Daverne et al. v. John Switzer Fuels Ltd. et al.; AONReed Stenhouse Inc. et al., Third Parties
[Indexed as: Daverne v. John Switzer Fuels Ltd.]
Ontario Reports
Court of Appeal for Ontario,
Hoy A.C.J.O., MacFarland and Lauwers JJ.A.
December 24, 2015
128 O.R. (3d) 188 | 2015 ONCA 919
Case Summary
Insurance — Limitations — Clause 8 of additional conditions in insurance policy providing that statutory conditions apply to liability coverage under policy — Statutory condition 14 providing for one-year limitation period — Insurance policy constituting business agreement for purposes of s. 22 of Limitations Act, 2002 — Contractual one-year limitation period overriding statutory two-year limitation period — Insurer's denial of defence coverage constituting "loss or damage" which triggered running of one-year limitation period — Limitations Act, 2002, S.O. 2002, c. 24, Sch. B, s. 22.
The defendant sold a fuel tank to the plaintiffs in 2000. The fuel tank began to leak, causing damage to the plaintiffs' home sometime after the date of the last fuel delivery in January 2008. Federated insured the defendant until the expiry of the last policy in October 2007. It denied coverage under the policy on the basis that it did not insure the defendant on the date of the loss. The defendant defended the main action and brought a third party action against Federated. Statutory condition 14, which provides for a one-year limitation period running from the date the "loss or damage" occurs, was included in Federated's policy as clause 14 of the "Basic Policy Statutory Conditions". Clause 8 of the "Additional Conditions" of the basic policy provided that the statutory conditions apply to liability coverage under the policy. The motion judge granted partial summary judgment in the third party action to the defendant and declared that Federated had a duty to defend the main action. The motion judge dismissed Federated's cross-motion for summary judgment dismissing the third party action against it based on the contractual one-year limitation period. The motion judge found that the contractual limitation period was unenforceable. Federated appealed.
Held, the appeal should be allowed.
The standard of review applicable to the motion judge's interpretation of the policy was correctness.
The motion judge erred in finding that the contractual one-year limitation period was unenforceable. The policy was a "business agreement" for the purposes of s. 22 of the Limitations Act, 2002, and therefore fell within an exception to the "no contracting out" rule in the Limitations Act. Clause 14, combined with clause 8 of the additional conditions, clearly varied the two-year limitation period provided for in the Limitations Act. The motion judge erred in interpreting the phrase "loss or damage" in clause 14 as not including loss or damage suffered by a third party, such as the plaintiffs, who then seeks compensation from the insured. Clause 8 of the additional conditions specifically provided that clause 14 applied to the liability coverage under the policy. The motion judge erred in finding that Federated's denial of defence coverage to the defendant could not constitute "loss or damage" for the purpose of the limitation period in clause 14. There was no reason not to apply the basic principle that the insured suffers a loss from the moment the insurer can be said to have failed to satisfy its legal obligation [page189] under the insurance policy. The third party claim was issued nearly two years after Federated's denial of coverage. The defendant's claim that Federated owed it a contractual duty to defend was barred by the one-year contractual limitation period.
MacDonald v. Chicago Title Insurance Co. of Canada (2015), 127 O.R. (3d) 663, [2015] O.J. No. 6350, 2015 ONCA 842, folld
KP Pacific Holdings Ltd. v. Guardian Insurance Co. of Canada, [2003] 1 S.C.R. 433, [2003] S.C.J. No. 24, 2003 SCC 25, 225 D.L.R. (4th) 193, [2003] 7 W.W.R. 1, J.E. 2003-867, 181 B.C.A.C. 179, 14 B.C.L.R. (4th) 1, [2003] I.L.R. I-4189, 121 A.C.W.S. (3d) 948; Schmitz (Litigation guardian of) v. Lombard General Insurance Co. of Canada (2014), 118 O.R. (3d) 694, [2014] O.J. No. 531, 2014 ONCA 88, 315 O.A.C. 187, 31 C.C.L.I. (5th) 1, 237 A.C.W.S. (3d) 484; Walker v. Sovereign General Insurance Co. (2011), 107 O.R. (3d) 225, [2011] O.J. No. 4106, 2011 ONCA 597, 283 O.A.C. 192, 100 C.C.L.I. (4th) 1, 343 D.L.R. (4th) 143, [2011] I.L.R. I-5199, 207 A.C.W.S. (3d) 562, consd
Other cases referred to
Berardinelli v. Ontario Housing Corp., 1978 CanLII 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; Boyce v. Co-operators General Insurance Co. (2013), 116 O.R. (3d) 56, [2013] O.J. No. 2568, 2013 ONCA 298, 22 C.C.L.I. (5th) 1, 307 O.A.C. 28, 228 A.C.W.S. (3d) 834; International Movie Conversions Ltd. v. ITT Hartford Canada (2002), 2002 CanLII 23581 (ON CA), 57 O.R. (3d) 652, [2002] O.J. No. 76, 154 O.A.C. 189, 34 C.C.L.I. (3d) 13, [2002] I.L.R. I-4075, 111 A.C.W.S. (3d) 335 (C.A.); Markel Insurance Co. of Canada v. ING Insurance Co. of Canada (2012), 109 O.R. (3d) 652, [2012] O.J. No. 1505, 2012 ONCA 218, 290 O.A.C. 75, [2012] I.L.R. I-5264, 348 D.L.R. (4th) 744, 8 C.C.L.I. (5th) 210, 214 A.C.W.S. (3d) 249; Sattva Capital Corp. v. Creston Moly Corp., [2014] 2 S.C.R. 633, [2014] S.C.J. No. 53, 2014 SCC 53, 2014EXP-2369, J.E. 2014-1345, 373 D.L.R. (4th) 393, [2014] 9 W.W.R. 427, 59 B.C.L.R. (5th) 1, 461 N.R. 335, 25 B.L.R. (5th) 1, 358 B.C.A.C. 1, 614 W.A.C. 1, 242 A.C.W.S. (3d) 266
Statutes referred to
Consumer Protection Act, 2002, S.O. 2002, c. 30, Sch. A, s. 1 [as am.]
Insurance Act, R.S.B.C. 1996, c. 226, Parts 2 [as am.], 5 [as am.]
Insurance Act, R.S.O. 1990, c. I.8, s. 148
Legislation Act, 2006, S.O. 2006, c. 21, Sch. F, s. 9(1)
Limitations Act, 2002, S.O. 2002, c. 24, Sch. B [as am.], s. 22 [as am.] (1) [as am.], (2) [as am.], (5)-(6) [as am.]
APPEAL from the order of Mew J., [2015] O.J. No. 1589, 2015 ONSC 1803 (S.C.J.) granting the defendant partial summary judgment in a third party action and dismissing the third party's cross-motion for summary judgment dismissing a third party action.
Andrew A. Evangelista and Avi Cole, for appellant.
John A. Ryder-Burbidge, for respondent.
The judgment of the court was delivered by [page190]
[1] LAUWERS J.A.: — The motion judge granted partial summary judgment in the third party action to the respondent insured McKeown & Wood Limited and declared that the appellant insurer, Federated Insurance Company of Canada, has a duty to defend McKeown & Wood in the main action. The motion judge dismissed Federated's cross-motion for summary judgment to dismiss the third party action against it based on the contractual limitation period in Federated's insurance policy. I would allow the appeal for the following reasons.
A. The Factual Background
[2] The main action arises out of a fuel oil leak from a fuel tank that caused damage to the Davernes' property. McKeown & Wood sold the fuel tank to the Davernes in 2000.
[3] Sometime after the date of the last fuel delivery on January 9, 2008, the fuel tank began to leak. The Davernes discovered the leak and resulting damage on returning home from vacation in late January. They started the main action against McKeown & Wood and others on December 31, 2009, seeking compensation for the damage to their home and the additional living expenses that they incurred as a result of the leak.
[4] Federated insured McKeown & Wood from at least 1999 until the expiry of the last policy on October 24, 2007, a few months before the leak. On February 11, 2010, McKeown & Wood advised Federated of the Davernes' claim, having been served with the notice of action and statement of claim in the main action a few days before. By letter dated April 9, 2010, Federated denied coverage, stating:
As the occurrences occurred in January 2008, Federated Insurance will not be able to assist you with this claim. We did not insure McKeown and Wood Limited on the date of loss.
[5] McKeown & Wood defended the main action, bearing its own legal costs, and brought a third party action against a number of insurers, including Federated, on March 15, 2012.
B. The Decision Below
[6] The motion judge first addressed Federated's argument that a contractual limitation period in the insurance policy applied and the third party action was out of time, at paras. 24 to 57. He found that the contractual limitation period was unenforceable.
[7] The motion judge then addressed Federated's argument that it did not have a duty to defend McKeown & Wood in the main action, at paras. 58 to 73. Federated asserted that the date [page191] of the "occurrence" for determining the date of loss happened after the policy expired. The motion judge disagreed, on the basis that the corrosion to the oil tank that led to the leak could itself be "property damage" covered under the insurance policy. He found, at para. 68, that the "mere possibility" is "sufficient to trigger Federated's duty to defend".
[8] The motion judge also rejected Federated's argument that the exclusion of coverage to damage to the oil tank, known as the "your product" exclusion, meant that there could be no coverage for property damage to the tank. He found, at para. 72, that the allegations in the Davernes' statement of claim were broader, so that the application of the exclusion would be a matter for the trial judge to determine.
C. The Issues
[9] This appeal raises three issues:
(1) What is the standard of review applicable to the motion judge's interpretation of the policy?
(2) Did the motion judge err in finding that the one-year limitation period set out in Federated's insurance policy was not enforceable against the insured McKeown & Wood?
(3) If the one-year limitation period is not enforceable, did the motion judge err in his approach to ascertaining whether Federated owed McKeown & Wood a duty to defend the main action under the insurance policy?
D. Analysis
[10] On the first issue, the standard of review applicable to the motion judge's interpretation of the insurance policy is correctness. On the second issue, the motion judge erred in concluding that the one-year limitation period in the policy is not enforceable. It is therefore not necessary to address the third issue.
(1) The standard of review is correctness
[11] In response to a question from the bench, the appellant took the position that the interpretation and application of the insurance policy falls into the deferential standard of appellate review demanded by Sattva Capital Corp. v. Creston Moly Corp., [2014] 2 S.C.R. 633, [2014] S.C.J. No. 53, 2014 SCC 53. Counsel for the appellant submitted that he had nevertheless shown reversible error, even on a deferential standard.
[12] Since this appeal was heard, this court has determined that the correctness standard of review applies on standard form [page192] insurance contracts: MacDonald v. Chicago Title Insurance Co. of Canada (2015), 127 O.R. (3d) 663, [2015] O.J. No. 6350, 2015 ONCA 842, at para. 41. As Hourigan J.A. observed, at para. 40: "It is untenable for standard form insurance policy wording to be given one meaning by one trial judge and another by a different trial judge" [citation omitted]. This followed his comment, at para. 38, that "there is an important public policy argument that supports the adoption of a correctness standard for appeals involving the interpretation of standard form contracts".
[13] In the case of insurance policies, which involve the interpretation of similar if not common language and the application of general principles of insurance law, the high degree of generality and precedential value justifies a departure from the deferential standard of appellate review.
[14] Accordingly, correctness is the standard of review applicable to the motion judge's interpretation of the insurance policy. Further, as I will explain below, several of the motion judge's errors fall within the reviewable legal errors listed by Rothstein J. in Sattva, at para 53.
(2) The one-year limitation period in the policy is enforceable
[15] In my view, the contractual limitation period is enforceable and McKeown & Wood's third party claim for a declaration that Federated owes it a duty to defend the main action should be dismissed.
(a) The limitation period in the policy
[16] Section 148 of the Insurance Act, R.S.O. 1990, c. I.8 makes certain statutory conditions part of every fire insurance contract in Ontario. Statutory condition 14 is included in Federated's policy as clause 14 of the "Basic Policy Statutory Conditions" form that is included in the basic policy. It provides:
- Action: Every action or proceeding against the insurer for the recovery of any claim under or by virtue of this contract is absolutely barred unless commenced within one year next after the loss or damage occurs.
(Emphasis added)
[17] Clause 8 of the "Additional Conditions" of the basic policy form also applies:
- Applicability of Statutory Conditions and Additional Conditions: The Statutory Conditions and Additional conditions apply with respect to all the perils insured by this policy and to the liability coverage, where provided, except where these conditions may be modified or supplemented by riders or endorsements attached.
(Emphasis added) [page193]
Clause 8 applies the contractual limitations period in clause 14 to the other perils insured against in Federated's policy and to the liability coverage provided by it.
(b) The policy is a business agreement
[18] The Limitations Act, 2002, S.O. 2002, c. 24, Sch. B came into force on January 1, 2004. It introduced a general limitation period of two years, subject to the discoverability principle, for all claims other than those listed in Schedule A thereto. As the motion judge noted, at para. 28, s. 148 of the Insurance Act, which sets out statutory condition 14, is listed in Schedule A, and therefore remains in effect.
[19] Section 22(1) of the Limitations Act, 2002 prohibited contracting out of a limitation period it established, apart from certain grandfathered exceptions permitted in s. 22(2). By amendments to s. 22 that came into force on October 19, 2006, an exception to the "no contracting out" rule was permitted in the case of "business agreements" entered into on or after that date: Legislation Act, 2006, S.O. 2006, c. 21, Sch. F, s. 9(1). Subsections 22(5)- (6) were added to the Limitations Act, 2002, and provide:
22(5) The following exceptions apply only in respect of business agreements:
A limitation period under this Act, other than one established by section 15, may be varied or excluded by an agreement made on or after October 19, 2006.
A limitation period established by section 15 may be varied by an agreement made on or after October 19, 2006, except that it may be suspended or extended only in accordance with subsection (4).
(6) In this section,
"business agreement" means an agreement made by parties none of whom is a consumer as defined in the Consumer Protection Act, 2002;
"vary" includes extend, shorten and suspend.
[20] But for the amendments adding s. 22(5)-(6), the shorter limitation period in statutory condition 14 would only apply to the fire insurance elements of Federated's policy, because its application to the other coverage in the policy would have conflicted with the "no contracting out" rule in s. 22(1).
[21] It is plain that none of the parties to Federated's insurance policy is a "consumer", which is defined in the Consumer Protection Act, 2002, S.O. 2002, c. 30, Sch. A, s. 1 to mean "an individual acting for personal, family or household purposes and [page194] does not include a person who is acting for business purposes". The parties are business entities.
[22] The motion judge acknowledged, at para. 29, this court's holding that an insurance policy covering various risks related to the operation of an insured's business fell within the definition of "business agreement": Boyce v. Co-operators General Insurance Co. (2013), 116 O.R. (3d) 56, [2013] O.J. No. 2568, 2013 ONCA 298. If the policy is a "business agreement" within the definition in s. 22(6) of the Limitations Act, 2002, it is capable of overriding the otherwise applicable two-year limitation period.
(c) The policy overrides the statutory two-year limitation period
[23] In my view, clause 14 of the basic policy statutory conditions, combined with clause 8 of the additional conditions, clearly varies the two-year limitation period provided for in the Limitations Act, 2002. In Boyce, this court found that nearly identical contractual limitation period language overrode the otherwise applicable statutory two-year limitation period.
[24] The motion judge concluded otherwise, interpreting the phrase "loss or damage" in clause 14 as not including loss or damage suffered by a third party, such as the Davernes, who then seeks compensation from the insured. The motion judge, at para. 43, distinguished Boyce and the earlier decision of this court in International Movie Conversions Ltd. v. ITT Hartford Canada (2002), 2002 CanLII 23581 (ON CA), 57 O.R. (3d) 652, [2002] O.J. No. 76 (C.A.) as cases dealing with first party claims against an insurer, rather than third party coverage such as the case here. I would not agree with the motion judge that the difference is a relevant basis on which to distinguish Boyce.
[25] The motion judge found that applying clause 14 of the statutory conditions to the commercial general liability coverage creates an "anomalous consequence" and results in ambiguity. That ambiguity, he found, at para. 54, should be resolved in favour of the person whose right is being truncated: citing Berardinelli v. Ontario Housing Corp., 1978 CanLII 42 (SCC), [1979] 1 S.C.R. 275, [1978] S.C.J. No. 86. Accordingly, he concluded that the policy did not override the statutory two-year limitation period.
[26] As I will explain, in interpreting the phrase "loss or damage" the motion judge was guided by inapplicable jurisprudence and failed to apply relevant jurisprudence. His interpretation was therefore based on incorrect principles. Further, the motion judge failed to give effect to the particular language at issue, namely, clause 8 of the "Additional Conditions", which specifically [page195] provides that clause 14 applies to the liability coverage under the policy. Therefore, even if his interpretation of the policy were owed deference, his interpretation cannot stand.
(d) Interpretation guided by inapplicable jurisprudence
[27] The motion judge held, at para. 45, the phrase "loss or damage", as used in clause 14 and other places in the statutory conditions, is "not readily adaptable to liability insurance coverage where the loss or damage which is the subject of a claim has been suffered by a third party who then seeks compensation from the insured": citing Walker v. Sovereign General Insurance Co. (2011), 107 O.R. (3d) 225, [2011] O.J. No. 4106, 2011 ONCA 597. With respect, this is not the holding in Walker.
[28] Walker involved a direct action by a slip and fall victim against the insurer of the bankrupt business that owned the property on which the accident occurred. The insurance policy contained language applying the statutory conditions to the other perils. The statutory conditions were, however, subordinate to the policy conditions. The notice provision in statutory condition 8 required notice to be given to the insurer "by a person to whom any part of the insurance money is payable", while the notice provision in the policy conditions allowed it to be given "be given promptly by or for the Insured to the Insurer or any of its authorized agents". This court ruled that the latter prevailed in light of the policy language. The owner of the plaza had provided notice to the insurer in light of the tenant's bankruptcy. This court found that adequate notice had been given.
[29] There is no similar competition between different provisions of the insurance policy in this case. In my view, Walker is not applicable to this case. Moreover, the policy under consideration in Walker did not contain a provision comparable to clause 8 of the additional conditions in the policy at issue, which specifically provides that clause 14 applies to the liability coverage under the policy.
[30] The motion judge continued, at para. 53, and held that KP Pacific Holdings Ltd. v. Guardian Insurance Co. of Canada, [2003] 1 S.C.R. 433, [2003] S.C.J. No. 24, 2003 SCC 25 stood for the proposition that "the statutory conditions, and in particular a limitation provision designed for first party claims, cannot be shoehorned into a policy's commercial liability insurance coverage without contrived reconstruction and anomalous consequences". This, with respect, is not the relevant holding in KP Pacific Holdings. In that case, the insured was seeking coverage for a fire loss. Under the Part 5 fire insurance section of the British Columbia Insurance Act, R.S.B.C. 1996, c. 226, it was [page196] out of time, but not under Part 2, the section of general application. Chief Justice McLachlin concluded, at para. 19:
I cannot conclude either from the language of s. 119 or its history that the Legislature intended a multi-risk policy such as this one to fall within Part 5 with all the attendant consequences, including a shortened limitation period. It follows that this policy, like any other policy that does not fit into a specific category, is governed by Part 2, the section of general application.
[31] This, she noted, at para 20, "may not represent the ideal solution for multi-risk comprehensive policies". In setting the context for the interpretation exercise, McLachlin C.J.C. gave a general critique of the B.C. Insurance Act, which dates from 1925. She said that its structure was [at para. 4] "outmoded", and constituted a [at para. 12] "tangled historical thicket". By contrast, the relatively recent language of the Limitations Act, 2002 and its permission for "business agreements" does not raise the same problems of interpretation and application. In my view, the ruling in KP Pacific Holdings offers no guidance applicable to this case.
(e) Failure to apply relevant jurisprudence
[32] The motion judge erred in rejecting Federated's argument that its denial of defence coverage to McKeown & Wood could constitute "loss or damage" for the purpose of the limitation period in clause 14.
[33] There is no reason not to apply the basic principle that the insured "suffers a loss from the moment [the insurer] can be said to have failed to satisfy its legal obligation [under the policy of insurance]". Where the benefit of a duty to defend is denied, the insured "suffers a loss aecaused by'" the insurer's denial of a defence "the day after the demand . . . is made": Schmitz (Litigation guardian of) v. Lombard General Insurance Co. of Canada (2014), 118 O.R. (3d) 694, [2014] O.J. No. 531, 2014 ONCA 88, at para. 20; Markel Insurance Co. of Canada v. ING Insurance Co. of Canada (2012), 109 O.R. (3d) 652, [2012] O.J. No. 1505, 2012 ONCA 218, at para. 27.
[34] I do not agree with the motion judge that Schmitz can be distinguished on the basis that it involved a first party claim for indemnity under an OPCF 44R (uninsured motorist coverage) endorsement, and not a third party claim for defence, as in this case. The point of distinction does not affect the application of the principle that the insured suffers a loss when the insurer fails to meet its legal obligation under the policy. [page197]
(f) Failure to give effect to clause 8 of the additional conditions
[35] Although the motion judge noted, at para. 37, that clause 8 of the "Additional Conditions" "expressly purports to extend the application of the statutory conditions and additional conditions to the liability coverage" [emphasis in original], he failed to consider the effect of this clause, relying on this court's decision in Walker, despite acknowledging that the policy under consideration in that case did not contain a comparable provision.
(g) The policy is clear and unambiguous
[36] In Boyce, this court considered virtually the same contractual language as clause 8 and found, at para. 12, that the "policy, like the policy in International Movie Conversions Ltd. provides for a one-year limitation on claims in clear and unambiguous language". As Cronk J.A. observed, at para. 28 of International Movie Conversions, "it is difficult to conceive how it could have been made more explicit". Her observation is apt for this case too.
[37] Clause 8 is clear and unambiguous. It explicitly states that the statutory conditions apply to the liability coverage under the policy. The insurance policy at issue in this case is a business agreement for the purposes of s. 22 of the Limitations Act, 2002, and the one-year contractual limitation period is enforceable by Federated against McKeown & Wood.
(h) The claim for a defence is barred by the contractual limitation period
[38] It follows that the one-year limitation period in the policy is enforceable and it began to run when Federated refused to provide McKeown & Wood with a defence in the main action, as was its legal obligation under the policy.
[39] The third party claim was issued nearly two years after Federated's April 9, 2010 letter denying coverage and effectively refusing to perform any duty to defend. In these circumstances, McKeown & Wood's claim that Federated owed it a contractual duty to defend is barred by the one-year contractual limitation period. It is accordingly unnecessary to consider the third issue raised on this appeal.
(3) Federated's duty to indemnify
[40] The insurance policy contains two sets of obligations. The first is for Federated to defend the insured in any action for damages to which the insurance would attach if liability were [page198] found. The second is for Federated to indemnify the insured for damages which the insured becomes legally obligated to pay for bodily injury or property damage.
[41] This appeal determines that Federated does not have a duty to defend the insured. That determination does not dispose of Federated's second potential obligation under the policy, that of indemnification. The motion judge's statements on any duty on Federated to indemnify McKeown & Wood are not binding on the parties.
E. Disposition and Costs
[42] Accordingly, I would allow the appeal on the narrow basis that the motion judge erred in finding that the one-year limitation period found at clause 14 of the basic policy statutory provisions form of Federated's insurance policy did not apply. That provision does apply and, as a result, Federated is relieved of its duty to defend McKeown & Wood in the main action.
[43] The appellant is entitled to costs in the agreed amount of $10,000, all inclusive, and to a reversal of the costs award in the court below.
Appeal allowed.
End of Document