2016 ONSC 3983

COURT FILE NOS.: CV-14- 517805 and CV-13- 494432

DATE: 20160620

SUPERIOR COURT OF JUSTICE – ONTARIO

CV-14-517805

RE: DK MANUFACTURING gROUP LTD , o/a D.K.M.G. and S.G. INVESTMENTS GROUP LTD., Plaintiffs

AND:

CO-OPERATORS GENERAL INSURANCE COMPANY, THE ALARM FACTORY INC., and NATIONAL FIRE ADJUSTMENT CO., INC., Defendants

AND:

API ALARM INC., Third Party

CV-13-494432

AND RE: DK MANUFACTURING gROUP LTD , o/a D.K.M.G., Plaintiff

AND:

CO-OPERATORS GENERAL INSURANCE COMPANY, Defendant

BEFORE: Stinson J.

COUNSEL: Yadvinder Toor , for the plaintiffs

Robert Dowhan and James Prosser , for the defendant/moving party, Co-operators General Insurance Company

Frank Caruso , for the defendant National Fire Adjustment Co., Inc.

No one appearing for the other parties

HEARD at Toronto: April 20 and May 27, 2016

ENDORSEMENT

Overview

[1] DK Manufacturing Group Ltd. imports home furnishings from suppliers in Asia and sells them to other wholesalers and retailers in Canada. Its offices, showroom and warehouse facility are located in leased space in a 90,000 square foot building owned by S.G. Investments Group Ltd., a related company.

[2] On December 17, 2012, a minor fire broke out in DK’s warehouse space. It triggered the sprinkler system. Although the fire was quickly extinguished as a result, the sprinkler system continued to spray water into the premises for a considerable period of time. The result was that the building owned by S.G. and the contents owned by DK suffered extensive damage. As a consequence, DK’s business was significantly disrupted, since it was unable to fill outstanding orders, it had no showroom in which to display products, it could not participate in trade shows and it lacked the cash flow to order new goods from its foreign suppliers. It lost both orders and customers.

[3] Each of DK and S.G. had a separate multi-peril insurance policy with the defendant Co-operators General Insurance Company. Following the incident, they notified Co-operators and it dispatched adjusters to deal with the claims.

[4] DK and S.G. retained a professional adjusting firm, the defendant National Fire Adjustment Co., Inc. (“NFA”) to help them deal with the loss and to represent them in dealings with Co-operators. Co-operators dealt with NFA, assessed the claims, and made a number of advance payments to the plaintiffs before any formal proofs of loss were filed. However, the proofs of loss that DK and S.G. ultimately filed (with the help of NFA) sought sums that were significantly more than Co-operators was prepared to pay willingly.

[5] In order to resolve each of the claims, Co-operators invoked the appraisal process contemplated by Statutory Condition 11 of the policies and s. 128 of the Insurance Act, R.S.O. 1990 c. I.8. Co-operators and NFA (on behalf of the plaintiffs) participated in the two appraisal processes by, among other things, appointing a third party umpire and by making submissions to the umpire.

[6] The umpires rendered appraisal decisions in relation to each of the policies. Co-operators paid the remainder of the money awarded to DK and attempted to do the same for S.G. DK cashed the cheque for its appraisal award, while S.G. did not.

[7] Both DK and S.G. were unhappy with the outcome of appraisal process and the sums awarded. They complain that they are not bound by the appraisals. They also assert that Co-operators failed to act in good faith in adjusting the claims.

The Litigation

[8] On December 9, 2013, immediately prior to the first anniversary of the incident, and before the outcome of the appraisal process, DK commenced an action (Court File No. CV-13-494432 – the “First Action”) claiming damages from Co-operators based on the alleged non-payment of the sums due under the DK policy. The statement of claim also alleged breach of the duty of good faith by the insurer. The First Action was commenced before the expiry of the one year limitation period specified in the DK policy. Co-operators is the only defendant named in the First Action.

[9] On December 9, 2014, DK and S.G. commenced a second action (Court File No. CV-14-517805 – the “Second Action”). By that time the two appraisal processes were complete. In the Second Action, the plaintiffs claimed sums still said to be due under both the DK and the S.G. policies; they also asserted claims founded on the alleged breach of the duty of good faith owed by Co-operators in relation to its conduct in adjusting the claims under the policies. Among other complaints, the plaintiffs asserted that Co-operators failed to adjust their claims fairly, or on a timely basis, and caused them to incur greater losses than otherwise would have been the case, because DK was unable to resume its business activities due to the delays in adjusting and paying its losses. In addition to Co-operators, the other co-defendants named by DK and S.G. in the Second Action are NFA (for alleged breach of duties owed by it to the plaintiffs as their professional adjuster) and The Alarm Factory Inc., their alarm company.

The Summary Judgment Motions

[10] Co-operators has brought a motion for summary judgment in each action, asserting that the plaintiffs have no further claims under the policies because they were adjudicated and paid pursuant to the appraisal processes. Additionally, in connection with the Second Action, Co-operators relies on the contractual limitation period of one year contained in the policies. Finally, Co-operators disputes that there is any proper factual foundation for the bad faith claims. (For ease of reference and for simplicity, I will refer to the motions as a singular motion, since they were argued together, based on the same evidentiary record, and this ruling applies equally to both.)

[11] On the argument of the summary judgment motion, a procedural problem emerged in relation to the adjudication of the plaintiffs’ bad faith claims. In their factum responding to Co-operators’ motion, the plaintiffs made extensive reference to their assertions of bad faith on the part of Co-operators. In its supplementary factum Co-operators submitted that it conducted itself appropriately, having regard to the positions taken by NFA acting as adjuster for the plaintiffs. It was thus conceivable that, as originally framed, the motion could lead to findings of fact favourable to Co-operators and adverse to the plaintiffs and NFA, arising from the conduct of NFA as representative of the plaintiffs during the course of the claims adjustment process.

[12] Counsel for NFA noted that since the motion merely sought relief dismissing the actions as against Co-operators and no relief as against NFA, NFA did not file any evidence. Counsel pointed out that NFA was not properly called upon to defend its conduct at this stage of the proceedings since, as the motions were originally framed, no allegations were made as against it. However, in light of the contents of Co-operators’ supplementary factum, which raised NFA’s conduct as the plaintiffs’ representative as a partial answer to the allegations of bad faith, counsel for NFA raised the concern of potential inconsistent findings of fact between these motions for summary judgment and the plaintiffs’ ongoing claims against NFA. In particular, he objected to any findings of fact being made in relation to the bad faith aspects of the actions.

[13] In view of the foregoing and following some discussion with counsel, it was concluded that the appropriate course of action was to convert the motion into a motion for partial summary judgment that would exclude any argument or adjudication dealing with the substance of the bad faith claims. As reframed, the motion was limited to dealing with the questions regarding the contents of the insurance policies, interpretation of the relevant sections of the policies, the significance and legal effect of the appraisal processes and the applicable limitation periods relating to the claims for insurance money and for bad faith.

The Insurance Policies

[14] Both policies were sold to the plaintiffs by an agent. They are so-called “multi-peril” policies that cover fire, liability, stock, business interruption, and other potential losses. They are in many respects similar or identical, although they provide different coverage, given the different businesses carried on by the two companies. The plaintiffs asserted that they received only the Declaration pages of the policies, but not copies of the complete policy terms and endorsements themselves. In their factum the plaintiffs submitted that the non-delivery of the physical documents meant that they were not bound by the policy terms those documents contained. This submission was expressly abandoned by counsel during the course of argument. The plaintiffs nevertheless argued that some of the terms contained in the policy documents did not apply to them.

[15] The Declaration pages that were delivered to the plaintiffs specify the coverage provided by the policies, the premiums charged, the deductibles and co-insurance provisions, and the relevant Co-operators forms and riders/endorsements applicable to the various types of insurance purchased. The Declaration page for SG lists the types of coverage purchased by SG, including property insurance, liability insurance and the various subsets of each. For the purposes of this motion, the pertinent coverage from the SG Policy is as follows:

COVERAGE DEDUCTIBLE POLICY LIMIT

BUILDING $5,000 $16,400,000

GROSS RENTALS N/A $ 480,000

The “Building” coverage is for damage to the warehouse itself, whereas “Gross Rentals” coverage is for the loss of rental income that stems from the damage.

[16] The Declaration page for the DK Policy lists all of the coverage purchased by DK, including property insurance, crime insurance, liability insurance and the various subsets of each. For the purposes of this motion, the pertinent coverage from the DK Policy is as follows:

COVERAGE DEDUCTIBLE POLICY LIMIT

STOCK $1,000 $2,200,000

PROFITS N/A $ 750,000

The “Stock” coverage is for damage to DK’s actual inventory, whereas the “Profits” coverage is for foregone business profits (i.e., business interruption insurance)

[17] The Declaration pages also made reference to the applicable policy documents and riders/endorsements. In both policies, the main insuring agreement is found in Co-operators’ Form AB, which is referenced in the Declaration pages for each, as follows:

PROPERTY

INSURANCE AGREEMENTS & EXCLUSIONS FORM NO. AB

APPLICABLE TO ALL COVERAGES OF THIS PROPERTY SECTION

The Declaration pages also reference or “call up” various other Co-operators riders/endorsements or forms, which contain detailed descriptions of specific types of coverage or exclusions applicable to the various types of insurance purchased, all as specified in the Declaration. For example, in the Declaration page for the D.K. policy, under the statement quoted above, the following appears:

RIDER #

STOCK B-1

COMMERCIAL PLUS ENDORSEMENT B-1(8)

PROFITS AB-3

ORDINARY PAYROLL OPTION AB-3

EQUIPMENT B-1

[18] Form No. AB is material for present purposes because it sets out a series of contractual “Statutory Conditions” that are incorporated into the policies. Among other conditions, they include a one-year contractual limitation period that is relied upon by Co-operators. They also provide for the appraisal process as a mechanism to resolve disputes between insurer and insured regarding the amounts payable under the policies.

[19] Plaintiffs dispute the applicability of Form AB, and assert that their claims should be adjusted and paid pursuant to other provisions in the policies. They further assert that they are not bound by the appraisal process. Lastly, they assert that their claims are not bound by the contractual limitation period contained in the Statutory Conditions section of Form AB.

Issues and Analysis

[20] The issues thus that require a decision at this time are as follows:

(1) Does Co-operators Form No. AB form part of the policies?

(2) What sections of Form AB apply to the plaintiffs’ claims and how should they be interpreted?

(3) Do the appraisal processes that were conducted end the plaintiffs’ claims for payment of insurance monies?

(4) Does the one year limitation period contained in the policies cover (a) the plaintiffs’ claims for insurance proceeds and (b) the plaintiffs’ claims for damages for bad faith?

Issue 1 - Does Co-operators Form No. AB form part of the policies?

[21] In their factum the plaintiffs argued that they were not bound by Form AB because it was not physically delivered to them at the time the policies were issued. Co-operators disputed this as a matter of fact, and noted that it was inherently contradictory for the plaintiffs to deny the applicability of Form AB, when that document contained the basic insuring agreement upon which the plaintiffs’ claims for payment were based and paid. In the face of that contradictory position, as mentioned above, plaintiffs’ counsel abandoned the non-delivery argument.

[22] The issue then became whether Form AB applied to all of the plaintiffs’ claims. Plaintiffs argued that in the DK policy, Form AB applied only in relation to physical property losses and not to lost profits or business interruption coverage, which are not “property”. Plaintiffs further argued that the Gross Rentals coverage provided in the S.G. policy is similarly not a property loss claim and thus Form AB is inapplicable. For the following reasons, I do not accept those arguments.

[23] To begin with, on the Declaration page of the DK policy, the insurance coverage for “Profits” is included in the list of Property coverage along with “Stock” and “Equipment”, items that are clearly property. This suggests that the parties intended that the “Profits” coverage was to be considered part of the “Property” coverage that was encompassed in From AB.

[24] Form AB addresses the types of coverage to which it applies, stating that it is “APPLICABLE TO ALL PROPERTY AND BUSINESS INTERRUPTION COVERAGES OF THIS POLICY.” Thus, the form itself expressly declares that its terms apply to business interruption coverage.

[25] This conclusion is further reinforced by the contents of Form AB-3, a rider that is expressly referenced on the DK Declaration page as applicable to the “Profits” coverage. Form AB-3 is entitled “Loss of Income – Profits Endorsement Form”. It provides indemnity for “loss directly resulting from necessary interruption of business, caused by destruction or damage by the perils insured against to property at the Premises .” (Underlining for emphasis.) In other words, coverage is provided only where there is damage to property that results in an interruption of the insured’s business. Thus, the coverage is keyed to loss or damage to property which, in turn, results in lost profits. It is therefore logical that the DK policy and Declaration page include and categorize Profits coverage as part and parcel of the Property coverage and applicable policy terms, including Form AB.

[26] Turning to the S.G. policy, the Declaration page lists the Building itself, Gross Rentals, Sewer Backup, Earthquake and Flood as categories of coverage included as Property losses. The policy rider contained in Form No. AB-15 sets out the terms of the “LOSS OF INCOME – GROSS RENTALS FORM” coverage. It is expressly referable to loss of rental income “ caused by destruction or damage by the perils insured against to property at the ‘Premises’ ”. (Underlining for emphasis.) Once again, the coverage is keyed to loss or damage to property which, in turn, results in lost rental income. Again, it is logical that the S.G. policy and Declaration page include and categorize the Gross Rentals coverage as part of the Property coverage and applicable policy terms, including Form AB.

[27] I conclude that the only logical interpretation is that Form AB applies to and its terms form part of both policies, in relation to the coverage issues in dispute in this litigation.

[28] Although the issue was not advanced in oral argument, in their original factum the plaintiffs relied on the doctrine of promissory estoppel as a ground for avoiding the application of Form AB. On December 20, 2012, a Co-operators adjuster wrote to the plaintiffs regarding their claims. She enclosed copies of several other policy rider/endorsement forms, but not Form AB. She stated in the covering letter that “these are the wordings that we will be basing all our coverage decision on.” Plaintiffs argued in their factum that since the letter failed to enclose Form AB, Co-operators is estopped from asserting that is forms part of the policies.

[29] Plaintiffs relied on Maracle v. Travellers Indemnity Co. of Canada, [1991] 2 S.C.R. 50. In that case Sopinka J stated on behalf of the Supreme Court as follows (at para. 13):

The principles of promissory estoppel are well settled. The party relying on the doctrine must establish that the other party has, by words or conduct, made a promise or assurance which was intended to affect their legal relationship and to be acted on. Furthermore, the representee must establish that, in reliance on the representation, he acted on it or in some way changed his position.

[30] In my view, promissory estoppel has no application to this case. First, I find that Co-operators made no “promise or assurance ... intended to affect” the parties’ legal relationship. Like Maracle , this is a case where no assurances were given that would have the effect of altering the parties’ legal relationship.

[31] More importantly, there is no evidence of a change of position by the plaintiffs or reliance to their detriment on the absence of Form AB or a reference to it in the December 20, 2012 letter. In subsequent correspondence, the plaintiffs were reminded several times about the one year limitation period, and the First Action was commenced in advance of the expiry of the limitation period contained in the Contractual Statutory Conditions in Form AB. Plainly the plaintiffs (or, at least, DK) was not lulled into a state of believing the one year limitation period was inapplicable. (Where appropriate, to distinguish between the Statutory Conditions found in s. 148 of the Insurance Act and those found in Form AB, I shall refer to the latter as “Contractual Statutory Conditions”.)

[32] There is no other proof that the plaintiffs somehow acted to their detriment, based on the belief that Form AB was inapplicable. The appraisal process in which the plaintiffs engaged (through their agent, NFA) was provided for in the Contractual Statutory Conditions in Form AB. If anything, this is evidence that the plaintiffs were alert to and accepted that Form AB formed part of the policy terms. The plaintiffs may be unhappy with the result of the appraisal process, but that is not evidence of detrimental reliance in the sense required for the doctrine to apply. In the absence of such evidence, plaintiffs have not made out a basis to rely on promissory estoppel.

Issue 2 - What sections of Form AB apply to the plaintiffs’ claims?

[33] Form AB sets out 15 so-called “Statutory Conditions” as part of the policy contract. They are in almost the same terms as the 15 Statutory Conditions contained in s. 148 of the Insurance Act. Form AB provides that they apply “to the peril of fire and … apply as Policy Conditions to all other perils insured by property coverage” under the policy.

[34] In the usual case, absent a provision such as the one I have just quoted from Form AB, the Statutory Conditions contained in s. 148 of the Insurance Act apply only to policies of fire insurance and not to multi-peril policies such as the ones in issue here: KP Pacific Holdings Ltd v. Guardian Insurance Co. of Canada, 2003 SCC 25. However, by reason of the inclusion of the quoted language in Form AB, Contractual Statutory Conditions that closely parallel those contained in the statute are also incorporated into these policies. This practice of expanding the applicability of Statutory Conditions beyond fire policies to all-perils policies has been expressly approved by the courts: International Movie Conversions Inc. v. ITT Hartford Canada (2002), 57 O.R. (3d) 652 (C.A.).

[35] Of the Contractual Statutory Conditions listed on Form AB, for present purposes we are concerned primarily with Condition 11 (“In Ca”se of Disagreement” – which sets out the appraisal process as the mechanism for resolving claims disputes) and Condition 14 (“Action” – which sets out a one year limitation period for lawsuits for claims). Form AB provides that “Conditions 1 and 6 to 13 apply only to property coverage.” Since (as discussed in detail above) we are dealing with losses that have their foundation in property damage, Condition 11 applies to the plaintiffs’ claims.

[36] Form AB goes on to state that “Conditions 2 to 5 and 15 apply to all policy coverage” and that “Condition 14 does not apply to British Columbia and Alberta.” There is no other express mention of Condition 14, which arguably raises the question whether it applies to these policies. However, one cannot overlook the language found in Form AB immediately before the list of Contractual Statutory Conditions: “where the insured is domiciled in, or the insured property is located in, provinces or territories other than Alberta, British Columbia or Quebec all of the Statutory Conditions below apply ….” (Underlining for emphasis.) The plaintiffs and the property are all based in Ontario. By giving meaning to all the language contained in the contract, and in particular the underlined words, the logical conclusion is that Condition 14 applies and is excluded only in relation to the provinces of Alberta, British Columbia and Quebec.

[37] I therefore conclude that the plaintiffs’ insurance coverage and claims are subject to Contractual Statutory Conditions 11 and 14 as contained in Form AB.

Issue 3 - Do the appraisal processes that were conducted end the plaintiffs’ claims for payment of insurance monies?

[38] The appraisal requirement is contained in Contractual Statutory Condition 11 of Form AB. It reads as follows:

11. IN CASE OF DISAGREEMENT

In the event of disagreement as to the value of the insured property or the value of the property saved, the nature and extent of the repairs or replacements or if made their adequacy, or the amount of the loss or damage, those questions must be determined by appraisal or the applicable dispute resolution process* 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 or dispute resolution process until a specific demand for one is made in writing and until after proof of loss has been delivered.

*Dispute Resolution process applies in Alberta and British Columbia only. Appraisal process applies in all other jurisdictions.

[39] Plaintiffs assert that they did not agree to the appraisal processes that were carried out in relation to their claims and that they are not bound by the appraisal decisions.

[40] The appraisal process is a statutory one, governed by s. 128 of the Insurance Act. Briefly summarized, each of the insurer and the insured nominate an “Appraiser”; the two Appraisers name a third party as “Umpire”; the Umpire receives submissions from the parties (and may conduct a hearing); a written decision is prepared, and where they all concur, it is signed by all three participants; in cases of disagreement, a majority decision of the Appraisers and the Umpire governs. In the words of s. 128(3) “the finding in writing of any two determines the matters.”

[41] In relation to the S.G. claims, through mid-2013 Co-operators and NFA continued to disagree regarding the appropriate value for the S.G.’s claimed “Building” and “Gross Rentals” losses. Co-operators wrote directly to S.G. in mid-June advising that it was invoking the appraisal process. Co-operators named its employee Thomas Carroll as its Appraiser.

[42] NFA responded on behalf of S.G. to Co-operators’ letter invoking the appraisal process. In its reply, NFA identified Rod Hammond, a representative of NFA, as the other Appraiser and proposed several names as potential umpires. Hammond and Carroll eventually agreed that the Umpire would be one of the individuals proposed by NFA: Douglas Cutbush of York Street Dispute Resolution Group Inc. Hammond and Carroll signed an Appraisal Agreement naming Cutbush as Umpire. Briefs were exchanged and an appraisal hearing was conducted on August 26, 2013. A written Appraisal Award was released that day, signed by the Umpire (Cutbush) and by Co-operators’ Appraiser (Carroll) but not by S.G.’s Appraiser (Hammond).

[43] In relation to the DK claims, once again the parties were unable to agree on the correct sums payable by Co-operators, and once again Co-operators invoked the appraisal process. Once again, Hammond of NFA participated on behalf of DK as its Appraiser and Co-operators by its representative, Carroll. Hammond and Carroll agreed that the Umpire would be David Smith. Briefs were exchanged and a hearing conducted. The result was an Appraisal Award dated May 2, 2014, signed by all of Smith, Carroll and Hammond.

[44] In view of the foregoing facts, I cannot accept the plaintiffs’ submissions that they did not agree to the appraisal processes. The plaintiffs retained NFA to deal with Co-operators as their adjuster and agent in negotiating a resolution of their claims. When Co-operators wrote to S.G. invoking the appraisal process, NFA responded on its behalf. NFA represented the interests of the plaintiffs in both appraisal processes.

[45] Importantly, as a matter of law the appraisal process provided for under a policy pursuant to s. 128 of the Insurance Act is not optional once it is invoked; rather, it is mandatory: Seed v. ING Halifax Insurance, [2002] O.J. No. 1976 (S.C.). Moreover, the case law is clear that an Umpire’s ruling constitutes a final determination of the issue and is binding on all parties. If a party wishes to dispute the ruling of an Umpire, that party must bring an application for judicial review to the Divisional Court. Even then, the courts are cautioned against “lightly interfering” with an Umpire’s ruling. This has been interpreted as requiring misconduct on the part of the Umpire. Seed v. ING Halifax Insurance, [2005] O.J. No. 4870 (Div. Ct.) at para. 23; Barrett v. Elite Insurance Co. (1987), 59 O.R. (2d) 186 (C.A.) at para. 13. No such challenges have been mounted, and it is too late to do so.

[46] Here, the claims of both DK and S.G. were scrutinized under the appraisal process in relation to the amounts they were entitled to recover under their policies with Co-operators. Appraisal Awards were rendered. No proceedings were commenced seeking judicial review of those Awards. As a result, the plaintiffs’ entitlement to payment under the policies has been finally determined in proceedings that are binding. Co-operators has paid the reminder of the insurance monies payable pursuant to the Awards. No further sums are due or recoverable. (I note for the record that on the occasion of the appearance before me on May 27, 2016, counsel for Co-operators agreed that S.G. could deposit the so-far uncashed cheque for the amount found owing on the S.G. appraisal, without prejudice to the plaintiffs’ position that they are entitled to more money, either under the policies or pursuant to their bad faith claim.)

[47] I therefore conclude that the plaintiffs’ claims for payment of further insurance monies are at an end. It follows that, to this extent, Co-operators’ motion for partial summary judgment must succeed.

Issue 4 - Does the one year limitation period contained in the policies cover (a) the plaintiffs’ claims for insurance monies and (b) the plaintiffs’ claims for damages for bad faith?

[48] Contractual Statutory Condition 14 in Form AB provides as follows:

Every action or proceeding against the insurer for recovery of any claim shall be absolutely barred unless commenced within one year after the loss or damage occurs, unless legislation provides otherwise.

[49] The loss and damage resulted from the fire and subsequent water damage caused by the sprinkler system on December 17/18, 2012. Thus (arguably) the one-year limitation period expired on December 18, 2013. The First Action was commenced on December 9, 2013. The Second Action was commenced one year later, on December 9, 2014. In each action, the claims are for payment of insurance monies said to be due, and for damages for bad faith conduct on the part of Co-operators. I will address the limitation period applicable to each of these types of claim separately.

(a) The claims for insurance monies

[50] For the reasons expressed above, I have concluded that the plaintiffs’ claims for insurance proceeds have been wholly resolved through the appraisal process. Now that the appraisals have been completed and the monies awarded have been paid, that is the extent of Co-operators’ liability for monies payable under the policies.

[51] In the event I am in error in the foregoing conclusions, then the limitation period issue does not arise in respect of any of the claims advanced in the First Action. It was plainly commenced within one year of the incident and therefore it was commenced in time.

[52] In respect of the claims for insurance monies advanced by the plaintiffs in the Second Action two questions arise. The first is whether the one-year limitation period provided in the contractual Statutory Condition applies in light of its closing words: “unless legislation provides otherwise". The second question is whether the business interruption claims should be treated differently.

[53] In relation to the first question, the plaintiffs argue that the legislation does “provide otherwise.” They submit that the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, specifies a generally-applicable two year limitation period: see s. 4. This, they argue, is legislation that provides for other than a one-year limitation period.

[54] Co-operators responds that the Limitations Act, 2002, includes a specific carve-out in relation to non-consumer contracts. Although s. 4 of the Limitations Act provides for a general two year limitation period, exceptions are permitted under s. 22. That section provides that a limitation period contained in the Limitations Act applies “despite any agreement to vary or exclude it” subject to certain specified exceptions. One such exception is s. 22(5), which permits a statutory limitation period to be varied by a non-consumer agreement.

[55] The policies in question in this proceeding provide insurance coverage for business losses and are plainly not consumer contracts. Although the Limitations Act provides for a general two year limitation period, a carve-out is permitted in relation to non-consumer contracts. Thus, in effect, the legislation does not “provide otherwise” by prohibiting contracting out: i.e. while a two year limitation period is the general rule, a one year limitation period is permissible in our circumstances. I therefore agree with the submission of Co-operators on this point.

[56] This means that the applicable limitation period for claims under the policies would be one year. In turn, this means that, on their face, the claims made in the Second Action for insurance monies payable under the policies would be out of time (subject to my comments below regarding business interruption claims) since the losses occurred on December 18, 2012, more than one year prior to the commencement of the Second Action.

[57] The second question is whether the business interruption claims should be treated differently than the basic property damage claims for limitation purposes. In Triple Five Corp. v. Simcoe & Erie Group, Feehan J. considered the applicability of a one year limitation period contained in the Statutory Conditions of an insurance policy. The claim advanced was for both property damage and business interruption losses. The action was commenced more than one year after the accident that caused the losses. He concluded (in para 9) that “the limitation period for the property damage started to run from the date of the accident, whereas the loss due to business interruption continued to accrue on a daily basis and would not, therefore, be barred by stat. con. 14.” This conclusion is supported by Treeland Motor Inn Ltd. v. Western Assurance Co. (1985), 17 D.L.R. (4th) 572 (Sask. C.A.).

[58] On the basis of the foregoing authorities, it is conceivable that business interruption losses continued to accrue on a daily basis. If that is so, then the business interruption losses that occurred more than one year prior to the commencement of Second Action might be barred by the contractual limitation period, and the plaintiffs would be limited to policy claims for business losses arising within one year prior to that date. As a factual matter, I am unable to decide that point or assess those claims on the record before me; nor am I called upon to do so in light of my conclusions regarding the binding nature of the appraisal process.

(b) The bad faith claims

[59] The following discussion of the possible applicability of the one-year contractual limitation period has no bearing on the bad faith claims of DK, since it advanced such claims in the First Action, which was commenced within 12 months of the fire loss. The question is whether the bad faith claims advanced only in the Second Action (i.e. those of S.G.) are barred by the one-year limitation period contained in Contractual Statutory Condition 14. In turn, this raises the question whether the applicable limitation period is one year, as provided in the policies or the two year limitation period provided in the Limitations Act, 2002. If the latter is applicable, the bad faith claims in the Second Action would not be statute barred under the Limitations Act .

[60] The fundamental question is whether the contractual limitation period can be relied upon by Co-operators to bar a remedy for a non-contractual complaint. It is settled law that claims for damages for bad faith arise outside the terms of the policy contract. Simply stated, a breach of the duty to act in good faith gives rise to a separate cause of action: Ferme Gérald Laplante & Fils Ltée v. Grenville Patron Mutual Fire Insurance Co. (2002), 61 O.R. (3d) 481 (C.A.) at para. 78; 702535 Ontario Inc. v. Lloyd's. In Whiten v. Pilot Insurance Co., 2002 SCC 18 (at para. 79) the Supreme Court of Canada stated that the breach of the duty of good faith is independent of the contractual duty to pay the loss and is an actionable wrong. In the same case in the Court of Appeal decision (cited at (1999), 42 O.R. (3d) 641) the court noted that bad faith is different from a claim on a policy for an insured loss.

[61] Based on the foregoing authorities, the plaintiffs submit that the contractual limitation period has no application to the bad faith claims since they are independent causes of action. Co-operators submits that Contractual Statutory Condition 14 spells out a one year limitation period for “any claim". It argues that the parties turned their mind to the time limit for any claims and, just as Bhasin v. Hrynew, 2014 SCC 71 permits parties to define their own standards for performance, the parties here agreed that any claims had to be commenced within one year.

[62] As a matter of contractual interpretation, the policy language is non-specific as to the types of claims that are caught by the one year limitation period. Contractual Statutory Condition 14 in Form AB states that an action against Co-operators for “recovery of any claim” must be “commenced within one year after the loss or damage occurs.” The terms “loss or damage” are used elsewhere in Form AB to refer to the types of losses covered by the policy. Since the same “loss or damage” terminology is used in the limitation period provision, this would suggest that it is intended to apply only to claims for which coverage is provided, and not to extra-contractual ones.

[63] If the terms of the policy are considered to be ambiguous, then one may turn to the interpretive principle of contra proferentem. That rule mandates that, where the Court is unable to resolve a contradiction or an ambiguity in the terms of a contract, those terms will be construed against the author of the contract: Geoff Hall, Canadian Contractual Interpretation Law, 2nd ed. (Markham, Ont. LexisNexis, 2012) at p. 69. This would mean that the interpretation that is least restrictive to the rights of the insured should be applied. As a result, the contractual limitation period would apply only to policy claims and not to other complaints, since it is not expressed in sufficiently broad language as to encompass non-policy claims.

[64] This issue was addressed by Heeney J. in Whorpole Estate v. Echelon General Insurance Co., 2011 ONSC 2234. At para. 20 he noted:

The triggering event for coverage under the insurance policy is the date of the loss, which is the date of the car accident. However, the cause of action regarding the alleged bad faith dealing arises well after that date, including the plaintiff's subsequent dealings with the adjuster ….

[65] I agree with that analysis. In our case, there can be no question that the triggering event for claims under the insurance policy was the date of the fire and water damage. The plaintiffs notified Co-operators soon after, and it then began the process of adjusting the loss and paying the claims. The cause of action for the alleged bad faith dealing cannot have arisen at the same time, because Co-operators had only begun the process of responding to the claim. It would be therefore be illogical to apply the same contractual limitation period of “one year after the loss or damage occurs” which is plainly referable to the losses covered by the policy to non-policy claims that, by definition, must have arisen later.

[66] I therefore conclude that the one-year contractual limitation period has no application to the bad faith claims. To the extent the plaintiffs may have an extra-contractual (i.e. non-policy) claim – being the separate cause of action founded upon Co-operators’ alleged breach of the duty to act in good faith – it is governed by an extra-contractual limitation period, namely, the one specified in the Limitations Act, 2002.

Conclusion and Disposition

[67] For the foregoing reasons, I conclude that the plaintiffs’ claims for payment of further monies under the insurance policies cannot be pursued by litigation, since they were resolved through the appraisal process. It follows that those aspects of Co-operators’ motion for partial summary judgment should be granted and those elements of the plaintiffs’ claims should be dismissed accordingly. To the extent the plaintiffs assert claims based on the alleged breach by Co-operators of the duty of good faith, those claims are neither barred by the appraisal process nor by any applicable limitation period, and the plaintiffs are at liberty to pursue them.

[68] As directed by the Supreme Court of Canada in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87 (at para. 78), I will remain seized of these proceedings. Counsel are directed to confer with one another regarding the future course of the actions (including their consolidation) and then to arrange a case conference with me by way of telephone conference call, to take place within the next 90 days. Prior to that telephone conference call, counsel shall submit to me a written proposal (ideally, one on which they have jointly agreed) regarding future steps in the proceedings.

[69] In relation to the costs of this motion, I encourage the parties to resolve that issue. Should they be unable to do so, counsel should be prepared to discuss an appropriate process for making submissions on that topic during the conference call I have directed above.

Stinson J.

Date: June 20, 2016