COURT OF APPEAL FOR ONTARIO

CITATION: Onex Corporation v. American Home Assurance
    Company,

2015 ONCA 573

DATE: 20150814

DOCKET: C59844

Juriansz, Lauwers and Huscroft JJ.A.

BETWEEN

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

Plaintiffs/Defendants by Counterclaim

(Respondents)

and

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

Defendant/Plaintiff by Counterclaim

(
Appellant
)

Ronald G. Slaght Q.C., Glenn A. Smith and Jaclyn
    Greenberg, for the appellant

Geoffrey D.E. Adair Q.C. and Valarie A. Hogan, for the
    respondents

Heard: June 4, 2015

On appeal from the judgment of Justice Mary M. Sanderson
    of the Superior Court of Justice, dated December 5, 2014, with reasons reported
    at 2014 ONSC 6918

Juriansz J.A.:

A.

INTRODUCTION

[1]

This appeal is the second time this dispute
    comes before this court. The appellant, American Home Assurance Company
    (American Home), disputes its liability for defence costs under a directors
    and officers' (D&O) liability insurance policy it issued to the corporate
    respondent, Onex Corporation (Onex). The personal respondents were directors
    or officers of Onex at the relevant time.

[2]

The dispute first came before this court when
    American Home appealed the summary judgment granted in the respondents action claiming
    reimbursement for defence costs in an action pursuant to certain D&O policies
    issued by American Home. Contrary to the finding of the motion judge, this court
    found ambiguity in an endorsement to one of the relevant policies. It allowed
    American Home's appeal, set aside the order of the motion judge, and returned
    the matter to the Superior Court to hear evidence to resolve the ambiguity.

[3]

The trial judge granted judgment in favour of
    the respondents against American Home in the amount of US$15 million. American
    Home appeals this judgment. For the reasons that follow, I would dismiss the
    appeal.

B.

Background

[4]

The history and background to this litigation is
    discussed extensively in the reasons of the trial judge, and there is no reason
    to repeat her discussion. I will, therefore, only refer to those matters
    material to this appeal.

(i)

The D&O policies

[5]

Onex is a private equity firm incorporated under
    the laws of Ontario. Magnatrax Corporation (Magnatrax) was an Onex subsidiary
    that went into bankruptcy in May 2003.

[6]

In 2002, Onex purchased a D&O liability policy
    from American Home (the 2002-2003 Onex Policy). The 2002-2003 D&O Policy
    covered officers and directors of Onex and its subsidiaries in respect of
    liability for claims first made against them and reported during the policy
    period. It had an aggregate limit of liability for all loss, including defence
    costs, of US$15 million. Onex also purchased excess insurance, giving it
    D&O liability coverage of US$60 million for the period from November 29,
    2002 to November 29, 2003.

[7]

In May 2003, as Magnatrax was filing for
    bankruptcy, Aon Reed Stenhouse (Aon), an insurance broker who acted as agent
    and broker for Onex and Magnatrax, asked American Home to bind coverage for a
    run-off D&O policy for Magnatrax. On May 12, 2003, American Home issued a temporary
    and conditional binder of coverage for Executive and Organization Liability
    Policy number 350 35 03, for the period May 12, 2003 to May 12, 2009, with a
    limit of US$15 million (the Run-Off Policy). The binder indicated that
    certain endorsements were to be manuscripted
[1]
and added to the Run-Off Policy and the 2002-2003 Onex Policy.

[8]

Ultimately, Endorsement #14, a specific entity
    subsidiary exclusion, was added to the 2002-2003 Onex Policy (Endorsement
    #14). Endorsement #16, a coordination of limits endorsement (Endorsement
    #16), and Endorsement #4, a co-defendant carve-out endorsement (Endorsement
    #4), were added to the Run-Off Policy.
[2]
The interpretation of Endorsement #14 to the 2002-2003 Onex Policy and
    Endorsement #16 to the Run-Off Policy are at the heart of the disputed coverage
    and this appeal.

[9]

Endorsement #14 provides that American Home is
    not 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. It
    further provides that American Home is not liable to make payment for any 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 or its executives.

[10]

Endorsement #16 (coordination of limits
    endorsement) deals with coordinating of limits between the Run-Off Policy and
    other American Home polices. Endorsement #4 (co-defendant carve-out
    endorsement) provides coverage for Onex executives in certain circumstances.

[11]

The 2003-2004 and 2004-2005 Onex Policies each also
    contained specific entity subsidiary exclusions, which were identical to
    Endorsement #14 found in the 2002-2003 Onex Policy. In July 2005, the parties
    agreed to remove the specific entity subsidiary exclusion from the 2004-2005 Onex
    Policy and replace it with a prior acts exclusion (Endorsement #13), which
    did not remove or exclude any coverage for Onex executives for acts in relation
    to Magnatrax in their capacity as Onex executives.

(ii)

The Georgia Action

[12]

On May 10, 2005, the Trustee for the Magnatrax
    Litigation Trust commenced an action in the US Federal Court of the State of
    Georgia alleging that the respondents caused the bankruptcy of Magnatrax for
    the benefit of Onex and its executives (the Georgia Action). The Georgia
    Action described the individual respondents as executives of both Onex and
    Magnatrax. Mark Hilson and Nigel Wright were officers and directors of both
    Magnatrax and Onex. Gerald W. Schwartz and Christopher A. Govan were officers
    and directors of Onex and were alleged to also be
de facto
directors and officers of Magnatrax.

[13]

The Georgia Action was settled for US$9.25
    million. The settlement and the costs for the defence of the action totaled
    US$33,344,081 and CDN$103,440.

[14]

American Home paid US$13,881,991.90 to the
    respondents in respect of defence costs incurred in the Georgia Action pursuant
    to the Run-Off Policy. The remaining US$1,118,008.10 of the US$15 million limit
    was paid to Robert C. Blackmon Jr. and Robert T. Ammerman, officers and
    directors of Magnatrax.

(iii)

The Onex action against American Home

[15]

On October 10, 2008, Onex commenced an action
    against American Home seeking reimbursement for outstanding defence costs in
    the Georgia Action pursuant to the 2002-2003 Onex Policy.
[3]
Onex claimed the individual
    respondents were covered by the policy for wrongful acts committed in their
    capacity of Onex executives.

[16]

American Home denied coverage under the 2002-2003
    Onex Policy. It relied on Endorsement #14 (specific entity subsidiary
    exclusion), which it submitted excluded coverage for any Magnatrax-related
    claims. In the alternative, American Home claimed that any monies owing under
    the 2002-2003 Onex Policy could be set off against the monies already paid out
    under the Run-Off Policy pursuant to Endorsement #16 (coordination of limits
    endorsement).

[17]

Both parties moved for summary judgment. The
    motion judge held that the 2002-2003 Onex Policy provided coverage for Onex and
    its executives for defence costs incurred in connection with the Georgia Action
    and denied American Homes claim for set off pursuant to Endorsement #16. American
    Home was ordered to pay the US$15 million limit to Onex and the individual
    respondents.

[18]

On appeal, this court considered the wording of the
    2002-2003 Onex Policy, focusing on the meaning of the word Claim in both the
    first and second paragraphs of Endorsement #14 (specific entity subsidiary
    exclusion).

[19]

As noted above, the first paragraph of
    Endorsement #14 provides that American Home has no liability for
any
    Loss alleging, arising out of, based upon or attributable to or in connection
    with any Claim brought by or made against Magnatrax. The second paragraph
    provides there is no coverage for any 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.

[20]

This court found that the wording of Endorsement
    #14 is ambiguous because the word Claim is susceptible to more than one
    meaning. On the one hand, Claim can be interpreted to encompass only an
    entire civil proceeding without differentiating between the allegations or
    specific claims within that proceeding. On the other hand, Claim can be
    construed to refer to each of the several bases for relief made within a single
    civil proceeding. The question whether coverage is excluded turns on this
    distinction because the Georgia Action  one claim in the civil proceeding
    sense  asserts several claims in the claim for relief sense.

[21]

This court concluded it was not in a position to
    resolve the ambiguity
de novo
because it
    lacked the evidence necessary to determine which interpretation reflected the
    parties reasonable expectations or intentions in adopting Endorsement #14. The
    court set aside the summary judgment and sent the matter back to the Superior
    Court so factual findings would be made to resolve the dispute.

C.

The Trial Judges DECISION

[22]

The trial judge heard four days of evidence and
    granted judgment in favour of the respondents against American Home in the
    amount of US$15 million. American Home appeals her judgment.

[23]

The trial judge recognized the narrow and
    specific task assigned by this court. At the outset of her reasons, she
    reviewed the procedural history of the dispute, and she explained that [t]he
    Court of Appeal concluded it was unable to resolve which interpretation of Claim
    reflected the parties' reasonable expectations or intentions at the time when
    they put the [Run-Off Policy] into place and when they amended the Onex
    2002-2003 Policy by adding Endorsement #14, the Specific Entity Endorsement:
    at para. 18.

[24]

This courts reasons, at paras. 170-172, contain
    the specific direction to the Superior Court, which the trial judge set out at
    para 21:

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.

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?

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.

[25]

The trial judge correctly identified her task  to
    hear evidence required to determine the reasonable expectations or intentions
    of the parties in adopting Endorsement #14. She also recognized this courts
    direction at para. 172 that
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 would be relevant
    to the analysis.

[26]

The trial judge then identified certain matters
    about which the parties agreed, namely:

(a) The Onex 2002-2003 Policy is the relevant Onex Policy.

(b) Of the wrongful acts mentioned in the Georgia Action with respect
    to Magnatrax, some were alleged to have been committed by Onex directors in
    their capacity as directors of Onex. Others were alleged to have been committed
    by Onex directors in their capacity as directors of Magnatrax.

(c) The allegations made in the Georgia Action of wrongful acts
    committed by Onex directors in their capacity as Onex directors, fell within
    the grant of coverage in the 2002-2003 Onex Policy.

(d) None of the claims advanced in the Georgia Action were
    claims by Magnatrax.

[27]

The trial judge reviewed the chronology of
    Onexs incorporation of Magnatrax and the liability policies it purchased. Hano
    Pak, an underwriter for American Home, gave evidence that Onex wanted to keep
    Magnatrax-related claims in a separate policy so it would not impact Onexs
    limits with respect to other business going forward. According to Pak, American
    Home wanted everything to do with Magnatrax to be on one policy so that only
    one policy limit would respond to any claim in connection with Magnatrax.
    Jonathan Ashall, a vice president at Aon, gave evidence that he wanted full
    coverage for the Onex executives and was concerned about possible gaps in
    coverage. He was trying to find solutions to protect Onex and its executives.
    Andrew Brown of Aon also gave evidence about several different versions of
    policy wordings that had been circulated.

[28]

The trial judge found that the wording of the Run-Off
    Policy and the Onex policies
w
as not finalized until
    July 2005. While there was a tentative agreement in January 2003 to keep
    everything Magnatrax-related in the Run-Off Policy, this was never finalized or
    included in an agreement. In January 2003, the parties did not discuss the
    meaning of the word Claim, nor did they discuss the dual capacity issue,
    that is, whether both policies could be triggered if Onex executives were sued
    in two different capacities (as executives of Magnatrax and as executives of
    Onex).

[29]

Having reviewed all the evidence surrounding the
    negotiations, the trial judge concluded that when the wording of the policies
    was finally settled in July 2005, all parties mutually agreed that Endorsement #4
    (co-defendant carve-out endorsement) of the Run-Off Policy would not cover Onex
    executives acting in their capacity as Onex executives, and that Endorsement #14
    of the 2002-2003 Onex Policy would not exclude coverage for Onex executives acting
    as such in relation to Magnatrax. The Run-Off Policy would, however, cover Onex
    executives acting in their capacity as Magnatrax executives before May 2003;
    the Onex Policy would not.

[30]

The trial judge found that Pak confirmed this
    mutual intention and did not add any qualifications or say that the Onex Policy
    would not provide coverage if the executives were sued in both capacities in
    the same action. This was because all parties understood that the two policies
    provided different coverage for Onex executives for different wrongful acts
    committed in different capacities.

[31]

The trial judge also noted that Pak agreed to
    remove the specific entity subsidiary exclusion from the 2004-2005 Onex Policy and
    replace it with a prior acts exclusion that would not exclude coverage for Onex
    executives acting in their capacity as such. Pak explained that the parties did
    not

remove Endorsement #14, the
    specific entity subsidiary exclusion, from the 2002-2003 Onex Policy because
    they regarded that policy as obsolete. Both parties assumed the 2004-2005 Onex
    Policy would respond to the Georgia Action because Aon sent a copy of the
    complaint in that action to American Home as notice of a claim under the 2004-2005
    Onex Policy. The parties failed to recognize that notice of the claim was made on
    November 28, 2003, the day before the 2002-2003 Onex Policy expired, when Aon
    forwarded a letter from the firm Foley & Lardner, counsel for the Magnatrax
    Creditors Committee, to American Home (the Foley Letter).
[4]

[32]

The trial judge concluded that the term, Claim,
    as defined in the 2002-2003 Onex Policy, need not encompass the entirety of a
    civil proceeding. It is broad enough to encompass multiple claims within a
    single proceeding. It can mean any allegation triggering coverage, whether
    alone or included in a larger action.

[33]

The trial judge found that American Home had not
    satisfied the onus of showing that Endorsement #14 (specific entity subsidiary
    exclusion) plainly and unequivocally removed coverage under the 2002-2003 Onex
    Policy for Onex executives acting in their capacity as Onex executives. Furthermore,
    American Home drafted Endorsement #14. While not necessary in these
    circumstances, if the evidence did not resolve the ambiguity in the
    endorsement, the doctrine of
contra proferentem
would apply.

[34]

The trial judge concluded that the Onex
    2002-2003 Policy provides coverage to the Onex executives in their capacity as such,
    and the plaintiff is entitled to the US$15 million limit of the policy.

[35]

The trial judge went on to conclude that
    Endorsement #16 (coordination of limits endorsement) did not entitle American
    Home to set off the monies paid under the Run-Off Policy against monies payable
    under the 2002-2003 Onex Policy.

D.

issues

[36]

This appeal raises two issues:

1.

Did the trial judge err in concluding that Endorsement #14 (specific
    entity subsidiary exclusion) of the 2002-2003 Onex Policy does not exclude
    coverage for the respondents defence costs in connection with the Georgia
    Action?

2.

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

E.

analysis

(1)

Standard of Review

[37]

The issues in this case arise from clauses in insurance
    contracts that both parties had a real hand in negotiating. The trial judge, as
    directed by this court, heard evidence of the extensive discussions and
    correspondence between the parties during those negotiations and made findings accordingly.
    Issues of contractual interpretation in these circumstances are issues of mixed
    fact and law that ordinarily attract review on a deferential standard.
    Extricable errors of law, however, remain subject to the correctness standard:
Sattva
    Capital Corp. v. Creston Moly Corp.
, 2014 SCC
    53, [2014] 2 S.C.R. 633. American Home characterizes the new issues it raises
    as extricable errors of law.

(2)

ISSUE 1: Endorsement #14 of the 2002-2003 Onex Policy

[38]

American Home advanced careful and comprehensive
    arguments as to why it should be concluded that Endorsement #14 (specific
    entity subsidiary exclusion) of the 2002-2003 Onex Policy excludes any coverage
    for the Georgia Action. In my view, many of these arguments are repetitions of
    submissions previously advanced before this court when American Home appealed
    from summary judgment.

[39]

It must be remembered that when this
matter was remitted for trial, the trial judge did not have to start from
    scratch in considering the interpretation of Endorsement #14. That is because this
    court
did not leave the entire interpretive exercise to the
    trial judge. Rather, this court resolved many of the issues and sent the matter
    back for the Superior Court judge to determine the meaning of the ambiguous
    term Claim in Endorsement #14 in light of extrinsic evidence.

[40]

Certainly the extrinsic evidence of the
    reasonable expectations of the parties had to be considered with due regard to
    the words in the policies, read as a whole, bearing in mind their purposes and
    the surrounding circumstances. However, to the extent that American Homes
    arguments did not rely on the extrinsic evidence led at trial, they are merely
    repetitions of arguments previously advanced before this court. The summary of these
    arguments in the courts previous decision satisfies me that they are the same
    arguments, perhaps refined, that are advanced before us in this appeal. In my
    view, this court has already disposed of these arguments, and I find it
    unnecessary to consider them anew.

[41]

I will briefly summarize these arguments and
    show that this court has already addressed them. I will then address the new
    arguments that rely on extrinsic evidence and explain why there is no basis to
    conclude that the trial judge erred in concluding that Endorsement #14
    (specific entity subsidiary exclusion) does not exclude coverage for the
    respondents defence costs in the Georgia Action.

(1)

Appellants arguments previously advanced before this court

(i)

Claim
    is a defined term in the 2002-2003 Onex Policy, and its meaning is not
    ambiguous

[42]

American Home presented detailed argument as to
    why the definition of Claim in the 2002-2003 Onex Policy is the best evidence
    of the meaning and use of the word claim" in other parts of the policy,
    and that the definition makes evident that the word Claim in Endorsement #14
    should be understood to mean an entire civil proceeding. The argument focuses
    on the words in the policies and does not rely on the extrinsic evidence.

[43]

I need not address this argument because this
    court has already concluded
that the way the term "Claim" as
    used elsewhere in the policy does not resolve the ambiguity. This court noted
    that the definition of Claim was important to the appeal. Nevertheless, it described
    as tenable the motion judges conclusion, at para. 54, that 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". In taking that view, this court reviewed the wording of the
    entire policies at issue, and
said at paragraph 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. [Emphasis added.]

(ii)

The D&O insurance industry uses the term Claim to refer to a civil
    proceeding

[44]

The appellant reviewed the evidence of Ashall to
    support its submission that the term Claim was widely used in the insurance
    industry to refer to a lawsuit or civil proceeding. While Ashalls evidence
    may not have been before the court on the summary judgment appeal, American
    Home did advance the argument that the meaning given to the word Claim should
    not deviate from the meaning of the term most commonly used in the D&O
    insurance industry.

[45]

This court considered this argument but
    concluded it did not resolve the ambiguity as to the meaning of Claim in Endorsement
    #14 (specific entity subsidiary exclusion). I need not consider the argument
    afresh. Ashalls evidence to which we were taken was far from robust in any
    event.

(iii)

The
    objective factual matrix supports the conclusion that Claim refers to a civil
    proceeding

[46]

American Home submitted that the objective
    factual matrix in which the policies were negotiated makes evident that the
    intention was that coverage for Magnatrax-related claims be excluded under the
    2002-2003 Onex policy. Before the Run-Off Policy was purchased, there was US$15
    million in coverage under the 2002-2003 Onex Policy for all wrongful acts and
    claims against all executives and subsidiaries, including Magnatrax. The
    parties arranged the Run-Off Policy and added Endorsement #14 to the Onex policy
    because of Magnatraxs impending bankruptcy. According to American Home, the
    purpose of these arrangements was to isolate claims against Magnatrax in order
    to preserve the US$15 million coverage of the Onex policy for all other
    ventures. The expectation was that at the time of the bankruptcy, Onex would
    have no further connection with Magnatrax and any potential claims against
    Magnatrax would crystallize as of the date of bankruptcy. To give effect to
    this, coverage under the Run-Off Policy commenced as of the bankruptcy and
    continued for six years until limitation periods would expire. Onex never took
    up excess insurance for Magnatrax. Endorsement #14 (specific entity subsidiary
    exclusion) was added to properly mirror the coverage that had previously been
    available for Magnatrax-related claims under the Onex policy when Magnatrax was
    an Onex subsidiary.

[47]

This court was alive to this argument and was
    persuaded it put forward a reasonable view as to what the parties to the
    negotiations were trying to accomplish. However, it was not the only reasonable
    view supported by the objective factual matrix. The court specifically stated
    it had considered the factual matrix and that commercially reasonable arguments
    could be made to support both of the competing interpretations. At paras. 132 and
    165 the court said:

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.

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.

[48]

At
    paragraph 166 the court added, Viewed objectively, either interpretation of
    Endorsement #14 would produce a commercially sensible result.

[49]

The argument about what intended purpose and
    meaning should be inferred from the surrounding objective facts of the
    commercial context in which the policy was issued was advanced before us without
    relying on specific extrinsic evidence introduced at trial. I do not propose to
    reconsider the argument. The court has already decided that the factual matrix
    of surrounding objective facts of the commercial context also supports Onexs
    position. For example, the court observed at para. 162 that American Home's
    interpretation of Endorsement #14 (specific entity subsidiary exclusion) would
    leave a potential gap in coverage for Onex Executives:

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 Home's 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.
[Emphasis added.]

[50]

I turn to the appellants fresh arguments
    arising from the trial itself.

(2)

Appellants submissions pertaining to use of extrinsic
    evidence

(a)

The appellant submits the trial judge erred in beginning contractual
    interpretation by considering the extrinsic evidence

[51]

The
    appellant submits that the trial judge approached the exercise of interpreting Endorsement
    #14
(specific entity subsidiary exclusion)
backwards.
    The appellant says that the correct approach to contract interpretation is to
    begin with the language of the agreement and then resort to further evidence
    only when necessary. Instead, the trial judge started her contractual
    interpretation with a consideration of extrinsic evidence.

[52]

This
    argument has no merit. As explained above, the trial judge was not tasked with
    considering the matter afresh. The Court of Appeal had already made findings
    about the wording of the policies read as a whole in the context of the
    surrounding circumstances and factual matrix.

[53]

In
    addition, American Home had agreed before the trial judge that the allegations
    made in the Georgia Action with respect to wrongful acts of Onex executives
    committed within their capacity as Onex executives fell within the grant of
    coverage in the 2002-2003 Onex Policy. The trial judge had the narrow task of
    considering whether the conceded coverage was excluded by Endorsement #14 in
    light of extrinsic evidence, especially evidence of the discussions and
    correspondence that took place in January 2003 and again at the time of the
    issuance of the Run-Off Policy and Endorsement #14.

[54]

At
    para. 20 of her reasons, the trial judge set out what she considered to be the
    specific question that this court directed her to resolve: Does Endorsement #14
     to the Onex Policy exclude from coverage, those claims advanced in the [Georgia
    Action] alleging wrongful acts on the part of the Onex directors said to have
    been committed in their capacity as Onex Directors?  I agree that that is
    precisely the exercise this court assigned to her. In that exercise, the burden
    of proof was on American Home to establish that the exclusion plainly removed
    the claim from coverage. The trial judge cited ample authority for this
    well-established principle at para. 212 of her reasons.

(b)

The appellant submits the trial judge erred in giving effect to what she
    found were the subjective intentions of the parties, and thereby granted rectification
    by interpretation

[55]

American
    Home submits that the trial judge used direct evidence of the parties
    subjective intentions to overwhelm the language of the policy, and in effect,
    granted rectification by giving effect to those subjective intentions. The appellant
    notes that the respondents did not seek rectification in this case and, in any
    event, submits they could not have possibly satisfied the strict test for rectification.

[56]

American
    Homes argument centres on the evidence of Pak and the trial judges treatment
    of that evidence. Pak negotiated the Run-Off Policy and several Onex policies
    on behalf of American Home. The wording of the policies was not finalized until
    July 2005. At that time, Pak agreed with Brown that a specific entity
    subsidiary endorsement identical to Endorsement #14
(specific
    entity subsidiary exclusion)
had been mistakenly added to successive
    versions of the Onex policy. Pak, in contradiction to the submission of counsel
    for American Home, testified that Endorsement #4
(co-defendant
    carve-out endorsement)
of the Run-Off Policy did not provide coverage
    for Onex executives acting in their capacity as Onex executives when sued in
    connection with Magnatrax. As well, Brown and Pak agreed the specific entity
    subsidiary exclusion in the Onex policies could potentially be construed to
    exclude coverage under the Onex policy for Onex executives acting in their
    capacity as Onex executives in relation to Magnatrax. In an email dated July 5,
    2005 that Brown sent to Pak confirming the changes they discussed, Brown indicates
    the concern that Excluding claims against the specified entity and any
    insureds thereof
might have been misinterpreted
to mean that this individual was excluded altogether. As the trial judge
    found, Pak agreed with this and consequently, in July 2005, he and Brown removed
    the specific entity subsidiary exclusion from the 2004-2005 Onex Policy then in
    force and replaced it with a prior acts endorsement (Endorsement #13) that did
    not remove or exclude any coverage from the Onex policy for Onex executives acting
    in their capacity as Onex executives in relation to Magnatrax.

[57]

Pak
    gave evidence that when the specific entity subsidiary exclusion was deleted
    from the 2004-2005 Onex Policy, he and Brown did not discuss revising the
    2002-2003 Onex Policy to replace the specific entity subsidiary exclusion in
    that policy with the prior acts exclusion (Endorsement #13) because they mistakenly
    believed that the 2002-2003 Onex Policy was spent. The 2002-2003 Onex Policy
    (like the other Onex D&O policies) is a claims made policy, that is, it
    provides coverage for claims first made against an insured party during the
    policy period and reported to the insurer within the time frame defined in the
    policy. Pak and Brown assumed the 2002-2003 Onex Policy was spent because they
    did not believe any claims were made during the policy period. They had failed
    to recognize that a notice of claim had been provided by way of the Foley
    Letter in 2003.

[58]

The
    trial judge placed great weight on Paks testimony and the evidence about the
    agreement to remove the specific entity subsidiary exclusion from the 2004-2005
    Onex Policy, agreeing with the respondents that this evidence changed the
    landscape of the interpretive exercise. Based on this evidence, she concluded
    that the specific entity subsidiary exclusion was not intended to be included
    in successive Onex primary policies, including the Onex 2002-2003 Policy, after
    May 12, 2003.

[59]

Thus,
    American Home submits that the trial judge, in effect, used Paks direct
    evidence of the parties subjective intention to read Endorsement #14
(specific entity subsidiary exclusion)
out of the 2002-2003
    Onex Policy thereby granting rectification by interpretation. American Home
    further submits that the fact that the parties replaced the specific entity
    subsidiary exclusion in the 2004-2004 Onex Policy with the prior acts exclusion
    shows that they both regarded the wording of Endorsement #14 in the 2002-2003
    Onex Policy to exclude coverage for Onex executives acting in the capacity as
    such in relation to Magnatrax. American Home says the trial judge erred by giving
    effect to what she found was the parties mutual subjective intention rather
    than giving effect to the wording of the policy.

[60]

I
    do not accept the submission. This court had already ruled that Endorsement #14
    was ambiguous and directed the trial judge to resolve the ambiguity after
    hearing evidence that included the 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. The trial judge did not
    use the extrinsic evidence to give effect to the parties mutual subjective
    intention; rather, she used it to resolve the ambiguity in the language of the
    endorsement.

[61]

The
    trial judge expressly considered Endorsement #14 as properly included in the
    2002-2003 Onex Policy and concluded that, in light of the extrinsic evidence
    relating to the circumstances and discussions leading to the finalization of
    the policies, American Homes position as to how the ambiguous word Claim
    should be interpreted was simply not tenable. The extrinsic evidence revealed
    that the parties mutually intended for the 2002-2003 Onex Policy to cover Onex
    executives for wrongful acts committed in their capacity as Onex executives. It
    was, therefore, objectively unreasonable to conclude that Claim referred
    only to an entire civil proceeding such that Endorsement #14
(specific entity subsidiary exclusion)

would
    preclude Onex executives from receiving coverage for wrongful acts committed in
    their capacity as Onex executives contrary to the parties stated mutual intention.

[62]

Finally,
    the trial judge stated that had there been any lingering ambiguity in the
    meaning of Claim, she would have resolved it by applying the doctrine of
contra
    proferentem
, choosing the meaning resisted by the party who drafted the
    contract, American Home.

[63]

As
    the trial judge points out, American Home conceded at the outset that the
    wrongful acts of Onex executives acting as Onex executives alleged in the
    Georgia Action fell within the grant of coverage of the Onex Policy and would be
    covered unless excluded by Endorsement #14. The onus was on American Home to
    show that the endorsement clearly and unequivocally removed coverage. The trial
    judge found that American Home had not satisfied that onus.

[64]

I
    have not been persuaded that there is any basis to interfere with the trial
    judges conclusion.

(3)

ISSUE 2: Is American Home entitled to set off the monies dues under the 2002-2003
    Onex Policy against the monies paid under the Run-Off Policy?

[65]

The
    second question on appeal is whether Endorsement #16
(coordination
    of limits endorsement)
of the Run-Off Policy entitles American Home to
    set off the US$15 million payable under the 2002-2003 Onex Policy against the
    monies it already paid under the Run-Off Policy.

[66]

Endorsement
    #16 provides:

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. [Emphasis added.]

[67]

American
    Home submits that the trial judge made an extricable legal error by using an
    incorrect interpretive approach in deriving the meaning of this endorsement. American
    Home points out that in its previous decision this court did not find that Endorsement
    #16 was ambiguous. The trial judge should, therefore, have begun by considering
    the wording of the endorsement, instead of immediately resorting to the
    extrinsic evidence as American Home submits she did.

[68]

I
    do not accept the argument.

[69]

It
    is true that the trial judges analysis began with a reference to the extrinsic
    evidence. She did so to highlight what both counsel had agreed before her:
    that [the] parties intended that whatever coverage for Onex directors was
    provided by the [Run-Off Policy] would be taken away from the Onex 2002-2003
    Policy. This agreed proposition was the springboard for the trial judges
    analysis of the wording of Endorsement #16.

[70]

In
    addressing the wording, the trial judge noted that the word "Claim"
    in Endorsement #16 was not used in isolation but was part of the phrase "claim
    under this policy." In her view, American Home chose this wording so that
    Endorsement #16 applied to allegations of wrongful acts limited to wrongful
    acts covered
under the [Run-Off Policy]
i.e., wrongful
    acts committed by Magnatrax or Magnatrax directors [including those of Onex
    directors acting in their capacity as Magnatrax directors] (emphasis in
    original):
Onex
(S.C. 2014), at para. 258. She added, at para. 258:

It would strain the wording of "
claim
    under this policy
" to interpret "claim under
this
policy" to extend beyond wrongful acts covered
    under the [Run-Off Policy] to include allegations of wrongful acts covered
    under the [Run-Off Policy] AND wrongful acts
not
covered under
    the [Run-Off Policy] [e.g., allegations of wrongful acts made against Onex
    directors acting in their capacity as Onex directors]. [Emphasis in original.]

[71]

It
    seems to me American Homes failure on this issue follows from its failure on
    the first issue. In order for Endorsement #16
(coordination of
    limits endorsement)
to entitle American Home to a set off, the dual
    capacity interpretation would have to be rejected and the word Claim would
    have to be taken to mean a civil proceeding and not each allegation made within a
    civil proceeding.

[72]

Given
    the meaning of Claim adopted under Issue 1 above, it follows that the trial
    judges reading of the language of Endorsement #16 is correct. The phrase
    claim under this policy indicates that Endorsement #16 has no application to
    allegations not covered at all under the Run-Off Policy.

Conclusion

[73]

For
    these reasons, I would dismiss the appeal.

[74]

I
    would fix the respondents costs in the amount of $35,000 all-inclusive as
    agreed by counsel.

Released: August 14, 2015 (RGJ)

R.G.
    Juriansz J.A.

I
    agree P. Lauwers J.A.

I
    agree Grant Huscroft J.A.

Appendix A

1.  2002-2003 Onex 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);

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. 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 #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. 2004-2005 Onex 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]
To Be Manuscripted means that the wording of the endorsements had not been
    finalized.

[2]
The full text of these endorsements can be found at Appendix A to this
    decision.

[3]
The claim that the individual respondents were covered by the 2002-2003 Onex
    Policy was made in the alternative. Onexs primary claim was that the
    respondents were covered by the D&O liability insurance policy for the
    period 2004-2005. At the motion for summary judgment, the motion judge held
    that the 2002-2003 Onex Policy applied to the claims made in respect of the
    Georgia Action because the claim was made and reported prior to the expiration
    of the 2002-2003 policy period.

[4]

The letter was originally sent to counsel for Magnatrax, and
    it indicated that Magnatrax and its subsidiaries had various causes of action
    against Onex and its executives. The letter requests that Magnatrax and its
    subsidiaries prosecute these claims, and if they do not intend to do so, to
    provide confirmation to the Creditors Committee so it may prosecute the claims
    on their behalf.