Canada: LAWYERS BEWARE: With "Investment Advice", Timing Is Everything

Last Updated: September 17 2014
Article by Theall Group LLP

The Ontario Superior Court of Justice recently upheld the Lawyers Professional Indemnity Co.'s ("LawPRO") denial of coverage for a practicing lawyer because the claims against the lawyer in question arose from investment advice he had given prior to providing professional advice.1 The court looked at "extrinsic evidence", that it was permitted to consider by the terms of the Policy itself, and agreed with LawPRO that the lawyer's investment advice was not a "direct consequence" of any prior professional services. Accordingly, the Investment Advice Exclusion set out below applied and coverage was properly denied and there was no duty to defend the insured.

This decision is yet another reminder to lawyers that they should be extremely wary of providing any advice or services to their clients that could be construed as "investment advice and/or services."

In late 2007, the insured lawyer, Mr. Juroviesky was informed by a friend, that he was looking for investment capital for a business for which he was principal (the "CVW investment"). Mr. Juroviesky then emailed Mr. Bell, a former client, about the potential investment (the "November email"). This communication had no relation to the prior retainer that Mr. Bell had with Mr. Juroviesky.

The November email to Bell included a series of thoughts about the viability of the CVW investment, its strengths and weaknesses and a number of short and long term suggestions that Juroviesky recommended that Bell should take as a "white knight" investor. Juroviesky also advised in the email that the recommendations were subject to further due diligence. Ultimately, Bell decided to invest in CVW and retained Juroviesky in connection with the investment.

The business failed and shut its doors in 2009. Bell then commenced an action against Juroviesky in 2010 alleging damages as a result of his advice and services in relation to the investment. Mr. Juroviesky reported the complaint to LawPRO. LawPRO denied coverage relying on an "Investment Advice Exclusion" which was as follows:

the Policy does not apply:

(d) to any CLAIM in any way related to or arising out of an INSURED providing investment advice and/or services relating to or arising out of a business, commercial or real property investment, unless as a direct consequence of the performance of PROFESSIONAL SERVICES" [Emphasis added.]

LawPRO submitted that because the investment advice in this case came before any legal services provided by the insured, this exclusion applied. Mr. Juroviesky's position was that he provided professional services to Bell as defined in the Policy, and that even if there was a mix of legal and investment advice/services, Bell's claims regarding negligent provision of legal services should still be covered. He also submitted that the investment advice was a direct consequence of performing professional services. Accordingly, the exception to the Investment Advice Exclusion should apply.

The Court reviewed the well established principles governing a duty to defend and interpretation of insurance policies. It found that although there were aspects of the claim which appeared to deal with investment advice, the claim was to be generously construed with the result that the claim was sufficient to give rise "to the possibility of coverage."

Once it was found that the claim fell within coverage, the onus shifted to LawPRO to show that an exclusion clause precluded coverage. LawPRO had to demonstrate that the exclusion 'clearly and unambiguously' excluded coverage. The LawPRO policy had a "notwithstanding" clause that expressly permitted LawPRO to deny a defence if it determined on reasonable grounds that the claim was excluded. Under this clause, the parties may adduce evidence to be considered by the court in addition to the statement of claim.

The court found that all of the allegations of breach "related to" investment advice given by Mr. Juroviesky about the CVW investment. It looked at the November email, which was permitted "extrinsic evidence" and agreed with LawPRO that Mr. Juroviesky's investment advice was not a direct consequence of any prior professional services. Accordingly, the Investment Advice Exclusion applied.

Mr. Juroviesky's claim that coverage should only be excluded for the claims surrounding the investment advice, but not the legal services, was also rejected for two reasons. The initial grant of coverage in the Policy did not provide coverage for investment advice in the first place so no exclusion was needed to exclude only that advice. On its plain words the Investment Advice Exclusion excluded claims "in any way related to or arising out of investment advice."


1 Juroviesky and Ricci LLP v. Lawyers Professional Indemnity Co., 2014 CarswellOnt 46 (S.C.J.)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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