Ontario Court of Appeal upholds data exclusion clauses in CGL Policies – no duty to defend

By Eric Blay and Dylan S. Fisher, Pallett Valo LLP

Canada’s first real judicial interpretation of a cyber liability policy is the decision in Family and Children’s Services of Lanark, Leeds and Grenville (FCS) v. Co-operators General Insurance Company (Cooperators), released in March 2021. In 2016 an unidentified hacker stole confidential reports from FCS, which were allegedly leaked onto Facebook, resulting in a class action against FCS for CAD 75 million in damages.

FCS had retained Laridae to revise its website. Laridae had a Commercial General Liability (CGL) policy, wherein FCS was named as an additional insured, and a Professional Liability Policy with Co-operators. Laridae and FCS filed claims through both policies.

Co-operators denied coverage as both policies had data exclusion clauses, excluding claims arising from the distribution or display of data via an internet website. It also relied on this clause to deny it had a duty to defend Laridae from FCS’s third-party claim. FCS, Laridae and Co-operators brought applications regarding the interpretation of the policies.

Among others, the judge found that Co-operators was required to fund the separate defences of FCS and Laridae with no reporting obligations of counsel to Co-operators.

Co-operators appealed the decision. The Court of Appeal held that the data exclusion clauses were clear and unambiguous, and Co-operators did not have a duty to defend either party. Alternatively, if a duty to defend was owed, Co-operators should still have the right to participate in the defences.

The key takeaway is that an insured will most likely need either a distinct cyber liability policy or a cyber liability endorsement to be covered for cyber-attacks. While “all risks” policies may cover cyber-attacks, it is important to consult a broker regarding the coverages offered and any applicable data exclusions. If a loss is caught by the types of broad data exclusion clauses at issue in FCS v. Co-operators, then it may not trigger an insurer’s duty to defend.

Eric Blay

GGI member firm
Pallett Valo LLP
Law Firm Services
Mississauga (ON), Canada
T: 1 905 273 30 22
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W: pallettvalo.com

Pallett Valo LLP is one of Ontario’s Top 10 Regional Law Firms. The firm practices in the areas of business law, commercial litigation, commercial real estate, construction, insolvency and corporate restructuring, employment and labour, and wills, estates, and trusts.

Eric Blay is a member of the firm’s Commercial Litigation Group. He provides legal advice and representation on a wide variety of commercial matters. He has experience in insurance defence matters including property damage, coverage disputes, priority disputes, and bodily injury.

Dylan S. Fisher

GGI member firm
Pallett Valo LLP
Law Firm Services
Mississauga (ON), Canada
T: 1 905 273 30 22
E: This email address is being protected from spambots. You need JavaScript enabled to view it.
W: pallettvalo.com

Dylan S. Fisher is a member of the Commercial Litigation and Insurance Defence Groups. He participates in a wide variety of commercial and insurance matters. His insurance experience includes property damage, bodily injury, coverage, priority disputes, product liability and municipal liability.

Published: Litigation & Dispute Resolution Newsletter, No. 15, Autumn 2021 l Photo: Melinda Nagy - stock.adobe.com