C.H. Robinson Worldwide Inc. v. Northbridge Commercial Insurance Corp.

Ontario Reports

Court of Appeal for Ontario,

Laskin, Simmons and Huscroft JJ.A.

May 13, 2016

132 O.R. (3d) 73 | 2016 ONCA 364

Case Summary

Insurance — Misrepresentation — Applicant retaining KLM to transport cargo — Cargo destroyed when KLM's truck was involved in collision — Applicant obtaining default judgment against KLM for full value of cargo and seeking payment from KLM's insurer under s. 132(1) of Insurance Act — Application judge finding that KLM's insurance policy was void because KLM made material misrepresentation when applying for policy — Motion judge relying on facts that KLM answered no when asked whether it had any contracts with shippers that stipulated limits of liability that were required to supersede its standard bill of lading and that contract between applicant and KLM provided that KLM would be liable for actual or full value of any lost or destroyed shipment — Application judge erring by finding misrepresentation in absence of any evidence about KLM's standard bill of lading.

The applicant retained KLM to export a cargo of food products. The KLM truck was involved in a collision and the cargo was destroyed. The contract between the applicant and KLM provided that KLM would be liable for the actual or full value of any lost or destroyed shipment. The applicant obtained default judgment against KLM for the full value of the lost cargo, and then sought payment from KLM's insurer, the respondent, under s. 132 of the Insurance Act, R.S.O. 1990, c. I.8. Section 132(1) entitled the applicant to recover the amount of its unsatisfied judgment, but subject to the same equities as the insurer would have if the judgment had been satisfied. The application judge held that KLM's insurance policy was void because when applying for coverage, KLM made a material misrepresentation, answering no when asked, "Does the applicant have any contracts with shippers that stipulate limits of liability that are required to supersede the applicant's standard Bill of Lading?" No evidence about KLM's standard bill of lading was before the application judge. However, she found that KLM's answer amounted to [page74 ]a misrepresentation because the contract between the applicant and KLM provided liability for actual loss or damage that was well in excess of the limited liability under the Uniform Conditions of Carriage in Carriage of Goods, O. Reg. 643/05. The applicant appealed.

Held, the appeal should be allowed.

The Uniform Conditions of Carriage were irrelevant to the issue of whether KLM made a misrepresentation, as KLM was not asked whether it had any contracts with shippers that stipulated limits of liability that were required to supersede the limited liability provided in s. 9 of the Uniform Conditions of Carriage. The question in issue focused not on the Uniform Conditions of Carriage, but on KLM's standard bill of lading. As one was not produced, it was not clear whether KLM even had a standard bill of lading, or if it did, what its terms were. In the absence of the very document that was the subject of the question in issue, the respondent had not shown that KLM's answer was a misrepresentation.

Cases referred to

Commonwealth Insurance Co. v. York-Hannover Developments Ltd., [1999] O.J. No. 4932, 1999 CarswellOnt 4309 (C.A.), affg 1997 CarswellOnt 680 (Gen. Div.); Fernandes v. RBC Life Insurance Co. (2009), 99 O.R. (3d) 628, [2009] O.J. No. 5240, 2009 ONCA 864, 79 C.C.L.I. (4th) 182, 182 A.C.W.S. (3d) 1026, affg 2008 CanLII 34279 (ON SC), [2008] O.J. No. 2726, 66 C.C.L.I (4th) 115, [2008] I.L.R. I-4713, 2008 CarswellOnt 3998, 168 A.C.W.S. (3d) 392 (S.C.J.); Fidei Estate v. Sun Life Assurance Co. of Canada, 1991 CanLII 14503 (ON CJ), [1991] O.J. No. 663, 5 C.C.L.I. (2d) 224, [1991] I.L.R. Â1-2739 at 1388, 1991 CarswellOnt 648, 26 A.C.W.S. (3d) 1018 (Gen. Div.)

Statutes referred to

Highway Traffic Act, R.S.O. 1990, c. H.8, s. 191.0.1(1)

Insurance Act, R.S.O. 1990, c. I.8, s. 132, (1)

Rules and regulations referred to

Carriage of Goods, O. Reg. 643/05, Sch. 1

APPEAL from the order of C.J. Brown J. (2015), 124 O.R. (3d) 390, [2015] O.J. No. 200, 2015 ONSC 232 (S.C.J.).

Michael D. Magonet, for appellant.

James Manson, for respondent.

The judgment of the court was delivered by

LASKIN J.A.: —

A. Overview

[1] C.H. Robinson Worldwide Inc. appeals the dismissal of its application for insurance coverage from Northbridge Commercial Insurance Corporation.

[2] Robinson is in the transportation business, and one of the things it does is arrange motor carrier services for its customers. In March 2013, it retained KLM Express to transport a cargo of [page75 ]food products from Ajax to Calgary. The KLM truck carrying the cargo was involved in a collision and the cargo was destroyed. Robinson sued KLM for the full value of the lost cargo. When KLM did not defend the action, Robinson obtained a default judgment against it for $223,701.85.

[3] Robinson then sought payment from KLM's insurer, Northbridge, under s. 132 of the Insurance Act, R.S.O. 1990, c. I.8. Section 132(1) entitled Robinson to recover the amount of its unsatisfied judgment from Northbridge, "but subject to the same equities as the insurer would have if the judgment had been satisfied".

[4] The application judge denied Robinson recovery. She held that KLM's insurance policy was void because when applying for coverage KLM had made a material misrepresentation to Northbridge. The misrepresentation relied on by the application judge was KLM's answer to the following question: "Does the applicant have any contracts with shippers that stipulate limits of liability that are required to supercede the applicant's standard Bill of Lading?" KLM answered this question no.

[5] Neither KLM's "standard Bill of Lading" nor evidence about it was put before the application judge. Nonetheless, she held that KLM's answer amounted to a misrepresentation because the contract between Robinson and KLM provided liability for actual loss or damage that was well in excess of the limited liability under the Uniform Conditions of Carriage: Carriage of Goods, O. Reg. 643/05. The application judge concluded the misrepresentation was material because it affected the premium KLM paid for coverage.

[6] Robinson makes two submissions on appeal. First, it submits the application judge erred by finding a misrepresentation in the absence of any evidence about KLM's standard bill of lading. Second, it submits even if KLM made a misrepresentation, Northbridge failed to show that the misrepresentation was material to its underwriting process. I agree with Robinson's first submission. It is therefore unnecessary to address its second submission. I would allow the appeal, set aside the order of the application judge and grant Robinson judgment in the amount of its judgment against KLM.

B. Background

[7] Both the agreement between Robinson and KLM, and KLM's insurance coverage with Northbridge, are relevant to the main issue on this appeal. [page76 ]

(1) The agreement between Robinson and KLM

[8] On June 22, 2012, Robinson and KLM signed an agreement for motor contract carrier services. The agreement was to be effective for one year, and to continue in effect from year to year unless terminated by either party. Paragraph 12 of the agreement stipulated that KLM would be liable for "actual loss and damage to shipments" arising from its "performance of or failure to perform the services required by this contract", and further "shall be liable for the full, actual value of the shipments tendered by Robinson".

[9] On March 1, 2013, Robinson retained KLM under the terms of this agreement to transport a cargo of food products for one of its customers. When the cargo was destroyed in an accident, Robinson relied on para. 12 and obtained a default judgment against KLM for the full value of the lost cargo, $223,701.85. The record is silent on why KLM did not pay or defend Robinson's claim.

(2) KLM's insurance coverage with Northbridge

[10] Under para. 13 of its agreement with Robinson, KLM was required "to procure and maintain at its own expense" cargo insurance of at least $25,000 per shipment. At the time it entered into the agreement, KLM had an existing policy of insurance with Northbridge, but the coverage period was to expire in August 2012. KLM therefore applied to renew its policy for a further year.

[11] As part of the renewal application, Northbridge required KLM to complete a "Small Business Fleet Transportation Insurance Survey" (the "survey"). KLM's answer to one of the questions on the survey has given rise to this litigation. For convenience, I repeat the question and KLM's answer: "Does the applicant have any contracts with shippers that stipulate limits of liability that are required to supercede the applicant's standard Bill of Lading?" KLM answered this question no.

[12] Also of significance, in the survey, KLM requested and paid for a policy limit of $250,000 per shipment, an amount exceeding Robinson's default judgment against it.

[13] After it received the completed survey, Northbridge renewed KLM's insurance coverage for a further year from August 2012 to August 2013.

[14] The KLM insurance policy with Northbridge contained various conditions, one of which provided that the policy was void for material misrepresentation: [page77 ]

1. Misrepresentation and Fraud

The entire policy shall be void if, whether before or after a loss, you have concealed or misrepresented any material fact or circumstance concerning this insurance or the subject thereof, or the interest of any Insured therein, or in case of any fraud or false swearing by you relating thereto.

C. Did KLM Make a Misrepresentation in its Application for Insurance Coverage?

[15] Robinson applied for an order that Northbridge pay the amount of the default judgment against KLM under s. 132 of the Insurance Act. That section permits a judgment creditor (Robinson) with an unsatisfied judgment against a judgment debtor (KLM) to recover the amount of the judgment from the judgment debtor's insurer (Northbridge).

132(1) Where a person incurs a liability for injury or damage to the person or property of another, and is insured against such liability, and fails to satisfy a judgment awarding damages against the person in respect of the person's liability, and an execution against the person in respect thereof is returned unsatisfied, the person entitled to the damages may recover by action against the insurer the amount of the judgment up to the face value of the policy, but subject to the same equities as the insurer would have if the judgment had been satisfied.

(2) This section does not apply to motor vehicle liability policies.

[16] Recovery under s. 132 is "subject to the equities" between the judgment debtor and its insurer. Thus, if KLM had paid Robinson and sought indemnity from Northbridge, but Northbridge would have had a defence to that indemnity claim, Northbridge could assert this defence to deny Robinson recovery of its judgment.

[17] If KLM made a material misrepresentation to Northbridge when applying for insurance coverage, that material misrepresentation would void KLM's policy with Northbridge and give Northbridge a valid defence to Robinson's claim against it under s. 132 of the Insurance Act. The insurer has the onus of showing a material misrepresentation, and in this case the onus is significant: see, for example, Fernandes v. RBC Life Insurance Co., 2008 CanLII 34279 (ON SC), [2008] O.J. No. 2726, 2008 CarswellOnt 3998, 66 C.C.L.I. (4th) 115 (S.C.J.), at para. 7, affd (2009), 99 O.R. (3d) 628, [2009] O.J. No. 5240, 2009 ONCA 864; Commonwealth Insurance Co. v. York-Hannover Developments Ltd., 1997 CarswellOnt 680 (Gen. Div.), at para. 2, affd [1999] O.J. No. 4932, 1999 CarswellOnt 4309 (C.A.); and Fidei Estate v. Sun Life Assurance Co. of Canada, 1991 CanLII 14503 (ON CJ), [1991] O.J. No. 663, 1991 CarswellOnt 648, 5 C.C.L.I. (2d) 224 (Gen. Div.). [page78 ]

[18] Northbridge contends KLM's survey answer that it did not have any contracts with shippers providing for liability exceeding liability in its "standard Bill of Lading" was a material representation. Northbridge claims the answer was a misrepresentation because in its contract with Robinson, KLM agreed to be liable for the actual or full value of any lost or destroyed shipment.

[19] Northbridge did not produce its insured's standard bill of lading, nor did it lead any evidence of its terms. Nonetheless, it put forward two arguments to support its misrepresentation defence -- one before the application judge, which she accepted, and one in this court. I do not agree with either of Northbridge's arguments. In the absence of KLM's standard bill of lading, Northbridge has not met its onus of showing a misrepresentation.

[20] Before the application judge, Northbridge relied on the Uniform Conditions of Carriage -- General Freight, which are provided for in Sch. 1 to O. Reg. 643/05 and deemed included in the agreement between Robinson and KLM under s. 191.01(1) of the Highway Traffic Act, R.S.O. 1990, c. H.8. Under s. 9 of the Schedule, the liability of a carrier such as KLM is limited to the lesser of

the value of the goods at the place and time of shipment; and

$4.41 per kilogram computed on the total weight of the shipment.

[21] As the application judge noted, under s. 10 of the Schedule, parties can agree on a value for a shipment that exceeds the limited liability in s. 9. KLM and Robinson did so in their agreement for motor carrier contract services by providing that KLM would be liable for the full or actual value of any lost or destroyed cargo. Had KLM's liability been limited by s. 9 to $4.41 per kilogram, it would have amounted only to $65,953.29.

[22] In the light of the difference between the full value of the destroyed cargo and the value prescribed in s. 9 of the Schedule, the application judge found that Northbridge's failure to produce KLM's standard bill of lading did not defeat its misrepresentation defence. Instead, she concluded, at para. 23 of her reasons:

[T]he failure of Northbridge to produce the KLM standard bill of lading does not preclude Northbridge from making its misrepresentation argument. As stated above, regardless of KLM's standard bill of lading, [page79 ]liability will be limited by the Carriage of Goods Regulation unless modified by private contract.

[23] I take a different view. The Uniform Conditions of Carriage are irrelevant in deciding whether KLM made a misrepresentation. Had Northbridge asked on its survey:

Does the applicant have any contracts with shippers that stipulate limits of liability that are required to supersede the limited liability provided in s. 9 of the Uniform Conditions of Carriage?

And had KLM answered no to that question, its answer would have been a misrepresentation. But that is not the question Northbridge asked. Northbridge drafted the survey and must accept the consequences of the answers to the questions it posed. The question in issue focused not on the Uniform Conditions of Carriage, but on KLM's standard bill of lading. As one was not produced, we do not even know whether KLM had a standard bill of lading, or if it did, what its terms were.

[24] We can speculate that KLM did have a standard bill of lading that limited its liability to less than the full or actual value of any lost shipment. But Northbridge cannot rely on mere speculation to meet its onus to show a misrepresentation. Thus, in my opinion, the basis for the application judge's finding of a misrepresentation cannot be supported. My opinion does not turn on the standard of appellate review. Even if the application judge's finding is a finding of mixed fact and law and therefore entitled to deference, I would set it aside on the ground that is an unreasonable finding.

[25] In this court, Northbridge put forward a different argument to support its misrepresentation defence. This argument is set out at paras. 45-47 of its factum:

45. Further, the appellant's argument on this issue is not logically sound. Northbridge submits that the matter can also be resolved on a simple basis, as follows:

(a) the Contract provided for full liability (i.e. 100% liability) on KLM's part for all shipments tendered to KLM by the appellant;

(b) it follows therefore that the degree of liability stipulated by the Contract must have superseded all other arrangements that could have been included on KLM's standard bill of lading where the degree of liability was less than 100%;

p(c) this is true regardless of whether KLM's standard bill of lading provided for a $2 per pound limitation, 50% liability, 75% liability, 99% liability, or something else;

(d) the only case where the Contract would NOT supersede the liability provided for in KLM's standard bill of lading is where the bill of lading itself also provided for 100% liability; [page80 ]

(e) in such a case, of course, both the Contract and KLM's standard bill of lading would provide for equal liability;

(f) thus, KLM's response to the Survey question would have been true if and only if KLM's standard bill of lading contained a provision whereby KLM agreed to be fully liable for its shipments. In all other cases, KLM's response was necessarily inaccurate.

46. Northbridge submits that it would be commercially unrealistic for KLM to have agreed in its standard bill of lading to assume full liability for shipments in the event of a loss.

47. . . . If KLM's standard bill of lading had provided for full liability, there would have been no need for the Contract's expanded liability provision.

[26] Although superficially attractive, this argument also requires us to assume KLM had a standard bill of lading and to speculate about its terms. Presumably Northbridge, as KLM's insurer, was able to produce its insured's standard bill of lading if indeed one existed. Its failure to do so undermines its misrepresentation defence. In the absence of the very document that was the subject of the survey question in issue, I am not persuaded Northbridge has shown KLM's answer to that question was a misrepresentation.

D. Conclusion

[27] For these reasons, I would allow Robinson's appeal, set aside the order of the application judge and grant Robinson judgment in the amount of its judgment against KLM (inclusive of interest and costs). Robinson is entitled to the costs of this appeal in the agreed on amount of $10,000, inclusive of disbursements and applicable taxes. If the parties cannot agree on the disposition of costs before the application judge, they may make brief submissions in writing.

Appeal allowed.

End of Document