The Court of Appeal has dismissed the appeal of a fuel supplier found 40% at fault in a case involving the discharge of 500 litres of fuel oil from two indoor residential tanks. The oil leaked into the soil underneath and around the house and ultimately made its way into a nearby lake. Remediation costs reached almost $2 million. The court also dismissed the appeal of the plaintiff homeowner who was found to be 60% contributorily negligent for the loss.
In Gendron v. Thompson Fuels, the plaintiff homeowner personally installed two indoor fuel tanks in his basement and did not have them inspected by a certified Oil Burner Technician as required. He also failed to have the tank and system inspected annually. The installation was not compliant with the B 139 installation standard which rendered the system non-compliant with Regulation 213/01 under the Technical Standards and Safety Act. Distributors are required to take certain steps when they find that a system is not compliant with the Regulation and in short, after 90 days can no longer deliver fuel to the system until it is brought into compliance. In this case, the distributor continued to deliver fuel oil to the non-compliant system for several years until the loss occurred.
Claims by the homeowner were advanced against the distributor, Thompson Fuels, the tank manufacturer, Granby Inc. and the TSSA for failing to take certain steps after the loss which may have lessened the impact of the spill.
The Court of Appeal was unwilling to disturb the trial judge’s finding that Thompson had not conducted a comprehensive inspection as required under the Regulation. A distributor is not only required to have a comprehensive inspection done at least once every 10 years, it is also required to maintain the record of that inspection. Thompson had no record of any inspection. The court emphasized that the 50 occasions of oil delivery when there had been no comprehensive inspection represented a frequent and flagrant breach of the Regulation. This was characterized as the cornerstone of the case against the distributor and the 40% allocation of fault.
The plaintiff homeowner was found 60% at fault for the loss as a result of a combination of factors – his improper installation of the tank, his failure to have the system properly inspected on a regular basis and his delay of almost 12 days in reporting the loss to his insurance company which resulted in increased damages.
Of interest was the appeal court upholding the finding that the TSSA did owe the homeowner a duty of care at the time of their initial attendance after the loss was reported. However they found no liability as there was no evidence of the appropriate standard of care of a TSSA inspector. The tank manufacturer, Granby had settled their portion of the claim by way of a Pierringer Agreement. However, the court upheld the trial judge’s finding that Granby had no liability.
There are a number of important takeaways from the decision and as a result it is worth a close read. For instance, the court accepted the evidence on the standard of care of an OBT as it pertains to undertaking a dip test to determine the presence or not of water on indoor tanks. For many years there has been no requirement to do so on an annual basis for indoor tanks while there has been a requirement for a dip test on outdoor tanks. There was standard of care evidence of OBT’s in this case that dip testing for water on indoor tanks was routine.
A copy of the decision in Gendron v. Thompson can be found here.
A recent case out of Ontario’s Superior Court of Justice focuses on the obligation of an insurer under a labour and materials payment bond. What makes the case interesting is that on the face of it, the plaintiff sub contractor ended up in a better position as a result of all of the circumstances surrounding the underlying claim including multiple breaches by the GC. The insurer argued that this was a simple case of mitigation and that the plaintiff had mitigated its losses and was therefore not entitled to recovery under the bond. The court saw it differently.
In Lopes v. Guarantee Company of North America, the plaintiff was a sub-contractor who sued under a surety bond issued to the General Contractor, Gorf Manufacturing. Gorf failed to pay invoices to the plaintiff totaling approximately $250,000. Gorf subsequently abandoned the project entirely. The plaintiff sent Notice of Claim to the insurer for the unpaid invoices in accordance with the bond terms. Concurrently, the project owner sought from the insurer that arrangements be made for completion of the project pursuant to the Performance Bond that had been issued together with the labour and material bond. The insurer retained a new GC who accepted new bids to complete the work pursuant to a Completion Contract.
The plaintiff bid to complete its work with the new GC and was awarded the contract which paid it $550,000 more than what they would have been paid under the original contract prior to the default by Gorf. In other words the abandonment of the project by Gorf resulted in a significant windfall for Lopes. From a commercial perspective, the plaintiff had been put in a better position as a result of Gorf abandoning the project that it would otherwise have been.
The insurer argued the doctrine of mitigation, noting that by entering into the new contract at a premium, the plaintiff had mitigated its damages. The plaintiff took the position that the benefit gained under the successful bid for the Completion Contract was irrelevant to the unpaid invoices breach.
The court noted that the wronged party has a duty to mitigate damages that were ‘consequent to the breach’. In this case the plaintiff’s windfall was not consequent to the breach for which indemnity was sought under the labour and material bond; i.e. unpaid invoices. Rather the windfall was related to the original GC (Gorf) abandoning the project. Therefore, the benefit obtained by Lopes in successfully bidding for the Completion Contract could not be characterized as mitigation of their damages for the unpaid invoices which was the breach that gave rise to the bond claim. This case is unique as the defendant was arguing that the plaintiff was not entitled to damages because it had mitigated its damages. The court did not find that the plaintiff did not mitigate its damages. It simply found that the principle of mitigation did not apply.
This decision is an interesting read and a good refresher on the principles of mitigation. The decision can be found here.
What happens when two insurers cover the same risk and each declare themselves excess to other available insurance? Ontario’s Court of Appeal addressed that issue in the recent case of TD General Insurance v. Intact Insurance, which involved a claim for bodily injury advanced by a passenger in a boat driven by the insured.
The TD policy covered the specific boat involved in the accident and the driver was covered as he was operating the boat with the owner’s consent. The driver was also covered under his homeowner’s policy with Intact, which provided liability coverage for claims arising out of the insured’s use or operation of any type of watercraft. Each policy declared itself excess to other available insurance.
Because the TD policy specifically covered the boat in question, the application judge held that the TD policy provided primary insurance for the watercraft in question and dismissed TD’s application that the two policies share equally in the defence and indemnity of the driver. In doing so he relied on the ‘closeness to the risk approach’ in which courts consider:
- Which policy specifically described the accident causing instrumentality?
- Which premium reflect the greater contemplated exposure?
- Is coverage of the risk primary in one policy and incidental to the other?
Unfortunately the Supreme Court of Canada expressly rejected this approach to overlapping coverage in the Family Insurance Corp. v. Lombard Canada Ltd. Case. Instead, the Supreme Court preferred to focus on “whether the insurers intended to limit their obligation to contribute, by what method, and in what circumstances vis-à-vis the insured”. Because the contest, as here was between two insurers, the court held that there was no need to look to surrounding circumstance and instead relies strictly on the policy wording. If there are no limiting intentions or limiting intentions that cannot be reconciled, the burden is shared equally between the insurers. The Court of Appeal considered the identical ‘other insurance clauses’ to be limiting intentions. Because each policy was declared excess to the other, the court concluded that they were irreconcilable. As a result, the policies had to contribute equally. The reasons of the Court of Appeal in this case are nuanced and underscore the importance of a close reading of policy wording when faced with a circumstance of overlapping coverages.
The Court of Appeal has provided further guidance on the issue of prescriptive easements in the case of Hunsinger v. Carter. The case involved one party having uninterrupted use of a shared driveway over a 40 year period for commercial purposes, facing off against a neighbor who purchased the property last year and attempted to restrict his neighbours historic use of the property. The ‘new’ neighbor was operating a daycare and wanted to erect a fence in the middle of the shard driveway for reasons of safety.
On application, the court held that the ‘new’ neighbor could erect the fence, in part relying on the finding that the historic neigbour would be able to maneuver vehicles on their portion of the driveway and that the fence would not provide an absolute impediment to doing so. The application court judge found that the historic neighbor had established a prescriptive easement over the driveway as it was the dominant tenement for over 40 years before 2007 when both properties were registered in the Land Titles system. The appellant and his family had made use of the gravel driveway “openly, continuously, and without licence over this period. However, the application court judge found that the obstruction of the easement in erecting a fence was allowable because that portion of the driveway which was obstructed was not needed to be used by the historic neighbor.
The Court of Appeal disagreed, finding that building the fence would encroach on the easement. It is interesting to note that the Court did not disagree that the proposed fence did not prevent the historic neighbor from utilizing the driveway to access the back of his property. Rather it was clear that the court accepted the argument that the fence would substantially interfere with the neighbours use. Encroachment is only permissible where the encroachment does not substantially interfere with the easement and in this instance, the fence was thought to constitute a substantial interference.
A recent Superior Court decision allowed an appeal from an arbitrator’s award in a priority dispute dealing with financial dependency, on the basis that the decision was not reasonable. In State Farm v. R, the arbitrator determined that two claimants were not financially dependent on State Farm’s insured, leaving the Motor Vehicle Accident Claims Fund as the payor of both claims.
The underlying factual matrix was complex, involving two claimants and a multi-generational extended family. There were a number of family members who had recently moved to Canada and were residing in different family residences. Essentially, the claimants had lived with one family member for a period of 3 months before moving into the residence of another family member for the 3 months prior to the accident. One claimant was in receipt of ODSP and on this basis, no dependency was found regardless of the time frame used. That decision was upheld on appeal as being reasonable.
For the other claimant, who had no means of support other than from the person with whom she was residing, the arbitrator used a 6 month time frame to analyze financial dependency. The critical aspect of the case which informed the Court’s ruling was the arbitrator’s determination that the 3 month period prior to the accident was not the appropriate time frame because it lacked an element of permanency. In the case of Intact v. Allstate, the Court of Appeal ruled that importing a permanency test into the process of determining the appropriate time frame to analyze dependency was inconsistent with applicable legal principles. This was the nub of the determination in Intact v. Allstate.
Therefore, the decision as it pertained to that particular claimant was overturned. In spite of only residing with the State Farm insured for a 3 month time period, with no indication that this was circumstance was permanent, the claimant was found to be a dependent of the State Farm insured.
Establishing the appropriate time frame to analyze dependency is a fundamental and critical part of any dependency analysis. This is an issue that is determined case by case and ultimately depends on finding the time frame that reflects the circumstances of the parties at the time of the accident. The decision in State Farm v R. can be found here.
Ontario’s Court of Appeal has again addressed issues relating to commercial tenancies and the impact of lease provisions which obligate one party or the other to obtain insurance for the benefit of another. In CLLC Inc. v. 20 Eglinton , the tenant was obligated to obtain insurance throughout the period of their possession of the premises, and for the entire term, with the landlord named as an insured. The tenant did not obtain the insurance as required. Water leaks in the premises resulted in loss and damage to the tenant who brought an action against the landlord. Summary judgment dismissing the action against the landlord was granted and the tenant appealed. The Court of Appeal set aside the summary judgment, noting that the motion judge had not adequately considered and resolved factual disputes in finding that there was no genuine issue for trial.
Although not technically a subrogated claim (because no insurance was obtained so no insurance claim was advanced), the principles and arguments that were in play are relevant to subrogated claims.
One particular point of interest was the issue of when the leaks caused damage and the resulting question of whether the premises were even insurable given that the water leaks may have been pre-existing. The defendant conceded that if the premises were not insurable for whatever reason, the tenant would not be bound by the covenant to insured.
As a result the Court of Appeal set aside the summary judgment motion given that there were genuine issues in play that required a trial. This case underscores a point made in prior blogs on this site and others – read the lease or whatever underlying agreement is in play carefully and understand how the obligations of the parties fit within the factual matrix. It will be different in every case.
The Court of Appeal’s reasons in L-Jalco Holdings v. MacPherson reminds us that the concept of subrogation extends beyond the realm of insurance and into the realm of mortgage priority claims. In L-Jalco, the plaintiff lender advanced funds to a property owner who discharged only one of two prior mortgages with the funds advanced, while registering a new mortgage in its favour. The prior (then undischarged) second mortgage moved into first position and the plaintiff’s mortgage fell into second position. When the property owner defaulted, the plaintiff sold the property under power of sale and sought an order that its mortgage had priority against the first mortgage and in so doing attempted to in effect cut the first mortgagee out of participation in the sale proceeds.
The plaintiff floated two arguments:
- the ‘new’ first mortgagee had undertaken to discharge its mortgage and failed to do so and would be unjustly enriched if they maintained priority; and
- the plaintiff could have preserved the priority by taking an assignment of the original first mortgage and therefore it would be equitable that the plaintiff receive priority through being subrogated to the discharged first mortgagees priority position
The court rejected both arguments.
Importantly there was a finding that the plaintiff was aware of the undischarged mortgage and seemed not to care at the time of the original closing. This knowledge was critical to the court’s finding because it took it out of the realm of cases where there was a mistake that lead to an unjust result. The Court of Appeal’s 1997 decision in Mutual Trust v. Creditview was referred to in the underlying reasons to juxtapose circumstances where a mortgagee has knowledge of prior encumbrance vs a circumstance where a mortgagee has no knowledge as a result of a mistake. Mutual Trust involved a mortgagee who was unaware of CPL’s registered on title when its mortgage was registered and when it discharged first mortgages held by Scotia. The court held that Mutual Trust was unaware of the CPL’s as a result of its solicitor’s mistake. They found that if Mutual Trust was not subrogated to Scotia’s interest as the prior first charge, the holder of the CPL would be unjustly enriched as a result of a solicitor’s error. The court also identified that the plaintiff could have taken an assignment of the discharged mortgagee’s interest. However, the lack of knowledge was critical to the court’s finding.
Subrogation in the context of mortgage priorities embraces the same underlying concept as traditional subrogation – one party standing in the shoes of another. However, there is no automatic statutory or common law right of subrogation for mortgagees. Rather it is available only if facts support the fairness of granting it.
For those keeping score, subrogating insurers have been coming up on the short end of the stick in cases involving commercial leases. The Court of Appeal’s decision in Royal Host v. 1842259 Ontario (released May 18, 2018) goes the other way in permitting an insurer of a landlord to advance a subrogated action against an at fault tenant. On that basis alone, it is worth a close look.
The lease in issue in Royal Host contained provisions we often see in commercial leases. The landlord was required to obtain fire insurance and the tenant contributed financially to the premiums for that insurance. The lease contained a provision that the tenant was not relieved of any liability arising from or contributed by its acts, fault or negligence.
The motion judge ruled in favour of the tenant and dismissed the subrogated action commenced by the landlord’s insurer, relying on what he called the ‘general rule’ in the Supreme Court of Canada’s risk shifting trilogy ( Agnew-Surpass v. Cummer-Yonge, 1975 CanLII 26 (SCC) ,  2 S.C.R. 221; (ii) Ross Southward Tire v. Pyrotech Products, 1975 CanLII 25 (SCC) , and (iii) T. Eaton Co. v. Smith et al., 1977 CanLII 39 (SCC) ) that ‘subrogation rights will be limited where a landlord covenants to pay for the insurance and agrees to look to its own insurer for any loss’. On appeal, Ontario’s Court of Appeal overturned the motion judge and permitted the matter to proceed. The appeal court relied on a number of lease provisions which in their view made it clear that the risk of loss by fire was to be borne by the tenant if they were responsible for the loss.
The Trilogy is the starting point for the analysis of commercial leases in subrogation claims in the Canadian environment and is worthy of brief review. In Surpass , the landlord covenanted to maintain fire insurance on the premises. There were no tenant repair covenants in the lease. The lease did require the tenant to take good and proper care of the leased premises, “except for reasonable wear and tear…and damage to the building caused by perils against which the lessor is obligated to insure hereunder”. The landlord’s insurer was precluded from subrogating in Surpass, and with good reason. There was a clear relationship between the tenant’s covenant to repair and the landlord’s covenant to insure. The provisions worked together harmoniously – the tenant was not required to repair if the damage was caused by a peril against which the landlord was required to insure.
In T. Eaton, the lease provisions were similar although the tenant’s covenant to repair was not tied in any way to the landlord’s covenant to insure as it had been in Surpass. Despite this distinction, the Supreme Court found in favour of the tenant and prevented the landlord’s insurer from subrogating. In effect, the covenant to insure trumped the covenant to repair.
How did the Court of Appeal reach a different result in Royal Host? The devil is in the details as they say and in this case, the details are the lease provisions. Specifically, the section of the lease that required the landlord to obtain insurance also included the following language:
Notwithstanding the Landlord’s covenant contained in this Section 7.02, and notwithstanding any contribution by the Tenant to the cost of any policies of insurance carried by the Landlord, the Tenant expressly acknowledges and agrees that
- the Tenant is not relieved of any liability arising from or contributed to by its acts, fault, negligence or omissions, and
- no insurance interest is conferred upon the Tenant, under any policies of insurance carried by the Landlord, and
- the Tenant has no right to receive any proceeds of any policies of insurance carried by the Landlord.
The effect of using the word ‘notwithstanding’ is to provide a limited circumstance in which the benefit conferred to the tenant will not apply; namely when the tenant’s ‘acts, fault, negligence or omissions’ result in loss or damage. The parties had turned their minds to the issue of which party was to bear the risk of loss in this circumstance and despite the landlord’s covenant to insure, the lease precluded the tenant from enjoying the benefit of that insurance if the loss resulted from its negligence.
It is worth noting that the motion judge in this case repeatedly referred to the ‘general rule’ derived from the Trilogy which was to limit subrogation rights when the landlord agreed to obtain insurance. The Court of Appeal disagreed with this interpretation and clarified that the Trilogy did not pronounce a general rule of application nor did it enunciate freestanding principles. Rather, ‘the principles drawn from the trilogy are contractual in nature. They are conclusions that flow from and reflect the particular provisions of the leases that were in issue in those cases’. This underscores the first rule in analyzing subrogation rights when commercial leases are involved: try to discern the intention of the parties based on the lease language. https://bit.ly/2KCPH0p
That is of course a subjective question and one that you won’t find an explicit answer for in the case of Konopka v. Traders. However, you will read about what is not considered to be reasonable conduct in the context of an OAP 1 policy breach. In Konopka, the elderly insured fell ill while driving to her cottage and permitted her unlicensed husband to drive her vehicle to a nearby parking lot where they intended to stop and rest until she felt better. Shortly after taking the wheel, the unlicensed husband caused an accident. There was no dispute that the insured was aware that her husband was unlicensed and as a result on the face of it she was in breach of the ‘authorized by law to drive’ provision in section 4(1) of the policy. The insurer denied coverage as a result.
The court noted that a breach of this nature was subject to a strict liability standard which required that the insured to establish that she took all reasonable steps to avoid the particular event. The reasonableness standard requires a consideration of the nature of the breach, what caused it and all of the surrounding circumstances that explain the act or omission. The court ultimately determined that it was not reasonable for the insured to allow her husband to drive. It is worth noting that the court relied in large part on the discovery transcript of the husband which betrayed a level of confusion and an inability to focus. The court ultimately concluded that the husband was someone ‘who simply cannot get his bearings’ and as a result it was not reasonable to allow him to drive, regardless of the circumstances.
This case is fact driven but provides a good counterpoint to the decision of Ontario’s Court of Appeal in Kozel v. Personal. In that case, the insured was also in breach of section 4(1) for driving while she was not authorized by law to drive. However, in that case the license suspension was the result of a failure to respond to a license renewal notice which was considered to be a ‘relatively minor breach’. In contrast, allowing an elderly individual who had an ‘inability to get his bearings’ and who had not driven in more than 20 years was something quite different and ultimately, not reasonable. https://bit.ly/2KoWLxQ
In Binette v. Salmon Arm, the B.C. Court of Appeal had an opportunity to analyze the difference between policy and operational decision making in the context of a municipal liability claim. In Binette, the plaintiff tripped on the base of a broken traffic sign. The City had previously discovered a detached crosswalk sign in a nearby yard and failed to locate the base of the sign. The failure was initially as a result of snow cover and eventually due to the City no longer looking.
Although the City’s sign replacement policy did not require the sign to be replaced immediately the City acknowledged that its standard practice was to use its best efforts to locate and remediate immediate hazards. In this instance, the City inspector had ‘walked the general area and shoveled some areas’ looking for the broken base but being unable to locate the base he stored the broken sign until the snow melted. This was found not to be ‘best efforts’ given that he knew that the base of the sign was an immediate hazard.
This case presents the classic formulation of the test for municipal liability. Governmental authorities are immunized from liability where a loss stems from policy decisions made in good faith. Resources are finite and municipalities must be able to make decisions regarding allocation of resources without being second guessed. To the contrary they are not immunized when a loss arises from the implementation of the policy decision at an operational level. If you are prosecuting or defending municipal claims (whether it is a slip and fall, infrastructure, construction or inspection failure) it is critical to understand the difference between a policy decision (to identify and remedy an immediate hazard) and the implementation of that policy at an operational level (not continuing to look for the immediate hazard until it was found). It is often a nuanced distinction.