Marvelous Mario's Inc. et al. v. St. Paul Fire and Marine Insurance Co.

Sweet-Ease Inc. et al. v. St. Paul Fire and Marine Insurance Company

[Indexed as: Marvelous Mario's Inc. v. St. Paul Fire and Marine Insurance Co.]

Ontario Reports

Court of Appeal for Ontario

Hourigan, Paciocco and Fairburn JJ.A.

July 31, 2019

147 O.R. (3d) 186 | 2019 ONCA 635

Case Summary

Insurance — Interpretation and construction

Plaintiffs in the food industry suffered losses due to meal moth infestation. Plaintiffs commenced two actions against their insurer, for the lost leasing income and failure to repay a loan, the second for theft by a receiver of equipment and assets resulting in business interruption losses. Trial judge correctly dismissed the first action on the ground that the infestation was the insured peril. Trial judge in the second action dismissed the property claim as time-barred but allowed the business interruption claim in part by applying a rolling limitation period. Insurer's obligation to indemnify was not a recurring contractual obligation so a rolling limitation period did not apply. Both actions dismissed.

Insurance — Limitation periods

Plaintiffs in the food industry suffered losses due to meal moth infestation. Plaintiffs commenced two actions against their insurer, for the lost leasing income and failure to repay a loan, the second for theft by a receiver of equipment and assets resulting in business interruption losses. Trial judge correctly dismissed the first action on the ground that the infestation was the insured peril. Trial judge in the second action dismissed the property claim as time-barred but allowed the business interruption claim in part by applying a rolling limitation period. Insurer's obligation to indemnify was not a recurring contractual obligation so a rolling limitation period did not apply. Both actions dismissed.

Limitations — Insurance

Plaintiffs in the food industry suffered losses due to meal moth infestation. Plaintiffs commenced two actions against their insurer, for the lost leasing income and failure to repay a loan, the second for theft by a receiver of equipment and assets resulting in business interruption losses. Trial judge correctly dismissed the first action on the ground that the infestation was the insured peril. Trial judge in the second action dismissed the property claim as time-barred but allowed the business interruption claim in part by applying a rolling limitation period. Insurer's obligation to indemnify was not a recurring contractual obligation so a rolling limitation period did not apply. Both actions dismissed.

Limitations — Rolling limitation period

Plaintiffs in the food industry suffered losses due to meal moth infestation. Plaintiffs commenced two actions against their insurer, for the lost leasing income and failure to repay a loan, the second for theft by a receiver of equipment and assets resulting in business interruption losses. Trial judge correctly dismissed the first action on the ground that the infestation was the insured peril. Trial judge in the second action dismissed the property claim as time-barred but allowed the business interruption claim in part by applying a rolling limitation period. Insurer's obligation to indemnify was not a recurring contractual obligation so a rolling limitation period did not apply. Both actions dismissed.

Facts

The individual insured was the direct or indirect owner of several companies identified as the Bakemates Group of Companies. That group commenced an action against the defendant insurer for business interruption and property losses arising from a meal moth infestation. Almost immediately thereafter, a receiver-manager of the Bakemates Group was appointed. A proposed sale of the Bakemates assets was approved and the transaction closed in December 2000. The action was ultimately settled. Meanwhile, the Bakemates Group plus the individual insured plus two other companies commenced the first action under appeal, essentially duplicating the original action and adding claims by the additional plaintiffs. The two companies claimed loss of leasing income from the Bakemates Group based on the group's inability to pay resulting from losses arising from the infestation. The individual insured sought recovery of a bonus that he said he received and then loaned to one of the Bakemates Group. A second action was commenced in which it was alleged that the receiver committed theft of equipment and assets, resulting in business interruption losses. The trial judge dismissed the first action on the grounds that the infestation was the covered peril, the losses claimed were indirect losses and the receivership was not a fortuitous event. With respect to the second action the trial judge determined that the date of sale of the assets was when the plaintiffs knew they had a claim. Since the action was commenced two years after that date, the claim for the equipment loss was time-barred. However, the ongoing claims for business interruption were subject to a rolling limitation period such that any claims arising more than one year before the second action was commenced were barred, but any subsequent claims could proceed. The plaintiffs appealed the dismissal of the first action and the dismissal of their claims in the second action. The defendant cross-appealed the decision to allow the business interruption claim to proceed in part.

Held, the appeals should be dismissed and the cross-appeal allowed.

Regarding the first action, there was ample support for the trial judge's finding that the losses alleged to have been suffered were the result, not of the infestation, but of the failure of the Bakemates Group of Companies to meet their financial obligations. In the second action, the trial judge erred in focusing her analysis on question of whether the plaintiffs were continuing to suffer damages rather than on the issue of whether the defendant had a recurring contractual obligation. There was a 24-month cap on the business interruption losses but that did not convert the defendant's obligation to indemnify into a recurring contractual obligation. Therefore, it was not a proper case to apply a rolling limitation period. Consequently, the second action was time-barred in its entirety.

Cases Referred To

Bonilla v. Preszler, 2016 ONCA 759

Boyce v. Co-operators General Insurance Co., 2013 ONCA 298

DK Manufacturing Group Ltd. v. Co-operators General Insurance Co., 2016 ONSC 3983

Ford Motor Co. of Canada Ltd. v. Prudential Assurance Co.

Goorbarry v. Bank of Nova Scotia, 2011 ONCA 793

International Movie Conversions Ltd. v. ITT Hartford Canada

Leblanc & Royle Enterprises Inc. v. United States Fidelity & Guaranty Co.

Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37

Peixeiro v. Haberman

Pickering Square Inc. v. Trillium College Inc., 2016 ONCA 179

Richards v. Sun Life Assurance Co. of Canada, 2016 ONSC 5492

Sherwin Williams Co. of Canada v. Boiler Inspection & Insurance Co. of Canada

Treeland Motor Inn Ltd. v. Western Assurance Co.

Triple Five Corp. v. Simcoe & Erie Group

Wilson's Truck Lines Ltd. v. Pilot Insurance Co.

Appeal and Cross-Appeal

APPEAL and CROSS-APPEAL from the judgment of Akbarali J., 2018 ONSC 1365 (S.C.J.).

R. Donald Rollo and Dean Melamed, for appellants.

David A. Tompkins and Trevor J. Buckley, for respondent.

The judgment of the court was delivered by

HOURIGAN J.A.:

I. Introduction

[1] The appellants commenced two actions claiming insurance coverage under a commercial insurance policy issued by the respondent. That policy covers "direct loss from any Peril", including business interruption loss and loss of property due to theft or wrongful handling. The first action seeks indemnification for lost rental income and a bonus of $950,000 alleged to be owing to the appellant Mario Parravano (the "First Action"). The second action seeks indemnification for the alleged theft or wrongful handling of certain equipment and related business interruption losses (the "Second Action").

[2] The two actions were tried together in a bifurcated, coverage-only trial. The trial judge dismissed the First Action in its entirety. In the Second Action, the trial judge dismissed the property claim, but permitted the business interruption claim to proceed in part. The appellants appeal the dismissal of the First Action and their property claim (as well as part of their business interruption claim) in the Second Action. The respondent cross-appeals the decision of the trial judge permitting the business interruption claim to proceed in part.

[3] These reasons explain why I would dismiss the appeal and allow the cross-appeal. In summary, the trial judge made no error in dismissing the First Action because she correctly found that the claims were not for direct losses covered by the policy. The trial judge was also correct in dismissing the property claim in the Second Action as time-barred by the terms of the policy. However, the cross-appeal must be allowed because the trial judge erred in finding that the business interruption claim was subject to a rolling limitation period.

II. Facts

[4] Mr. Parravano and his non-party wife own all the corporate appellants directly or indirectly. In October 1999, a plant operated by a corporation affiliated with the appellants that produced baked goods and cereal bars suffered an Indian meal moth infestation. This infestation affected the production of cereal bars.

[5] On September 29, 2000, Sweet-Ease Inc., Bakemates International Inc., Confectionately Yours, Inc., Confectionately Yours Bakeries Inc. and Marmac Holdings Inc. (collectively, the "Bakemates Group of Companies") commenced an action under the respondent's policy seeking indemnity for business interruption and property losses consequent to the infestation (the "Original Action").

[6] Apparently by order of Justice Spence dated October 3, 2000, KPMG Inc. ("KPMG") was appointed the receiver-manager of the Bakemates Group of Companies.

[7] On October 13, 2000, the Bakemates Group of Companies, along with 788986 Ontario Limited, Mr. Parravano and Marvelous Mario's Inc. commenced the First Action. The First Action includes the same claims as the preceding Original Action. However, the additional plaintiffs in the First Action assert that they too have valid claims under the policy. The claims made by Marvelous Mario's Inc. and 788986 Ontario Limited relate to the loss of leasing income for space and equipment they say was provided to the Bakemates Group of Companies and for which the Bakemates Group of Companies could not pay because they were suffering losses arising out of the infestation. In addition, in this action Mr. Parravano claims a $950,000 bonus he says he received from and then loaned to one of the Bakemates Group of Companies and for which he never received repayment.

[8] A proposed sale of the assets of the Bakemates Group of Companies to Amore Sweets was approved by order of Farley J. dated December 21, 2000. The transaction closed on December 28, 2000.

[9] On November 26, 2002, Mr. Parravano, Marvelous Mario's Inc., Snack Crafters International Inc., 601552 Ontario Ltd. and 788986 Ontario Inc. commenced the Second Action. The gravamen of that action was the allegation that the receiver committed theft of insured equipment and assets by either retaining the items or wrongfully transferring them to the subsequent purchaser and that as a consequence of these acts the plaintiffs in the Second Action suffered business interruption losses.

[10] Eventually, KPMG and the respondent settled the property and business interruption loss claims made by the Bakemates Group of Companies in the Original Action (and reasserted in the First Action) for a total payment of $1,848,527. Justice Ground approved the settlement as well as the activities of KPMG in its receivership role by order dated August 6, 2003. Mr. Parravano and his wife unsuccessfully appealed that order to this court on the ground that the settlement amount was too low.

III. Decision Below Relating to the Current Appeal

[11] At the coverage trial, the First Action was dismissed in its entirety. The trial judge found that the infestation was the covered peril and that the losses claimed were indirect losses and therefore not covered by the policy. She also concluded that the receivership of the Bakemates Group of Companies was not a fortuitous event because it was caused or materially contributed to by the deliberate acts of the Bakemates Group of Companies that were contrary to their obligations to their creditors. Even if the bankruptcy was a fortuitous event, the trial judge found that it was not a risk that could be economically transferred to the respondent.

[12] With respect to the Second Action, the trial judge concluded that the appellants knew or had the means of knowing they had a claim at the time of the sale of the assets, being December 28, 2000. Under the terms of the policy, there was a one-year limitation period. The action was not commenced until almost two years after the sale and thus the claim related to the loss of the equipment was time-barred. However, the trial judge determined that the claim for business interruption losses was an ongoing claim and therefore subject to a rolling limitation period. Accordingly, she concluded that only the claims for business interruption losses predating one year before the commencement of the Second Action were barred due to the contractual limitation period. The claim for business interruption losses having occurred within the one-year period before commencement of the action was not barred and could proceed.

IV. Analysis

(i) First Action: Appeal

[13] The appellants submit that the trial judge erred in law in determining that the losses claimed in the First Action were not direct losses under the policy. In addition, they assert that the trial judge further erred in applying a damages law principle in a coverage-only trial. I reject both submissions.

(a) Direct Losses

[14] In Rider No. 4 of the policy, the respondent agreed to provide insurance coverage for "direct loss resulting from any Peril . . .", except those perils specifically excluded. The appellants submit that the trial judge erred because she found that there could only be one proximate cause for a given direct loss. This analysis, they argue, ignores Supreme Court of Canada jurisprudence holding that there may be multiple proximate causes.

[15] I am not persuaded by this submission. It is not a fair reading of the trial judge's reasons to conclude that she considered that there could be only one proximate cause. Indeed, the trial judge specifically cited case law wherein concurrent causes of damages were considered: Ford Motor Co. of Canada Ltd. v. Prudential Assurance Co.; Sherwin-Williams Co. of Canada v. Boiler Inspection & Insurance Co. of Canada. Relying on Ford, she stated at para. 30 that, "the cause of the loss or damage covered by the contracts must be a 'proximate cause'" (emphasis added). Clearly, the trial judge understood that there could be more than one proximate cause of a direct loss.

[16] The appellants also argue that it is irrelevant that other insured parties received insurance moneys because under the policy they have a right to be treated severally and not jointly. In the appellants' submission, the infestation, which was a covered peril, led to the eventual bankruptcy of the Bakemates Group of Companies. Due to the bankruptcy, they argue, those parties were unable to meet their financial obligations and the appellants therefore suffered direct losses.

[17] The trial judge correctly rejected this argument and found that the losses alleged to have been suffered were the result of the failure of Bakemates Group of Companies to meet their financial obligations and not the infestation. This finding was amply supported by the record, including evidence that the Bakemates Group of Companies' sales actually increased after the infestation. I would therefore not give effect to this argument.

(b) Damages Principle

[18] In analyzing the issue of whether the claims were direct losses, the trial judge referenced the fact that the Bakemates Group of Companies have already recovered their business interruption losses. She stated that to permit the appellants to also recover for business interruption losses would amount to a "double recovery". The appellants seize upon this statement and argue that the trial judge erred in law by considering a damages principle in a coverage-only trial.

[19] I reject this submission. Read fairly, the trial judge's reference to double recovery was part of a proper analysis to ensure that her interpretation of the policy does not "give rise to results that are unrealistic or that the parties would not have contemplated in the commercial atmosphere in which the insurance policy was contracted": Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, at para. 50.

[20] The trial judge correctly found that it would be an unrealistic and commercially unreasonable result if one insured party was paid for its business interruption losses and then did not pay its obligations to a related insured party who could then make another claim on the same policy, thereby maximizing the group's total insurance recovery.

(ii) Second Action: Appeal and Cross-Appeal

[21] In the Second Action, the appellants asserted what the trial judge found to be two distinct claims: (i) for loss of property due to the alleged theft or wrongful handling by the receiver, and (ii) for business interruption losses arising from the alleged wrongful deprivation of the property.

[22] The respondent takes the position before the trial judge and on appeal that both aspects of the claim are completely time-barred. In particular, the respondent argues in cross-appeal that the trial judge erred in holding that the business interruption claim was subject to a rolling limitation period such that a portion of it could proceed to trial. In their notice of appeal, the appellants submit that the trial judge erred in dismissing their loss of property claim and part of their business interruption claim as time-barred. However, in their subsequent written and oral submissions, the appellants focus on responding to the cross-appeal by arguing that the trial judge's application of a rolling limitation period was not erroneous.

[23] There is no dispute between the parties that the one-year contractual limitation period provided for in the policy is enforceable. The policy reads:

ACTION: Every action or proceeding against the insurer for the recovery of any claim under or by virtue of this contract is absolutely barred unless commenced within one year next after the loss or damage occurs.

[24] The sale by the receiver of the Bakemates Group of Companies' businesses as a going concern closed on December 28, 2000 and the Second Action was commenced on November 16, 2002. The trial judge found at para. 55 that the appellants "either knew or had the means of acquiring the knowledge that they may have a claim under the policy on the closing of the sale to Amore Sweets". Accordingly, she concluded that the claim for coverage of the lost property was time-barred. I see no error in that analysis and would not interfere with the trial judge's order dismissing the property portion of the Second Action.

[25] The trial judge's finding related to the claim for business interruption losses forms the basis for a ground of appeal and the cross-appeal. The entirety of her analysis on this issue is as follows at paras. 60-63:

For the reasons set out above, the second claim, being the claim for business interruption losses, commenced latest on the day the sale to Amore Sweets closed. It was at that time that the plaintiffs knew or had the means of acquiring the knowledge that they had a claim for business interruption losses arising out of the loss of their property.

However, a claim for business interruption losses is, by its nature, an ongoing claim. As the Saskatchewan Court of Appeal stated in Treeland Motor Inn Ltd. v. Western Assurance Co. at para. 4, the alleged interruption of the plaintiffs' business might have commenced with a particular event (in that case, a fire; in this case, the closing of the sale to Amore Sweets) "but continued to accrue from day to day thereafter, and cannot therefore be said to have 'occurred' on the day of the event which triggered it".

In effect, the plaintiffs' business interruption claim is subject to a rolling limitation period. A new claim accrues each day for the business losses sustained that day. I thus conclude that the plaintiffs' claim for business interruption (to the extent it can be proven in the next phase of this trial) beginning one year before the commencement of the second action is not out of time -- that is, the business interruption losses suffered commencing November 16, 2001 are not barred by reason of the contractual limitation period. To the extent the plaintiffs seek recovery for business interruption losses they suffered before November 16, 2001, those claims were not advanced within the contractual limitation period and are therefore barred.

In conclusion on this issue, the claims for business interruption losses beginning one year before the commencement of the second action are not barred by the contractual limitation period. The other claims advanced in the second action are barred.

[26] It is clear from the foregoing that the trial judge found that, for both property and business interruption claims, the appellants knew or had the means of knowing as of the closing of the sale that they might have a claim under the policy. However, because a claim for business losses is "on-going in nature", the trial judge concluded that it is subject to a rolling limitation period. Turning first to the cross-appeal, the issue for determination is whether the trial judge erred in law in reaching that conclusion. For the following reasons, I conclude that she did.

[27] I start my analysis of this issue with the case relied on by the trial judge, Treeland Motor Inn Ltd. v. Western Assurance Co.. It was an oral endorsement from the Court of Appeal for Saskatchewan consisting of five paragraphs, in a situation where the limitation period was missed by one day. The policy in issue provided at para. 1: "Every action or proceeding against the insurer for the recovery of any claim under or by virtue of this contract shall be absolutely barred unless commenced within one year next after the loss or damage occurs." The court found that the business interruption losses at para. 4 "continued to accrue from day to day thereafter, and cannot therefore be said to have 'occurred' on the day of the event which triggered it, namely the day of the fire".

[28] Treeland has never been followed in Ontario. It was referenced briefly by Stinson J. in DK Manufacturing Group Ltd. v. Co-operators General Insurance Co., 2016 ONSC 3983 (S.C.J.). However, he expressly declined to decide whether it should be followed. Stinson J. also referenced Triple Five Corp. v. Simcoe & Erie Group, where the court reached a similar conclusion to Treeland. In Triple Five Corp., the insurance company conceded that business interruption losses continued to accrue after the accident. Thus, there was no analysis of the issue.

[29] The respondent relies on several decisions of this court where a one-year limitation clause with the same or nearly identical wording to the limitation clause in the present case was enforced for business interruption loss claims: International Movie Conversions Ltd. v. ITT Hartford Canada; Boyce v. Co-operators Insurance Co., 2013 ONCA 298; Leblanc & Royle Enterprises Inc. v. United States Fidelity & Guaranty Co.. As the appellants point out, however, in none of those cases did the insured assert that the business interruption claims were subject to a rolling limitation period.

[30] In addition to the foregoing cases, the respondent also relies on a decision of this court that did not deal with business interruption losses: Goorbarry v. Bank of Nova Scotia, 2011 ONCA 793. In that case, Feldman J.A., writing for the court, rejected the submission that a claim for long-term disability was subject to a rolling limitation period. The policy provided that a claim had to be asserted within two years of the "covered event". That term was not defined, but Feldman J.A. found that a covered event occurred twice under the policy: first, when the insured provided initial proof of disability; and second, when the insured was deemed to have ceased to be disabled. Because these events did not reoccur each month, a rolling limitation period was inapplicable: Goorbarry, at para. 13.

[31] In so ruling, Feldman J.A. distinguished the obiter comments of this court in Wilson's Truck Lines Ltd. v. Pilot Insurance Co.. There, the policy required the initial payment for no-fault accident benefits to be paid by the insurance company within 30 days of filing and further payments to be paid every 30 days. The policy further provided that any action under the policy must be commenced within one year of when "the cause of action" arose. The court found that the insured's cause of action crystallized 31 days after he made his claim and then stated, "If he was entitled to those benefits, his right to sue for them accrued every 30 days thereafter": Wilson's Truck Lines, at p. 143 O.R. No explanation was given regarding why a rolling limitation period would apply in the circumstances.

[32] Another instructive non-business interruption case from this court is Bonilla v. Preszler, 2016 ONCA 759. There, the trial judge granted summary judgment and dismissed the appellant's action against the respondent insurer for terminating the income replacement benefits ("IRB") she had been receiving. On appeal, the insured argued that her claim was subject to a rolling limitation period. This court rejected that argument, finding that, "It is well established in this court's case law that the limitation period is triggered by a single event, which is the refusal of an insurer to pay the IRB claimed": Bonilla, at para. 10.

[33] This court most recently considered the availability of rolling limitation periods in the context of an alleged breach of a lease of commercial property. In Pickering Square Inc. v. Trillium College Inc., 2016 ONCA 179, the defendant tenant paid rent as required but failed to operate a business continually on the leased premises as it was obligated to do under the lease. The court found that this was a continuing breach because the plaintiff chose to affirm the lease and, as a result, the parties were required to perform their obligations under it as they fell due: Pickering Square, at paras. 30-34.

[34] None of the cases cited above are on all fours with the case at bar. The cases relied on by the appellants are closer factually to the present case, but they are not binding and are largely devoid of analysis. It is necessary therefore to consider first principles to determine whether this is one of those instances where the court should recognize a rolling limitation period.

[35] The jurisprudence suggests that a rolling limitation period may apply in a breach-of-contract case in circumstances where the defendant has a recurring contractual obligation. The question is not whether the plaintiff is continuing to suffer a loss or damage, but whether the defendant has engaged in another breach of contract beyond the original breach by failing to comply with an ongoing obligation. In cases where there have been multiple breaches of ongoing obligations, it is equitable to impose a rolling limitation period.

[36] In Richards v. Sun Life Assurance Co. of Canada, 2016 ONSC 5492, at para. 26, Bale J. distinguished between cases where the plaintiff is entitled to periodic payments and cases where the plaintiff's entitlement to periodic payment is in issue:

A rolling limitation period may apply to claims for periodic payments, in cases where the issue is whether certain payments to which the plaintiff is entitled have been made (e.g. payments of rent), as opposed to cases where the issue is whether the plaintiff was entitled to the periodic payments in the first place. In the former type of case, the material facts will have arisen on a periodic basis, and it will not be unfair to require a defendant to litigate those facts during the applicable limitation period following the date upon which an individual payment became due. However, in the latter type of case, the material facts will have arisen at the time that the plaintiff alleges he or she first became entitled to periodic payments, and it would be unfair to require the defendant to litigate those facts, for a potentially unlimited period of time.

[37] In my view, where the trial judge erred was in focusing her analysis on the question of whether the appellants were continuing to suffer damages rather than on the issue of whether the respondent had a recurring contractual obligation. Unlike Pickering Square, where the tenant had a recurring obligation to occupy the premises every month during the term of the lease, the respondent was not obliged to make recurring payments. Rather, the policy covered business interruption losses and the respondent was obliged to pay those losses in their totality, subject to any limits in the policy. The fact that there was a 24-month cap on the business interruption losses does not convert the respondent's obligation to indemnify into a recurring contractual obligation. Therefore, this was not a proper case for the application of a rolling limitation period.

[38] The appellants knew as of the closing date for the sale of the businesses that they no longer had the assets under their control and that consequently they would thereafter suffer business interruption losses. While the precise amount of the damages was unknown, the appellants knew at that point that they had suffered loss or damage and under the policy they were obliged to commence a claim within one year. The fact that the extent of damages may not be known with precision does not stop the commencement of the limitation period: Peixeiro v. Haberman, at para. 18. The Second Action was consequently time-barred in its entirety.

[39] Based on the foregoing, I would dismiss the appeal and allow the cross-appeal in relation to the Second Action.

V. Disposition

[40] I would dismiss the appeal and allow the cross-appeal, with costs payable by the appellants jointly and severally in the agreed-upon all-inclusive amount of $20,000. The trial judge made a cost order in relation to the First Action, but not the Second Action. The matter is remitted to the trial judge for a determination of the costs of the Second Action if the parties are not able to reach an agreement in that regard.

Appeal dismissed; cross-appeal allowed.

Notes

1 This order has not been filed on appeal.

End of Document