Court Of Appeal Summaries (October 19, 2015 – October 23, 2015)

A number civil decisions were released by the Court of Appeal this week. Topics covered included insurance coverage for malicious prosecution claims, the Statute of Frauds, costs in a bankruptcy matter, the revival of a claim that was dismissed for delay because the counterclaim was still proceeding and related to the same facts and evidence, and the interpretation of the Ontario Fault Determination Rules with regard to a chain reaction pile-up accident. Additionally, there were numerous child protection, immigration and criminal decisions.

Here's to hoping that the Jays can pull off two more wins and continue this great ride! For everyone who will be watching tonight, enjoy the game, and Go Jays!

Civil Cases

Ontario Society for the Prevention of Cruelty to Animals v. Sovereign General Insurance Company, 2015 ONCA 702

[Epstein, Pepall and Benotto JJ.A]

Counsel:

R. V. Andal, for the appellant B. Shiller and A. Chaisson, for the respondent

Keywords: Insurance Law, Commercial General Liability Policy, Coverage, Duty to Defend, Malicious Prosecution, Standard of Review, Policy Interpretation, Exclusion Clause, Sattva Capital Corp. v. Creston Moly Corp., Fortuity Principle, Appeal Dismissed

Facts:

This appeal concerned an insurer's duty to defend under commercial general liability ("CGL") insurance policies.

The respondent, Ontario Society for the Prevention of Cruelty to Animals ("OSPCA") was insured by Sovereign General Insurance Company ("Sovereign"). In three separate actions, Paul St. Amand ("St. Amand"), Dr. Stephen Sheridan ("Sheridan"), and Trevor Smith ("Smith") sued OSPCA. OSPCA then sought coverage from Sovereign, who refused to defend the actions. OSPCA had contracts of insurance with both Sovereign and Travelers Insurance. Travelers initially defended the three actions, but later took the position that Sovereign should contribute half of the defence costs. OSPCA commenced an application seeking a declaration that Sovereign was required to defend each action. Sovereign conceded that the claims for malicious prosecution, false arrest, false imprisonment, and slander were encompassed by the insurance policies, but defended and relied on exclusion clauses and on the application of the fortuity principle.

With one exception, the application judge disagreed with Sovereign's position and ordered it to defend the actions. Sovereign then appealed that order.

Issues:

(1) Did the application judge err in concluding that the exclusion clauses contained in the insurance policies were inapplicable?

(2) Did the application judge err in concluding that the fortuity principle was inapplicable?

Holding: The answer to both questions was "No". Appeal Dismissed.

Reasoning:

The application judge correctly concluded that neither the exclusion provisions at issue nor the fortuity principle was applicable. Moreover, her findings of mixed fact and law were entitled to deference. When interpreting insurance policies, the language of the policy is the most important factor in determining whether coverage is granted or excluded. In addition to the language of the policy, courts should also take into account general principles of insurance law. The Court thus did not interfere with the application judge's conclusion that Sovereign had a duty to defend all three actions.

(i) St. Amand Claim

With respect to the fortuity principle, the application judge was correct in concluding that it did not operate to preclude coverage. The fortuity principle serves as an interpretive aid. It is a "general principle of insurance law that arises from the very nature and purpose of insurance, namely, that ordinarily only fortuitous or contingent losses are covered by a liability policy". The principle is based on the notion that insurance makes economic sense where losses are unforeseen or accidental and that it would be undesirable to encourage people to injure others intentionally by indemnifying them for the civil consequences. The policy at issue expressly covered offences such as malicious prosecution. Moreover, the application judge's interpretation of the contract in light of the fortuity principle and its application to the pleadings amounted to mixed findings of fact and law and, in the absence of any palpable and overriding error, deference was owed.

(ii) Sheridan Claim

The application judge did not err in her conclusion that Sovereign had a duty to defend the Sheridan claim. In addressing the claims of false arrest and malicious prosecution, the application judge correctly concluded that exceeding the scope of a search warrant is not an offence or violation of the Criminal Code. As such, the exclusion provision was not triggered. As for Sheridan's slander claim, the application judge correctly construed Sheridan's statement of claim, which was clearly based on words spoken about him and not on published materials.

(iii) Smith Claim

The application judge correctly held that the allegations in the statement of claim amounted to a claim of malicious prosecution and that there was express coverage for malicious prosecution in the policy. It was not evident from the pleadings that there was any allegation of a violation of rights respecting any of the claims at issue. Moreover, the fortuity principle and the language of the policy at issue did not operate to exclude coverage for Smith's claim. This result was supported by the general principle that coverage provisions are to be construed broadly and exclusion clauses narrowly.

D.L.G. & Associates Ltd. v. Minto Properties Inc., 2015 ONCA 705

[Doherty, Lauwers and HuscroftJJ.A.]

Counsel:

S. Laubman and C. Muir, for the appellant A. Grant and A. Caverson, for the respondent

Keywords: Contracts, Commercial Leases, Covenant to Insure, Torts, Fraudulent Misrepresentation, Negligent Misrepresentation, Acquiescence, Waiver, Equitable and Promissory Estoppel, Exclusion Clauses, Tercon Contractors Ltd. v. British Columbia (Minister of Transportation and Highways), 2010 SCC 4., Rules of Civil Procedure, Rule 21, No Reasonable Cause of Action

Facts:

The motion judge properly took the facts as pleaded by the appellant as true for the purposes of the motion. The respondent, Minto Properties Inc. ("Minto") owned a property of which the appellants, D.L.G. & Associates Ltd. ("D.L.G.") agreed to lease a part, for a restaurant business. Within a few months of opening the restaurant, a sewer back-up caused the restaurant to be closed for extensive repairs.

D.L.G. recovered under its insurance policy; however, D.L.G.'s insurer removed the sewer back-up coverage from D.L.G.'s insurance policy going forward. D.L.G. notified Minto of the cancellation and at no time did Minto require D.L.G. to obtain new coverage. Minto undertook to D.L.G. to repair and maintain the plumbing system, which unknown to D.L.G. at the time, it never actually did.

D.L.G, and Minto entered into a "Lease Amending Agreement" ("Amended Agreement") that reduced the rent while necessary repairs were being made. It also provided that D.L.G. would release Minto from any "claim actions, causes of action, claims and demands, for damages, restitution, compensation, proprietary interests, loss of injury, howsoever arising" by D.L.G. prior to the date of the Amending Agreement. A second sewer back-up occurred and the restaurant closed permanently.

D.L.G. informed Minto that it was in breach of the lease and purported to terminate the lease for failing to takes steps to fix the plumbing after the first backup. Minto in turn declared that D.L.G. was in breach of the lease for non-payment of rent and purported to terminate the lease. D.L.G. began an action claiming damages for fraudulent and negligent misrepresentation, breach of the terms of the lease and negligence. Minto denied liability and counterclaimed for back rent.

Minto brought a Rule 21 motion to strike all of the claims as disclosing no reasonable cause of action. The motion judge held that the fraudulent misrepresentation claim and effect of the Leasing Amending Agreement on that claim should be determined at trial, butstruck out the other claims.

The motion judge held that it was plain and obvious that the covenant to insure, in the lease, prohibited D.L.G.'s claims for breach of contract, negligence and negligent misrepresentation and that Minto did not waive the covenant by acknowledging that D.L.G.'s insurer had terminated the insurance after the first incident. The motion judge also determined that it was plain and obvious that the enforceability of the covenant to insure was not negated by the principles established in Tercon Contractors Ltd. v. British Columbia (Minister of Transportation and Highways), 2010 SCC 4.

Issues:

(1) Is a trial necessary to properly interpret the covenant to insure in the context of the entire agreement?

(2) Is the covenant to insure an exclusion clause and thus unenforceable under the principles set out in Tercon?

(3) Did the motion judge err in striking the negligent misrepresentation claim?

(4) Did the motion judge err in determining that neither waiver nor estoppel could assist D.L.G.?

Holding:

Appeal allowed in part.

Reasoning:

(1) No. A covenant to insure is a provision within a lease that allocates risk between the parties. It would not serve its purpose if it was interpreted as allocating the risk to the tenant if the...