COURT FILE NO.: CV-22-0061-0000 DATE: 2023-04-04

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

Karen Joanne Kerk-Courtney also known as Karen Joanne Kerk and Daniel Joseph Courtney Applicants

A. Colquhoun, for the Applicants

• and -

Security National Insurance Company also known as TD General Insurance Company and TD Insurance Meloche Monnex Respondent

E. Shum, for the Respondent

HEARD: January 11, 2023 at Thunder Bay by Zoom Mr. Justice J.S. Fregeau

REASONS ON APPLICATION

INTRODUCTION

[1] In 2016, Karen Joanne Kerk-Courtney (“Ms. Kerk”) sold the property known municipally as 1258 Moving Post Road, Gorham, Ontario (the “Property”) to Danielle Fex and Robert Duncan (the “Purchasers”).

[2] Following the sale of the property, the Purchasers commenced an action against Ms. Kerk and her spouse Daniel Joseph Courtney (“Mr. Courtney”), seeking damages for fraudulent misrepresentation, or in the alternative negligent misrepresentation, as to the condition of the Property at the time of sale (the “Underlying Action”).

[3] Ms. Kerk reported the Underlying Action to the Respondent in October 2021 and requested defence and indemnity protection. The Respondent denied coverage.

[4] In this application, Ms. Kerk and Mr. Courtney (the “Applicants”) seek declarations that their former home insurer, Security National Insurance Company, also known as TD General Insurance Company and TD Insurance Meloche Monnex (the “Respondent”) has a duty to defend and indemnify them in the Underlying Action.

[5] The Applicants also request a declaration that the Respondent is responsible for the ongoing legal costs of defending the Underlying Action from the date of the release of this decision, if it is held that the Respondent has a duty to defend the Applicants.

BACKGROUND

[6] Ms. Kerk purchased the Property in 2008 and resided there with Mr. Courtney until November 2016. At all material times, Ms. Kerk was the named insured under a policy of home insurance bearing policy number 78801111 (the “Policy”) and issued by the Respondent.

[7] On September 17, 2013, prior to entering into the Policy with the Respondent, Ms. Kerk and the Respondent’s sales representative engaged in a telephone interview with respect to insurance coverage for the property. During this telephone conversation, Ms. Kerk advised the Respondent that she and Mr. Courtney were both self-employed and worked from home. Ms. Kerk further advised that she owned and operated an “online store” which sold “organic skincare products” assembled or produced by her in the home.

[8] The Policy provides personal liability coverage to the Applicants with respect to “compensatory damages because of unintentional bodily injury or property damage arising out of” the Applicants’ personal actions and ownership, use or occupancy of the Property. The Policy defines “property damage” as “physical damage to, or destruction of, tangible property” or the “loss of use of tangible property”.

[9] The Policy excludes coverage for liability the Applicants “have assumed by contract unless [the Applicants’] legal liability would have applied even if no contract had been in force”. The Policy also excludes coverage for any intentional act, or failure to act, of the Applicants.

[10] On or about November 25, 2016, Ms. Kerk sold the Property to the Purchasers pursuant to an Agreement of Purchase and Sale dated October 27, 2016 (the “APS”). The APS contained an “entire agreement clause” which provided that the APS, including any schedules attached, constituted the entire agreement between the Purchasers and Ms. Kerk.

[11] In the Underlying Action, the Purchasers pled that the listing summary (the “Listing”) and the Seller Property Information Statement (the “SPIS”) were schedules to and formed part of the APS. The Applicants concede that for the purposes of this Application, the APS includes both the Listing and the SPIS.

[12] The Purchasers allege that they relied on the information contained in the Listing and the SPIS and Mr. Courtney’s oral statements in deciding to enter into the APS. They further allege that the Listing, the SPIS and oral statements made by Mr. Courtney during a showing of the Property contained misrepresentations.

[13] Specifically, the Statement of Claim in the Underlying Action includes the following allegations:

• That the Listing stated that the Property had been “totally redone from studs”, and
• That Mr. Courtney told the Purchasers, when they were viewing the Property and prior to the APS, that the Property had been “taken down to the studs”.

[14] The Purchasers further allege that these statements were untrue to the knowledge of the Applicants or, in the alternative, that the Applicants negligently misrepresented the state of the Property.

[15] Examinations for Discovery in the Underlying Action were held on March 23, 2021. On May 14, 2021, Ms. Kerk contacted the Respondent and requested Policy documents in effect in 2016. On October 8, 2021, counsel for the Applicants contacted the Respondent, reported the Underlying Action and the Applicants’ claim under the Policy and requested defence and indemnity protections.

[16] In her October 8, 2021 correspondence, counsel for the Applicants advised the Respondent that:

The claim was not immediately forwarded for coverage as it was not clear whether the heart of the claim was based on fraud (intentional) or negligent misrepresentation. Discoveries were held on March 23, 2021. It is clear, from the documents exchanged and the evidence led by all parties, that there is no evidence whatsoever of fraud or intentional acts by [the Purchasers]. It would appear that the true nature of the claim…rests in negligence and, as such, coverage under the policy is triggered.

[17] On October 20, 2021, the Respondent advised the Applicants that the Policy did not respond to the claims made in the Underlying Action because they were excluded as liabilities assumed by contract and further due to the Applicants’ failure to provide prompt notice of the claim to the Respondent.

THE ISSUES

The issues to be determined on this Application are:

1. Are the Purchasers’ claims in the Underlying Action excluded from coverage under the Policy such that the Respondent’s duty to defend and indemnify the Applicants is not triggered?
2. Are the Applicants disentitled to coverage due to their failure to promptly provide notice of the Underlying Action to the Respondent?
3. Is the Policy void for misrepresentation or undisclosed material changes in risk?

THE POSITION OF THE APPLICANTS

[18] The Applicants submit that the Respondent has a duty to act in the utmost good faith in its dealings with them. The Applicants submit that an insurer is required to defend a claim where the facts alleged in the pleadings, if proven to be true, would require the insurer to indemnify the insured for the claim.

[19] The Applicants further suggest that it is irrelevant whether the allegations in the pleadings can be proven in evidence. A mere possibility that a claim falls within the coverage provisions of the insurance policy triggers the duty to defend and indemnify. If there is any possibility that one or more of the claims in the Underlying Action fall within liability coverage, the Respondent is required to defend, according to the Applicants.

[20] The Applicants, while acknowledging that they bear the onus of establishing coverage under the Policy, submit that the Respondent bears the onus of establishing the claim is excluded by an exclusion clause. The Applicants further submit that it is well established that coverage clauses are to be construed broadly and exclusion clauses narrowly.

[21] The Applicants submit that the claims in the Underlying Action relate to property damage as defined in the Policy. The Applicants submit that the substance of the claim in the Underlying Action is for compensatory damages for property damage due to the Applicants’ actions, use or occupancy of the Property. The Applicants contend that when this coverage clause is construed broadly, as required by law, there is a possibility that the claims in the Underlying Action fall within coverage such that the Respondent’s duty to defend is triggered. Any uncertainty as to whether a claim falls within the coverage clause must be resolved in favour of the insured, according to the Applicants.

[22] The Applicants acknowledge that the Policy contains an exclusion clause excluding coverage for liability they “have assumed by contract unless [the Applicants’] legal liability would have applied even if no contract had been in force.” The Applicants concede that this exclusion clause excludes coverage for contractual liability in the Underlying Action relating to the alleged fraudulent and/or negligent misrepresentations in the APS, SPIS and Listing.

[23] However, the Applicants submit that the Underlying Action also contains an allegation that Mr. Courtney negligently misrepresented the state of the Property, in oral statements to the purchasers, prior to the APS being signed and therefore distinct from any alleged contractual misrepresentation in the APS, SPIS or Listing.

[24] The Applicants submit that the facts set out in the Underlying Action, if proven, could possibly support a finding of negligent misrepresentation by Mr. Courtney based on his oral comments such that the claim for negligent misrepresentation is not derivative of the contractual claim for intentional and or negligent misrepresentation and therefore not excluded from coverage by the exclusion clause in this case.

[25] The Applicants further acknowledge that the APS contains an “entire agreement” clause which arguably excludes the Purchasers, in the Underlying Action, from relying upon the alleged oral misrepresentations made by Mr. Courtney and which arguably limits the potentially successful claims for misrepresentations to only those found in the APS, SPIS and Listing and which are subject to the exclusion clause.

[26] However, the Applicants submit that this court cannot assume, when determining if the Respondent has a duty to defend, that the entire agreement clause will be found enforceable in the Underlying Action. The Applicants contend that the strength, or lack thereof, of the Purchasers’ claim for negligent misrepresentation in relation to Mr. Courtney’s oral statements is not relevant to the duty to defend issue on this application.

[27] The Applicants reiterate that the law requires that if there is any possibility that the claim falls within liability coverage, the insurer must defend. The Applicants suggest the enforceability of the entire agreement clause in the Underlying Action must be determined in the Underlying Action and not on this application, particularly when doing so would result in a finding that the Respondent does not have a duty to defend.

[28] The Applicants submit that after discoveries were completed in the Underlying Action it was clear that the substance of the Purchasers’ claim in the Underlying Action was negligence and not their intentional acts. The Applicants contend that they provided prompt notice of the claim to the Respondent following this determination.

[29] However, if it is found that they did not give the Respondent prompt notice of the claim, the Applicants submit that this amounts to imperfect compliance with the notice requirement, not non-compliance, such that they are entitled to relief from forfeiture pursuant to s. 129 of the Insurance Act.

[30] The Applicants submit that there is no merit to the Respondent’s contention that Ms. Kerk misrepresented the nature and extent of business activities on the Property. The Applicants contend that Ms. Kerk truthfully answered all questions posed to her during her telephone interview with the Respondent’s sales representative prior to the Policy being issued. The Respondent’s evidence of Ms. Kerk’s business operation and production at the Property on this application is consistent with the representations made by Ms. Kerk prior to the Policy being issued, according to the Applicants.

THE POSITION OF THE RESPONDENT

[31] The Respondent submits that the Applicants bear the onus of establishing that the Purchasers’ allegations in the Underlying Action fall within the four corners of the Policy. The Respondent submits the Applicants have failed to establish that the claim in issue relates to property damage as defined in the Policy and that it therefore does not have a duty to defend.

[32] The Respondent contends that the Applicants’ potential liability in the Underlying Action relates to alleged misrepresentations as to the quality and extent of renovations undertaken by them while they owned the Property and that the alleged misrepresentations caused the Purchasers to complete an improvident home purchase.

[33] This alleged loss suffered by the Purchasers is not property damage as defined in the Policy, according to the Respondent.

[34] The Respondent submits that the Purchasers, in the Underlying Action, have pled that the APS, and therefore the contract between them and the Applicants, included both the SPIS and the Listing. The Respondent notes that this point is conceded by the Applicants.

[35] The Respondent further submits that the entire agreement clause in the APS precludes the Purchasers from relying upon any alleged misrepresentations of the Applicants other than those allegedly contained in the APS, SPIS and/or Listing.

[36] The Respondent contends that the entire agreement clause therefore excludes any alleged oral misrepresentations, including those allegedly made by Mr. Courtney prior to the APS, and restricts the Purchasers’ possibly successful claims for misrepresentations, negligent or fraudulent, to only those contained in the APS, SPIS and Listing.

[37] The Respondent suggests that the alleged oral misrepresentations made to the Purchasers by Mr. Courtney, prior to the APS being signed, therefore cannot possibly ground liability in the Underlying Action and that the Applicants’ legal liability in the Underlying Action can only possibly flow from the Applicants’ representations in the APS, SPIS, and the Listing.

[38] The Respondent submits that as a result of the foregoing, any analysis of the substance and true nature of the Purchasers’ claims against the Applicants in the context of coverage under the Policy must be restricted to those found in the APS, SPIS and Listing.

[39] The Respondent submits that the Policy contains the usual exclusion for claims assumed under contract. The Respondent submits that the true substance of the Purchasers’ claim, despite being pled, in the alternative, in negligence, relates to alleged contractual misrepresentations in the APS, SPIS and/or Listing. The claims in negligence rely upon the same facts and duties found in these contractual documents and allege the same loss or harm, according to the Respondent.

[40] The Respondent contends that the Purchasers’ claims in negligence are therefore derivative of, or in substance, claims in contract which are excluded from coverage under the Policy because of the exclusion clause. Put another way, the Respondent suggests that the claims in the Underlying Action are, in their true nature, founded in contract and therefore excluded from coverage under the Policy.

[41] The Respondent submits that any claims in the Underlying Action relating to the alleged oral misrepresentations of Mr. Courtney cannot possibly succeed because of the entire agreement clause in the APS. The Respondent further submits that the contractual claims in the Underlying Action, including the derivative claim in negligence, cannot possibly succeed due to the exclusion clause. The Respondent suggests that the Applicants have not provided any applicable authority in response the insurer’s position in regard to the entire agreement clause in the APS and the application of the exclusion clause in the Policy as it relates to the contractual claims or derivative claims in negligence.

[42] The Respondent submits that the Policy requires the Applicants to promptly notify the Respondent of a potential claim. The Respondent contends that the Applicants defended the action for more than two and one-half years before notifying the Respondent of the claim six months after the completion of discoveries.

[43] The Respondent contends that the Applicants have failed to provide any cogent explanation for their delay in providing notice such that the reasonableness of their conduct cannot be assessed. As a result, there is no basis upon which the court can exercise its discretion and provide the Applicants relief from forfeiture, according to the Respondent.

[44] The Respondent submits that, in any event, the Policy is void due to material misrepresentations made by Ms. Kerr during her September 17, 2013, interview with the Respondent’s sales representative. The Respondent suggests that Ms. Kerr materially misrepresented the type of business activities her online, home based business would be engaged in.

[45] The Respondent contends that Ms. Kerr simply advised its sales representative that she assembled or produced organic skincare products in the home without employees. The Respondent submits that if the true product manufacturing activities been disclosed, which the Respondent suggests included employees and “heat generating appliances”, it would not have issued the Policy. The Respondent submits that, as a result, the policy was void at the time the misrepresentations were made.

DISCUSSION

[46] In Non-Marine Underwriters, Lloyd’s of London v. Scalera, 2000 SCC 24 at paras. 50 – 52, Iacobucci J. provided a three-step process to be used when determining whether a given claim could trigger an insurer’s duty to defend:

1. First, a court should determine which of the plaintiff’s legal allegations are properly pleaded. In doing so, courts are not bound by the legal labels chosen by the plaintiff. A plaintiff cannot change an intentional tort into a negligent one simply by choice of words. When ascertaining the scope of the duty to defend, a court must look beyond the choice of labels, and examine the substance of the allegations contained in the pleadings. This does not involve deciding whether the claims have any merit; all a court must do is decide, based on the pleadings, the true nature of the claims;
2. At the second stage, having determined which claims are properly pleaded, the court should determine if any claims are entirely derivative in nature. The duty to defend will not be triggered simply because a claim can be cast in terms of both negligence and intentional tort. If the alleged negligence is based on the same harm as the intentional tort, it will not allow the insured to avoid the exclusion clause for intentionally caused injuries; and
3. Finally, at the third stage, the court must decide whether any of the properly pleaded, non-derivative claims could potentially trigger the insurer’s duty to defend.

[47] In Tedford v. TD Insurance Meloche Monnex, 2012 ONCA 429, at para. 14, the Ontario Court of Appeal expanded on the three-step process set out in Scalera and summarized the principles governing an insurer’s duty to defend:

1. The insurer has a duty to defend if the pleadings filed against the insured allege facts which, if true, would require the insurer to indemnify the insured;
2. If there is any possibility that the claim falls within the liability coverage, the insurer must defend;
3. The court must look beyond the labels used by the plaintiff to ascertain the “substance” and “true nature” of the claims. It must determine whether the factual allegations, if true, could possibly support the plaintiff’s legal claims;
4. The court should determine if any claims plead are entirely derivative in nature. A derivative claim will not trigger a duty to defend;
5. If the pleadings are not sufficiently precise to determine whether the claims would be covered by the policy, the insurer’s obligation to defend will be triggered where, on a reasonable reading of the pleadings, a claim within coverage can be inferred;
6. In determining whether the policy would cover the claim, the usual principles governing the construction of insurance contracts apply, namely, the contra proferentum rule and the principle that coverage clauses should be construed broadly and exclusion clauses narrowly; and
7. Extrinsic evidence that has been explicitly referred to in the pleadings may be considered to determine the substance and true nature of the allegations.

[48] In Aitken v. Unifund Assurance Co., 2011 ONSC 1809 (“Aitken”) (affirmed 2012 ONCA 641 at para. 15), Warkentin J. explained the shifting burden of proof in a duty to defend analysis:

1. The insured bears the onus of establishing that the allegations made by the plaintiff, if proved, possibly bring the claim within the four corners of the policy; and
2. If this threshold is met, the onus then shifts to the insurer to show that the claim falls outside coverage because of an applicable exclusion.

[49] In consideration of the Respondent’s submission that the claims in the Underlying Action do not relate to “property damage” as defined in the Policy, both the contra proferentum rule and the principle that coverage clauses should be construed broadly apply.

[50] The relevant coverage clause in the Policy reads as follows:

Property Damage means:

1. Physical damage to, or destruction of, tangible property;
2. Loss of use of tangible property.

Coverage F-G Personal Liability

This is the part of the policy you look to for protection if you are sued.

We will pay all sums which you become legally liable to pay as compensatory damages because of unintentional bodily injury or property damage arising out of:

1. Your personal actions anywhere in the world;
2. Your ownership, use or occupancy of the premises.

[51] In the Underlying Action, the Purchasers are seeking compensatory damages as against the Applicants for damage arising from work performed during their ownership and occupation of the Property. I accept that the Applicants’ exposure to liability in the Underlying Action does not fit neatly into the property damage definition in the policy. However, I conclude that the policy does not unambiguously exclude coverage on the facts of this case and I reject this as a basis for the Respondent’s denial of their duty to defend.

[52] Here, the purchasers allege they discovered the original wall covering in the living room and dining room had been covered over in drywall. Ice damming was discovered on the roof of the Property in 2016. Heavy humidity in the home contributed to mould growth that same year. In the spring of 2017, run-off from the spring snow melt flowed into the crawlspace. Skirting at the rear of the house was damaged and rotten. Rodent damage was also discovered in the crawlspace.

[53] The purchasers plead that they have incurred monetary costs arising from the following: repairing and insulating the crawlspace; upgrading attic insulation and mould repair; replacing roof shingles and improving venting; installing new vapour barrier, insulation material and drywall.

[54] In my view, it is reasonable to conclude that these injuries constitute “physical damage to tangible property”, as expressed in the Policy.

[55] Pursuant to Scalera, I will now review the claims in the Underlying Action to determine the substance and true nature of the allegations the Purchasers have made against the Applicants.

[56] The Purchasers have claimed damages as against both Applicants for “fraudulent misrepresentation of the state of the property” and, in the alternative, damages as against both Applicants for “negligent misrepresentation of the state of the property”.

[57] The Purchasers plead that they received the Listing and the SPIS before signing the APS and that the APS included both as schedules. They further plead that the description of the Property as detailed in the Listing included many statements regarding improvements to the property, including that the home had been “totally redone from the studs”. The disclosures in the SPIS stated that the Applicants were unaware of “any moisture and/or water problems” with respect to the property, unaware of “any roof leakage or unrepaired damage and unaware of “damage due to rodents or wood rot”.

[58] The Purchasers further plead that they encountered Mr. Courtney at the Property, prior to making their offer, and that he told them that the Property had been “taken down to the studs”, explicitly pleading that the words used by Mr. Courtney were “virtually the same wording that appeared in the Listing”.

[59] The Purchasers allege that statements contained in the Listing/SPIS, and the oral statements of Mr. Courtney, amounted to fraudulent misrepresentation. The Purchasers further allege that if the Applicants did not intentionally misrepresent the state of the property, they “particularly [Mr. Courtney] negligently misrepresented the state of the Property”.

[60] When describing the alleged undisclosed problems with the Property in the claim, that being the damage or harm they are seeking compensation for, the Purchasers did not differentiate between undisclosed problems relating to alleged intentional misrepresentations on the one hand, and undisclosed problems relating to the alleged negligent misrepresentations, including the alleged oral misrepresentations of Mr. Courtney, on the other.

[61] It is not in issue that a negligent misrepresentation which causes property damage can possibly fall within the coverage parameters of a homeowner’s insurance policy if it is separate and distinct from a breach of contract claim. Nor is it in issue that such a claim can properly be pleaded in the alternative. In Scalera, at para. 85, Iacobucci J., directed courts addressing this situation in a coverage analysis as follows:

A court construing an insurer’s duty to defend must decide whether the harm allegedly inflicted by the negligent conduct is derivative of that caused by the intentional conduct. In this context, a claim for negligence will not be derivative if the underlying elements of the negligence and of the intentional tort are sufficiently disparate to render the two claims unrelated. If both the negligence and the intentional tort claims arise from the same actions and cause the same harm, the negligence claim is derivative, and it will be subsumed into the intentional tort for the purposes of the exclusion clause analysis. If, on the other hand, neither claim is derivative, the claim of negligence will survive and the duty to defend will apply…A claim should only be treated as “derivative”, for the purposes of this analysis, if it is an ostensibly separate claim which nonetheless is clearly inseparable from a claim of intentional tort.

[62] The purchasers’ pleadings lack precision: limited detail is provided respecting how the purchasers’ claim is founded in negligence. However, the Supreme Court in Monenco Limited v. Commonwealth Insurance Company 2001 SCC 49 (“Monenco”) at para. 31 provided that “[w]here pleadings are not framed with sufficient precision to determine whether the claims are covered by a policy, the insurer’s obligation to defend will be triggered where, on a reasonable reading of the pleadings, a claim within coverage can be inferred”.

[63] The Supreme Court in Monenco further provided that “the widest latitude should be given to allegations in the pleadings in determining whether they raise a claim within the policy”: Monenco at para. 32.

[64] Claims in negligence should only be considered derivative if they are "clearly inseparable from a claim of intentional tort: Aitken at para. 27.

[65] Tort actions that result from the same harm or actions should not automatically be considered derivative of each other. The plaintiff may simply have different, yet to be determined, theories of the defendant's liability: Aitken at para 28.

[66] Giving widest latitude to the pleadings, the purchasers claim that they bought a property from the Applicants relying on oral representations as well as written representations contained in schedules to the APS. The representations turned out to be false. A generous view of the purchasers’ pleadings suggest that it is yet to be determined whether the representations were made intentionally or by negligence. I do not believe that one claim is strictly derivative of the other. The states of mind required to prove the two claims are separate and distinct.

[67] This case can readily be distinguished from Shah v. T.D. Insurance, 2013 ONSC 1325 (“Shah”). In Shah, the purchasers bought a home from Mr. Shah. The purchasers were assured that there had never been a fire or smoke damage on the property. The purchasers pled both negligent and fraudulent misrepresentation. It was clear from the pleadings that the claim was one of fraud: Mr. Shah unequivocally knew of the fire but denied a fire occurred. It was “utterly implausible” that Mr. Shah could have forgotten or been mistaken about whether there was a fire. The court found there was no other way to categorize the claim as anything other than deceit.

[68] In the present case, the pleadings, as drafted, leave open the reasonable possibility that the alleged misrepresentations could have been unintentional – and that the Applicants accordingly may not have been aware of the alleged property damage.

[69] I therefore find that the negligence claim survives this stage of the analysis.

[70] The burden now moves to the respondent to prove whether the claims fall under one of the policy’s exclusions.

[71] I accept the submission of the Respondent that the entire agreement clause operates to exclude the oral misrepresentations of Mr. Courtney and limit the potentially successful claims for misrepresentations to those contained in the APS, SPIS and Listing.

[72] In Soboczynski v. Beauchamp, 2015 ONCA 282, the Ontario Court of Appeal considered the operation of an entire agreement clause in an Agreement of Purchase and Sale relating to the sale of the Beauchamps’ home.

[73] In Soboczynski, the APS was signed on November 22, 2007. The following day, the vendors signed a SPIS in which they represented, among other things, that their property was not subject to flooding and in which they undertook to disclose to the purchasers prior to closing any changes to the information in the SPIS. The SPIS was not incorporated into the terms of, or otherwise referenced in, the APS.

[74] On January 9, 2008, the vendors’ home flooded. They failed to inform the purchasers of the flood. The sale closed on January 18, 2008. The home flooded again on February 6, 2008. The purchasers sued the vendors for fraudulent and/or negligent misrepresentations made in the SPIS.

[75] The ONCA described the “key question” before them to be whether the entire agreement clause in the APS negatives the purchasers’ right to sue in tort based on misrepresentations made in the SPIS – a document completed after the APS was signed and which was not incorporated into the APS. In other words, did the entire agreement clause operate prospectively?

[76] At para. 41, the court concluded that it did not, finding that the entire agreement clause in the APS operated retrospectively, not prospectively. The court stated that the application of the entire agreement clause is restricted to limit representations, warranties, collateral agreements and conditions made prior to or during the negotiations leading up to the signing of the APS.

[77] At para. 41 and following, the court went on to discuss the general purpose of entire agreement clauses. At para. 43, the court stated that as follows:

An entire clause is generally intended to lift and distill the parties’ bargain from the muck of negotiations. In limiting the expression of the parties’ intentions to the written form, the clause attempts to provide certainty and clarity.

[78] At para. 59, the court added:

The entire agreement clause in this case is saying, “These are the terms of our agreement and nothing that was said beforehand is relevant. You have no basis for relying on anything other than the terms of the agreement. The agreement stands on its own”.

[79] Soboczynski is not a coverage case and did not consider the application of an entire agreement clause in the context of the case before me. However, the Ontario Court of Appeal found it appropriate to comment extensively on the general purpose of entire agreement clauses and I find that commentary to be instructive and persuasive.

[80] I am cognizant of the Applicants’ submissions suggesting that I must not, in my analysis of the Respondent’s duty to defend, assume that the entire agreement clause in the APS will be found enforceable in the Underlying Action. However, in their Statement of Defence in the Underlying Action, the Applicants have not taken issue with the entire agreement clause, or otherwise specifically commented on the oral misrepresentations allegedly made by Mr. Courtney prior to the APS being signed, other than the standard bald denial of virtually everything in the claim.

[81] In my view, the entire agreement clause in the APS precludes any possibility that the Purchasers’ claim in tort, based on an alleged misrepresentation made by Mr. Courtney prior to the signing of the APS, will be successful. The Respondent’s duty to defend therefore cannot be grounded on this alleged negligent misrepresentation.

[82] Given the foregoing, the Purchasers’ claims as against the Applicants are, in substance, based on representations in the sales contract, that being the APS, Listing and SPIS. The Policy contains an exclusion clause that excludes coverage for claims arising from “liability [the Applicants] have assumed by contract unless [the Applicants’] legal liability would have applied even if no contract had been in force”. The Policy therefore specifically excludes coverage for claims assumed under contract.

[83] On the facts of this case, it is obvious that the Purchasers would have suffered no harm and that the Applicants would not be exposed to any liability but for the parties entering into the APS.

[84] The Applicant relies heavily on the Aitken, at both the Superior Court and Ontario Court of Appeal, in support of their submission that the exclusion clause does not apply in this case. In the SCJ decision in Aitken, Warkentin J., at paras. 22 and 42, reproduces the exclusion clause in issue in that case. However, as noted by the Ontario Court of Appeal, Warkentin J. “did not address whether the exclusion for contractual liability applied. However, her disposition suggests that either this was not pressed in the appellant’s argument or that she rejected it”. The application of the contractual liability exclusion clause was abandoned, and therefore not analyzed, during argument at the Court of Appeal level.

[85] Given this treatment of the contractual liability exclusion clause in Aitken, I respectfully conclude that it cannot bear the weight ascribed to it by the Applicants in support of their submission that it does not operate to exclude coverage in this case.

[86] In my view, the Policy specifically and unambiguously excludes coverage assumed by contract. This exclusion applies to exclude the Purchasers’ remaining claims for alleged fraudulent and negligent misrepresentation contained in the APS, Listing and SPIS. As a result, there is no possibility that the Purchasers’ claims in the Underlying Action fall within the coverage provisions of the Policy such that the Respondent’s duty to defend is triggered.

[87] Given that the foregoing, it is unnecessary to address the issues of notice and misrepresentation and I decline to do so.

[88] The Application is dismissed.

[89] If the parties cannot agree on the costs of this application, they shall make written submissions as to costs, not to exceed five pages, exclusive of their respective Bills of Costs. The Respondent’s Costs Submissions shall be filed within 14 days of the release of this decision; the Applicants’ within seven days thereafter.

The Honourable Mr. Justice J.S. Fregeau Released: April 4, 2023