Can an insurer deny coverage under a policy issued by a new insurer because the insurer was aware of a potential claim in an underlying action brought against the insureds?

Ontario, Canada

The following excerpt is from Liberty Mutual Insurance Company v. Cronnox Inc., 2018 ONSC 1578 (CanLII):

A similar application was decided in Brelih v. St. Paul Cos., [2006] O.J. No. 1369. In Brelih, the insureds applied for determination of whether either of the respondent insurers was required to defend the insureds in an underlying action brought against them. Before the action, the insureds had received email communications from the lawyer for the claimants (who were the plaintiffs in the underlying action that was commenced later) indicating that they were considering commencing an action in relation to a real estate transaction. The insureds believed that the claimants were simply attempting to avoid payment of a portion of the commissions, and they did not report the matter to their insurer at the time. Coverage under a policy issued by a new insurer commenced and, after being served with the statement of claim, the insureds reported the claim to the new insurer. The new insurer denied coverage on the basis that all of the events giving rise to the claim occurred before the inception of the insurer’s policy and that the insureds were aware of the potential claim before the commencement of the new insurer’s policy. The first insurer also denied coverage, on the basis that the claim was reported outside of the policy period. Both of the policies were “claims made” policies.

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