Newsletter > October 2010
In this issue: 1. Firm and Industry News 2. Muscott 2.0 – Van Breda Test Applied 3. Insurance Broker Found Negligent in Providing Services to Client – Client also Contributory Negligent
1. Firm and Industry News
- November 30th, 2010 Toronto: CBMU Annual Conference and Dinner
- December 3rd, 2010 Montreal: Grunt Club Annual Dinner
- January 20th 2011 Toronto: Fernandes Hearn Annual Seminar [By Invitation Only] [revised date]
- January 21st 2011 Toronto: CMLA Meeting [revised date]
- January 21st 2011 Toronto: Marine Club Annual Dinner [revised date]
- May 11-14 Las Vegas: Transportation Lawyers Assoc. Annual Meeting
- May 25-26 2011 Collingwood: CBMU Semi-Annual Dinner
- June 3rd 2011 Quebec City: CMLA Annual Meeting
2. Muscott 2.0 – Van Breda Test Applied
In its recently released decision in Dilkas v. Red Seal Tours Inc. (Sunwing Vacations), 2010 ONCA 634, the Ontario Court of Appeal applied the “real and substantial connection” test to determine whether Ontario courts should assume jurisdiction over out-of-province defendants as it was recently clarified by the Ontario Court of Appeal in Van Breda v. Village Resorts Limited (Van Breda), 2010 ONCA 84 (hereafter “Van Breda”).
Best Day Tours is a bus transportation company that operates exclusively in Mexico. It had a contract with Sunwing, a company headquartered in Toronto, to provide transport between a Cancun resort and the Cancun airport for Sunwing tour guests. The plaintiffs in the two actions were on a Sunwing tour package from Ontario. On the way from the resort to the airport for the flight home, the bus was involved a single-vehicle accident. As a result, the traveling plaintiffs suffered serious injuries. The accident was investigated by local police in Mexico, who reported that it was caused solely by the negligence of the bus driver.
Lower Court Decision
The plaintiffs brought an action in Ontario for damages against Sunwing and Best Day. Sunwing cross-claimed against Best Day for contribution and indemnity, based primarily on an indemnification agreement the two parties signed following the accident in order to deal with claims arising out of the incident. Best Day challenged the jurisdiction of the Ontario court and the convenience of the Ontario forum. Ultimately dismissing the motion, the judge applied the former Muscutt v. Courcelles (2002), 60 O.R. (3d) 20 (C.A.) analysis to address the issues of jurisdiction and forum conveniens.
Applying the eight Muscutt factors as they stood prior to their clarification in Van Breda, to determine jurisdiction, Justice Bellamy concluded that there was a real and substantial connection between Ontario and the plaintiffs’ claims. Her Honour found a strong connection existed between the plaintiffs’ claims and Ontario based on the connections of the plaintiffs and their witnesses to Ontario as well as the presumed expectation of Best Day from transporting Ontario visitors. Further, the Ground Transportation Agreement between Best Day and Sunwing was governed by Ontario law.
While there was some unfairness to the Mexican defendant to have to defend in Ontario, there would be significant unfairness to the plaintiffs if the claims had to be commenced in Mexico, including the juridical impediment of an expired limitation period and the fact that most of the witnesses were located in Ontario. Only two factors militated against finding a real and substantial connection: first, assuming jurisdiction in Ontario was more difficult to justify because it was an international case and, second, enforcement in Mexico would be difficult. Considering all the factors together, Justice Bellamy concluded that there was a real and substantial connection that warranted the assumption of jurisdiction by the Ontario court.
Turning to the question of forum conveniens, the Justice Bellamy recognized several factors that were either neutral or tilted in favour of Mexico as the convenient forum. Her Honour found that all the factors she considered on the jurisdiction al question supported the conclusion that Ontario was the convenient forum for hearing the actions, and on that basis, she declined to order a stay.
Court of Appeal Decision
Following the above-described motion decision, the Court of Appeal released its decision in Van Breda, which reconsidered and revised the Muscutt test. In light of the updated jurisprudence, this appeal was argued based on the law as now set out in Van Breda. The main issues were whether the motion judge erred in concluding that Ontario should assume jurisdiction over the claim and, if not, whether the motion judge erred in concluding that Ontario was the convenient forum.
i. Jurisdiction Simpliciter
Applying the revised Van Breda analysis, the court first turned to the issue as to whether there was presumed jurisdiction because of the application of rule 17.02 (other than ss. (h) and (o)) of the Rules of Civil Procedure, which governs service out of the jurisdiction. Finding that none of the subsections applied to Best Day, the focus of the jurisdiction analysis shifted to the key connecting factor identified in Van Breda: the connection of the claims and of the defendants to Ontario.
Observing that the appeal involved international travel on a tour package by Ontario residents, the court found the case at bar to be factually reminiscent of two of the cases that were decided concurrently with Muscutt: Leufkens v. Alba Tours International Inc. (2002), 60 O.R. 84 (C.A.) and Lemmex and Bernard (2002), 60 O.R. (3d) 53 (C.A.). As the court concluded in both of those cases that Ontario should not assume jurisdiction, the court focused its analysis on the identification of any relevant factors in the appeal that might distinguish it from Leufkens and Lemmex.
In Leufkens, the Ontario plaintiffs purchased a vacation package to Costa Rica from an Ontario company that, in turn, contracted with a Costa Rican company, Swiss Travel, to provide the tour services locally. One of the plaintiffs was injured on a tree-top zip line excursion that they had purchased from the Costa Rican company. The court concluded that there was an insufficient connection between the jurisdiction and the defendant on the basis that it was not reasonably foreseeable that the services provided would cause an injury in Ontario.
In Lemmex, the Ontario plaintiffs purchased a cruise package from Sunlight, a Canadian company that contracted with Premier, an American company, to provide the cruise. Onboard the ship, the passengers were offered various shore excursions. The plaintiffs chose a trip to Grenada, which was provided by a Grenadian company. During the excursion, one of the plaintiffs was injured in a taxi. The court found that the connection between the claim and defendants with Ontario was not sufficiently real and substantial for Ontario to assume jurisdiction on the basis that it would be unfair for a tourist’s home forum to assume jurisdiction based only on the foreseeablity that the tourist might be injured in a taxi.
The Court found three key differences between the subject proceeding and Leufkens and Lemmex. At paragraphs 19 and 20, the court states:
There are three key differences. First, the vacation packages-which explicitly included ground transportation services-were purchased in Ontario. Second, Best Day’s Ground Transportation Agreement with Sunwing was agreed to be governed by Ontario law. This can be contrasted with the situation in Leufkens, where the agreement between the Ontario tour operator and the Costa Rican Swiss Travel company was made in Costa Rica and had no Ontario aspect.
Finally, and most significantly, Best Day entered into indemnity agreements with Sunwing and AutoTur following the accident. Both agreements were made in respect of any lawsuit that might be brought in Ontario by one of the tourists who was injured in the bus accident, the very type of lawsuit that was brought by the plaintiffs in these two cases. In the agreement with Sunwing, Best Day agreed that if Sunwing were to be sued as a result of the accident, that Best Day would indemnify Sunwing and save it harmless including in respect of costs claimed and its own solicitor’s costs. Best Day also agreed that in interpreting the indemnity agreement, Ontario courts would have exclusive jurisdiction and that Ontario law would apply.
In its consideration whether the distinguishing factors were sufficient to cause the court to conclude that Ontario ought to assume jurisdiction, the court attributed significant weight to the fact that Best Day voluntarily entered into indemnity agreements with Sunwing and with the local bus provider, AutoTur. In doing so, Best Day expected and contemplated that they would be litigated in Ontario. These factors established a real and substantial connection between the plaintiff’s claims, Best day, and the Ontario forum.
The Court concluded its jurisdictional analysis by drawing attention to the reformulated and holistic nature of the analysis after Van Breda at paragraph 24 of the decision:
Van Breda instructs that other considerations in the jurisdiction simpliciter analysis are no longer to be treated as independent factors, but rather as principles that bear upon the analysis, including the fairness to each party of assuming or refusing to assume jurisdiction, the involvement of other parties in the action, the willingness to recognize and enforce an extra-provincial judgment with similar jurisdictional connections to the forum, comity, and the standards of enforcement in the other jurisdiction.
Finding that the motion judge did not err in her conclusion that the balance favours Ontario assuming jurisdiction, the Court proceeded to consider forum conveniens.
ii. Forum Conveniens
Seeing no error in the conclusion reached by the motion judge that Mexico was not a more convenient forum, the Court of Appeal declined to interfere with her determination. The Court did note that the motion judge had considered the location and convenience of witnesses under her consideration of jurisdiction simpliciter, which was inappropriate and should have been correctly considered under the forum conveniens analysis. Addressing the appellant’s reliance on the fact that all the liability witnesses are in Mexico, the Court stated that, as the motion judge pointed out, the major issue in these cases will be the extent and qualification of damages. In light of this, the fact that the plaintiffs had 49 potential medical-service witnesses as well as “Loss of Income and Collateral Benefits” witnesses in Ontario weighted this factor in favour of the plaintiffs.
Viewing this decision as an example of how courts can be expected to treat the issue of jurisdiction after Van Breda, it appears that the Ontario Court of Appeal has fully embraced the principled, holistic approach to the determination of jurisdiction simpliciter endorsed in Van Breda. Gone by the wayside is the quasi-mathematical (and invariably somewhat-arbitrary) weighing of Muscutt factors against one another and, instead, the factors now are to be considered together under the rubric of the court’s overarching “gut feeling” towards assuming jurisdiction, as based on the available facts.
Further, with regard to the potential risk-exposure of Canadian companies engaged in the foreign tourism industry, this decision illustrates the significance given to choice of law terms designating the exclusive jurisdiction of Ontario and, as such, Canadian companies engaging in business with foreign tourism-providers should draft all agreements to include terms to this effect in order to minimize the likelihood that a Canadian company might end up defending an action in a foreign court.
For a summary of the decision in Van Breda, see Rui Fernandes’ article “Muscutt Test Clarified – Jurisdiction for Out of Province Defendants” in the January 2010 Fernandes Hearn LLP Newsletter.
3. Insurance Broker Found Negligent in Providing Services to Client – Client also Contributory Negligent
In this unusual decision of the Justice Whitten of the Ontario Superior Court of Justice, CIA Inspection Inc. v. Dan Lawrie Insurance Brokers, 2010 ONSC 3639, the claimant CIA Inspection Inc. (“CIA”) claimed that its insurance broker was negligent and breached its contract with it, by allowing a gap in coverage, resulting in significant damages.
CIA operated a global business inspecting oil refinery coke drums. The claim arose out of the loss of one of CIA’s two sensors, a piece of expensive equipment used in the inspection process. The loss occurred when a drill stem operator accidentally caused the sensor to fall 150 feet to the bottom of the coke drum at a a refinery in Venezuela.
Following the loss, CIA made a claim through its broker to its insurer, Lloyd’s of London. The claim was denied because the insurer’s position was that the policy was for cargo coverage and only covered the sensor when in transit. The policy excluded risks while the sensor was on the job site. Thus, the situation in which this loss had occurred was not covered.
Justice Whitten reviewed the applicable law applicable to the duties of an insurance broker, and in particular to determine if the broker was negligent, breached its contractual duty and its fiduciary duty to CIA.
The court reviewed the origins of the duty of care. Such a duty, it noted, lies in common law and specifically in the famous decision of the House of Lords in Hedley Bryne and Co. v. Heller and Parners Ltd. , A.C. 465 where Lord Morris-Borth-y-Gest stated at page 594:
(1)”If someone possessed of a specific skill undertakes, quite irrespective of a contract to apply that skill to the assistance of another person who relies upon the skill, a duty of skill will arise…(2) if in a sphere in which a person is so placed that others would reasonably rely upon his judgment or his skill or upon his ability to make careful inquiry, a person takes it upon himself to give information or advice to, or allow his information to be passed on to another person who as he knows or should know will place reliance on it, the duty of care will arise”.
The court then reviewed the seminal decision in Canada as to the duties of insurance brokers, Fine Flowers Ltd. et al v. General Accident Assurance Company of Canada et al 17 O.R. (2d) 59. Justice Wilson, for the Court of Appeal, had reflected upon the experience of the parties and the nature of the relationship which existed between the client and the broker, to ascertain the need and reliance that the former placed on the latter. She stated:
Two possible scenarios were posited. In one scenario, the client did not give specific instructions to the agent but seeks to have full protection…(t)his requires (the agent) to inform himself about his client’s business in order to assess the foreseeable risks and to insure his client against them….an agent who does not have the requisite skills to understand the nature of his client’s business and assess the risks that should be insured against, should not be offering this kind of service.
Justice Wilson noted that in the second scenario the client approaches the agent with a particular request. Justice Wilson noted that agents are not insurers and stated:
“It is not part of their duty to know everything about the clients business so as to be in a position to anticipate every conceivable form of loss to which they may be subject. The agent’s duty…is to exercise a reasonable degree of skill and care to obtain policies in the terms bargained for and to service these policies as the circumstances might require.”
Justice Wilson added:
“the agent also has a duty to advise his principal if he is unable to obtain the policies bargained for so that his principal may take such further steps to protect himself as he deems desirable”
Justice Wilson was elevated from the Ontario Court of Appeal to the Supreme Court of Canada. In the decision of Fletcher v. Manitoba Public Insurance Co.  3 S.C.R. 191, sitting as a justice of the Supreme Court of Canada, she reiterated what had been established in Fine Flowers and added that insurance agents are more than “mere sales people”. She stated:
“In my view, it is entirely appropriate to hold private insurance agents and brokers to a stringent duty to provide both information and advice to their customers. They are after all, licensed professionals who specialize in helping clients with risk assessment and in tailoring insurance policies to fit the particular needs of their customers. Their service is highly personalized, concentrating on the specific circumstances of each client. Subtle differences in the forms of coverage are frequently difficult for the average person to understand. Agents and brokers are trained to understand these differences and to provide individualized insurance advice. It is both reasonable and appropriate to impose upon them a duty not only to convey information but also to provide counsel and advice”
Justice Whitten, in this CIA decision, then commented on the issue of causation. Assuming that the broker was negligent due to a failure to advise or communicate to CIA of the gap in coverage due to an inability to obtain the coverage specifically requested, the claimant still had to prove on the balance of probabilities that it suffered damages as a result of the breach. There must be established a causal link between the breach and the damage experienced. The test used is the “but for” test. The claimant has to show that the injury would not occur but for the negligence of the defendant. The court noted that this test does not require that the defendant’s negligence be the only condition to cause the injury. If another cause was attributable to the claimant, then the possibility of contributory negligence would have to be considered. The court summed up the situation as follows:
“Accordingly, given the negligence alleged in this action, namely, the failure to communicate a gap in coverage, the plaintiff would have to establish; 1) that the requested policy would have covered the loss that occurred (i.e. the destruction of the inspection unit on site) and 2) that had CIA known it was indeed not covered for such a loss it would have sought other coverage or modified its business to reduce exposure to the uninsured risk.”
The court noted that the relationship between client and agent/broker is not without responsibility on the part of the client. The client cannot ignore or not read the documentation provided by the agent/broker. A failure to satisfy this duty to read a policy or documentation, especially given a caution to do just that in what is received from the broker, is tantamount to contributory negligence on the part of the client. In the absence of a communication from the client as to a difficulty in comprehension, it is not necessary that the agent read to the client every clause of the policy.
In addition, the court noted, a failure of a client to keep himself informed concerning his insurance coverage over a period of time could be found to constitute a failure on his part to exercise reasonable care to act prudently in the management of his affairs, and as such be viewed as contributory negligence necessitating a share of the responsibility for the loss.
Justice Whitten reviewed the business of CIA and its history of dealing with its prior insurance broker and with DLIB. It was clear to the court that CIA had provided information to DLIB on its insurance needs and that it was looking for insurance far more in excess of transit insurance. What is interesting about the description of the relationship and dealings between CIA and DLIB is that both sides failed to make notes or send emails confirming their discussions and there were many individuals on both sides dealing with insurance. It was not a situation of one person at CIA dealing with one person at DLIB. Thus the risk of a gap was increased, given the complexities and worldwide nature of CIA’s business. It was also clear DLIB failed on a number of occasions to provide CIA with policy wordings on a timely basis.
Justice Whitten then noted that DLIB sent a letter to CIA.
The letter of July 18, 2003 refers to renewal of the “Ocean Cargo policy”. The Cover Note dated May 13, 2003 refers to the policy as a Cargo Open Policy. The cover note specifies that it is for “voyages to and from job sites by air”. A number of destinations are set out and then it states “excluding risks whilst there”.
Clark testified that when he read the letter and the Cover Note, he thought it represented a subset of the coverage that he had asked for. Despite this subset comment, Clark never asked about the rest of the coverage, he assumed that he was covered and that his broker had obtained for him the coverage he requested.
However the court also noted that:
There is a credibility issue between Clark and the employees of DLIB as to whether or not it was brought home to him that he did not have property coverage for the sensors on site. Mr. Clark’s overarching belief that he had coverage out there was in a way bolstered by the comments of DLIB staff and the confusion amongst the staff as to exactly what the coverage was. This confusion was from the top of the organization down. …
Although six DLIB personnel were ultimately involved in this file, there is no evidence of a co-ordinated response. No one individual was designated as the point person, a co-ordinator to get to the bottom of whether there was broad form property coverage or not. One would have thought that given the potential payout of $297,500, the importance of the sensor to CIA, and the potential for an errors and omissions claim against DLIB, that Dan Lawrie himself or one of his brokers would directly focus their attention on this issue. That was what the client had paid a premium for them to do. The premium was accepted and was never refunded, despite the doubt as to the coverage.
The court dealt with the contributory negligence of CIA. The court was influenced by the fact the central individual at CIA, Mr. Rick Clark, was intelligent and successful. The court noted:
Mr. Clark is an intelligent individual who with his partners and by himself created a sensor that addressed a niche need in the oil refinery industry. He has managed to nurse CIA along after a significant financial loss, namely, the loss of a sensor. Having said that, he was reckless in not pursuing clarification from DLIB when he was receiving the cover notes he received with the wording to the effect the cargo policy did not provide for onsite coverage. It has been found and observed that there was confusion on what DLIB conveyed to him and how the employees behaved; however, he should not have been satisfied with the state of affairs .
Given his particular business acumen, one would have thought especially since the sensors were so costly to construct, that he would have pressed harder for answers in the year and a half before the loss. He should have been more proactive. Granted he was not aided by a particular reference to a policy; however, it cannot be said that he acted prudently in the management of his affairs. Mr. Clark was contributorily negligent in so far as the damages so found.
The court held that DLIB did breach its duty as an insurance broker and that Mr. Clark was contributorily negligent. The court apportioned the degree of Mr. Clark’s fault at 33 1/3 %. This is one of the few cases where an insured has been held at fault for such a large percentage for contributory negligence. A most unusual decision.
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