Baig v. Guarantee Co. of North America

88 O.R. (3d) 161

Court of Appeal for Ontario,

Rosenberg, Armstrong and Juriansz JJ.A.

December 5, 2007

Insurance -- Automobile insurance -- Examination under oath -- Statutory Condition 6(4) not ceasing to operate when litigation is commenced -- Insurer having right to examine insured under oath pursuant to Statutory Condition 6(4) at any time -- Scope of examination extending to all matters material to insurer's liability which insurer has objective and reasonable basis to explore -- Statutory Conditions -- Automobile Insurance, O. Reg. 777/93, Statutory Condition 6(4).

In order to obtain OPCF-19A coverage for his automobile, the insured submitted an appraisal report signed by G of Discount Appraisals. The insurer provided the insured with an OPCF-19A endorsement on the vehicle in the amount of $71,300. After the vehicle was damaged in a collision, the insured submitted a Proof of Loss claiming the full amount specified in the OPCF- 19A endorsement. The Proof of Loss indicated the vehicle was purchased for US$12,500. The insurer learned that G was the insured's common law partner and that they operated Discount together. The insurer required the insured to attend an examination under oath pursuant to Statutory Condition 6(4) of Statutory Conditions -- Automobile Insurance. The insured did so but refused to answer any questions about how the amount in the appraisal had been determined. The insured commenced an action against the insurer claiming damages for loss of the automobile together with punitive, exemplary and aggravated damages. The insurer filed a statement of defence alleging that the appraisal prepared by Discount had been greatly overstated and that the insured, G and Discount had misrepresented the value of the vehicle. The insurer counterclaimed against the insured, G and Discount for misrepresentation and detrimental reliance. The insurer brought a motion for an order compelling the insured to attend to be examined under oath pursuant to Statutory Condition 6(4) and to answer questions about the initial valuation of the vehicle. The insured, G and Discount sought summary judgment dismissing the counterclaim. The motion judge found that once the relationship between an insurer and an insured becomes adversarial, or at least once a lawsuit is commenced, the examination under Statutory Condition 6(4) is no longer available to the insurer. He also found that the insurer's attempt to question the insured on the initial valuation of the vehicle was beyond the scope of the examination under Statutory Condition 6(4). He granted summary judgment dismissing the counterclaim. The insurer appealed.

Held, the appeal should be allowed.

Statutory Condition 6(4) does not cease to apply once the relationship between the insurer and the insured becomes adversarial or when litigation is commenced. The statutory examination and the examination for discovery can co-exist. The insured was required to submit to the statutory examination even though he had commenced a civil action against the insurer.

The scope of the statutory examination extends to all matters material to the insurer's liability and extent thereof which the insurer has an objective and reasonable basis to explore. As the insurer had an objective and reasonable basis for suspecting that the initial appraisal was fraudulent, the insured was obligated to submit to an examination about it. [page162]

The motion judge erred in granting summary judgment dismissing the counterclaim. The failure of G and Discount to adduce any evidence that there was no genuine issue for trial was fatal to their motion.

APPEAL by the insurer from the order of Gordon J., [2006] O.J. No. 3781, 151 A.C.W.S. (3d) 516 (S.C.J.), dismissing its counterclaim and finding that it had no right to compel the insured to attend for an examination under oath.

Cases referred to Aviva Insurance Co. of Canada v. Balvers, 2007 CanLII 17193 (ON SC), [2007] O.J. No. 1935, 49 C.C.L.I. (4th) 313, 157 A.C.W.S. (3d) 826 (S.C.J.), consd

Other cases referred to Hi-Tech Group Inc. v. Sears Canada Inc. (2001), 2001 CanLII 24049 (ON CA), 52 O.R. (3d) 97, [2001] O.J. No. 33, 11 B.L.R. (3d) 197, 4 C.P.C. (5th) 35 (C.A.); Igbokwe v. HB Group Insurance Management Ltd. (2001), 2001 CanLII 3804 (ON CA), 55 O.R. (3d) 313, [2001] O.J. No. 3018, 204 D.L.R. (4th) 434, [2002] I.L.R. Â1-4045, 20 M.V.R. (4th) 50 (C.A.); Velovski v. Aviva Canada Inc. (2005), 2005 CanLII 33585 (ON SC), 77 O.R. (3d) 520, [2005] O.J. No. 4013, 30 M.V.R. (5th) 135 (S.C.J.)

Statutes referred to Insurance Act, R.S.O. 1990, c. I.8

Rules and regulations referred to Automobile Insurance, R.R.O. 1990, Reg. 664 (Insurance Act), s. 9.1 [as am.] General Regulations, O. Reg. 458/03 (Insurance Act) Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rules 20.04 [as am.], 49 [as am.], 76.04 [as am.] Statutory Accident Benefits Schedule -- Accidents on or after November 1, 1996, O. Reg. 403/96, s. 33(1.1) [as am.] Statutory Conditions -- Automobile Insurance, O. Reg. 777/93, Statutory Condition 6(4)

Authorities referred to Carthy, J.J., W.A. Derry Millar and J.G. Cowan, Ontario Annual Practice 2007-2008 (Aurora, Ont.: Canada Law Book, 2007)

Counsel: Ian Newcombe and Peter Volaric, for Guarantee Company of North America. Daniel J. Fife, for Rehman Baig.

The judgment of the court was delivered by

[1] JURIANSZ J.A.: -- This appeal primarily concerns the availability and scope of the examination of an insured that an insurer is entitled to conduct pursuant to Statutory Condition 6(4) of Statutory Conditions -- Automobile Insurance, O. Reg. 777/93, issued as part of the regulations under the Insurance Act, R.S.O. 1990, c. I.8. The statutory condition provides: [page163]

6(4) The insured shall submit to examination under oath, and shall produce for examination at such reasonable place and time as is designated by the insurer or its representative all documents in the insured's possession or control that relate to the matters in question, and the insured shall permit extracts and copies thereof to be made.

[2] The Guarantee Company of North America ("GCNA") is appealing a decision by Gordon J., dated July 28, 2006, in which he dismissed GCNA's counterclaim against the respondents Leanne Giilck and Discount Auto Appraisals ("Discount Appraisals") and found that it had no right to compel the respondent, Rehman Baig, to attend for an examination under oath pursuant to the Insurance Act.

[3] I would allow the appeal by finding that the statutory condition does not cease to operate once litigation is commenced and that the scope of the examination extends to all matters material to the insurer's liability and extent thereof which the insurer has an objective and reasonable basis to explore. I would also allow the appeal of the summary judgment granted to two of the defendants on the counterclaim.

Facts

[4] GCNA insured Baig's 1999 BMW M3 convertible beginning in 2002. The insurance included OPCF-19A coverage, which insures the vehicle for a specified value. To obtain such coverage, Baig submitted an appraisal report signed by Giilck of Discount Appraisals. Upon receiving the appraisal, GCNA provided Baig with an OPCF-19A endorsement on the vehicle in the amount of $71,300.

[5] The vehicle was damaged in a collision on December 10, 2004. Baig submitted a Proof of Loss to GCNA claiming the full amount specified in the OPCF-19A endorsement. The Proof of Loss indicated the vehicle had been purchased on February 23, 2002, for US$12,500 "as per salvage price". As well, GCNA had learned that Giilck was the common-law partner of Baig and that together they operated Discount Appraisals.

[6] GCNA required Baig to attend an examination under oath pursuant to Statutory Condition 6(4) on April 6, 2005. Baig attended with counsel who refused to allow GCNA to ask any questions about how the amount in the appraisal had been determined. He took the position that the examination was restricted to the particulars of the claim and did not extend to the appraisal report, which he regarded as a prior underwriting event. Consequently, no questions were answered.

[7] On May 27, 2005, Baig commenced an action against GCNA claiming damages for loss of the automobile together [page164] with punitive, exemplary and aggravated damages of $100,000 each. On June 29, 2005, GCNA filed a statement of defence alleging that the appraisal prepared by Discount Appraisals had been greatly overstated due to the poor condition of the BMW at the time, and that Baig, Giilck and Discount Appraisals had misrepresented the value of the BMW. The appellant counterclaimed against Baig, Giilck and Discount Appraisals for misrepresentation and detrimental reliance.

[8] The appellant brought a motion for an order compelling Baig to attend to be examined under oath pursuant to Statutory Condition 6(4) and to answer questions relating to the initial valuation of his vehicle. In response Baig, Giilck and Discount Appraisals sought summary judgment dismissing the counterclaim.

Decision of the Motion Judge

Examination under oath

[9] The motion judge observed that the statutory examination under oath was redundant because GCNA had the right to examine Baig for discovery in the lawsuit. He took the view that once the relationship between an insurer and an insured becomes adversarial, or at least once a lawsuit is commenced, the examination under Statutory Condition 6(4) is no longer available to the insurer. He explained at para. 25 that once the relationship became adversarial, "the insurer . . . forfeited its right to an examination under oath. To allow otherwise would be an abuse of the insured's duty to cooperate. It would compel him to assist the insurer in mounting a defence to his claim."

[10] The motion judge also took the view that GCNA's attempt to question Baig on the initial valuation of the vehicle was beyond the scope of the examination under Statutory Condition 6(4). He said at para. 21:

The purpose of an examination under oath is to assist the insurer in the investigation of the claim. When considering the reference to "matters in question" in section 6(4), the whole of section 6 must be taken into account. The focus of section 6 is the claim. An examination under oath, therefore, under section 6(4) is restricted to the claim presented by the insured under section 6(1). The insured has a duty to cooperate with the insurer but has no obligation to answer questions as to underwriting. If the examination was intended to be used for purposes of other than investigating the claim, the statutory provision would have specifically addressed such matters.

[11] He concluded valuation and associated premiums, which the parties had already agreed on, did not relate to the claim and so were not "matters in question". [page165]

Summary judgment

[12] The motion judge granted summary judgment dismissing GCNA's counterclaim against Giilck and Discount Appraisals. He noted that GCNA, in its statement of defence, pleaded that the only reason it had denied Baig's claim was his failure to respond to proper questions at the examination under oath pursuant to Statutory Condition 6(4). He reasoned that since Giilck and Discount Appraisals were not implicated in Baig's refusal to be examined under oath, there could be no basis for the counterclaim against the other two defendants.

[13] In addition, he found that the affidavits filed on behalf of GCNA, which were sworn by its solicitor, did not comply with rule 20.04 [of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194]. These affidavits relied on the allegations contained in the pleadings and tendered no evidence as to the facts.

[14] The motion judge was satisfied there was no genuine issue for trial with respect to the counterclaim against Giilck and Discount Appraisals and granted summary judgment dismissing the counterclaim as against them.

Analysis

Right to the statutory examination under oath after a lawsuit has commenced

[15] I do not agree with the motion judge's conclusion that Statutory Condition 6(4) ceases to apply once the relationship between the insurer and the insured becomes adversarial or when litigation is commenced. There are no words in the provision that indicate an insurer's right to examine an insured is limited to the situation in which their relationship is not adversarial. In my view, the statutory condition must be applied according to its plain terms. An insured cannot evade the plain requirement to submit to an examination by the simple expedient of commencing an action.

[16] The motion judge was concerned that an examination pursuant to the statutory condition would be redundant, given the right of examination for discovery in the civil action. Therefore, he found the statutory condition ceases to operate once litigation has commenced. However, finding the statutory condition ceases to operate is unnecessary in order to avoid any redundancy, even if mere redundancy allowed a court to find legislation inoperative. Redundancy can be avoided because the court, in controlling its own procedures, is able to consider questions that have already been asked and answered on a statutory examination [page166] improper on a subsequent examination for discovery. The fact that an insurer has the right to a statutory examination and an examination for discovery does not mean the insured must answer the same questions twice. The insured may be required to attend twice, but that is a consequence of clear legislation.

[17] In reaching his conclusion, the motion judge relied on Igbokwe v. HB Group Insurance Management Ltd. (2001), 2001 CanLII 3804 (ON CA), 55 O.R. (3d) 313, [2001] O.J. No. 3018 (C.A.) ("Igbokwe") and Velovski v. Aviva Canada Inc. (2005), 2005 CanLII 33585 (ON SC), 77 O.R. (3d) 520, [2005] O.J. No. 4013 (S.C.J.) ("Velovski").

[18] In Igbokwe, Labrosse J.A. held that s. 9.1 of Automobile Insurance, R.R.O. 1990, Reg. 664 ceases to operate upon the commencement of litigation and therefore does not apply to Rule 49 offers. He found that "s. 9.1 and Rule 49 cannot work in tandem". His conclusion that the legislature did not intend that s. 9.1 should apply to Rule 49 offers rested on his finding that the regulation and the rule were in irreconcilable conflict. In this case, the motion judge identified the mischief as redundancy not irreconcilable conflict. There is no conflict in this situation because both the rules and the Statutory Condition require the same thing -- that the insured submit to questioning by the insurer.

[19] Velovski was a case under the simplified procedure. Rule 76.04 specifically provides that examinations for discovery are not permitted under the simplified procedure. The judge found that the defendant insurer was attempting to evade this rule by purporting to exercise its right to a statutory examination under oath provided by s. 33(1.1) of the Statutory Accident Benefits Schedule -- Accidents on or after November 1, 1996, O. Reg. 403/96, amended to O. Reg. 458/03. He stated that the insurer's right to the statutory examination was overtaken by the institution of the action. Consequently, he refused to allow the insurer to amend its pleading to rely on the plaintiff's failure to attend for the examination as a defence. Without approving of the reasoning in that case, I note that the problem the judge perceived was conflict between s. 33(1.1) of the Statutory Accident Benefits Schedule and the Rules of Civil Procedure. The former provided for an examination and the latter prohibited one.

[20] At least one other judge of the Superior Court has taken a different view in the context of the examination under oath provided by the Statutory Accident Benefits Schedule -- Accidents on or after November 1, 1996, O. Reg. 403/96, amended to O. Reg. 458/03 (which was at issue in Velovski). Justice E.M. Stewart in Aviva Insurance Co. of Canada v. Balvers, 2007 CanLII 17193 (ON SC), [2007] O.J. No. 1935, 157 A.C.W.S. (3d) 826 (S.C.J.) ("Aviva") concluded the fact that the insured had commenced a civil action against the insurer did [page167] not affect the separate statutory entitlement of the insurer to conduct an examination under oath. She noted [at para. 24]:

Civil actions may be prosecuted expeditiously or may stall. The issues may overlap or may be entirely different. The scope of questions on an examination for discovery will be determined by the pleadings and the Rules, whereas the examination under oath is confined to those matters governed by the Schedule. Moreover, disputes concerning the nature and scope of questions asked on an examination for discovery are dealt with pursuant to the Rules, whereas failure to comply with the procedure provided for in the Schedule attracts a very different sanction.

She expressed her view that both entitlements could coexist in harmony.

[21] In my view, the approach taken in Aviva is correct. The insurer's right to conduct an examination of the insured under oath is statutory. The governing provision does not contain any words from which it may be inferred it ceases to operate once a civil action is commenced. The statutory examination and the examination for discovery can coexist. I would conclude that Baig is required to submit to the statutory examination even though he has commenced a civil action against the insurer.

Scope of the statutory examination under oath

[22] I do not agree with the motion judge's view of the scope of the statutory examination.

[23] The parties agree that the scope of the examination is defined by the term "the matters in question", though these words are used in Statutory Condition 6(4) to refer to the insured's obligation to produce relevant documents at the examination.

[24] The motion judge took the view that the scope of the statutory examination was limited to Baig's claim for insurance benefits. In his view, GCNA had agreed to the value of the vehicle when the policy was issued; accordingly, its value was not a "matter in question" in respect of Baig's claim for benefits when the vehicle was damaged two years later. He concluded that questions regarding the original application for insurance and the underwriting issues were not "matters in question" and therefore beyond the scope of the examination.

[25] The purpose of the statutory examination is to provide insurers with the opportunity to obtain the knowledge of facts necessary to enable them to decide upon their obligations and to protect them against false claims. In my view, questions that are material to the insurer's liability and the extent thereof are within the scope of the statutory examination.

[26] Counsel for the respondent conceded that whether the initial appraisal of the vehicle was fraudulent is a matter that was [page168] relevant to GCNA's defence to Baig's action. The concession is appropriate. When Baig's action reaches trial, the alleged fraudulent appraisal would be relevant to the court's determination whether he is entitled to damages because GCNA wrongfully refused to pay him insurance benefits. If the question is relevant to the determination of GCNA's liability at trial, I fail to understand how it would not be relevant to GCNA's decision whether or not to pay the claim. The purpose of the statutory examination is to provide GCNA with the opportunity to examine the insured in regard to the matters that might properly affect its decision whether or not to pay the claim.

[27] I recognize the force of counsel for Baig's submission that taking a broad view of the scope of the statutory examination could provide insurers with the opportunity to conduct baseless reviews of the underwriting of the insurance contract in an effort to find a basis to refuse claims. Undoubtedly, the statutory examination is not intended to permit insurers to embark on fishing expeditions or to take blind shots in the dark. However, where the insurer has an objective and reasonable basis for suspecting fraud in the initial appraisal, questions about the matter are relevant.

[28] As GCNA had an objective and reasonable basis for suspecting that the initial appraisal was fraudulent, I would conclude that Baig was obligated to submit to examination about it.

Summary judgment on the counterclaim

[29] As I noted above, the motion judge dismissed GCNA's counterclaim against Giilck and Discount Appraisals.

[30] The first reason he offered for doing so was that GCNA had limited its defence to Baig's claim to his failure to attend for the statutory examination. In my view, the motion judge erred in understanding the counterclaim to be limited by the statement of defence. As stated in the annotated Rules of Civil Procedure in James J. Carthy, W.A. Derry Millar & Jeffrey G. Cowan, Ontario Annual Practice 2007-2008 (Aurora, Ont.: Canada Law Book, 2007) at 831, "counterclaims are independent actions which generally are tried with the main action unless to do so would unduly complicate, delay or prejudice the main action or another party (rule 27.08)" (emphasis added).

[31] In this case, the counterclaim independently pleaded damages for breach of contract and negligence based on statements that Baig, Giilck and Discount Appraisals "colluded and conspired", that they "submitted an appraisal report... knowing that the contents of the same was not true", and that they "knew [page169] ought to have known that the appraisal report . . . would induce The Guarantee Company to issue a policy . . . in the amount indicated". GCNA had made similar claims in the statement of defence and pleaded that "Further and, in the alternative, the defendant states that the plaintiff, Rehman Baig, and/or Discount Auto Appraisals and/or LeeAnn Giilck were negligent in providing the appraisal that induced the defendant to issue the OPCF 19A endorsement."

[32] As I read it, the counterclaim advanced an independent claim against Giilck and Discount Appraisals in the event GCNA's defence to Baig's claim failed. The motion judge had to consider whether there was a genuine issue for trial of the counterclaim based on the evidence in the record. The motion judge disapproved of counsel of record for swearing the affidavits GCNA tendered on substantive issues and found those affidavits to be deficient in that they merely relied on the allegations contained in the pleadings.

[33] However, even if GCNA's affidavits are disregarded, Giilck and Discount Appraisals bore the initial onus of proving that there was no genuine issue for trial. They did not do so. They merely relied on the alleged inconsistency between GCNA's defence to Baig's action and its counterclaim against them. Giilck and Discount Appraisals did not tender any evidence at all. While it is clear that the responding party "must lead trump or risk losing", this court held in Hi-Tech Group Inc. v. Sears Canada Inc. (2001), 2001 CanLII 24049 (ON CA), 52 O.R. (3d) 97, [2001] O.J. No. 33 (C.A.), at para. 30, that "[f]ailure of the responding party to tender evidence does not automatically result in summary judgment". In this case, the failure of Giilck and Discount Appraisals to adduce any evidence that there was no genuine issue for trial was fatal to their motion.

[34] I would conclude that the motion for summary judgment dismissing the counterclaim should have been denied and the counterclaim should have been allowed to proceed.

Conclusion

[35] I would allow the appeal by setting aside the order dismissing GCNA's motion for an order compelling Baig to attend an examination under oath pursuant to Statutory Condition 6(4) and to answer questions relating to the appraisal he submitted in his application for the endorsement and the true value of the insured vehicle. Furthermore, I would set aside the motion judge's order granting summary judgment on the counterclaim against Giilck and Discount Appraisals and substitute an order dismissing their motion for summary judgment. [page170]

[36] I would set aside the costs order below. I would fix costs of the motion and the appeal in favour of GCNA against Baig, Giilck and Discount Appraisals in the amount of $15,000 inclusive of disbursements and GST.

Appeal allowed.