Ontario (Transportation) v. Canadian Surety Company, 2009 ONCA 919

CITATION: Ontario (Transportation) v. Canadian Surety Company, 2009 ONCA 919

DATE: 20091222

DOCKET: C49712

COURT OF APPEAL FOR ONTARIO

Cronk, Blair and LaForme JJ.A.

BETWEEN

Her Majesty the Queen in Right of the Province of Ontario, as Represented by The Minister of Transportation for the Province of Ontario and Kansa General International Insurance Company Ltd., in Liquidation

Appellants (Plaintiffs)

and

Canadian Surety Company and Miller Thomson LLP

Respondent (Defendants)

David Burstein, for the appellants

Barry A. Percival, Q.C., for the respondent

Heard: December 15, 2009

On appeal from the judgment of Justice Randall S. Echlin of the Superior Court of Justice, dated November 5, 2008.

ENDORSEMENT

[1] This litigation concerns an insurer’s duties to defend and indemnify an alleged insured under a comprehensive general liability policy of insurance in respect of damages awarded and costs incurred in litigation arising from an accident on the site of a provincial highway improvement project.

[2] The appellants, Her Majesty the Queen in Right of the Province of Ontario, as represented by the Minister of Transportation for the Province of Ontario (the “MTO”), and Kansa General International Insurance Company Ltd., in Liquidation (“Kansa”), appeal from the judgment of Echlin J. of the Superior Court of Justice, dated November 5, 2008, dismissing their action against the respondent insurance company, Canadian Surety Company (“CSC”).

[3] In their action, the appellants sought:

(a) declarations that:

(i) CSC was obliged to defend the MTO in a third party proceeding commenced against the MTO by Huron Construction Company Ltd. and Huron Gravel Ltd. (collectively, “Huron”) at CSC’s own expense and to pay the costs associated with the MTO’s counterclaim against Huron and of the MTO’s defence of the main action in the construction accident litigation (the “accident litigation”), including the costs of investigation;

(ii) CSC is obliged to indemnify the MTO in respect of amounts for which the MTO has been found liable to Huron in the accident litigation; and

(b) judgment against CSC for all amounts paid by Kansa to satisfy Huron’s claims and for all expenses incurred by Kansa in defence of Huron’s claims and the claims asserted in the accident litigation, including in MTO’s counterclaim proceeding against Huron

(the “coverage litigation”).

[4] It is not necessary for the disposition of this appeal to address all the grounds of appeal advanced by the appellants. In our view, notwithstanding the able submissions of the appellants’ counsel in this court, the appeal must be dismissed for the following reasons.

[5] First, the appellants contend that by the combined effect of a certificate of insurance issued by an insurance broker in favour of Huron (the involved MTO contractor) and the MTO, and a comprehensive general liability insurance policy issued by CSC in favour of Huron (the “CSC Policy”), coverage was afforded to the MTO for the damages and expenses at issue. We disagree.

[6] The certificate refers to the construction contract between the MTO and Huron, which required Huron to obtain insurance coverage against loss or damage resulting from bodily injury that named the MTO as an additional insured and protected the MTO against all claims for all damage or injury “resulting from or arising out of any act or omission on the part of the contractor or any of his servants or agents during the execution of the contract”. The trial judge found that Huron was not obliged under the construction contract to obtain insurance coverage for claims concerning the MTO’s own conduct. We agree.

[7] Based on the specific wording of the certificate and the CSC Policy, we are of the opinion that any coverage afforded thereunder to the MTO was limited, at least, to claims based on the MTO’s vicarious liability for the acts or omissions of Huron and its representatives. However, the liability findings made against the MTO in the accident litigation do not engage vicarious liability on the part of the MTO. On the contrary, they involve acts or omissions of the MTO’s own personnel.

[8] Second, the appellants also submit that the coverage claimed was afforded to the MTO by virtue of Endorsement 18 (Revised) to the CSC Policy. Again, we disagree.

[9] These sophisticated parties were represented throughout by highly experienced insurance counsel. The record establishes that counsel were alive to the coverage issues arising from the certificate, the CSC Policy and the Endorsement from an early stage of the accident litigation. On a fair reading of the record, the parties’ counsel, including the MTO’s counsel, did not view the Endorsement as affording any coverage to the MTO beyond that pertaining to liability arising out of Huron’s operations. However, as we have already indicated, the liability findings made against the MTO in the accident litigation concerned acts or omissions of the MTO’s own personnel, not the acts or omissions or, more generally, the operations of Huron or its personnel.

[10] We note that the MTO sought and obtained its own comprehensive general liability insurance coverage from Kansa. If the CSC Policy was intended or expected by the parties to respond in the fashion now asserted by the MTO, this separate coverage from Kansa would appear to have been unnecessary.

[11] We also note that, towards the close of the trial in the coverage litigation, the appellants abandoned their negligence claims against their former counsel. These claims were inconsistent, at least in part, with the appellants’ assertion of expansive coverage under the certificate and the CSC Policy, or alternatively, under the CSC Policy and the Endorsement.

[12] The trial judge in the coverage litigation held that:

Both counsel were clearly of the belief and understanding that the [CSC Policy] only protected M.T.O. against liability claims if M.T.O. were liable for some act of Huron, and not for any independent negligent acts which may result in a loss. This was the commercial expectation of the parties and the commercial reality of their legal relationship.

These findings were open to the trial judge on this evidential record.

[13] Third, it is undisputed that the appellants did not make any claim against CSC of the type now advanced until 1998 – more than eight years after the commencement of the third party proceeding against the MTO in the accident litigation.

[14] The trial judge in the coverage litigation held that it was unreasonable in these circumstances for Kansa, as the MTO’s primary insurer, to now advance enlarged coverage claims against CSC, “having acquiesced by delay and rested upon its rights”. He further ruled that if CSC had been informed earlier that the MTO might seek “anything other than liability coverage if [the] MTO were liable for some act of Huron … the issue could have been determined and the course of the trial and appeal [in the accident litigation] might have been entirely different”.

[15] We agree. There was evidence before the trial judge of prejudice caused to CSC by the appellants’ delay in attempting to invoke coverage under the CSC Policy for claims unrelated to the MTO’s vicarious liability for Huron’s acts or omissions or claims arising out of Huron’s operations. Having elected not to pursue such recourse against CSC until after final judgment in the accident litigation, for reasons of their own having to do with the defence of the accident litigation, the appellants are now precluded from doing so.

[16] Finally, it is our view that the trial judge’s findings in the coverage litigation regarding CSC’s good faith conduct are unassailable on the evidence.

[17] The appeal is dismissed. CSC is entitled to its costs of the appeal, fixed in the total amount of $18,636, inclusive of disbursements and G.S.T.

“E.A. Cronk J.A.”

“R.A. Blair J.A.”

“H.S. LaForme J.A.”