COURT OF APPEAL FOR ONTARIO

CITATION: Orion Interiors Inc. v. State Farm Fire and Casualty Company, 2016 ONCA 164

DATE: 20160229

DOCKET: C59989

Simmons, Pepall and van Rensburg JJ.A.

BETWEEN

Orion Interiors Inc.

Plaintiff (Appellant)

and

State Farm Fire and Casualty Company a.k.a. State Farm, Rhyl Realty Inc., John Doe1, John Doe2, and John Doe3

Defendants (Respondent)

Stephen Panzer, for the appellant

Christopher R. Dunn and Joanna F. Reznick, for the respondent

Michael Unea, for the third party Metal Craft Mechanical Inc.

Heard: February 12, 2016

On appeal from the judgment of Justice Victoria R. Chiappetta of the Superior Court of Justice, dated January 6, 2015, with reasons reported at 2015 ONSC 248.

ENDORSEMENT

[1] The appellant, Orion Interiors Inc., is the tenant of commercial premises owned by the respondent landlord, Rhyl Realty Inc. (the “Leased Premises”). The parties signed a lease in August 2005 with a term that ended in October 2010. The appellant continued to occupy the Leased Premises and to pay rent. Although there were negotiations, the parties never signed a lease extension or renewal.

[2] The original lease required the tenant to obtain various types of insurance, including “all risks” insurance “in an amount equal to the full replacement costs of all improvements, equipment and chattels in or serving the Leased Premises…”. The tenant was required to include the landlord as a named insured and the insurance policies were to contain a waiver of any subrogation rights by the tenant’s insurers against the landlord. These provisions are found in section 7.01 of the lease.

[3] The lease also provided, in section 7.04, that the landlord was not liable for, among other things, damage to the tenant’s property, whether or not resulting from (a) the negligence of the landlord or those for whom it may in law be responsible; or (b) by the landlord’s failure to supply any services or utilities required by the lease where the failure was beyond the landlord’s reasonable control. It also provided that “[t]he intent of this Section is that the Tenant … is to look solely to its insurers to satisfy any claim which may arise on account of … loss or damage, irrespective of its cause.”

[4] The tenant purchased all-risks property insurance from State Farm Fire and Casualty Company (“State Farm”), with the landlord as a named insured (the “all-risks policy”).

[5] In July 2012, there was a flood that resulted in damage to the Leased Premises and its contents, after a rubber drain plug in a drain line from the roof of the building dislodged. The plug had been installed by Metal Craft Mechanical Inc. (“Metal Craft”), a company contracted by the landlord to perform work on the roof.[^1]

[6] The appellant made a claim under the all-risks policy and State Farm paid the limits thereunder. The appellant was under-insured and commenced an action against the landlord claiming the balance of its loss.

[7] The landlord third partied Metal Craft in the appellant’s action. The appellant also commenced a separate action against Metal Craft which in turn third partied the landlord.

[8] The decision under appeal is the summary dismissal of the appellant’s action against the landlord. The motion judge concluded that this was an appropriate case for summary judgment. The main issue involved contract interpretation and the basic application of the law to the contract. She found that the terms of the lease governed the parties at the time of the flood notwithstanding that the term had expired. Interpreting the provisions of the lease in light of relevant case law, she found that the tenant’s covenant to maintain all-risks insurance in its name and the name of the landlord in an amount equal to the replacement cost of its property in the Leased Premises, and the provision that the landlord was not liable for damage to the tenant’s property, operated as an assumption by the tenant of the risks associated with the insured loss, and barred the tenant from claiming damages against the landlord, irrespective of the cause of the loss.

[9] The respondent landlord was awarded costs of the proceedings in the sum of $28,000, inclusive of disbursements and taxes.

[10] The appellant appeals the summary judgment and seeks to appeal the award of costs.

[11] The appellant asserts that the motion judge made three errors in dismissing its claim against the respondent.

[12] First, the appellant says that this was not an appropriate case for summary judgment, essentially because there were facts in dispute, and there is a risk of an inconsistent verdict in its separate action against Metal Craft.

[13] There is no merit to this argument. At issue was the interpretation of the lease between the parties and the application of settled law to that lease. This court has determined that summary judgment is appropriate for deciding landlord/tenant waiver of subrogation cases: see Amexon Realty Inc. v. Comcheq Services Ltd. (1998), 1998 CanLII 3087 (ON CA), 37 O.R. (3d) 573, 1998 (C.A.).

[14] Further, there is no risk of inconsistent verdicts. The summary judgment decision determined that, irrespective of why the flooding occurred – including whether it resulted from an act or omission of the landlord, or of its contractor – the risk of damage to its property was assumed by the tenant without the right by its insurer to subrogate, and without the tenant’s right to sue the landlord. The issues in the appellant’s action against Metal Craft – whether any act or omission of Metal Craft caused or contributed to the tenant’s loss, and whether the appellant has a claim against Metal Craft – are issues that have not been determined by the summary judgment decision.

[15] We do not give effect therefore to the appellant’s argument that the case was unsuitable for summary judgment.

[16] Second, the appellant argues that the terms of the lease, including the provisions relating to insurance, do not govern where the lease expired and was never renewed. In our view, s. 14.03 of the lease provides a complete answer: the appellant was an overholding tenant that remained in the Leased Premises subject to the terms, covenants and conditions set forth in the lease. The fact that the landlord did not exercise its option to double the base rent does not take the parties’ continuing relationship outside of this provision. See also: AIM Health Group Inc. v. 40 Finchgate Limited Partnership, 2012 ONCA 795, 113 O.R. (3d) 187.

[17] Third, the appellant asserts that, to the extent that the flooding resulted from the landlord’s failure to fulfill its obligations under the lease to keep the Leased Premises in good repair, it retains the right to sue the landlord, notwithstanding its obligation to insure and the related lease provisions. In this regard, the appellant relies on the landlord’s obligation under the lease to maintain and repair the roof drain system, and the wording of s. 7.04 of the lease. The appellant asserts that the landlord was to retain liability for breaches of the lease within its reasonable control. The appellant argues that the motion judge failed to make the necessary findings of fact about the cause of the flooding and whether the landlord had violated the covenant to repair, and failed to interpret the lease as a whole.

[18] We disagree. The line of authority including Madison Developments Ltd. v. Plan Electric Co. (1997), 1997 CanLII 1277 (ON CA), 36 O.R. (3d) 80, 1997 (C.A.), leave to appeal refused, [1997] S.C.C.A. No. 659 and the Supreme Court of Canada’s trilogy of decisions in Agnew-Surpass v. Cummer-Yonge, 1975 CanLII 26 (SCC), [1976] 2 S.C.R. 221, Ross Southward Tire v. Pyrotech Products, 1975 CanLII 25 (SCC), [1976] 2 S.C.R. 35, and T. Eaton Co. v. Smith et al., 1977 CanLII 39 (SCC), [1978] 2 S.C.R. 749 applies. See also this court’s recent decision in D.L.G. & Associates Ltd. v. Minto Properties Inc., 2015 ONCA 705, at para. 19. The terms of the lease respecting insurance had the effect of shifting to the appellant the risk of damage to its property from an insured peril, in this case, flooding. This is so regardless of whether the landlord’s conduct in relation to the flooding is characterized as a breach of the lease or, as the appellant argues in the alternative, a “fundamental breach” or “gross negligence”. The tenant had a contractual obligation to insure its property against such a risk to its full replacement cost value and failed to do so. As the motion judge noted at para. 23 of her decision, the assumption of risk that was bargained for cannot be transferred simply because the appellant failed to properly insure itself.

[19] As for its appeal of the costs award, the appellant did not seek leave to appeal. In any event, the appellant would not have met the test for leave to appeal the motion judge’s discretionary costs award.

[20] Accordingly, the appeal is dismissed. Costs to the respondent on a partial indemnity basis, in the amount agreed between the parties: $10,000 inclusive of HST, plus disbursements of $1,000.

“Janet Simmons J.A.”

“S.E. Pepall J.A.”

“K. van Rensburg J.A.”

[^1]: Although Metal Craft’s counsel attended the hearing of the appeal, Metal Craft took no part in the appeal. The motion judge’s endorsement incorrectly shows Metal Craft’s counsel as attending the summary judgment motion. Metal Craft was not a party to the summary judgment motion and took no part in the motion.