1540039 Ontario Limited v. Farmers' Mutual Insurance Company (Lindsay) [Indexed as: 1540039 Ontario Ltd. v. Farmers' Mutual Insurance Co. (Lindsay)]
110 O.R. (3d) 116
2012 ONCA 210
Court of Appeal for Ontario,
Feldman, Hoy JJ.A. and Spence J. (ad hoc)
March 30, 2012
Insurance -- Insurer's duty to defend -- Applicant an additional named insured "as landlord only" under comprehensive general liability policy issued by respondent to applicant's tenant in commercial plaza -- Deceased's family suing applicant as owner of plaza after deceased died while working on pylon sign located in front of plaza -- Applicant applying unsuccessfully for declaration that respondent had duty to defend claim against it -- Application judge properly declining to consider extrinsic evidence that tenant retained contractor who subcontracted work to deceased as that evidence was not undisputed -- Extrinsic evidence not affecting outcome in any event as claim was made against applicant as owner of plaza and not as landlord.
N was electrocuted while working on a pylon sign located in front of a commercial plaza owned by the applicant. The applicant was an additional named insured, "as landlord only", under a comprehensive general liability policy issued by the respondent insurer to one of the applicant's tenants, DD. N's family sued the applicant as the owner of the plaza, Hydro One as the owner/occupier of the hydro lines above the pylon sign, and TRJ, claiming that TRJ subcontracted the work to N that resulted in N's death. They did not sue DD, nor was a third party claim made against DD by any of the defendants. Hydro One made a cross-claim against the applicant. The applicant applied unsuccessfully for a declaration that the respondent had a duty to defend the claim against the applicant. The applicant appealed, arguing that the application judge erred in declining to consider extrinsic evidence that DD had retained TRJ to provide new signage for its storefront.
Held, the appeal should be dismissed.
The application judge did not err in declining to consider the extrinsic evidence, as that evidence was not undisputed. More importantly, even if admitted, the extrinsic evidence would not support a duty to defend. The substance and true nature of the claim against the applicant was based on its conduct as owner and occupier of the plaza and not as landlord of the premises leased to DD. Hydro One's cross-claim against the applicant similarly arose out of the applicant's conduct as owner of the property. The extrinsic evidence exception to the pleadings rule cannot be used to demonstrate that pleadings that say one thing really mean something else.
APPEAL from the order of Corkery J. of the Superior Court of Justice dated September 15, 2009 dismissing an application for a declaration that the respondent had a duty to defend the claim against the applicant.
Cases referred to Monenco Ltd. v. Commonwealth Insurance Co., [2001] 2 S.C.R. 699, [2001] S.C.J. No. 50, 2001 SCC 49, 204 D.L.R. (4th) 14, 274 N.R. 84, [2002] 2 W.W.R. 438, J.E. 2001-1712, 155 B.C.A.C. 161, 97 B.C.L.R. (3d) 191, 32 C.C.L.I. (3d) 165, [2001] I.L.R. I-3993, 108 A.C.W.S. (3d) 159, apld Other cases referred to Cooper v. Farmer's Mutual Insurance Co. (2002), 2002 CanLII 44938 (ON CA), 59 O.R. (3d) 417, [2002] O.J. No. 1949, 159 O.A.C. 111, 37 C.C.L.I. (3d) 165, 20 C.P.C. (5th) 58, [2002] I.L.R. I-4121, 114 A.C.W.S. (3d) 138 (C.A.); [page117] Halifax Insurance Co. of Canada v. Innopex Ltd. (2004), 2004 CanLII 33465 (ON CA), 72 O.R. (3d) 522, [2004] O.J. No. 4178, 190 O.A.C. 356, 15 C.C.L.I. (4th) 159, [2004] I.L.R. I- 4338, 134 A.C.W.S. (3d) 501 (C.A.); Jon Picken Ltd. v. Guardian Insurance Co. of Canada, 1993 CanLII 17702 (ON CA), [1993] O.J. No. 1952, 66 O.A.C. 39, 17 C.C.L.I. (2d) 167, [1993] I.L.R. Â1-2973 at 2460, 42 A.C.W.S. (3d) 506 (C.A.); Meadows v. Meloche Monnex Insurance Brokers Inc. (2010), 102 O.R. (3d) 312, [2010] O.J. No. 2299, 2010 ONCA 394, 268 O.A.C. 44, 85 C.C.L.I. (4th) 9, 320 D.L.R. (4th) 333, [2010] I.L.R. I-4999; Trafalgar Insurance Co. of Imperial Oil Ltd. (2001), 2001 CanLII 21205 (ON CA), 57 O.R. (3d) 425, [2001] O.J. No. 4936, 154 O.A.C. 7, 34 C.C.L.I. (3d) 192, [2002] I.L.R. I-4064, 110 A.C.W.S. (3d) 545 (C.A.) Authorities referred to Brown, Craig, and Thomas Donnelly, Insurance Law in Canada, looseleaf (Scarborough, Ont.: Carswell, 2002) Hilliker, Gordon, Liability Insurance Law in Canada, 5th ed. (Markham, Ont.: LexisNexis Canada, 2011)
David Zuber and James S. Schacter, for appellant. William G. Scott, for respondent.
The judgment of the court was delivered by
[1] HOY J.A.: -- Daniel Nearing was electrocuted while working on a pylon sign located in front of a commercial plaza. His surviving family members sued, among others, the appellant, 1540039 Ontario Limited, the owner of the plaza.
[2] The appellant has primary coverage under its own comprehensive general liability policy. It is also an additional named insured under a comprehensive general liability policy issued by the respondent insurer, Farmers' Mutual Insurance Company (Lindsay), to one of the appellant's tenants, Design Depot.
[3] The application judge dismissed the appellant's application for a declaration that the policy bound the respondent insurer to share in the defence of the claim against the appellant.
[4] At issue on this appeal is whether the application judge erred in failing to consider extrinsic evidence of the underlying facts, which the appellant characterizes as undisputed, in determining whether the respondent insurer had a duty to defend the appellant.
[5] For the reasons that follow, I would dismiss the appeal. [page118]
A. The Background (i) The pleadings
[6] The plaintiff surviving family members plead that the appellant landlord was the owner and/or occupier of the plaza and was negligent in that it
-- failed to regularly inspect the premises to ensure that it was kept in a safe condition;
-- employed incompetent servants, agents and employees to perform work on the premises;
-- failed to instruct its servants, agents and employees properly or at all in the proper methods and procedures to be employed while performing work on the premises;
-- failed to take such care as in all the circumstances was reasonable to see that persons entering the premises were reasonably safe, including Mr. Nearing;
-- improperly placed its signage;
-- failed to post warning signs; and
-- created a situation of danger.
[7] In addition to the appellant, the plaintiffs sued Hydro One Inc., claiming it was the owner and/or occupier of the hydro lines above the pylon sign, and Robert Monroe, carrying on business under the name "TRJ Signman", claiming he subcontracted the work to Mr. Nearing that resulted in Mr. Nearing's death. The plaintiffs allege that these defendants were also negligent.
[8] The plaintiffs did not plead that the appellant hired TRJ Signman to work on the pylon sign. Their statement of claim is silent as to who hired TRJ Signman.
[9] In its statement of defence and cross-claim, the appellant pleaded, at para. 5:
This Defendant states that it did not hire Daniel Nearing or any other contractor, person or entity, to perform the work giving rise to the alleged damages and losses outline in the Statement of Claim. Instead, Daniel Nearing was employed by the Defendant, Robert Charles Monroe c.o.b. as TRJ Signman, on behalf of 1139063 Ontario Ltd. c.o.b. as Design Depot.
[10] In his statement of defence, counterclaim and cross- claim, which post-dates that of the appellant, Mr. Monroe pleaded that he was not Mr. Nearing's employer, and that Mr. Nearing was a self-employed independent contractor. Mr. Monroe did not take [page119] issue with the appellant's assertion that the work was done on behalf of Design Depot.
[11] In its statement of defence, cross-claim and counterclaim, Hydro One pleaded that care and control of the property that the sign was situated on rested, at all material times, with the appellant, as owner of the property, and Robert Monroe c.o.b. as TRJ Signman, as contractor hired by the appellant to perform work on the property. Hydro One claimed that the appellant's negligence caused or contributed to the damages alleged. Hydro One relied on the plaintiffs' allegations of negligence against the appellant and made further allegations, including that the appellant failed to hire competent contractors, failed to ensure that its contractors were familiar with and followed prescribed occupational health and safety requirements, and failed to ensure that its contractors exercised due care prior to performing any work on the property. (Although not identified by name, the "contractors" referred to are, by implication, TRJ Signman and/or Mr. Nearing.)
[12] The plaintiffs did not sue Design Depot, and none of the appellant, Hydro One, or Mr. Monroe has issued a third party claim against it.
(2) The extrinsic evidence in issue
[13] The affidavit evidence of the respondent insurer's adjuster, R. Ian Pepper, is that one of the principals of Design Depot, Beau Wasiluk, advised him that Design Depot had retained TRJ Signman to provide new signage for his storefront and the pylon sign. Mr. Pepper attached a copy of an invoice from TRJ Signman to Design Depot, which Mr. Wasiluk told him he had received from TRJ Signman.
[14] The affidavit evidence of James Schacter, a lawyer with the firm representing the appellant, is that he was advised by the president of the appellant that Mr. Nearing was retained to perform work on behalf of Design Depot. Specifically, Mr. Nearing was placing a sign advertising Design Depot's business.
(3) The lease
[15] Paragraph 12 of the lease between the appellant and Design Depot requires Design Depot to list the appellant as an additional insured under its comprehensive general liability policy issued by the respondent:
The Landlord requires the Tenant to take out and keep in force comprehensive General Liability Insurance coverage with respect to the business carried on in the leased premises for the duration of the Tenancy. A copy of the insurance shall be provided to the Landlord who shall be listed as "ADDITIONAL INSURED" during the term of the tenancy. [page120]
[16] Paragraph 30 of the lease relates to occurrences on the leased premised only and has no application to occurrences elsewhere in the plaza. It contains provisions requiring Design Depot to indemnify the appellant if "the Leased Premises or any part thereof [are] damaged by fire, lightning, tempest, floods, structural defect or acts of God or by any additional perils from time to time defined and covered in the standard broad coverage fire insurance policy carried by the Landlord on the Leased Premises". If that precondition is satisfied, then the indemnity extends to, among other things, "any injury to person or persons including death resulting at any time there from occurring in or about the Leased Premises".
(4) The policy
[17] As required by para. 12 of the lease, Design Depot added the appellant as an additional insured under the comprehensive general liability policy at issue. The additional insured endorsement effecting that addition cross-references the insurance declaration. The insurance declaration indicates that the appellant is an additional insured "as landlord only". It is not disputed that, once those cross-references are incorporated into the additional insured endorsement, it reads as follows:
It is Hereby Understood and Agreed that [the appellant] is added as an Additional Insured for the term of as of April 9, 2007 to January 14, 2008 but, only with respect to liability arising out of operations by or on behalf of Design Depot for interior decorating -- home decor.
It is Further Understood and Agreed that the Additional Insured shall not be covered for other than "Insured Contract" as defined in the Insuring Agreements. (Emphasis added)
[18] The insuring agreement provides,
"Insured contract" means: (a) A lease of premises;
. . . or . . . . . (g) That part of any other contract or agreement pertaining to your business under which you assume the tort liability of another to pay compensatory damages because of "bodily injury" or "property damage" to a third person or organization, if the contract or agreement is made prior to the "bodily injury" or "property damage". Tort liability means a liability that would be imposed by law in the absence of any contract or agreement.
[19] The occurrence form in the policy provides that the insurer will pay those sums that the insured becomes legally [page121] liable to pay as compensatory damages because of "bodily injury" (defined to include death resulting from bodily injury) caused by an "occurrence" (defined to mean an accident) in the "coverage territory" (defined to include Canada and the United States) to which the insurance applies.
B. The Decision of the Application Judge
[20] In his oral reasons of September 15, 2009, the application judge determined that the extrinsic evidence was not admissible because it would require findings to be made before trial that would affect the underlying litigation. He further concluded that, even if admitted, the extrinsic evidence would not establish a duty to defend.
[21] In his subsequent written reasons, the application judge also concluded that, on the facts contained in the pleadings, there was no possibility of coverage under the policy having regard to the wording of the lease between the appellant and Design Depot. In his view, the effect of paras. 12 and 30 of the lease is to limit coverage to liability arising out of occurrences within the leased premises, in respect of which para. 30 provides a right of indemnity. On this reasoning, there would be no possibility of coverage, even if the extrinsic evidence were admitted.
C. The Law with Respect to the Duty to Defend
[22] As the application judge wrote [at paras. 14-16]:
An insurer's duty to defend a claim is broader than its duty to indemnify. An insurer is obliged to defend a claim if facts are alleged in the pleadings that, if proven true, would require the insurer to indemnify. The mere possibility that a claim may fall within the policy is sufficient to trigger the duty to defend (Nichols v. American Home Assurance Co., 1990 CanLII 144 (SCC), [1990] 1 S.C.R. 801 at 811; Monenco Ltd. v. Commonwealth Insurance, 2001 SCC 49, [2001] 2 S.C.R. 699 at para. 28).
In assessing whether the facts pleaded fall within the policy, the court must consider the substance and true nature of the claim (Non-Marine Underwriters, Lloyd's of London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551, at para. 79, Monenco, paras. 34-36).
In Monenco, Iacobucci J. addresses what evidence may be considered in assessing the substance and true nature of the claim:
36 While these principles are instructive for the purposes of the present case, one important question arising in this appeal has been left open by the jurisprudence to date. That is, whether, in seeking to determine the "substance" and "true nature" of a claim, a court is entitled to go beyond the pleadings and consider extrinsic evidence. Without wishing to decide the extent to which extrinsic evidence can be considered, I am of the view that extrinsic evidence that has been explicitly referred to within the pleadings may be considered to determine the substance and true nature of the allegations, and thus, [page122] to appreciate the nature and scope of an insurer's duty to defend. I now turn to that question.
(2) Application of Legal Principles to the Present Case (a) Reference to Extrinsic Evidence
37 It should be recalled that the question whether an insurer is bound to provide defence coverage in an action taken against the insured arises as a preliminary matter. Of course, after trial, it may turn out that there is no liability on the insurer, and thus, no indemnity triggered. But that is not the issue when deciding the duty to defend. Consequently, we cannot advocate an approach that will cause the duty to defend application to become "a trial within a trial". In that connection, a court considering such an application may not look to "premature" evidence, that is, evidence which, if considered, would require findings to be made before trial that would affect the underlying litigation.
D. The Parties' Submissions
[23] The appellant concedes that the facts alleged in the pleadings would not, if proven true, require the respondent insurer to indemnify it. There is no allegation in the pleadings that the hiring of TRJ Signman (and the deceased) by the tenant, Design Depot, leads to liability of the appellant.
[24] Nevertheless, the appellant submits that the application judge erred in failing to admit the extrinsic evidence that it was Design Depot that hired TRJ Signman.
[25] The appellant argues that the Supreme Court, in Monenco Ltd. v. Commonwealth Insurance Co., [2001] 2 S.C.R. 699, [2001] S.C.J. No. 50, 2001 SCC 49, "left the door open" as to the extent that extrinsic evidence should be admitted. Counsel for the appellant notes that this court, in Meadows v. Meloche Monnex Insurance Brokers Inc. (2010), 102 O.R. (3d) 312, [2010] O.J. No. 2299, 2010 ONCA 394, when presented with extrinsic evidence not explicitly referred to in the pleadings, carefully left open the possibility that such evidence might be admissible. Counsel urges this court to adopt the recommendation made by Gordon Hilliker, Liability Insurance Law in Canada, 5th ed. (Markham, Ont.: LexisNexis Canada, 2011), at p. 104:
. . . in certain limited circumstances, with respect to facts that are not in dispute in the underlying action and an issue that does not require findings to be made before trial that would affect the underlying litigation, the court may permit the admission of extrinsic evidence as an aid to determining the duty to defend.
[26] Similar comments were made in Craig Brown and Thomas Donnelly, Insurance Law in Canada, looseleaf (Scarborough, Ont.: Carswell, 2002), at pp. 18-20:
Underlying facts may be admissible in certain limited circumstances, where the underlying facts do not deal with any matters at issue in the action against the insured . . . There is some logic in considering uncontroversial [page123] underlying facts where the matter at issue has nothing to do with the underlying action against the insured. There would be no prejudice to the insured in determining the issue based on underlying facts, and no conflict between the insurer and insured.
[27] The appellant further submits that the extrinsic evidence is undisputed, and establishes that its liability arose out of Design Depot's operation of its interior decorating -- home decor business: Mr. Nearing was on the pylon sign because Design Depot had made arrangements to have a sign advertising Design Depot's business posted on the pylon. The appellant argues that the application judge erred in his interpretation of the policy, and the extrinsic evidence establishes that the plaintiffs' claim falls within the policy.
[28] The insurer argues that the application judge was correct, both in concluding that the extrinsic evidence should not be admitted and that there was no possibility of coverage.
[29] The insurer points to decisions of this court which did not consider extrinsic evidence of underlying facts in determining whether an insurer has a duty to defend: Jon Picken Ltd. v. Guardian Insurance Co. of Canada, 1993 CanLII 17702 (ON CA), [1993] O.J. No. 1952, 66 O.A.C. 39 (C.A.); Trafalgar Insurance Co. of Canada v. Imperial Oil Ltd. (2001), 2001 CanLII 21205 (ON CA), 57 O.R. (3d) 425, [2001] O.J. No. 4936 (C.A.); Cooper v. Farmer's Mutual Insurance Co. (2002), 2002 CanLII 44938 (ON CA), 59 O.R. (3d) 417, [2002] O.J. No. 1949 (C.A.); and Halifax Insurance Co. of Canada v. Innopex Ltd. (2004), 2004 CanLII 33465 (ON CA), 72 O.R. (3d) 522, [2004] O.J. No. 4178 (C.A.). The insurer notes that, in Trafalgar, this court interpreted Monenco as having resolved the extent to which extrinsic evidence can be admitted in determining if there is a duty to defend.
E. Analysis
[30] While there may be merit in the position advocated by Hilliker, particularly in a case where there is no dispute between the insured and the insurer as to the underlying facts and the insured, rather than the insurer, seeks to rely on the extrinsic evidence, ultimately this is not the case to further extend the scope of extrinsic evidence that can be considered in determining whether or not an insurer has a duty to defend.
[31] There are two problems with the position advanced by the appellant. The first is that the allegedly undisputed facts are not undisputed.
[32] Hydro One put by whom Mr. Monroe, c.o.b. as TRJ Signman, was hired in issue in its cross-claim against the appellant. Hydro One alleges that the appellant hired TRJ Signman in its cross-claim in negligence against the appellant. The appellant denies that it hired TRJ Signman and alleges that Design Depot [page124] did so. Who hired TRJ Signman is accordingly in dispute in the underlying litigation.
[33] The second and more serious problem is in my view that, even if admitted, the extrinsic evidence would not support a duty to defend. I come to this conclusion for different reasons than the application judge.
[34] My reasoning is rooted in Monenco.
[35] Monenco instructs that in assessing whether there is a duty to defend, the court must consider the substance and true nature of the claim. The substance and true nature of the plaintiffs' claim against the appellant is a claim in negligence arising out of the appellant's alleged failure to ensure that the pylon sign was kept in a safe condition and its alleged improper placement of the pylon sign. It is based on the appellant's conduct as owner and occupier of the plaza and not as landlord of the premises leased to Design Depot. Hydro One's cross-claim against the appellant similarly arises out of the appellant's conduct as owner of the property. In substance, they are not claims arising out of the operation of Design Depot's business. Nor did the plaintiffs or Hydro One sue Design Depot.
[36] The extrinsic evidence, if considered, would not create a possibility that the claims against the appellant may fall within the policy; it cannot convert claims against the appellant qua owner into claims against the appellant as landlord of the premises leased to Design Depot. The extrinsic evidence exception to the pleadings rule cannot be used to demonstrate that pleadings that say one thing really mean something else.
F. Costs
[37] In accordance with the agreement of the parties, the respondent shall be entitled to costs in the amount of $10,000, inclusive of disbursements and HST.
Appeal dismissed.