M.J. Jones Inc. v. Royal & SunAlliance a.k.a. Royal Insurance Company of Canada

[Indexed as: M.J. Jones Inc. v. Royal & SunAlliance]

71 O.R. (3d) 553

[2004] O.J. No. 2105

Docket No. C40796

Court of Appeal for Ontario,

Doherty, Armstrong and Lang JJ.A.

May 25, 2004

Insurance -- All-risk insurance -- "Direct physical loss" -- Insured storing boat at marina -- Marina selling boat to innocent third party without insured's authority, knowledge or consent -- Insured's action against third party being dismissed on basis that marina had power to [page554] pass title to innocent third party who bought boat in good faith -- Insured claiming on all-risk insurance policy for "direct physical loss" of boat -- Insurer improperly denying coverage -- Insured incurring "direct physical loss" of boat as result of marina's conversion of boat -- Taking of title by innocent third party constituting by-product of conversion and not cause of loss.

While the insured had its boat stored at a marina, the marina sold the boat to an innocent third party without the insured's authority, knowledge or consent. The insured's action against the third party was dismissed on the basis that the marina held the boat as a mercantile agent and, as such, had the power to pass valid title to an innocent party who bought it in good faith. The insured claimed on an all-risk insurance policy for the "direct physical loss of the boat". Coverage was denied and the insured successfully sued the insurer. The insurer appealed.

Held, the appeal should be dismissed.

The cause of the loss was the conversion of the boat by the marina. The insurer incurred "direct physical loss" as a result of the conversion. The taking of title by the innocent third party was merely a by-product of the conversion and not the cause of the loss.

APPEAL by an insurer from a judgment of Himel J., dated September 23, 2003, allowing an insured's claim for the loss of a boat.

Cases referred to C.C.R. Fishing Ltd. v. British Reserve Insurance Company, 1990 145 (SCC), [1990] 1 S.C.R. 814, [1990] S.C.J. No. 34, 69 D.L.R. (4th) 112, 109 N.R. 1, 45 B.C.L.R. (2d) 145, [1990] 3 W.W.R. 501, revg 1988 3225 (BC CA), [1988] B.C.J. No. 2636, 55 D.L.R. (4th) 429, 34 B.C.L.R. (2d) 1 (C.A.), affg [1986] B.C.J. No. 2198 (S.C.); M.J. Jones Inc. v. Henry (2002), 2002 25185 (ON CA), 58 O.R. (3d) 529, [2002] O.J. No. 967, 156 O.A.C. 151, 22 B.L.R. (3d) 116 (C.A.) Statutes referred to Factors Act, R.S.O. 1990, c. F.1 Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 20

M. Gordon Hearn, for appellant. John S. McNeil, Q.C., for respondent.

[1] Endorsement BY THE COURT: -- The insurer appeals from a Rule 20 [Rules of Civil Procedure, R.R.O. 1990, Reg. 194] summary judgment decision allowing the insured's claim for the loss of a boat.

[2] While the insured had its boat stored at a marina, the marina sold the boat without the insured's authority, knowledge, or consent. The purchaser was an innocent third party. When the insured claimed on its "all risks" insurance policy for the "direct physical loss" of the boat, the insurer denied coverage. Instead, it advised the insured to sue the innocent purchaser. [page555]

[3] The insured sued, and lost, both at trial and on appeal. Under the Factors Act, R.S.O. 1990, c. F.1, the court found that the marina held the boat as a mercantile agent and, as such, had the power to pass valid title to an innocent third party who had bought it in good faith. See M.J. Jones Inc. v. Henry (2002), 2002 25185 (ON CA), 58 O.R. (3d) 529, [2002] O.J. No. 967 (C.A.).

[4] After losing its action against the innocent third party, the insured claimed on its insurance policy and, when coverage was denied, successfully sued the insurer to recover its loss. The insurer appeals that decision on the basis that the trial judge erred in finding that an insured peril was the proximate cause of the insured's loss.

[5] The insurer argues that the proximate cause of the loss was not the action of the "rogue" marina, but the transfer of valid title to the third party. To put it another way, the insured would not have suffered the loss "but for" the acquisition of title by a third party; it was the change in title that precluded the insured from recovering the boat. Further, the insurer argues, the insured did not suffer a "direct physical loss" of the boat, but only lost the proceeds for which it was sold.

[6] We disagree. The cause of the loss was the conversion of the boat by the marina. It is irrelevant that, subsequent to that conversion, title to the boat was acquired by an innocent purchaser. The taking of title by the innocent third party was merely a by-product of the conversion and not the cause of the loss. In other words, a finding that the boat was validly transferred to an innocent purchaser is not incompatible with a finding that the marina unlawfully converted the boat.

[7] The insured concedes that the policy would have covered theft of the boat by a third party. We see no distinction between theft of the boat by a third party and the unlawful conversion of the boat by the marina. Both events are "accidental" in the sense that they were unexpected and unforeseen. Both are equally fortuitous. See C.C.R. Fishing Ltd. v. British Reserve Insurance Company, 1990 145 (SCC), [1990] 1 S.C.R. 814, [1990] S.C.J. No. 34, at p. 825 S.C.R. Both result in the insured incurring the "direct physical loss" of the boat.

[8] This is not a case where the insured asks for compensation for the marina's failure to account for the proceeds of the sale of the boat. If it was, there would not be coverage. Under the policy, the insurer insured the boat, and not the proceeds of its sale. It is not an accounting, however, that the insured seeks. Rather, it requests coverage for the "direct physical loss" of the boat, a loss we find was caused by the marina's conversion of the boat.

[9] In the result, we agree with the trial judge that the insured is entitled to judgment against the insurer. The appeal [page556] is dismissed. The respondent is entitled to its costs of the appeal fixed in the agreed-upon amount of $3,000, inclusive of disbursements and GST.

Appeal dismissed.