M.B. Kouri Insurance Brokers Ltd. v. R.L. Gougeon Limited et al. [Indexed as: M.B. Kouri Insurance Brokers Ltd. v. R.L. Gougeon Ltd.]
103 O.R. (3d) 217
2010 ONCA 889
Court of Appeal for Ontario,
MacPherson, Juriansz and MacFarland JJ.A.
December 22, 2010
Insurance -- Agents -- Ostensible authority -- Insurance broker unilaterally renewing insurance coverage for one year when it received no response from insurer as to whether insurer intended to renew [page218] coverage -- Broker sending clients invoices for renewed coverage -- Insurer extending coverage for 30 days while it considered whether or not to renew coverage -- Insurer entitled to premiums for 30-day extension period -- Section 402 of Insurance Act applying -- Broker's ostensible authority sufficient to create binding contracts of insurance on behalf of insurer -- Insurance Act, R.S.O. 1990, c. I.8, s. 402.
The plaintiff was an insurance broker. The defendant insurer provided insurance to the plaintiff's clients, which was arranged through the defendant's broker G. The plaintiff had a sub-broker agreement with G, and had no direct dealings with the defendant. Before the common coverage expiry date, the plaintiff made inquiries through G as to whether the defendant would renew coverage. Receiving no response, the plaintiff took the unilateral step of issuing certificates of insurance renewing the insurance coverage for one year, and sent its clients invoices for the renewed coverage. The defendant subsequently extended the insurance coverage for 30 days while it considered whether or not to renew it. The plaintiff, not having received confirmation of the defendant's renewal of the program, arranged coverage with another insurer and sent that insurer the moneys it had received on the invoices. When the defendant sought premium payments for the 30-day extension, the plaintiff brought an action for a declaration that it was not liable to pay the defendant or G any premiums for the extension period. The defendant counterclaimed for payment of the premiums for the extension period. The trial judge found that the defendant had granted the extension on a no-premium basis, allowed the action and dismissed the counterclaim. The defendant appealed.
Held, the appeal should be allowed.
The trial judge erred by focusing on the 30-day extension period, rather than on the plaintiff's unilateral extension of insurance coverage for a one-year period. Section 402 of the Insurance Act applied in the circumstances of this case. The plaintiff's argument that the certificates it mailed out were ineffective because its contract with G provided it had no authority to bind the defendant missed the point. The issue was not the plaintiff's authority under its contract with G, but its ostensible authority from the point of view of its insureds. The plaintiff's ostensible authority was sufficient to create binding contracts of insurance on behalf of the defendant.
APPEAL from the judgment of Power J., 2009 CanLII 11813 (ON SC), [2009] O.J. No. 1141, 72 C.C.L.I. (4th) 296 (S.C.J.) granting a declaration that the plaintiff had no liability for insurance premiums.
Statutes referred to Insurance Act, R.S.O. 1990, c. I.8, s. 402
Marg A. McKillop, for appellant. Kurt R. Pearson, for respondent.
The judgment of the court was delivered by
[1] JURIANSZ J.A.: -- The trial judge granted the respondent's claim for a declaration that it had no liability to the appellant or to the other defendant in the action for premiums in consideration [page219] of the extension of an insurance program from June 1, 2004 to June 30, 2004, together with other ancillary relief. I would allow the appeal.
Facts
[2] The facts are straightforward and not contested. The respondent, M.B. Kouri Insurance Brokers Ltd., is an insurance broker whose clientele consists of approximately 175 campground operators. The appellant, Ecclesiastical Insurance Office Public Limited Company, is an insurance company that provided insurance to Kouri's clients. The insurance was arranged through Ecclesiastical's broker, R.L. Gougeon Limited, the other defendant. Kouri had a sub-broker agreement with Gougeon. Kouri had no direct dealings with Ecclesiastical; all arrangements were made through Gougeon. In fact, the agreement between Kouri and Gougeon provided that only Gougeon, and not Kouri, had authority to bind Ecclesiastical to an insurance contract.
[3] In the months before the common coverage expiry date of May 31, 2004, Kouri began to make inquiries through Gougeon as to whether Ecclesiastical would renew coverage for the campground program. Ecclesiastical, however, provided no response. Not having received any response, Kouri, on May 10, 2004, took the unilateral step of issuing certificates of insurance renewing the insurance coverage by Ecclesiastical for the period May 31, 2004 to May 31, 2005. Kouri also sent its clients an invoice for the renewed coverage and an increased premium. Kouri advised neither Gougeon nor Ecclesiastical that it had taken this unilateral action.
[4] On May 17, 2004, Ecclesiastical notified Gougeon that it was extending the insurance program for 30 days while it continued to consider whether it would renew the program.
[5] A few days before the end of June 2004, Kouri, not having received confirmation of Ecclesiastical's renewal of the program, arranged coverage with another insurer, Grain Insurance and Guarantee Company, for a 12-month period commencing July 1, 2004. On July 7, Kouri advised Gougeon that it had placed all of its campground business with another insurer.
[6] Kouri sent to Grain the moneys it received on the invoices it had sent out for the Ecclesiastical coverage for the May 31, 2004 to May 31, 2005 term as payment for Grain's insurance coverage for the July 1, 2004 to June 31, 2005 term, less its commission of 20 per cent on the Grain coverage. Kouri's commission on the Ecclesiastical coverage was 15 per cent.
[7] Subsequently, Ecclesiastical, through Gougeon, sought premium payments for the month of June 2004. Kouri took the [page220] position that Ecclesiastical had provided the 30- day extension of insurance coverage on a goodwill basis. Kouri began an action against Ecclesiastical for a declaration that it was not liable to pay Ecclesiastical or Gougeon any premiums for the 30-day extension period and for damages. Ecclesiastical counterclaimed for payment of the premiums for the insurance extension during the month of June 2004.
[8] The trial judge found that when Ecclesiastical extended its insurance coverage for 30 days, it did not stipulate there would be a premium for the extension. That fact, considered in the context of all the circumstances, especially Ecclesiastical's failure to deal with the renewal of insurance in a timely manner, led the trial judge to conclude that Ecclesiastical had granted the extension on a no-premium basis because of its own lack of diligence in deciding whether it would renew the entire insurance program. Therefore, he granted the declaration sought by Kouri together with the ancillary relief.
Analysis
[9] I would allow the appeal. The trial judge erred by focusing on the 30-day extension of insurance, rather than Kouri's unilateral extension of Ecclesiastical's insurance coverage for the period May 31, 2004 to May 31, 2005. Further, he failed to apply s. 402 of the Insurance Act, R.S.O. 1990, c. I.8 (the "Act").
[10] In the course of the proceedings following the filing of Kouri's statement of claim, Kouri disclosed to Gougeon and Ecclesiastical the fact that it had unilaterally sent out certificates of insurance renewing the insurance coverage provided by Ecclesiastical for another year. Upon this disclosure, Ecclesiastical amended its defence and counterclaim to claim premiums for the month of June pursuant to the insurance renewal and not the insurance extension and to rely on the statutory trust provisions of the Act. I quote from the pleading at some length to demonstrate how clearly it set out the basis for Ecclesiastical's claim:
[T]he Plaintiff, Kouri, without authority, in early May 2004, issued renewal notices of the insurance coverage to each of the insureds in the Camp Group, for the time period May 31, 2004 to May 31, 2005, and sent each of the Camp Group an invoice for the premium due for the insurance coverage in the Renewal Notices (the "Renewal Notices"). In the Renewal Notices, Kouri stated that the insurer was Ecclesiastical Insurance Office. Kouri received payment of premiums from the Camp Group pursuant to the Renewal Notices, but did not pay to Gougeon or Ecclesiastical any of the premiums received. Ecclesiastical states that these premiums, when received by Kouri are impressed with a trust and that Kouri was a trustee for Ecclesiastical when it received the premium payments made to Kouri pursuant to the Renewal Notices. Kouri paid the premiums received pursuant to the Renewal Notices to the new insurer of the Camp Group, in breach of its trust obligations. [page221]
[11] Ecclesiastical went on to plead and rely on s. 402 of the Act and to claim damages for breach of trust as well as payment for the premiums collected pursuant to the insurance coverage for the month of June 2004.
[12] Section 402 of the Act provides as follows:
Agent to be deemed to hold premium in trust for insurer
402(1) An agent or broker who acts in negotiating, or renewing or continuing a contract of insurance, other than life insurance, with a licensed insurer, and who receives any money or substitute for money as a premium for such a contract from the insured, shall be deemed to hold such premium in trust for the insurer, and, if the agent or broker fails to pay the premium over to the insurer within fifteen days after written demand made upon the agent or broker therefor, less the commission of the agent or broker and any deductions to which, by the written consent of the company, the agent or broker is entitled, such failure is proof, in the absence of evidence to the contrary, that the agent or broker has used or applied the premium for a purpose other than paying it over to the insurer.
Agent to be deemed to hold money in trust for payee under policy
(2) An agent or broker who acts in negotiating or renewing or continuing a contract of insurance with a licensed insurer, and who receives any money or substitute for money for payment to a person in respect of the contract of insurance shall be deemed to hold such money in trust for the person entitled thereto, and, if the agent or broker fails to pay the money over to such person within fifteen days after written demand made upon the agent or broker therefor, less the commission of the agent or broker and any deductions to which the agent or broker is entitled, such failure is proof, in the absence of evidence to the contrary, that the agent or broker has used or applied the money for a purpose other than paying it over to the person entitled.
[13] To support its reliance on s. 402, Ecclesiastical asserted that Kouri's unilateral act of sending out certificates of insurance on its behalf had created valid contracts of insurance. Kouri argued that the certificates it mailed out were ineffective because its contract with Gougeon provided it had no authority to bind Ecclesiastical. Kouri misses the point. The issue is not Kouri's authority under its contract with Gougeon, but its ostensible authority from the point of view of the insureds. Whether Kouri breached its contract is a different question from whether the insureds could rely on the certificates of insurance. However, strictly speaking it is not necessary to decide the question because, on the pleadings, it was not open to Kouri to take the position that its renewal of Ecclesiastical's insurance coverage was not effective.
[14] In its reply to Ecclesiastical's counterclaim, Kouri "denie[d] that it had no authority in early May 2004 to issue renewal notices to each of the insureds in the camp group". Kouri then pleaded that a failure to deliver renewal notices [page222] "would have left [Kouri's] clients without any expectation of coverage after May 31, 2004". Kouri even pleaded the fact that all moneys it received "in response to the delivery of renewal notices sent out in early May 2004 were paid over to the new carrier, Grain".
[15] In my view, the admissions contained in Kouri's pleadings are sufficient to support judgment against it. Section 402 clearly applies on the facts pleaded by Kouri. Even if Kouri were allowed to advance a position inconsistent with its pleadings, I would take the view that its ostensible authority was sufficient to create binding contracts of insurance on behalf of Ecclesiastical.
[16] Both avenues lead to the conclusion that Kouri received money as premium payments for a contract of insurance with Ecclesiastical, and instead of holding that money in trust and paying it over to the insurer, it paid the money to Grain. I add the observation that s. 402 applies to an agent or broker who does nothing more than act "in negotiating" a contract of insurance.
[17] I conclude that Ecclesiastical is entitled to premiums for the insurance coverage pursuant to the renewal notices for the period that it provided coverage together with administrative costs flowing from the cancellation of that coverage. Ecclesiastical claimed $75,510 in its counterclaim. Kouri did not take issue with Ecclesiastical's calculation of the amount owing.
[18] I see no merit in Kouri's argument, advanced at trial and repeated on appeal, that it "had no absolutely no choice but to deliver renewal notices in light of the approaching common expiry date of May 31, 2004". Ecclesiastical's position throughout the months preceding the expiry date was that it had not yet decided whether it would renew the coverage. Ecclesiastical never gave Kouri any indication that it would renew the coverage. Ecclesiastical's dilatoriness, while arguably irresponsible, was not illegal or wrongful conduct. Ecclesiastical, Gougeon and Kouri were all corporate entities pursuing their own commercial interests, as they were entitled to. Kouri was free to arrange insurance with another carrier at any time it considered it inadvisable to wait for a response from Ecclesiastical. There is no basis for its claims of interference with economic relations and promissory estoppel.
Disposition
[19] I would allow the appeal, set aside the judgment of the trial judge and replace it with a judgment dismissing Kouri's application for declaratory and other relief, and granting[page223] Ecclesiastical's counterclaim for $75,510 on the renewed insurance coverage and breach of the statutory trust.
[20] I would fix Ecclesiastical's costs of the trial at $63,000 and its costs of the appeal at $15,000, both amounts inclusive of disbursements and GST.
Appeal allowed.