COURT OF APPEAL FOR ONTARIO

CITATION: Desjardins General Insurance Group v. Campbell, 2022 ONCA 128

DATE: 20220215

DOCKET: C68843

Benotto, Brown and Harvison Young JJ.A.

BETWEEN

Desjardins General Insurance Group, and The Personal Insurance Company, and State Farm Insurance

Applicants (Appellants)

and

Ruth and Leonard Campbell, and Grace (Grazyna) and Thomas Blazejewski

Respondents (Respondent)

Pasquale Santini, for the appellants

Joseph Obagi and Sarah Russell, for the respondent Ruth Campbell

Heard: September 10, 2021, by video conference

On appeal from the order of Justice Marc Smith of the Superior Court of Justice, dated October 30, 2020.

Harvison Young J.A.:

A. Overview

[1] This appeal arises out of a number of applications and motions involving three separate insurance claims for damages to homes caused by a tornado that hit the city of Ottawa on September 21, 2018. The respondent Ruth Campbell’s home was one of them. The appellant Desjardins General Insurance Group [“Desjardins”] was the home’s insurer.

[2] Following a disagreement between the parties over the value of the loss, the respondent triggered the appraisal mechanism under s. 128 of the Insurance Act, R.S.O. 1990, c. I.8. She appointed as appraiser her lawyer Mr. Joseph Obagi. Desjardins appointed an employee, who was the adjuster assigned to the respondent’s file. The appraisers agreed on the choice of an umpire.

[3] After Mr. Obagi advised that he might be bringing a bad faith claim on the respondent’s behalf arising from the adjustment of her file, the umpire expressed concern about Mr. Obagi’s dual role as both an appraiser and a lawyer in the incipient action. He also expressed concern with the independence of Desjardins’ appraiser. He advised the parties that the appraisal “must be seen to function as an independent panel under the Insurance Act where there is no actual or perceived conflict of interest.” He was not prepared to proceed without directions from the Superior Court of Justice.

[4] While Desjardins satisfied the umpire’s concern by eventually appointing an appraiser who was not an employee, the respondent maintained her choice of Mr. Obagi. Desjardins brought an application for judicial direction, asking the court, among other things, to remove Mr. Obagi as the respondent’s appraiser. The application judge held that while the umpire is required to be impartial, that is not true of the appraisers selected by the parties. The appellants Desjardins General Insurance Group, The Personal Insurance Company, and State Farm Insurance appeal from that decision.

[5] The only issue on appeal is whether the application judge erred in not removing Mr. Obagi as the respondent’s appraiser for lack of independence.

[6] I would dismiss this appeal. While the application judge erred in characterizing the appraisal process as an administrative tribunal, he was correct in finding that there was no basis for requiring the removal of Desjardins’ choice of appraiser who is also her lawyer.

B. Background

[7] On September 21, 2018, a tornado damaged the respondent’s home, which was deemed a total loss. Steven Keane, a Desjardins employee, was the adjuster assigned to her file. Between January and March 2019, Desjardins presented estimates to the respondent. In March 2019, the respondent’s family (“the Campbell family”) contracted with Omega Homes to rebuild their home. In April, Ms. Campbell requested an appraisal and, in May, she submitted an interim proof of loss. Desjardins appointed Mr. Keane (the adjuster) as appraiser and Ms. Campbell appointed Mr. Obagi. The appraisers agreed to appoint William Neville as umpire.

[8] On May 23, 2019, the appraisers and the umpire held their first case conference. At that point, Mr. Obagi advised that he might be asserting a bad faith claim on behalf of Ms. Campbell arising from the adjustment of her file.

[9] On May 27, 2019, Mr. Obagi’s law firm was retained to represent the Campbell family and two other families in an action for punitive damages against the appellants, Mr. Keane and others. This concerned Mr. Neville, who, in an email on the same day, wrote the following: “Based on the previous experience that I shared with you both, I am certain you will appreciate that I would be less inclined to proceed with the appraisal if there was going to be a lawsuit with “bad faith” elements imbued within it about to be launched as between the insured and insurer”.

[10] On June 14, 2019, Mr. Neville unilaterally suspended the appraisal pending direction from the Superior Court of Justice on whether “(a) Mr. Obagi can reasonably function as an appraiser on behalf of Ruth Campbell while continuing to act as her counsel in the lawsuit (my view is that he cannot); and if not, who his replacement should be; (b) Mr. Keane can reasonably function as an appraiser on behalf of his nominating insurer while remaining a party in the lawsuit (my view is that he cannot); and if not, who his replacement should be”.

[11] On July 8, 2019, Mr. Neville advised the appraisers that he was not prepared to proceed with the appraisal if the Campbell Family maintained their wish to have Mr. Obagi (or a member of his firm) act as an appraiser and similarly, where Desjardins sought to have an employee serve as an appraiser. He stated: “Surely the Tribunal must be seen to function as an independent panel under the Insurance Act where there is no actual or perceived conflict of interest”.

[12] Desjardins responded to the umpire’s concerns. It removed Mr. Keane as the appraiser and appointed Michael Martin, another employee of Desjardins who had not been involved in the dispute or in adjusting the loss. This change did not alleviate the umpire’s concerns because Desjardins was a party in the claim. Desjardins therefore appointed a non-employee, John Valeriote of Crawford & Company. The Campbell Family did not wish to change Mr. Obagi as their appraiser.

[13] Desjardins then brought an application to, among other things, remove Mr. Obagi as an appraiser, arguing that the appraisal process is an administrative tribunal and the two appraisers and the umpire must all be impartial. Desjardins contended that although the Ontario legislature had not specifically stated in the Insurance Act that an appraiser should be impartial and/or disinterested, the statute implied that they should be.

[14] The application judge found that the appraisal process under the Insurance Act is an administrative tribunal, created to establish the value of the loss. He noted that s. 128(2) of the Act, which provides that both parties shall appoint an appraiser, contains no restrictions imposed upon the parties regarding who can act as an appraiser. He took heed of the common practice in the insurance sector, whereby the insurers appoint an employee (property adjuster) to act as their appraiser while the insureds appoint a lawyer, a public adjuster, or even themselves to act as appraiser.

The Statutory Framework

[15] It will be useful for the purposes of the following discussion to set out the relevant sections of the Insurance Act, namely ss. 128 and 148:

Contracts providing for appraisals

128 (1) This section applies to a contract containing a condition, statutory or otherwise, providing for an appraisal to determine specified matters in the event of a disagreement between the insured and the insurer.

Appraisers, appointment

(2) The insured and the insurer shall each appoint an appraiser, and the two appraisers so appointed shall appoint an umpire.

Appraisers, duties

(3) The appraisers shall determine the matters in disagreement and, if they fail to agree, they shall submit their differences to the umpire, and the finding in writing of any two determines the matters.

Costs

(4) Each party to the appraisal shall pay the appraiser appointed by the party and shall bear equally the expense of the appraisal and the umpire.

Appointment by judge

(5) Where,

(a) a party fails to appoint an appraiser within seven clear days after being served with written notice to do so;

(b) the appraisers fail to agree upon an umpire within fifteen days after their appointment; or

(c) an appraiser or umpire refuses to act or is incapable of acting or dies,

a judge of the Superior Court of Justice may appoint an appraiser or umpire, as the case may be, upon the application of the insured or of the insurer.

Statutory conditions

148 (1) The conditions set forth in this section shall be deemed to be part of every contract in force in Ontario and shall be printed in English or French in every policy with the heading “Statutory Conditions” or “Conditions légales”, as may be appropriate, and no variation or omission of or addition to any statutory condition is binding on the insured.

Appraisal

11. In the event of disagreement as to the value of the property insured, the property saved or the amount of the loss, those questions shall be determined by appraisal as provided under the Insurance Act before there can be any recovery under this contract whether the right to recover on the contract is disputed or not, and independently of all other questions. There shall be no right to an appraisal until a specific demand therefor is made in writing and until after proof of loss has been delivered.

The Decision Below

[16] The application judge described the appraisal process as an informal valuation, not an arbitration, run entirely by the umpire as they see fit. To that end, he noted:

• There is no requirement for a hearing, nor is there a prohibition that one take place;
• If oral evidence is presented, contractors and/or insureds can be called to testify, and cross-examinations can occur;
• Experts can be asked to attend a hearing and provide their opinion;
• The hearing can last a few hours, one day or span over many days; and
• The valuation can also be entirely based upon written documentation.

[17] The application judge found that the umpire is the sole decision maker. While s. 128(3) of the Act sets out the duty of the appraisers to determine the matters in disagreement, it is silent regarding the umpire’s role and responsibilities. The umpire, after hearing and considering all the evidence (oral and/or documentary), as presented by the appraisers, decides between two competing valuations (insurer or insured), and the umpire’s selection determines the value of the loss. It is the umpire’s choice and nothing else that creates the majority decision that determines the value of the loss. The umpire, he stated, must always be independent and impartial, and in the event that they find it appropriate to hold a hearing, it must be conducted in a manner that ensures procedural fairness.

[18] The application judge described the appraisers’ role as one of presenting evidence that supports their assessments of the loss. The appraisers do not give evidence but merely plead the case on behalf of the clients and present the evidence in a manner meant to persuade the umpire that their valuation of the loss is reasonable and appropriate in the circumstances. He summarized these points as follows:

In sum, the choice of the appraiser belongs to the party. It is expected that the chosen appraiser will vigorously advocate the client’s position, with the goal of convincing the other appraiser, or more importantly, the umpire as the sole decision maker of the appraisal process. Selecting an advocate as an appraiser does not eliminate the integrity of the appraisal process. Rather, it ensures that the party’s respective positions are properly advanced before the umpire, in the best interest of the client.

[19] After the application judge’s decision, the parties agreed to proceed with the appraisal with the same parties, notwithstanding the pending appeal. As at the time of the appeal hearing, both appraisers had submitted their appraisal brief and put forward their numbers.

C. Issues on Appeal

[20] The central issue on the appeal is whether the application judge erred in rejecting the appellants’ submission that the Insurance Act implicitly imposes a duty of independence and impartiality on appraisers. In the course of the oral hearing, the correctness of the application judge’s decision in characterizing the appraisal scheme under the Insurance Act as an administrative tribunal was also questioned.

D. Submission of the Parties

[21] The appellants argue that the application judge erred in finding that an appraiser is an advocate and not a decision maker because this offends the principle of impartiality and breaches procedural fairness. In doing so, they argue, he also erred in relying on the witnesses’ understanding of the role rather than the wording of s. 128(3) of the Insurance Act and the jurisprudence. Moreover, they submit, the application judge also erred by misinterpreting and misapplying the legislative amendment of Statutory Condition 11 under s. 148, which removed the word “disinterested,” and failed to give effect to the requirement that a decision maker in the context of an administrative tribunal be independent from the parties before them.

[22] The respondent argues that the Insurance Act expressly permits the parties to an appraisal to appoint an appraiser of their choice and that choice need not be “neutral”, “non-partisan” or “independent” of the parties. She further notes that the suggestion that an appraiser appointed by the parties must be “neutral” runs contrary to the legislative scheme created by the Insurance Act and to the practice in the industry where insurers regularly appoint their own employees or adjusters as appraisers and parties often appoint their lawyer.

[23] There is no dispute between the parties that this appeal depends on statutory interpretation, which is a pure question of law. The standard of review is therefore one of correctness: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at para. 8.

E. Discussion

(1) The application judge correctly interpreted the relevant provisions of the Insurance Act.

[24] In modern statutory interpretation, “the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament”: Rizzo & Rizzo Shoes Ltd. (Re), 1998 CanLII 837 (SCC), [1998] 1 S.C.R. 27, at para. 21. As Professor Ruth Sullivan notes in her text on statutory interpretation, “[t]he ordinary meaning of a word or a group of words is not their dictionary meaning but the meaning that would be understood by a competent language user upon reading the words in their immediate context”: Ruth Sullivan, Statutory Interpretation, 3rd ed. (Toronto: Irwin Law, 2016), at p. 61.

[25] The appellants submit that because s. 128 of the Insurance Act removes the quantification of the loss from the courts and gives it to the appraisal process, all participants in the appraisal process who have the power to quantify the loss must also act judicially. Put another way, the argument is that it is not only the umpire who must act judicially but also the two appraisers. For that reason, the appraisers must be impartial as well as the umpire.

[26] This submission is flawed for a number of reasons.

[27] First, it is well established that the purpose of the appraisal scheme under the Insurance Act is to provide an easy, expeditious, and cost-effective means for the settlement of claims for indemnity under insurance policies: Madhani v. Wawanesa Mutual Insurance Company, 2018 ONSC 4282 (Div. Ct.), at para. 46; Northbridge General Insurance Corp. v. Ashcroft Homes-Capital Hall Inc., 2021 ONSC 1684, at para. 23. The narrow function of the appraisal process is to provide the parties to the dispute with a valuation of the loss, and not the determination of legal rights: Madhani, at para. 40.

[28] The appraisal process is not exhaustive of all potential disputes between the parties. For example, there may be a dispute about the scope of coverage such as whether landscaping restoration is covered. While such a loss might be valued as part of the appraisal process, that process cannot address other issues.

[29] Second, as Perell J. noted in Northbridge, at para. 29, the process is designed to be collaborative and not adjudicative:

The appraisal process is designed to be collaborative and not adjudicative, and the process, which does not require a hearing with evidence, contemplates that the appraisers and the umpire will arrive at a binding decision based on their own knowledge and expertise. The umpire is the ultimate impartial decision-maker that makes a binding determination that removes the quantification of the loss from the court. As for procedure, the umpire may permit viva voce testimony under oath and may receive affidavit evidence but he or she is not required to do so. [Footnotes omitted.]

This point also relates to the question of whether the application judge correctly described the process as an adjudicative tribunal which will be addressed further below.

[30] Third, as the application judge noted, the legislature removed the qualification “competent and disinterested” from the word “appraiser” through An Act to Amend the Insurance Act, S.O. 1966, c. 71, s. 8. The appellants, in effect, ask this court to read this qualification back into the statute.

[31] The court must give effect to what the legislature intended. The best source of the legislature’s intention is the legislation itself. As the application judge noted, ss. 128(2) and (3) of the Act have never stipulated that appraisers must be “competent and disinterested.” While a previous version of Statutory Condition 11 at s. 148 of the Act stipulated that both appraisers and umpires had to be “competent and disinterested,” this condition was removed by the 1966 amendment. Although no explanation was given for this change, it must be presumed that the legislature was not simply careless with the language and did not intentionally make the statute vague: see Sullivan, at p. 41; D. R. Fraser Co. v. Minister of National Revenue, 1948 CanLII 318 (UK JCPC), [1948] 4 D.L.R. 776 (P.C.), at p. 781. The legislature must have intended to remove the qualification “competent and disinterested” for appraisers. Were it found otherwise, insureds would not be able to self-represent and provide a valuation of their own loss.

[32] The appellants argue that the reason s. 128 of the Insurance Act does not explicitly state that an appraiser must be independent is because the ordinary meaning of the terms “appraisal” and “appraiser” imply a degree of independence. In support of this argument the appellants submit the Black’s Law Dictionary definition of the term “appraisal” as meaning “[a] valuation or estimation of value of property by disinterested persons of suitable qualifications” and of the term “appraiser” as meaning “[a]n impartial person who estimates the value of something, such as real estate, jewelry, or rare books. – Also termed valuer.” It must be noted that these definitions have been lifted out of different editions of the dictionary: Joseph R. Nolan et al., Black’s Law Dictionary, 6th ed. (St. Paul, Minn.: West Publishing, 1990), sub verbo “appraisal”; Bryan A. Garner et al. 8th ed. (St. Paul, Minn.: Thomson/West, 2004), sub verbo “appraiser”. In any event, Black’s Law Dictionary definitions are not helpful as they cannot take into account the context and purpose of the appraisal process under the Insurance Act.

[33] The cases relied on by the appellants for the proposition that appraisers must be disinterested do not assist them.

[34] In both Ice Pork Genetics Inc. v Lombard Canada Ltd. et al, 2010 MBQB 77, and Florida Insurance Guaranty Association, etc. v. Branco (2014), 148 So. 3d 488 (Fla. 5th Dist. Ct. App.), the court was interpreting legislation or an insurance policy which specified that appraisers must be disinterested. There is no such provision in the Ontario Insurance Act.

[35] In Congregation of Knox's Church (Trustees) v. Hudson's Bay Co., [1993] O.J. No. 764 (Ont. C. J. (Gen. Div.)), the court was concerned with the narrow issue of whether valuators appointed pursuant to a private act of the Ontario legislature to determine rental lands leased to Hudson’s Bay Company had to be independent. As such, the case is not helpful in the insurance context.

[36] While appraisers need not be disinterested, I would disagree with the application judge that they are therefore advocates. The purpose of the appraisal scheme under the Insurance Act is to provide an easy, expeditious, and cost-effective means for the settlement of claims for indemnity under insurance policies: Madhani, at para. 46; Northbridge, at para. 23. It is designed to be collaborative and not adjudicative: Northbridge, at para. 29. To fulfil the purposes of the appraisal scheme outlined above and to facilitate a collaborative process, an appraiser must attempt, in good faith, to reach a compromise with their fellow appraiser. That does not preclude the appointment of one party’s lawyer as their appraiser as well, but the appraisal process presupposes that each appraiser work collaboratively. While this involves advocacy in the sense that each side may be expected to advocate their valuation to the other, their overall role within the appraisal process is more collaborative and less adversarial. The umpire will ultimately choose one side or the other. That places a premium on each side to be reasonable and also to reach agreement with the other side if possible.

[37] If the appraisers are nevertheless unable to agree and therefore appoint an umpire to resolve their disagreement, then the umpire becomes the tie breaker. At that point, the umpire becomes the ultimate decision maker, who must necessarily be impartial and make a binding determination: Northbridge, at para. 29. While the appraisal process is not subject to the SPPA, it is subject to judicial review for denial of procedural fairness at common law from the moment of the umpire’s involvement: Madhani, at paras. 37-38. It is the umpire who bears the responsibility for ensuring that the process is fair.

[38] The content of procedural fairness in the appraisal process is modest and flexible, and will depend upon the exigencies of the particular case, having regard to, for example, the amount of money involved in the dispute: Northbridge, at paras. 34, 71 and 73. There is no requirement that reasons for decision be provided: Madhani, at para. 41. The more complex cases may require a more structured and formal appraisal process: Northbridge, at para. 73. To that end, the umpire enjoys considerable discretion. Courts afford the umpire’s choice of procedure considerable deference and will be reluctant to interfere unless there is proof of fraud, collusion, bias, or partiality on the part of the umpire, or the umpire or the appraisers exceed their jurisdiction under the Act: Northbridge, at para. 34, Shinkaruk Enterprises Ltd. and Mr. Klean Enterprises Ltd. v. Commonwealth Insurance Company et al., 1990 CanLII 7738 (SK CA), 71 D.L.R. (4th) 681 (Sask. C.A.), at p. 688.

[39] This lack of a rigid structure is deliberate, intended to provide the insureds and the insurers with an expeditious and easy means for the settlement of claims for indemnity under insurance policies: Northbridge, at para. 68. It is in the best interests of appraisers to be objective in the appraisal process and not harm their position by losing credibility in the eyes of the umpire. In other words, the appraisal process itself provides sufficient constraint on the conduct of appraisers.

[40] On appeal, the appellants argued that the real issue in this case was Mr. Obagi’s dual role as appraiser and counsel in the insured’s bad faith action against the insurer. They submit that this creates a conflict of interest and Mr. Obagi, in his role as appraiser, has the ability to influence and impact the decision in such a way that it could impact upon the bad faith claim.

[41] This submission was not put to the application judge. The issue was rather framed as whether a lawyer, whose duties are to the client, can act as a disinterested appraiser. The application judge reviewed the Act’s provisions, surveyed the Hansard records, looked at the usual practice in the field, and concluded that an appraiser need not be disinterested.

[42] In any event, the bad faith claim and the appraisal are different issues. The bad faith claim involves the conduct of the insurer prior to the reconstruction of the homes at issue, which have now been reconstructed and the sole issue for appraisal is their replacement cost. Should these issues become intertwined at a later point, for example if there arose a possibility that Mr. Obagi may be called as a witness, the conflict of interest that arose may be cured by Mr. Obagi’s removal as counsel of record in accordance with s. 5.2 of the Rules of Professional Conduct.

[43] In short, the flaw in the appellants’ argument that appraisers must be independent is that it collapses the roles of the umpire and the appraisers. The integrity of the process depends on the impartiality of the umpire. The structure of the process, according to which the umpire ultimately chooses one appraisal over the other, encourages compromise and collaboration between the parties.

(2) The appraisal process is not a tribunal.

[44] I conclude that the application judge erred in finding that the appraisal process was an administrative tribunal. This issue was raised by the panel in the course of the oral hearing.

[45] Before the application judge, the respondent argued that the appraisal process is not an administrative tribunal. The application judge rejected this submission and determined that “[o]nce the appraisers and umpire have been appointed, an administrative tribunal has been created for the limited purposes of establishing the value of the loss. It removes the quantification of the loss from the Court.” However, he did not provide any reasons in support of this determination.

[46] With respect, the application judge erred in classifying the appraisal process as a tribunal. Tribunals are quasi-judicial decision-making bodies tasked with determining issues on the facts and law in each case that comes before them: Prince Edward County Field Naturalists v. Ontario (Environment and Climate Change) (2016), 2 C.E.L.R. (4th) 140 (Ont. Environmental Review Trib.), at para. 42, per Gibbs and Wright (Vice Chairs).

[47] There is no indication in the Act that the appraisal mechanism is an administrative tribunal. The appraisal process under the Act is not adjudicative or quasi-judicial in nature but is rather based on discussion and on the sharing of expertise in valuation: Birmingham Business Centre Inc. v. Intact Insurance Company, 2018 ONSC 6174 (Div. Ct.), at para. 5; Madhani, at para. 42. It is not an arbitration: Madhani, at para. 40. Appraisal does not require a hearing, consideration of evidence, or reasons: Madhani, at paras. 40-41. Appraisers and the umpire do not determine legal questions: Madhani, at para. 30.

[48] Moreover, while the process contemplates a valuation process that is comprised of the appraisers and the umpire, the ultimate decision maker if the parties are unable to agree is the umpire and not the appraisers. The fact that the umpire chooses one party’s appraisal over another does not change this. Seen in the context of the process as a whole and its purpose, this reflects the premium put on collaboration and efficient process because, as discussed earlier, the process creates incentive for the parties to present reasonable valuations to the umpire to maximize the prospect that theirs will be chosen.

F. Costs

[49] I would dismiss the appeal with costs in the amount of $8,750, including disbursements, plus HST to be paid by the appellants to the respondent.

Released: February 15, 2022 “M.L.B.”

“A. Harvison Young J.A.”

“I agree M.L. Benotto J.A.”

“I agree David Brown J.A.”