Fort Frances (Town) v. The Guarantee Company of North America, 2008 ONCA 102
CITATION: Fort Frances (Town) v. The Guarantee Company of North America, 2008 ONCA 102
DATE: 20080214
DOCKET: C46868
COURT OF APPEAL FOR ONTARIO
WEILER, ROULEAU JJ.A. and PARDU J. (ad hoc)
BETWEEN:
THE CORPORATION OF THE TOWN OF FORT FRANCES
Applicant (Appellant)
and
THE GUARANTEE COMPANY OF NORTH AMERICA and LOMBARD GENERAL INSURANCE COMPANY OF CANADA
Respondents (Respondents in appeal0
Jerome R. Morse and Erica Toews for the appellant
Steven Stieber and Iain Peck for the respondents
Heard: February 1, 2008
On appeal from the judgment of Justice Francis J.C. Newbould of the Superior Court of Justice dated January 26, 2007.
ENDORSEMENT
[1] The motion judge did not err in concluding that the claims made in the Nelson River action are excluded from coverage under the policy in issue.
[2] The claims made in that action relate to the tender process leading to a construction contract and the performance of that contract, in particular,
there were misrepresentations and inaccuracies in the tender bid prepared by the Town;
the Town increased the scope of design services during construction, causing delay and increased costs;
the Town failed to provide Nelson River with relevant information and warn it that a mode of construction proposed by Nelson River would not work;
the Town failed to ensure that Nelson River could continue to rely on information provided in the contract; and
the Town breached a continuing duty to Nelson River of fairness and good faith as problems arose during construction.
[3] The policy provided,
“Nor does this policy apply to….
Any claim arising out of…
(ii) a breach of contract
(iii) negotiation for a contract
(iv) tenders for contracts
(v) the selection and/or the award of a contract
(vi) the failure to proceed with a contract
[4] There is no doubt that exclusion clauses are to be construed narrowly, that the widest latitude should be given to pleadings in determining whether they raise a claim within the policy, and that the insurer has the burden of showing that the claim falls within the exclusion clause.
[5] Here, most of the claims made fall unambiguously within the exclusions under the policy. In addition to excluding claims for “breach of contract” the policy excludes claims arising out of “tenders for contracts”. This must exclude causes of action in tort and equitable claims arising out of “tenders for contracts”, otherwise the exclusion for such claims would be superfluous, and subsumed in the exclusion for breach of contract.
[6] The appellant argues however that the Nelson River action also includes causes of action unrelated to breach of contract and tender issues and which go beyond the scope of the exclusion clause in the insurance policy. While these claims may be tenuous, the appellant submits that on the authority of Transamerica Life Inc. v. ING Canada Inc. (2003), 2003 CanLII 9923 (ON CA), 234 D.L.R. (4th) 367, they might not be easily disposed of on a summary basis, and their presence obliges the insurer to defend the action. In its statement of claim, Nelson River alleges that the Town had a duty to warn it that the mode of construction it proposed would be problematic. Nelson River also alleges that once it had contracted with the Town, the Town had a duty of good faith toward it and that this duty had been breached.
[7] In our view, all of the claims arise out of the tender for the contract and the contractual relationship between the parties. As noted in Non-Marine Underwriters, Lloyd’s of London v. Scalera (2000), 2000 SCC 24, 185 D.L.R. (4th) 1 (S.C.C.),
[50] Determining whether or not a given claim could trigger indemnity is a three-step process. 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, or vice versa. Therefore, 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.
[51] At the second stage, having determined what 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.
[8] On the facts as pleaded, the essential character of the Nelson River action relates to alleged deficiencies in the information provided in the course of, or arising out of the tender process, and in the performance of the contract. These claims are clearly excluded from coverage, whether labelled as contractual, tortious or equitable breaches of duty. To the extent that they are derivative of the tender process or the contractual relationship between the parties, they are also covered by the exclusion clause.
[9] Accordingly, the appeal is dismissed, with costs to the Respondent insurer fixed at $7,500.00, inclusive of disbursements.
“K.M. Weiler J.A.”
“Paul Rouleau J.A.”
“G. Pardu J. (Ad hoc)”