Stoyka et al. v. General Accident Assurance Company of Canada [Indexed as: Stoyka v. General Accident Assurance Co. of Canada]

47 O.R. (3d) 407

[2000] O.J. No. 410

Docket No. C32125

Court of Appeal for Ontario

Finlayson, Moldaver and Goudge JJ.A.

February 23, 2000

Insurance -- Actions against insurer -- In defending action under s. 132(1) of Insurance Act insurer confined to defences that constitute equities it would have against its insured -- Insurer cannot contest findings of liability and damages in original judgment against its insured or allege that judgment vitiated by plaintiffs' own fraud -- Insurance Act, R.S.O. 1990, c. I.8, s. 132(1).

The plaintiffs brought an action for damages for negligence against D and were successful in recovering a substantial judgment. At the time of the accident, D was insured by the defendant under a personal homeowner policy of insurance. When the plaintiffs were unable to recover against D, they commenced an action against the defendant under s. 132(1) of the Insurance Act. On a motion under Rule 21 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, the motions judge ruled that the defendant was confined to the defences provided for in s. 132(1) of the Act, namely, defences that constitute equities it would have against its insured D. The defendant appealed.

Held, the appeal should be dismissed.

s. 132(1) of the Act accords a statutory cause of action to a person injured due to the fault of another who is insured for that liability. On proof of a final judgment for damages against the insured and an unsatisfied execution in respect of it, "the person entitled to damages may recover by action against the insurer an amount of the judgment up to the face value of the policy", subject only to the same equities as the insurer would have against its insured. There is nothing in the language of this section that suggests that the insurer in defending such an action can contest the findings of liability and damages in the original judgment or allege that that judgment is vitiated by the plaintiffs' own fraud.

APPEAL by an insurer from a ruling that its defences to an action under s. 132(1) of Insurance Act, R.S.O. 1990, c. I.8 are limited to those set out in that section.

Cannon v. Constitution Insurance Co. of Canada (1995), 1995 (ON SC), 26 O.R. (3d) 500, 129 D.L.R. (4th) 588, [1996] I.L.R. 1-3265 (Gen. Div.); Global General Insurance Co. v. Finlay, 1961 (SCC), [1961] S.C.R. 539, [1961] I.L.R. 1-036, 28 D.L.R. (2d) 654; Yorke v. Continental Casualty Co., 1929 (SCC), [1930] S.C.R. 180, [1930] 1 D.L.R. 609, consd Statutes referred to Insurance Act, R.S.O. 1927, c. 222, s. 85(1) Insurance Act, R.S.O. 1950, c. 183, s. 214(1) Insurance Act, R.S.O. 1990, c. I.8, s. 132(1) Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 21

Ian F. Leach, for appellant. Robert E. Barnes, Q.C., and Paul Simard, for respondents.

The judgment of the court was delivered by

[1] GOUDGE J.A.: -- On April 4, 1991, the respondent Michael Stoyka suffered serious burns in an accident at his residence. He alleged that this accident was caused by the negligence of Mark Dudney. As a result, he and his daughter, the respondent Elizabeth Stoyka, sued Mr. Dudney for damages and were successful in recovering a substantial judgment.

[2] At the time of the accident Mr. Dudney was insured by the appellant General Accident under a personal homeowner policy of insurance.

[3] When the respondents found themselves unable to recover against Mr. Dudney they commenced an action against his insurer General Accident pursuant to s. 132(1) of the Insurance Act, R.S.O. 1990, c. I.8 ("the Act"). That section reads as follows:

132(1) Where a person incurs a liability for injury or damage to the person or property of another, and is insured against such liability, and fails to satisfy a judgment awarding damages against the person in respect of the person's liability, and an execution against the person in respect thereof is returned unsatisfied, the person entitled to the damages may recover by action against the insurer the amount of the judgment up to the face value of the policy, but subject to the same equities as the insurer would have if the judgment had been satisfied.

[4] In its statement of defence the appellant put forward a number of defences. The primary defences were that the loss fell outside the coverage of the policy because Mr. Dudney was supplying a commercial service to Mr. Stoyka on the day in question; that because of Mr. Dudney's conduct including his fraudulent collusion with Mr. Stoyka there had not been the "actual trial" required by the policy; and that Mr. Dudney had committed a variety of policy breaches disentitling him to coverage.

[5] In addition, however, the appellant also pleaded that it was not bound by the findings of liability and damages in the judgment obtained by the respondents against Mr. Dudney. It asserted that Mr. Dudney had done nothing negligent and denied that the respondents had suffered the damages set out in that judgment. It also alleged that the judgment had been obtained by fraud on the part of the respondents acting on their own. It is these pleadings that raise the issue on this appeal.

[6] That issue arises because some ten months after the close of pleadings and the commencement of discoveries the respondents sought and obtained an order pursuant to rule 21.01(1)(a) in the following terms:

(1) that, to establish a prima facie case against the defendant General Accident Assurance Company of Canada here, the plaintiffs are required only to file or prove at trial with respect to an action between Michael F. Stoyka and others against Mark Dudney bearing Windsor Court File #93-GD-24118:

(a) certified copies of:

(i) the record proven by the Registrar of the Court;

(ii) the judgment; and

(iii) the reasons for judgment

(b) that there was no appeal;

(c) the issuance of an execution against the judgment debtor and the return of a nulla bona thereon;

(d) a copy of the policy insuring the judgment debtor in respect of the cause of action set forth in the pleadings; and

(2) a declaration that the defendant may not raise any defence except the same equities the defendant would have if the judgment had been satisfied.

[7] In essence, McGarry J. determined that on the basis of the relevant jurisprudence, particularly Global General Insurance Co. v. Finlay, 1961 (SCC), [1961] S.C.R. 539, 28 D.L.R. (2d) 654 and Cannon v. Constitution Insurance Co. of Canada (1995), 1995 (ON SC), 26 O.R. (3d) 500, 129 D.L.R. (4th) 588 (Gen. Div.), s. 132(1) of the Act left the appellant insurer no room for defences outside that section.

[8] For the reasons that follow I agree with his ultimate conclusion.

[9] As a preliminary matter, I should say that the preferable procedure would have been to make the motion before the trial judge, not a motions judge. The trial judge could then proceed to judgment on whatever basis he thought proper. Where the question posed under Rule 21 may well be enmeshed with contested facts which have yet to be established, the procedure used here puts the trial judge in a position where he is stuck with what is really an evidentiary ruling with which he may not fully agree. That this is such a case became apparent in argument. Nonetheless, this appeal is before us as of right and must be dealt with.

[10] The appellant argues that McGarry J. erred in law in confining its defences to those provided for in s. 132(1) of the Act, namely, defences that constitute equities it would have against its insured Mr. Dudney.

[11] Before turning to the jurisprudence, several additional facts must be noted. The appellant's statement of defence in this proceeding makes clear that it was aware of the action brought by the respondents against its insured. Indeed, it furnished counsel to defend Mr. Dudney in that proceeding after obtaining his agreement that doing so did not constitute a waiver of its position that there was neither coverage for nor a duty to defend him under this policy.

[12] Counsel thus retained removed himself from the record shortly before trial on the basis that he was unable to locate Mr. Dudney. Thereafter, General Accident sought no further participation, either direct or indirect, in the proceedings brought by the respondents against the insured.

[13] The formal judgment in that action indicates that the trial took four days at the end of which liability was determined against the insured and damages were fixed and awarded to the respondents.

[14] The appellant's primary argument is that in an action brought against the insurer pursuant to s. 132(1) of the Act, the claimants must establish afresh the liability of the insured and must again prove their damages. They cannot simply rely on the judgment already obtained against the insured. Hence, the appellant says it can defend by contesting both the liability of its insured and the damages asserted by the respondents.

[15] In taking this position the appellant relies primarily on Yorke v. Continental Casualty Co., 1929 (SCC), [1930] S.C.R. 180, [1930] 1 D.L.R. 609. In that case Ms. Yorke had been seriously injured by a motor vehicle. She sued the owner and driver, successfully established their liability and her own damages and obtained a substantial judgment. Unable to recover on it, she then notified the owner's insurer Continental Casualty and commenced an action against it pursuant to s. 85(1) of the Insurance Act, R.S.O. 1927, c. 222, which gave her a statutory right of action against the insurer "in the same manner and subject to the same equities as the insured would have . . .".

[16] The Supreme Court of Canada determined that the section did not permit an injured complainant to simply tender the judgment already obtained against the insured. Rather, both the liability of the insured and the damages said to result must be established again. The court rested its conclusion on the statute providing no more than a procedural right to sue and on the insurer being a stranger to the first judgment.

[17] Some 30 years later, in Global General Insurance Co. v. Finlay, supra, the Supreme Court of Canada set a somewhat different course. That case also involved a motor vehicle accident. The injured claimant was successful in obtaining a judgment from Stewart J. against the owner and driver of the vehicle. The owner's insurer had been aware of the action, but had denied coverage and neither offered the insured a defence nor moved to be added as a party to the original action. The claimant then sued the insurer pursuant to s. 214(1) of the Insurance Act, R.S.O. 1950, c. 183. That section permitted a complainant who recovers judgment against a defendant insured for the loss by a motor vehicle liability policy to "maintain an action against the insurer" for the insurance money.

[18] The complainant was permitted at trial to establish the insured's liability and the consequent damages by simply tendering the judgment obtained against the insured together with the reasons for it.

[19] The Supreme Court of Canada held that this was the appropriate process and that the complainant did not have to prove afresh the liability of the insured or the resulting loss. The court said that in so far as the Yorke case appears to decide anything to the contrary it is clearly distinguishable on the facts and by reason of the substantial changes which had been made in the relevant provisions of the Insurance Act. The court put its ultimate conclusions as follows at p. 552:

In an action brought under s. 214(1) the question to be determined is whether the plaintiff has made against an insured a claim for which indemnity is provided by a motor vehicle policy and has recovered a judgment therefor; the question is not whether that judgment was correct.

The judgment of Stewart J. was a final judgment pronounced by a court of competent jurisdiction and constituted conclusive evidence against all the world of its existence, date and legal consequences; (vide Halsbury, 3rd ed., vol. 15, p. 395 and the cases there collected). . . . I can find no support for the appellant's submission that it was necessary for the respondent to prove again in the action against the insurer under s. 214(1) the facts on which the judgment of Stewart J. was founded. To so hold would be to disregard the maxim, interest reipublicae ut sit finis litium [translation: it concerns the state that lawsuits be not protracted].

[20] In Cannon v. Constitution Insurance Co. of Canada, supra, Wilkens J. undertook a comprehensive review of the jurisprudence. He concluded that, since Finlay, it is not open to an insurer who had notice of and the opportunity to participate in the earlier proceedings, to contest afresh the findings of liability or damages made therein in an action brought under s. 132(1) of the Act. I agree with this conclusion.

[21] My reading of s. 132(1) of the Act supports this conclusion. It accords a statutory cause of action to a person injured due to the fault of another who is insured for that liability. On proof of a final judgment for damages against the insured and an unsatisfied execution in respect of it, "the person entitled to the damages may recover by action against the insurer the amount of the judgment up to the face value of the policy . . ." subject only to the same equities as the insurer would have against its insured.

[22] There is nothing in the language of this section that suggests that the insurer in defending such an action can effectively re-open the judgment to contest the findings of liability and damages. Indeed, the clear inference is to the opposite effect. The statutory cause of action allows the injured person to recover the amount of the judgment. It does not suggest that the injured person must prove the quantum of his loss.

[23] Moreover, s. 132(1) specifies the defences available to the insurer. It defines those defences as the equities which the insurer would be able to raise against its insured. The findings of liability and damages in the original action between the injured party and the insured cannot be said to be matters of equity between the insured and his insurer. Equally, while the alleged fraud of the injured party itself in obtaining the original judgment might be a basis for setting aside that judgment, it does not constitute an equity as between the insured and the insurer.

[24] There are sound policy reasons to support this conclusion. Where the insurer has had notice of the original proceedings and has chosen not to provide its insured with a defence at trial or to seek to be added as an intervenor (as it could have done here under rule 13.01), it is simply unfair to the injured party to require that it again prove the insured's liability and the resulting damages. The injured party has done so once with success and is entitled to regard that judgment as final. In addition, it is clearly in the interest of the sound administration of justice to discourage the unnecessary re- litigation of the same issues.

[25] I therefore conclude that the decision of McGarry J. was correct. In the circumstances of this case, once the respondents prove the final judgment against the insured, the reasons for it, the failed execution, and the governing insurance policy, the insurer can raise in defence only those equities which it would have against its insured.

[26] However, it is not open to the insurer to contest the findings of liability and damages in the original judgment or to allege that that judgment is vitiated by the respondents' own fraud. These matters are not defences within the contemplation of s. 132(1) of the Act.

[27] In the result, the appeal is dismissed with costs.

Appeal dismissed.