Dundas et al. v. Zurich Canada et al. [Indexed as: Dundas v. Zurich Canada]

109 O.R. (3d) 521

2012 ONCA 181

Court of Appeal for Ontario,

Cronk, Blair JJ.A. and Strathy J. (ad hoc)

March 22, 2012

Limitations -- Insurance -- Plaintiffs suing defendant insurer for breaching its duty of good faith by delaying settlement of claims against its insured by third parties and failing to pay insurance policy limits into interest-bearing account for benefit of third parties -- Action not a claim for indemnity under insurance policy -- Applicable limitation period being six-year limitation period in former Limitations Act and not one-year limitation period in former Ontario Standard Automobile Policy -- Limitations Act, R.S.O. 1980, c. 240.

The plaintiffs sued the defendant insurer for breaching its duty of good faith by delaying settlement of claims against the estate of a deceased motorist and by failing to pay the insurance policy limits into an interest-bearing account to accrue for the benefit of the third parties, thereby exposing the estate to a judgment over the policy limits. The defendant moved for summary judgment dismissing the claim on the basis that it was brought outside the one-year limitation period contained in the former Ontario Standard Automobile Policy (SPF No. 1) ("SAP"). The plaintiffs argued that the limitation period started to run when consent judgments were issued against the estate. The action was commenced less than a year after that date. The defendant argued that the limitation period started to run when an earlier endorsement was issued dealing with interest and costs, in which critical comments were made about the defendant's failure to adjust the loss and to pay the policy limits into an interest-bearing account at an early date. The motion judge accepted the defendant's argument and dismissed the action. The plaintiffs appealed.

Held, the appeal should be allowed. [page522]

The motion judge erred in failing to consider that the claim in question was "in respect of the loss or damage to person or property" and in failing to consider when the cause of action against the defendant "arose" under condition 6(3) of the SAP. The cause of action did not arise until the defendant had a liability to indemnify the estate under the policy of insurance. That only occurred when the estate's liability had been finally ascertained by judgment after trial or by settlement of the parties with the consent of the insurer, using the language of condition 6(2) of the SAP. On the facts, that did not occur until the issues of interest and costs had been resolved by the consent judgments.

There was a second reason why the appeal should be allowed. This was not an action to recover "a claim under [this] contract" within the meaning of statutory condition 6(2). Nor was it an action or proceeding "under this contract . . . in respect of the loss or damage to person or property" within statutory condition 6(3). It was not a claim for indemnity under the contract at all. Rather, it was a claim for breach of the independent duty of the utmost good faith which an insurer owes its insured. As a result, the limitation period in condition 6(3) did not apply and the action was subject to the general six-year limitation period then contained in the Limitations Act.

As the claim against the defendant did not arise from an injury to the deceased motorist during his lifetime, the limitation period in the Trustee Act, R.S.O. 1990, c. T.23 did not apply.

APPEAL from the order of Patterson J., [2011] O.J. No. 325, 2011 ONSC 132 granting a motion for summary judgment and dismissing the action.

Cases referred to702535 Ontario Inc. v. Non-Marine Underwriters, Lloyd's of London, 2000 5684 (ON CA), [2000] O.J. No. 866, 184 D.L.R. (4th) 687, 130 O.A.C. 373, [2000] I.L.R. I-3826, 95 A.C.W.S. (3d) 556 (C.A.) [Leave to appeal to S.C.C. refused [2000] S.C.C.A. No. 258]; Jeffery v. Guarantee Co. of North America (1985), 1985 2100 (ON SC), 50 O.R. (2d) 494, [1985] O.J. No. 2506, 12 C.C.L.I. 57, 50 C.P.C. 131, [1985] I.L.R. Â1-1896 at 7300, 30 A.C.W.S. (2d) 422 (H.C.J.); Terroco Industries Ltd. v. Sovereign General Insurance Co., [2007] A.J. No. 463, 2007 ABCA 149, 283 D.L.R. (4th) 501, [2007] 9 W.W.R. 14, 75 Alta. L.R. (4th) 64, 404 A.R. 252, 51 C.C.L.I. (4th) 1, [2007] I.L.R. I-4594, 158 A.C.W.S. (3d) 125, consd Other cases referred to Arsenault v. Dumfries Mutual Insurance Co. (2002), 2002 23580 (ON CA), 57 O.R. (3d) 625, [2002] O.J. No. 4, 152 O.A.C. 224, [2002] I.L.R. I-4086, 20 M.V.R. (4th) 165, 110 A.C.W.S. (3d) 1138 (C.A.); Berardinelli v. Ontario Housing Corp., 1978 42 (SCC), [1979] 1 S.C.R. 275, [1978] S.C.J. No. 86, 90 D.L.R. (3d) 481, 23 N.R. 298, 8 C.P.C. 100, [1978] 3 A.C.W.S. 185; Burnett v. Palatine Insurance Co., 1965 472 (NB CA), [1965] N.B.J. No. 18, 54 D.L.R. (2d) 378 (S.C.A.D.); English Estate v. Tregal Holdings Ltd., [2004] O.J. No. 2853, [2004] O.T.C. 574, 9 E.T.R. (3d) 282, 132 A.C.W.S. (3d) 366 (S.C.J.); Ferme Gérald Laplante & Fils Ltée. v. Grenville Patron Mutual Fire Insurance Co. (2002), 2002 45070 (ON CA), 61 O.R. (3d) 481, [2002] O.J. No. 3588, 217 D.L.R. (4th) 34, 164 O.A.C. 1, 40 C.C.L.I. (3d) 203, 24 C.P.C. (5th) 216, 116 A.C.W.S. (3d) 666 (C.A.) [Leave to appeal to S.C.C. refused [2002] S.C.C.A. No. 488]; Lafrance Estate v. Canada (Attorney General) (2003), 2003 40016 (ON CA), 64 O.R. (3d) 1, [2003] O.J. No. 1046, 169 O.A.C. 376, [2003] 2 C.N.L.R. 43, 30 C.P.C. (5th) 59, 121 A.C.W.S. (3d) 442 (C.A.); McNaughton Automotive Ltd. v. Co-operators General Insurance Co. (2005), 2005 21093 (ON CA), 76 O.R. (3d) 161, [2005] O.J. No. 2436, 255 D.L.R. (4th) 633, 199 O.A.C. 266, 23 C.C.L.I. (4th) 191, 15 C.P.C. (6th) 1, [2005] I.L.R. I-4422, 19 M.V.R. (5th) 205, 140 A.C.W.S. (3d) 166 (C.A.), revg (2003), 66 O.R. (3d) 112, [2003] O.J. No. 2914, [2003] O.T.C. 663, 2 C.C.L.I. (4th) 236, 41 C.P.C. (5th) 162, [2003] I.L.R. I-4217, 49 M.V.R. (4th) 81, 124 A.C.W.S. (3d) 565 (S.C.J.); R. v. Nowegijick, 1983 18 (SCC), [1983] 1 S.C.R. 29, [1983] S.C.J. No. 5, 144 D.L.R. (3d) 193, 46 N.R. 41, [1983] 2 C.N.L.R. 89, [1983] C.T.C. 20, 83 D.T.C. 5041, 18 A.C.W.S. (2d) 2; [page523] Raymond v. Canadian Surety Co., [1995] A.J. No. 1561 (Q.B.); Roth v. Weston Estate (1997), 1997 1125 (ON CA), 36 O.R. (3d) 513, [1997] O.J. No. 4445, 104 O.A.C. 316, 20 E.T.R. (2d) 69, 75 A.C.W.S. (3d) 361 (C.A.); Waschkowski v. Hopkinson Estate (2000), 2000 5646 (ON CA), 47 O.R. (3d) 370, [2000] O.J. No. 470, 184 D.L.R. (4th) 281, 129 O.A.C. 286, 44 C.P.C. (4th) 42, 32 E.T.R. (2d) 308, 95 A.C.W.S. (3d) 208 (C.A.); Whiten v. Pilot Insurance Co., [2002] 1 S.C.R. 595, [2002] S.C.J. No. 19, 2002 SCC 18, 209 D.L.R. (4th) 257, 283 N.R. 1, J.E. 2002-405, 156 O.A.C. 201, 20 B.L.R. (3d) 165, 35 C.C.L.I. (3d) 1, [2002] I.L.R. I-4048, REJB 2002-28036, 111 A.C.W.S. (3d) 935 Statutes referred to Insurance Act, R.S.O. 1980, c. 218, s. 207 Limitations Act, R.S.O. 1980, c. 240 Trustee Act, R.S.O. 1990, c. T.23, s. 38(1), (3) Authorities referred to Brown, Craig, and Thomas Donnelly, Insurance Law in Canada, looseleaf, vol. 1 (Scarborough, Ont.: Carswell, 1999)

Glenn A. Smith and Dena N. Varah, for appellants. David F. Murray and Dylan Crosby, for respondents.

The judgment of the court was delivered by

[1] STRATHY J. (ad hoc): -- This appeal concerns the limitation period for a claim against an insurer for allegedly delaying settlement of the claims of third parties against its insured and failing to pay the policy limits into an interest- bearing account to accrue for the benefit of the third parties. The insured claimed that the resulting delay increased the damages for which it was liable and sued the insurer for the consequent exposure in excess of the policy limits. The insured assigned the cause of action against the insurer to two of the third parties, in exchange for an agreement that they would not pursue their judgment against the insured for the amount in excess of the policy limits. Those third parties thus stand in the shoes of the insured in this action against the insurer.

[2] The appellants appeal from an order of Patterson J., dismissing their action on a summary judgment motion brought by the respondents (Zurich). Patterson J. found that the claim was brought outside the limitation period contained in the former Ontario Standard Automobile Policy (SPF No. 1) ("SAP").

[3] For the reasons that follow, it is my view that the appeal should be allowed and the action should be permitted to proceed. [page524]

The Facts

[4] On November 1, 1988, four people died in an automobile accident, including the driver, Robert Reid, who was insured by Zurich under a standard automobile policy providing $1 million in coverage. The families of the three deceased passengers sued Reid's estate.

[5] On May 27, 1992, the passengers' families offered to settle their claims for $1,657,032, an amount that was in excess of the policy limits, with issues of prejudgment interest and costs to be determined.

[6] On April 6, 1993, the independent counsel for the Reid estate agreed to the proposed assessment of damages.

[7] On October 12, 1993, counsel for the appellants and for Zurich (defending the claim on behalf of the Reid estate) met in chambers with Kennedy J. of the Superior Court of Justice. Minutes of settlement were agreed upon, with damages in the amount set out above. Prejudgment interest and costs had not yet been resolved. Zurich's lawyer advised counsel for the Reid estate that the minutes of settlement had been signed.

[8] On December 3, 1993, Kennedy J. heard submissions on prejudgment interest and costs. Counsel for the appellants asserted that Zurich had breached its duty of good faith to the Reid estate by failing to promptly settle the third party claims and by failing to pay the insurance policy limits into an interest-bearing account, thereby exposing the estate to a judgment over the policy limits. Interest rates were significant at the time, with rates of 9 per cent and 14 per cent ultimately being awarded. Under the terms of the insurance policy, prejudgment interest in excess of the policy limits would fall on the insured.

[9] On December 23, 1993, Zurich paid the insurance limits into an interest-bearing account.

[10] On March 29, 1994, the insurance limits were paid out to the appellants and to the family of the third passenger in agreed proportions.

[11] On November 25, 1994, Kennedy J. issued an endorsement dealing with interest and costs. He made critical comments about Zurich's failure to adjust the loss and to pay the policy limits into an interest-bearing account at an early date.

[12] On December 21, 1994, the endorsement of Kennedy J. was sent to the lawyer for Zurich, who immediately sent it to counsel for the Reid estate.

[13] In the result, consent judgments dated August 21, 1995 were issued against the Reid estate for the total amount of $2,067,399.35, inclusive of damages and prejudgment interest. [page525] Costs were awarded to the appellants but were not fixed. They were ultimately resolved in 1998 for approximately $600,000.

[14] This action was commenced by the Reid estate against Zurich by notice of action issued on August 19, 1996 -- that is, just less than one year after the date of the consent judgments. A statement of claim was delivered, alleging that Zurich had

-- breached its duty of good faith;

-- exposed the estate to claims in excess of the policy limits;

-- failed to pay the policy limits on a timely basis; and

-- failed to pay the limits into an interest-bearing account.

[15] On January 9, 1997, this action was assigned to the families of two of the three passengers, in exchange for an agreement that those parties would not sue the Reid estate for the balance owing under the judgment.

Statutory Provisions

[16] The one-year limitation period applicable to a claim against an automobile insurer at the material time was contained in the statutory conditions in the SAP. These conditions were included in every insurance policy issued in Ontario, as required by s. 207 of the Insurance Act, R.S.O. 1980, c. 218:

Time and Manner of Payment of Insurance Money

6(1) The insurer shall pay the insurance money for which it is liable under this contract within sixty days after the proof of loss has been received by it, or where an appraisal is made under subcondition 4(8), within fifteen days after the award is rendered by the appraisers.

When Action May be Brought

(2) The insured shall not bring an action to recover the amount of a claim under this contract unless the requirements of statutory conditions 3 and 4 are complied with or until the amount of the loss has been ascertained as therein provided or by a judgment against the insured after trial of the issue or by agreement between the parties with the written consent of the insurer.

Limitation of Actions

(3) Every action or proceeding against the insurer under this contract in respect of loss or damage to the automobile shall be commenced within one year next after the happening of loss and not afterwards, and in respect of the loss or damage to person or property shall be commenced within one year next after the cause of the action arose and not afterwards.

[17] Statutory conditions 3 and 4, referred to in condition 6(2), pertain, respectively, to the obligations on the insured in the [page526] case of third party claims for loss or damage to persons or property and claims for loss or damage to the insured automobile. Both require the insured to give prompt written notice to the insurer and to verify the claim by statutory declaration in the case of damage to the insured automobile.

The Motion Judge's Decision

[18] On its motion for summary judgment, Zurich contended that the limitation period began on the date on which the material facts grounding the claim ought to have been discovered through the exercise of reasonable diligence. It asserted that this occurred, at the latest, on December 21, 1994, when counsel for the Reid estate received the endorsement of Kennedy J. containing critical comments about Zurich's handling of the claim.

[19] The appellants argued that the limitation period did not begin to run until August 21, 1995, when the consent judgments were taken out and the amount of the Reid estate's exposure was ascertained. As the action was commenced on August 19, 1996, the appellants claimed that it had been initiated within time.

[20] The motion judge began his analysis [at para. 11] by noting that statutory condition 6(3) provides that "the period to sue 'for loss or damage' to an automobile is 'one year next after the happening of the loss and not afterwards'". He then referred to McNaughton Automotive Ltd. v. Co-operators General Insurance Co. (2003), 66 O.R. (3d) 112, [2003] O.J. No. 2914 (S.C.J.), revd on other grounds (2005), 2005 21093 (ON CA), 76 O.R. (3d) 161, [2005] O.J. No. 2436 (C.A.), a group of proposed class actions involving automobile property insurance, in which Haines J. held that the limitation period might be extended based on discoverability issues and the doctrine of fraudulent concealment.

[21] The motion judge found that the Reid estate had known for some time that it had exposure beyond the policy limits and, having received the endorsement of Kennedy J. on December 21, 1994, it was informed of a possible claim against Zurich. He concluded, at paras. 16-19:

I am of the opinion the exact amount of the claim is not required and the one year period starts to run from December 21, 1994, at which time the possible claim against Zurich was not only discoverable, it was known.

In my opinion, the limitation period started on December 21, 1994.

Section 6.3 of the statutory conditions in the Standard Automobile Policy requires that the action must be commenced within one year next after the happening of the loss and not afterwards. [page527]

Therefore the claim issued by the Reid estate claim August 19, 1996, against Zurich is out of time.

[22] The motion judge therefore dismissed the action.

[23] Two aspects of the reasons of the motion judge are noteworthy. First, he focused on the date of the "happening of the loss", which triggers the limitation period applicable to claims relating to the insured vehicle. The action in this case is in respect of loss or damage to third parties or their property, which must be commenced within one year after the cause of the action arose. Second, the motion judge applied a discoverability analysis to the determination of when the limitation period began to run.

[24] I turn to the positions of the parties on this appeal.

Positions of the Parties

[25] The appellants submit that the limitation period only began to run when the consent judgments against the Reid estate were issued on August 21, 1995. They submit that the motion judge erred in applying the one-year limitation period in statutory condition 6(3) of the SAP without considering statutory condition 6(2).

[26] The appellants further submit that condition 6(2) defines when an action can be brought by an insured and when the limitation period begins to run. They say that condition 6(2) provides a series of pre-conditions to the commencement of an action, all of which relate to ascertaining the amount of loss. The provision aims at delaying the action until the amount of loss is definitively ascertained. The use of "or" in condition 6(2) is disjunctive, meaning each condition stands alone. The party to whom the provision applies must elect which condition is appropriate in its case.

[27] The appellants cite one case in support of their interpretation of the interplay between conditions 6(2) and 6(3): Jeffery v. Guarantee Co. of North America (1985), 1985 2100 (ON SC), 50 O.R. (2d) 494, [1985] O.J. No. 2506 (H.C.J.). I will discuss this decision below.

[28] Zurich submits that condition 6(2) has no bearing on the commencement of the limitation period in condition 6(3), which, subject to the discoverability rule, starts to run from the time when the cause of action arose. It says that the case law establishes that the one-year limitation period under condition 6(3) (or its equivalent in other provinces) runs regardless of compliance with the statutory preconditions in condition 6(2): Terroco Industries Ltd. v. Sovereign General Insurance Co., [2007] A.J. No. 463, 2007 ABCA 149, 404 A.R. 252; Raymond v. Canadian Surety Co., [1995] A.J. No. 1561 (Q.B.); Burnett v. Palatine Insurance Co., 1965 472 (NB CA), [1965] N.B.J. No. 18, 54 D.L.R. (2d) 378 (S.C.A.D.). [page528]

[29] Zurich's position is that if a statutory precondition cannot be complied with prior to the expiry of the limitation period, the correct procedure is to commence an action within the limitation period and argue about the preconditions later.

[30] Furthermore, Zurich says that if, as the appellants argue, the limitation period does not begin to run until the amount of loss has been ascertained, then the limitation period will never begin to run upon the happening of the loss. This, it says, would render condition 6(3) meaningless.

[31] Zurich's alternative submission is that the action is statute-barred because it was not brought within two years of Mr. Reid's death, relying on s. 38(1) and (3) of the Trustee Act, R.S.O. 1990, c. T.23, which stipulate that all actions brought by an estate must be brought within two years of the death of the deceased. This limitation period relates to all actions of a personal nature, whether in tort or in contract: Roth v. Weston Estate (1997), 1997 1125 (ON CA), 36 O.R. (3d) 513, [1997] O.J. No. 4445 (C.A.), at pp. 514-15 O.R.

Analysis

[32] The appeal was argued primarily on the basis of the trial judge's interpretation of the statutory conditions. While I agree with the appellants that the trial judge's interpretation was incorrect, it is my view that the appeal should also be allowed because the claim in this action does not engage the statutory conditions at all. It is not a claim "under" the insurance contract. Rather, it is a claim for breach of the insurer's independent duty of good faith and fair dealing and is subject to the general six-year limitation period that applied at the time.

Interpretation of the statutory conditions

[33] I will begin by explaining my view that the motion judge erred

-- in failing to consider the provisions of conditions 6(2) and 6(3), requiring that claims for loss or damage to persons or property be commenced within one year after the cause of action arose; and

-- in importing a discoverability analysis into the issue.

[34] Statutory condition 6(2) sets out conditions precedent to bringing an action against the insurer, specifically, compliance with statutory conditions 3 and 4 or until the amount of the loss has been ascertained by judgment against the insured after trial [page529] or by agreement between the insured and the third party with the written consent of the insurer.

[35] In the case of third party claims (for "loss or damage to person or property"), condition 6(3) requires that the claim be commenced within one year after the cause of action arose:

Every action or proceeding against the Insurer under this contract . . . in respect of the loss or damage to person or property shall be commenced within one year next after the cause of the action arose and not afterwards. (Emphasis added)

[36] It is noteworthy that this limitation period is different from the limitation period in condition 6(3) applicable to a claim for damage to the insured automobile, which begins to run on "the happening of loss" and expires one year later.

[37] The question then is: "When did the cause of action of the Reid estate arise against Zurich?"

[38] In my view, the cause of action did not arise until Zurich had a liability to indemnify the Reid estate under the policy of insurance. This only occurred when the liability of the Reid estate had been finally ascertained by judgment after trial or by settlement between the parties with the consent of the insurer, using the language of condition 6(2). On the facts, this did not occur until the issues of interest and costs had been resolved by the consent judgments that were taken out on August 21, 1995. It was at this time that the Reid estate had a liability to pay the third parties and it was at this time that it was entitled to demand indemnity from Zurich.

[39] Interpreting the statutory conditions in this fashion results in consistency between conditions 6(2) and 6(3). It also promotes certainty, by fixing a date that is readily ascertainable, as opposed to being dependent on subjective questions of discoverability.

[40] The courts have held that a limitation period, which by definition circumscribes the rights of action of the citizen, should be strictly interpreted and ambiguities "should be resolved in favour of the person whose right of action is being truncated": Berardinelli v. Ontario Housing Corp., 1978 42 (SCC), [1979] 1 S.C.R. 275, [1978] S.C.J. No. 86, at p. 280 S.C.R. To the extent the statutory conditions are capable of more than one reasonable interpretation, it is appropriate to adopt the least restrictive one.

[41] This interpretation is, moreover, consistent with the only Ontario authority directly on point: Jeffrey v. Guarantee Co. of North America, referred to above. The accident in that case occurred on April 22, 1975. The insured was served with a statement of claim, claiming property damages and damages for personal injury, on June 7, 1976. The insurer denied coverage [page530] under the policy and refused to defend the claim. In January 1984, eight years after the initial denial of coverage, the insured commenced an action for a declaration that he was covered under the insurance policy. Trainor J. held that the cause of action arose at the time of judgment against the insured, although the insured was entitled to bring an action at an earlier date, after he had complied with statutory conditions 3 and 4. He stated, at pp. 496-97 O.R.:

Counsel for Jeffrey submitted that Jeffrey's cause of action will arise when the amount of Wilson's claim is ascertained by a judgment within the meaning of stat. con. 6(2). Therefore, the limitation period has not even begun to run. In my opinion this is the correct reading of stat. con. 6(2):

6(2) The insured shall not bring an action to recover the amount of a claim under this contract . . . until the amount of the loss has been ascertained . . . by a judgment against the insured after trial . . .

Under stat. con. 6(3) it is when judgment is awarded against the insured that the cause of action arises and time begins to run.

Counsel for the insurer suggested, that if my reading is correct, this action is premature. I disagree. Statutory condition 6(2) provides two alternate times when the insured's cause of action arises. The other time is when the "requirements of statutory conditions 3 and 4 are complied with". The use of the word "or" in stat. con. 6(2) means that either of the dates can be relied on. Upon complying with stat. con. 3, Jeffrey had a cause of action entitling him to commence this action against the insurer for a declaration that Jeffrey is covered by the insurance policy. Such a declaration will have a substantial practical result. Section 212(b) (now s. 214(b)) would require the insurer to defend the Wilson action on behalf of Jeffrey. The limitation period, however, does not begin to run until the last cause of action, judgment, arises. (Emphasis added)

[42] As I have said, Zurich submits that Canadian cases have consistently held that the one-year limitation period under the equivalent of statutory condition 6(3) will run regardless whether the statutory preconditions to bringing an action, set out in condition 6(2), have been complied with. It refers to Raymond v. Canadian Surety Co. and Burnett v. Palatine Insurance Co., above. It also relies on an observation to this effect in Craig Brown and Thomas Donnelly, Insurance Law in Canada, looseleaf, vol. 1 (Scarborough, Ont.: Carswell, 1999), at 10-22:

Faced with this dilemma [non-compliance with statutory conditions 3 and 4] the customer should commence the action before the expiration of the limitation period notwithstanding that the appraisal proceedings have not been completed. It is this formal step which avoids the consequences of the limitation section. The worst that will happen in terms of the action will be that it will be stayed on the application of the insurer. (Citations omitted) [page531]

[43] The authorities referred to by Zurich are, in my view, distinguishable as they were dealing with first party claims -- that is, claims for damage to the insured automobile -- as opposed to third party claims. The citation from Professor Brown's work likewise deals with claims for damage to the insured automobile. Moreover, one of the authorities referred to by Zurich, Terroco Industries Ltd. v. Sovereign General Insurance Co., to which I shall refer in a moment, actually supports a different conclusion -- a claim against the insurer that is not founded on a claim under the policy is not subject to the limitation period at all.

[44] In my opinion, therefore, the motion judge erred in failing to consider that the claim in question was "in respect of the loss or damage to person or property" and in failing to consider when the cause of action against Zurich "arose" under condition 6(3), in the context of condition 6(2). Had he done so, he would have concluded that the cause of action arose only once the insured's loss had been ascertained "by a judgment against the insured after trial of the issue or by agreement between the parties with the written consent of the Insurer", within the meaning of condition 6(2).

[45] I turn to the second reason why the appeal should be allowed.

The action is not a proceeding under the contract

[46] In my view, this action is not an "action or proceeding against the Insurer under [the insurance contract] . . . in respect of the loss or damage to person or property" within the meaning of statutory condition 6(3). As a result, the limitation period in condition 6(3) does not apply and the action is subject to the general six-year limitation period then contained in the Limitations Act, R.S.O. 1980, c. 240.

[47] In their statement of claim, the appellants claim, among other things, a declaration that Zurich breached its duty of good faith to the Reid estate by

-- failing to advise its insured, on a timely basis, that the claim would exceed the policy limits;

-- failing to pay its limits on a timely basis, thereby enjoying the benefit of interest on its limits;

-- failing to take reasonable steps to negotiate a settlement within the limits; and

-- failing to place the limits in an interest-bearing account on a timely basis. [page532]

[48] Counsel for Zurich submitted that the words "every action or proceeding against the Insurer . . . in respect of the loss or damage to person or property shall be commenced within one year next after the cause of the action arose . . ." (emphasis added) in statutory condition 6(3) are very broad. He refers to Arsenault v. Dumfries Mutual Insurance Co. (2002), 2002 23580 (ON CA), 57 O.R. (3d) 625, [2002] O.J. No. 4 (C.A.), at para. 16, and R. v. Nowegijick, 1983 18 (SCC), [1983] 1 S.C.R. 29, [1983] S.C.J. No. 5, at p. 39 S.C.R., in support of the proposition that

[t]he phrase "in respect of" is probably the widest of any expression intended to convey some connection between two related subject matters.

[49] While that is no doubt true, it is my view that this is not an action to recover "a claim under [this] contract" within the meaning of statutory condition 6(2). Nor is it an action or proceeding "under this contract . . . in respect of the loss or damage to person or property" within condition 6(3). It is not a claim for indemnity under the contract at all.

[50] On the contrary, this action contains a claim for breach of the independent duty of the utmost good faith, which an insurer owes to its insured. In Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595, [2002] S.C.J. No. 19, at para. 79, Binnie J. described the duty as "independent of and in addition to the breach of contractual duty to pay the loss". Similarly, in Ferme Gérald Laplante & Fils Ltée. v. Grenville Patron Mutual Fire Insurance Co. (2002), 2002 45070 (ON CA), 61 O.R. (3d) 481, [2002] O.J. No. 3588 (C.A.), at para. 78, leave to appeal refused [2002] S.C.C.A. No. 488, Charron J.A. observed:

A breach of the duty to act fairly and in good faith gives rise to a separate cause of action that is distinct from the cause of action founded on the express terms of the policy and that is not restricted by the limits in the policy. Hence it may result in an award of consequential damages distinct from the proceeds payable under the policy.

[51] In 702535 Ontario Inc. v. Non-Marine Underwriters, Lloyd's of London, 2000 5684 (ON CA), [2000] O.J. No. 866, 184 D.L.R. (4th) 687 (C.A.), at para. 32, leave to appeal to S.C.C. refused [2000] S.C.C.A. No. 258, O'Connor J.A. stated that a "breach of the duty to act in good faith gives rise to a separate cause of action from an action for the failure of an insurer to compensate for loss covered by the policy". He noted, at paras. 28-31, that the duty of good faith requires the insurer to deal promptly and fairly with a claim under the policy, including paying the claim in a timely manner where there is no reasonable basis to contest coverage or withhold payment. Although O'Connor J.A. was speaking of a first party claim, his observations are equally applicable to a [page533] claim under a liability policy where the insurer's delay in the resolution of the claim or in paying the policy limits into court may result in the accumulation of prejudgment interest in excess of the policy limits to the detriment of the insured.

[52] The alleged breach of duty in this case was not a claim for indemnity under the insurance contract and was not a claim to which statutory conditions 6(2) and 6(3) applied. It was not, therefore, subject to the one-year limitation period contained in those conditions and was, instead, subject to the six-year limitation period in the general Limitations Act of the time.

[53] This result is consistent with Terroco Industries Ltd. v. Sovereign General Insurance Co., one of the cases referred to by Zurich. In that case, which was governed by Alberta legislation, the insured claimed under an insurance policy for damages to a truck as a result of a fire. Each party had appointed an appraiser, but the appraisers could not agree. It was decided that an umpire would be appointed to fix the amount of the loss, with the result binding on both parties. There was a delay on the part of the insured in getting their appraisal documents to the umpire and the one-year limitation period passed without the claim having been resolved. The insurer took the position that the claim was time-barred. The Alberta Court of Appeal held that the one-year limitation period in the statute was not interrupted by the appointment of the appraiser and endorsed the approach suggested by Professor Brown, above. However, it held that on the facts there had been an admission of liability and an agreement to make payment of the claim once the amount had been determined by the appraisal process. The claim was for enforcement of that agreement -- the court stated, at para. 36:

In these circumstances, the limitation period in the statutory condition is not engaged and is inapplicable. The limitation period is directed against actions against the insurer under this contract, i.e., the insurance policy. Here the action is not brought to enforce the policy but rather to enforce the agreement to value the loss as a prelude to its payment. Any defences under the policy are not available to the Insurer. (Emphasis in original)

[54] The same is true in this case. I conclude that the appellants' claim falls outside the statutory conditions and is subject to the general limitation period.

The Trustee Act

[55] I turn to Zurich's alternative submission under the Trustee Act.

[56] Zurich submits that the appellants' claim is barred by s. 38(3) of the Trustee Act. The relevant provisions are: [page534]

38(1) Except in cases of libel and slander, the executor or administrator of any deceased person may maintain an action for all torts or injuries to the person or to the property of the deceased in the same manner and with the same rights and remedies as the deceased would, if living, have been entitled to do, and the damages when recovered shall form part of the personal estate of the deceased; but, if death results from such injuries, no damages shall be allowed for the death or for the loss of the expectation of life, but this proviso is not in derogation of any rights conferred by Part V of the Family Law Act.

(2) Except in cases of libel and slander, if a deceased person committed or is by law liable for a wrong to another in respect of his or her person or to another person's property, the person wronged may maintain an action against the executor or administrator of the person who committed or is by law liable for the wrong.

(3) An action under this section shall not be brought after the expiration of two years from the death of the deceased.

[57] The Trustee Act limitation period is concerned with the survival of claims for wrongs done to the deceased in his or her lifetime. At common law, personal causes of action for negligence died with the person. This harsh consequence was mitigated by statute, ultimately by the Trustee Act in this jurisdiction. The history and purpose of the legislation were described by Abella J.A., as she then was, in Waschkowski v. Hopkinson Estate (2000), 2000 5646 (ON CA), 47 O.R. (3d) 370, [2000] O.J. No. 470 (C.A.), at paras. 2 and 9:

At common law, no action in negligence could be brought on behalf of or against someone who had died. This prohibition was lifted in most jurisdictions by statute. In Ontario, the legislative entitlement to maintain an action in tort by or against the estate of a deceased person is found in s. 38 of the Trustee Act, R.S.O. 1990, c. T.23[.] . . . . .

The underlying policy considerations of this clear time limit are not difficult to understand. The draconian legal impact of the common law was that death terminated any possible redress for negligent conduct. On the other hand, there was a benefit to disposing of estate matters with finality. The legislative compromise in s. 38 of the Trustee Act was to open a two-year window, making access to a remedy available for a limited time without creating indefinite fiscal vulnerability for an estate.

[58] As this court explained in Lafrance Estate v. Canada (Attorney General) (2003), 2003 40016 (ON CA), 64 O.R. (3d) 1, [2003] O.J. No. 1046 (C.A.), at paras. 54-55, one must ask whether the claim is for injury of a personal nature in order to determine whether the Trustee Act applies:

In determining whether the estate claims fall within the scope of s. 38(1) of the Trustee Act, the focus is not upon the form of the action but, rather, the nature of the injury. The question to be asked in determining its applicability is whether the alleged wrong constituted an injury to the deceased person. See Smallman v. Moore, 1948 4 (SCC), [1948] S.C.R. 295, and Roth v. Weston Estate (1997), 1997 1125 (ON CA), 36 O.R. (3d) 513 (C.A.). [page535]

Whether the claim for forced labour is framed in tort, contract, quasi-contract or breach of fiduciary duty, the claim is for injury of a personal nature. The core of the alleged wrongdoing is the failure of those running the residential schools to compensate the deceased persons for the work they were forced to perform. In other words, the claims arise out of the treatment that the deceased plaintiffs endured at the residential schools. As such, the claims for forced labour are within the meaning of "injuries to the person". Accordingly, they fall squarely within the provisions of s. 38(1) of the Trustee Act and are subject to the applicable two-year limitation period in s. 38(3).

[59] Here, the policy of insurance issued by Zurich to Mr. Reid passed to his estate on his death. The injury in question was not an injury to Mr. Reid, but an injury to his estate. The Trustee Act has no application: see English Estate v. Tregal Holdings Ltd., [2004] O.J. No. 2853, [2004] O.T.C. 574 (S.C.J.), at paras. 19, 21-24; Lafrance Estate.

[60] I therefore agree with the submission of the appellants that the claim against Zurich does not arise from an injury to the late Mr. Reid during his lifetime and that the limitation period set out under the Trustee Act is inapplicable.

Conclusion

[61] Accordingly, for the reasons given, I would allow the appeal, with costs of the appeal to the appellants in the agreed amount of $20,000, inclusive of disbursements and all applicable taxes.

Appeal allowed.