Cronos Group Inc. v. Assicurazioni Generali S.p.A.

COURT OF APPEAL FOR ONTARIO

CITATION: Cronos Group Inc. v. Assicurazioni Generali S.p.A., 2022 ONCA 525

DATE: 20220713

DOCKET: C69340

Fairburn A.C.J.O., Brown and Sossin JJ.A.

BETWEEN

Cronos Group Inc.

Applicant (Respondent)

and

Assicurazioni Generali S.p.A.

Respondent (Appellant)

George J. Karayannides and Mark C. Mandelker, for the appellant

Andrea Laing, Doug McLeod and Gregory Sheppard, for the respondent

Heard: March 14, 2022 by video conference

On appeal from the order of Justice Bernadette Dietrich of the Superior Court of

Justice, dated March 16, 2021, with reasons reported at 2021 ONSC 1704.

Brown J.A.:

Page: 2

I.

OVERVIEW

This appeal concerns the interplay between the provisions of primary and

[1]

excess directors’ liability insurance policies. The central issues are:

(i) Where the excess policy provides that it follows the form of the primary

policy, subject to certain exceptions, and the primary policy gives the

insured the option of extending coverage for an Optional Extension

Period, is the insured entitled to the same option under the excess

policy as one of the follow-form terms?¹and,

(ii) If the option is available, what is the amount of the premium?

[2]

Optional Extension Period coverage extends a claims-made policy’s

discovery period to cover claims made against an insured after the expiry of the

¹A follow form excess policy generally will contain the same basic provisions as the underlying policy, with

the exception of those provisions that are specifically excluded by the terms of the excess policy or

inconsistent with the excess policy: Hearing v. Topa Insurance Co. (2016), 244 Cal. App. 4^th725 (Calif.

C.A.), at 734. As explained in Allmerica Fin. Corp. v. Certain Underwriters at Lloyd’s (2007), 449 Mass. 621

(Mass. Sup. Ct.), at pp. 629-630:

An insurance program involving a primary policy and one or more excess policies divides risk into

distinct units and insures each unit individually. The individual insurers do not (absent a specific

provision) act as coinsurers of the entirety of the risk. Rather, each insurer contracts with the

insured individually to cover a particular portion of the risk. Use of a follow form clause is

advantageous in crafting such an insurance program because it makes an excess policy a carbon

copy of the primary policy, with the only differences being the names of the parties and the

coverage limitations. Follow form language thus allows an insured to have coverage for the same

set of potential losses (and with the same set of exceptions) in each layer of the insurance

program. The language does not, however, bind the various insurers to a form of joint liability

should coverage at a prior layer fail. The layer of risk each insurer covers is defined and distinct.

Page: 3

policy’s initial term, so long as the wrongful acts giving rise to the claims were

committed during the original policy period.

[3]

The respondent, Cronos Group Inc. (“Cronos”), held a primary Executive

and Corporate Securities Insurance Policy issued by AXA XL (the “Primary

Policy”). Cronos also held a secondary Excess Directors’ and Officers’ Liability

Policy issued by the appellant, Assicurazioni Generali S.P.A. (“Generali”) (the

“Excess Policy”), which covered the same policy period.

[4]

The Primary Policy included an Optional Extension Period (“OEP”) option

that allowed the insured to extend the period of coverage beyond the expiration

date of the Primary Policy within 30 days of its expiry. The Excess Policy provides

that it is subject to the same terms, conditions, limitations and exceptions as are

contained in the Primary Policy, with certain exceptions. The OEP option is not

identified as an exception.

[5]

took the position that the Excess Policy did not contain an OEP option.

[6] The application judge held that: (i) the Excess Policy provided Cronos with

Cronos sought to exercise the OEP option under the Excess Policy. Generali

a contractual right to exercise an OEP option in respect of the Excess Policy; (ii)

Cronos had successfully exercised that right by complying with each of the option

requirements; and (iii) the cost payable for the OEP was US$486,000 (or

CDN$704,700), twice the original premium of the Excess Policy.

Page: 4

[7]

Generali appeals, seeking to set aside the order below and dismiss the

application.

[8]

For the reasons set out below, I would dismiss the appeal.

II.

BACKGROUND

[9]

Cronos is a global cannabinoid company that manufactures and markets

cannabis and cannabis-derived products.

The policies

[10] Cronos was the named insured under the Primary Policy for the period

February 27, 2019 to February 27, 2020. The Primary Policy provided coverage to

the directors and officers of Cronos on a claims-made basis during the policy

period, up to a maximum aggregate liability of US$5 million. The Primary Policy

contained a self-insured retention of US$1.5 million.

[11] Cronos was also the named insured under the Excess Policy, which

Generali issued for the same policy period. The Excess Policy covered sums owing

on claims in excess of the Primary’s limit, up to a further maximum aggregate

liability of US$5 million.

[12] Both policies respond only to claims made within the policy period.

[13] Under the Primary Policy, if the insured or insurer did not agree to renew the

policy, the insured could, within 30 days from the expiry of the policy, exercise the

OEP option. Specifically, the Primary Policy stated:

Page: 5

(F) OPTIONAL EXTENSION PERIOD

(1) If either the Parent Company [Cronos] or the Insurer

does not renew this Policy, the Parent Company or any

Insured Person shall be entitled, upon payment of an

additional premium set forth in ITEM 5 of the

Declarations, to an extension of the coverage provided

by this Policy with respect only to any Claim or

Investigation Demand first made or deemed first made

during the period of time set forth in ITEM 5 of the

Declarations after the Policy Expiration Date, but only

with respect to a Wrongful Act occurring prior to the

Policy Expiration Date. Any such Claim or Investigation

Demand shall be deemed to have been made during the

Policy Period.

(2) As a condition precedent to the right to purchase the

Optional Extension Period, the total premium for this

Policy must have been paid in full. The right of the Parent

Company or any Insured Person to purchase the

Optional Extension Period will be immediately terminated

if the Insurer does not receive written notice by the

Parent Company or Insured Person advising it wishes

to purchase the Optional Extension Period together with

full payment of the premium for the Optional Extension

Period within thirty (30) days after the Policy Expiration

Date.

…

(4) The purchase of the Optional Extension Period will

not in any way increase the Limit of Liability set forth in

ITEM 3 of the Declarations, and the Limit of Liability with

respect to Claims made during the Optional Extension

Period shall be part of and not in addition to the Limit of

Liability for all Claims, Interviews and Investigation

Demands made during the Policy Period. [Emphasis in

original.]

[14] Under the OEP option, the extension would allow the insured, whose policy

was not renewed, to notify the insurer of claims made against the insured after the

Page: 6

expiry of the policy in respect of conduct that occurred within the original policy

period. Coverage limits of the expired policy would remain available to cover the

loss.

[15] Item 5 of the Primary Policy's Declarations, Optional Extension Period,

states:

Length of Optional Extension Period: One Year after the

end of the Policy Period, if elected.

Premium

for

Optional

Extension

Period:

USD$1,500,000.00

[16] The US$1.5 million premium for the OEP was twice the Primary Policy’s

basic premium of US$750,000.

[17] The Excess Policy does not specifically refer to an OEP option or any

premium applicable to an OEP. However, Condition 2 of the Excess Policy

provides that it operates as a “follow form” policy to the Primary Policy. Condition

2 states:

This Policy is subject to the same terms, conditions,

limitations, and exceptions (except as regards the

premium, the amount and limits of liability, any deductible

or self-insurance provision, the obligation to investigate

and defend and the renewal agreement (if any)) as are

contained in the Primary Policy. The Primary and

Underlying Policy will be maintained in full effect during

the currency of this Policy… [Emphasis added.]

Page: 7

[18] Condition 8 of the Excess Policy states:

No amendment to the Primary or Underlying Policy

during the Period of Insurance, in respect of which the

primary or underlying insurers require an additional

premium or a deductible, shall be effective in extending

the scope of cover of this Policy unless and until agreed

in writing by the Company.

Efforts by Cronos to renew the policies

[19] In January 2020, Cronos sought to renew both the Primary Policy and the

Excess Policy through its newly appointed broker Aon Reed Stenhouse Inc. and

its U.K. affiliate (collectively “Aon”). On February 11, 2020, Aon provided the

applicant with quotes from both AXA XL and Generali to renew both Polices.

[20] On February 24, 2020, Cronos announced that it would delay its 2019 fourth

quarter and full-year earnings releases. In response, Generali and AXA XL

withdrew their quotes to renew the Policies, which would expire a few days later

on February 27, 2020.

[21] On February 26, 2020, Cronos and AXA XL negotiated a 13-month

extension of the Primary Policy, in lieu of renewal, in consideration of an additional

premium of US$1.5 million. Since the amendment extended the term of the policy

period to March 27, 2021, the extension afforded Cronos coverage for claims

premised on wrongful acts occurring after the expiry of the original policy period.

The aggregate limit of liability for the policy period remained at US$5 million but

the self-retention amount was increased from US$1.5 million to US$3 million.

Page: 8

[22] Aon asked Generali for a seven-day extension of the Excess Policy to allow

for further discussion before the Excess Policy expired, and Cronos provided

Generali with further information about its delayed financials. Generali did not

agree to an extension of the Excess Policy.

[23] On March 11 and 12, 2020, two securities class action claims were

commenced in the State of New York naming Cronos and two of its officers as

defendants (the “US Claims”). The wrongful acts alleged concerned the

restatement of the 2019 financial statements, which pre-dated the expiry of the

Excess Policy.

[24] On March 12, 2020, Aon raised the possibility with Generali that Cronos

would exercise the OEP option.

[25] On March 17, 2020, Cronos announced that its financial statements for the

first three quarters of 2019 would be restated and reissued. On March 19, 2020

Cronos, through Aon, notified Generali about the US Claims.

[26] On March 25, 2020, Cronos provided Generali with written notice that it was

electing to exercise the OEP option. The next day Cronos delivered a bank draft

to Generali in the amount of CDN$704,700, which represented the Canadian dollar

equivalent of twice the annual premium for the Excess Policy of US$243,000.

Cronos calculated this premium to reflect the same ratio between the OEP and

basic premiums in the Primary Policy, namely twice the policy’s basic premium.

Page: 9

[27] On March 27, 2020, Generali advised Aon that the Excess Policy did not

contain any language that gave Cronos a right to an OEP in respect of the Excess

Policy. On March 31, 2020, Generali again rejected the US Claims on the basis

that there was no language in the Excess Policy to support Cronos’ right to elect

the OEP. Generali subsequently destroyed the bank draft Cronos had provided to

pay the premium.

[28] Cronos applied for declarations that under the Excess Policy it was entitled

to purchase OEP coverage at a premium that was twice the basic Excess Policy

premium.

III.

THE APPLICATION JUDGE’S DECISION

[29] The application judge granted the declarations sought. She held that under

Condition 2, the Excess Policy followed form with the Primary Policy, except for

specified provisions which did not exclude the OEP option as a follow-form term.

In reaching that conclusion, the application judge stated that: (i) the exclusion of

“premium” in Condition 2 did not relate to the OEP option; (ii) the OEP option did

not result in a “policy renewal” that would be caught by Condition 2’s exclusion of

a “renewal agreement”; and (iii) the amendment of the Primary Policy to extend it

for another 13 months did not run afoul of Condition 8 of the Excess Policy, which

required Generali’s consent to certain amendments, because it did not change the

scope of the coverage to be provided by the Excess Policy.

Page: 10

[30] The application judge applied to the Excess Policy OEP the 2:1 ratio of the

Primary Policy’s OEP premium to its basic premium and concluded that the

premium for the Excess Policy OEP was CDN$704,700, or twice the Excess

Policy’s basic premium, which was the amount Cronos had tendered to Generali.

She also held that Cronos complied with each of the requirements to exercise the

OEP, including all applicable notice requirements.

IV.

ISSUES ON APPEAL

[31] Generali advances three grounds of appeal, arguing that that application

judge erred in finding that:

(i) Generali did not act in good faith toward Cronos when it sought to

exercise an OEP option, and she failed to provide sufficient reasons to

support such a finding;

(ii) Cronos was entitled to purchase an OEP under the Excess Policy; and

(iii) the premium for the Excess Policy’s OEP was twice the amount of the

policy’s original premium.

V.

FIRST ISSUE: BAD FAITH

[32] The first ground of appeal can be dealt with quickly. A review of the

application judge’s reasons discloses that she did not make any finding to the

effect that Generali failed to act in good faith in respect of the efforts of Cronos to

Page: 11

exercise an OEP option. Her reference to some of the case law regarding the

contractual principle of good faith was obiter.

[33] That leaves Generali’s second and third grounds of appeal concerning the

application judge’s interpretation of the Policies as the main issues on this appeal.

VI.

THE STANDARD OF REVIEW APPLICABLE TO THE SECOND AND

THIRD ISSUES

[34] Generali submits that the motion judge failed to properly apply principles of

contractual interpretation in concluding that Cronos was entitled to purchase an

OEP under the Excess Policy at a specified additional premium. Generali’s primary

submission is that the application judge improperly focused on Condition 2 of the

Excess Policy to the exclusion of other terms of the Primary and Excess Policies

and, in so doing, committed errors on extricable questions of law that attract a

correctness standard of review.²

[35] I am not persuaded that the alleged errors in the interpretative process in

play on this appeal fall within the class of “rare” circumstances in which a question

of law can be extricated from the interpretation process: Sattva Capital

Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 55; Teal

Cedar Products Ltd. v. British Columbia, 2017 SCC 32, [2017] 1 S.C.R. 688, at

²The parties agree that the Excess Policy is a non-standard form contract for purposes of the standard of

review analysis.

Page: 12

para. 63. True, Sattva identified certain questions that may arise in the contract

interpretation exercise as constituting legal errors that attract a correctness

standard.³However, Sattva went on to emphasize that the fundamental goal of

contractual interpretation – to ascertain the objective intentions of the parties –

remains an inherently fact-specific exercise. Accordingly, the close relationship

between the selection and application of principles of contractual interpretation and

the construction ultimately given to the contract means that the circumstances in

which a question of law can be extricated from the interpretation process will be

rare: Sattva, at para. 55.

[36] It is apparent from the application judge’s reasons that her interpretation of

Condition 2 of the Excess Policy took into consideration the relationship between

that condition and other provisions of the Primary and Excess Policies, as well as

the surrounding factual matrix. Her reasons do not disclose that she applied an

incorrect legal principle, failed to consider relevant factors or misapprehended the

operation of the Policies’ provisions. Instead, I regard the errors alleged by

Generali as ones relating to how the application judge applied the relevant legal

principles to the specific facts regarding the policies before her.

³At para. 53, the court in Sattva provided a list of such common legal errors in contract interpretation, for

example: the application of an incorrect principle; the failure to consider a required element of a legal test;

the failure to consider a relevant factor; as well as substantive matters of contract law, such as the

requirements for the formation of the contract and the capacity of the parties.

Page: 13

[37] Those do not constitute errors on extricable questions of law; rather, they

are allegations that concern questions about how the principles of contractual

interpretation are applied to the words of a specific written contract, considered in

light of its factual matrix. In other words, the questions of interpretation in play on

this appeal are questions of mixed fact and law that are the standard fare of any

contract interpretation exercise. As such, our review of those errors must proceed

using the deferential standard.

VII.

SECOND ISSUE: DID THE APPLICATION JUDGE ERR IN FINDING

CRONOS WAS ENTITLED TO PURCHASE AN OEP UNDER THE

EXCESS POLICY?

[38] Generali submits that the application judge’s conclusion that the Excess

Policy entitled Cronos to exercise the OEP option was flawed because several

terms of the Excess Policy, and one aspect of the factual matrix, implicitly indicated

that such a right would be inconsistent with the agreement of the parties reflected

in the Excess Policy. Specifically, Generali points to five matters to support its

submission that the application judge erred in her interpretation:

 First matter: The Excess Policy does not contain an explicit reference to an

OEP option;

 Second matter: Condition 2 of the Excess Policy expressly excludes “renewal

agreements” as a follow-form term;

Page: 14

 Third matter: Condition 8 of the Excess Policy prevents Cronos from electing to

make unilateral extensions of coverage;

 Fourth matter: The Excess Policy lacks an express mechanism, or formula, for

calculating a premium for the OEP option; and

 Fifth matter: Generali’s interpretation that the Excess Policy did not contain an

OEP option was consistent with the view expressed by an employee of Aon

(Cronos’ insurance broker), not at the time of execution of the Policies, but at

the time Cronos sought to exercise the OEP option.⁴

[39] The application motion judge squarely dealt in her reasons with each of the

first four matters.

[40] As to the first matter, the application judge stated:

[42] [Generali’s] submission [that the Excess Policy had

no OEP option and that such option could not be

incorporated into the Excess Policy by reference to the

Primary Policy] is not supported by a plain reading of the

terms of the Primary Policy and the Excess Policy. The

OEP in the Primary Policy clearly states that if the Policy

is not renewed, the insured shall be entitled to the

extension upon payment of the additional premium;

(…)

[44] The Excess Policy follows form with the Primary

Policy “(except as regards the premium, the amount and

limits of liability, any deductible or self-insurance

provision, the obligation to investigate and defend and

⁴Aon responded to a summons to witness on the application by providing answers to written interrogatories

from Generali.

Page: 15

the renewal agreement (if any)).” Notably, Condition 2 of

the Excess Policy does not exclude the OEP option.

Accordingly, I find that the OEP is included in the Excess

Policy.

[41] As to the second matter, the application judge concluded that the exercise

of the OEP option did not give rise to a policy renewal, which Condition 2 would

exclude from the follow-form terms. She stated, at para. 49:

I do not agree that the extension afforded by the OEP is

a renewal. The OEP merely extends the discovery

period. A policy renewal, by contrast, creates a new

policy on new terms, with potentially fresh limits, and,

unlike an OEP, would cover claims for wrongful conduct

following the termination of the expiring policy. In this

case, the applicant was specifically denied the chance to

renew both the Primary Policy and the Excess Policy. It

was the non-renewal event that triggered the right to

exercise the OEP. [Emphasis added.]

[42] As the application judge had noted earlier in her reasons, at para. 14, the

Primary Policy stipulated that the option for an OEP only arose in the event the

insurer did not renew the policy. Accordingly, the language of the Primary Policy

treated the OEP option as a different creature from the renewal of a policy.

[43] Regarding the third matter, the record before the application judge disclosed

that the amendment to the Primary Policy which extended the policy period for a

further 13 months did not abrogate or reduce that policy’s coverage limits. The

maximum aggregate limit of liability under the Primary Policy remained that set out

in Item 3 of the Primary Policy’s Declaration, namely US$5 million. In those

circumstances, the application judge held that the 13-month extension of the

Page: 16

Primary Policy did not offend either Conditions 2 or 8 of the Excess Policy.

Condition 2 stipulated, in part, that “[t]he Primary and Underlying Policy will be

maintained in full effect during the currency of this Policy”;⁵Condition 8 provided,

in part, that no amendment to the Primary Policy would “be effective in extending

the scope of cover of [the Excess Policy] unless and until agreed in writing by

[Generali]”. The application judge fully explained the basis for her conclusion at

paras. 53 through 55:

It is undisputed that the respondent did not provide its

written consent to the amendment to the Primary Policy.

Therefore, it did not agree to any change to the scope of

the cover, and it would not be bound by any such change.

The coverage under the OEP to be provided by the

respondent would continue to be limited to wrongful

conduct that occurred prior to the expiry of the Primary

Policy; but the discovery period for those claims would be

extended by an additional twelve months.

…

[Cronos] conceded that only losses from claims arising

from wrongful conduct that occurred prior to the expiry of

the Excess Policy on February 27, 2020 should erode the

Primary Policy limits for the purposes of determining

when the Excess Policy limits are engaged.

I note that the terms of the extension of the terms of the

Primary Policy were disclosed to the respondent on

5

American jurisprudence has held, in the context of a similarly worded excess insurance policy, that to

maintain an underlying policy “in full effect” requires the insured to maintain the underlying policy without

any abrogation or reduction of the coverage or coverage limits of the underlying policy, except as may be

specified, without regard to whether such abrogation or reduction was substantial or de minimis: Northwest

Pipe Co. v. RLI Insurance Co., 2013 WL 3712418, at para. 10 (U.S. Dist. Ct., Dist. of Oregon); aff’d in part,

2013 WL 3712416.

Page: 17

February 26, 2020. The respondent raised no objection

to the extension at that time. At no time during the

discussions between the parties did it assert this

extension somehow invalidated the OEP option.

[Emphasis added.]

[44] With respect to the fourth matter, Generali had submitted that the absence

of an explicit payment term for an Excess Policy OEP option created an ambiguity

that supported the exclusion of an OEP option. The application judge assessed

that submission in light of the principle that contracts of insurance are to be

interpreted to give effect to their terms and in a commercially reasonable manner.

She found support for such an approach in the decision in Re Canada 3000 Inc.

(2002), 35 C.B.R. (4th) 37 (Ont. S.C.). Although she clearly recognized that in

Canada 3000 the insurer took a different position than Generali, appearing to

agree that an OEP option was available under the excess policy, she adopted the

analysis in Canada 3000 that the excess policy was “subject to the same insuring

clauses, definitions, terms, conditions, exclusions and other provisions as those

set forth in the Primary Policy,” except as regards the premium, and the amounts

and limits of liability. Since the Excess Policy did not list the OEP as an exclusion

in Condition 2, it was one of the follow-form terms.

[45] The reasons of the application judge on these four matters disclose that: (i)

she was aware of the key issues in play in determining whether an OEP option

was a follow-form term incorporated into the Excess Policy, including the meaning

of central terms such as “renewal agreement” and “premium” and the effect of

Page: 18

Condition 8 in the Excess Policy; (ii) she identified and applied the relevant

principles of interpretation for insurance contracts; (iii) she properly understood

that, in the circumstances, the OEP would only operate to extend the discovery

period for claims for wrongful conduct that occurred prior to the expiry of the initial

term but would not extend coverage to wrongful acts committed after that time; (iv)

she reasonably relied on Cronos’ concession on the application (repeated before

us) that only losses from claims arising from wrongful conduct prior to the expiry

of the Excess Policy on February 27, 2020 could erode the Primary Policy limits

for the purposes of determining when the Excess Policy limits are engaged;⁶and

(v) she applied the teaching of Sattva, and its progeny, that the interpretation of

contracts involves a practical, common-sense approach, not dominated by

technical rules of construction, in which the overriding concern is to determine the

intent of the parties and the scope of their understanding: Sattva, at para. 47. In

those circumstances, I see no palpable and overriding error in this part of her

analysis that would justify appellate intervention.

[46] As to the fifth matter, it is true that the application judge did not refer in her

reasons to a March 9, 2020 internal email amongst employees of Aon, the brokers

⁶Para. 1 of the application judge’s order states: “THIS COURT DECLARES that the applicant Cronos had

the right to exercise the Optional Extension Period under the terms of the Excess Policy, under which the

$5,000,000 coverage limit of the Excess Policy remains available to cover the losses reported, and the right

was enforceable against Generali.” [Emphasis added.]

Page: 19

for Cronos at the time, in which the author, Mr. Ed Smerdon, wrote in respect of

Conditions 2 and 8 of the Excess Policy:

I interpret the above to mean that whatever the Primary

does in relation to renewal or non-renewal, including

granting an extension or invoking the ERP [Extended

Reporting Period, i.e. OEP], does not bind Generali. This

is consistent with other clauses in the Generali policy that

make clear Generali makes up its own mind in respect of

significant matters.

Generali submits that this portion of Mr. Smerdon’s email confirms, as

commercially reasonable, Generali’s interpretation that the Excess Policy did not

contain an OEP option.

[47] I query how the view expressed by a non-party to a contract about the

meaning of a contractual provision that was made prior to the person’s involvement

in the contractual dispute, at a time when Aon was not the broker for Cronos, could

have any relevance to the contract interpretation exercise.⁷In any event, I see no

error in the application judge failing to advert in her reasons to this email. I do not

read the email as one in which Mr. Smerdon volunteered an opinion on whether

the Excess Policy contained an OEP option as a follow-form term. The email

simply states the common-sense proposition that Generali is not bound by what

7

The factual matrix consists of the surrounding circumstances known or that reasonably ought to have

been known to the parties at the time of formation of the contract, not at some later date: S.A. v. Metro

Vancouver Housing Corp., 2019 SCC 4, [2019] 1 S.C.R. 99, at para. 45.

Page: 20

AXA XL, the primary insurer, may do but by the obligations that bind Generali under

the Excess Policy.

[48] For these reasons, I see no reversible error in the application judge’s

conclusion that the Excess Policy contained an Optional Extension Period option

that Cronos could exercise against Generali.

VIII.

THIRD ISSUE: DID THE APPLICATION JUDGE ERR IN FINDING THAT

THE PREMIUM FOR THE EXCESS POLICY’S OEP WAS TWICE THE

AMOUNT OF THE POLICY’S BASIC PREMIUM?

[49] The Excess Policy did not specify the premium payable in the event Cronos

exercised its option for an OEP. While the Primary Policy stipulated the premium

payable in the event Cronos purchased the OEP option under the Primary Policy

– twice the basic premium – it made no mention of the premium payable in respect

of the OEP under the Excess Policy.

[50] Generali argued before the application judge that, in the event she found the

Excess Policy provided Cronos with an OEP option, the amount of the premium

for the Excess Policy’s OEP should not follow the form of the premium structure in

the Primary Policy where the OEP premium was twice the amount of the basic

premium for the initial term. Instead, the premium for the Excess Policy OEP

should be exactly the same as that specified for the Primary Policy OEP, namely

US$1.5 million.

Page: 21

[51] The application judge rejected Generali’s submissions. She decided that the

relationship between the Excess Policy’s basic premium and OEP premium should

follow the 1:2 ratio set out in the Primary Policy for two reasons. First, she was

persuaded by the reasoning in the Canada 3000 decision about the

appropriateness of such an approach. Second, she did not regard Condition 2’s

exclusion of “premium” from the follow-form terms as applying to the premium for

the OEP, writing, at paras 58 and 59 of her reasons:

[Generali] argues that the word “premium” in Condition 2

is ambiguous. Specifically, [Generali] argues that

because “premium” is included as an exclusion, the

calculation of the premium for the OEP under the Excess

Policy cannot follow form with the Primary Policy.

I do not find an ambiguity in the use of the word

“premium” as set out in Condition 2. The term is singular,

which leads to the logical conclusion that it refers to the

original premium paid at the time the Excess Policy was

purchased. If the language was intended to also include

the premium related to the OEP option, the word

“premiums” would have been the more appropriate term

to include in Condition 2. If [Generali] had intended to

also exclude the additional premium payable for the

extension, it could have included that exclusion in

Condition 2, but it did not.

[52] Finally, she was not persuaded that the Excess Policy impliedly gave

Generali the right to fix the amount of the OEP premium stating, at paras. 60-61:

The respondent asserts that even if the OEP provision is

included by reference in the Excess Policy, the

respondent should have the right to fix the premium. It

asserts that this must be the case, especially in light of

Page: 22

the Claims of which it became aware following the expiry

of the Excess Policy.

I disagree. The premium is determined at the time the

policy is written, not when the loss arises. The

respondent had the opportunity to assess the risk for the

February 27, 2019 to February 27, 2020 period when it

negotiated the Excess Policy. The OEP extends the

period during which claims may be made, but the

wrongdoing must have occurred during that initial term.

That risk was priced into the Excess Policy when it was

written. The OEP does not alter this risk.

[53] On appeal, Generali contends the application judge erred by failing to

interpret the Excess Policy’s follow-form OEP option as requiring payment of the

same premium payable under the Primary Policy for its OEP option.

[54] I am not persuaded by Generali’s submission.

[55] First, I see no palpable and overriding error in the application judge’s

interpretative process that led her to determine the amount of the additional

premium for the OEP. Indeed, there is a certain inconsistency in Generali’s use of

Condition 2 on this point. On the one hand, Generali relies on Condition 2’s

exclusion of “premium” from the follow-form terms to argue that no OEP option

exists in the Excess Policy, yet, on the other hand, contends that the specific OEP

premium from the Primary Policy should be imported into the Excess Policy when

dealing with the issue of the amount of the OEP additional premium. I regard the

application judge’s interpretation of the additional policy as more consistent with

the provisions of both Policies.

Page: 23

[56] Second, the application judge’s interpretative approach of applying the ratio

between the Primary Policy’s basic and OEP premiums was based on an

assessment, known to both parties at the time of entering into the Excess Policy,

of the relative risks associated with the extended discovery period afforded by the

OEP option. The ratio between the two premiums reflects the relative risks as

between coverage during the original term of the policy and the insurer’s exposure

during the OEP’s extended discovery period. That degree of relative risk was

known to both Cronos and Generali as the Excess Policy designated the Primary

Policy as the underlying policy.

[57] By contrast, Generali’s submission would result in the amount of the

premium for the Excess Policy’s OEP option (US$1.5 million) being over six times

the amount of the Excess Policy’s basic premium of US$243,000, a radical

departure from the relative risk assessment embedded in the 1:2 ratio between the

basic and OEP premiums in the Primary Policy, which was known to both parties

to the follow-form Excess Policy.

[58] Accordingly, I reject this ground of appeal advanced by Generali.

IX.

DISPOSITION

[59] For the reasons set out above, I would dismiss the appeal.

Page: 24

[60] Based on the agreement of the parties regarding the costs of the appeal,

Generali shall pay Cronos its costs of the appeal fixed in the amount of $50,000,

inclusive of disbursements and applicable taxes.

Released: July 13, 2022 “J.M.F.”

“David Brown J.A.”

“I agree. Fairburn A.C.J.O.”

“I agree. Sossin J.A.”