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.
In Youn v 1427062 Alberta Ltd. , the Alberta Court of Queen’s Bench considered risk shifting in the context of a commercial lease.
In this subrogated matter, the appellant landlord owned a commercial property that included the respondent’s pub, Red’s Pub, and neighbouring businesses. A fire broke out in Red’s Pub and the pub was destroyed. The fire caused damage to a neighbouring businesses. The landlord’s insurer commenced a subrogated action against Red’s Pub for the damage.
Red’s Pub successfully brought an application to dismiss the claim. The Master concluded that the landlord was barred from advancing any action against Red’s Pub as the lease, when read as a whole, transferred the risk of loss by fire to the landlord. The landlord appealed the decision of the Master.
On appeal, the Alberta Court of Queen’s Bench reviewed several clauses in the lease and found that the landlord assumed the risk of loss by fire. The lease specified that Red’s Pub was responsible for any increase in the cost of fire insurance caused by its conduct. The court held that this term implied that the landlord intended to carry fire insurance. In addition, the lease required the premises to be kept in good repair, except when there was damage from fire. The lease specifically required that Red’s Pub carry insurance against burglary, glass insurance, public liability, and property damage. There was no specific reference to fire insurance. Finally, it was provided in the lease that if Red’s Pub could not be repaired within 120 days of fire damage, then the lease would terminate.
After reading all of the sections of the lease together, the court held the landlord impliedly agreed to obtain fire insurance for the benefit of Red’s Pub. As a result, the appeal was dismissed.
This decision underscores the importance of completing a detailed review of all leasing documentation in advance of pursuing a subrogated action.
A three-member panel of the Court of Appeal held that the Consumer Protection Act (CPA), specifically sections 7 and 9, undermine section 3 of the Occupiers’ Liability Act (OLA) and, therefore, cannot be used to void a liability waiver.
This case involved appeals from two separate Superior Court decisions inSchnarr v. Blue Mountain Resorts Ltd. and Woodhouse v. Snow Valley. At the heart of this case was whether the OLA or the CPA governed the relationship between the parties. The plaintiffs were pursuing personal injury claims suffered by them while using the premises for its intended purpose – skiing. Both had signed waivers of liability.
The plaintiffs were successful at the Superior Court in arguing that the waivers of liability under section 3 of the OLA were voided by relying on provisions of the CPA. They argued that, as the plaintiffs are consumers and ski resorts are suppliers, the contracts they entered into are consumer agreements and, therefore, controlled by the CPA rather than the OLA. A supplier cannot waive liability for services that are not of “reasonable acceptable quality” pursuant to sections 7 and 9 of the CPA. However, the ski resorts are suppliers under the CPA and also occupiers under the OLA.
As the Superior Court decisions were decisions on motions involving questions of law, the applicable standard of review for the appeals was correctness. The Court of Appeal overturned both lower level decisions, finding that the plaintiffs were bound by their liability waivers. This was so whether the plaintiffs’ claims are in tort under the OLA or contract (breach of warranty) under the CPA.
The CPA and the OLA were found to conflict and be irreconcilable. The OLA permits an occupier to obtain a waiver of liability (especially important to operators of recreational activities) whereas the CPA precludes a supplier from obtaining a waiver of liability. The Court preferred the more specific provision of the OLA over the general provisions in the CPA. The Court found that the OLA was intended to be an “exhaustive scheme” regarding the liability of occupiers to entrants on their premises flowing from the maintenance or care of the premises. The purpose of the OLA would be undermined if the CPA were to take precedence in such circumstances. The Court held that the OLA supersedes the CPA. Therefore, activities occurring on an occupiers’ premises in return for payment are covered by the OLA. The provisions of the CPA do not apply.
The matters were remitted back to the Superior Court to proceed with the OLA as governing the relationship between the parties.
What do you do at work that is considered ‘under the direction’ of your employer?
The answers to this question are endless. A more interesting question: what do you have to be doing at work not to be ‘acting under the direction’ of your employer? That question is at the heart of the decision in Oliveira v. Aviva , a Court of Appeal decision released this week. The applicant sought coverage and a defence for claims brought against her by a hospital patient for damages as a result of applicant’s alleged accessing the hospital records of a patient who was not under her care. The crux of the case turned on whether the applicant (defendant in the lawsuit) was an insured under the policy issued by Aviva. The policy would provide coverage if the allegations in the underlying Statement of Claim alleged conduct took place while the applicant was acting under the direction of the named insured but only with respect to liability arising from the operations of the named insured.
Because the policy provided coverage for ‘invasion or violation of privacy’, also referred to as the tort of intrusion upon seclusion (which would include accessing records in an unauthorized manner) the court held that the policy was by definition intended to cover offensive conduct that would presumably not be authorized by the insurer. In that case, how can coverage be denied for conduct that on the face of it would appear to be covered?
Acting under the direction of the employer relates not to control how the work is done or actual oversight at the moment of the incident (in this case when records were improperly accessed) but rather flows from the relationship generally and ‘control’ over incidental features of the of the employment such as directing when and where to work and having the right to terminate the employment.
Whether the alleged misconduct arose out of the operations of the named insured was also in issue. The insurer argued that hospitals operations are to provide care and because the employee was not within the patient’s circle of care, her conduct did not fall within the operations of the hospital. The court rejected this argument, noting that the ‘operations’ of the hospital included creating, collecting and maintaining medical records. The underlying claim against the applicant (defendant) for which coverage was sought related to allegations about the unauthorized access to those medical records.
Ultimately however, in reading the decision, the irresistible inference is that the court accepted that because the policy covered ‘intrusion upon seclusion’, it could only be read to cover the alleged misconduct. As a result to deny coverage for the very conduct that the policy was intended to cover would be perverse. It is also consistent with the underlying interpretive imperative of insurance policies – coverage should be interpreted broadly and exclusions should be interpreted narrowly.
In the decision ofThe Dominion of Canada General Insurance Company v. Unifund Assurance Company, the Court of Appeal has confirmed that the standard of review applicable in priority disputes is reasonableness.
The decision primarily deals with whether the failure to provide notice to an insured within 90-days of receipt of the OCF-1 precludes the insurer from proceeding with a priority dispute. In this matter, notice was provided to the insured after the priority arbitration had commenced (beyond the 90-day period) but before the arbitration hearing.
At the preliminary issue hearing, Arbitrator Novick decided that the 90-day notice period did not apply to insureds, only to insurers giving notice to other insurers. The Arbitrator held that, while insurers should ideally provide notice to insureds at the same time as notice is given to the other insurer, late notice to an insured is permitted, as long as it provides the insured with the opportunity to participate in the process.
The appeal of the preliminary issue decision was heard by Faieta J. of the Superior Court, who concluded that the applicable standard of review was correctness. He held that failure of the insurer to provide notice to the insured within the same 90-day notice period was fatal to the priority dispute.
A three-judge panel of the Court of Appeal reversed the decision of Faieta J. and restored the decision of the Arbitrator. A reasonableness standard was applied. The Court noted that the Arbitrator was a specialized decision-maker engaged in interpreting her home statute and regulation.
In determining the Arbitrator’s decision was reasonable, the Court of Appeal found that the failure to give notice to the insured within 90 days did not ignore the policy objectives of the Regulation. It did not affect the insured’s right of prompt receipt of accident benefits, nor did it affect the insured’s participation rights in priority disputes, held to be procedural rights. In addition, the late notice had no impact on the rights of the second insurer in the priority dispute.
The Court determined that it was up to the Arbitrator to determine whether the notice to an insured was given too late in order for the insured to exercise their participation rights. In the case at hand, the Arbitrator found that as the insured received notice before the actual arbitration hearing commenced and did not object to the transfer of the claim, the late notice was not fatal to the priority dispute. The Court ultimately concluded the Arbitrator’s decision was reasonable – although the notice was late, the lateness was not an impediment to the priority dispute, and the proceeding could continue.
This case is significant because the Court of Appeal has determined that notice to an insured of the priority dispute in excess of the 90 days is not necessarily fatal to a proceeding. The analysis is now whether the lateness of the notice to the insured precludes their ability to participate in the priority dispute.
Reconciling Inconsistent Policy Documents through Rectification
The recent Court of Appeal decision in Alguire v. Manulife provides a helpful primer (and reminder) on the law of rectification, an equitable remedy not often invoked in insurance related litigation. This case involved a GRIP life insurance policy issued by Manulife to the plaintiff in 1982. The face amount of the coverage was $5,000,000. The policy required large premiums payable up front and reduced premiums payable over time and included a guaranteed paid up value that would ensure a pre-determined coverage amount that was guaranteed even in the event of a default by the insured in paying premiums. The guaranteed amount was memorialized in a table of non-forfeiture values that would increase over time. The approved quote for the policy agreed to by the parties included the non-forfeiture table that was based on each $5,000 of the face amount of the coverage. However when the policy was issued the non-forfeiture table was presented based on each $1,000 of the face amount of the coverage. The result was that the paid up value was always 5 times greater than what it was supposed to be and eventually exceeded the face value of the policy by a factor of almost 3. At the time of trial, despite a policy with a face value of $5,000,000 the paid up value which was guaranteed was $13,400,000 instead of $2,680,000. The plaintiff sought a ruling that affirmed the higher paid up value.
The plaintiff attempted to justify his position by testifying that he had specifically requested a policy that would provide ‘inflation protection’. He testified that he reviewed the non-forfeiture table with the (now deceased) broker who expressly represented to him that the non-forfeiture value would eventually exceed the face value of the policy.
At trial, the court held that the parties contracted for a policy with a maximum value of $5,000,000 and the inclusion of the non-forfeiture table that showed a higher amount was clearly an error. As a result the court exercised its discretion to rectify the contract so that is accurately reflected the agreement reached between the parties. The Court of Appeal agreed noting that in order to rectify the contract Manulife was required to lead evidence to establish that the parties had reached a ‘prior agreement whose terms are definite and ascertainable’.
The court was satisfied that it had done so. The court ultimately considered the notion that a policy with non-forfeiture values that exceeded the face value of the policy to be nonsensical. In addition the non-forfeiture tables had no inflation related pattern which undermined the plaintiff’s position that he had bargained for inflation protection.
What’s In a Name?
Plenty. Particularly if you are an insurer attempting to advance a subrogated claim and your insured is in bankruptcy protection proceedings. This was the circumstance faced by the insurer in Douglas v. Ferguson Fuels . What would have otherwise been a garden variety oil spill subrogated action was complicated by ongoing bankruptcy proceedings involving the insureds. By the time the subrogated claim was issued the insured had made an assignment in bankruptcy. By application of s. 71 of the Bankruptcy and Insolvency Act, the insured’s right of action vested in the trustee once an assignment in bankruptcy was made. The subrogated action was commenced in the name of the insured and the court, applying long standing principles of bankruptcy law held that the claim commenced in the name of the insured was a nullity. Had the claim been brought in the name of the Trustee the insurer would have been entitled to proceed.
There were a number of technical issues argued in relation to the law of misnomer (where the court will substitute the correct party for a party improperly identified) and the distinction between the law of subrogation and assignment. Ultimately the court determined that the naming of the insured personally instead of the Trustee could not properly be characterized as a misnomer. The action was ultimately dismissed. Two of the five judge panel dissented on the basis that the insurer should have the opportunity to argue the misnomer issue before the Superior Court motions judge.
The take away: be mindful of the technical consequences of an assignment in bankruptcy as it pertains to advancing subrogated actions. Although the issue more often arises where a target defendant is in a bankruptcy proceeding (which requires that steps be taken by the subrogating insurer in order to proceed) this case demonstrates that advancing a claim on behalf of a bankrupt insured can be a minefield that requires planning and thoughtful advocacy.
In Persampieri v. Hobbs, the Plaintiff was rear-ended by the Defendant and brought a tort claim for damages. Following a two week trial, the jury awarded net damages of $20,414.83. However, this case is significant for the costs award – roughly 12 times the amount awarded in damages!
Several months before trial, on March 21, 2017, the Plaintiff served a rule 49 Offer to Settle the action for $20,000.00, plus partial indemnity fees and disbursements. On May 15, 2017, about two weeks before trial, the Plaintiff served a further Rule 49 offer for $10,000.00, plus partial indemnity costs. Comparing the Offers to the jury award, the Plaintiff clearly “beat” the award. At the costs hearing, the Plaintiff sought the usual cost consequences under Rule 49.01(1). The Defence adamantly argued that to order costs as sought by the Plaintiff would be unreasonable and not proportional to the net award.
Justice Sanderson thought otherwise. According to Justice Sanderson, “to let proportionality be the overriding, or even the predominant factor, would be grossly unfair to the Plaintiff and would be to reward the uncompromising, and, (in the light of the jury verdict) unreasonable behaviour of the insurer.” She noted the Insurer took a hard line, despite admitting liability. From day one, the Insurer took the position that it had assessed the case on its merits and was not willing to offer even $1.00 towards settlement. The Insurer never budged from this aggressive stance.
Justice Sanderson noted that, in this case, the party trying to rely on the proportionality principle was a sophisticated insurer that had made a tactical decision to reject a Plaintiff’s Rule 49 Offer understanding the risk in costs that it was taking by doing so. Furthermore, because the Insurer had framed its defence in the manner that it had, it knew that the resolution of the issues at trial would involve the hearing of lengthy and costly evidence.
Ultimately, Justice Sanderson found no reason to depart from the usual cost consequences of Rule 49.01(1) and found the Plaintiff entitled to her costs on the partial indemnity scale to May 15, 2017, and to her costs on the substantial indemnity scale thereafter. The Court ordered costs of $237,017.50 – almost 12 times the net of the jury award!
This case is a serious warning to Insurers that “playing hardball” could well expose them to significant adverse cost consequences at trial, even where they are successful in limiting the plaintiff’s recovery to a very modest amount.
The decision is also notable for its thorough review of the case law on costs.[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]
In the Superior Court of Justice matter of Jones v. I.F. Propco Holdings (Ontario) 31 Ltd., the defendant sought an order for production of the plaintiff’s private profile information including profile posts and comments.
The action arose out of an alleged incident in which the plaintiff claims that she was hit in the head by ice that fell from the defendant’s property. The plaintiff was seeking general and special damages arising from the injuries sustained in the incident.
The defendant’s position was that relevant conduct pertaining to the plaintiff’s social, family, leisure, and volunteer activities revealed on the public portion of her Facebook leads to an inference that there is relevant information on the private portion of her Facebook profile.
Justice Leitch cited the case of Knox v. Applebaum and indicated that “There must be evidence that posted photographs are relevant in order to justify an order for production.” Justice Leitch stated that relevant information on the public portion of a Facebook profile does support the inference that relevant information is contained on the private portion of the profile.
Justice Leitch concluded that there was no evidence that the public posts are relevant because the activities depicted in the photographs are not relevant to the extent of the plaintiff’s physical limitations since the incident. Therefore, because the information on the public portion was not relevant, there is no inference that the information on the private portion would be relevant. Since there was no inference that it was relevant, Justice Leitch did not assess the privacy interests of the plaintiff against any probative value obtained from the disclosure of the private portion of the plaintiff’s profile.
The year 2016 was not all that bad: The Superior Court finally provided some much needed guidance on whether an insurer can recover an overpayment made to an insured under the SABS. Justice Perell in Intact Insurance Company v. Marianayam shed some light on this ambiguous area of law.
Overpayments commonly occur when an insured person is paid an income replacement benefit and subsequently receives Long Term Disability benefits (LTD) or Canada Pension Plan benefits (CPP), which are deductible under the SABS.
The recovery of overpayments is governed by section 52 of the SABS-2010 (see section 47 of the SABS-1996). It provides that an insurer may recover benefits that were paid to an insured in error or if the insured was disqualified from receiving benefits. This is, of course, only if the overpayment is not a result of willful misrepresentation or fraud. One of the most controversial aspects of this law is subsection 52(3) of the SABS-2010 (section 47(3) of the SABS-1996), which requires the insurer to give notice of the amount that is required to be repaid.
The notice requirement was introduced in the 1996 amendments to the SABS. Subsequently, a body of case law has developed around the timing and content of this notice.
With respect to timing of notice, the Superior Court in Marianayam has helped clarify this area of law by upholding the Director’s Delegate decision in Pries v. Economical Mutual Insurance Company 2, and confirming that an insurer can only recover an overpayment made within 12 months of giving notice. In Pries, Economical took issue with the term “payment” in s.47 (3) of the SABS, and with the phrase, “within the 12-months after the payment was made”. Economical argued that they should be able to recover the full amount of the overpayment. However, Directors Delegate Evans was not persuaded and ultimately held that an insurer can only recover an overpayment made within 12-months of giving notice and awarded Economical 12 of the 16 months of overpayments. To put it another way, the amount of the repayment is capped at one year before the demand and there is no recovery for any payment made more than 12 months before the repayment notice was made.
The Superior Court in Marianayam also weighed in on what constitutes proper notice under the SABS. In doing so, Justice Perell upheld the controversial decision of Knechtel v. Royal SunAlliance, where Arbitrator Sampliner held a valid notice letter must contain:
- The name of the specific benefit(s) the insurer claims has overpaid;
- A statement of the appropriate weekly/monthly or lump sum amount sought;
- The payment date of applicable time span of the specific benefit(s) it has paid and seeks repaid; and
- Calculation of the total repayment claim;
Justice Perell stated that the amount claimed in the insurer’s notice letter “need not be perfectly correct but should be substantially correct.” While this may sound simple enough, Justice Perell determined that Intact’s first two notice letters failed comply with the Knechtel requirements.
In Marianayam, Intact claimed reimbursement for overpayments made to the Claimant between 2007 to 2015 as a result of the Claimant’s receipt of retroactive LTD benefits and CPP benefits.
Intact’s first letter sought $69,000 or 170 weeks of IRBs although the applicable statute provided for repayment of only 12 months (52 weeks). Justice Perell stated that Intact should have only indicated in their letter a demand for 12 months of payments. As a result, Justice Perell found the amount requested was not substantially correct; it was grossly incorrect. Therefore, the first notice was not considered proper notice and could not be relied upon.
Intact’s second letter indicated its legal position and advised that an accountant had been retained to calculate the quantum of the repayment. Justice Perell found that this letter also failed to satisfy the notice requirement, as the amount of the repayment was left undetermined.
Finally, Justice Perell accepted a subsequent letter that enclosed Intact’s accounting report as a proper notice. Justice Perell accepted the letter and report as notice, since it came close to calculating the correct amount of the overpayment and only erred by making a claim for 14-months of overpayments rather the limit of 12-months.
Interestingly, Justice Perell did not order repayment of CPP amounts. Intact’s accounting report included the CPP benefits in its overpayment calculation; however, Intact’s letter did not specifically request repayment of CPP benefits. Therefore, Justice Perell found Intact was not entitled to the CPP payments.
Given that Justice Perell did not define “perfectly correct” and “substantially correct”, we are left guessing when a particular notice falls on the spectrum between perfect and substantially correct. Nevertheless, it is fair to say that the evolving jurisprudence regarding overpayments has made it more difficult for insurers to recover overpayments. However, the Marianayam decision has provided much needed guidance on how to recover overpayments successfully. When faced with an overpayment situation, insurers must act quickly to identify and provide notice of any overpayment within 12 months or they may lose the right of recovery. Insurers must also ensure their notice contains the Knechtel requirements and the amount sought must comply with the statute.
See Intact Insurance Company v. Marianayam , 2016 ONSC 1479 Pries v. Economical Mutual Insurance Company, FSCO A11-002004, September 21, 2012; Economical Mutual Insurance Company v. Pries, FSCO Appeal P12-00036, July 8, 2013 [/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]