Court finds supervising judge exceeded authority in determining directors' insurance coverage
The Nova Scotia Court of Appeal has set aside an order requiring Newline Canada Insurance Limited to advance defence costs to directors and officers (D&O) of The Halifax Herald Limited, ruling that the supervising court exceeded its authority under the Companies’ Creditors Arrangement Act (CCAA).
In Newline Canada Insurance Limited v. Fiera Private Debt Fund III LP, 2026 NSCA 71, the appeal court found that the insurance coverage dispute did not further the CCAA's remedial objectives and concerned the insurer and its insured directors and officers rather than the debtor company and its creditors.
The Herald, an Atlantic Canadian media and publishing company, failed to make required contributions to its retirement plan in 2018 and 2019. It sought CCAA protection in March 2024, and Eckler Admin Corp. Ltd. became the plan's interim administrator.
In October 2024, Eckler commenced an action against the Herald. The following month, it obtained permission to commence a separate action against the company's D&Os, although the court prohibited further steps without leave.
Both actions alleged that the Herald and its D&Os diverted funds towards the company's digital strategy instead of making pension contributions. Eckler also alleged breaches of fiduciary duties and Nova Scotia's Pension Benefits Act, as well as the use of pension funds to pay litigation expenses.
Newline issued a directors and officers liability policy to Brace Holdings Limited, the Herald's parent company. AIG Insurance Company of Canada separately issued a fiduciary liability policy.
Eckler subsequently sought declarations concerning the insurers' defence and indemnification obligations. The supervising court found that Newline had a duty to advance defence costs to the D&Os and that AIG had a duty to defend both actions. It dismissed Eckler's request for declarations concerning indemnification.
Newline appealed, challenging the supervising court's authority under s. 11 of the CCAA and its interpretation of the insurance policy.
The Court of Appeal found that s. 11, although broad, required courts to exercise their discretion in furtherance of the CCAA's remedial objectives.
It rejected the supervising court's reliance on the single-proceeding model, explaining that the principle applies to proceedings against the debtor company, while Eckler's action targeted the D&Os.
The appeal court also found that Eckler had not followed the procedure under s. 28(1) of Nova Scotia's Insurance Act for pursuing recovery against an insurer.
It noted that Eckler had not obtained a judgment establishing the D&O’s liability or obtained a judgment against them. It found that Eckler's attempt to determine insurance coverage before establishing liability was premature and inappropriate within the CCAA proceedings.
The Court of Appeal declined to interpret Newline's policy or determine whether its exclusions applied. It stated that the directors and officers should seek any future determination of defence costs and coverage in the appropriate Supreme Court proceeding.
The court allowed Newline's appeal and set aside the order concerning its policy. It ordered Eckler to repay $25,000 in costs awarded below and pay $10,000 in appeal costs.
The decision does not affect the supervising court's findings concerning AIG, which did not appeal.
