (
Gibbens
,
    at para. 26;
Scalera
, at para. 71;
Consolidated-Bathurst
, at
    p. 901 [
Consolidated‑Bathurst Export Ltd. v. Mutual Boiler and
    Machinery Insurance Co.
, [1980] 1 S.C.R. 888]), so long as such an
    interpretation can be supported by the text of the policy.  Courts should
    avoid interpretations that would give rise to an unrealistic result or that
    would not have been in the contemplation of the parties at the time the policy
    was concluded (
Scalera
, at para. 71;
Consolidated-Bathurst
,
    at p. 901). Courts should also strive to ensure that similar insurance policies
    are construed consistently (
Gibbens
, at para. 27). These rules of
    construction are applied to resolve ambiguity.  They do not operate to
    create ambiguity where there is none in the first place.

[107]

In
Lombard
    Canada Ltd. v. Zurich Insurance Co
., 2010 ONCA 292, 101 O.R. (3d) 371, at
    para. 33, this court held that, where there is ambiguity in the sense that a
    phrase is capable of bearing two equally reasonable interpretations, the court
    may consider extrinsic evidence and the applicability of the
contra
    proferentem
rule.

[108]

However, the
    admission of extrinsic evidence does not mean that the parties subjective
    views of what was intended by the agreement will be used to resolve the ambiguity.
    On the contrary, the court should adopt the interpretation that gives effect to
    the reasonable expectations or intentions of the parties:
Scalera
, at
    para. 71;
Reid Crowther & Partners Ltd. v. Simcoe & Erie General
    Insurance Co.
, [1993] 1 S.C.R. 252, at p. 269;
Dunn v. Chubb Insurance
    Co. of Canada
, 2009 ONCA 538, 266 O.A.C. 1, at para. 35.

[109]

We turn now to
    the arguments with respect to the interpretation of Endorsement #14 of the Onex
    2002-2003 Policy.

(2)

Endorsement #14 of the Onex 2002-2003 Policy

[110]

American Home
    argues that the motion judge erred in finding that Endorsement #14 of the Onex
    2002-2003 Policy does not exclude coverage for the personal defendants claims
    for defence costs arising from the Georgia Action. According to American Home,
    under the plain meaning of Endorsement #14, the personal defendants losses in
    the form of defence costs fall into each of the following three exclusions in
    Endorsement #14:

(i)    the Georgia Action is a Claim made against Magnatrax or
    its Executives;

(ii)   the Georgia Action is a Claim brought by Magnatrax; and

(iii) the Georgia Action is a Claim based on an act or omission
    of Magnatrax Executives.

[111]

Before turning
    to the specific arguments, it is important to note that Endorsement #14 to the
    Onex 2002-2003 Policy is one part of an individually negotiated set of
    insurance arrangements between Onex, American Home and Magnatrax. Those
    arrangements resulted from a number of discussions and email exchanges. Those
    arrangements also included the issuance of the Magnatrax Run-Off Policy. The
    origin of those arrangements goes back to the discussions between the parties
    in January 2003 when Onex was contemplating a sale of Magnatrax. The parties
    added Endorsement #14 to the Onex 2002-2003 Policy as a result of a negotiated
    set of contractual arrangements.

[112]

Next, it is
    worth noting that the positions of both parties in approaching the
    interpretation dispute are commercially reasonable. Onex says that it is
    reasonable that Onex Executives would have wanted to maintain coverage under
    the more extensive Onex tower of insurance policies in the face of Magnatraxs
    Chapter 11 filing and the heightened litigation risk associated with that
    filing.  American Home, on the other hand, says it would be reasonable for it
    to provide no more than one of its policy limits to respond to any Claim
    related to Magnatrax. Both of these positions are commercially reasonable when
    viewed from the parties own perspective.  Hence, the difficulty.

[113]

We first explain
    why we would not give effect to American Homes argument based on the second
    exclusion identified by American Home in Endorsement #14 of the Onex 2002-2003
    Policy.

(a)

The Georgia Action is a Claim Brought By Magnatrax

[114]

American Home
    argues that the Loss arising from the Georgia Action is excluded by Endorsement
    #14 of the Onex 2002-2003 Policy because the Loss arises out of or in
    connection with a Claim brought by Magnatrax. We repeat for convenience the
    language of the first paragraph of Endorsement #14 that relates to this
    argument:

[T]he Insurer shall not be liable for any Loss... arising out
    of  or in connection with any Claim brought
by
[Magnatrax]
    [Emphasis added.].

[115]

The question
    then becomes whether the Georgia Action, which was brought by the Magnatrax
    Litigation Trust as plaintiff, and which asserts only causes of action assigned
    to it under the Magnatrax Plan of Reorganization, is a Claim brought by
    Magnatrax. If so, the Loss arising therefrom is excluded by Endorsement #14.

[116]

The motion judge
    set out the facts relevant to this argument at paras. 175-77 of his reported
    reasons. American Home does not dispute the motion judges summary of the
    facts.

[117]

As we said
    above, the Georgia Action was brought by the Trustee of the Magnatrax
    Litigation Trust. The Magnatrax Litigation Trust was established pursuant to s.
    4.21 of the Magnatrax Plan of Reorganization, which was approved by the U.S.
    Bankruptcy Court in the Chapter 11 proceedings. It is clear, however, from both
    the Foley Letter and the complaint in the Georgia Action that the claims being
    advanced are claims which, up until their assignment to the Litigation Trust,
    belonged entirely to Magnatrax and its subsidiaries.

[118]

The Foley Letter
    requested immediate confirmation from Magnatrax and its subsidiaries in
    bankruptcy that it would pursue the claims identified against the entities and
    the individuals named, failing which it requested confirmation that the
    Creditors Committee could pursue the claims of Magnatrax on their behalf.

[119]

American Home
    argues that the motion judge erred in concluding that the Georgia Action was
    not brought by Magnatrax so as to come within the second exclusion in
    Endorsement #14 of the Onex 2002-2003 Policy. The Georgia Action is a derivative
    action instituted by the Litigation Trust and alleges causes of action
    originally belonging to Magnatrax. American Home correctly points out that if
    the Georgia Action had been brought by Magnatrax, it would be clear that
    Endorsement #14 would have excluded coverage.

[120]

American Home
    also points out that prior to the issuance of Endorsement #14, the exclusion in
    Endorsement #10 of the Onex 2002-2003 Policy, which amends clause 4(i) in that
    Policy, would have excluded coverage for proceedings  including derivative
    actions  commenced by a trustee established in bankruptcy proceedings of
    Magnatrax for the benefit of its creditors.

[121]

The exclusion in
    clause 4(i) of the Onex 2002-2003 Policy is a standard Insured versus Insured
    exclusion (see the Appendix for the text of clause 4(i)). This exclusion is
    designed to protect the insurer from having to provide coverage in relation to
    a legal proceeding by one insured party against another insured party. The
    Insured versus Insured exclusion is designed to prevent collusive proceedings
    whereby an insured company might seek to force its insurer to pay for the poor
    business decisions of its officers or managers:
Twp. Of Center, Butler
    County, Pa. v. First Mercury Syndicate, Inc.
, 117 F.3d 115, 119 (3d Cir.
    1997).

[122]

Paragraph 3 of
    clause 4(i) provides that the Insured versus Insured exclusion shall not apply
    to:

(3) in any bankruptcy proceeding by or against an Organization,
    any Claim brought by the examiner, trustee, receiver, receiver manager,
    liquidator or rehabilitator (or any assignee thereof) of such Organization, if
    any;

[123]

Endorsement #10
    deleted subparagraph 3 of clause 4(i). Thus, the Insured versus Insured
    exclusion would apply to exclude coverage for a Claim brought in bankruptcy
    proceedings by a trustee of an Organization as defined in the Onex 2002-2003
    Policy.

[124]

However, the
    effect of Endorsement #10 was removed insofar as Magnatrax was concerned after
    the parties agreed upon Endorsement #14. Endorsement #14 provides that
    Magnatrax is no longer a Subsidiary of Onex. Organization is defined to mean
    each Subsidiary.

[125]

American Home
    argues that there is no evidence that the parties intended that the amendments
    to the Onex 2002-2003 Policy resulting from the inclusion of Endorsement #14
    should operate to expose it to a form of coverage previously excluded
    liability for derivative legal proceedings brought against Onex by a creditors
    litigation trust.

[126]

The motion judge
    rejected these arguments. We agree with his conclusion and his reasons, at paras.
    178-80 of his reported reasons:

Notwithstanding that the claims which are asserted against [the
    personal defendants] in the [Georgia Action] are derivative claims which
    initially belonged to Magnatrax and its subsidiaries, in my view, they are not
    brought by Magnatrax. The exclusion in the first paragraph of Endorsement #14
    of the [Onex 2002-2003 Policy] is clear. It applies to any Claim brought by
    Magnatrax or any subsidiary or affiliate thereof.  While [the Georgia Action]
    asserts claims which originally belonged to Magnatrax and its subsidiaries, it
    is brought by the Trustee on behalf of the Magnatrax Litigation Trust and not
    Magnatrax.

As noted earlier, exclusions are to be interpreted narrowly.
    In the absence of more expansive wording in Endorsement #14 to exclude
    derivative claims, the words: any Claim brought by or made against [Magnatrax,
    its subsidiaries and affiliates] restrict the application of the exclusion to
    claims brought by Magnatrax, its subsidiaries and affiliates. As [the Georgia Action]
    is not such a Claim, Endorsement #14 does not exclude it from coverage.

Nor, in my view, can American Home rely on Endorsement #10 of
    the [Onex 2002-2003 Policy] which excludes claims against any Insured where the
    claim is brought in any bankruptcy proceeding by or against an Organization
    when the claim is brought by, among others, the creditors committee or trust.
    Endorsement #14 removed Magnatrax as a subsidiary thereby excluding it from the
    definition of Organization under the [Onex 2002-2003 Policy].

[127]

To those
    reasons, we would add that the circumstances surrounding the adoption of
    Endorsement #14 support the motion judges interpretation of the words in that
    clause. The reason for the negotiations that resulted in Endorsement #14, as
    well as Endorsements #4 and #16 to the Magnatrax Run-Off Policy, was the
    impending bankruptcy of Magnatrax. Although these three endorsements were not,
    in fact, issued until sometime after the Chapter 11 proceedings involving
    Magnatrax had commenced, the endorsements were dated May 12, 2003 so as to
    coincide with the beginning of the Chapter 11 proceedings.

[128]

Endorsement #14
    had the effect of removing the bankruptcy exclusion in Endorsement #10 as it
    applied to Magnatrax. It is significant, we suggest, that the language in
    Endorsement #14 excludes coverage for Loss arising from a Claim brought by
    Magnatrax (the insolvent entity) but does not, as Endorsement #10 had, exclude
    Loss arising from a Claim brought by a trustee, a creditors committee, or a
    trust. We do not think that this omission, viewed objectively and reasonably,
    should be treated as an oversight, particularly when it is considered that
    Endorsement #14 was drafted in the circumstances of Magnatrax declaring
    bankruptcy. Rather, given the experience and sophistication of the parties, we
    conclude, as the motion judge did, that the parties intended the exclusion in
    Endorsement #14 to apply only to Loss arising from a Claim brought by
    Magnatrax. Had the parties intended that the exclusion was to apply to Loss arising
    from a Claim brought by assignees, trustees, or other representatives asserting
    Magnatraxs claims, they would have specifically said so.

[129]

We now consider
    together the remaining two exclusions identified by American Home.

(b)

The Georgia Action is a Claim Made Against
    Magnatrax or its Executives / The Georgia Action is Claim Based on an Act or
    Omission of Magnatrax Executives

[130]

American Home
    argues that the defence costs claimed by the personal defendants are excluded
    from coverage by two additional exclusions in Endorsement #14 of the Onex
    2002-2003 Policy: the remaining language in the first paragraph of Endorsement
    #14 and the second sentence of the second paragraph of Endorsement #14. We
    repeat the relevant language for convenience:

In consideration of the premium charged, it is hereby
    understood and agreed that
the Insurer shall not be liable for any Loss
    alleging, arising out of, based upon or attributable to or in connection with
    any Claim brought by or made against
[Magnatrax Corporation]
and/or
    any
[Executive]
thereof.

Further, the Insurer shall not be liable to make any payment
    for Loss in connection with any Claim made against an Insured alleging, arising
    out of, based upon or attributable to any breach of duty, act, error or
    omission of MAGNATRAX Corporation, or any director, officer, member of the
    board of managers or employee thereof. [Emphasis added.]

[131]

The motion judge
    did not accept American Homes arguments based on either the first or second
    paragraphs of Endorsement #14. He concluded, at para. 169 of his reported
    reasons, that although Endorsement #14 of the Onex 2002-2003 Policy is an
    exclusion provision, it does not operate as an absolute exclusion in respect
    of all claims against Onexs directors and officers relating to Magnatrax. He concluded
    that the language of Endorsement #14 was unambiguous and thus only open to the
    interpretation he adopted.

[132]

We have
    considered the language of Endorsement #14 of the Onex 2002-2003 Policy in the
    context of the surrounding circumstances or the factual matrix.  In our view,
    the language viewed in that context is ambiguous.  It is open to two reasonable
    interpretations: the one urged by American Home and the one adopted by the
    motion judge.

[133]

Because there is
    ambiguity, it becomes necessary to turn to extrinsic evidence to assist with
    the interpretative exercise.  Before turning to the use of extrinsic evidence,
    we will set out why we consider both of the competing interpretations to be
    reasonable.

[134]

We start with
    the motion judges interpretation.

[135]

In the motion
    judges view, Endorsement #14 excludes coverage for claims against the personal
    defendants acting in their capacity as Magnatrax Executives, but it does not
    exclude from coverage claims against the personal defendants acting in their
    capacity as Onex Executives. The motion judge drew the distinction between the
    capacity in which the personal defendants were acting at para. 105 of his
    reported reasons:

Further, based on a review of the entire Complaint in the
    [Georgia] Action and in particular the allegations against [the personal
    defendants], it is my view that the claims against the [personal defendants]
    are asserted against them in their capacity both as directors and officers of
    Onex and as directors (or de facto directors) and officers of Magnatrax.
The
    overarching theme of the Complaint
[i.e., the Georgia Action]
is that
    Onex, as directed by the [personal defendants] in their capacity as Onex
    directors and officers, engineered the demise of Magnatrax and its subsidiaries
    for their collective benefit.
[Emphasis added.]

[136]

The motion judge
    went on, at paras. 173-74, to interpret the exclusionary effect of Endorsement
    #14 as follows:

Accordingly, when read in its entirety, Endorsement #14
    operates to remove Magnatrax (and any subsidiary or affiliate) from coverage
    under the [Onex 2002-2003 Policy] and exclude any claim against Onex directors
    and officers by or against Magnatrax or arising out of, based upon or
    attributable to any act on the part of Magnatrax or its directors and officers.
    What Endorsement #14 does not exclude, in my view, is any claim by a third
    party against Onexs directors and officers in their capacity as such for their
    wrongful acts in relation to Magnatrax.

Based on the above interpretation of Endorsement #14, it is my
    view that the [Georgia] Action is not excluded from coverage under the [Onex
    2002-2003 Policy]. As has been previously discussed, the [Georgia] Action
    asserts claims against the [personal defendants] in their capacity as directors
    and/or officers of Onex relating to Magnatrax. The claims are not based upon or
    attributable to any act on the part of Magnatrax or its directors and officers.

[137]

The motion judge
    elaborated on his understanding of the term Claim in the Magnatrax Run-Off
    Policy and the Onex 2002-2003 Policy at paras. 54-55 of his unreported January
    20, 2012 reasons:

The term Claim is broadly defined in both the Magnatrax
    [Run-Off] Policy and the [Onex 2002-2003 Policy] to include, among other
    things, a written demand for monetary, non-monetary or injunctive relief as
    well as [a] civil proceeding for monetary, non-monetary or injunctive relief
    commenced by statement of claim. It is intended to define a triggering event in
    respect of coverage under the Policies. In my view, however, based on the
    wording of the Policies as a whole, the definition of Claim is broad enough to
    also encompass multiple individual claims within an action or proceeding as
    well. It is not restricted to mean solely an action or proceeding.

To define Claim as being limited to a legal action or
    proceeding makes no sense having regard to the wording of the Policies. The
    Policies refer to and deal with actions or proceedings which assert multiple
    claims where some of the claims are covered and some are not. They also provide
    for claims against insured in actions where there are co-defendants who are not
    covered. It is the covered claims within an action or proceeding that are
    covered rather than the entire action.

[138]

These reasons
    indicate that the motion judge was satisfied that the Georgia Action advanced
    claims against the personal defendants both in their capacities as Executives
    of Magnatrax and in their capacities as Executives of Onex. American Home does
    not challenge this finding on appeal.

[139]

It is also
    apparent that the motion judge was satisfied that while the term Claim as it
    is defined in the Onex 2002-2003 Policy refers to a civil proceeding, the term
    need not necessarily encompass the entirety of the civil proceeding. According
    to the motion judge, when the wording of the policies is looked at as a whole:
    the definition of Claim is broad enough to also encompass multiple individual
    claims within an action or proceeding as well. It is not restricted to mean
    solely an action or proceeding: unreported reasons, at para. 54.

[140]

We think that the
    motion judges view is tenable to the following extent.  We agree that when the
    wording of the policies is looked at as a whole, it is reasonable to interpret
    the term Claim in Endorsement #14 as not necessarily referring to the
    entirety of a proceeding. The phrase in the first paragraph of Endorsement #14
     any Claim  made against [Magnatrax or its Executives]  can be taken as
    referring to the Georgia Action as advanced against Magnatrax or its
    Executives, and not as referring to the Georgia Action as advanced against Onex
    or its Executives acting in their capacity as such.

[141]

The following
    wording of the policies supports this view. Under the terms of the Executive
    Liability coverage in the Onex 2002-2003 Policy, American Home was responsible
    to pay the Loss of an Onex Executive arising from a Claim made against the
    Executive for any Wrongful Act of the Executive.

[142]

Wrongful Act
    is defined as meaning:

(1)     any
    actual or alleged breach of duty, neglect, error, misstatement, misleading
    statement, omission or act

(i) with respect to any Executive of an Organization, by
    such Executive in his or her capacity as such or any matter claimed against
    such Executive solely by reason of his or her status as such;

[143]

It is apparent
    from this definition that the capacity in which an Executive is acting when
    committing a Wrongful Act is a crucial feature of coverage. It is only when
    acting in his or her capacity as an Executive of the covered Organization that
    the Executive is covered.

[144]

When the
    Magnatrax Run-Off Policy was issued and Magnatrax and Magnatrax Executives were
    removed from coverage under the Onex 2002-2003 Policy, it would be reasonable
    to interpret these policies as providing that Magnatrax Executives would no
    longer be covered under the Onex 2002-2003 Policy for a Claim brought against
    them in their capacity as Magnatrax Executives, but that Onex Executives would
    continue to be covered under the Onex 2002-2003 Policy for Wrongful Acts
    committed by them in their capacity as Onex Executives. In other words, it is
    reasonable to interpret the term Claim in Endorsement #14 as referring to a
    proceeding against a particular Insured acting in the capacity that attracts
    coverage. Considered in this light, the wording of the first paragraph of
    Endorsement #14  the Insurer shall not be liable for any Loss arising out
    of any Claim made against [Magnatrax or its Executives]  could reasonably
    mean a Claim to the extent that it is advanced against Magnatrax or its
    Executives in their capacity as such.

[145]

On this interpretation
    of the phrase any Claim, the exclusion in the second paragraph of Endorsement
    #14 could reasonably be interpreted as not excluding all of the defence costs
    of the Georgia Action from coverage. If a proceeding (in this case a civil
    action) includes causes of action against an Insured acting in more than one
    capacity, it would be necessary to separate the claims based upon the
    capacities in which the Insured is being sued and to then determine whether or
    not the Insured is covered or excluded under the provisions of the policy.

[146]

In this case,
    the motion judge found, at para. 105 of his reported reasons, that [t]he
    overarching theme of the Complaint [
i.e.
, the Georgia Action] is that
    Onex, as directed by the [personal defendants] in their capacity as Onex
    directors and officers, engineered the demise of Magnatrax and its subsidiaries
    for their collective benefit. At para. 174 of his reported reasons, he held
    that at least some of the claims were advanced against the personal defendants
    in their capacity as directors and/or officers of Onex and are not based
    upon or attributable to any act on the part of Magnatrax or its directors and
    officers.

[147]

At least with
    respect to the unjust enrichment claim, we agree with the motion judges
    characterization. This claim is not alleging, arising out of, based upon or
    attributable to any breach of duty, act, error or omission of Magnatrax [or any
    Magnatrax Executive]. On this view, it would be reasonable to interpret the
    second paragraph of Endorsement #14 of the Onex 2002-2003 Policy as not
    excluding the cost of defending the unjust enrichment aspect of the Georgia
    Action.

[148]

Having said
    that, we are not prepared to find that the motion judges interpretation of
    Endorsement #14 of the Onex 2002-2003 Policy is the only reasonably available
    interpretation. We find that American Homes suggested interpretations of the
    first paragraph of Endorsement #14 and of the second paragraph of Endorsement
    #14 are also reasonable ones.

[149]

In advancing the
    argument based on the exclusion in the first paragraph of Endorsement #14,
    American Homes fundamental position is that the word Claim in this clause
    should be read as it is defined in the Onex 2002-2003 Policy. The definition of
    Claim states:

Claim means:

2) a civil, criminal, administrative, regulatory or arbitration
    proceeding for monetary, non-monetary or injunctive relief which is commenced
    by:  (i) service of a Writ of Summons, Statement of Claim or similar
    originating legal document; (ii) return of a summons, information, indictment
    or similar document (in the case of a criminal proceeding); or (iii) receipt or
    filing of a notice of charges;

[150]

Based on the
    definition of the term Claim as a civil proceeding, American Home contends
    that the first paragraph of Endorsement #14 clearly excludes the personal
    defendants defence costs from coverage for two main reasons.

[151]

First, the
    personal defendants defence costs constitute Loss arising out of, attributable
    to or in connection with a civil proceeding, namely, the Georgia Action.
    Second, the Georgia Action is a civil proceeding against Magnatrax Executives,
    who were named as individual defendants in the Georgia Action. Thus, on a plain
    reading of the first paragraph of Endorsement #14, the personal defendants Loss
    in the form of defence costs arising from the Georgia Action is excluded from
    coverage.

[152]

Similarly,
    American Homes argument based on the second paragraph of Endorsement #14 is
    that this language operates to exclude coverage for Loss in connection with any
    civil proceeding against Onex Executives alleging, arising out of, based upon
    or attributable to the conduct of Magnatrax Executives. The Georgia Action
    includes allegations of wrongful acts committed by directors and officers of
    both Magnatrax and Onex. Thus, the argument goes, the Georgia Action is a
    Claim  that is, a civil proceeding  arising out of acts by Magnatrax
    Executives. That being the case, the defence costs associated with the Georgia
    Action are excluded from coverage by the above-quoted language from the second
    paragraph of Endorsement #14.

[153]

On American
    Homes interpretation, there is no basis in the language of Endorsement #14 or
    elsewhere in the policy language for assigning a different meaning to the term
    Claim than is provided by the definition in the policy. American Home argues
    that giving a different meaning to the term Claim as it appears in
    Endorsement #14 would deviate from the meaning of the term most commonly used
    in the D&O insurance industry.

[154]

We agree with
    American Home to the extent that we conclude that it is reasonable to interpret
    the term Claim in Endorsement #14 in the way the term is defined in the Onex
    2002-2003 Policy, namely, as a civil proceeding. On one reading of the first
    paragraph of Endorsement #14, the Georgia Action constitutes a civil proceeding
    brought against Magnatrax Executives, and the Insurer is not liable for any
    Loss in connection with this Claim.

[155]

We agree that it
    is also reasonable to interpret the second paragraph of Endorsement #14 as excluding
    coverage for the claimed defence costs because these costs arise from a Claim
    that is based on acts or omissions of Magnatrax Executives. Each of the four
    counts in the Georgia Action against the individual defendants name both the
    personal defendants who served as Onex Executives (
i.e.
, Schwartz,
    Govan, Wright and Hilson), as well as two individual defendants who only served
    as Magnatrax Executives (
i.e.
, Richard T. Ammerman and Raymond C.
    Blackmon Jr.). The language of the second paragraph of Endorsement #14 can be
    read to exclude from coverage the costs of defending the Georgia Action because
    these costs constitute Loss in connection with a Claim alleging, arising out
    of, based upon or attributable to the conduct of Magnatrax Executives (
i.e.
,
    Wright, Hilson, Ammerman and Blackmon).

[156]

In assessing the
    reasonableness of the competing interpretations of the term Claim in
    Endorsement #14, it is necessary to consider if each interpretation is consistent
    with the use of that term elsewhere in the Onex 2002-2003 Policy. We have
    reviewed the language of the policy, and in particular have examined
    Endorsements #5 and #9. American Home contended that the language of these
    endorsements supports its interpretation of Endorsement #14.  We conclude that
    the way the term Claim is used elsewhere in the policy does not assist in
    determining which interpretation of the use of that term in Endorsement #14 is
    the correct one.  There are reasonable arguments pointing in both directions.

[157]

We have also
    considered the factual matrix in this case, which is set out above in paras.
    25-48 above.  As we see it, plausible arguments can be made on both sides as to
    the reasonableness of either interpretation in view of the surrounding
    circumstances, the provisions of the Magnatrax Run-Off Policy and when viewed
    objectively, what the parties to the negotiations would have been trying to
    accomplish.

[158]

In reaching the
    conclusion that Endorsement #14 is ambiguous, we have specifically considered
    Endorsements #16 and #4 to the Magnatrax Run-Off Policy (see paras. 43 and 44
    above).  In our view, these endorsements can be interpreted to sit comfortably
    with American Homes interpretation of Endorsement #14 in the Onex 2002-2003
    Policy.

[159]

Using the plain
    meaning of the definitions provided in the policies, under American Home's
    interpretation of Endorsement #14 in the Onex 2002-2003 Policy and Endorsement
    #16 in the Magnatrax Run-Off Policy, coverage is not simultaneously available
    under the two policies.

[160]

According to
    American Home, Endorsement #4 of the Magnatrax Run-Off Policy would afford
    coverage with respect to any civil proceeding against Onex or Onex Executives
    provided that the civil proceeding relates to a Wrongful Act committed by
    Magnatrax or a Magnatrax Executive if either Magnatrax or a Magnatrax Executive
    remains as a defendant in the civil proceeding.

[161]

That said, we do
    not think that the compatibility of Endorsements #16 and #4 of the Magnatrax
    Run-Off Policy with American Homes interpretation of Endorsement #14 in the
    Onex 2002-2003 Policy is determinative of the interpretation exercise.

[162]

As a starting
    point, American Homes interpretation of these paragraphs in Endorsement #14 of
    the Onex 2002-2003 Policy leaves a potential gap in coverage for Onex
    Executives. On American Homes interpretation, Onex Executives would be covered
    by the Magnatrax Run-Off Policy for their Wrongful Acts in relation to
    Magnatrax provided they were sued along with Magnatrax or a Magnatrax
    Executive. However, they would not be afforded coverage under either policy if
    they were sued on their own in their capacity as Onex Executives for the same
    Wrongful Acts.

[163]

Further,
    Endorsement #16 also can be read in a manner that is consistent with the motion
    judges interpretation of Endorsement #14 to the Onex 2002-2003 Policy.  If
    Claim as it appears in Endorsement #14 to the Onex 2002-2003 Policy is
    interpreted as meaning the Georgia Action as advanced against Magnatrax or its
    Executives, and not as referring to the Georgia Action as advanced against Onex
    or its Executives acting in their capacity as such, the coverage afforded to
    Magnatrax Executives under the Magnatrax Run-Off Policy would not trigger
    Endorsement #16 to the Magnatrax Run-off Policy. Similarly, aspects of the
    Georgia Action advanced against Onex Executives that do not attract coverage
    under Endorsement #4 of the Magnatrax Run-Off Policy would not trigger
    Endorsement #16 of the Magnatrax Run-Off Policy. Viewed in this way,
    Endorsement #16 of the Magnatrax Run-Off Policy does not make the motion judges
    interpretation of Endorsement #14 of the Onex 2002-2003 Policy unreasonable.

[164]

Endorsement #4
    of the Magnatrax Run-Off Policy may sit less comfortably with the motion
    judges interpretation of Endorsement #14 of the Onex 2002-2003 Policy.
    Arguably, the motion judges interpretation avoids the potential for a gap in
    coverage if a civil proceeding involving Magnatrax named only Onex and Onex
    Executives as defendants and did not name as defendants Magnatrax or any
    individuals who served as Magnatrax Executives.  That said, it is not entirely
    clear what effect such an interpretation would have on the coordination of
    liability limits under Endorsement #16 of the Magnatrax Run-Off Policy.

[165]

In our view,
    however, the difficulty in reconciling the two endorsements from the Magnatrax
    Run-Off Policy with the motion judges interpretation of Endorsement #14 of the
    Onex 2002-2003 Policy does not determine the interpretative exercise. We have
    concluded that the ambiguity, as discussed above in these reasons, remains. The
    factual matrix in this case does not resolve which interpretation of
    Endorsement #14 of the Onex 2002-2003 Policy reflects the parties reasonable
    expectations or intentions in putting in place the Magnatrax Run-Off Policy and
    amending the Onex 2002-2003 Policy by adding Endorsement #14.

[166]

Each party
    advanced an interpretation of Endorsement #14 reflecting their reasonable
    expectation of coverage. Viewed objectively, either interpretation of
    Endorsement #14 would produce a commercially sensible result.

[167]

In summary, we
    are of the view that the wording of Endorsement #14 in the Onex 2002-2003
    Policy is susceptible of more than one meaning and is therefore ambiguous.
    Accordingly, we do not agree with the motion judges conclusion at para. 169 of
    his reported reasons that the wording of Endorsement #14 is clear and
    unambiguous.

[168]

Where an
    ambiguity is first identified on appeal, it must be asked if the appellate
    court is in a position to resolve the ambiguity
de novo
. Section
    134(1) of the
Courts of Justice Act
, R.S.O. 1990, c. C.43, empowers
    this court to make any order that the motion judge could have made. The parties
    brought competing motions to decide the personal defendants action by way of
    summary judgment. The evidentiary record from the motions was filed
    electronically in this court with leave.

[169]

The governing
    test for assessing if it is appropriate to exercise the powers conferred by
    rule 20.01(2.1) of the
Rules of Civil Procedure
, R.R.O. 1990, Reg.
    194, on a motion for summary judgment is the full appreciation test from
Combined
    Air Mechanical v. Flesch
, 2011 ONCA 764, 108 O.R. (3d) 1. This court
    described the test as follows, at para. 50: can the full appreciation of the
    evidence and issues that is required to make dispositive findings be achieved by
    way of summary judgment, or can this full appreciation only be achieved by way
    of a trial?

[170]

We have examined
    the record carefully.  Regrettably, we find that we are not in a position to
    decide the factual issues that need to be determined in order to resolve the
    interpretative dispute. Having found that Endorsement #14 was unambiguous, the
    motion judge did not make findings of fact with respect to the issues we
    consider relevant to the resolution of the interpretation exercise.

[171]

In arguing the
    appeal, the parties each took the position that the interpretation they urged
    on the court was unambiguous. That being the case, they paid little attention
    to the issues that we now find must be determined  what were the reasonable
    expectations or intentions of the parties in adopting Endorsement #14 of the
    Onex 2002-2003 Policy?

[172]

Given the
    disposition we would make of this appeal, we will not express an opinion on the
    body of evidence that may be relevant to determining that issue. Suffice it to
    say that there is evidence of discussions and correspondence that took place in
    January 2003 and again at the time of the issuance of the Magnatrax Run-Off
    Policy and the issuance of Endorsement #14.

[173]

We note that it
    will be open to the Superior Court to decide, if need be, whether Endorsement
    #16 of the Magnatrax Run-Off Policy entitles American Home to set-off amounts
    that may be found owing under the Onex 2002-2003 Policy against payments made
    under the Magnatrax Run-Off Policy.

G.

Disposition

[174]

In the result,
    we would dismiss the Onex cross-appeal. We would allow American Homes appeal,
    set aside the order of the motion judge, and return the matter to the Superior
    Court.  We leave it open to the parties to decide whether to renew motions for
    summary judgment or to proceed by way of a trial of the issues that we have
    identified in these reasons.

[175]

The parties may
    make brief written submissions on costs within a period of 30 days from the
    release of these reasons.

R
eleased
:
DOC
    February 25, 2013

D.
    OConnor A.C.J.O.

Janet
    Simmons J.A.

I
    agree M. Rosenberg J.A.

Appendix

1. Onex 2002-2003 Policy

Coverage A: EXECUTIVE LIABILITY
    INSURANCE

This policy shall pay the Loss
    of any Insured Person arising from a Claim (including, but not limited to, an
    Employment Practices Claim, an Oppressive Conduct Claim, a Canadian pollution
    Claim and a Statutory Claim) made against such Insured Person for any Wrongful
    Act of such Insured Person, except when and to the extent that an Organization
    has indemnified such Insured Person.  Coverage A shall not apply to Loss
    arising from a Claim made against an Outside Entity Executive.

2. DEFINITIONS

(c) Claim means:

(1)  a
    written demand for monetary, non-monetary or injunctive relief,

(2) a
    civil, criminal, administrative, regulatory or arbitration proceeding for
    monetary, non-monetary or injunctive relief which is commenced by:  (i) service
    of a Writ of Summons, Statement of Claim or similar originating legal document;
    (ii) return of a summons, information, indictment or similar document (in the
    case of a criminal proceeding); or (iii) receipt or filing of a notice of
    charges; or

(3) a
    civil, criminal, administrative or regulatory investigation of an Insured
    Person:

(i)      once
    such Insured Person is identified in writing by such investigating authority as
    a person against whom a proceeding described in Definition (c)(2) may be
    commenced; or

(ii)     in
    the case of an investigation by any PSC or similar foreign securities
    authority, after the service of a subpoena upon such Insured Person.

The term Claim shall include
    any Securities Claim, Employment Practices Claim, Oppressive Conduct Claim,
    Canadian Pollution Claim and Statutory Claim.

(h) Defence
    Costs means reasonable and necessary fees, costs and expenses consented to by
    the Insurer (including premiums for any appeal bond, attachment bond or similar
    bond arising out of a covered judgment, but without any obligation to apply for
    or furnish any such bond) resulting solely from the investigation, adjustment,
    defence and/or appeal of a Claim against an Insured, but excluding any
    compensation of any Insured Person or any Employee of an Organization.

(l) Executive means any:

(1) past,
    present and future duty elected or appointed director, officer, trustee or governor
    of a corporation, management committee member of a joint venture and member of
    the management board of a limited liability company (or equivalent position),
    including a de facto director, officer, trustee, governor, management committee
    member or member of the management board of such entities;

(2)  past,
    present and future person in a duty elected or appointed position in an entity
    organized and operated in a Foreign Jurisdiction that is equivalent to an
    executive position listed in Definition (l)(1); or

(3)  past,
    present and future General Counsel and Risk Manager (or equivalent position) of
    the Named Entity.

(p) Insured means any:

(1)  Insured
    Person; or

(2)  Organization,
    but only with respect to a Securities Claim, an Oppressive Conduct Claim or a
    Canadian Pollution Claim.

(q) Insured Person means any:

(1)
    Executive of an Organization;

(2)
    Employee of an Organization; or

(3)  Outside
    Entity Executive.

(r) Loss
    means damages (including aggravated damages), settlements, judgments (including
    pre/post-judgment Interest on a covered judgment), Defence Costs and Crisis
    Loss; however, Loss (other than Defence Costs) shall not include:  (1) civil
    or criminal fines or penalties; (2) taxes; (3) punitive or exemplary damages;
    (4) multiplied portion of multiplied damages; (5) any amounts for which an
    Insured is not financially liable or which are without legal recourse to an
    Insured; and (6) matters which may be deemed uninsurable under the provincial
    or state law pursuant to which this policy shall be construed.

(w) Organization means:

(1)  the Named Entity;

(dd) Subsidiary
    means: (1) any for-profit entity that is not formed as a partnership of which
    the Named Entity has Management Control (Controlled Entity) on or before the
    inception of the Policy Period either directly or indirectly through one or
    more other Controlled Entities and (2) a not-for-profit organization as defined
    in Section 149.1(b) of the Income Tax Act, R.S.C., 1985 (5th Supp.) sponsored
    exclusively by the Named Entity.

(ee) Wrongful Act means:

(1) any
    actual or alleged breach of duty, neglect, error, misstatement, misleading
    statement, omission or act or any actual or alleged Employment Practices
    Violation:

(i)     with
    respect to any Executive of an Organization, by such Executive in his or her
    capacity as such or any matter claimed against such Executive solely by reason
    of his or her status as such;

(ii)    with
    respect to any Employee of an Organization, by such Employee in his or her
    capacity as such, but solely in regard to any: (a) Securities Claim; or (b)
    other Claim so long as such other Claim is also made and continuously
    maintained against an Executive of an Organization; or

(iii)     with
    respect to any Outside Entity Executive, by such Outside Entity Executive in
    his or her capacity as such or any matter claimed against such Outside Entity
    Executive solely by reason of his or her status as such; or

(2) with
    respect to an Organization, any actual or alleged breach of duty, neglect,
    error, misstatement, mis-leading statement, omission or act by such
    Organization, but solely in regard to:  (a) any Securities Claim or Oppressive
    Conduct Claim; or (b) a Canadian Pollution Claim so long as such Canadian
    Pollution Claim is also made and continuously maintained against an Executive
    of an Organization.

4. EXCLUSIONS

The Insurer shall not be liable
    to make any payment for Loss in connection with any Claim made against an
    Insured:

(i) which is
    brought by or on behalf of an Organization or any Insured Person, other than an
    Employee of an Organization; or which is brought by any security holder or
    member of an Organization, whether directly or derivatively, unless such
    security holders or members Claim is instigated and continued totally
    independent of, and totally without the solicitation of, or assistance of, or
    active participation of, or intervention of, any Executive of an Organization
    or any Organization, provided, however, this exclusion shall not apply to:

(1) any
    Claim brought by an Insured Person in the form of a cross-claim or third-party
    claim for contribution or indemnity which is part of, and results directly
    from, a Claim that is covered by this policy;

(2)  any
    Employment Practices Claim brought by an Insured Person, other than an Insured
    Person who is or was a member of the Board of Directors (or equivalent
    governing body) of an Organization;

(3)  in any
    bankruptcy proceeding by or against an Organization, any Claim brought by the
    examiner, trustee, receiver, receiver manager, liquidator or rehabilitator (or
    any assignee thereof) of such Organization, if any;

(4)  any
    Claim brought by any past Executive of an Organization who has not served as a
    duty elected or appointed director, officer, trustee, governor, management
    committee member, member of the management board, General Counsel or Risk
    Manager (or equivalent position) of or consultant for an Organization for at
    least four (4) years prior to such Claim being first made against any person;
    or

(5)  any
    Claim brought by an Executive of an Organization formed and operating in a
    Foreign Jurisdiction against such Organization or any Executive thereof,
    provided that such Claim is brought and maintained outside Canada, the United
    States, or any other common law country (including any territories thereof);

7. NOTICE/CLAIM REPORTING
    PROVISIONS

Notice hereunder shall be given
    in writing to American Home Assurance Company, 145 Wellington Street West,
    Toronto, Ontario M5J 1H8:  Attention Claims Department.  If mailed, the date of
    mailing shall constitute the date that such notice was given and proof of
    mailing shall be sufficient proof of notice.

(c) If
    during the Policy Period or during the Discovery Period (if applicable) an
    Organization or an Insured shall become aware of any circumstances which may
    reasonably be expected to give rise to a Claim being made against an Insured
    and shall give written notice to the Insurer of the circumstances, the Wrongful
    Act allegations anticipated and the reasons for anticipating such a Claim, with
    full particulars as to dates, persons and entities involved, then a Claim which
    is subsequently made against such Insured and reported to the Insurer alleging,
    arising out of, based upon or attributable to such circumstances or alleging
    any Wrongful Act which is the same as or related to any Wrongful Act alleged or
    contained in such circumstances, shall be considered made at the time such
    notice of such circumstances was given.

ENDORSEMENT #5

NO
    LIABILITY PROVISION DELETED AND

SECURITIES
    CLAIM RETENTION APPLIES TO ALL LOSS

In consideration of the premium
    charged, it is hereby understood and agreed that the policy is hereby amended
    as follows:

(1) The
    Definition of and all provisions referring to No Liability are hereby deleted
    in their entirety.

(2) Clause
    6 RETENTION CLAUSE is deleted in its entirety and replaced by the following:

6.       RETENTION
    CLAUSE

For each Claim, the Insurer shall
    only be liable for the amount of Loss arising from a Claim which is in excess
    of the applicable Retention amounts stated in Items 4(a) through 4(e) of the
    Declarations, such Retention amounts to be borne by an Organization and/or the
    Insured Person and remain uninsured, with regard to all Loss other than
    Non-Indemnifiable Loss. The Retention amount specified in:

(i)      Item
    4(a) applies to Loss that arises out of a Securities Claim;

(ii)     Item
    4(b) applies to Loss that arises out of an Employment Practices Claim; and

(iii)     Item
    4(c) applies to Loss that arises out of Oppressive Conduct Claim;

(iv)    Item
    4(d) applies to Loss that arises out of a Canadian Pollution Claim; and

(v)     Item
    4(e) applies to Loss that arises out of any Claim other than a Claim listed in
    Clause 6(i) through 6(iv) above.

A single Retention amount shall
    apply to Loss arising from all Claims alleging the same Wrongful Act or related
    Wrongful Acts.

In the event a Claim triggers
    more than one of the Retention amounts stated in Items 4(a) through 4(e) of the
    Declarations, then, as to that Claim, the highest of such Retention amounts
    shall be deemed the Retention amount applicable to Loss (to which a Retention
    is applicable pursuant to the terms of this policy) arising from such Claim.

No Retention amount is applicable
    to Crisis Loss or Non-Indemnifiable Loss.

ENDORSEMENT #9

PREDETERMINED
    ALLOCATION FOR DEFENCE COSTS

OTHER
    THAN SECURITIES CLAIM OR EMPLOYMENT PRACTICES CLAIM

In consideration of the premium
    charged, it is hereby understood and agreed that Clause 8 is hereby amended by
    adding the following at the end thereof:

If a covered Claim other than a
    Securities Claim(s) or Employment Practices Claim(s) results in Loss which is
    both covered under the terms and conditions of this policy and uncovered by the
    terms and conditions of this policy (other than as a result of an exception of
    the Definition of Loss, the Definition of Defence Costs or the terms,
    conditions and limitations of this Clause 8), because such Claim includes both
    covered and uncovered matters or covered or uncovered parties, then the
    Insurer, the Insureds and the Company agree to allocate Defence Costs incurred
    in connection with such Claim, as follows:

Eighty percent (80%) shall be
    deemed to be Loss incurred by the Insureds; however, the Insurer shall only be
    liable to pay such Loss of the Insureds subject to the policys application
    retention amount, limits of liability, and expressed exceptions to the
    definition of Loss and the other provisions of this Clause 8 and the definition
    of Defence Costs; and the remainder shall be deemed to be the obligation of the
    Organization and the Insureds and not insured under this policy. (Preset
    Allocation of Defence Costs)

Provided that in all events the
    Preset Allocation of Defence Costs described above shall not apply to or create
    any presumption with respect to the allocation of any damages, judgments or
    settlement in regard to any Claim.

ENDORSEMENT #10

BANKRUPTCY
    TRUSTEE, RECEIVER, LIQUIDATOR

OR
    REHABILITATOR EXCLUSION

In consideration of the premium
    charged, it is hereby understood and agreed that the Insurer shall not be
    liable to make any payment for Loss in connection with any Claim made against
    any Insured in any bankruptcy proceeding by or against an Organization, when
    such Claim is brought by the examiner, trustee, receiver, creditors committee,
    trust, liquidator or rehabilitator (or any assignee thereof) of such
    Organization.

It is further understood and
    agreed that the policy is modified as follows:

1.   Clause
    4. EXCLUSIONS, Exclusion (i) is hereby amended by deleting subparagraph (3) in
    its entirety.

ENDORSEMENT #14

SPECIFIC
    ENTITY/SUBSIDIARY EXCLUSION

(Claims
    brought by or made against)

In consideration of the premium
    charged, it is hereby understood and agreed that the Insurer shall not be
    liable for any Loss alleging, arising out of, based upon or attributable to or
    in connection with any Claim brought by or made against the Entity listed below
    and/or any Insureds thereof.

1.  MAGNATRAX
    Corporation (Including any subsidiary or affiliate thereof)

It is further understood and
    agreed that the Definition of Subsidiary shall not include MAGNATRAX
    Corporation.  Further, the Insurer shall not be liable to make any payment for
    Loss in connection with any Claim made against an Insured alleging, arising out
    of, based upon or attributable to any breach of duty, act, error or omission of
    MAGNATRAX Corporation, or any director, officer, member of the board of
    managers or employee thereof.

2.
    Magnatrax Run-Off Policy

ENDORSEMENT #4

DEFINITION
    OF ORGANIZATION AMENDED TO INCLUDE ENTITY

(CO-DEFENDANT
    ONLY)

In consideration of the premium
    charged, it is hereby understood and agreed that the term Organization is
    amended to include the following entity, subject to the terms, conditions and
    limitations of this endorsement and this policy.

ENTITY

Onex Corporation

Coverage as is afforded under
    this policy with respect to a Claim made against Onex Corporation or any
    Insured Persons thereof shall only apply if:  (1) such Claim relates to a
    Wrongful Act committed by an Insured (other than Onex Corporation or an Insured
    Person thereof); and (2) an Insured (other than Onex Corporation or an Insured
    Person thereof) is and remains a defendant in the Claim along with Onex
    Corporation or any Insured Person thereof.

In all events coverage as is
    afforded under this policy with respect to a Claim made against Onex
    Corporation or any Insured Person thereof shall only apply to Wrongful Acts
    committed or allegedly committed prior to May 12, 2003.

...

ENDORSEMENT #11

COVERAGES
    B(i) DELETED

ALLOCATION
    ENDORSEMENT

DEFENCE COSTS) is deleted in its
    entirety and replaced with the following:

8.   DEFENCE
    COSTS, SETTLEMENTS, JUDGMENTS (INCLUDING THE ADVANCEMENT OF DEFENCE COSTS)

(a) Under
    Coverage A, B and C of this policy, except as hereinafter stated, the Insurer
    shall advance, excess of any applicable retention amount, covered Defense Costs
    no later than ninety (90) days after the receipt by the Insurer of such defense
    bills.  Such advance payments by the Insurer shall be repaid to the Insurer by
    each and every Insured Person or Organization, severally according to their
    respective interests, in the event and to the extent that any such Insured
    Person or Organization shall not be entitled under this policy to payment of
    such Loss.

(f)   In
    connection with any Claim, other than a Claim that is or includes a Securities
    Claim, with respect to:  (i) Defense Costs jointly incurred by, (ii) any joint
    settlement entered into by, or (iii) any judgment of joint and several
    liability against any Organization and any Insured Person, there shall be a
    fair and equitable allocation as between any such Organization and any such
    Insured Person, taking into account the relative legal and financial exposures
    and the relative benefits obtained by any such Insured Person and any such
    Organization, without any presumption that the coverage afforded to the Insured
    Person shall in any way reduce the allocation to the Organization which shall
    not be insured for such allocation.  In the event that a determination as to
    the amount of Defense Costs to be advanced under the policy cannot be agreed
    to, then the Insurer shall advance Defense Costs excess of any applicable
    retention amount which the Insurer states to be fair and equitable until a
    different amount shall be agreed upon or determined pursuant to the provisions
    of this policy and applicable law.

ENDORSEMENT #16

COORDINATION
    OF AIG LIMITS

In consideration of the premium
    charged, it is hereby understood and agreed that, with respect to any Claim
    under this policy for which coverage is provided by one or more other policies
    issued by the Insurer or any other member of the American International Group
    (AIG), (or would be provided but for the exhaustion of the limit of liability,
    the applicability of the retention/deductible amount or coinsurance amount, or
    the failure of the Insured to submit a notice of a Claim), the Limit of
    Liability provided by virtue of this policy shall be reduced by the limit of
    liability provided by said other AIG policy.

Notwithstanding the above, in
    the event such other AIG policy contains a provision which is similar in intent
    to the foregoing paragraph, then the foregoing paragraph will not apply, but
    instead:

(1) the
    Insurer shall not be liable under this policy for a greater proportion of the
    Loss than the applicable Limit of Liability under this policy bears to the
    total limit of liability of all such policies, and

(2) the
    maximum amount payable under all such policies shall not exceed the limit of
    liability of the policy that has the highest available limit of liability.

Nothing contained in this
    endorsement shall be construed to increase the limit of liability of this
    policy.

3.
    Onex 2004-2005 Policy

4.  EXCLUSIONS

The Insurer shall not be liable
    to make any payment for Loss in connection with any Claim made against an
    Insured:

(d) alleging,
    arising out of, based upon or attributable to the facts alleged, or to the same
    or related Wrongful Acts alleged or contained in any Claim which has been
    reported, or in any circumstances of which notice has been given, under any
    policy of which this policy is a renewal or replacement or which it may succeed
    in time;

ENDORSEMENT #13

PRIOR
    ACTS EXCLUSION FOR LISTED ENTITIES

In consideration of the premium
    charged, it is hereby understood and agreed that the term Subsidiary is amended
    to include the entity(ies) listed below, but only for Wrongful Acts committed
    by such entity(ies) and/or any Insureds thereof which occurred subsequent to
    such entitys respective acquisition/creation date listed below and prior to
    the time the Named Entity no longer maintains Management Control of such
    entity(ies), respectively, either directly or indirectly through one or more
    other Subsidiaries.  Loss arising from the same or related Wrongful Act shall
    be deemed to arise from the first such same or related Wrongful Act.

ENTITY(IES)

ACQUISITION/CREATION DATE

1. MAGNATRAX Corporation
    [...]                                              May 12, 2003

For the purpose of the
    applicability of the coverage provided by this endorsement, the entities listed
    above and the Organization will be conclusively deemed to have indemnified the
    Insureds of [...] each respective entity to the extent that such entity or the
    Organization is permitted or required to indemnify such Insureds pursuant to
    law or contract or the charter, bylaws, operating agreement or similar
    documents of an Organization.  The entity and the Organization hereby agree to
    indemnify the Insureds to the fullest extent permitted by law, including the
    making in good faith of any required application for court approval.

[1]
Now known as Chartis Insurance Company of Canada.

[2]
As will be further discussed below, the personal defendants claim
    for defence costs was based on the Executive Liability section of the
    applicable D&O policies. Onexs coverage under the applicable D&O
    policies was limited to reimbursement for defence costs that it incurred on
    behalf of the personal defendants.

[3]
It is not clear from the record when Magnatrax in fact ceased to
    be an Onex subsidiary. The motion judge stated that Magnatrax ceased to be an
    Onex subsidiary on November 17, 2003, which was the date the U.S. Bankruptcy
    Court approved the Magnatrax Plan of Reorganization.  In their appeal facta,
    the parties suggest different dates for when Magnatrax ceased to be an Onex
    subsidiary. Onex and the Excess Insurers indicate that Magnatrax ceased to be
    an Onex subsidiary when it emerged from Chapter 11 protection on January 20,
    2004, whereas American Home indicates that Magnatrax ceased to be an Onex subsidiary
    when it declared bankruptcy, which was May 12, 2003. We need not resolve this
    issue because Endorsement #14 of the Onex 2002-2003 Policy provides that the
    definition of subsidiary shall not include Magnatrax Corporation as of May 12,
    2003, which is the date that Endorsement #14 became effective and is the
    inception date of the Magnatrax Run-Off Policy.

[4]

The motion judge was advised by the
    parties that as a result of the settlement of the Georgia Action, the total
    amount of Onex and the personal defendants claim in the action would not
    impact the third and fifth excess layers of D&O coverage insured by excess
    D&O policies issued by the defendants Liberty Mutual Insurance Company and
    Houston Casualty Company for the 2004-2005 period. The parties agreed that the action
    should be dismissed against these defendants on consent.

[5]
The Onex 2004-2005 Policy does not contain the exclusion found in
    Endorsement #14 in the Onex 2002-2003 Policy.