Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc. et al.

[Indexed as: Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc.]

Ontario Reports

Court of Appeal for Ontario,

Cronk, Pepall and B.W. Miller JJ.A.

April 4, 2016

130 O.R. (3d) 418 | 2016 ONCA 246

Case Summary

Landlord and tenant — Interpretation of lease — Allocation of risk — Commercial lease requiring tenant to obtain insurance against all risks of loss or damage to tenant's property and specifically against risk of damage to tenant's property caused by fire — Those covenants presumptively fixing tenant with responsibility for losses resulting from damage to premises by fire caused by contractor retained by landlord — Lease containing immunity provision which protected landlord from liability to tenant in respect of damage caused by fire — Lease providing that landlord would indemnify tenant with respect to damage to premises occasioned by act, default or negligence of landlord or its contractors — Motion judge erring in holding that landlord's indemnity covenant overtook tenant's insurance covenants and immunity provision so that landlord was responsible for loss or damage to tenant's property and business caused by fire.

The tenant carried on its business at leased premises. The lease required the tenant to obtain insurance against all risks of loss or damage to the tenant's property. To the extent that coverage regarding fire insurance was not covered by that insurance, the lease further required the tenant to carry insurance in its own name against the risk of damage to its property caused by fire. The tenant was required to include the landlord as an additional insured on the liability and property damage policies the tenant was required to maintain under the lease. The lease contained cross-indemnity covenants. The landlord covenanted to indemnify the tenant with respect to damage to the premises occasioned by or arising from the act, default or negligence of the landlord, its agents, contractors and others. There was a virtually identical indemnity covenant by the tenant in favour of the landlord. When it entered into the lease, the tenant had a property damage insurance policy in place, but failed to arrange for the landlord to be named as an additional insured. A fire broke out when a welding contractor engaged by the landlord was carrying out repairs at the premises, resulting in significant damage to the tenant's property and business. The limits of the tenant's property damage insurance policy were insufficient to cover the tenant's full losses. The tenant sued the landlord to recover its full property and business losses, seeking recovery for subrogated losses and uninsured losses. The motion judge granted the tenant's motion for summary judgment against the landlord. The landlord appealed.

Held, the appeal should be allowed.

As the motion judge made errors involving extricable questions of law, the standard of review was correctness.

The effect of the tenant's insurance covenants was to presumptively fix the tenant, rather than the landlord, with responsibility for the tenant's claimed losses. The starting point of the motion judge's analysis should have been the recognition that, by contractually undertaking to obtain insurance against "All Risks of loss or damage to the Tenant's property" and "against the risk of damage to the tenant's property within the Premises caused by fire", the tenant [page419] had assumed the risk of loss or damage to its own property caused by fire. By agreeing to so insure, the tenant relieved the landlord from the risk of liability for such loss or damage, even where caused by the landlord's negligence, unless the lease elsewhere provided to the contrary. The lease did not provide elsewhere to the contrary.

The motion judge also erred by admitting and relying on extrinsic evidence tendered by the tenant regarding the terms of the landlord's leases with other tenants in the building. Even assuming that the landlord's other leases were admissible, the contents of those leases did not control the proper interpretation of the lease in this case. They neither established nor altered the contractually agreed upon allocation of risk in this lease.

The motion judge erred in holding that the tenant's breach of the requirement in the lease that it include the landlord as an additional insured did not operate to bar its subrogated claim against the landlord because, even if the landlord was a named additional insured on the tenant's property damage insurance policy, the tenant's insurer would have been free to bring a subrogated claim against the landlord. The requirement that the tenant add the landlord as an additional insured, had it been honoured, would have operated as a subrogation bar to claims by the tenant's insurer for the tenant's fire losses.

Cummer-Yonge Investments Ltd. v. Agnew-Surpass Shoe Stores Ltd., 1975 26 (SCC), [1976] 2 S.C.R. 221, [1975] S.C.J. No. 74, 55 D.L.R. (3d) 676, 4 N.R. 547, [1975] I.L.R. Â1-675 at 1171; Madison Developments Ltd. v. Plan Electric Co. (1997), 1997 1277 (ON CA), 36 O.R. (3d) 80, [1997] O.J. No. 4249, 152 D.L.R. (4th) 653, 104 O.A.C. 194, 35 C.L.R. (2d) 147, [1998] I.L.R. I-3493, 74 A.C.W.S. (3d) 860 (C.A.) [Leave to appeal to S.C.C. refused [1997] S.C.C.A. No. 659]; Pyrotech Products Ltd. v. Ross Southward Tire Ltd., 1975 25 (SCC), [1976] 2 S.C.R. 35, [1975] S.C.J. No. 62, 57 D.L.R. (3d) 248, 5 N.R. 541, [1975] I.L.R. para.1-691 at 1235 ; Smith v. T. Eaton Co., 1977 39 (SCC), [1978] 2 S.C.R. 749, [1977] S.C.J. No. 125, 92 D.L.R. (3d) 425, 15 N.R. 315, [1977] I.L.R. Â1-899 at 742, [1977] 1 A.C.W.S. 873, apld

Lincoln Canada Services LP v. First Gulf Design Build Inc., [2008] O.J. No. 2611, 2008 ONCA 528, 168 A.C.W.S. (3d) 399, affg [2007] O.J. No. 4167, 2007 45712, 161 A.C.W.S. (3d) 636 (S.C.J.); Sattva Capital Corp. v. Creston Moly Corp., [2014] 2 S.C.R. 633, [2014] S.C.J. No. 53, 2014 SCC 53, 2014EXP-2369, J.E. 2014-1345, 373 D.L.R. (4th) 393, [2014] 9 W.W.R. 427, 59 B.C.L.R. (5th) 1, 461 N.R. 335, 25 B.L.R. (5th) 1, 358 B.C.A.C. 1, 614 W.A.C. 1, 242 A.C.W.S. (3d) 266, consd

Other cases referred to

2249778 Ontario Inc. v. Smith (c.o.b. Fratburger), [2014] O.J. No. 5329, 2014 ONCA 788; Bell Canada v. The Plan Group (2009), 96 O.R. (3d) 81, [2009] O.J. No. 2829, 2009 ONCA 548, 252 O.A.C. 71, 81 C.L.R. (3d) 9, 62 B.L.R. (4th) 157, 179 A.C.W.S. (3d) 40; Commonwealth Construction Co. v. Imperial Oil Ltd., 1976 138 (SCC), [1978] 1 S.C.R. 317, [1976] S.C.J. No. 115, 69 D.L.R. (3d) 558, 12 N.R. 113, [1976] 6 W.W.R. 219, 1 A.R. 161, [1976] I.L.R. Â1-804 at 331; D.L.G. & Associates Ltd. v. Minto Properties Inc., [2015] O.J. No. 5494, 2015 ONCA 705, 341 O.A.C. 50, 391 D.L.R. (4th) 505, 258 A.C.W.S. (3d) 706; Hi-Tech Group Inc. v. Sears Canada Inc. (2001), 2001 24049 (ON CA), 52 O.R. (3d) 97, [2001] O.J. No. 33, 141 O.A.C. 56, 11 B.L.R. (3d) 197, 4 C.P.C. (5th) 35, 102 A.C.W.S. (3d) 79 (C.A.); MacDonald v. Chicago Title Insurance Co. of Canada (2015), 127 O.R. (3d) 663, [2015] O.J. No. 6350, 2015 ONCA 842, 341 O.A.C. 299, [2016] I.L.R. I-5826, 61 R.P.R. (5th) 1, 392 D.L.R. (4th) 463, 260 A.C.W.S. (3d) 402 [Leave to appeal to S.C.C. filed [2016] S.C.C.A. No. 39]; [page420] Orange Julius Canada Ltd. v. Surrey (City), [2000] B.C.J. No. 1655, 2000 BCCA 467, 190 D.L.R. (4th) 1 (sub. nom. Laing Property Corp. v. All Seasons Display Inc.), 140 B.C.A.C. 203, 79 B.C.L.R. (3d) 199, 6 B.L.R. (3d) 206, 21 C.C.L.I. (3d) 92, 14 M.P.L.R. (3d) 111, 98 A.C.W.S. (3d) 934 [Leave to appeal to S.C.C. refused [2000] S.C.C.A. No. 523]; Orion Interiors Inc. v. State Farm Fire and Casualty Co., [2016] O.J. No. 1054, 2016 ONCA 164, 63 R.P.R. (5th) 173, 264 A.C.W.S. (3d) 204; Rochon v. Rochon, [2015] O.J. No. 5788, 2015 ONCA 746, 341 O.A.C. 211, [2016] I.L.R. I-5820, 392 D.L.R. (4th) 304, 53 C.C.L.I. (5th) 1, 259 A.C.W.S. (3d) 147; Sanofi Pasteur Ltd. v. UPS SCS Inc. (2015), 124 O.R. (3d) 81, [2015] O.J. No. 577, 2015 ONCA 88, 382 D.L.R. (4th) 54, [2015] I.L.R. I-5691, 330 O.A.C. 158, 45 C.C.L.I. (5th) 1, 249 A.C.W.S. (3d) 553 [Leave to appeal to S.C.C. refused [2015] S.C.C.A. No. 152]; St. Lawrence Cement Inc. v. Wakeham & Sons Ltd. (1995), 1995 2482 (ON CA), 26 O.R. (3d) 321, [1995] O.J. No. 3230, 86 O.A.C. 182, 23 B.L.R. (2d) 1, 58 A.C.W.S. (3d) 538 (C.A.) [Leave to appeal to S.C.C. refused [1995] S.C.C.A. No. 553]

Authorities referred to

Krempulec, Richard H., Property Damage Claims Under Commercial Insurance Policies, looseleaf (2015-Rel. 21), (Aurora, Ont.: Canada Law Book, 2004)

APPEAL by the defendant from the judgment of Métivier J., [2014] O.J. No. 4124, 2014 ONSC 5148 (S.C.J.) and [2014] O.J. No. 4643, 2014 ONSC 5533 (S.C.J.) for the plaintiff.

D.H. Rogers, Q.C., and Rebecca Moore, for appellant.

Matthew J. Halpin, for respondent.

The judgment of the court was delivered by

[1] CRONK J.A.: — This appeal concerns the interpretation of insurance and cross-indemnity covenants contained in a commercial lease. After a fire destroyed the leased premises, causing significant damage to the landlord's building and the tenant's property and business, the tenant brought a claim against the landlord to recover its losses. The tenant successfully obtained summary judgment against the landlord, who now appeals to this court. The central issue on appeal is whether the tenant assumed responsibility under its contractual insurance covenants for the risk of loss or damage to its property and business caused by fire, or whether the landlord is obliged to indemnify the tenant for such loss or damage under its indemnity covenant in the lease. For the reasons that follow, I would allow the appeal, set aside the summary judgment granted by the motion judge and dismiss the tenant's action as against the landlord.

II. Background

(1) The lease

[2] The respondent, Deslaurier Custom Cabinets Inc. (the "tenant"), manufactures and sells custom cabinets. On November 28, 2007, it entered into a written lease with the appellant [page421] 1728106 Ontario Inc. (the "landlord") for the rental of several units in the landlord's commercial building located in Renfrew, Ontario (the "lease"). The lease defines the rented "Premises" as seven listed units, containing a rentable area of 95,090 square feet, as described in Schedule A to the lease.

(a) Insurance covenants

[3] The lease obliges the parties to obtain insurance coverage for specified risks. Section 8(1)(a) requires the landlord to maintain insurance coverage against loss or damage caused by identified perils, including fire, to "the Premises" or "the property of the Landlord in which the Premises are located". The tenant does not suggest that s. 8(1)(a) applies in respect of its fire losses.

[4] Other provisions of the lease impose insurance obligations on the tenant. Section 8(3) obliges the tenant to carry business interruption insurance "to an extent sufficient to allow the tenant to meet its ongoing obligations to the Landlord and to protect the Tenant against loss of revenue".

[5] A key provision of the lease, s. 8(1.1)(ii), states that the tenant must also obtain insurance against "All Risks of loss or damage to the Tenant's property". To the extent that coverage regarding fire damage is not covered by this insurance, s. 8(4) of the lease further provides that the tenant shall carry insurance in its own name against the risk of damage to its property caused by fire. Section 8(4) reads:

To the extent not included in the insurance required by Section 8(1.1)(ii), if any, the Tenant shall carry insurance in its own name insuring against the risk of damage to the Tenant's property within the Premises caused by fire or other perils and the policy shall provide for coverage on a replacement cost basis to protect the Tenant's stock-in-trade, equipment, Trade Fixtures, decorations and improvements.

(Emphasis added)

[6] Section 8(5) requires the tenant to include the landlord as an additional insured on the liability and property damage insurance policies the tenant is required to maintain under the lease. I will refer to the tenant's insurance obligations under ss. 8(1.1)(ii) and 8(3)-(5), collectively, as the "tenant's insurance covenants".

[7] At the time of entering into the lease, the tenant had a property damage insurance policy in place, issued by Lumbermen's Underwriting Alliance. However, in breach of s. 8(5) of the lease, the tenant failed to arrange for the landlord to be named as an additional insured on the Lumbermen's policy. [page422]

(b) Cross-indemnity covenants

[8] The lease also contains cross-indemnity covenants. With respect to the tenant, s. 8(1.1)(ii) contains the following indemnity covenant in favour of the landlord:

The Tenant covenants to keep the Landlord indemnified against all claims and demands whatsoever by any person, whether in respect of damage to person or property, arising out of or occasioned by the maintenance, use or occupancy of the Premises or the subletting or assignment of same or any part thereof, and the Tenant further covenants to indemnify the Landlord with respect to any encumbrances on or damage to the Premises occasioned by or arising from the act, default, or negligence of the Tenant, its officers, agents, employees, contractors, customers, invitees or licensees.

[9] Section 8(2.1) contains a virtually identical indemnity covenant by the landlord in favour of the tenant. It provides, in part, that the landlord will indemnify the tenant with respect to "damage to the Premises occasioned by or arising from the act, default, or negligence of the Landlord", its agents, contractors and others:

The Landlord covenants to keep the Tenant indemnified against all claims and demands whatsoever by any person, whether in respect of damage to person or property, arising out of or occasioned by the Landlord's maintenance, use or occupancy of the Premises, and the Landlord further covenants to indemnify the Tenant with respect to any encumbrances on or damage to the Premises occasioned by or arising from the act, default, or negligence of the Landlord, its officers, agents, employees, contractors, customers, invitees or licensees.

(Emphasis added)

(The "landlord's indemnity covenant")

(c) Damage to the premises and landlord's repair and maintenance obligations

[10] The landlord's repair and maintenance obligations are detailed in s. 6.1 of the lease. Section 9 addresses repair and rebuilding in the event that the premises or the landlord's building "are damaged or destroyed, in whole or in part, by fire or other peril". Save "as otherwise specifically provided for in [the] Lease", s. 9(3) protects the landlord from liability to the tenant in respect of specified damages, including damages caused by fire. It states:

Apart from the provisions of Section 9(1) and as otherwise specifically provided for in this Lease, there shall be no abatement from the reduction of the Rent payable by the Tenant, nor shall the Tenant be entitled to claim against the Landlord for any damages, general or special, caused by fire, water, sprinkler systems, partial or temporary failure or stoppage of [page423] services or utilities which the Landlord is obligated to provide according to this Lease, from any cause whatsoever.

(Emphasis added)

(The "immunity provision").

[11] The meaning and effect of the tenant's insurance covenants, the landlord's indemnity covenant and the immunity provision are the core issues on this appeal.

(2) The fire

[12] On January 1, 2009, while the tenant's business was shut down for the seasonal holidays, John Faught Steel Inc. ("Faught Steel"), a welding contractor engaged by the landlord, carried out repairs at the premises. A fire broke out in the premises when welding splatter or slag ignited. The fire resulted in significant damage to the landlord's building, which was eventually demolished, and to the tenant's property and business at the premises.

(3) The litigation

[13] The tenant claimed indemnification under the Lumbermen's policy for its losses and was paid approximately $10.861 million by its insurer. Unfortunately, the limits of the Lumbermen's policy were insufficient to cover the tenant's full losses. As a result, in February 2010, the tenant sued the landlord and Faught Steel in negligence for damages in respect of its full property and business losses caused by the fire. The tenant sought recovery for subrogated losses ($10.861 million) and uninsured losses (approximately $4.138 million).

[14] The landlord defended the action, denying any negligence and any liability to the tenant for its claimed losses. The landlord pleaded that, by reason of the tenant's insurance covenants, the tenant and its insurer bore all responsibility for the tenant's damages. The landlord also took the position that, contrary to s. 8(5) of the lease, the tenant had failed to add the landlord as an additional insured on its property damage insurance policy, thereby precluding the tenant or its insurer from suing the landlord under the lease. The landlord also cross-claimed against Faught Steel for contribution and indemnity concerning any amounts for which the landlord might be found liable to the tenant.

(4) The summary judgment motions

[15] The landlord moved for summary judgment. It sought an order dismissing the action as against it on the basis that the [page424] tenant had no claim against it under the lease for any of the tenant's damages arising out of the fire.

[16] The tenant countered with its own cross-motion for summary judgment. Relying on the landlord's indemnity covenant, the tenant maintained that the landlord was required to indemnify it for all damages arising from the landlord's negligence, including the fire.

[17] For the purpose of the motions only, the parties agreed that the tenant would not seek any ruling on the issue of negligence. The parties also agreed, and the motion judge accepted, that the question of who bears the contractual risk under the lease of fire damage to the tenant's property and business was an appropriate question for determination by way of summary judgment. I agree. See Sanofi Pasteur Ltd. v. UPS SCS Inc. (2015), 124 O.R. (3d) 81, [2015] O.J. No. 577, 2015 ONCA 88, at paras. 23-26 and 34, leave to appeal to S.C.C. refused [2015] S.C.C.A. No. 152.

[18] In determining which party had contractually assumed responsibility for fire loss or damage, the motion judge [[2014] O.J. No. 4124, 2014 ONSC 5148 (S.C.J.)] observed, at paras. 24 and 25, that the landlord's indemnity covenant "appears to modify the Landlord's protection from liability" and that the introductory language of the immunity provision (". . . as otherwise specifically provided for in [the] Lease"), "makes it clear that other provisions in the [Lease] may reduce the extent to which the Landlord is shielded from liability".

[19] She went on [at para. 23] to consider the meaning of the term "Premises", as it is used in the landlord's indemnity covenant (". . . damage to the Premises occasioned by or arising from the act, default, or negligence of the Landlord"), and found that it must include the tenant's property within the rentable area. Otherwise, she reasoned, the covenant would have no meaning, as the tenant has no interest in the rentable space.

[20] The motion judge then considered extrinsic evidence tendered by the tenant, consisting of the landlord's leases with other tenants in the Renfrew building. Those leases did not include an indemnification covenant by the landlord, or an immunity provision identical to the one contained in the lease. The motion judge found, based on this evidence, that the parties objectively intended that the tenant be granted a right of indemnification that was not afforded to the other tenants.

[21] The motion judge rejected the landlord's argument that the tenant's failure to add the landlord as an additional insured on its property damage insurance policy acted as a bar to the tenant's claim. [page425]

[22] She ultimately concluded, at paras. 45-46 of her reasons, that the landlord had assumed responsibility under the lease for indemnifying the tenant in respect of damage to its property and business caused by the landlord's actions or the actions of its agents or contractors. Consequently, she held, the landlord is liable for the tenant's claimed losses, subject to quantification. She summarized her interpretive findings, at para. 44:

Accordingly, I find that the [lease], as interpreted in these circumstances must mean:

1. Premises includes property;

2. The covenant to insure does not excuse the Landlord from his [sic] liability for his [sic] acts or negligence; and

3. The reciprocal indemnity clause, binding the Landlord, means what it says.

[23] Accordingly, by judgment dated October 1, 2014, the motion judge dismissed the landlord's motion and granted a declaration that the landlord is liable to indemnify the tenant for its claimed losses, subject to quantification. She subsequently awarded $100,000 in costs and disbursements to the tenant.

III. Issues

[24] The issues on appeal, as argued, may be framed as follows:

(1) What standard of review applies to the motion judge's decision?

(2) Did the motion judge err in her interpretation of the lease

(a) by failing to hold that the tenant had contractually assumed the risk of any damage to its property and business arising from fire;

(b) by relying on extrinsic evidence concerning the landlord's leases with other tenants in the building to aid in her interpretation of the lease;

(c) by failing to hold that the tenant's claim is barred as a result of its failure to add the landlord as an additional insured on its property damage insurance policy?

IV. Analysis

(1) Standard of review

[25] The recent decision of the Supreme Court in Sattva Capital Corp. v. Creston Moly Corp., [2014] 2 S.C.R. 633, [2014] S.C.J. No. 53, 2014 SCC 53 makes clear that the interpretation [page426] of a negotiated contract is generally subject to a deferential standard of review. As Rothstein J., writing for the court, explained, at paras. 50-55, contractual interpretation typically involves issues of mixed fact and law, "as it is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix".

[26] However, this general rule is not absolute. Sattva recognizes, at para. 53, that the correctness standard may apply to questions of contractual interpretation where it is "possible to identify an extricable question of law from within what was initially characterized as a question of mixed fact and law" (citation omitted). "[E]xtricable questions of law" in this context include legal errors involving "the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor" (citation omitted).

[27] Still, courts should be cautious in identifying such extricable questions of law. Sattva instructs, at para. 55:

[T]he goal of contractual interpretation, to ascertain the objective intentions of the parties, is inherently fact specific. The close relationship between the selection and application of principles of contractual interpretation and the construction ultimately given to the instrument means that the circumstances in which a question of law can be extricated from the interpretation process will be rare.

[28] In the aftermath of Sattva, some provincial appellate courts have identified a second exception to the application of a deferential standard to questions of contractual interpretation. In MacDonald v. Chicago Title Insurance Co. of Canada (2015), 127 O.R. (3d) 663, [2015] O.J. No. 6350, 2015 ONCA 842, leave to appeal to S.C.C. filed [2016] S.C.C.A. No. 39, for example, this court held, at paras. 29, 38 and 41, that the interpretation of a standard form insurance contract remains a question of law, attracting the correctness standard of review.

[29] In this case, the parties are divided on the issue of the applicable standard of review. The landlord does not suggest that the lease is a standard form contract so as to come within the principles discussed in MacDonald. Instead, the landlord argues that the motion judge made several extricable legal errors in her interpretation of the lease and that her interpretation is therefore "predominantly" subject to review on a correctness standard.

[30] The tenant disagrees. It argues that there is no extricable error of law in the motion judge's analysis of the relevant terms of the lease and that a deferential standard of review therefore applies to her interpretation, in accordance with Sattva. [page427]

[31] For reasons I will explain, I conclude that the motion judge erred in law by failing to apply binding appellate authority regarding contractual allocation of risk. She also erred in law by failing to assign meaning to all the contested terms of the lease and by adopting a construction of the lease that fails to accord with the governing principles of contractual interpretation. As these errors involve extricable questions of law within the meaning of Sattva, the correctness standard of review applies.

(2) Risk allocation under the lease

(a) Parties' positions

[32] The landlord argues that the motion judge erred in law by failing to hold that the tenant, by agreeing to insure against fire and to add the landlord as an additional insured on its insurance policies, contractually assumed the risk of loss or damage to its own property and business caused by fire. It submits that the motion judge's interpretation of the tenant's insurance covenants runs afoul of the principles of contractual risk allocation first recognized by the Supreme Court in a well-known trilogy of landlord and tenant cases: Smith v. T. Eaton Co., 1977 39 (SCC), [1978] 2 S.C.R. 749, [1977] S.C.J. No. 125; Cummer-Yonge Investments Ltd. v. Agnew-Surpass Shoe Stores Ltd., 1975 26 (SCC), [1976] 2 S.C.R. 221, [1975] S.C.J. No. 74; Pyrotech Products Ltd. v. Ross Southward Tire Ltd., 1975 25 (SCC), [1976] 2 S.C.R. 35, [1975] S.C.J. No. 62 (the "trilogy").

[33] In the trilogy, the Supreme Court considered the rights of a landlord and tenant where one party had agreed to obtain insurance for the risk of fire. In each case, the landlord's insurer sought to exercise subrogation rights against the tenant for loss due to fire caused by the tenant's negligence. The court held that the determination of the tenant's liability to the landlord for such damage fell to be determined on the basis of the lease at issue, rather than by reference to insurance policy considerations: Pyrotech, at p. 41 S.C.R.; Cummer-Yonge, at p. 224 S.C.R., per Laskin C.J.C., dissenting in part on other grounds.

[34] The court also held in each case that the landlord's contractual covenant to insure ran to the benefit of the tenant, thus relieving the tenant of the risk of liability for fire damage, even where the fire was caused by the tenant's negligence. The landlord, therefore, was required to look to its own insurer for recovery of its losses. It followed that the landlord's insurer, who could be in no better position than that of the landlord, had no subrogated claim against the tenant.

[35] In subsequent cases, courts have held that the trilogy principles also apply where the obligation to insure against [page428] specified perils is that of the tenant, rather than the landlord. In other words, a tenant's covenant to maintain insurance for damage caused by specified perils runs to the benefit of the landlord and protects the landlord from a claim for loss or damage that is subject to the covenant to insure and is caused by its negligence. See, for example, Orion Interiors Inc. v. State Farm Fire and Casualty Co., [2016] O.J. No. 1054, 2016 ONCA 164; Orange Julius Canada Ltd. v. Surrey (City), [2000] B.C.J. No. 1655, 2000 BCCA 467, 190 D.L.R. (4th) 1 (sub. nom. Laing Property Corp. v. All Seasons Display Inc.), leave to appeal to S.C.C. refused, [2000] S.C.C.A. No. 523.

[36] In Madison Developments Ltd. v. Plan Electric Co. (1997), 1997 1277 (ON CA), 36 O.R. (3d) 80, [1997] O.J. No. 4249, 152 D.L.R. (4th) 653 (C.A.), at para. 9, leave to appeal to S.C.C. refused [1997] S.C.C.A. No. 659, this court explained the effect of the trilogy in this fashion:

The law is now clear that in a landlord-tenant relationship, where the landlord covenants to obtain insurance against the damage to the premises by fire, the landlord cannot sue the tenant for a loss by fire caused by the tenant's negligence. A contractual undertaking by the one party to secure property insurance operates in effect as an assumption by that party of the risk of loss or damage caused by the peril to be insured against. This is so notwithstanding a covenant by the tenant to repair which, without the landlord's covenant to insure, would obligate the tenant to indemnify for such a loss. This is a matter of contractual law not insurance law, but, of course, the insurer can be in no better position than the landlord on a subrogated claim. The rationale for this conclusion is that the covenant to insure is a contractual benefit accorded to the tenant, which, on its face, covers fires with or without negligence by any person. There would be no benefit to the tenant from the covenant if it did not apply to a fire caused by the tenant's negligence.

(Citations omitted; emphasis added)

See, also, this court's decisions in St. Lawrence Cement Inc. v. Wakeham & Sons Ltd. (1995), 1995 2482 (ON CA), 26 O.R. (3d) 321, [1995] O.J. No. 3230 (C.A.), at pp. 328-32 O.R., leave to appeal to S.C.C. refused [1995] S.C.C.A. No. 553; Sanofi, at paras. 38, 47-50 and 59-60; D.L.G. & Associates Ltd. v. Minto Properties Inc., [2015] O.J. No. 5494, 2015 ONCA 705, 391 D.L.R. (4th) 505, at paras. 18-20; Orion Interiors, at paras. 8, 14 and 17-18.

[37] On the authority of the trilogy and Madison Developments, the landlord argues that the tenant, by reason of the tenant's insurance covenants, assumed the risk of loss or damage to its property and business by fire, howsoever caused. The landlord maintains that the tenant's insurance covenants, read together with the immunity provision, have no commercial utility unless they are interpreted to apply to a fire caused by the landlord's negligence (or, implicitly, by that of its agents). [page429] It says the provisions operate so as to shelter the landlord from liability to the tenant and its insurer for any of the tenant's property or business losses caused by a peril that was or should have been covered by the tenant's insurance policies pursuant to the lease. To conclude otherwise, as the motion judge did, is to defeat the parties' clear intentions, as reflected in the lease.

[38] The tenant takes a different position. It contends that the legal effect of its obligations to insure is limited by other express provisions of the lease, specifically, the landlord's indemnity covenant. It asserts that the risk allocation principle enunciated in the trilogy and Madison Developments is inapplicable because it is inconsistent with the landlord's indemnity covenant, which contemplates indemnification of the tenant by the landlord for damage arising from the landlord's negligence.

[39] In support of its position, the tenant points to the introductory language of the immunity provision. That provision protects the landlord from liability to the tenant for damages caused by fire except "as otherwise specifically provided for in this lease". The tenant says that the landlord's indemnity covenant falls within this limiting language and that the landlord is therefore bound by its indemnity commitment and cannot invoke the immunity provision to defeat the tenant's claim.

(b) Discussion

[40] I agree with the interpretation of the lease urged by the landlord, which focuses on the governing law regarding contractual allocation of risk. I conclude that the motion judge erred by holding, in effect, that the landlord's indemnity covenant overtakes the tenant's insurance covenants and the immunity provision, such that the landlord, rather than the tenant, is responsible for loss or damage to the tenant's property and business caused by fire. Specifically, I conclude that the motion judge erred in her assessment of risk allocation under the lease (i) by failing to apply the principles from the trilogy and Madison Developments; and (ii) by failing to properly apply the governing principles of contractual interpretation in assessing the meaning of, and interplay among, the contested provisions in the lease.

(i) Failure to apply the trilogy and Madison Developments

[41] While the motion judge referred to the principles enunciated by the Supreme Court in the trilogy (although she made no mention of Madison Developments), at no point in her reasons did she actually apply the trilogy and Madison Developments to [page430] the interpretation of the tenant's insurance covenants. With respect, her failure to do so constitutes an error of law.

[42] The motion judge was bound by the trilogy and Madison Developments. Based on those cases, the effect of the tenant's insurance covenants was to presumptively fix the tenant, rather than the landlord, with responsibility for the tenant's claimed losses.

[43] Accordingly, the starting point for the motion judge's analysis should have been the recognition that, by contractually undertaking to obtain insurance against "All Risks of loss or damage to the Tenant's property" (s. 8(1.1)(ii)) and "against the risk of damage to the Tenant's property within the Premises caused by fire" (s. 8(4)) (emphasis added), the tenant had assumed the risk of loss or damage to its own property caused by fire. By agreeing to so insure, the tenant relieved the landlord from the risk of liability for such loss or damage, even where caused by the landlord's negligence, unless the lease elsewhere provided to the contrary.

[44] The motion judge failed to give effect to this agreed allocation of risk. Instead, she merely said, at paras. 31-32 of her reasons, that the trilogy does not "purport to override the basic principles of contractual interpretation" and that post-trilogy authorities have held that a covenant to insure may be limited by other express provisions in the same contract.

[45] These comments are accurate, as far as they go. But both binding authority and the language of the tenant's insurance covenants assigned responsibility to the tenant for fire damage to its own property. The motion judge was obliged to presumptively interpret the tenant's insurance covenants in a manner that gave effect to the parties' agreed allocation of risk. Only then would the issue arise as to whether this presumption was rebutted by other provisions of the lease.

(ii) Meaning of "Premises" and the landlord's indemnity covenant

[46] As I read her reasons, the motion judge's failure to deal directly with the parties' agreed allocation of risk regarding fire loss or damage to the tenant's property, described above, flowed from her interpretation of the meaning of the word "Premises" under the lease. At para. 19 of her reasons, the motion judge noted that, pursuant to the landlord's indemnity covenant, the landlord must "indemnify the Tenant with respect to damages to the Premises as a result of the act, default or negligence of the Landlord or its contractors, invitees or licensees" (emphasis added). She held, at para. 25, that, in order to determine whether [page431] the landlord's protection from liability is modified by this covenant, she must first assess the meaning of the term "Premises" as it is used in the covenant.

[47] The motion judge's focus on this issue drove her interpretation of the scope of the landlord's indemnity covenant and her determination whether the tenant's insurance covenants and the immunity provision apply to shield the landlord from liability for the tenant's claimed losses.

[48] The motion judge began her consideration of the meaning of "Premises" by instructing herself, at para. 27, that "[t]he initial step is to interpret, to the extent possible, the contract as a whole and give effect to all of its provisions" (citation omitted). She set out the principles of contractual interpretation applicable to a commercial contract, as described by this court in Bell Canada v. The Plan Group (2009), 96 O.R. (3d) 81, [2009] O.J. No. 2829, 2009 ONCA 548, at paras. 37-38:

[A] commercial contract is to be interpreted,

(a) as a whole, in a manner that gives meaning to all of its terms and avoids an interpretation that would render one or more of its terms ineffective;

(b) by determining the intention of the parties in accordance with the language they have used in the written document and based upon the "cardinal presumption" that they have intended what they have said;

(c) with regard to objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to the subjective intention of the parties; and (to the extent there is any ambiguity in the contract),

(d) in a fashion that accords with sound commercial principles and good business sense, and that avoid[s] a commercial absurdity.

[49] She also correctly added that a reviewing court should look to the overall wording of an agreement and the nature of the relationship created by the agreement, rather than subjecting each word in the agreement to isolated, microscopic examination.

[50] The motion judge observed, at para. 27 of her reasons, that "[v]iewed in relation to the entire lease, aePremises' refers to nothing more than the rentable area leased by the tenant". She noted that the preamble to the lease defines "Premises" as specific units in the landlord's building, containing a rentable area of 95,090 square feet. To be more precise, recital "B" to the lease defines "Premises" as identified units of the building "containing a Rentable Area of 95,090 square feet, as more particularly described in Schedule A". [page432]

[51] She also pointed out references to "Premises" in provisions dealing with the tenant's repair obligations that are consistent with limiting its meaning to the rentable area. For example, s. 6(1)(a)(i) states that "the Tenant shall: keep in good condition the Premises including all the alterations and additions made thereto (save and except for wear and tear) . . ." (emphasis added).

[52] Nevertheless, the motion judge held that the references to "Premises" in the landlord's indemnity covenant must refer to something more than the rentable area. She stated, at para. 28:

The references in the [Lease] to "Premises" seem to indicate that the term is to be restricted to the rentable space, and would exclude the Tenant's property. Nevertheless, I agree with the Tenant's proposition that restricting "Premises" in [the Landlord's Indemnity Covenant] to nothing more than the rentable area provides the Tenant with indemnification for something in which the Tenant has no interest. This would, in effect, render the second portion of [the Landlord's Indemnity Covenant] meaningless. As noted above, the court should reject "an interpretation that would render one of its terms ineffective".

(Citation omitted)

[53] The motion judge concluded on this issue, at paras. 29 and 30, by quoting authorities that emphasize the interpretive goal of construing a provision or words used in a contract in a way that is consistent with the parties' commercial interests and that advances their true intent.

[54] In my opinion, there are several flaws in the motion judge's analysis. While she correctly identified the relevant principles of contractual interpretation, she erred in law in her application of these important principles. Specifically, as I explain below, she failed to review the lease as a whole and to accord an interpretation to the contested provisions that assigns meaning to each and avoids rendering one or more of them ineffective.

[55] First, the motion judge's approach discounts the key fact that "Premises" is a defined term under the lease. The definition of that term agreed upon by the parties refers only to specific rental units, of a particular total size, in a described location set out in Schedule A to the lease. It makes no mention of the tenant's property or business.

[56] Second, in attempting to ascertain the intended meaning of "Premises" under the lease, the motion judge ignored multiple provisions of the lease that draw a clear distinction between the "Premises" and the tenant's property. The tenant's insurance obligation under s. 8(1.1)(ii) of the lease is a ready example. Under that section, the tenant is obliged to obtain insurance "for the Premises" against "All Risks of loss or damage to the Tenant's property" (emphasis added). The tenant's indemnification [page433] covenants, also set out in s. 8(1.1)(ii), are directed at indemnification of the landlord (i) "against all claims and demands . . . arising out of or occasioned by the maintenance, use or occupancy of the Premises"; and (ii) "encumbrances on or damage to the Premises, occasioned by or arising from the act, default or negligence of the Tenant" (emphasis added). The landlord's indemnity covenant in s. 8(2.1) contains similar language.

[57] The distinction drawn in the lease between the tenant's property and the "Premises" is perhaps most obvious in s. 8(4). Recall that s. 8(4) requires the tenant to carry insurance "insuring against the risk of damage to the Tenant's property within the Premises caused by fire or other perils" (emphasis added).

[58] Similarly, the landlord's insurance covenant under s. 8(1)(a) of the lease distinguishes between insurance coverage "with respect to the Premises" and "damage to the Premises", on the one hand, and damage to "the property of the Landlord in which the Premises are located", on the other (emphasis added). Other provisions of the lease maintain this distinction between the "Premises" and the property of the tenant or the landlord.

[59] That various provisions of the lease differentiate "Premises" from the property of the tenant or that of the landlord is significant. It tells strongly against the motion judge's conclusion that the word "Premises", as used in the lease, includes property. The lease does not say this. On the contrary, read in its entirety, the lease supports a narrow interpretation of the word "Premises", as set out under the definition of that term in the recitals to the lease. By adopting an enlarged construction of "Premises", the motion judge failed to take account of the lease as a whole, despite her self-direction to do so, and to give effect to the intentions of the parties in accordance with the clear language they used in their written agreement.

[60] Nor can I accept a third important aspect of the motion judge's analysis of the meaning of "Premises". As I have already indicated, the motion judge held, at para. 28, that a reading of "Premises" that excludes the tenant's property would "[provide] the Tenant with indemnification for something in which [it] has no interest", thereby rendering the landlord's indemnity covenant "meaningless". She essentially held that "Premises" must mean more than the rentable area in order to give some meaning to the landlord's indemnity covenant. I disagree.

[61] The landlord's indemnity covenant has meaning without having to interpret "Premises" as meaning more than the rentable area, contrary to the wording of the lease. First, the covenant serves to indemnify the tenant for damage to its interest in the premises, occasioned by the landlord's negligence. Contrary to [page434] the motion judge's implied finding that the tenant has no interest under the lease in the space rented to it, the tenant has a leasehold interest in the "Premises", namely, the contractual right to exclusive use and occupation of the rented space during the term of the lease and any renewals thereof. Further, as the landlord points out, the tenant has an interest in "Trade Fixtures" added by it to the realty, which, under s. 7 of the lease, can revert back to the tenant as chattels upon termination of the lease.

[62] Second, many, perhaps most, property insurance policies include coverage exclusions. To the extent that damage ensues from a peril or risk excluded under the tenant's insurance policies, and not required to be insured against by the tenant under the lease, the landlord's indemnity covenant can be construed to respond to a claim by the tenant against the landlord for such damage.

[63] Third, the landlord's indemnity covenant may also be read as applying if the landlord's negligence causes the tenant damage that the tenant is not required to insure against under the tenant's insurance covenants.

[64] The case of Lincoln Canada Services LP v. First Gulf Design Build Inc., [2007] O.J. No. 4167, 2007 45712 (S.C.J.), affd [2008] O.J. No. 2611, 2008 ONCA 528, is instructive in this regard. In Lincoln, the tenant was required under the terms of its lease to maintain fire and standard extended perils insurance coverage for, among other matters, water sprinkler leaks. However, the landlord had contractually agreed to indemnify the tenant for loss and damage arising from the landlord's negligence or that of persons for whom the landlord was legally responsible. Unlike this case, the landlord's indemnity covenant expressly excluded damage resulting from fire or sprinklers and stated that the tenant was to look solely to its insurers to satisfy any claims arising on account of damage "irrespective of its cause".

[65] The landlord in Lincoln argued that the effect of the tenant's insurance covenant and the landlord's indemnity covenant, read together, was that the parties intended the landlord to be exempt from liability for the specific matters that were to be insured against by the tenant. The motion judge in Lincoln agreed. She concluded that the seemingly conflicting provisions of the lease could be interpreted in a manner that avoided inconsistency and reflected the intention of the parties. She explained this interpretation, at para. 44, as follows:

(i) the tenant was obliged to obtain the specific insurance required by its insurance covenant; [page435]

(ii) the tenant had to look to its own insurer for any damage that was the subject of the tenant's insurance obligation, whether or not caused by negligence, and the tenant and its insurer were restricted from claiming against the landlord for recovery for such damage;

(iii) if the landlord's negligence caused any damage that the tenant was not required to insure against, the landlord was obliged to indemnify the tenant for such damage; and

(iv) apart from negligence, the landlord had no liability to the tenant for any damage listed in the landlord's indemnity covenant, whether or not the tenant had to insure for such damage.

[66] In my opinion, this reasoning is apposite here. Applied to the facts of this case, this interpretive approach gives meaning to all the challenged provisions of the lease. It holds the tenant to its contractual bargain under the tenant's insurance covenants to assume responsibility for the risk of loss or damage to its own property caused by fire and requires the landlord to indemnify the tenant under the landlord's indemnity covenant for those types of risks against which the tenant is not required to insure. It also ensures that, under the immunity provision, the landlord is not exposed to negligence claims where the tenant has agreed to insure against an underlying risk, such as fire (see Lincoln, at paras. 44 and 45). Finally, it confines the scope of the word "Premises" to the agreed definition of that term under the lease.

[67] The motion judge did not consider the interpretation of the landlord's indemnity covenant set out above. That the facts of this case do not trigger the application of the covenant on the bases that I have described does not mean that the covenant is devoid of meaning or that, to accord it meaning, "Premises" must be interpreted to include property.

[68] I would also add that the motion judge's broad reading of "Premises" in the landlord's indemnity covenant is not only unnecessary to give meaning to that covenant, but it directly conflicts with ss. 8(4) and 9(3) of the lease and deprives them of any practical commercial meaning.

[69] If the landlord's indemnity covenant applies to damage to the tenant's property by reason of an expansive construction of the word "Premises", there would be no need for the s. 8(4) requirement that the tenant carry insurance to cover the risk of damage to its property caused by fire. The tenant would be fully indemnified for such damage by the landlord, in any event. [page436] Moreover, the tenant would be entitled to claim against the landlord for indemnification of loss or damage to its property caused by fire notwithstanding the express wording of s. 9(3) that: "nor shall the Tenant be entitled to claim against the Landlord for any damages . . . caused by fire . . . from any cause whatsoever".

[70] Here, the parties specifically agreed that the tenant would insure against the risk of loss or damage to its property by fire. That is the very risk that materialized. No coverage exclusion applied under the Lumbermen's policy and the tenant's claim was paid to the extent of the policy limits. The fact that, as it happens, the tenant was underinsured for this risk does not mean that its failure to obtain full protective coverage can be laid at the landlord's door. See, for example, Orion Interiors, at para. 18.

(3) Reliance on tenant's extrinsic evidence

[71] Over the landlord's objections, the motion judge admitted extrinsic evidence tendered by the tenant regarding the terms of the landlord's leases with other tenants at the Renfrew building. She relied on this evidence to buttress her interpretation of the landlord's indemnity covenant.

[72] In particular, the motion judge regarded as significant the fact that, in the landlord's other leases, only the tenants provided indemnification covenants. Further, the protection afforded to the landlord under the immunity provision in the lease, in contrast to the other leases, is limited by the phrase "as otherwise specifically provided for in this Lease". In the motion judge's view, these factors were a "strong indication" that "objectively", the parties intended to confer on the tenant a contractual right not afforded by the landlord to its other tenants in the same building: at para. 39.

[73] The landlord argues that the motion judge erred by admitting this extrinsic evidence because it did not meet the requirements for the admission of evidence of circumstances surrounding the formation of the lease. Further, even if this evidence was admissible, the landlord submits that there is additional relevant evidence that should be considered and, consequently, summary judgment was not appropriate and a trial is required.

[74] I agree that the motion judge erred in admitting this extrinsic evidence and relying on it to interpret the lease.

[75] The motion judge provided only brief reasons for the admission of the evidence of the landlord's leases with other tenants. At para. 34, she cited this court's decision in [page437] Hi-Tech Group Inc. v. Sears Canada Inc. (2001), 2001 24049 (ON CA), 52 O.R. (3d) 97, [2001] O.J. No. 33 (C.A.) for the proposition that "evidence of the circumstances surrounding the making of a contract has been regarded as admissible in every case". She went on to state, at paras. 35-36: "While these aeother' leases involve different business contexts and different negotiations, I find that the factual matrix of this lease properly includes a consideration of these . . . The circumstances here require the admission of certain extrinsic evidence." She did not elaborate on the basis for these findings.

[76] Sattva confirms, at para. 47, that evidence of the circumstances surrounding the formation of a contract is admissible as an aid to ascertaining the parties' contractual intentions. However, Sattva also warns that such evidence "should consist only of objective evidence of the background facts at the time of the execution of the contract . . . that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting" (emphasis added): at para. 58. See, also, 2249778 Ontario Inc. v. Smith (c.o.b. Fratburger), [2014] O.J. No. 5329, 2014 ONCA 788, at paras. 20-21.

[77] The record before this court does not establish that the admissibility prerequisite set out in Sattva was satisfied in this case. Certainly, the motion judge made no finding that the other leases were within the knowledge or ought to have been within the knowledge of both parties prior to entering into the lease. As I have said, she did not explain the basis for her admission of the challenged extrinsic evidence.

[78] Indeed, the record suggests that the tenant was not in possession of the landlord's leases with other tenants prior to the commencement of this litigation. The tenant filed no affidavit evidence before the motion judge suggesting to the contrary, or alleging that the leases at issue played any part in its decision or induced it to enter into the lease with the landlord. Nor is this pleaded by the tenant. Further, although the tenant maintains that it was provided with a copy of the landlord's "standard form" lease during the lease negotiations, the record does not include any evidence as to whether it was used or modified in respect of the other tenants at the Renfrew building. I note, also, that the lease contains an "entire agreement" clause, at s. 17(4), providing that there are "no covenants, representations, agreements, warranties or conditions" relating to the subject matter of the lease, except as set forth therein.

[79] In any event, Sattva holds that, while surrounding circumstances will be considered in interpreting the terms of a contract, they "must never be allowed to overwhelm the words of that agreement" and they cannot be used "to deviate from the [page438] text such that the court effectively creates a new agreement" (citations omitted). Rather, "[t]he interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract": at para. 57.

[80] In this case, even assuming that the evidence of the landlord's other leases was admissible before the motion judge, the contents of those leases do not control the proper interpretation of the lease. They neither establish nor alter the contractually agreed allocation of risk in this lease.

[81] For the reasons already given, it is my opinion that there is no need to go beyond the words of the lease to determine the legal effect of the tenant's insurance covenants and the scope of the landlord's indemnity covenant and the immunity provision. The tenant's insurance covenants assign the risk of loss or damage to the tenant's property due to fire to the tenant by requiring that it obtain insurance coverage against that risk.

[82] In light of this conclusion, I do not reach the landlord's additional argument that summary judgment should not have been granted in the face of the tenant's allegedly incomplete extrinsic evidence.

(4) Effect of the tenant's failure to add the landlord as an additional insured

[83] The landlord's remaining ground of appeal may be dealt with summarily.

[84] The landlord attacks the motion judge's holding that the tenant's breach of s. 8(5) of the lease does not operate to bar its subrogated claim against the landlord because, even if the landlord was a named additional insured on the tenant's property damage insurance policy, the tenant's insurer may nonetheless have been free to bring a subrogated claim against the landlord.

[85] The motion judge cited no Canadian case law in support of this holding. In my view, it flies in the face of the principles enunciated in the trilogy, Madison Developments and their progeny. It is true, as noted by the motion judge, at para. 33, that the lease contains no express waiver of subrogated claims against the landlord. However, the parties agreed under s. 8(5) that the landlord was to be added as an additional insured on the tenant's liability and property damage insurance policies. This provision, had it been honoured, would operate as a subrogation bar to claims by the tenant's insurer for the tenant's fire losses.

[86] The tenant's insurer can be in no better position than that of the tenant itself. The trilogy confirms that where, as here, the risk of loss or damage by a specific peril passes to one contracting [page439] party under the terms of its insurance covenant, there is no basis for the covenantor's insurer to assert a subrogated claim against the beneficiary of the covenant. Simply put, because the covenantor (in this case, the tenant) has contractually assumed the risk of liability for loss or damage caused by a specific peril, neither it nor its insurer can seek to recover for loss or damage caused by that peril from the beneficiary of the insurance covenant (in this case, the landlord).

[87] Further, had the tenant complied with its s. 8(5) obligation to have the landlord named as an additional insured on its property damage insurance policy, no right of subrogation for the tenant's property loss or damage due to fire would arise. An insurer cannot assert a subrogated claim against its own insured: T. Eaton Co., at pp. 761-62 S.C.R., per de Grandpré J., dissenting on other grounds; Commonwealth Construction Co. v. Imperial Oil Ltd., 1976 138 (SCC), [1978] 1 S.C.R. 317, [1976] S.C.J. No. 115, at pp. 321-22 S.C.R.; Rochon v. Rochon, [2015] O.J. No. 5788, 2015 ONCA 746, 392 D.L.R. (4th) 304, at paras. 73-74; Richard H. Krempulec, Property Damage Claims Under Commercial Insurance Policies, looseleaf (2015-Rel. 21), (Aurora, Ont.: Canada Law Book, 2004), at pp. 8-13 to 8-15.

[88] Thus, had the tenant complied with its obligations under the lease, neither it nor its insurer would have any viable subrogated claim against the landlord for loss or damage to the tenant's property arising from the fire. The tenant cannot benefit from its admitted breach of s. 8(5) of the lease to found a subrogated claim in respect of such loss or damage against the landlord. And, as I have said, having assumed the risk of fire loss or damage to its own property, the tenant bears the risk of underinsuring for such loss or damage.

IV. Disposition

[89] For the reasons given, I conclude that the landlord bargained under the lease to be free of responsibility for the risk of loss or damage to the tenant's property or business caused by fire. That bargain is manifest in the tenant's insurance covenants and the immunity provision and is not limited by the landlord's indemnity covenant.

[90] I would therefore allow the appeal, set aside the summary judgment granted by the motion judge and dismiss the tenant's action as against the landlord.

[91] The landlord is entitled to its costs of this appeal, which I would fix in the sum of $25,000, inclusive of disbursements and applicable taxes. The parties informed this court that the bills of costs submitted on the summary judgment motions included [page440] costs for the entire action. However, those bills of costs are not before this court. In the circumstances, the landlord shall file its brief written submissions regarding its costs of the action (excluding any costs associated with its cross-claim against Faught Steel) and the motions with the registrar of this court by April 15, 2016. The tenant shall file its brief written responding submissions with the registrar by April 25, 2016.

Appeal allowed.

End of Document