Our lawyers have worked through the maze of complex litigation and coverage issues, managed the class action juggernaut, and represented employees of insurers that come under attack by plaintiff`s litigation. Some of the problems we face are front page news, most are not. They are all problems that are important to our clients, and to us.
Brokers negligence and the standard of care is front and center in the recent Nova Scotia Court of Appeal decision in Marsh Canada Ltd. V. Grafton. In Marsh, the insured corporation sustained extensive fire damage to one of its building and sought indemnity from its insurer, Lloyds of London. Over many years, there was a misapprehension about the profile of the property. It was not ‘sprinklered and of masonry construction’ although the insured over many years had represented that it was.
The insured corporation had a number of properties that were subject to various insurance arrangements and a number of different people were responsible over the years for managing the insurance issues for the corporation. The misstatement about the building being equipped with a sprinkler system and of masonry construction stemmed from a 2003 application for insurance and was not an intentional misstatement.
When fire destroyed the property in 2007, the insurer became aware of the true profile of the building and denied coverage. The insured sued both the insurer and the broker on the theory that the standard of care of the broker required it to do more due diligence to ensure that the information on the application was accurate.
At trial, the court held that the broker was liable. Ironically, because of the ‘complexity’ of the insured’s holdings and the different people in the organization responsible for insurance arrangements, the trial judge concluded that the broker should have been alive to the fact that the information coming from the insured may not be accurate. Indeed, the trial judge thought that the broker should have inquired as to whether inspections had been done on the property to ensure information was accurately recorded (specifically regarding whether it was sprinklered and of masonry construction) and if not the broker should have recommended inspections be done.
The Court of Appeal overturned the trial judges ruling, noting that the broker was responsible only to make appropriate inquiries to determine the kinds of coverage required of the insured and to advise of the appropriate options available that would satisfy the needs of the insured.
Although this decision will give brokers reason to breathe a sigh of relief, it underscores the importance of robust and well documented communications between broker and insured evidencing that the above issues have been properly addressed.
Neil is a Partner of Samis+Company. Neil focuses exclusively on insurance-related litigation. He has handled a broad range of matters before the Ontario Superior Court of Justice and the Financial Services Commission of Ontario, as well as advocating on behalf of his clients in private arbitrations.
The Court of Appeal has brought some clarity to time limits for appraisals under the Insurance Act.
In 56 King Inc. v. Aviva, the plaintiff commenced a claim against its Insurer seeking coverage for damage to commercial property arising from a windstorm, as well as damages for breach of the Insurer’s duty of good faith in handling the claim.
The Statement of Claim was issued in February 2014. Sometime in late December or early January 2016, the Insurer admitted coverage. Three weeks later, the Insurer elected an appraisal under Section 128 of the Insurance Act. The plaintiff rejected the appraisal on the basis that it was too late and because the bad faith claim could not proceed by appraisal. The Insurer brought a motion to determine whether an appraisal should be ordered.
In short, Justice Lofchik granted the Insurer’s motion. Justice Lofchik emphasized that the appraisal wording in Section 128 of the Insurance Act is mandatory and that the appraisal process must be continually available, noting no timeline that an election for appraisal must be made by. Justice Lofchik also found the appraisal did not prevent the plaintiff’s from having the issue of bad faith determined at trial.
The plaintiff appealed the motion judge’s finding as follows:
The motion judge did not have jurisdiction to make the order because the matter must be brought by application and not by motion;
The two-year delay prior to the demand for appraisal is a bar to an appraisal; and
The effect of the motion judge’s decision is to bifurcate the trial.
The Court of Appeal rejected all submissions and found for the Insurer.
Importantly, with respect to delay, the Court stated the legislation signals a decided preference for appraisal, but the language of Section 128 does give the Court discretion to curb abuse. In the case at hand, the Court found no abuse on the part of the Insurer, noting the appraisal was requested within three weeks of the Insurer’s admission of coverage.
This Court of Appeal decision is distinguished from prior decisions of the Court which dismissed Insurer’s requests for appraisal due to the requests being brought too late. (see 1633092 Ontario Ltd. and Ouellette Estate v. North Waterloo Farmers Mutual Insurance Company)
It remains to be seen what will be considered “abuse” such that a Court will find an insurer is out of time for an appraisal.
In applying s. 9(3) of the Fault Determination Rules to a chain reaction collision involving three moving vehicles and one stopped vehicle, the Superior Court has adopted the Court of Appeal’s analysis of s. 9(4) in State Farm Mutual Automobile Insurance Company v. Old Republic Insurance Co. of Canada to find that there must be a direct impact between a heavy commercial vehicle and the vehicle whose insurer seeks indemnification for loss transfer to apply. The involvement of a fourth “stopped” vehicle in the incident is of no consequence.
Kingsway General Insurance Company v. Dominion of Canada General Insurance Company dealt with a chain reaction involving four vehicles. The first vehicle, insured by Kingsway, was a heavy commercial vehicle (vehicle “C”) which struck a moving passenger automobile (vehicle “B”). Vehicle “B” subsequently struck a second moving passenger automobile, which was insured by Dominion (vehicle “A”). Vehicle “A” then struck a third passenger automobile (vehicle “Z”), the only vehicle which was stopped at the time of the chain reaction.
Dominion paid statutory accident benefits to its insured, the driver of vehicle “A”. On the basis of the involvement of the stopped fourth vehicle in the collision (vehicle “Z”), Dominion sought loss transfer from Kingsway pursuant to the ordinary rules of tort law under s. 5 of the FDRs. Given that s. 9(3) requires all of the automobiles involved in the incident to be “in motion,” Dominion took the position that s. 9(3) did not apply.
At the arbitration level, Arbitrator Novick agreed with Dominion and found that s. 9(3) did not apply on the basis that the fourth vehicle involved in the chain reaction was stopped at the time of the accident. In the absence of specific wording in s. 9(3), she did not accept Kingsway’s argument that the FDRs were required to be approached in “clusters” or “groupings” of three vehicles. Applying the ordinary rules of tort law pursuant to s. 5 of the FDRs, Arbitrator Novick concluded that vehicle “C” was 100% at fault for the collision and that Kingsway was therefore required to indemnify Dominion for all statutory accident benefits it paid out to the driver of vehicle “A”. She added that, even if s. 9(3) did apply, Kingsway would still be required to indemnify Dominion despite the fact that vehicle “C” did not directly collide with vehicle “A”.
In allowing Kingsway’s appeal, the Superior Court adopted the Court of Appeal’s analysis of s. 9(4) in State Farm v. Old Republic that the degree of fault for each collision between two automobiles involved in the chain reaction must be determined without reference to any related collisions involving either of those two automobiles. The Superior Court concluded that it makes no sense to conclude that vehicle “A” was responsible for the whole chain reaction if vehicle “Z” (the fourth vehicle) was moving when it was struck by vehicle “C,” but find that vehicle “B” bears 50% responsibility for the collision with vehicle “A” instead of vehicle “C” if vehicle “Z” was either stopped or not involved.
In reiterating the Court of Appeal’s finding that ss. 9(3) and 9(4) are “parallel provisions [that]… must be read consistently,” the Superior Court concluded that s. 9(3) should only consider vehicles “A,” “B” and “C” as illustrated in the diagram in the FDRs, and not any additional vehicles which may be involved farther down the chain. Applying the standard of review of correctness to the question of law at issue, given that vehicles “A,” “B” and “C” were all in motion at the time of the accident, the Superior Court ruled that the arbitrator erred by refusing to apply s. 9(3) to the collision. Ultimately, the Superior Court accepted the Court of Appeal’s reasoning in State Farm v. Old Republic to conclude that s. 9(3) is not available to apportion liability between vehicles involved in the same chain reaction that do not directly collide.
This decision serves as a strong reminder that, unlike determining liability in tort matters, the loss transfer regime is meant to be applied in an expedient, economical and summary manner. Despite the presence of a fourth vehicle (or more) in the context of chain reaction collisions, the insurer of vehicle “A” still cannot “leapfrog” over vehicle “B” and claim loss transfer against the insurer of vehicle “C”. The involvement of additional vehicles, whether stopped or in motion, does not change the way in which fault is strictly determined under s. 9(3) of the FDRs.