Hector v. Piazza et al.; Estate of Reitano et al., Third Parties

[Indexed as: Hector v. Piazza]

108 O.R. (3d) 716

2012 ONCA 26

Court of Appeal for Ontario,

Weiler, R.P. Armstrong and Rouleau JJ.A.

January 16, 2012

Insurance -- Liability insurance -- Insurer's duty to defend -- Exclusions -- Commercial general liability policy excluding coverage for property damage to "property owned or occupied by" insured -- Exclusion applying and insurer not having duty to defend if "owned" was in past tense -- Motion judge not erring in granting insured's motion for ruling that insurer had duty to defend action against him -- "Owned" capable of referring to present tense as well as past tense -- Coverage not clearly and unambiguously excluded.

P and R purchased and renovated an apartment building which was sold to the plaintiff in 2006. The plaintiff subsequently sued P and R for damages for negligent construction, negligent misrepresentation and breach of contract. The particulars of negligence spoke primarily to the negligent renovation work on the building. P was insured under a commercial general liability insurance policy issued by AXA that covered the property from October 2001 to October 2002. The policy excluded coverage for property damage "to property owned or occupied by . . . the Insured". AXA denied coverage and any duty to defend. P brought a motion claiming that AXA had a duty to defend him. The motion was granted. AXA appealed.

Held, the appeal should be dismissed.

If the word "owned" in the exclusion clause referred only to the past tense, the exclusion applied and AXA had no duty to defend. The motion judge did not err in finding that the word "owned" in the exclusion clause could grammatically refer to the present as well as the past tense. The policy did not clearly and unambiguously exclude coverage, and AXA's duty to defend was triggered.

APPEAL by the insurer from the judgment of Annis J. (2011), 2011 ONSC 1302, 105 O.R. (3d) 704, [2011] O.J. No. 971 (S.C.J.) holding that the insurer had a duty to defend the insured.

Cases referred to Poplawski v. McGrimmon, [2010] O.J. No. 4243, 2010 ONCA 655, [2010] I.L.R. I-5057, 89 C.C.L.I. (4th) 230, affg (2010), 100 O.R. (3d) 458, [2010] O.J. No. 33, 2010 ONSC 108, [2010] I.L.R. I-4929, 86 C.C.L.I. (4th) 94, consd

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Other cases referred to Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, [2010] 2 S.C.R. 245, [2010] S.C.J. No. 33, 2010 SCC 33, 293 B.C.A.C. 1, [2010] I.L.R. I-5051, 406 N.R. 182, 323 D.L.R. (4th) 513, 9 B.C.L.R. (5th) 1, EYB 2010-179515, 93 C.L.R. (3d) 1, 2010EXP-3049, J.E. 2010-1683, [2010] 10 W.W.R. 573, 73 B.L.R. (4th) 163, 89 C.C.L.I. (4th) 161

Authorities referred to Lichty, Mark G., and Marcus B. Snowden, Annotated Commercial General Liability Policy (Aurora, Ont.: Canada Law Book, 1997)

Mitchell Kitagawa, for appellant. Sean E. Cumming, for respondent.

[1] BY THE COURT: -- The broad issue on this appeal is whether the appellant, Axa, is required to provide a defence for the respondent Piazza.

Facts

[2] The respondent and Giuseppe Antonio Reitano ("Reitano") purchased a four-unit apartment building in Ottawa for the purpose of renovating and redeveloping it. The respondent had located the property and arranged for financing. He played no role in the renovation work. This work was carried out by Reitano, other third parties and a number of construction companies.

[3] The property was sold to the plaintiff in January 2006. In 2009, the plaintiff sued the respondent, Reitano and the City of Ottawa (the "defendants") in respect of faulty construction related to the settling of the foundation. They have denied liability.

[4] The respondent was insured by the appellant under a commercial general liability policy that covered the property from October 15, 2001 to October 15, 2002 ("AXA policy"). He also obtained property insurance coverage with the appellant. The property was subsequently insured by Aviva Insurance Company of Canada ("Aviva") for a short period of time, followed by Dominion of Canada General Insurance ("Dominion") from December 2002 to the transfer of the property to the plaintiff in January 2006.

[5] The respondent sought coverage under the AXA policy. The appellant has denied coverage and any duty to defend. The respondent, however, joined the appellant as a third party to the main action. He also joined Aviva as a third party, but has since let them out. No proceedings were brought against Dominion.

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[6] The statement of claim alleges negligent construction, negligent misrepresentation and breach of contract against the respondent and the other defendants. The particulars of negligence speak primarily to the negligent renovation work on the building, mostly relating to negligent supervision, lack of inspection and failure to deal with deficiencies. The respondent bases his claim of a duty to defend on the pleadings against him of negligent construction.

[7] The respondent brought a motion against the appellant claiming that it had a duty to defend the respondent.

[8] The motion judge confirmed that a three-step process must be applied to determine whether a claim could trigger indemnification by an insurer. First, a court should determine which of the plaintiff's legal allegations are properly pleaded, particularly to ensure that the plaintiff is not changing the nature of the allegation, i.e., an intentional tort into negligence. Second, the court should determine if any claims are entirely derivative in nature. Third, the court must decide whether any of the properly pleaded, non-derivative claims potentially trigger the insurer's duty to defend.

[9] The two issues before the motion judge were (1) whether the plaintiff's claim in negligence was derivative of the contract for purchase and sale of the property; and (2) whether the insured's claim was excluded by the terms of the policy. The motion judge held the claim was not derivative and that the wording of the policy in issue was ambiguous. As a result, the insurer's duty to defend was triggered.

[10] The only issue on this appeal is whether the motion judge correctly interpreted the exclusion in the Comprehensive General Liability ("CGL") policy, an enhanced policy known as the GL-Plus, which excluded: (y) property damage -- (z) to property owned or occupied by or rented to the Insured, or, except with respect to the use of the elevators, to property held by the Insured for sale or entrusted to the Insured for storage or safekeeping. (Emphasis added)

[11] Simply put, if the word "owned" refers only to the past tense, the exclusion applies and the appeal must be allowed and the motion judge's decision set aside. If, however, as held by the motion judge, the word "owned" can refer to the present as well as the past tense, the policy cannot be said to "clearly and unambiguously" exclude coverage.

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Analysis

[12] The threshold for the duty to defend an insured is only the possibility of coverage. In relation to an exclusion, the insurer must show that the exclusion "clearly and unambiguously excludes coverage": Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 S.C.R. 245, [2010] S.C.J. 33, at para. 51.

[13] Both the appellant and respondent referred to the decision in Poplawski v. McGrimmon (2010), 100 O.R. (3d) 458, [2010] O.J. No. 33, 2010 ONSC 108, upheld [2010] O.J. No. 4243, 2010 ONCA 655, in which the court was dealing with an exclusion clause that excluded coverage for "claims made against you arising from damage to property you own". The property in issue was no longer owned by the respondent although it once was. McKinnon J. held [at para. 41] that the past tense had not been employed in the exclusionary word "own" and that there was no express exclusion for property that was "owned, used or occupied or sold". Accordingly, the insurer could not show that the exclusion was clearly and unambiguously operative. In a brief endorsement upholding that decision, this court commented [at para. 2]: "The exclusion cannot be read as if it was written both in the present tense and in the past tense. It is in the present tense only."

[14] Before us, the appellant contends that as the word "owned" must be read in the past tense only and there is no ambiguity as to whatever it refers to the past or the present tense.

[15] We do not agree. "Property owned" by the insured can grammatically refer to property which is now owned or which was previously owned. Words take their meaning from the context in which they are used. In the case before us, the words surrounding the word "owned", namely, ". . . occupied by or rented to the Insured, or, except with respect to the use of the elevators, to property held by the Insured for sale or entrusted to the Insured for storage or safekeeping" can all be read in the present tense. They do not exclusively relate to the past tense.

[16] A CGL policy provides third party liability insurance. Looking at the policy as a whole, the exclusions for the most part deal with items that would be the subject of first-party coverage, for example, (b) claims related to cars, (d) boats, (e) and (f) injuries to employees on the job, or which are not insurable like (g) intentional assault or (j) deficiencies in the insured's own work. As stated in the annotation from Lichty and Snowden,

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Annotated Commercial General Liability Policy (Aurora, Ont.: Canada Law Book, 1997), at p. 20-5:

The plain meaning of this exclusion is clear: the Policy does not provide security from liability for damage to property that it is within the power of the insured to protect.

[17] The appellant submits that a third party liability claim can only be made with respect to property that was owned in the past by the insured. Unexpected property damage can never give rise to a third party liability claim against an insured while the insured still owns the property. Therefore, the appellant submits if the exclusion is to have any purpose, the words "property owned" must be read in the past tense.

[18] The answer to this submission is that while a CGL policy is intended to insure against third party liability and it is not intended to respond to first-party claims, strict rules of construction mean that this is not always the result. At times, there is an overlap of coverage: see Lichty and Snowden, supra, at p. 20-5.

[19] We note that if the words "property owned" in the exclusion are interpreted as referring to the present tense, property that was owned by the insured in the past, and that is subject to a third party claim, could fall within the ambit of coverage under the policy. Contrary to the submission of the appellant, this is not inconsistent with the intention of the parties to exclude first-party liability.

Conclusion

[20] Inasmuch as the word "owned" as used in the phrase "property owned or occupied by or rented to the Insured, or, except with respect to the use of the elevators, to property held by the Insured for sale or entrusted to the Insured for storage or safekeeping" can refer to the present as well as the past tense, the policy cannot be said to "clearly and unambiguously" exclude coverage. Accordingly, the appellant is obliged to provide a defence for the respondent and the appeal is dismissed.

Costs

[21] The respondent is entitled to its costs on a partial indemnity scale, which are fixed in the amount of $6,610.50, inclusive of disbursements and all applicable taxes.

Appeal dismissed.