Court File and Parties

Court File No.: CV-17-586324 Date: 2018-06-27 Superior Court of Justice - Ontario

Re: 1472292 ONTARIO INC., O/A ROSEN EXPRESS, Applicant – AND – NORTHBRIDGE GENERAL INSURANCE COMPANY, Respondent

Before: E.M. Morgan J.

Counsel: Patrick Monaghan and Christine Matthews, for the Applicant Rui Fernandes and Alan Cofman, for the Respondent

Heard: June 26, 2018

Endorsement

[1] The Applicant is a trucking company and trucking load broker. The Respondent is the truck carrier’s cargo liability insurer with whom the Applicant has a policy.

[2] A cargo of electronic goods were picked up by an agent or subcontractor of the Applicant’s, Greenway Carriers, on November 11, 2016, and delivered to the Applicant’s yard in Mississauga. While sitting in the yard, the cargo was stolen out of a trailer on the mornings of November 12 and 13, 2016. The Applicant submitted a claim for the value of the stolen goods, but the Respondent denied the claim.

[3] The Respondent raises two grounds for having refused coverage of the Applicant’s claim. In the first place, it states that the cargo was stolen while still in the possession of Greenway Carriers, not the Applicant, and that the Applicant as their insured party was not in custody of the goods when the loss occurred and therefore it is not responsible for the loss. Secondly, the Respondent states that the cargo in question was composed of electronic goods destined for a Best Buy store in Quebec, and that electronics were not specified as a category of cargo in the Applicant’s application for an insurance policy. The Respondent therefore took the position that carrying a cargo of electronic goods was a material change in risk that it had not assumed in issuing the contract of insurance and that undermined coverage under that contract.

[4] Turning first to the Respondent’s allegation that Greenway Carriers rather than the Applicant is responsible for the loss of the cargo, there is some factual controversy as to whether the goods were already delivered to the Applicant when they were stolen. The affidavit of the president of the Applicant states that they were already in the Applicant’s possession: “On November 11, 2016, Greenway Carriers picked up and dropped off the following two shipments, loaded in Greenway Carriers’ trailers, at the Rosen Express yard, without incident…”

[5] As it turns out, Greenway Carriers and the Applicant shared a yard. The evidence of the Applicant is that the yard was informally partitioned into sections and that Greenway Carriers had delivered the goods to the Applicant’s portion of the yard. That said, the goods were still sitting in a Greenway Carriers trailer when they were stolen.

[6] Respondent’s counsel points out that the police report of the theft was apparently completed by a Greenway Carriers employee. That, of course, is suggestive but not conclusive of anything; it would be unduly speculative to ponder, in the absence of any supporting evidence, why the Greenway Carriers employee was tasked to fill out the police report. It could possibly reflect Greenway Carriers’ continued responsibility for the goods, or it could simply reflect the Greenway Carriers employee’s knowledge of what occurred due to his proximity to the Applicant’s yard.

[7] Applicant’s counsel points out that the fact that the cargo was sitting in a Greenway Carriers trailer does not mean that it was not delivered to the Applicant. It was delivered to the Applicant’s part of the yard and, the evidence shows, was waiting for the Applicant’s drivers to start their delivery trip to Quebec. Counsel for the Applicant indicates that trucking companies often use each other’s trailers; indeed, the record shows that the Applicant only has a few trailers of its own, and a significant quantity of its business is to ship goods in trucks where some other company’s logo is on the trailer.

[8] With this in mind, Applicant’s counsel submits that the cargo was stolen and the loss was incurred while the goods were in the Applicant’s custody. Counsel points to section 1 of the insurance policy issued by the Respondent to the Applicant. It sets out the circumstances under which goods will be covered:

We will pay those sums that you become legally obligated to pay as a land carrier, in accordance with the provisions of this Form, for ‘direct physical loss of or damage’ with respect to ‘property of others’ while in due course of transit within and between Canada and the continental United States while such property is in your custody as the carrier or in the custody of connecting carriers and while: a. on ‘conveyances’, including while such ‘conveyances’ are in a garage; b. at terminals depots or warehouses; or c. being loaded onto or unloaded from ‘conveyances’.

[9] Applicant’s counsel submits that since the Applicant is the carrier of custody, it falls within the coverage provision of the insurance policy. Respondent’s counsel, on the other hand, submits that it is Greenway Carriers, and not the Applicant, that is the carrier of custody since it had not yet handed over the goods to the Applicant.

[10] I am skeptical about the Respondent’s characterization of who has custody. Applicant’s counsel submits that the goods were already delivered to the Applicant; but even if not, the goods were in the custody of the Applicant’s agent, Greenway Carriers. I would add that even if that is not accurate, Greenway Carriers would therefore be a connecting carrier, having picked up the goods for delivery to the Applicant. That, too, is covered under the Applicant’s insurance policy with the Respondent.

[11] In other words, no matter whether it was the Applicant or Greenway Carriers that was technically in possession of the cargo at the relevant time, the stolen goods fall within the coverage provision of the relevant insurance policy.

[12] Turning to the alleged misrepresentation by the Applicant, counsel for the Respondent submits that on its application for an insurance policy the Applicant failed to disclose that it would be transporting electronic goods. The bills of lading issued by the broker that arranged for the transport with the Applicant, FLS Transportation Services (“FLS”), indicated that the goods are consumer electronics destined for delivery to Best Buy Canada Ltd. in Saint-Laurent, Quebec.

[13] The Applicant’s application for insurance described in a cursory way the types of cargo that the Applicant typically hauls. That application was apparently filled out by hand by FLS rather than by the Applicant. It describes the Applicant’s consignments as: “Paper and paper products, including cardboard, Rubber and Plastic, Consumer goods, Dry food, Peat moss, general freight – unspecified and non-hazardous”. There is also a checklist page on the application form where these descriptions were repeated in the same handwriting; the pre-printed checklist for numerous other types of items, including electronics, was left blank.

[14] Counsel for the Applicant points out that the description of goods is highly generalized, and that this level of generalization is in keeping with the nature of the haulage business. Like so many other businesses, the Applicant’s contracts evolve during the course of its business. The insurance policy is designed to cover losses on its cargo of a general type, not a specific type.

[15] As an example, if one day Applicant hauls peat moss (a cargo that FLS specifically designated on the Applicant’s insurance application form) and the next day it hauls sod or topsoil, it can expect to have coverage under the policy. Likewise, if it hauls non-hazardous furnishings and other consumer goods one day, and non-hazardous radios or television sets the next day, it can expect its insurance coverage to apply. These are not the type of unexpected changes to its business that might be reflected if, for example, if it were to suddenly start hauling gold bullion or explosives.

[16] There is a short answer to the position taken by the Respondent. That is, there is no evidence from the Respondent that this was a material matter when it assessed the risk of the Applicant’s application. The president of the Applicant provided an affidavit, and in cross-examination he indicated that 1% to 2% of the goods carried by the Applicant are consumer electronics. He went on to state that he assumed that would be covered under the heading of general consumer goods. The Respondent, on the other hand, provided no affidavit or any other evidence of its reliance on the statements in the application form.

[17] The Court of Appeal has specifically addressed this requirement in the context of insurance coverage and its denial. In Sagl v Cosburn, Griffiths & Brandham Insurance Brokers, 2009 ONCA 388, at para 51, the court stated:

A fact is relevant or material if it would influence a prudent insurer in deciding whether to issue the policy or in determining the amount of the premium… Whether a misrepresentation or non-disclosure is material is a matter of fact to be determined by the trier of fact. However, there is a subjective element to the test as well. The non-disclosure or misrepresentation must have induced the insurer to enter into the contract.

[18] In other words, there must be evidence of reliance adduced by the insurer for a misrepresentation claim to be accepted. The Respondent’s letter denying coverage, which is what its counsel points to as evidence of reliance, is an after-the-fact position. It is not evidence of reliance on the supposedly misrepresented statement.

[19] Under the circumstances, where the description of the goods is such that it would be difficult to predict the insurer’s reliance since one form of household goods seems no more hazardous or valuable than the next, some evidence from the insurer is called for. As the Court of Appeal stated at para 65 of Sagl, “[The insurer] had to satisfy the trial judge, on the evidence, that the information [the insured] allegedly intentionally misrepresented or withheld was material to its assumption of the risk.” Without a sworn affidavit, the Respondent’s denial of coverage letter looks more like a position strategically adopted to deny coverage than actual reliance on a supposed misrepresentation.

[20] The Applicant has assessed for itself that it would likely be liable to FLS for the value of the lost goods. FLS, however, has not yet brought an action for compensation; FLS is a Delaware company doing business in, among other places, Quebec and British Columbia. The ultimate owner of the goods may be in yet a different jurisdiction. As a consequence, an eventual claimant for the value of the lost cargo may have different limitation periods in mind than those which govern the insurance contract between the parties to this Application. The Applicant is concerned that if it waits for a claim for compensation to be made against it, the limitation period for taking any action against its insurer may by then have passed.

[21] Applicant’s counsel submits that the obligation of the Respondent as insurer to compensate for a loss exists from the moment the loss occurs. It is the Applicant’s position that it does not matter that the claim for recovery of the loss is made at a later date.

[22] The Supreme Court of Canada made this point in Somersall v Friedman, 2002 SCC 59, [2002] 3 SCR 109, at para 30, where it stated that, “the insurer becomes obliged to make the payment the moment the claim of the insured against the tortfeasor comes into being, that is, at the time of the accident.” Thus, courts have found that, “[t]he liability of the insured for a negligent act arises at the moment it occurs…Any judgment subsequently obtained against the insured is merely a judicial confirmation of the liability and the extent thereof to which he became subject at the moment the negligent act was committed”: Re Tozzo and Excess Insurance Co. (1977), 17 OR (2d) 737, 741 (Ont HCJ).

[23] The problem, as Respondent’s counsel points out, is that the reported cases tend to be decided after the claim value has crystallized. Thus, for example, in McMurachy v Red River Valley Mutual Insurance Co., the true value of the claim had not actually been determined when coverage was sought, but by the time the matter came to court the parties had settled on a value as between themselves. The insurer’s coverage liability could therefore be quantified by the court. Here, there is no claim yet made by anyone as against the Applicant, and so it is difficult to put a value on the loss.

[24] I note that the Peel Regional Police Services issued two reports of the theft that put a combined value of somewhere just shy of $300,000 on the stolen cargo. That, however, is nothing more than a police notation with no documentation to back it up. For its part, FLS has recently withheld $65,000 owed to the Applicant on other contracts, which the Applicant believes represents a setoff, or partial setoff, against the losses on the stolen cargo.

[25] It is difficult to know what to make of this $65,000 claim. As Respondent’s counsel points out, although the belief that this is related to the value of the stolen cargo is sworn to by the president of the Applicant in his affidavit, it is inevitably speculative; there is no actual claim made by FLS in the record before me.

[26] Accordingly, while the Respondent’s two grounds for refusing coverage are in my view not valid, I cannot order the Respondent to pay any specific amount as indemnity for the Applicant’s loss. I am also reluctant to issue a Declaration that the Respondent is liable to indemnify the Applicant against any future claim relating to losses arising from the stolen cargo, as I do not know what those future claims might entail. FLS’ customer who owns the goods may bring a viable claim for compensation of the real value of the lost cargo, or may bring an outlandish claim seeking to recover alleged losses which go beyond the insurance coverage for which the Respondent is legally responsible.

[27] I am prepared to issue a Declaration that the Applicant did not make a material misrepresentation on its insurance policy application with respect to transporting consumer electronic goods. I am also prepared to declare that the theft of the cargo occurred while the goods were in the custody and were the responsibility of the Applicant, regardless of whether they were physically stolen out of a Greenway Carriers trailer.

[28] Those combined declarations are designed to put an end to the objections that the Respondent has raised to covering the loss of the stolen goods. Of necessity, however, this approach leaves to another day the question of whether the actual claim of loss eventually brought against the Applicant is covered in whole or in part by the Respondent’s insurance policy, as that will depend on the nature and scope of that eventual claim.

[29] The Applicant has not managed to recover any money in this Application. However, it has achieved Declarations in its favour stating that the Respondent is thus far in the wrong in denying coverage. Accordingly, the Applicant has been successful in this Application as a matter of principle. It is deserving of costs, albeit on a modest scale.

[30] I note that Applicant’s counsel has submitted a Bill of Costs seeking over $30,000, all inclusive, on a partial indemnity basis. I also note that Respondent’s counsel has submitted a Bill of Costs seeking about half that amount – just over $15,000 – on a partial indemnity basis. I will exercise my discretion under section 131 of the Courts of Justice Act to award the Applicant a level of costs more in line with what the Respondent would seek if it had been successful. This will reflect the fact that while the Respondent was unsuccessful in its arguments here, the Applicant was only partially successful.

[31] The Respondent shall pay the Applicant costs in the amount of $15,000, inclusive of all fees, disbursements, and HST.

Morgan J. Date: June 27, 2018