Interpreting Insurance Coverage: Lessons from SureFire Dividend Capture LP v Berkshire Hathaway

The recent decision of the Ontario Court of Appeal in Surefire Dividend Capture, LP v. Berkshire Hathaway, 2025 ONCA 332 sheds some light on insurance coverage issues and interpretation of policy language in cases involving multiple insureds.

The appellant, Surefire Dividend Capture, LP (“Surefire”) lost $30 million USD after investing in a large hedge fund that, unbeknownst to Surefire at the time, was part of a complex Ponzi scheme. The hedge fund, Broad Reach Capital, LP (“BRC”) was controlled and operated by the fraudster and orchestrator of the Ponzi scheme, Ms. Brenda Smith. 

Prior to making the investment, Surefire secured a fidelity bond (the “Bond”) from its insurer, Berkshire Hathaway. Surefire then had BRC added as a subsidiary under the Bond. 

The Bond provided coverage for, among other things:

• losses due to “dishonest or fraudulent acts of an Employee”; and 
• losses resulting from “Theft of Customer Property by a Registered Representative”. 

When the loss was uncovered and the scheme came to light, Surefire brought an insurance claim under the Bond on its own behalf. The insurer denied coverage, and litigation ensued.

At trial, Justice Cavanagh agreed with the insurer and found that there was no coverage for the losses under the Bond. The Court of Appeal agreed with the trial judge and dismissed the appeal. Some of the main issues considered by the courts are discussed below.

Issue 1: is Ms. Smith an “Employee” within the meaning of the Bond?

Ms. Smith was not an “Employee” under the Bond. As Surefire was the entity advancing the claim, in order for there to be coverage, the loss would have to have been the result of dishonest or fraudulent acts of an Employee of Surefire._¹

The trial judge found that BRC also had the status of an insured under the Bond, having been added as a subsidiary. But since no claim was made on BRC’s behalf, there could be no coverage for any loss due to acts of an Employee of BRC.²

The insurer also advanced an argument that, even if BRC had made a claim, Ms. Smith could not have been an Employee of BRC because she controlled and operated the entire entity. The insurer proposed that, rather than an employee of BRC, Ms. Smith was in fact BRC’s alter ego.³  Both courts declined to decide on the alter ego issue. 

Issue 2: did the loss result from “Theft of Customer Property by a Registered Representative”?

The court had to determine whether Ms. Smith’s acts constituted a “Theft” of “Customer Property”, and whether Ms. Smith qualified as a “Registered Representative” within the wording of the Bond.

The court purported to take a “practical common-sense approach” to interpretation of the wording of the Bond, with the goal of “determin[ing] the intent of the parties, which requires the words of the contract to be considered in light of the surrounding circumstances known at the time of contracting.”⁴

The trial judge was prepared to find that Ms. Smith was a Registered Representative.⁵ He rejected, however, that there had been any “Theft of Customer Property.”

The trial judge held that “Theft of Customer Property” must mean an actual taking of Customer Property, as opposed to some other form of dishonesty that may have preceded it (such as Ms. Smith’s misrepresentations which may have induced Surefire to invest).⁶

Surefire had invested the funds into BRC. Once the funds were invested, Surefire did not retain any property interest in the funds. The funds were no longer “Customer Property” within the meaning of the Bond, because they no longer belonged to Surefire’s customers or Surefire itself. It was BRC that had a property interest in the invested funds, and diversion of the funds by Ms. Smith therefore could not constitute a “Theft of Customer Property” under the Bond for the purpose of Surefire’s claim.⁷

The Court of Appeal agreed with the trial judge’s conclusions, stating that a trial judge’s interpretation of a contract is “a question of mixed law and fact” and attracts a high degree of deference.⁸ Having found no palpable and overriding error in the trial judge’s reasoning, the Court of Appeal declined to interfere with the Justice Cavanagh’s findings. 

Takeaways

Some key ideas to take away from the Court of Appeal’s decision in SureFire Dividend Capital, LP v. Berkshire Hathaway are:

1. A trial judge’s interpretation of a contract is a question of mixed law and fact, and is entitled to a high degree of deference;

2. When a party intends to apply for insurance coverage, the exact wording of the policy is of vital importance; and

3. When an insurance claim is being made and there are multiple insureds, it is important that the correct insured is the one making the claim. There is a suggestion in this case that things may have played out differently had BRC itself made a claim under the Bond. However, it is unknown whether this claim would have ultimately been successful. 

¹Para 26 ONCA decision.
²Paras 48, 57 ONCA decision.
³Para 57 ONCA decision.
⁴Para 60 ONCA decision.
⁵Para 61 ONCA decision.
⁶Para 63 ONCA decision.
⁷Para 27 ONCA decision.
⁸Para 41 ONCA decision.