Nortel execs’ insurer must pay their legal bills

The insurer of Nortel’s executives will not be able to appeal a ruling ordering it to foot their legal bills without applying retention amounts.

The Ontario Court of Appeal denied the insurer a leave to appeal yesterday, noting it did not pass “the stringent test” required to appeal matters of bankruptcy proceedings.

Nortel Networks Corp. and several of its affiliated companies were granted protection from their creditors under the Companies’ Creditors Arrangement Act in 2009 after they declared bankruptcy.

The executives’ insurer, Chartis Insurance Co. of Canada, is to pay for costs they incurred during two CCAA proceedings without reference to a $10-million retention amount or the executives’ trust fund.

According to the motion judge who made the ruling, Nortel had an obligation to indemnify its executives but couldn’t do so because of the CCAA stay of proceedings.

The motion judge “interpreted the directors’ and officers’ insurance policy to mean that the retention amount did not apply, because payment was not ‘permitted,’” the appeal court said. The motion judge had also said applying the retention amount would mean prioritizing Chartis over other Nortel creditors.

The judge’s interpretations were “squarely within his expertise,” the appeal court said Thursday, noting it doesn’t easily grant leave to appeal in CCAA proceedings.

“In a CCAA proceeding, leave to appeal is granted sparingly and only where there are serious and arguable grounds of significant interest to the parties,” the court said. “The applicant has not succeeded in meeting the stringent test for leave to appeal as set out in Re Timminco Ltd. . . .”

In denying leave to appeal, the appeal court also said the issues in the case are specific to it and “not of broader interest to the practice or the public.”

In Canada, Nortel has over 20,000 affected former employees. The majority of them are pensioners, severed workers, and long-term disabled employees. In May, the Superior court extended the stay period in the Nortel matter until Oct. 31.

Also yesterday, the Supreme Court of Canada rejected a leave to appeal in another insurance case, David J. Gillespie Professional Corp. v. Frank Cowan Co. Ltd. In that case, the appeal court had ruled Frank Cowan wasn’t responsible to cover the legal expenses of former foster parents over its aggregate policy limit of $500,000.

The parents were terminated after they were charged with criminal offences. They were later acquitted, but the appeal court said the insurer isn’t liable for the legal costs they incurred after their termination as foster parents.

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