The Quebec Superior Court recently ruled, in Teolis et Clinique Podiatrique de l'Est inc. c. Iacono, Lloyd's et American Home, that two professional liability carriers insuring a financial planner were not obliged to compensate a claim made by the client of the financial planner.
The ruling addresses the prior knowledge of the financial planner with regards to complaints arising out of his services, which were made before the inception of the professional liability policies, as well as the claim, although made by the client against his financial planner within the policy period, was not reported by the insured financial planner against his professional insurers during the policy period.
Before concluding that the claims were excluded because of the gross negligence and wilful violation by the insured of the regulation on securities, the court ruled that coverage was not triggered because the definition of "professional services" was not met. In fact, the policies dictate that the services of the insured must be ones concerning financial planning activities where the agent is fully licensed or registered with the regulatory body as a licensed financial planner. The evidence allowed the court to conclude that the financial planner traded securities and financial products without authorization and outside the limits of his certification and consequently was not within the execution of his professional duties for which he was insured.
It's important to mention that the Quebec regulatory body for financial securities (AMF) had previously dismissed the claims filed by the client victim on the basis that the services rendered by the financial planner were of a private nature and did not relate to activities or financial planning within the terms of the Quebec law on the distribution of products and financial services. The dismissal of those requests for compensation with the AMF indemnity fund was unfortunate but allowed the court to conclude, within the evidence filed during trial, that the services of the financial planner cannot be deemed as covered within the definition of "professional services" or "professional activities". Although the court could have dismissed the lawsuit strictly based on the above, it nevertheless evaluated whether or not exclusions did apply to the claim filed, assuming the coverage was triggered.
Justice Sylvie De Vito decided that the exclusion for "wrongful act" defined as gross negligence, etc., qualified as applicable due to the evidence filed. The financial planner's errors and omissions were, by nature, necessarily construed as a conduct which revealed a blatant disregard, gross negligence and total recklessness with regards to the financial interests of his client.
Unfortunately, the court had no choice but to dismiss the lawsuit, notwithstanding its sympathy towards the claimant who was involved in this sad business affair.
