Newsletter > October 2008
In this issue: 1. Firm News 2. Third Parties Benefit from Waiver of Subrogation Clause 3. Summary Judgment in Ontario 4. Reasonable Expectations Test Applied 5. Excess Insurer Required to Contribute to Costs of Defence
1. Firm News
- John Phillips will be speaking on “The Intricacies of Enforcement of Foreign Judgments in Ontario” on December 9th, 2008 at the Toronto Lawyers Association Nutshell Programme.
- The Fernandes Hearn LLP 9th Annual Maritime and Transportation Law Conference will be held on Friday January 16th. Mark the day in your calendar. The tentative program includes: – New Transport Law Convention – Class Actions in Transportation – Passenger Carriage and Rights – Mock Arbitration – Foreign Market Update – Review of Legal Cases in 2009 – Load Brokers, Intermediaries and Freight Forwarders and Insurance The conference commences at 8:30 am and will be held at the Royal & SunAlliance Lecture Theater.
- Kim Stoll was elected a director of the Canadian Transport Lawyers Association at the Annual Meeting of the association held at the end of September.
- Rui Fernandes and Gordon Hearn have both been selected to be included in the 2009 edition of The Best Lawyers in Canada in the specialties of Maritime Law and Transportation Law.
- Gordon Hearn will be representing the firm at the Transportation Law Institute being held in New Orleans, Louisiana on November 14th and 15th. The Transportation Law Institute is a joint venture of the Transportation Lawyers Association and the University of Denver Sturm College of Law. The Institute involves seminars and presentations on recent developments in transportation law.
In the recent Federal Court decision of Justice Harrington in Timberwest Forest Corp. v. Pacific Link Ocean Services Corp.  FC 801 the claimant sued for the loss overboard of most of its shipment of logs from the barge Ocean Oregon while under tow of the tug Sea Commander on a voyage from the Fraser River to Eureka California.
The case dealt with a number of issues including whether the carriage was governed by the Hague-Visby Rules, whether the cargo was “goods” as defined by the Hague Visby Rules, and whether contractual benefits of a marine insurance policy may be extended to third parties. The claimant, Timberwest, was indemnified by its insurer St. Paul Fire & Marine Insurance Company. The claim was a subrogated claim. One of the explicit insuring conditions was a waiver of subrogation in favour of Pacific Link the contractual carrier and charterer of the tug and barge. The tug was owned by Union Tug and Barge Ltd. and the barge by Great Northern Marine Towing Ltd. The other defendants also claimed the benefit of the waiver of subrogation clause in the policy of insurance. If the defendants were correct, then the underwriter who had paid one insured could not sue other insureds in recovery of a loss covered by the policy.
The court came to the following conclusions:
“a. the contract of carriage is not governed by the Hague-Visby Rules; b. the cargo is not “goods” as defined in the Hague-Visby Rules. Although the shipment was “covered” by a bill of lading, that bill of lading, if issued, would have stated the entire shipment was being carried on deck, as indeed was the case; c. the waiver of subrogation in favour of Pacific Link contained in Timberwest’s insurance policy was not rendered null and void and of no force or effect by the Hague-Visby Rules. Pacific Link is a third party beneficiary and entitled to assert the clause against St. Paul; and d. the other defendants are all third party beneficiaries of one or more waiver of insurance clauses, and likewise entitled to assert them against St. Paul. These defendants were the owners of the tug and tow, the master of the tug, and either crew or stevedores servicing the barge. As such, they were all parties to and given exemptions and immunities under the contract of carriage. In turn, they are additional insureds with benefit of a waiver of subrogation granted them by St. Paul.”
The court held that Pacific Link was specifically and individually named in the St. Paul policy and thus could benefit from the waiver of subrogation found in section 3 of the policy. In so holding the court referred to two Supreme Court of Canada decisions:
“Pacific Link was performing the very services provided for in the contract of carriage when the loss occurred. Consequently, it is clearly a third party beneficiary and is entitled to enforce the waiver of insurance clause in its own right as per London Drugs and Fraser River, notwithstanding that it had not required Timberwest to have such a clause inserted and notwithstanding that it knew nothing of the insurance policy until after the loss. In Fraser River, the beneficiary, Can-Dive, likewise was unaware of the policy. Furthermore, it only fell within a generic class, the class of “charterers”. In this case, Pacific Link is actually named. However, the question remains whether the other defendants are also entitled to benefit from Timberwest’s policy.”
Justice Harrington recognized that on a narrow reading of London Drugs neither the individual defendants nor the other corporate defendant were employees of Pacific Link [and therefore could not benefit as third parties]. However, Justice Harrington decided to make use of the ITO-International Terminal Operators v. Miida Electronics Inc. decision of the Supreme Court of Canada which approved of the use of Himalaya clauses in Canada (if certain conditions were met). Justice Harrington then took a leap and decided that since Himalaya clauses have been used to extend benefits to employees, servants, agents and subcontractors, the court could use clause 14 in the bill of lading (the Himalaya clause) to extend the benefits of the contract evidenced by the Pacific Link bill of lading to include Pacific Link’s benefits under the policy of insurance!
St. Paul’s argument that it specifically only waived subrogation against Pacific Link failed. The court recognized that it was making new law. At paragraph 66 Justice Harrington stated:
“ The final question is whether these benefits fall within the existing case law. If not, would an extension of insurance benefits to the defendants, other than Pacific Link, be an incremental development which a judge might permit or would it be a substantial change best left to Parliament? In my opinion, giving the other defendants benefit of insurance does not offend against Fraser River. If I am wrong, then in my opinion an extension of benefits to those defendants would be a permissible incremental change to the common law not only in line with London Drugs, but also with such maritime cases as Canadian National Railway Co. v. Norsk Pacific Steamship Co.,  1 S.C.R. 1021; Bow Valley Husky (Bermuda) v. Saint John Shipbuilding Ltd.,  3 S.C.R. 1210; and Ordon Estate v. Grail,  3 S.C.R. 437.”
Justice Harrington concluded that this was an appropriate case to “make an incremental change to the law in compliance with commercial reality, justice and fairness. The change would be consistent with the reality that servants, agents and subcontractors, if the language or circumstances so permit, should benefit from contractual clauses stipulated for their benefit. Furthermore, an insurer should not be entitled to pocket premium without risk.” This last shot at insurers is amazing and will surely form one of the grounds of appeal.
We have been advised that a notice of appeal has been filed and we will keep an eye on this case for our readers.
3. Summary Judgment in Ontario
Summary Judgment is available to parties to an action when the facts in issue on key points provide that there is no genuine issue for trial. Seems like a good idea that when facts appear clear and obvious that a shortened procedure ought to be the right course. This course is, overall, inexpensive if the moving party is successful.
It is very difficult in this jurisdiction for the defence to win a summary judgment motion and, even when the defence does win, the Court of Appeal may not agree. The facts and admissions have to be just right and persuasive. Consider this next case where the defence is able to point to “persuasive” evidence from the plaintiff, himself, at discovery, and also to notes of the family doctor. A successful order dismissing the claim was granted at first instance and the action was dismissed only to be overturned on appeal with costs assessed against the defence.
Grewal et al v. Ivany et al 2008 ONCA 687 (Canlii) Ontario Court of Appeal (heard October 1, 2008)
The plaintiff, Grewal, was involved in a motor vehicle accident on December 11, 1999 and allegedly sustained serious personal injuries. His daughter, also a plaintiff, was injured. Over two years later, the plaintiffs commenced an action in negligence on September 4, 2002 seeking pecuniary and non-pecuniary damages for their injuries and all plaintiffs claimed FLA damages. The defendants moved for summary judgment alleging that the plaintiffs’ claims were statute barred (2 years under the Highway Traffic Act). The trial judge dismissed the action completely holding that there was no genuine issue for trial because by May 19, 2000 the plaintiff Grewel knew “material facts that the needed to know to understand that he had a cause of action”. The limitation period, it was held, then had commenced on May 19, 2000 and had expired before commencement of the lawsuit.
In terms of Grewal, the Court of Appeal granted the appeal overturning the decision of the trial judge and permitting the claim to continue as having a genuine issue for trial.
The Court of Appeal stated that Grewal’s claim was governed by Bill 59, being the motor vehicle scheme in place at the time of the accident. This scheme included a threshold that must be met in order for the plaintiff’s claim to be advanced. Medical evidence determining severity and likely duration of injuries was important in such cases to determine the commencement of the limitation period given that the threshold required of “permanent serious disfigurement” or “permanent serious impairment of an important physical, mental or psychological function”. The Court of Appeal held that the issue of whether Grewel knew was an issue for trial and rejected the trial judge’s view of the evidence.
The trial judge had found that Grewal’s own evidence at discovery was indicative of his knowledge. At discovery, he stated that he did not know when or if his neck pain would ever end. This was taken as an admission by the trial judge that as of May 19, 2000 he knew every “material fact that he needed to know to understand that he had a cause of action”. The Court of Appeal disagreed stating that such statement meant that he was “uncertain of his prognosis”. The Court of Appeal also pointed to the fact that there were three independent medical assessments (prepared for the defence) that suggested that Grewal would make full recovery and that, therefore, this was a live issue.
The trial judge had further relied upon a note in the family doctor’s notes from March 23,2000 that referenced “chronic pain” again indicating that the plaintiff knew or had known that he had sustained compensable non-pecuniary damages. The Court of Appeal again disagreed stating that most of the chart entry was indecipherable and no explanation of the notation was evident nor was there mention of disability in the chart entry.
The Court of Appeal held that there was a genuine issue for trial as to when Grewal learned or through the exercise of reasonable diligence ought to have learned that he had a cause of action against the respondents for general injuries under the threshold and ordered that such issue was one for trial.
It is also of note that the defendants, responding to the appeal by the plaintiffs, submitted a distinction between pecuniary and non-pecuniary loss when considering the timebar issue. The Court of Appeal distinguished the caselaw relied upon as not dispositive of whether the pecuniary damages would be treated differently and stated that the trial judge’s consideration of the issue was “terse”.
The Court of Appeal concluded that the issues of whether timebar applied to claims for pecuniary damages would best be resolved on a full record and that same would ensure “that any consideration of this important issue by the court will be informed by a reasonable analysis in the courts below”.
(For those readers who noticed, the claim of the daughter was also allowed to continue as the parties had so agreed that the Order of the trial judge should be overturned in that regard. While not stated in the reasons, I assume that this is because she was an infant and had two years from the date she reached age of majority (18).
4. Reasonable Expectations Test Applied
The Ontario Superior Court Applies the “Reasonable Expectations” Test in Interpreting an Insurance Policy: What are “Occurrences” and “Related Occurrences”?
The recently published decision of Simpson v. Lloyds Underwriters  Can LII 51771 (Ont. S.C.) features an interesting analysis on how an “occurrence” is interpreted in an insurance policy. The question of what is meant by an “occurrence” is often an issue in the context of determining how to apply a policy deductible. This case involves an interesting exercise in the Court finding how a “per occurrence” coverage limit might co-exist with an aggregate limit for “any one such “occurrence” or a “series of related occurrences” “. The result can be very important as in a case of successive insured events the insurer’s indemnity obligations might be limited by an aggregate limit depending on how the policy is interpreted.
Courtney Wallis Simpson is a convicted criminal. She was convicted for having defrauded various victims in a real estate deposit scheme. Ms. Simpson stole twenty-five deposits ranging in size from $5,000 to $400,000, from twenty-two different victims, with three of those victims having been defrauded on two separate occasions.
The victims of real estate deposit thefts are covered by consumer real estate deposit insurance, which insurance is taken out by the Real Estate Council of Ontario. This Council administers the Real Estate and Business Brokers Act, 2002 S.O. 2002, c. 30 on behalf of the Ontario government. As a part of its mandate in regulating trade activity in real estate, and protecting the public interest, this Council took out the subject insurance policy with Lloyds Underwriters.
The Relevant Policy Wording
(a) Relevant Coverage Grant
The policy states that the insurer agrees:
To pay on behalf of the Insured the amount of any Claim for Loss sustained by a Claimant in a trade in real estate in the Province of Ontario arising out of an Occurrence discovered during the Policy Period.
(b) Coverage Limit Per “Occurrence”
Each claim is limited to a $100,000 recovery when it arises out of an “Occurrence”. An Occurrence is defined as:
“Occurrence” means the insolvency of a Registrant (the said Ms. Simpson and her company who perpetuated the fraud(s) being such a “Registrant”) or the theft, fraud, misappropriation or wrongful conversion directly or indirectly by a Registrant or present or former employee, director, officer or manager of a Registrant of moneys or other property entrusted to or received by the Registrant in the Registrant’s Professional Capacity.
(c) The Policy Aggregate Limit
The policy also provided a $500,000 aggregate limit for any one “Occurrence” or series of “related Occurrence”s. The policy states:
The Limit of Liability – aggregate each Occurrence stated in the DECLARATIONS shall be the maximum liability of the Insurer and the Named Insured in any one Occurrence or series of related Occurrences. If the total amount of all Claims in any one Occurrence exceeds the aggregate Limit of Liability then all Claims will be settled on a pro-rata basis in the same proportion that the aggregate Limit of Liability bears to the total amount of all Claims.
Counsel acting on behalf of the victims of the frauds trying to access the insurance policy argued that each deposit theft was a separate unrelated occurrence, that is, each victim could recover up to $100,000 insurance for each theft. The insurer argued that all of the twenty-five frauds constituted a single occurrence (its indemnity obligation thus being limited to the $100,000 per claim coverage, or $100,000 in total) and, alternatively, if there was not just one single “occurrence”, there was at most a “series of related Occurrences” such that the $500,000 aggregate limit applied.
Would the insurers be on the hook for $2,500,000 (25 x $100,000), $100,000 or $500,000?
The Court’s Analysis
The Court identified two discrete issues:
(i) Do the twenty-five deposit thefts constitute a single “occurrence” within the meaning of the policy?
(ii) If the twenty-five thefts do not amount to one single “occurrence”, do they, or a subset of them, constitute a “series of related occurrences”, triggering the aggregate limit of liability?
As is often the case in insurance policy or contract dispute resolution, both parties argued that the policy wording was clear as to its meaning in their own favour. The lawyer for the fraud victims focused on the definition of “Occurrence” noting that it incorporates the singular use of the word “theft” as opposed to the plural “thefts”. The insurer in turn relied on the same definition, pointing to the use of the plural word “moneys” which would indicate that an occurrence for the purposes of the policy could include a scheme involving multiple incidents of the theft of money or a single theft encompassing several transactions.
On this first issue, the Court ruled that the thefts were not one single “occurrence”. They were different occurrences. In arriving at this result, the Court was concerned that if it found that the twenty-five different thefts perpetrated by Ms. Simpson amounted to just one single “occurrence” that this would stretch the singular use of the word “theft” into a plural use of the word and which could potentially in certain cases render the aggregate limit of liability meaningless. (This, by itself, is an important admonition or reminder that policy terms will not be considered by a Court in isolation, but that the entire wording of a policy is to be considered in interpreting insurance contracts).
In response to the insurer’s submission about the pluralistic nature of the word “moneys” in the definition of “Occurrence”, the Court noted that the policy itself defines the word “Loss” as meaning “a loss of deposit in the form of moneys or other property”. The Court reasoned that the intent behind the policy was not just to insure deposits in the form of a single amount of money, but also that deposits could be comprised of more than one, or different accounts.
The twenty-five deposit thefts thereby being a separate occurrence from the others, the Court then had to reconcile the $500,000 aggregate clause in the policy with the twenty-five claims. In short, would underwriters be obliged to indemnify for an amount of $2,500,000 or was their liability capped under the policy at $500,000? If the twenty-five deposit thefts were to be interpreted as a “series of related thefts,” then all twenty-two victims would have to share pro-rata in the $500,000 limit. The lawyer for the victims argued that the deposit thefts were all separate and unrelated occurrences. Counsel cited the fact that the deposit thefts were not related because the modus operandi was different in each case – there being different purchase and sale agreements, different warranties and representations, different properties involved each to secure a deposit from different victims. The victims argued in particular that the identity of the victims is important in categorizing any of the frauds as “related”. As the thefts were (with the exception of three victims) perpetrated against different victims they were accordingly “unrelated”.
In turn, the insurer argued that the plain dictionary meaning of the word “related” includes “associated or connected” and “of the same type” which would catch all of the deposit thefts at issue. Pointing to the fact that Ms. Simpson was the sole thief, all of the thefts must thereby be considered to be “related”.
In its analysis, the Court noted that if one works with the dictionary approach advanced by the insurer – that then any two or more acts of theft might easily be related by any measure, for example, by simply being related by a criminal design. This would work an injustice and all too readily require victims of a large fraud to share pro rata in the $500,000 aggregate. As such, there is the further need for more of a connection in time, place or person. The Court expressed concern that by the insurer’s definition, the aggregate limit would apply to any and all thefts of deposits by any one registrant for the duration of the policy. Displeased with this potential result, the Court set about determining what degree of relationship is necessary between the different theft occurrences so as to fit within the intention of the parties to the insurance contract, so that meaningful insurance be provided to depositors with real estate agents. What would be realistic, workable and not frustrate the intention of the policy?
Note: It is interesting to note that the Court thus embarks on an analysis as to what the expectations or intentions of the parties to this insurance contract were, in light of the apparent purpose of the contract as well as the facts surrounding its generation, rather than attempting to define or determine such expectations or intentions from the use of the words in the contract. Conventionally, Courts would look to outside factors such as the intentions of the parties to the contract and outside extrinsic factual factors only upon finding an ambiguity in the key word(s) being considered. In this case, the Court did not find an ambiguity in the meaning of the word “related” – the dictionary definitions cited by the insurer being clear, as involving any type of association or connection – but the Court was concerned with how broad this could be, and, in effect refused to apply the literal meaning of the policy use of the word “related”, rather taking a step back to consider what the general intentions of the parties to the contract would be. This seems to be consistent with an emerging trend of the Courts to consider reasonable expectations of the parties to an insurance contract.
Another way of looking at it is that the word “related” in the aggregate limit clause was necessarily being “read down” or limited in its scope by the Court, and noting that in light of the reasonable expectations of the parties the word “related” would require a close or tangential relationship rather than a broad connection.
Noting the clear intention of the parties to the contract of insurance as providing protection for consumers that provide deposits to a registered real estate agent or broker, the Court reached the conclusion that the identity of the consumer claimant would be an important and essential “connecting factor” or common denominator in interpreting whether “Occurrences” were in fact “related”. Given the goal of protecting consumers, the Court reasoned that the proper way to interpret the wording of the policy was that the identity of the victim would be the key factor in determining whether or not there were related occurrences and, as such, the Court held that where different fraud deposit victims were involved amongst the twenty-five subject frauds that the occurrences should be regarded as unrelated. Accordingly, it followed that twenty-two of the twenty-five transactions were found to be unrelated from each other as involving different victims and different properties. Cases of multiple fraud against a single victim would however be captured by the aggregate limit. In those cases, the thief was the same, the victim was the same and the type of occurrence causing the loss was the same.
The Court accordingly ruled that each of the deposit thefts in respect of the twenty-two victims made by Simpson were separate occurrences except for the multiple deposit thefts on three of the victims. As such, the various victims did not have to share pro rata in the aggregate “fund”.
The foregoing reminds us that a Court will not interpret an insurance policy to frustrate what it may regard as being the clear intention from the standpoint of the insured.
As this case amply points out, the word “related” is indeed very “relative”.
5. Excess Insurer Required to Contribute to Costs of Defence
Re: St. Mary’s Cement Company Inc. and ACE INA Insurance  CanLii 32307
St. Mary’s Cement applied to the court for an interpretation of the insurance policy issued to it by ACE INA. St. Mary’s sought a declaration that ACE had a legal obligation to contribute to St. Mary’s defence costs in some 18 court actions arising from the supply of allegedly defective concrete which resulted in extensive property damage to residential premises and claimed damages in excess of $27 million.
Liberty International Underwriters Canada provided CGL primary policies to a limit of $4 million to St. Mary’s. The CGL policy included a duty to defend. ACE provided an umbrella liability policy to a limit of $25 million. ACE took the position that it should not be required to contribute to St. Mary’s defence costs.
The Court found that the absent a statutory obligation to defend (an none was suggested in this case) an insurer’s obligation, if any, to contribute to defence costs must be found within the terms of the policy. The court added that a duty to indemnify does not automatically impose a duty to defend. That duty is a separate duty from the duty to indemnify. The court further held that a where an excess insurer has a duty to defend as provided by the policy (as it did in this case by ACE) and is put at risk by the claim then the excess insurer should properly contribute to defence costs. That is, the possibility that an excess insurer will be required to indemnify the insured if the claim is successful may be suffice to trigger a duty to defend. It is not necessary to prove that an obligation to indemnify will in fact arise in order to trigger the duty to defend. The obligation will be determined prospectively by reference to the allegations made in the claim.
Where an excess insurance policy includes a duty to defend, the insurer may be called upon to provide that defence or to contribute to that defence before it is known whether the primary policy will be exhausted. The court stated:
If it can be said that St. Marys is plainly at risk to be within ACE’s coverage then the obligation to defend under ACE’s policy becomes concurrent to the obligation to defend under Liberty’s policy. That is, once it is established that that there is a realistic risk of St. Marys requiring the indemnity coverage afforded by the ACE policy, then the duty to defend coverage of the ACE policy ‘drops down’ to be the equivalent of primary coverage together with the primary coverage to defend of the Liberty policy. This qualifies the normative requirement that underlying coverages have to be exhausted before utilizing excess coverages. (It is emphasized that the indemnity coverage of ACE in respect of St. Marys’ liability for property damage remains excess coverage to the Liberty primary coverage to indemnify for liability in respect of property damage.)
The judge made an assessment “based upon the record before me as to whether there is a realistic chance that ACE’s policy obligation to indemnify would be reached by the claims against St. Marys. This includes a review of material which is properly sealed so as to remain confidential (as consented to by each of St. Marys, ACE and Liberty).”
The judge held that considering the evidence there was a plain and realistic risk to St. Mary’s that it may be liable for damages in excess of $4 million and there was a realistic chance that the policy of ACE would be called upon by St. Mary’s for indemnity in respect of the claims advanced in the underlying actions. The court recognized that the precise indemnity obligations of Liberty and ACE would not be clear until the determination of all the underlying actions. The court found that the equitable way of dividing costs on an interim basis was to apportion them equally between Liberty and ACE. This disposition was subject to re-allocation of defence costs following the trial(s) of the underlying claims and the resolution of the various policy coverage issues.
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