Solway et al. v. Attorney in Fact in Canada for Lloyd's Underwriters et al.

[Indexed as: Solway v. Lloyd's Underwriters (Attorney in Fact in Canada)]

80 O.R. (3d) 401

Court of Appeal for Ontario,

Doherty, Moldaver and Juriansz JJ.A.

May 24, 2006

Insurance -- Interpretation and construction -- Mover entering into agreement with customers to transport household belongings -- Trailer containing belongings stolen while parked on street -- Trial judge in action by customers against mover finding that mover was liable to customers for failing to deliver their belongings in accordance with terms of bill of lading -- Customers bringing application under s. 132 of Insurance Act to recover amount of their unsatisfied judgment against mover from mover's insurer -- Movers and Warehousemens' Insurance Policy containing different policy limits for "Transportation Insurance" and "Warehouse Insurance" -- Application judge erring in finding that loss came within warehouse section of policy rather than transportation section -- Insurance Act, R.S.O. 1990, c. I.8, s. 132.

Insurance -- Policy limits -- Policy silent as to whether post-judgment interest was included or excluded from policy limit -- Insurer required to pay post-judgment interest which exceeded policy limit.

The applicants entered into an agreement with a mover to transport their household belongings to their new home. By way of a separate oral agreement, the mover assured the applicants that after the belongings were picked up and before they were delivered, they would be stored in a trailer that was to be secured and parked at all times on the parking lot adjacent to the mover's business premises. The mover failed to live up to its end of the bargain and the trailer was stolen while it was parked on the street. The contents were never recovered. The applicants successfully sued the mover. The trial judge in that action found that the mover was liable to the applicants for failing to deliver their belongings in accordance with the terms of the bill of lading. That is, the mover's liability stemmed not from its failure to safely store the goods, but from its failure under the terms of the contract to deliver them. The trial judge then went on to determine whether a limitation clause in the bill of lading applied. That provision stated that the mover's liability was limited to $0.60 per pound per article unless value was declared and additional protection requested. The applicants did not declare the value of their belongings or request additional protection. The trial judge resolved that issue in favour of the applicants, finding that trailer storage was a term of the contract, that the mover had assured the applicants that in the two-week period pending delivery, their goods would be safely stored in a locked trailer parked on the mover's parking lot, that the mover did not live up to its end of the bargain and that the mover should bear the losses which were attributable to the breach of the contract between the parties. She concluded that the mover could not rely on a limitation of liability clause where it would be unreasonable to enforce it in the circumstances. The applicants' judgment against the mover was unsatisfied, so they brought an application under s. 132 of the Insurance Act to recover the amount of the judgment from the mover's insurer. The mover was insured under a Movers and Warehousemens' Insurance Policy with a policy limit of $500,000 for "Transportation Insurance" and a policy limit of $1 million for "Warehouse Insurance". The mover also maintained an excess commercial [page402] umbrella policy. Purportedly relying on the findings of the trial judge, the application judge found that the loss came within the warehouse provisions of the policy rather than the transportation provisions, so that the policy limit of $1 million applied. The insurer under the Movers and Warehousemens' Insurance Policy appealed.

Held, the appeal should be allowed in part.

The application judge erroneously conflated the trial judge's reasons for finding the mover liable with her reasons for refusing to permit the mover to rely on the limitation of liability clause in the bill of lading. The trial judge found the mover liable for failing to deliver the goods. In going on to find that the applicants should not bear the loss because of the limitation of liability clause, she was not fixing the mover with liability for having breached the terms of the "safe storage" contract; she was fixing the extent of the mover's liability (that is, how much the mover had to pay for failing to deliver the goods). The breach that gave rise to liability was a transportation breach, not a storage breach.

The application judge also erred in finding that under the policy, the limits of liability were governed by General Condition 6 and not paragraph 4(b) of the Limits of Liability provision. Had he interpreted paragraphs 2A, 2B and 2C under the heading "Scope of Insurance", he would have concluded that paragraph 4(b) under the heading "Limits of Liability" was the provision that governed the extent of the primary insurer's liability.

The primary insurer's policy was silent as to whether post- judgment interest was included or excluded from the policy limit. The application judge did not err in finding that, in the absence of any express contractual provision, there was no good reason for post-judgment interest to be included within the policy limit. The primary insurer was required to pay post- judgment interest accruing on the trial judgment to the extent that such post-judgment interest exceeded the $500,000 policy limit.

APPEAL from the judgment of Stinson J. (2005), 2005 10650 (ON SC), 75 O.R. (3d) 129, [2005] O.J. No. 1331 (S.C.J.) allowing an application against the insurer under s. 132 of the Insurance Act, R.S.O. 1990, c. I.8. [page403]

Cases referred to Consolidated-Bathurst Export Ltd. v. Mutual Boiler & Machinery Insurance Co., 1979 10 (SCC), [1980] 1 S.C.R. 888, [1979] S.C.J. No. 133, 112 D.L.R. (3d) 49, 32 N.R. 488, [1980] I.L.R. Â1-1176; Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., 1993 150 (SCC), [1993] 1 S.C.R. 252, [1993] S.C.J. No. 10, 83 Man. R. (2d) 81, 99 D.L.R. (4th) 741, 147 N.R. 44, 36 W.A.C. 81, [1993] 2 W.W.R. 433, [1993] I.L.R. Â1-2914 Statutes referred to Courts of Justice Act, R.S.O. 1990, c. C.43, ss. 129, 130 Insurance Act, R.S.O. 1990, c. I.8, s. 132 Truck Transportation Act, R.S.O. 1990, c. T.22 [rep. S.O. 2002, c. 18, Sched. P, s. 45] Rules and regulations referred to R.R.O. 1990, Reg. 1088 [revoked O. Reg. 639/05, s. 1] Authorities referred to McCamus, J.D., The Law of Contracts (Toronto: Irwin Law Inc., 2005)

Patrick J. Monaghan, for appellant Lloyd's Underwriters. Thomas J. Donnelly, for respondents Stuart Solway and Gayle Akler. Rui M. Fernandes and Ramon V. Andal, for Allianz Insurance. Bernard Gasee, for Renee and Elaine Bertrand.

The judgment of the court was delivered by

MOLDAVER J.A.: --

Introduction

1The outcome of this appeal hinges on the proper construction of a policy of insurance known in the industry as a "Movers and Warehousemens' Insurance Policy". The policy was issued by Lloyd's of London ("Lloyd's") to Kennedy Moving and Storage Limited ("Kennedy"). It is a comprehensive policy that provides coverage for many risks, including loss of property entrusted to Kennedy by a customer for transportation or storage purposes. In the case of such losses, absent agreement between Kennedy and its customer, the policy caps the amount of coverage for any one occurrence. In the case of "Transportation Insurance", the limit is $500,000; for "Warehouse Insurance", the limit is $1 million.

2In the case at hand, the application judge was called upon to determine which of those limits applied to a claim exceeding $500,000, where the loss was sustained by Kennedy's customers, Stuart Solway and Gayle Akler (the "Solways"). Kennedy had contracted with the Solways to move their household belongings to a new home. Under the terms of the agreement, evidenced by a bill of lading, the Solways' belongings were to be picked up by Kennedy on February 1, 1999 and delivered to their new home on February 15, 1999. By way of separate agreement, arrived at orally by the parties, Kennedy assured the Solways that during the two-week hiatus period, their belongings would be safely stored in a trailer that was to be secured and parked at all times on the parking lot adjacent to Kennedy's business premises.

3Kennedy failed to live up to its end of the bargain and the trailer was stolen while it was parked one night on the street in front of Kennedy's business location. The contents were never recovered. That precipitated an action by the Solways against Kennedy in which the Solways eventually obtained judgment for more than $500,000. Attempts to collect on that judgment proved unsuccessful and the Solways applied under s. 132 of the Insurance Act, R.S.O. 1990, c. I.8 to recover the amount of the judgment from Lloyd's. [page404]

4On the application, Lloyd's took the position that the loss occurred while the goods were in storage incidental to transit. As such, Lloyd's maintained that the extent of its liability was $500,000. Allianz Insurance Company of Canada ("Allianz"), with which Kennedy maintained an excess commercial umbrella policy, took a different view. According to Allianz, because the goods were stored when they were stolen, the warehouse provisions of the policy governed. Hence, Lloyd's liability extended to $1 million.

5The application judge agreed with Allianz and ordered Lloyd's to pay the sum of $756,005.93 to the Solways "in full satisfaction of the damages, costs, pre-judgment interest and post-judgment interest" owing to them.

6Lloyd's appeals from that order. It submits that the application judge erred in finding that its liability under the policy extended to $1 million (the policy limit for Warehouse Insurance) instead of $500,000 (the policy limit for Transportation Insurance). Lloyd's further contends that if its liability is limited to $500,000, it should not be required to pay beyond that limit for post-judgment interest accruing from the Solway/Kennedy action; nor should it be required to pay beyond that limit for any costs arising out of the Solway/ Kennedy action.

7For reasons that follow, I agree with Lloyd's that its liability under the policy should have been limited to $500,000. I disagree with Lloyd's on the issue of post-judgment interest and costs. To the extent that such interest and costs exceed the policy limit, Lloyd's is responsible to pay the additional amounts. Accordingly, I would allow the appeal in part.

Background Information

8In order to appreciate the reasons of the application judge and to see where, in my respectful view, he went wrong in his analysis, it is necessary to briefly review the reasons for judgment given by Himel J. in the action brought by the Solways against Kennedy (her reasons are reported at (2001), 2001 28079 (ON SC), 57 O.R. (3d) 205, [2001] O.J. No. 5049 (S.C.J.)). This is particularly so given that the parties to the s. 132 application accepted the findings of fact made by Himel J. and those findings, along with the legal consequences flowing from them, formed the backdrop against which the application was argued.

Himel J.'s Reasons for Judgment

9The action before Himel J. involved a number of issues, several of which need not concern us. For present purposes, it is only [page405] necessary to understand the basis upon which she fixed Kennedy with liability for the loss sustained by the Solways and the basis upon which she determined the extent of Kennedy's liability (i.e., how much Kennedy owed to the Solways).

10The issue of the basis for Kennedy's liability was non- contentious. Kennedy accepted that it was liable to the Solways for failing to deliver their belongings in accordance with the terms of the bill of lading. That is made clear in paras. 91 and 92 of Himel J.'s reasons:

There is no question and the defence [Kennedy] admits that the plaintiffs' [the Solways'] loss as a result of the theft was significant. Although it has not paid what it says it owes under the limitation of liability clause, the defence admits that it owes approximately $7,000 to the plaintiffs.

The contract between the parties was for carriage and storage of goods. That contract was partly written and partly oral consisting of the proposal, the oral arrangements and the bill of lading. Under the terms of the contract, failure to deliver the goods is a breach and the defendant is liable.

(Emphasis added)

11Thus, as Himel J. observed, Kennedy conceded that it was liable to the Solways for failing to deliver their goods. The only contentious issue was the amount Kennedy owed to the Solways.

12In accordance with Kennedy's admission, Himel J. found that Kennedy's liability stemmed not from its failure to safely store the goods, but from its failure under the terms of the contract to deliver them. That finding is significant and I will return to it later when I come to analyze the application judge's reasons. Suffice it to say that the only portion of the contract that Himel J. could have been referring to in regard to Kennedy's liability was the written component consisting of the bill of lading.

13The more difficult issue for Himel J. and the one on which Kennedy took its stand, was the extent of its liability to the Solways. In that regard, Kennedy relied on Condition 5 in the bill of lading, which provided as follows:

TERMS & CONDITIONS

The carrier is not responsible: . . . . .

5. Unless value is declared and additional protection is requested, carrier's liability is limited to $0.60 per pound per article including contents, whether such loss or damage is arising out of storage, transportation, packing, unpacking or handling. If additional protection is requested, the carrier's liability is limited in the case of loss or damage of the entire shipment to the amount of the declared value. In the case of partial loss or damage, it will be limited to the portion of such loss and damage which such declared value bears to the true market value of the entire shipment. [page406]

14As is apparent from the bill of lading and as the parties acknowledge, the Solways did not declare the value of their belongings; nor did they request additional protection (additional insurance) from Kennedy. Rather, as Himel J. observed in her reasons at para. 89, the Solways "elected to obtain their own insurance for the difference in the value of the goods and what they would be owed under the limitation of liability clause". In view of that, Kennedy maintained that its liability should be limited to 60 cents per pound in accordance with Condition 5 of the bill of lading. The Solways disagreed. They maintained that Kennedy should be responsible for the replacement value of their goods.

15That was the central issue dividing the parties. Himel J. recognized it as such at paras. 90 and 93 of her reasons:

The central question in this case is whether the plaintiffs must bear the loss because of a limitation of liability clause in the contract or whether that clause does not apply and the defendant is responsible. . . . . .

The issue is whether such liability is limited to 60 cents per pound under the clause contained in the bill of lading or whether the defence is precluded from relying on that clause. Under the legislative framework, the carrier is liable but the limitation of liability is at 60 cents per pound: see Regulation 1088, Truck Transportation Act, R.S.O. 1990, c. T.22, s. 3.

16As is by now obvious, Himel J. resolved that issue in favour of the Solways. In doing so, she rejected Ms. Acker's evidence on behalf of the Solways that she had been told by Kennedy that pending delivery, their belongings would be stored at Kennedy's "climate controlled and monitored" warehouse [at para. 76]. Nonetheless, based on evidence that she did accept, Himel J. was satisfied [at para. 95] that "trailer storage was a term of the contract" and that Kennedy had assured the Solways that in the two-week period pending delivery, their goods would be safely stored in a locked trailer that would at all times be parked on Kennedy's parking lot. Himel J. further found that Kennedy did not live up to its end of the bargain and that the trailer was stolen while parked one night on the street in front of Kennedy's business premises.

17In the circumstances, the question was -- who should bear the loss? Himel J. decided that issue against Kennedy. Her reasons are found at paras. 99 and 100 as follows:

In cases where loss results because of the acts of a third party, the issue is which party should bear the loss? The plaintiffs argue that they entered the contract with Kennedy because they were assured of security of their belongings. [page407]

In my view, it is the defendants who should bear those losses which were attributable to the breach of the contract between the parties. They cannot rely on a limitation of liability clause where it would be unreasonable to enforce it in the circumstances.

18As a result of Himel J.'s order, Kennedy ended up owing the Solways close to three-quarters of a million dollars. ¹ Attempts by the Solways to collect on the judgment proved futile. Accordingly, the Solways resorted to s. 132 of the Insurance Act, supra, which provides as follows:

132(1) Where a person incurs a liability for injury or damage to the person or property of another, and is insured against such liability, and fails to satisfy a judgment awarding damages against the person in respect of the person's liability, and an execution against the person in respect thereof is returned unsatisfied, the person entitled to the damages may recover by action against the insurer the amount of the judgment up to the face value of the policy, but subject to the same equities as the insurer would have if the judgment had been satisfied.

Section 132 Application

19As noted earlier, there were two insurers that the Solways could look to under s. 132 -- Lloyd's, as the primary insurer, and Allianz, as the excess insurer. Allianz's potential exposure as the excess insurer depended on the extent of Lloyd's exposure under its policy with Kennedy. If the Solways' loss came within the transportation section of the policy, then Lloyd's exposure was $500,000; if the Solways' loss came within the warehouse section of the policy, Lloyd's exposure was $1 million. The issue of which limit in the Lloyd's policy applied to the Solways' claim was thus the primary issue facing the application judge on the s. 132 hearing. ²

20The application judge, at paras. 30 and 31, neatly summed up the competing positions of the insurers and the task that he had to perform to resolve the dispute between them:

Lloyd's position is that it was agreed as between insurer and insured (Kennedy) that any losses that occurred during a move, or during storage incidental to moving of up to ninety days' duration, would be covered under [page408] the transportation section of the Lloyd's' Policy, with an applicable coverage limit of $500,000. The position of Allianz is that this claim does not fall under the transportation coverage provided in the policy, and thus the $500,000 limit does not apply. Instead, Allianz submits that the relevant policy limit is that specified under the policy's warehouse and storage coverage, which is $1 million.

The task at hand, therefore, is to examine the Lloyd's policy in order to determine which coverage responds to the Solways' claim.

Relevant Policy Provisions

21Bearing in mind the nature of his task, the application judge set out at para. 34 the relevant provisions of the Lloyd's policy, which appear under the heading "Coverage 3B -- Customers Goods Insurance". They are reproduced here for ease of reference: ³

COVERAGE 3B -- CUSTOMERS GOODS INSURANCE

TRANSPORTATION & STORAGE

1. Property Insured

The insurance provided by this policy applies with respect to property of any description, the property of others, from the time such property comes into the care, custody or control of the Insured or its authorized agents for the purpose of transportation or storage including all handling incidental thereto.

2. Scope of Insurance

The Insurer agrees to pay:

A. As respects property under a Bill of Lading, similar shipping document or agreement under which the Insured has agreed to provide Declared Valuation Protection, for direct loss, destruction or damage (including General Average and Salvage charges) of the Property Insured occasioned by all risks, except as hereinafter excluded, provided such loss, destruction or damage occurs while in due course of transit, including handling for packing and unpacking, or while in storage incidental to transit for a period not exceeding 90 days.

B. As respects property under a Warehouse Receipt or similar document under which the Insured has agreed to provide insurance to protect the interest of the owner(s) of the Property [page409] Insured while in storage in any location(s) described in the Schedule of this policy, including while in transit thereto or therefrom in or on trucks or trailers operated by the Insured or his authorized representative, for direct loss, destruction or damage (including General Average and Salvage charges) of the Property Insured by all risks except as hereinafter excluded.

C. To the extent that such is not provided for under sub-paragraphs A or B above, all sums which the Insured shall become obligated to pay by reason of the liability imposed by law upon, or assumed under agreement by, the Insured as a private or common carrier or warehouseman. . . . . .

4. Limits of Liability

The insurer shall not be liable under this policy for more than:

(a) As respects claims made under sub-paragraphs A and B of Scope of Insurance the amount of insurance or Declared Valuation agreed between the Insured and the Owner(s) of the Property Insured.

(b) As respects claims made under sub-paragraphs A and C combined, in no event for more than the Limit of Liability expressed in the Schedule as applicable to Transportation Insurance in any one occurrence.

(c) As respects claims made under sub-paragraphs B and C combined, in no event for more than the Limit of Liability expressed in the Schedule as applicable to Warehouse Insurance in any one occurrence. . . . . .

GENERAL CONDITIONS . . . . .

6. Valuation

Except where clause 8 -- Replacement Cost -- applies, as respects claims made under paragraph A or B of Scope of Insurance of this policy the Insurer agrees to pay not exceeding the actual cash value or cost of repair of property lost, damaged or destroyed, nor exceeding as respects any one in transit or in storage lot the value declared in the applicable Bill of Lading, Warehouse Receipt or similar document.

As respects claims made under paragraph C of Scope of Insurance under this policy, the Insurer agrees to pay all sums for which the Insured is legally liable subject to the limits of liability of the Transportation and Storage Sections.

Reasons of the Application Judge

22The application judge first directed his attention to the clause of the policy entitled "Scope of Insurance". He did so with a view to determining whether the Solways' claim fell within paragraphs 2A, 2B or 2C of that clause. In the end, he concluded [page410] that the claim and Kennedy's rights to indemnity under the Lloyd's policy arose under paragraph 2C. Given the centrality of this aspect of his reasons, both as to the outcome of the application and this appeal, I consider it necessary to reproduce in full the relevant passages from his reasons, commencing at para. 35 and concluding at para. 43:

Lloyd's submits that the Solways' claim falls within Scope of Insurance 2A. It submits that the Solways' goods were property under a bill of lading and that the loss occurred while the goods were in storage incidental to transit for a period of less than 90 days. With respect to the limit of liability, Lloyd's submits that limit 4(a) is not applicable, because there was no amount of insurance or declared valuation agreed between Kennedy and the Solways. Rather, Lloyd's submits that limit 4(b) applies, because it is a claim under Scope of Coverage 2A. As a result, the policy limit applicable to Transportation Insurance ($500,000) governs.

For its part, Allianz submits that the claim does not fall within para. 2A of the Scope of Insurance, because Kennedy did not agree to provide declared valuation protection. Similarly, Allianz submits, Coverage 2B is inapplicable, because Kennedy did not agree to provide insurance to protect the Solways' property while it was in storage. Instead, the argument continues, because it is outside 2A and 2B, the Solways' claim falls within Scope of Insurance 2C. The relevant policy limit is found in the General Conditions, para. 6, which references the limits of liability of the Transportation and Storage Sections. Since Kennedy's liability to the Solways was for breach of a storage agreement, the storage limit ($1 million) governs.

The first point to determine, therefore, is whether Kennedy's entitlement to payment under the Lloyd's Policy falls within Scope of Insurance 2A, 2B or 2C. As I noted early in these reasons, the Solways gave their goods to Kennedy pursuant to a bill of lading. That document contained the following provision (which was at the heart of the Solway v. Kennedy litigation):

Unless value is declared and additional protection is requested, carrier's liability is limited to $0.60 per pound per article including contents. Whether such loss or damage is arising out of storage, transportation, packing, unpacking or handling. If additional protection is requested, the carrier's liability is limited in the case of loss or damage of the entire shipment to the amount of the declared value. In the case of partial loss or damage, it will be limited to the portion of such loss and damage which such declared value bears to the true market value of the entire shipment.

No declared valuation was inserted in the Solway bill of lading and the goods were released to Kennedy at a value of $0.60 per pound per article.

It may thus be seen that the Solway-Kennedy bill of lading did not include or provide for protection for the owner of the goods based upon a declared valuation. Lloyd's submits, however, that the words "Declared Valuation Protection" in Scope of Insurance 2A apply only to the words "agreement under which the insured has agreed to provide Declared Valuation Protection" and do not apply to the words "Bill of Lading" in the opening phrase of that paragraph. I disagree, for several reasons.

Firstly, the references to "Bill of Lading" and "Declared Valuation Protection" in Scope of Insurance 2A cannot be viewed in isolation. For example, in [page411] General Condition 6 -- Valuation, the insurer's liability is limited to "the value declared in the applicable Bill of Lading". This is consistent with the limit found in Limits of Liability para. 4(a), which is stated to be the "Declared Valuation agreed between the Insured and the Owner(s) of the Property Insured" for claims made under Scope of Insurance 2A. The scheme of the policy, therefore, contemplates that where the insured has agreed to provide declared valuation protection (which can be provided under a bill of lading, similar shipping document or other agreement) and a loss occurs, the insurer agrees to indemnify the insured for the amount of the declared valuation. To somehow isolate the opening phrase of paragraph 2A, as Lloyd's submits, is illogical and inconsistent with the scheme of the policy.

Secondly, the interpretation for which Lloyd's contends is a restrictive one. It conflicts with the principle that coverage provisions should be construed broadly, as well as the contra proferentem rule. From a grammatical point of view, the words "under which the Insured has agreed to provide Declared Valuation Protection" contained in para. 2A can fairly be read as referring to "property under a Bill of Lading, similar shipping document or agreement".

23The application judge concluded:

It follows that Coverage 2A is applicable to property under a bill of lading only where the insured has agreed to provide declared valuation protection. The Solway-Kennedy bill of lading did not provide for that protection. I therefore conclude Coverage 2A is inapplicable.

The coverage provided by Scope of Insurance 2B extends to "property under a Warehouse Receipt or similar document under which the Insured has agreed to provide insurance to protect the interest of the owner(s) of the Property Insured while in storage". It is common ground that no warehouse receipt was provided nor did Kennedy agree to provide insurance to protect the Solways' interest in their belongings. It follows that Coverage 2B is inapplicable.

Scope of Insurance paragraph 2C provided insurance to Kennedy for liability that might be imposed upon it by law as a private or common carrier or warehouseman, to the extent not provided under 2A or 2B. Liability has been imposed by the judgment of Himel J. Neither Coverage 2A nor Coverage 2B is applicable. It therefore follows that Kennedy's rights to indemnity under the Lloyd's Policy arise under Coverage 2C.

24Having found that Kennedy's rights arose under paragraph 2C, the application judge next turned his attention to the issue of the applicable policy limit. He determined that there were two separate locations in the policy that addressed the insurance limits under "COVERAGE 3B -- CUSTOMERS GOODS INSURANCE" [at paras. 44 and 45]:

I turn now to the policy limit issue. The insurance limits under Coverage 3B for Transportation and Storage are found in two locations. Firstly, para. 4 entitled "Limits of Liability" contains in separate sub-paragraphs limits for (a) "claims made under sub-paragraphs A and B of Scope of Insurance"; (b) "claims made under sub-paragraphs A and C combined"; and (c) "claims made under sub-paragraphs B and C combined". [page412]

Secondly, under General Condition 6 "Valuation" another limit of liability is expressed, as follows:

As respects claims made under paragraph C of Scope of Insurance under this policy, the Insurer agrees to pay all sums for which the Insured is legally liable subject to the limits of liability of the Transportation and Storage Sections.

25Having identified two locations in the policy providing for the insurance limits under Coverage 3B for Transportation and Storage, the application judge considered the applicability of paragraphs 4(a), (b) and (c), found under the heading "Limits of Liability", to determine if any of those paragraphs applied. He concluded that none of them did, based on his earlier finding that Kennedy's claim for indemnity for the Solways' loss fell exclusively under paragraph 2C of the "SCOPE OF INSURANCE" provision [at para. 46]:

For the reasons previously expressed, Kennedy's claim for indemnity in respect of the Solway judgment does not fall within sub-paragraph 2A or sub-para. 2B of the Scope of Insurance; rather it falls exclusively under Coverage 2C. As such, limit of liability 4(a) is inapplicable. Since the Kennedy claim for indemnity is not combined with a claim under Coverage 2A or Coverage 2B, it is neither a claim made under sub-paras. 2A and 2C combined nor under sub-paras. 2B and 2C combined. As a result, the limits of liability expressed in paras. 4(b) and 4(c) have no application.

26With paragraphs 4(a), (b) and (c) off the table, the application judge found:

The only remaining limit of liability that could be applicable is the one contained in General Condition 6 and I conclude that it is.

27Regarding General Condition 6, the application judge stated that apart from situations "involving declared valuations or agreements by the insured to provide a specified amount of insurance" (neither of which existed here), the limits contemplated by the provision were "$500,000 for Transportation Insurance and $1 million for Warehouse Insurance".

28The application judge next posed the question whether a claim founded on a breach of a storage contract would be subject to the Warehouse Insurance limit. At para. 48, he answered that question in the affirmative:

Although the policy declarations specify $1 million as the amount of "Warehouse Insurance", Coverage 3B -- "Customers Goods Insurance" is subtitled "Transportation & Storage". The term "storage" is also used in subpara. 2B with reference to goods held by the insured under a warehouse receipt. It thus appears that the terms "warehouse" and "storage" are used in the policy interchangeably. I therefore conclude that a claim founded on a breach of a storage contract would be subject to the Warehouse Insurance limit. [page413]

29Given his conclusion that a breach of a storage contract would be subject to the Warehouse Insurance limit, the application judge outlined what he viewed as the final determination to be made in deciding which of the two potential policy limits applied. He framed the issue as follows at para. 49:

The determination of which policy limit is applicable thus comes down to the proper characterization of the claim in respect of which Kennedy seeks indemnity under the policy, namely, the Solway Judgment. In turn, the Solway Judgment is founded upon the reasons for decision of Himel J.

30The application judge then quoted extensively from Himel J.'s reasons in the Solway/Kennedy action. In particular, he focused on her reasons for finding that Kennedy could not rely on Condition 5 in the bill of lading (the 60 cents per pound limitation of liability clause) due to its failure to provide safe storage of the Solways' goods as agreed upon.

31The application judge made the following critical findings at paras. 50 to 52 of his reasons:

It may thus be seen that the basis of the finding of liability imposed by Himel J. was a breach of the term of the contract between the Solways and Kennedy regarding the security to be provided while the goods were stored in the Kennedy trailer. As such, liability was founded upon a breach of the parties' oral agreement concerning the storage of the Solways' goods, and was not founded upon a breach of the contract for their transportation.

In my opinion, by reason of the fact that liability was imposed upon Kennedy for breach of a contractual term relating to the storage of a customer's goods, the policy limit relating to claims arising from the transportation of customers' goods is not applicable. I am alert to the closing words in Scope of Insurance para. 2A, which refer to losses "while in storage incidental to transit for a period not exceeding 90 days". Those words only come into play, however, for claims that fall within the scope of para. 2A. For reasons previously articulated para. 2A has no application to the present claim.

I therefore conclude that the appropriate policy limit is that applicable to warehouse and storage claims. Pursuant to the policy declarations, the amount of Warehouse Insurance is $1 million. In my opinion that is the limit in the Lloyd's Policy that is applicable to the Solway claim.

(Emphasis added)

32In sum, the application judge concluded that the limit of $1 million for warehouse insurance applied for two main reasons. First, he was satisfied that under the policy, the limits of liability were governed by General Condition 6 (as argued by Allianz) and not paragraph 4(b) of the "Limits of Liability" provision (as argued by Lloyd's). That finding stemmed from his interpretation of the "SCOPE OF INSURANCE" clause and in particular, his conclusion that Kennedy's claim for indemnity fell exclusively under paragraph 2C of that provision. Second, he was satisfied [page414] that Kennedy's liability to the Solways stemmed from its failure to safely store their goods (i.e., for its breach of the safe storage contract as argued by Allianz) and not from its failure to deliver their goods (i.e., for its breach of the transportation contract as argued by Lloyd's).

Analysis

33For the reasons that follow, I am respectfully of the view that the application judge erred in his analysis of both issues. I propose to address them in reverse order, commencing with the basis upon which Himel J. fixed Kennedy with liability.

Issue one: Basis of Kennedy's liability

34The application judge concluded that Himel J. found Kennedy liable for breaching the "safe storage" contract. In so doing, I believe that the application judge erroneously conflated Himel J.'s reasons for finding Kennedy liable with her reasons for refusing to permit Kennedy to rely on the limitation of liability clause in the bill of lading. As I pointed out earlier in these reasons, in the action before Himel J., Kennedy admitted liability for failing to deliver the Solways' goods and Himel J. affirmed that concession at para. 92 of her reasons where she stated: "Under the terms of the contract, failure to deliver the goods is a breach and the defendant [Kennedy] is liable."

35Evidently, Himel J. found Kennedy liable to the Solways for failing to deliver their goods under the terms of the contract. The bill of lading was the part of the contract that dealt with the delivery of goods and that must be the aspect of the contract to which Himel J. was referring.

36The remainder of Himel J.'s reasons are taken up not with the basis for fixing Kennedy with liability, but with what she characterized at para. 90 of her reasons as the central question: "whether the plaintiffs [Solways] must bear the loss because of a limitation of liability clause in the contract or whether the clause does not apply and the defendant [Kennedy] is responsible" (emphasis added).

37In determining that issue against Kennedy, Himel J. was not fixing Kennedy with liability for having breached the terms of the "safe storage" contract (as Allianz argued and the application judge found); she was fixing the extent of Kennedy's liability, that is, how much Kennedy had to pay to the Solways for failing to deliver their goods (as Lloyd's argued).

38I recognize that Himel J. concluded that there was an oral component to the contract, namely, that the Solways' goods would [page415] be safely stored. However, this aspect was incidental to the written terms of the contract for transporting the Solways' goods, as evidenced by the bill of lading. With respect, there can be no doubt about the basis of Himel J.'s finding of liability against Kennedy. Kennedy failed to deliver the goods in accordance with the terms of the bill of lading. That is a breach of a "transportation contract", not a breach of the incidental oral term of the contract for safe storage. Thus, even given the application judge's conclusion that General Condition 6 governs the limits of liability, the breach that gave rise to liability was a transportation breach, not a storage breach.

39Accordingly, as I discuss in the next section, even though I disagree with the application judge's conclusion on the applicability of General Condition 6, had I been of a different view, I would nonetheless have fixed the extent of Lloyd's liability at $500,000, which was the limit for Transportation Insurance under the policy.

Issue two: Limits of liability

40This issue involves the construction of various provisions of the policy. For convenience, the key provisions are once again reproduced here: COVERAGE 3B -- CUSTOMERS GOODS INSURANCE

TRANSPORTATION & STORAGE

1. Property Insured

The insurance provided by this policy applies with respect to property of any description, the property of others, from the time such property comes into the care, custody or control of the Insured or its authorized agents for the purpose of transportation or storage including all handling incidental thereto.

2. Scope of Insurance

The Insurer agrees to pay:

A. As respects property under a Bill of Lading, similar shipping document or agreement under which the Insured has agreed to provide Declared Valuation Protection, for direct loss, destruction or damage (including General Average and Salvage charges) of the Property Insured occasioned by all risks, except as hereinafter excluded, provided such loss, destruction or damage occurs while in due course of transit, including handling for packing and unpacking, or while in storage incidental to transit for a period not exceeding 90 days.

B. As respects property under a Warehouse Receipt or similar document under which the Insured has agreed to provide insurance to protect the interest of the owner(s) of the Property [page416] Insured while in storage in any location(s) described in the Schedule of this policy, including while in transit thereto or therefrom in or on trucks or trailers operated by the Insured or his authorized representative, for direct loss, destruction or damage (including General Average and Salvage charges) of the Property Insured by all risks except as hereinafter excluded.

C. To the extent that such is not provided for under sub-paragraphs A or B above, all sums which the Insured shall become obligated to pay by reason of the liability imposed by law upon, or assumed under agreement by, the Insured as a private or common carrier or warehouseman. . . . . .

4. Limits of Liability

The insurer shall not be liable under this policy for more than:

(a) As respects claims made under sub-paragraphs A and B of Scope of Insurance the amount of insurance or Declared Valuation agreed between the Insured and the Owner(s) of the Property Insured.

(b) As respects claims made under sub-paragraphs A and C combined, in no event for more than the Limit of Liability expressed in the Schedule as applicable to Transportation Insurance in any one occurrence.

(c) As respects claims made under sub-paragraphs B and C combined, in no event for more than the Limit of Liability expressed in the Schedule as applicable to Warehouse Insurance in any one occurrence. . . . . .

GENERAL CONDITIONS . . . . .

6. Valuation

Except where clause 8 -- Replacement Cost -- applies, as respects claims made under paragraph A or B of Scope of Insurance of this policy the Insurer agrees to pay not exceeding the actual cash value or cost of repair of property lost, damaged or destroyed, nor exceeding as respects any one in transit or in storage lot the value declared in the applicable Bill of Lading, Warehouse Receipt or similar document.

As respects claims made under paragraph C of Scope of Insurance under this policy, the Insurer agrees to pay all sums for which the Insured is legally liable subject to the limits of liability of the Transportation and Storage Sections.

41The application judge found that General Condition 6 was the provision in the policy that governed the limits of Lloyd's liability. He rejected Lloyd's argument that the governing provision [page417] was paragraph 4(b) under the heading"Limits of Liability", which is in the section of the policy dealing with the transportation and storage of customers' goods. His rejection of Lloyd's argument stemmed from his interpretation of clause 2 under the heading"Scope of Insurance", which is in the same section of the policy. It will be recalled that the application judge found that the Solways' claim fell exclusively under 2C. It followed, in his view, that paragraph 4(b) did not apply because 4(b) relates to "claims made under sub-paragraphs A and C combined". Similarly, the remaining paragraphs 4(a) and 4(c) did not apply: paragraph 4(a) deals with "claims made under sub-paragraphs A and B" and 4(c) deals with "claims made under sub-paragraphs B and C combined".

42I am respectfully of the view that the application judge misconstrued paragraphs 2A, 2B and 2C under the heading "Scope of Insurance". Had he interpreted those paragraphs correctly, I am satisfied that he would have concluded that paragraph 4(b), under the heading "Limits of Liability", was the provision that governed the extent of Lloyd's liability.

43I begin my analysis with the observation that an insurance contract, like any other contract, should be construed in a manner that attempts to harmonize and make sense out of the various provisions contained in it, and does not strain them. Ambiguities are to be resolved in favour of the insured. But ambiguity does not exist whenever the policy contains wording that could be open to two or more reasonable interpretations. Before resorting to the contra proferentem principle, an effort should be made to interpret the policy in a commercially reasonable fashion and in a way that gives effect to the reasonable expectations of the parties. With respect, I believe that the application judge failed to apply those principles in his construction of the relevant provisions. (See John D. McCamus, The Law of Contracts (Toronto: Irwin Law Inc., 2005) at pp. 717-24; Consolidated- Bathurst Export Ltd. v. Mutual Boiler & Machinery Insurance Co., 1979 10 (SCC), [1980] 1 S.C.R. 888, [1979] S.C.J. No. 133 and Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., 1993 150 (SCC), [1993] 1 S.C.R. 252, [1993] S.C.J. No. 10.)

44It seems to me that barring clear language to the contrary, it makes little commercial or practical sense to interpret paragraphs 2A, B and C, under the heading "Scope of Insurance", in a manner that fails to harmonize them with paragraphs 4(a), (b) and (c), under the heading "Limits of Liability". The application judge's failure to harmonize the paragraphs of these two sections led to his reliance on General Condition 6, a condition that on its face has everything to do with valuation and nothing to do with [page418] limits of liability -- General Condition 6 appears under the heading "Valuation", not "Limits of Liability". In my respectful view, by treating General Condition 6 as a limits of liability provision, the application judge effectively re-wrote the contract. And he did so to fill in a gap of his own making.

45It is common ground that under the heading "Scope of Insurance", paragraph 2A relates to Transportation Insurance and paragraph 2B relates to Warehouse Insurance. The question to be determined is how paragraph 2C fits into the scheme of things. Is it to be read in isolation from claims brought under paragraphs 2A and 2B, or is it to be incorporated into and read in conjunction with them?

46In my view, the answer lies in construing clause 2 in a manner that gives effect to the intention and reasonable expectations of the parties and that harmonizes this clause with the limitation of liability provisions in clause 4. When that is done, it seems apparent to me that paragraph 2C should be read in conjunction with paragraphs 2A and 2B, and not in isolation.

47The application judge saw the matter differently. He concluded that paragraph 2A was not invoked in the instant case because in the bill of lading between Kennedy and the Solways, Kennedy did not agree to provide "Declared Valuation Protection" to the Solways. In my view, he was correct in his interpretation of paragraph 2A to the extent that he concluded that the references to "Bill of Lading" and "Declared Valuation Protection" in 2A cannot be viewed in isolation. In other words, contrary to Lloyd's suggested interpretation of this paragraph, paragraph 2A does refer to property under a bill of lading under which the insured has agreed to provide declared valuation protection.

48He also found [at para. 42] that paragraph 2B was not engaged because "no warehouse receipt was provided, nor did Kennedy agree to provide insurance to protect the Solways' interest in their belongings". Again, I agree with this part of his analysis.

49Having found that paragraphs 2A and 2B did not apply, the application judge determined [at para. 43] that "Kennedy's rights to indemnity under the Lloyd's Policy [arose] under Coverage 2C."

50The application judge next turned his attention to the "policy limit issue" and in particular, to clause 4 under the heading "Limits of Liability". He concluded that none of the three paragraphs in clause 4 applied because none of them referred to claims brought exclusively under paragraph 2C of the "Scope of Insurance" clause.

51It is here, in my respectful view, that the application judge fell into error. Clause 2 entitled "Scope of Insurance" begins with [page419] the words"The Insurer agrees to pay". Those words modify each of paragraphs 2A, B and C. Paragraphs 2A and B will apply where the amount for which the insurer agrees to indemnify the insured is specified: under paragraph 2A, it will be the amount of the "Declared Valuation Protection" that the insured has agreed to provide in respect of the property under a bill of lading, similar shipping document or agreement; under paragraph 2B, it will be the amount of insurance that the insured has agreed to provide under a warehouse receipt or a similar document, to protect the interest of the owner of the insured property while the property is in storage. Thus, when a claim is made exclusively under either of those paragraphs, the limit of Lloyd's liability is known from the outset. It is the amount that Lloyd's "has agreed to pay" and it dovetails with the limits of Lloyd's liability under paragraph 4(a).

52Where, however, as in this case, the Insured has not agreed under the bill of lading to provide "Declared Valuation Protection", paragraph 2C is engaged. The opening words of this paragraph read: "to the extent that such is not provided for under sub-paragraphs A or B above" (emphasis added). In my view, the word "such" refers back to the opening words of clause 2 under the heading "Scope of Insurance": "The Insurer agrees to pay". And where "such" is not provided for in the bill of lading, it gets identified under paragraph 2C as "all sums which the Insured shall become obligated to pay by reason of the liability imposed by law upon, or assumed under agreement by, the Insured as a private or common carrier or warehouseman" (emphasis added).

53Viewed that way, for purposes of interpreting the limits of Lloyd's liability under clause 4, I see no impediment to reading paragraph 2C in conjunction with paragraph 2A where the Insured has not agreed to provide "Declared Valuation Protection" under a bill of lading or other similar shipping document or agreement. Indeed, on the facts of this case, I believe that 2C and 2A fit comfortably together.

54The Solways contracted with Kennedy under a bill of lading to transport their goods to their new home. The goods were lost (stolen) while in storage incidental to transit for a period of less than 90 days, as contemplated in paragraph 2A. Under the bill of lading, Kennedy did not agree to provide "Declared Valuation Protection". Thus, the sum that Kennedy was obligated to pay fell to be determined under paragraph 2C. That is where the Kennedy/Solway action before Himel J. comes in.

55The battle before Himel J. was, in effect, to determine how much the sum under paragraph 2C would be. Kennedy argued that it should be 60 cents per pound according to the liability [page420] imposed on it by law (Reg. 1088, Truck Transportation Act, R.S.O. 1990, c. T.22) or under its agreement with the Solways (60 cents per pound under Condition 5 of the bill of lading). The Solways maintained that it should be the replacement value of the goods. Himel J. agreed with the Solways.

56The application judge was called upon to determine the limits of Lloyd's liability in those circumstances. In my view, paragraph 4(b) under the heading "Limits of Liability" was tailor-made for the situation. The Solways' claim was a claim made under a combination of paragraphs 2A and 2C. As such, the extent of Lloyd's liability is $500,000, which is the specified limit for Transportation Insurance in any one occurrence.

57Construing the paragraphs in clause 2 in this way harmonizes it with the "Limits of Liability" provision contained in clause 4. This construction also pays heed to the intentions and reasonable expectations of the parties. In that regard, surely Kennedy and Lloyd's would have expected that the limit of Lloyd's liability for occurrences identified in paragraphs 2A, B and C would be located in the "Limits of Liability" provision, especially when that provision is contained in the same section of the policy and specifically identifies claims under paragraphs 2A, B and C. What they would not reasonably expect, in my view, is that the limit of liability would be located in a general provision of the policy (General Condition 6) that was meant to deal with the value of a claim, not the limits of Lloyd's liability.

58In concluding that paragraph 4(b) is the operative limitation of liability clause in this case, I recognize that an argument could also be made that paragraph 4(c) should apply and thus the Solways' claim should be viewed as a claim under paragraphs 2B and 2C combined. The argument would be that the Solways' goods were stored when stolen, as contemplated in paragraph 2B, and the amount of Kennedy's liability was to be determined under 2C.

59However, in my view, that argument is too great a stretch. There was no warehouse receipt here; rather, there was a bill of lading that called for Kennedy to deliver the Solways' goods. Kennedy did not comply. The Solways' goods were stolen while in storage incidental to transit for a period of less than 90 days. Kennedy was found liable to the Solways under the bill of lading for failure to deliver their goods, not for failing to store them safely. The failure to safely store the goods resulted in a judicial determination that Kennedy was not entitled to rely on the clause limiting its liability to 60 cents per pound, as found in the bill of lading. The enhanced sum was the sum that Kennedy became obligated by law to pay to the Solways for its failure to [page421] deliver their goods. The situation here is precisely the one envisaged by clause 4(b) under the heading "Limits of Liability".

60Accordingly, I am respectfully of the view that the application judge erred in finding that the limit of Lloyd's liability was $1 million for Warehouse Insurance. Rather, the limit of Lloyd's liability should have been fixed at $500,000 for Transportation Insurance.

Other Issues

Post-judgment interest accruing on the judgment of Himel J.

61Lloyd's submits that it should not be required to pay post-judgment interest accruing on the judgment of Himel J. to the extent that such post-judgment interest exceeds the $500,000 policy limit.

62The application judge rejected that submission. He noted that the Lloyd's policy was silent as to whether post-judgment interest is included or excluded from the policy limit. He also observed that under s. 129 of the Courts of Justice Act, R.S.O. 1990, c. C.43, post-judgment interest accrues automatically unless the court exercises its discretion under s. 130 to disallow interest. He chose not to do so in this case. His reasons for not including post-judgment interest within the policy limit are captured in para. 57:

In the absence of any express contractual provision, I can see no good reason for post-judgment interest to be included within the policy limit. This can be illustrated by positing the situation where a judgment is granted against an insured for an amount equal to or greater than the policy limit. In such a situation, if post-judgment interest was included in the policy limit the insurer could (theoretically) delay payment with virtual impunity by, for example, prosecuting an unmeritorious appeal, since its exposure to its insured would be capped at the policy limit. Meanwhile, post-judgment interest would continue to accrue. In light of the insured's obligation to pay post-judgment interest once a claim has been crystallized into a judgment, it makes sense to impose a like obligation on the insurer, regardless of the policy limit.

63I agree with the application judge's analysis and would not give effect to this ground of appeal.

Costs awarded against Kennedy

64Lloyd's submits that the costs awarded against Kennedy and in favour of the Solways arising from the Kennedy/Solway action before Himel J. and from the appeals to this court and the leave application to the Supreme Court of Canada should be included under the $500,000 policy limit. [page422]

65The application judge rejected that submission. In doing so he referred to two provisions in the policy under the heading "GENERAL CONDITIONS". They state:

2. Defence Costs

The Insurer further agrees to defend in the name and on behalf of the Insured and at the cost of the Insurer any civil action which may at any time be brought against the Insured on account of such property damage, which costs shall be in addition to the applicable limit of liability stated elsewhere herein.

3. Admission of Liability and Action

(a) The Insured shall have the right to settle any claim not exceeding the deductible amount without prior reference to the Insurer.

The insured shall not otherwise admit any liability and as respects claims under C of Scope of Insurance the Insurer hereby reserves the right to compromise or contest at its option, on behalf of and in the name of, but with no expense to the Insured, any and all claims made against the Insured in respect of liability covered by this Policy.

66After setting out the relevant provisions, the application judge noted that in the present case, Lloyd's elected to defend the Solway action. As a result of that unsuccessful defence, on top of Kennedy's liability to the Solways for damages and pre-judgment interest on that sum, Kennedy was exposed to an adverse costs award of more than $110,000. In rejecting the submission that those costs should be included in the policy limit, the application judge stated at paras. 61 to 63:

Applying the principles of broad construction of coverage provisions, narrow construction of exclusion clauses and the contra proferentem rule, I conclude that the correct interpretation of the words "with no expense to the Insured" in General Condition 3 is that the insured is not to be called upon to bear any expense arising from the defence of a claim, whether payable to its own solicitors or to the opposite party. It is well known that, almost invariably, one of the expenses involved in litigation is that incurred by an unsuccessful party who is ordered to pay costs to a successful adversary.

I acknowledge that in another portion of the policy [in the Commercial General Liability portion of the policy] the insurer chose to address this topic with more specific language. That provision, however, related to different coverage. In relation to the coverage that is responsive to the Solways' claim against Kennedy, however, the court must have regard to the language that the insurer chose to include as part of the general conditions applicable to this specific coverage.

Since I have concluded that the costs of defending the Solway Action, including any award of costs made by the court in favour of the Solways ought not be borne by Kennedy, it follows that it is my opinion that any costs awarded against Kennedy and in favour of the Solways should be excluded from the policy limit. [page423]

67I agree with the application judge's analysis. Accordingly, I would not give effect to this ground of appeal.

The Bertrand claim

68The trailer containing the Solway goods also contained the goods of Renee and Elaine Bertrand. Most of the goods belonging to the Bertrands were never recovered. The Bertrands also commenced an action against Kennedy.

69At the time of the Solways' s. 132 application, the Bertrand action against Kennedy had not yet proceeded to discovery and hence the Bertrands did not yet have a claim against Lloyd's or Allianz under s. 132 of the Insurance Act.

70Counsel for the Bertrands appeared on the Solway application seeking an order that the claims of the Solways should be prorated with those of the Bertrands. The application judge rejected that submission and the Bertrands do not challenge it on appeal.

71The Bertrands filed a factum on the appeal and appeared by counsel. At the outset of the appeal, their counsel indicated that the Bertrands would be content if we either dismissed the appeal or allowed the appeal and found that Lloyd's liability for the Solway claim was limited to $500,000. Given my conclusion that the $500,000 limit is the proper one, I specifically refrain from commenting further about the Bertrand matter.

Conclusion

72For the foregoing reasons, I am of the view that the policy limit in the Lloyd's policy applicable to the Solways' claim under s. 132 of the Insurance Act is $500,000. Accordingly, an order shall issue:

(a) Declaring that the Solways have a cause of action pursuant to s. 132(1) of the Insurance Act against Lloyd's in respect of the proceeds of the Lloyd's policy;

(b) Declaring that Lloyd's was required to indemnify the Solways in the amount of $500,000 for the Solway judgment plus costs and post-judgment interest accruing thereunder that exceed that amount;

(c) Declaring that the funds paid into court by Lloyd's on May 13, 2004, together with all accrued interest, be paid out to the Solways in partial satisfaction of Lloyd's liability to them under (b) above; [page424]

(d) Declaring that Lloyd's shall pay to the Solways directly the remaining sum, if any, due to them after deducting the amount received by the Solways under (c) above;

(e) Declaring that the sums payable to the Solways pursuant to (b), (c) and (d) above shall be paid to them without any proration with respect to the claims of the Bertrands; and

(f) Remitting the matter back to the application judge, if necessary, to determine whether there is coverage for the Solways' claim under the Allianz policy.

Costs

73Having reviewed the submissions of the parties and bearing in mind that Lloyd's and Allianz achieved partial success throughout, I am of the view that Lloyd's and Allianz should bear their own costs of the application and the appeal.

74With respect to the Bertrands, they had no success on the application and their involvement in the appeal was marginal at best. Accordingly, I would order that they bear their own costs of the application and the appeal.

75With respect to the Solways, Lloyd's had some success against them on the appeal but it was marginal. In essence, the Solways were primarily concerned with the issues of post- judgment interest and costs and they have achieved success on those issues throughout. Accordingly, I would not interfere with the award of costs made in their favour by the application judge against Lloyd's. On the appeal, I would order Lloyd's to pay costs to the Solways on a partial indemnity basis in the amount of $5,000 inclusive of GST and disbursements.

Appeal allowed in part.

Notes

Footnotes

1. 1That amount included the cum of $437,500 in damages for the loss of the Solways' goods plus pre-judgment interest, post-judgment interest and costs. The costs included the costs that Himel J. awarded against Kennedy plus further costs occasioned by Lloyd's in pursing on Kennedy's behalf a largely unsuccessful appeal from Himmel J's order to this court and an unsuccessful leave application to the Supreme Court of Canada.
2. 2By operation of s. 132 of the Insurance Act, the Solways stepped into the shoes of the insured, Kennedy, for purposes of obtaining indemnification under the Lloyd's policy.
3. 3I have omitted clauses 2 and 3 in the section entitled "GENERAL CONDITIONS". They are relevant to Lloyd's secondary argument concerning post-judgment interest and costs and are reproduced later in these reasons at para. 65.