SureFire v. Berkshire: 2023 Fidelity Insurance

CAVANAGH J. 

INTRODUCTION 

[1] The Plaintiff, SureFire Dividend Capture LP (“SDC”), is a limited partnership formed as a  special purpose vehicle to hold investments for its investors using an external investment  advisor which employed several different trading strategies. The principal of SDC’s  general partner is Ariel Shlien. Mr. Shlien had also formed other SureFire limited  partnerships as investment vehicles.  

[2] Mr. Shlien heard about a hedge fund in the United States managed by Brenda Smith called  Broad Reach Capital, LP (“BRC”) that employed several investment strategies including  one called “dividend capture”. Mr. Shlien investigated BRC and spoke with Ms. Smith. He  decided to cause SDC to invest in BRC to take advantage of its trading strategies. In several  instalments, SDC paid a total of $4,510,000 USD to BRC and, in exchange, received a  limited partnership interest in BRC.  

[3] At the time that Mr. Shlien was investigating BRC, he was also looking to obtain insurance  coverage for theft and fraud by SureFire’s underlying fund managers, including BRC. Mr. 

Shlien used an insurance broker, Arthur J. Gallagher Canada Limited (“Gallagher”), to  assist him to look for this insurance coverage. 

[4] Gallagher, through Mark Morency, a Senior Vice-President, contacted Berkshire  Hathaway Specialty Insurance (“Berkshire”) about obtaining insurance coverage for the  SureFire entities. Berkshire offered an insurance product that provided fidelity insurance  for loss resulting from dishonest and fraudulent acts by employees of the insured, as well  as other coverage. Over a number of months from September 2018 to February 21, 2019,  Mr. Morency of Gallagher and Andrew Knight of Berkshire exchanged emails and had  conversations about coverage, including coverage for SureFire for theft and fraud by sub 

advisors, including BRC, that Mr. Shlien had told Mr. Morency he was seeking.  

[5] Berkshire issued a Financial Institution Bond for Asset Managers and Broker/Dealers in  favour of certain SureFire entities that was effective from January 1, 2019 to January 1,  2020 (the “Bond”). SDC became a named “Insured” under the Bond by a rider that became  effective on February 26, 2019. Under a separate rider to the Bond, BRC was included  within the meaning of “Subsidiary” in the Bond, but only with respect to its operations or  activities on behalf of the SureFire funds.  

[6] In the course of his investigations of BRC, Mr. Shlien was introduced to Brian Shevland  who was the principal of an asset management firm called Bluestone Capital Management.  Through Bluestone, Mr. Shevland operated three investment funds (the “A Funds”) which  had placed $26,730,000 USD with BRC to be invested using BRC’s investment strategies,  including dividend capture. The A Funds held limited partnership interests in BRC.