CCAA court overreaches on D&O coverage

Newline Canada Insurance Limited v. Fiera Private Debt Fund III LP, 2026 NSCA 71 
Can a CCAA court use its broad discretion to decide an insurance coverage dispute involving directors and officers?

Summary: The Nova Scotia Court of Appeal has ruled that a CCAA court cannot use its broad discretion under s. 11 of the Companies’ Creditors Arrangement Act to decide a directors and officers insurance coverage dispute that is unrelated to the restructuring itself. The case arose from claims by the interim administrator of the Halifax Herald’s pension plan against the Herald and its former directors and officers over unpaid pension contributions and alleged breaches of duty. The supervising CCAA judge had ordered Newline Canada Insurance Limited to advance defence costs under a D&O policy, but the Court of Appeal found that the dispute was between Newline and the insured directors and officers, not between the debtor and its creditors, and did not further the remedial objectives of the CCAA. The Court also held that the coverage motion was premature because the pension administrator had not yet obtained judgment against the directors and officers and had not followed the process contemplated by Nova Scotia’s Insurance Act. The appeal was allowed, the Newline portion of the order was set aside, and the pension administrator was ordered to repay $25,000 in costs and pay a further $10,000 for the appeal.

The Halifax Herald Limited, a media and publishing company in Atlantic Canada, was the sponsor and administrator of the Herald Retirement Plan. In 2018 and 2019, the Herald failed to make required contributions to the Plan. The Herald sought protection under the Companies’ Creditors Arrangement Act on March 13, 2024, and Eckler Admin Corp. Ltd. was subsequently appointed interim administrator of the Plan.

As part of the CCAA proceedings, the Court issued a stay preventing proceedings from being commenced or continued against the Herald’s directors and officers in respect of certain pre-filing claims. A subsequent sale approval and vesting order contained a broad release in favour of the directors and officers, but carved out claims that were insured under policies maintained by the Herald or its advisers.

Eckler later commenced an action against the Herald and obtained leave to commence a separate action against directors and officers Mark Lever, Ian Scott and Sarah Dennis for the purpose of seeking recourse under available insurance policies. The two actions alleged substantially the same misconduct, including that funds were diverted to the Herald’s digital strategy rather than pension contributions, legal expenses were paid from the pension fund, the Pension Benefits Act was breached, and fiduciary duties were violated.

Two insurance policies were relevant. AIG Insurance Company of Canada had issued a fiduciary liability policy under which the Herald was an insured, while Newline Canada Insurance Limited had issued a directors and officers liability policy to Brace Holdings Limited. Eckler brought a motion seeking declarations that AIG had a duty to defend the Herald and the directors and officers, Newline had a duty to advance defence costs to the directors and officers, the claims fell within the insured-claims carve-out from the vesting order release, and both insurers had a duty to indemnify.

The CCAA judge held that AIG had a duty to defend the Herald and the directors and officers and that Newline was required to advance defence costs to the directors and officers. He dismissed Eckler’s request for a declaration concerning indemnification, but held that the Eckler claims were carved out of the release contained in the vesting order. Newline was also ordered to pay $25,000 in costs. Newline sought leave to appeal the rulings relating to its D&O policy.

The principal issue on appeal was whether the CCAA judge exceeded the authority granted by s. 11 of the CCAA in deciding the dispute concerning Newline’s policy. The Court of Appeal noted that a high degree of deference ordinarily applies to discretionary decisions of a supervising CCAA judge. However, whether the CCAA court possessed authority to make the order was a question of law attracting correctness review.

Justice Farrar, writing for a unanimous Court, emphasized that although s. 11 gives a CCAA court broad discretionary power to make orders it considers appropriate, that authority is not unlimited. Relying on Callidus Capital and Century Services, the Court held that the discretion must be exercised in furtherance of the remedial objectives of the CCAA, principally the restructuring or orderly resolution of the debtor company’s financial affairs.

The dispute over Newline’s obligation to fund defence costs and provide coverage did not satisfy that requirement. It was not a dispute between the debtor company and its creditors, but between Newline and the insured directors and officers. Eckler itself had previously acknowledged that its action against the directors and officers would have no impact on the debtor’s restructuring and was simply a prerequisite to pursuing available insurance.

The Court rejected the CCAA judge’s reliance on the “single proceeding model.” That principle is intended to gather claims against the debtor into a single collective proceeding. The Eckler action, however, was against the directors and officers, not the Herald, and any proceeds payable under Newline’s D&O policy were not assets of the Herald or its parent. The Court also distinguished Just Energy, where the insurers had not challenged the CCAA court’s authority to determine coverage. No authority supported allowing a CCAA court to determine insurance coverage over an insurer’s objection simply because the dispute arose against the background of a restructuring.

The Court further held that Eckler had attempted to bypass the procedure established by s. 28(1) of Nova Scotia’s Insurance Act. That provision permits a claimant who has obtained a judgment against an insured defendant, and whose execution has been returned unsatisfied, to pursue the defendant’s insurer. Justice Farrar rejected the CCAA judge’s characterization of that process as merely optional or as containing a gap that could be filled using s. 11 of the CCAA. Section 28 instead creates the mechanism through which a third party may overcome privity and pursue an insurer directly.

Eckler had not yet obtained a judgment against the directors and officers, and no findings had been made establishing their liability. Its coverage motion was therefore premature. The Court described the motion as a “pre-emptive strike” intended to determine whether insurance was available before Eckler incurred the expense of pursuing the underlying litigation. While that objective was understandable from a practical perspective, it was unrelated to the purposes of the CCAA and could not bring the dispute within the scope of s. 11.

The Court granted leave to appeal, allowed the appeal and set aside the April 10, 2026 order insofar as it related to Newline’s D&O policy. It declined to address the interpretation of Newline’s insuring clause or policy exclusions because, having concluded that the CCAA court lacked authority to decide those issues, the Court of Appeal had no greater authority to determine them in the first instance. Any future coverage dispute must be addressed in the appropriate proceeding on a proper evidentiary record. Eckler was ordered to repay the $25,000 in costs previously paid by Newline and to pay a further $10,000 in appeal costs.

Judges: Wood, C.J.N.S., Farrar and Bourgeois, JJ.A.

Professionals involved:

• Roderic McLauchlan and George Nathanael of Clyde & Co and Grace MacCormick of Patterson Law for Newline

• Michael Murphy and Melissa Pike of Pink Larkin for Eckler