CITATION: National Industries Inc. v. Kirkwood, 2018 ONSC 1490
DIVISIONAL COURT FILE NO.: DC/459/17
DATE: 20180306
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
NATIONAL INDUSTRIES INC. and NATIONAL STEEL CAR LIMITED
Plaintiffs
– and –
PETER KIRKWOOD and MARSH CANADA LIMITED
Defendants
Jerome R. Morse, David Trafford, for the Plaintiffs
Robert Traves, David Elman, for the Defendants
HEARD at Toronto: January 11, 2018
Koehnen J.
Introduction
[1] This is an appeal by the plaintiffs from an order of Master Jolley (now reported at 2017 ONSC 4196) dismissing the plaintiffs’ motion to amend their statement of claim.
[2] The plaintiffs submit the Master made eleven specific errors, the essence of which is that she interpreted the statement of claim to deal with a factual matrix that began in 2010. The proposed amendments deal with allegations of negligence by the defendants in 2008 and 2009. If the original statement of claim alleged negligence beginning in 2010, then new allegations of negligent conduct in 2008 and 2009 are barred by the expiry of the limitation period.
[3] For the reasons set out below I can find no error on the part of the Master and dismiss the plaintiffs’ appeal.
Factual Background
[4] The plaintiffs purchased directors and officers insurance of CDN $10 million from Guarantee Company of North America (“GCNA)” up until the spring of 2011. In the spring of 2011, the plaintiffs purchased several layers of insurance in the total face amount of $70 million from a number of new insurers. The plaintiffs purchased both the GCNA and the new policies through their insurance broker, the defendant, Marsh Canada Limited. The defendant, Peter Kirkwood is the individual broker at Marsh who advised the plaintiffs.
[5] The dispute arises out of a business venture the plaintiffs carried out in Alabama. That venture led to a criminal prosecution by the state of Alabama against Gregory Aziz, the former CEO of the plaintiffs’ Alabama subsidiary. The prosecution was settled for the sum of U.S. $22 million. GCNA and the new insurers denied coverage for the settlement alleging that the plaintiffs had failed to make proper disclosure of the risks associated with the Alabama venture when they applied for insurance. In addition, GCNA relied on its policy limit of CDN $10 million.
[6] The defendants submit that the original statement of claim alleged that they had failed to advise the plaintiffs properly about what to disclose when they renewed their $10 million insurance policy with GCNA in 2010 and when they obtained $70 million of insurance from a number of new insurers in 2011.
[7] The defendants submit that the amended statement of claim now seeks to broaden the allegations of negligence against them and complains about advice that the defendants either gave or failed to give the plaintiffs in 2008 and 2009. The defendants submit that those allegations amount to new causes of action in respect of which the limitations period has expired.
[8] The plaintiffs submit that the proposed amendments do not amount to new allegations of negligence but merely provide further particulars of conduct already alleged in the original statement of claim.
Applicable Legal Principles
[9] The Applicable legal principles are not in dispute.
[10] All parties agree that the Master’s finding that the amendments constitute a new cause of action amount to a question of law with respect to which the standard of review is correctness: Housen v. Nikolaisen, 2002 SCC 33 at para. 8.
[11] An amendment to a pleading after the expiry of a limitation period is not statute barred if the amendment:
(a) provides particulars of an allegation already pleaded;
(b) provides additional facts upon which the original right of action is based;
(c) does not alter the nature of the claim, or
(d) arises from the core factual nexus as the facts and circumstances become clearer and more mature: Bank of Montreal v. Morris, 2013 ONSC 2884, at para 46; Martin v. St Thomas Elgin General Hospital et al., 2016 ONSC 294, at para 17.
[12] In Boyes Homes Inc. v. Payne 2013 ONSC 1056, the court noted at para. 24: “Where the parties have known the issues they are fighting about for some time the court should see that the issue is joined rather than allow one party to escape through a technical defence.”
[13] In 1100997 Ontario Limited v. North Elgin Centre Inc., 2016 ONCA 848, the Ontario Court of Appeal noted at para. 19-20 that:
“[19] A cause of action is ‘a factual situation the existence of which entitles one person to obtain from the court a remedy against another person.’
[20] In Morden & Perell, The Law of Civil Procedure in Ontario, 2nd ed. (Markham: LexisNexis Canada Inc., 2014), at p. 142, the authors state:
‘A new cause of action is not asserted if the amendment pleads an alternative claim for relief out of the same facts previously pleaded and no new facts are relied upon, or amount simply to different legal conclusions drawn from the same set of facts, or simply provide particulars of an allegation already pled or additional facts upon which the original right of action is based. [Footnotes omitted.]”
[14] In Lauzon v. Dominion of Canada General Insurance Co., 2014 ONSC 1886 this court noted at para. 14 that:
“Fairness requires that a statement of claim provide the defendants with an answer to the question: on what factual basis do the plaintiffs seek relief against us? It seems to me that, unless the answer to that question would be the same or substantially the same after the amendment is made as it was before, a new cause of action is being pursued. In this case, the answer would not be the same.”
[15] When applied to the case at hand, these principles all boil down to the same issue: did the original statement of claim complain about the defendants’ allegedly negligent conduct in 2008 and 2009 or was the complaint to restricted to the defendants allegedly negligent conduct in 2010 and 2011?
[16] The Master read the original statement of claim as alleging negligent conduct in 2010 and 2011. I agree with that reading.
Analysis
[17] At its heart, the original statement of claim alleges two specific negligent acts:
(i) That the defendants were aware of certain risks associated with the Alabama project and did not advise the plaintiffs to disclose those risks when they renewed the GCNA policy in March, 2010 (paragraph 16 of the original statement of claim).
(ii) When the plaintiffs transferred to new insurers in 2011, they asked the defendants how they should fill out the insurance applications. The defendants told the plaintiffs to indicate that they had no knowledge or information about events that could be expected to give rise to a claim under the policies, even though the defendants allegedly knew of risks associated with the Alabama project that could give rise to a claim on the policies (paragraph 20 of the original statement of claim).
[18] The allegation about the renewal of the GCNA in March 2010 is relevant because all parties agree that, had the plaintiffs disclosed certain issues about the Alabama project at that time, the GCNA policy and the new policies they obtained in 2011 would have responded to the claim.
[19] Although the proposed amended statement of claim contains many amendments, they boil down to two allegations: (i) The defendants acted negligently by failing to tell the plaintiffs to disclose certain facts about the Alabama project when they renewed their GCNA policies in 2008 and 2009; and (ii) The defendants had asked GCNA to increase coverage in 2008 but failed to seek alternative sources of insurance when GCNA declined to increase the coverage beyond $10 million and failed to tell the plaintiffs that they were inadequately insured.
[20] The plaintiffs submit that a fair and generous reading of the original statement of claim would have put the defendants on notice of these complaints.
[21] To support their submission, the plaintiffs provided a colour-coded and underlined version of the original claim to highlight those portions that they submit should have alerted the defendants that their conduct in 2008 in 2009 was at issue.
[22] The portions of the original statement of claim on which the plaintiffs rely fall into two general categories.
[23] The first concerns a number of paragraphs that describe events that occurred before 2010. I read those paragraphs as setting out the background to the Alabama project and facts of which the defendants were aware when they advised the plaintiffs about how to fill out insurance applications in 2010 and 2011. I do not read those paragraphs as alleging negligent conduct in 2008 or 2009.
[24] By way of example, I have reproduced below paragraph 16 from the original statement of claim. The underlining and the bolded, bracketed years were not in the original but were added in the version the plaintiffs provided to me on the appeal to highlight those portions of the paragraph that the plaintiffs submit, should have alerted the defendants that their conduct before 2010 was at issue:
“16. During the period prior to April 1, 2011 National director’s and officer’s (“D&O”) liability insurance was pursuant to a policy of insurance with Guarantee Company of North America (“GCNA”) with limits of CAD$10 million. On or about March 19, 2010, National Industries, on the advice and counsel of Mr. Kirkwood and Marsh, executed an application to renew its D&O coverage with GCNA (the “GCNA Application”). At that time and prior to the renewal of the GCNA policy, Mr. Kirkwood and Marsh were aware of the circumstances concerning the financing and construction of the Plant [2007] the construction loans with RSA [2007 and 2008] and Mr. Aziz’s removal as the CEO of NAC [2009] and did not advise National to disclose such information to GCNA or to provide GCNA with a notice of circumstances which might potentially give rise to a future claim against the Plaintiffs and Mr. Aziz arising out of such facts or circumstances.”
[25] In my view, the underlined portions of paragraph 16 would not have alerted the defendants to the fact that their conduct in 2008 in 2009 was in issue. Rather, the underlined portions describe the knowledge that the defendants are alleged to have had in March 2010 which should have led them to tell the plaintiffs to disclose certain information in March 2010. The underlined portions would not tell the defendants that they are alleged to have acted negligently by failing to advise the plaintiffs to disclose that information in 2008 or 2009 and would not tell the defendants that they are alleged to have acted negligently by failing to tell the plaintiffs in 2008 or 2009 that they were inadequately insured.
[26] Other examples from the original claim follow a similar pattern. Paragraph 23 of the original claim states:
“23. The Plaintiffs plead that the Defendants held themselves out as professionals in the best position to obtain appropriate D&O Coverage for National’s insurance needs and that National relied on the knowledge, experience and expertise of the Defendants, generally, in the placement of its New D&O Policy and, specifically, the content of the insurance application to GCNA and the warranty statements to the other D&O insurers, Ace, Chubb, Axis, Travelers and Ironshore (“National’s Insurers”) when seeking the increase in D&O coverage.”
[27] The plaintiffs submit that the use of the words “appropriate” and “generally” in paragraph 23 of the claim was meant to indicate that the defendants acted negligently by failing to tell the plaintiffs in 2008 that they were underinsured.
[28] A defendant who had not received the benefit of that explanation would, in my view, have no way of knowing that the words “appropriate” and “generally” referred to specific conduct or lack of conduct in 2008.
[29] The second category of pleading in the original claim that the plaintiffs submit refers to conduct before 2010 is found in paragraph 30. Paragraph 30 sets out particulars of the defendants’ alleged negligence. By way of example it alleges that the defendants “failed to ensure that the plaintiffs were adequately insured” and that they failed to advise the plaintiffs to disclose to GCNA circumstances:
“… regarding the financing and construction of the Plant, the construction loans with RSA and Mr. Aziz’s removal as the CEO… prior to the expiration or cancellation of the GCNA policy.”
These facts which should have been disclosed arose before 2010. As a result, the plaintiffs submit that paragraph 30 of the claim made allegations about negligent conduct in 2008 and 2009.
[30] The plaintiffs’ submission, however, reads paragraph 30 entirely in isolation.
[31] Paragraph 30 would fairly be read in the context of paragraph 28 and 29. I set out the three paragraphs below:
“28. In addition, due to the negligence of Mr. Kirkwood and Marsh referable to the execution and submission of the GCNA Application and the warranty statements, among other things, National incurred damages for the cost of the mediation with the National Insurers and Zurich for indemnification referable to the Settlement and the Indictment.
- In the alternative, due to the negligence and breach of fiduciary duty of Mr. Kirkwood and the negligence, breach of fiduciary duty and breach of contract of Marsh referable to their failure to advise and counsel the Plaintiffs on the need to provide disclosure and a notice of circumstances to GCNA prior to the expiration of the GCNA policy on or about June 1, 2010, the Plaintiffs were deprived of the opportunity to be indemnified for the Settlement under the GCNA policy. In addition, the Plaintiffs paid premiums to purchase and renew the New D&O Policy with its additional limits of $60,000,000.00. The Plaintiffs claim these excess premiums as damages against the Defendants as the Plaintiffs ultimately received no value for such additional insurance.”
[32] Pausing there for a moment, it is important to note that paragraph 28 of the original claim complains of conduct in relation to the “GCNA Application and the warranty statements”. The GCNA Application was defined earlier in the statement of claim as the 2010 renewal application. The warranty statements were defined earlier in the statement of claim as the application for coverage with new insurers in 2011. Paragraph 29 also speaks of events in 2010 and 2011. After setting out that important factual context, the original claim then continues with paragraph 30 which reads as follows:
“30. The damages suffered by the Plaintiffs were solely caused by the negligence and breach of fiduciary duty of the Defendants, and breach of contract of Marsh, the particulars of which are as follows:
a. As against the Defendant Marsh:
i. It failed to provide the Plaintiffs with adequate insurance protection against foreseeable harm;
ii. It failed to ensure that the Plaintiffs were adequately insured;
iii. It failed to provide the Plaintiffs with proper advice referable to its insurance needs, in general, and, specifically, it failed to advise the Plaintiffs as to how to properly complete the GCNA Application and warranty statements;
iv. It failed to advise the Plaintiffs to provide GCNA with disclosure regarding the financing and construction of the Plant, the construction loans with RSA and Mr. Aziz’s removal as the CEO of NAC or with notice of circumstances prior to the expiration or cancellation of the GCNA policy;
v. It failed to understand the Plaintiffs’ insurance needs;
vi. It failed to adequately supervise the conduct of its employees; and,
vii. It permitted incompetent staff to provide advice to its clients referable to insurance coverage.
Further particulars of Marsh’s negligence, breach of contract and breach of fiduciary duty aforesaid are within the knowledge of the said Defendant.”
[33] Paragraph 30 then continues to reproduce the same allegations against the individual defendant, Peter Kirkwood.
[34] While paragraph 30 does not place a specific time frame on the particulars it contains, the relevant time frame is defined by the events referred to in paragraphs 28 and 29; that is to say, the defendants’ conduct in 2010 and 2011. Paragraph 30 contains particulars of that conduct. Paragraph 30 does not notify any defendant that its conduct in 2008 and 2009 in failing to obtain a higher or alternative insurance was also at issue.
[35] I cannot discern any error on the part of the Master in applying to the proposed amendments, the legal principles articulated earlier in these reasons.
[36] Regardless of which formulation of the principles one applies, the amendments should not be allowed.
[37] The proposed amendments do not provide particulars of an allegation already pleaded but make allegations of new acts of negligence in 2008 and 2009. The amendments do not arise from the same “core factual nexus” as the original claim. One cannot fairly say that the “core factual nexus” is the client broker relationship and that particular allegations of negligence in respect of that relationship for 2010 and 2011 would also shelter allegations that are raised subsequently about conduct in 2008 in 2009.
[38] Alternative formulations of the principle speak to whether the parties had knowledge of the issues they were fighting about. The original claim would fairly notify the defendants that their conduct in 2010 and 2011 was at issue. They would not have known from reading the original claim that their failure to advise disclosure or failure to advise of inadequate coverage in 2008 in 2009 was also at issue.
[39] If, to use the language of Lauzon, after reading the initial statement of claim, the defendants had asked: “On what factual basis do the plaintiffs seek relief against us?” A fair and generous reading of the claim would have led them to answer: on the basis of our conduct in 2010 and 2011.
[40] The simple fact that the allegations in 2010 and 2011 relate to negligence and the allegations of 2008 and 2009 also relate to negligence is not sufficient to conclude that the original statement of claim included the alleged negligence of 2008 and 2009: Farmers Oil and Gas Inc. v. Ontario (Ministry of Natural Resources) 2016 ONSC 6359 at paragraph 18.
[41] The plaintiffs submit that the Master did not address Phommachanh v TTC, [2002] O. J. No. 1166 where Justice Hoy (as she then was) granted the plaintiff leave to amend a statement of claim in which the plaintiff had originally alleged that he was struck by a streetcar while crossing the street in 1995 as a result of the driver’s negligent operation of the vehicle. More than two years after issuing the original statement of claim, the plaintiff sought to amend the claim to allege that the streetcar and the streetcar line were negligently designed. Justice Hoy allowed the amendment holding that the amendment did not add a new cause of action.
[42] Phommachanh does not assist the plaintiffs. Phommachanh is based, in part, on the doctrine of special circumstances which no longer applies. In addition in Phommachanh the original statement of claim pleaded that the driver operated the streetcar negligently. Later allegations about the design of the streetcar and the streetcar line did arise out of the same factual matrix because the manner in which the vehicle was to be operated would depend in part upon its design and that of the streetcar line. Justice Hoy specifically recognized this when she stated at paragraph 6 of her reasons that the new allegations “may relate to the manner in which the streetcar was operated, which was initially pleaded.”
Disposition
[43] For the foregoing reasons, the appeal is dismissed with costs. If the parties cannot agree on costs, the defendants may make written submissions addressed to my attention at judges’ reception at 361 University Ave. within two weeks of the release of these reasons. The plaintiffs shall have 10 days to respond with the defendants having five days for any reply.
Koehnen J.
Released: March 6, 2018
CITATION: National Industries Inc. v. Kirkwood, 2018 ONSC 1490
DIVISIONAL COURT FILE NO.: DC/459/17
DATE: 20180306
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
BETWEEN:
NATIONAL INDUSTRIES INC. and NATIONAL STEEL CAR LIMITED
Plaintiffs
– and –
PETER KIRKWOOD and MARSH CANADA LIMITED
Defendants
REASONS FOR JUDGMENT
Koehnen J.
Released: March 6, 2018