Economical Insurance Group, 2007 ONCA 487
DATE: 20070629
DOCKET: C43934
COURT OF APPEAL FOR ONTARIO
WEILER, SIMMONS and LAFORME JJ.A.
BETWEEN:
DIAMOND AUTO COLLISION INC. a/o DIAMOND TOWING a/o OLYMPIC TOWING INC., and GREGORY PANNIA
(Plaintiffs/Appellants)
And
THE ECONOMICAL INSURANCE GROUP
(Defendant/Respondent)
Chris G. Paliare and Andrew K. Lokan for the appellant, Diamond Auto Collision Inc. a/o Diamond Towing a/o Olympic Towing Inc., and Gregory Pannia
Ian P. Newcombe and Dean Obradovic for the respondent, The Economical Insurance Group
Heard May 9, 2007
On appeal from the judgment of Justice Ellen M. Macdonald of the Superior Court of Justice dated July 4, 2005.
WEILER J.A.:
Overview
[1] The appellants appeal the dismissal of their claim for alleged business interruption losses suffered as a result of a fire and seek an order for a new trial. In a nutshell, the appellants contend that they could not know from the reasons for judgment why the evidence of their witnesses and, in particular, the evidence of their expert was rejected. Linked to this ground of appeal, the appellants submit that the trial judge ignored or misapprehended several aspects of their evidence.
[2] For the reasons that follow I would not order a new trial and would dismiss the appeal.
Background and Issues
[3] The appellants operate a vehicle towing and collision repair facility in Bolton, Ontario. Gregory Pannia is the general manager.
[4] In January 2000, the appellants entered into an agreement with the respondent for insurance coverage of the premises against certain risks, including loss due to fire. The coverage included "the actual business loss sustained by the Insured and expenses necessarily incurred to resume normal business operations resulting from the interruption of the business... as a direct result of an insured peril…"
[5] On October 5, 2000 a fire, apparently set by a disgruntled customer, destroyed two large storage trailers and a variety of other equipment on the premises. The respondent paid $168,511.90 in full satisfaction of the physical loss of the two trailers and contents. The appellants also claimed for loss of business income and this claim was denied.
[6] At trial, the appellants argued that their business had been disrupted because: 1) the unsettling appearance of the premises deterred customers; 2) the amount of time that key personnel were obliged to spend dealing with the processing of the claim and the appraiser detracted from the business; and 3) rumours that Mr. Pannia was involved in the arson caused customers to lose confidence in the business.
[7] The court heard testimony from fourteen witnesses over seven days and submissions were made on the eighth day of trial. The trial judge's reasons, released some thirteen months after the trial, consisted of ten paragraphs. She dismissed the appellants' claim, concluding that "the totality of the evidence is that the operations continued as they did before the fire except for some seasonal slow downs that regularly occur in some divisions within the business."
[8] The appellants challenge the adequacy of the trial judge's reasons in support of this conclusion and seek a new trial. In support of their submission, the appellants contend that in rejecting all three bases of their claim for loss of business income, the reasons given by the trial judge misapprehended the evidence, were irrelevant or insufficiently explained the result, and did not adequately explain her rejection of the credibility of the appellants' witnesses.
[9] The appellants' position at trial was that, but for the fire, profits would have increased more than they did. Each party led expert evidence with respect to loss of business income. The trial judge rejected the evidence of the appellants' expert and accepted the evidence of the respondent's expert. Her reasons in this regard are also the subject of appeal.
Appellate Review of Reasons for Judgment
[10] The standard for measuring the adequacy of reasons is derived from the decision of the Supreme Court of Canada in R. v. Sheppard, 2002 SCC 26, [2002] 1 S.C.R. 869, 162 C.C.C. (3d) 298. Its ratio is equally applicable, with necessary modifications, in the civil context: Canadian Broadcasting Corp. Pension Plan v. BF Realty Holdings Ltd. (2002), 214 D.L.R. (4th) 121 (Ont. C.A.).
[11] In Sheppard, Binnie J. described the three functions of reasons for judgment at the trial level at para. 24. They are: 1) explaining to the losing party why he or she lost; 2) enabling informed consideration as to whether to appeal; and 3) enabling interested members of the public to see whether justice has been done. A shorthand way of describing reasons that fulfill these functional requirements is to say that the reasons permit meaningful appellate review.
[12] The determination as to whether reasons permit meaningful appellate review is a contextual one which takes into consideration a number of factors including the positions of the parties, implicit findings, and the extent to which the reason for the trial judge's conclusion is patent on the record. See e.g. Lawson v. Lawson, [2006] O.J. No. 3179 (C.A.) at para. 13. Standing alone, conclusory and generic reasons, in the sense that they could apply equally to any other case, do not permit appellate review. In order for the court to determine whether there has been a proper application of legal principles, the pathway to the result is necessary: R. v. Minuskin (2003), 68 O.R. (3d) 577 (C.A.) at paras. 2-4.
[13] One further comment on a trial judge's rejection of the evidence of a key witness, such as an accused person in a criminal case or the plaintiff in a civil contest, may be helpful. A judge owes the losing party an explanation for rejecting the evidence of a key witness and the absence of any explanation for rejecting that key witness's evidence may go a long way to putting the reasons beyond the reach of meaningful appellate review. However, the outcome of the appeal still turns on the overarching principle of whether the reasons permit meaningful appellate review. See R. v. J.J.R.D. (2006), 218 O.A.C. 37 at paras. 35-56 (C.A.), leave to appeal to S.C.C. refused, [2007] S.C.C.A. No. 69 citing R. v. Maharaj (2004), 71 O.R. (3d) 388 at paras. 26-29 (C.A.), leave to appeal to S.C.C. refused, [2004] S.C.C.A. No. 340 and R. v. G.(L.) (2006), 2006 SCC 17, 207 C.C.C. (3d) 353 (S.C.C.).
[14] Importantly, the Supreme Court of Canada has stated that reasons require two stages of analysis: (1) are the reasons inadequate; (2) if so, do they prevent appellate review: see R. v. G.(L.), supra at para. 13.
The trial judge's reasons
[15] Paragraphs 1-4 of the trial judge's reasons describe the parties, the fire which took place on October 5, 2001, the claim, payment of a portion of the claim, and the fact that the release specifically excluded any claim for loss of business income that was available. Paragraph 5 states that the claim for punitive damages was properly withdrawn. Although not directly relevant to this appeal, the trial judge found that the evidence of the plaintiffs' witnesses alleging bad faith on the part of the insurer was "very unconvincing".
[16] Paragraph 6 indicates that the fire occurred while the appellants' principal, Mr. Pannia, was away on vacation and that when he returned he began preparing a proof of loss with the assistance of the defendant's adjusters. The trial judge states:
In April 2001, some six months after the fire, Mr. Pannia completed the removal of the debris from the towing yard. One of the reasons that it took so long was that Mr. Pannia was very busy running the day-to-day operations of Diamond Towing. [Emphasis added.]
[17] Paragraph 7 sets out the basis for the appellants' claim to entitlement for coverage for lost business income: allegations of arson, rumours that Mr. Pannia was involved, and its alleged negative impact on business:
Mr. Pannia alleged that he did not realize that this negative advertising was having such an impact until five or six months after the fire. It was for this reason that he says he did not raise this aspect of his loss with the adjustors when they were working with him on the proof of loss forms. A proof of loss form was not submitted until May 2002. The form, submitted by his solicitors, made no reference to a business loss. There was no claim for the business/economic loss until September 2002 at which time Mr. John Seigel completed and delivered his expert report on behalf of the plaintiffs. Mr. Siegel, highly respected as an expert witness, admitted in cross-examination that he calculated the business loss based on assumptions and information provided to him by Mr. Pannia. He did not conduct an independent investigation or an audit of the books and records that were presented to him. [Emphasis added.]
[18] Paragraph 8 summarizes the position of the respondent and the trial judge's finding that the appellant's witnesses were not credible. Because it is critical to this appeal, the paragraph is reproduced in its entirety below, as is the first portion of paragraph 9, which contains the holding of the trial judge:
I now summarize the position of Economical. Emphasizing that Diamond Towing is in the towing business, the evidence was that it is in the nature of the business that damaged and burned vehicles are often on site. In other words, customer expectations are such that it is understood that this is not a pristine commercial business. Economical also retained an expert, Mr. Petinelli of the firm Petinelli, Mastroluisi to quantify the alleged business loss claim and to review the basis on which Mr. Seigel came to his conclusions. Mr. Petinelli's expert report is dated September 11, 2003. A key difference in the approach to the calculation of the alleged loss by the experts revolved around whether the loss should be calculated by examining quarterly performances or whether a month-by month analysis would yield more accurate results. On this point, I prefer the approach of Mr. Petinelli. He stated that the month-by-month review of the companies' performance yielded far more accurate results because such an approach was able to identify trends within the various divisions of Diamond's Operations. In his examination in chief, Mr. Petinelli pointed to a number of significant omissions in the calculations that were done by Mr. Seigel. These omissions, largely due to his reliance on Mr. Pannia's information, call into question the conclusions contained in his report. Economical submitted that the claim under this portion of the policy's coverage was not proven. I find that there was no credible evidence from the plaintiffs or their witnesses that there was any economic loss during the indemnity period of one year from the date of the fire. Indeed, the combined sales figures of the corporate plaintiffs in the years 1998 through to 2003 demonstrate remarkable growth. Accordingly, this claim is dismissed.
There are two fatal flaws in the theory of the plaintiffs' case. Arguably, the alleged loss is not covered. If it is covered, it is not proven on a balance of probabilities. Indeed, the totality of the evidence is that the operations continued as they did before the fire except for some seasonal slow downs that regularly occur in some divisions within the business. The owners displayed confidence in the future as evidenced by the purchase of expensive heavy towing equipment. Notwithstanding these realities, the plaintiffs say that the rumours and negative advertising caused their loss of business income in a business that generates its clients by word of mouth. I find that, even if such losses did in fact occur, any damages flowing from these causes cannot be considered to be a direct result of the fire. The policy provides for the actual business loss sustained by the insured and the expenses necessarily incurred to resume normal business operations resulting from the interruption of business, or the untenantability of the "premises" when the "building" or the "business contents" are damaged as a direct result of an insured peril. [Emphasis in original.]
[19] Paragraph 10 dismisses the appellants' claims and awards costs of the trial to Economical.
Analysis
Reasons respecting potential causes of business interruption loss and whether the trial judge misapprehended the evidence
[20] The four factors on which the appellants relied as leading to a business interruption loss in the aftermath of the fire were: a) the appearance of the premises; b) rumours due to the arson; c) negative advertising due to this appearance and the rumours; and d) the time spent by Greg Pannia in processing the claim. Paragraphs 6 and 7 of the trial judge's reasons indicate she was clearly aware of the bases of the appellants' claim.
[21] The appellants advanced a "theory" that the very sight of debris in their storage yard might have driven away customers. The only evidence adduced to link the appearance of the appellants' yard to the alleged business income loss came from the appellants' officers and employees, who testified to noticing cancellations and decreasing sales and their conclusion that customers must have been scared by the appearance of the premises.
[22] Summarizing the position of the respondent at paragraph 8 of her reasons, the trial judge stated that "…it is in the nature of the business that damaged and burned vehicles are often on site. In other words, customer expectations are such that it is understood that this is not a pristine commercial business."
[23] In holding that the there was no credible evidence in support of the appellants' theory, the trial judge pointed out that, contrary to the evidence of their employees of decreasing sales" ….the combined sales figures of the corporate plaintiffs in the years 1998 through to 2003 demonstrate remarkable growth." The trial judge's conclusion is supported by the agreed fact that profits rose from $1.2 million to $1.6 million one year after the fire. While the appellants submit that growth would have been even greater but for the fire, the evidence of their employees was that sales had decreased, not that they would have been greater.
[24] The appellants submit that, in rejecting the appellants' submissions that the condition of the premises occasioned a loss of business, the trial judge misapprehended the evidence as to the condition of their yard. While there were burnt out vehicles on the premises, the appellants point to evidence that it was their practice to cover or tarp them. The trailers were too big to tarp. No customer gave evidence saying that he or she stayed away from Diamond because of the appearance of the premises or on any basis other than the rumours. An examination of the record reveals that the evidence from the only two customers who testified, Messrs. Terenzi and Gurprasad, mentions only the rumours that Mr. Pannia was involved in setting the fire.
[25] These customers were unable to prove that they had sent less work to Diamond after the fire, as compared to before the fire. For example, Mr. Gurprasad testified that before the fire he had been sending $500,000 worth of business a year to the appellants. He also testified that he paid $170,000 to $180,000 directly to the appellants for their services. After the fire, he testified that because of the rumours he started using other companies but then returned to using Diamond again, both giving and recommending business to them. The appellants' records showed that Mr. Gurprasad paid $6,200 and then $11,000 for towing services and nothing after that. Mr. Gurprasad said the appellants' records were wrong. Mr. Gurprasad's records were never introduced at trial. Either the trial judge correctly rejected his evidence or the appellants' records are completely unreliable.
[26] The appellants submit that the trial judge also misapprehended the evidence when she referred to the fact that the appellants purchased expensive equipment after the fire as an indicator that they were confident about the future. The appellants point out that these purchases occurred before the fire and had no bearing on any business income loss. The equipment had not, however, been delivered or completed prior to the fire and there was no evidence that the appellants tried to cancel the sales. More importantly, any misapprehension of the evidence respecting the timing of the purchase of equipment by the trial judge did not affect her dismissal of the claim for business interruption. She had already dismissed that claim for the reasons mentioned in the prior paragraph.
Reasons respecting credibility
[27] The appellants submit that although the trial judge found that "there was no credible evidence that there was any economic loss during the indemnity period" she gave no reason to support her finding.
[28] Three bases for rejecting the evidence of the appellants' witnesses can be gleaned from the trial judge's reasons. First, although the fire occurred on October 5, and Mr. Pannia stated he did not realize that business loss was occurring until some five or six months later, this would put his realization at March or April 5 at the latest. The proof of claim was filed in May, after Mr. Pannia's realization that business loss was occurring. It makes no mention that a claim for loss for business interruption would be forthcoming.
[29] Second, in a footnote to her reasons, the trial judge comments:
On the issue of rumours, the plaintiffs called witnesses from within the industry. They strained their credibility greatly when they claimed that they did not discuss their evidence with Mr. Pannia and that the only time they discussed their evidence with anyone was outside the courtroom before testifying at which time they had discussions with [counsel for the plaintiff].
[30] In relation to this footnote, the appellants point out that one witness admitted to discussing his evidence with the appellants' trial counsel. While the trial judge did not elaborate, the record indicates that the appellants' employee, Donald Farr, testified that after the fire he noticed sales decreasing by about 45%. Separately, the appellants' expert, Mr. Siegel, having completed his calculations two years after the fire, testified that sales for the indemnity period were just under 50 per cent lower than the appellants had projected. Despite this remarkable coincidence, Donald Farr testified that he did not discuss his evidence with his employer or perform any calculations of his own. Having regard to the record, this court is in a position to tell the appellants why the trial judge made the comment she did.
[31] Third, the trial judge preferred the evidence of the respondent's expert to that of the appellants' expert. Here again, resort to the record will be necessary. I will address this separately below.
Reasons respecting the evidence of the appellants' expert
[32] The appellants submit that the trial judge rejected the evidence of the appellants' expert, Mr. Seigel, because of certain assumptions and omissions in the calculations that he had done, yet she did not identify them or explain why they were material.
[33] I begin by noting that the trial judge gave two other reasons for rejecting Mr. Seigel's report. First, the trial judge expressed concern about the methodology the appellants' expert employed, which relied on Mr. Pannia's assumptions and information, as opposed to an independent examination of the figures of the appellants. Mr. Seigel admitted that his calculations were based on certain assumptions that had to be proven at trial. For example, although the collision division was "doing next to nothing" for the first nine months of 2000 and only had one good month of sales, Mr. Siegel calculated his projections of future sales for this division on the basis of sales figures for that one month. He did so on the basis of Mr. Pannia's claim that he was going to concentrate on this division during the indemnity period.
[34] A significant amount of Mr. Siegel's report was based on the assumption that rumours and innuendo caused a loss to the appellants' business and assumed that this would be proven at trial.
[35] In his evidence, Mr. Siegel agreed he was told by Greg Pannia that there was a delay of one month before the rumours and/or the "negative advertising" began to impact the sales figures. Mr. Siegel used this assumption to explain why the business was able to have a very large increase in total sales in the month immediately following the fire. He stated: "I think that's the delayed reaction we are talking about". However, despite asking Mr. Siegel to assume a delay of one month, Greg Pannia admitted under cross-examination that he was not sure when the rumours first began to impact sales figures.
[36] Notably, Mr. Siegel did not consistently employ the assumption of a one-month delay to analyze "business loss" within the various divisions of the business. He was instructed by Mr. Pannia to assume that different divisions of the business would have been impacted at different times during the indemnity period. For example, he was asked to assume that there would be a longer delay before the "rumours" would impact on the heavy towing division, compared to light towing. The heavy towing division was deemed to have been affected by rumours at precisely the time of this division's first post-fire fluctuation in sales, which occurred in the first quarter of 2001.
[37] Another witness and employee of the appellants', Jeffrey Joseph Martin, also provided an alternative explanation as to why sales in the heavy towing division dropped off gradually during the winter (the first quarter of 2001). He stated that "a large portion" of Diamond's heavy towing business serviced the construction industry. He further explained that the "[c]onstruction industry from past experience closes down usually January, February when the ground is frozen too hard to dig." The slow-down in the construction industry, therefore"is not really in the winter, it is in the end of winter, beginning of spring". This coincides with the period in which Mr. Siegel was asked to assume that the heavy towing division would be impacted by "the rumours".
[38] The trial judge correctly realized that the real question was whether there had in fact been a business interruption loss, as opposed to a potential business interruption loss on the bases alleged. Inasmuch as the trial judge rejected the assumption that rumours respecting the fire resulted in loss of business, she could not rely on Mr. Siegel's report.
[39] A second reason the trial judge preferred the report of Mr. Petinelli, the respondent's expert, was that he used a month to month approach which she considered to be more accurate than the quarterly calculations used by the appellants' expert. Mr. Petinelli explained that by looking at monthly trends one can identify fluctuations that are not smoothed out.
[40] I turn now to the third reason given by the trial judge for rejecting the evidence of Mr. Siegel. The previous paragraphs give some insight as to the assumptions and omissions that concerned the trial judge but which she did not identify. The record provides additional insight as to what she meant. Mr. Siegel used a non recurring item as a recurring item in his calculation of business loss. Mr. Siegel omitted to show that sales for the small tow truck division were declining. Mr. Pannia admitted that a reduction in the growth of light tow sales may not have been due to the rumours but may have been due instead to a shift in emphasis to the more lucrative heavy tow market. Mr. Siegel also omitted to take into account that when sales increased there would likely be an increase in direct labour costs. He assumed that despite increased growth, the company would continue to operate with the same labour costs.
[41] While the assumptions and omissions I have referred to largely emerged in Mr. Siegel's cross‑examination, the trial judge was correct in stating that Mr. Petinelli pointed to the omissions in his examination‑in‑chief. The trial judge did not err in rejecting the report of the appellants' expert and preferring that of the respondent's expert.
[42] In light of this conclusion, it is unnecessary for me to address the trial judge's alternate conclusion that the appellants' losses are not covered by the wording of the policy because they were not directly caused by the fire.
Overall Conclusion
[43] Standing alone, the trial judge's reasons make meaningful appellate review difficult. In the result, however, even if the appellants are correct in their submission that the trial judge's reasons do not fulfill the functional requirement of reasons as they ought to, having regard to the record, the basis for her rejection is patent and this court has told the appellants why they lost.
Costs
[44] The appellants submitted that if they were not successful on this appeal, the court should consider that they did not receive the respondent's factum in a timely fashion and that this should be taken into account as a factor in fixing costs. The respondent states that it is prepared to take a discount of its costs because, due to personnel changes in its office, the factum was late. Accordingly, I would award the costs of the appeal to the respondent and fix those costs in the amount of $15,000 all inclusive.
RELEASED: June 29, 2007 ("KMW")
"Karen M. Weiler J.A."
"I agree J. Simmons J.A."
"I agree H. S. LaForme J.A."