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Defendants presented as one party in an action may not be able to challenge an apportionment of responsibility

Two separate insurers insured two defendants in a tort action. The defendants’ were presented as one party in the tort action, and were represented by one counsel. No crossclaims were made. Following judgement, one insurer sought a declaration that the two defendants should bear equal responsibility for the tort judgments. The court held that by melding the positions of the two defendans, the insurers represented to the court that their liability was indivisible. By taking a passive role, the second insurer participated in and became a party to that representation. As such, it was no longer feasible to allocate liability between the two of them in a conventional manner and the only reasonable solution was to apportion responsibility for the negligence of the defendants equally.

Aviva Insurance Co. of Canada v. Lombard General Insurance Co. of Canada, [2012] O.J. No. 2454, June 1, 2012, Ontarior Superior Court of Justice, A.D. Grace J.

In January 1995, a fire swept through a Toronto apartment building causing injury and damage to several plaintiffs. Eight actions were brought against various defendants including the building’s owner and property manager. The building’s owner was insured by Lombard General Insurance Company of Canada ("Lombard") with both a primary and umbrella policy with monetary limits of $1 million and $9 million per occurrence respectively. The property manager was named as an additional insured on both Lombard policies. The property manager was also insured by Aviva Insurance Co. of Canada ("Aviva") to a limit of $5 million. Aviva’s policy did not include the owner.

Lombard, Aviva and their counsel discussed which policies would respond prior to the trial of the actions. Lombard acknowledged that its primary policy was the first to be utilized. Lombard retained counsel to defend the owner and property manager’s interest in the first tort action to be tried. Aviva did not retain counsel to represent the property manager separately in the action.

The first tort action was tried and the trial judge concluded that the owner and property manager, amongst other defendants, were liable (the "Tort Action"). Liability was not apportioned between the owner and property manager. They had not crossclaimed against one another. On appeal, the owner and property manager were found to be jointly and severally liable for approximately $3.8 million inclusive of interest and costs.

Lombard then sought a declaration that the Aviva policy was the next to respond for its insured, the property manager ("the Priority Proceeding"). Lombard obtained a favourable result. Aviva appealed. The Court of Appeal disposed of Aviva’s appeal in the Priority Proceeding holding that Aviva’s policy was to answer for the liability of the property manager and the Lombard insurance policy was to address the liability of the owner.

Plaintiff’s counsel in the Tort Action then prepared to enforce its judgments against the owner and property manager. The limits of Lombard’s primary policy had been fully utilized. Aviva responded paying approximately $2.5 million representing the balance owing to judgment creditors.

In the within action, Aviva sought a declaration that the owner and property manager should bear equal responsibility for the tort judgments. Aviva claimed to have overpaid by approximately $1 million and asked for judgment against Lombard in that amount.

Aviva made three arguments in this respect. The first was that Lombard should be liable because it failed to appoint separate counsel for the property manager. The court dismissed this argument stating that Aviva could have played a more active role and could have appointed separate counsel if they had so wished. Instead, they chose to maintain a watching brief for strategic reasons relating both to liability at trial and preservation of their argument that Lombard should satisfy the entire judgment.

Secondly, Aviva argued that the approach taken at trial tacitly acknowledged that all risks would be equally shared. The court dismissed this argument stating that it was clear from the evidence that Aviva always intended to argue that any liability for damages or costs in excess of Lombard’s primary policy would be covered by the Lombard umbrella policy. The court held that equal sharing was not a part of any agreement or understanding between Lombard and Aviva.

Finally, Aviva argued that s. 4 of the Negligence Act was triggered. The court rejected this argument stating that this could only be triggered if separate liability of the owner and property manager in tort was an issue during the trial and that evidence led with respect to their acts or omissions did not allow the court to differentiate between them. The court held that the process of allocation of fault between the owner and property manager was never engaged such that s. 4 of the Negligence Act was not in play.

The court relied on the Alberta Court of Appeal decision in Aetna Insurance Co. v. Canadian Surety Co. (1994), 114 DL.R. (4th) 577 (Alta. C.A.). In that case, a tractor and trailer operated by one driver was involved in a motor vehicle accident. Liability was imposed due to the operator’s negligence in the operation of the tractor-trailer as a unit. The Alberta court concluded that the only reasonable solution was to apportion the fault equally between the tractor insurer and trailer insurer. The court in Aviva v. Lombard held that the Aetna case was analogous to the one at bar. The court held that by melding the positions of the owner and property manager, Lombard represented to the court that their liability was indivisible. By taking a passive role, Aviva participated in and became a party to that representation. As such, it was no longer feasible to allocate liability between the two of them in a conventional manner and the only reasonable solution was to apportion responsibility for the negligence of the parties equally.

The court held that Aviva’s claim was also supportable on the principles of restitution. Tort judgment imposed joint and several liability on the owner and property manager. Aviva’s payment on behalf of its insured satisfied the tort judgment granted against the owner and property manager. Nothing was left for the owner, or Lombard, to pay. As between the owner and property manager, the owner was primarily liable to answer for one-half of the tort judgment. Aviva’s payments benefited Lombard. To the extent that Aviva paid more than the property manager’s proper share, the payments were to Aviva’s detriment. Furthermore, there was no juridical reason for Lombard to retain the benefit of payments Aviva made.

The court concluded that Aviva should have judgment against Lombard for the principal amount of approximately $1 million.

This case was digested by Katherine E. Tinmouth and edited by David W. Pilley of Harper Grey LLP.





An insured may not be able to claim for personal injuries caused by a co-insured

Application by an insured for declaration that her homeowner policy insurer was obligated to provide her a defence to counterclaims made by defendants against her in a personal injury action commenced by her to recover for injuries suffered by her son. The court held that there was no duty to defend as the policy excluded coverage for liablity for bodily injury occurring to the insured, which by definition included the applicant’s son.

Desormeaux v. Dominion of Canada General Insurance Co., [2012] O.J. No. 2433, May 30, 2012, Ontarior Superior Court of Justice, P.B. Annis J.

This was an application for declaration that The Dominion of Canada General Insurance Company ("Dominion") was obligated to provide the applicant with a defence to counterclaims advanced against her. Dominion denied any duty to defend because the facts alleged in the counterclaims did not fall within the coverage provided. The applicant, Ms. Desormeaux, held a Homeowner’s Policy of Insurance with Dominion. Ms. Desormeaux’s son was injured in his grandmother’s yard when another child allegedly threw something that struck his eye. The Desormeaux family commenced an action claiming damages arising from the bodily injury suffered by the son. The defendants filed counterclaims against Ms. Desormeaux for contribution and indemnity towards her son’s injuries. Dominion denied that it had any obligation to defend Ms. Desormeaux against the counterclaims because coverage was excluded for obligations to pay claims for bodily injury to the named insured, which includes children of the named insured.

The Homeowner’s Policy of Insurance provided at provision "Coverage E – Personal Liability": "We will pay on your behalf all sums you become liable to pay as compensation for loss because of bodily injury or property damage."

However, the exclusion section provided as follows: "This policy does not apply to…Under Coverage E(1) Personal Liability – Bodily injury to you, or any person residing in your household, other than residence employees."

Both parties acknowledged that the application of an exclusion clause depended on its wording. The court held that by referring specifically to "Coverage E(1) Personal Liability" the linkage between the exclusion provision and the coverage provision was clearly described. The court further found that in framing coverage based on "liability to pay as compensation for loss for bodily injury" the reference in the exception to "bodily injury" was sufficiently focused in the sense that it encompassed "claims arising from" bodily injury. The court concluded that the Dominion exclusion clause clearly indicated that the policy by which the insurer provided personal liability coverage for sums it would otherwise be liable to pay on behalf of the insured as compensation for loss because of bodily injury, would not apply to bodily injury occurring to the insured (which by extension of the definition "you" excluded Ms. Desormeaux’s son).

This case was digested by Katherine E. Tinmouth and edited by David W. Pilley of Harper Grey LLP.





Failure to disclose knowledge of a potential claim at the time of application may not exclude entitlement to insurance proceeds

The defendant insureds sought and were granted a declaration that their professional liability insurer was required to provide a defence in an action on the basis the insurer was not able to conclusively show that coverage would be excluded on the basis of the insureds’ knowledge of a potential claim at the time they applied for the insurance.

Sydie v. Murad, [2011] O.J. No. 5381, November 28, 2011, Ontario Superior Court of Justice, P. Lauwers J.

This was an application by the defendants in an action seeking a declaration their insurer under a professional liability insurance policy was required to defend them and that they were entitled to select counsel of their own choice for which the insurer was obligated to pay. In the main action, the plaintiffs sued the defendants alleging breach of contract and negligence in respect of a home inspection done by the defendants in May 2007 on a home subsequently purchased by the plaintiffs. The plaintiffs became aware of a rodent infestation after they moved into the home and contacted the defendants regarding the situation in July 2007. In September 2007 the defendants obtained the professional liability insurance policy. In November 2007 the plaintiffs began the main action and the defendants sought coverage under the policy. The insurer denied coverage, claiming the defendants made a material misrepresentation at the time of application for the insurance. In the alternative, the insurer denied coverage of the basis of an exclusion in the policy which excluded coverage for any claim arising out of any act, error, or omission prior to the inception date of the policy and which the insureds knew or could reasonably have foreseen might be expected to be the basis of a claim.

The court reviewed the jurisprudence on the issue of the duty to defend, which establishes that there will be a duty to defend when there is a mere possibility that a claim within the policy may succeed. Because the threshold for the duty to defend is just the possibility of coverage, the burden is on the insurer to show that an exclusion clearly and unambiguously excludes coverage. The test for whether an insured has knowledge of an event or circumstance that could result in a claim is objective.

The insurer argued that the defendant insureds were aware of a potential claim as soon as they were contacted by the plaintiffs advising of the rodent infestation and asserting the defendants had misled them on the home inspection report. The defendants argued that the content of the inspection report and limitation clauses incorporated in the report were exculpatory and on that basis the defendants did not believe they faced a professional negligence claim from the plaintiffs. The evidence on what was communicated between the plaintiffs and the defendants was conflicting and were issues of fact that should be determined at trial. In the circumstances, the motions judge was unable to determine conclusively that the insurer did not owe the defendants a duty to defend. In the result, the insurer was ordered to proceed with the defence, without prejudice to its right to re-argue the issue later.

With respect to the defendants’ application that they be entitled to choose their own defence counsel, to be paid for by the insurer, the court noted that in cases where there is an active and ongoing coverage dispute, the insured might reasonably perceive that defence counsel’s loyalty lies with the insurer and this might undermine the confidential relationship that should exist between counsel and client. The motions judge held that the prudent approach in this case was to avoid both the perception and the actuality of a conflict of interest by permitting the defendants to retain their own counsel, with the insurer being obligated to pay reasonable fees, disbursements, and taxes.

This case was digested by Emily M. Williamson and edited by David W. Pilley of Harper Grey LLP.





The Nova Scotia Health Services Act permits the government to pursue nursing home care costs from injuries arising from an MVA

The Nova Scotia Court of Appeal upheld a decision finding that the provisions of the Nova Scotia Health Services and Insurance Act permit the government to pursue nursing home care costs from injuries arising from a motor vehicle action by way of subrogated action.

Slauenwhite v. Keizer, [2012] N.S.J. No. 89, February 23, 2012, Nova Scotia Court of Appeal, J.W.S. Saunders, L.L. Oland and M.J. Hamilton JJ.A.

This was an appeal from a trial decision interpreting the provisions of the Nova Scotia Health Services and Insurance Act, 1989, R.S.N.S. c. 197 (the “Act”) as to whether the province had a right of subrogation to claim against a person insured by a third party liability insurance policy for the costs of nursing home care that arose from injuries resulting from a motor vehicle accident. Pursuant to the provisions of the Act, the province recovered its costs for health care services for injuries arising from a motor vehicle accident by way of an annual levy on motor vehicle insurers. The cost of nursing home care was not included in the definition of health care services that were recoverable under the levy and the issue was whether the province retained a subrogated right to collect those costs. At issue were ss. 18(3) and (10) of the Act which provided as follows:

(3) Her Majesty in right of the Province shall be subrogated to the rights of a person under this Section to recover any sum paid by the Minister for insured hospital services, benefits under the Insured Prescription Drug Plan, ambulance services to which the Province has made payment or insured professional services provided to that person, and an action may be maintained by Her Majesty, either in Her own name or in the name of that person, for the recovery of such sum.

(10) This Section applies except where personal injury has occurred as the result of a motor vehicle accident in which the person whose act or omission resulted in the personal injury is insured by a policy of third-party liability insurance on or after the date this subsection comes into force.

The majority of the Nova Scotia Court of Appeal upheld the trial judgment that the province did retain its subrogated right to collect the cost of nursing home care in cases where the injury was caused by a motor vehicle accident in spite of the apparent contradiction between ss. 18(3) and (10). The Court noted that it was reasonable to infer that the exception provided for in s. 18(10) was limited to the health services covered by the levy, which did not include nursing home care costs.

In dissent it was held that the province did not have a subrogated right under the Act to collect the cost of nursing home care costs from injuries sustained in motor vehicle accidents. The dissenting judge held that the legislative history indicated that the Legislature had not intended the province to be able to recover nursing home care costs in these circumstances, and if they had so intended, this could have been achieved by amendments at the same time as the Act was changed to allow for nursing home care costs under s. 18(3) but was not done.

In the result, the appeal was denied and it was confirmed by the majority for the Court of Appeal that the province has a subrogated right to collect nursing home care costs for injuries sustained in motor vehicle accidents.

This case was digested by Emily M. Williamson and edited by David W. Pilley of Harper Grey LLP.





An insured assaulted in a parking lot and placed in the trunk of his car may be entitled to benefits under his automobile insruance policy

The plaintiff was successful in arguing that injuries sustained during an assault in which the assailants made use of his vehicle were injuries that arose directly from the use or operation of the vehicle.

Martin v. 2064324 Ontario Inc., [2011] O.J. No. 5471, December 5, 2011, Ontario Superior Court of Justice, D.K. Gray J.

The plaintiff was assaulted and injured by two unknown assailants. In the course of the assault, the assailants made use of the plaintiff’s vehicle. The plaintiff brought an action against multiple defendants, including his own insurer under the unidentified motorist provisions of his policy and he also brought a claim for statutory accident benefits. The insurer brought a motion for summary judgment on the basis the plaintiff’s injuries did not arise from the use or operation of the automobile, but rather, the assault.

The plaintiff was assaulted when he was loading his vehicle in a parking lot. The assailants first forced him into the trunk of his vehicle, but then forced him into the front seat to assist in shifting the gears of the car. They drove to another parking lot and the plaintiff was pulled from the car and the assault continued. The vehicle was driven over the plaintiff’s foot; whether this was accidental or deliberate was not clear. The assailants then drove off in the vehicle and it was later found abandoned nearby.

In order to be eligible for statutory accident benefits the plaintiff had to be able to show the injuries arose directly out of the use or operation of the motor vehicle. For a claim under the unidentified motorist provisions it had to be shown the injuries arose directly or indirectly from the use or operation of a motor vehicle. The test for statutory accident benefits was considered first by the court as it was the more strict of the two.

In Amos v. ICBC, [1995] 3 S.C.R. 405, the Supreme Court of Canada established a two-part test to determine whether an injury arises out of the use or operation of an automobile. The first part, the “purpose test”, asked:

1.         Did the accident result from the ordinary and well-known activities to which automobiles are put?

In this case the insurer conceded that the “purpose test” had been met.

The second part of the test addresses the issue of causation. Following Amos the wording of the statutory accident benefit provisions in Ontario was amended and subsequent caselaw established a narrower “causation test” applicable to statutory accident benefits in that province as follows:

2.         Is there a direct or proximate relationship between the plaintiff’s injuries and the ownership, use or operation of his vehicle or is the connection between the injuries and the ownership, use or operation of the vehicle, indirect or merely incidental or fortuitous?

The court concluded that the injuries caused to the plaintiff in this case were directly connected to the use and operation of his vehicle. He was forced to assist one of the assailants in driving the car while the assaults were being committed; the car was driven to another parking lot where the assaults were continued; and the car was directly used to commit one of the assaults, namely, driving over his foot. As a result of this conclusion regarding the statutory accident benefits claim, there was no doubt that the plaintiff’s claim under the unidentified motorist provision could also be maintained. In the result, the court held the plaintiff’s injuries had occurred as a result of an “accident” as defined in statutory accident benefits provisions, and arose directly or indirectly from the use of operation of his automobile.

This case was digested by Emily M. Williamson and edited by David W. Pilley of Harper Grey LLP.





Relatives living in a separate and distinct household may not be entitled to fire insurance from the non resident house

An application seeking a declaration that the defendant was an unnamed insured under the policy was dismissed when it was shown that the defendant, who was a relative of the insureds, maintained a separate and distinct household from the insureds.

Jomaa v. Jomaa, [2011] O.J. No. 5468, December 2, 2011, Ontario Superior Court of Justice, D.J. Power J.

This was a case in which the plaintiff’s insurer brought a subrogated action in relation to extensive fire and water damage caused to a two-unit residential property owned by the plaintiff insureds. The named insureds were Mohamad Jomaa, Mohamad’s wife, Monira Jomaa-Kayhan, and Samir Olleik, who had formerly been married to Mohamad’s sister, Rima. The defendant was Mohamad and Rima’s brother, Issam Jomaa. This was an application by Issam seeking a declaration that he was an unnamed insured under the plaintiffs’ insurance policy and, therefore, could not be named as a defendant in the action. At issue was whether Issam was “living in the same household” as any of the plaintiffs at the time of the loss so as to bring him within the definition of “Insured” under the policy.

The policy provided as follows:

‘INSURED’ means the person(s) named as Insured on the ‘Declaration Page’ and, while living in the same household:

(a) his or her spouse;

(b)   the relatives of either; and

(c)   any person under twenty-one (21) in their care.

The policy did not define the term “while living in the same household.”

The property at issue consisted of two self-contained apartments in one building. When the plaintiffs initially purchased the property, Samir lived in the lower apartment with his then wife and Mohamad and Monira lived in the upper apartment. Later on, Mohamad and Monira moved out and Issam moved into the upper apartment to look after Mohamad and Issam’s mother, who later passed away. At the time of the fire, Issam lived in the apartment with his wife and child and did not share household obligations with any of the named insureds. At no time did Issam pay rent for living in the apartment. The evidence was unclear whether Samir was living in the lower apartment at the time of the fire.

The case authority on the issue established that the word “household” must be given a flexible meaning but could be defined as “… a collective group living in a home, acknowledging the authority of a head, the members of which, with few exceptions, are bound by marriage, blood, affinity or other bond, between whom there is an intimacy and by whom there is felt a concern with and an interest in the life of all that gives it a unity.” The motions judge found no basis upon which to conclude the defendant was an unnamed Insured. In the result, the plaintiffs were entitled to a declaration that they could continue with the action against the defendant, as he was not an unnamed insured under the policy.

 

This case was digested by Emily M. Williamson and edited by David W. Pilley of Harper Grey LLP.