Court of Appeal for Ontario

Date: 20200303 Docket: C66021

Doherty, Brown and Thorburn JJ.A.

BETWEEN

2049390 Ontario Inc. Plaintiff (Appellant)

and

Doris Leung and Pacific Insurance Broker Inc. Defendants (Respondents)

Counsel: R. Lee Akazaki, for the appellant Barry B. Papazian, Q.C. and Michael Krygier-Baum, for the respondents

Heard: February 13, 2020

On appeal from the judgment of Justice Lise G. Favreau of the Superior Court of Justice, dated September 28, 2018, with reasons reported at 2018 ONSC 5759, 85 C.C.L.I. (5th) 222.

Thorburn J.A.:

OVERVIEW

[1] This is an appeal by 2049390 Ontario Inc. (“the appellant”) from the trial judge’s dismissal of a claim for negligence and breach of contract.

[2] The appellant is the owner of a commercial property located at 369 Queen Street West (“the property”). The property was destroyed by fire in 2012.

[3] James Kan owns and operates the appellant company.

[4] The appellant’s insurer refused to cover the cost of rebuilding the property because it was underinsured. Instead, the insurer opted to pay out the value of the building limit under the policy. It also charged a co-insurance penalty because the property was underinsured by more than 10% of its value.

[5] The appellant sued its insurance brokers Pacific Insurance Broker Inc. and one of Pacific’s licensed insurance brokers, Doris Leung (together “the respondents”), alleging that they had failed to secure adequate reconstruction cost insurance for the building and were liable for their ensuing losses.

[6] The appellant claims the respondents were thereby negligent and/or breached their contract with the appellant. The respondents defended on the basis that they met their duty of care and contractual obligations to the appellant.

[7] The trial judge dismissed the action. On appeal, the appellant claims the trial judge erred by:

a) “refusing to enforce the [respondents’] promise to provide adequate coverage”;

b) “excusing the [respondents] for having given an estimate of building costs they were unqualified to give”; and

c) “relieving Leung of admissions that she did not qualify her advice.”

[8] The appellant further claims that the trial judge adopted a flawed approach to causation and damages. Finally, the appellant claims that the trial judge’s reasons gave rise to a reasonable apprehension of bias.

[9] For the reasons that follow, the appeal is dismissed.

THE EVIDENCE

[10] Until 2009, the property was insured through ING Insurance. In 2006, the property had a policy building limit of $484,531. In 2008, it was insured with a building limit of $550,000. The building limit increased to $924,000 after the appellant refinanced the property.

[11] In January 2009, ING Insurance issued a policy with a building limit of $984,060. The appellant did not renew the policy.

[12] Instead, the appellant contacted the respondent brokers to find a new insurer. The trial judge found that there was a sense of urgency in securing the insurance. Kan contacted Leung on January 20, 2009 by late night email and indicated that the policy was going to expire in February 2009. Several email exchanges between Kan and Leung also note the urgency to secure insurance for the property.

[13] Leung asked Kan for the property’s current insurance policy. Kan provided her with the original 2008 policy with a building limit of $550,000 but did not provide her with the revised 2008 policy in the amount of $924,000 or the 2009 quote for renewal in the amount of $984,060.

[14] The respondents provided the appellant with a quote from The Dominion of Canada General Insurance Company (“Dominion”) with a building limit of $850,000 for 2009, to increase each year thereafter. The appellant purchased the insurance.

[15] The trial judge found as a fact that, for the following reasons, Kan, the appellant’s principal, was a sophisticated client who was “in a good position to assess whether his insurance coverage was sufficient”:

a) Kan was a real estate agent and mortgage broker and supervised renovations to the building;

b) On two occasions, Kan requested an increase in coverage to reflect work done on the property after purchasing the Dominion policy; and

c) Kan was aware that the appellant’s building limit increased to $924,000 in 2008 under the appellant’s previous ING insurance policy but did not disclose it to the respondents.

[16] The trial judge accepted Leung’s evidence that when she prepared the insurance quote, she told the appellant that she used a “rule of thumb” of $200 per square foot to arrive at the $850,000 estimate. The trial judge also accepted Leung’s evidence that, when they met in person on January 29, 2009, Leung advised Kan:

… about the need to insure the full value of the property to avoid a penalty … [S]he also told Mr. Kan that the [respondents] were not cost consultant professionals and that he should consult a cost consultant or professional appraiser to get an accurate estimate of the cost of rebuilding the property.

[17] After their meeting, Leung sent a letter to the appellant on February 23, 2009 which included the following warning: “[I]f you have not insured your property up to the amount of insurance required, you may become a CO-INSURER”. She also enclosed with the letter a “Guide to Co-insurance” which reiterated the importance of obtaining an accurate appraisal of the property’s value:

A regular and careful review of the value of your insured property is essential if Co-Insurance penalties are to be avoided. We recommend your insurable values be frequently reviewed by a competent, independent appraisal company.

[18] Leung testified that she had similar conversations with Kan each time the 2009 policy was renewed and that she would have provided him with documents advising him to review the value of his property upon renewal.

[19] In her testimony at trial, Leung elaborated on the advice that she gave the appellant and her reasons for the advice that she gave:

We are not contractors, we are not involving in constructions, I don’t know. I’m providing a coverage like against fire, against water damages … The limit we are – we would not be able to appraise the building limit on the client’s behalf [ sic ].

The number as I explained to him is an estimate to get the quote going.

I explain[ed] to him. It’s an estimate then if he’s not doing anything, then I would not be responsible.

The figure we provided, and I told him that this is the limit that you’ve got to use for rebuilding, replacing, repair[ing] your building in case of a total loss. So, this number … you must make sure is adequate.

[20] The appellant itself read into evidence as part of its case the following excerpt from Leung’s examination for discovery in which she stated that she cautioned the appellant that the figure provided was only an estimate:

Q: Okay. So you need to understand what the client was looking for, and you told us about that, and then you obtained information about the property. Okay. And were there any further services that you understood that you were supposed to provide as an insurance broker?

A: We would give the, the quote, but always caution them [that this] is based on the information they supplied, and you convey the same message to the insurance company, so we are not professionals, in terms of the building limits and the upgrades to the building … In all fairness, I would say that this is only an estimate. Whether or not it is adequate, you need a cost consultant or professional engineer to determine the limit to rebuild or replace the building .

Q: And you told him that.

A: Yes. [Emphasis added.]

[21] This information was given to the appellant before it purchased the policy. Knowing the limitations of the insurance quote, the appellant chose not to seek expert advice.

[22] A fire destroyed the property in 2012. Dominion paid out the policy limit of $1,438,358, which included the building loss and other claims.

[23] The property was underinsured and has not been rebuilt.

ANALYSIS

(1) Did the trial judge err by invoking the wrong test to determine whether there was a breach of the broker’s duty to the insured?

(a) The appellant’s position

(i) The central issue

[24] In respect of the first three grounds of appeal, the appellant submits that the central issue is whether the trial judge applied the wrong legal test to determine the respondent brokers’ obligation, resulting in an erroneous conclusion that the respondents did not breach their duty of care or contractual obligations in providing insurance.

(ii) Matters that are not in dispute

[25] At the hearing of this appeal, the appellant advised that it was no longer contesting the trial judge’s findings of fact that:

a) Leung provided Kan with a building limit estimate of $850,000 for reconstruction costs. This calculation was based on a $200 per square foot rule of thumb in accordance with the industry norm;

b) Leung told Kan that she was not an expert in determining replacement cost estimates; and

c) Leung told Kan he should consult a reconstruction cost expert if he wished to get an accurate assessment.

[26] Moreover, the appellant does not challenge the trial judge’s finding that, to the extent Kan’s evidence was inconsistent with Leung’s, the trial judge found Leung’s evidence more credible and therefore preferred Leung’s evidence.

(iii) The appellant’s argument

[27] The appellant submits that the respondents represented that the estimate would ensure adequate insurance coverage. They were thereby in breach of their duty of care and/or made a negligent misrepresentation.

[28] Alternatively, the appellant submits that the respondents had a contractual obligation to provide “adequate insurance” and failed to do so, resulting in damages to the appellant. The appellant submits the trial judge should not have distinguished an “accurate” estimate to be acquired through a professional appraiser from the “rough estimate” provided by the broker because the broker had contracted to provide “adequate” insurance. The appellant submits this is so, regardless of whether the respondents advised the appellant to seek expert advice if they wished to obtain an accurate assessment.

(b) No breach of the duty of care

[29] In her reasons, the trial judge accepted that insurance brokers owe a duty of care to their clients to provide information and advice about “which forms of coverage they require in order to meet their needs” and the limits of that coverage: Fletcher v. Manitoba Public Insurance Co., [1990] 3 S.C.R. 191, at p. 216. See also Fine’s Flowers Ltd. et al. v. General Accident Assurance Co. of Canada et al. (1978), 17 O.R. (2d) 529 (C.A.). However, the trial judge found that the respondents discharged their duty to the appellant by advising Kan that the appellant should obtain adequate coverage, that the respondents did not have the expertise to provide an accurate estimate of the appellant’s reconstruction costs, and that the appellant should obtain expert advice.

[30] I see no error in her conclusions.

[31] Both the appellant’s and respondents’ experts agreed that insurance brokers are not qualified to give replacement cost advice to their clients and that it is a best practice to advise clients about the need to obtain expert advice.

[32] Stephen White was the appellant’s expert on the subject of what advice, if any, an insurance broker should provide to a client in respect of replacement costs. As reflected in the trial judge’s summary of his evidence at para. 36, he testified that:

the standard of practice requires insurance brokers to advise clients about the importance of having coverage that protects the full value of their property, to advise that they are not qualified to provide advice on the value of property and to recommend that clients retain the services of a reconstruction cost consultant in order to obtain an accurate estimate of the costs of reconstruction.

[33] Similarly, the respondents’ expert, Frank Szirt, opined in his report that:

It is an accepted tenet in the insurance industry that the responsibility for determining the limits which accurately reflect the values exposed to risks fall on the insured. This is because the special knowledge necessary to determine insurable values resides in the insured, it is the insured who is in the best position to choose the limit(s) which provides adequate protection. And, since the adverse financial consequences arising from the underinsured property will be borne by the insured, this is a non-transferrable responsibility.

The responsibility of brokers is confined to arranging insurance coverage the scope of which, within market availability, fully respond to the needs of their clients. This is the function they are qualified for by their training, licensing requirements and mandatory continuing education.

Concerning real property, brokers are untrained in property appraisal and thus lack the requisite expertise to assess their clients' values at risk. Similarly, brokers cannot provide any meaningful advice about their clients' appropriate business interruption limit, given that it is based on financial information to which the insured, and not the insurance broker, is privy. Consequently, if insureds require assistance in determining the appropriate limits, they must seek it from professional appraisers for real property and their accountants for business interruption.

In short, the proper role of brokers is to explain to their clients the need for insurance to full value. In terms of their involvement in establishing policy limits, the fail-safe recommendation is to obtain professional advice – appraisal for property and accounting for business interruption.

[34] These opinions are not challenged on appeal.

[35] The trial judge accepted the standard articulated by the experts that an insurance broker must (i) advise clients of the importance of having insurance to protect the full value of the property, (ii) advise that the broker is not qualified to provide advice on the value of the property, and (iii) recommend that clients retain an reconstruction cost consultant qualified to provide an accurate estimate.

[36] The trial judge held that the respondents met the standard of care, as she accepted Leung’s evidence that:

a) Leung provided the appellant with a cost estimate of $850,000 to rebuild (to be increased each year) based on industry standards and the information provided to her by the appellant;

b) Leung advised the appellant of the importance of having coverage that protects the full value of the property;

c) Leung advised that she was not qualified to provide accurate advice about the value of the property; and

d) Leung recommended that the appellant retain the services of a reconstruction cost consultant or other expert to obtain an accurate estimate of the costs of reconstruction.

[37] In so doing, the trial judge applied Leung’s evidence, which she accepted, to the agreed standard of care as articulated by the experts for both parties.

[38] There is no error in her articulation of the duty of care or her conclusion that it was met in this case. Nor was there any negligent misrepresentation, as Leung was found to have provided full disclosure in accordance with the duty to be met.

[39] Her findings were also supported by the fact that Kan was a sophisticated insured who was involved in supervising the renovations to the building and had experience as a mortgage broker. Kan would have understood the significance of her advice, as well as the distinction between an estimate and a professional assessment.

(c) No obligation in contract to provide adequate insurance

[40] The appellant argues that, even if the respondents are not liable in tort, they are liable in contract based on their agreement to provide “adequate insurance”.

[41] The appellant claims that the document “REGARDING BROKER COMPENSATION” creates an obligation on the respondents to provide “adequate” insurance. The document states that the broker will strive to provide suitable, affordable and adequate insurance:

We would like to take this opportunity to thank you for your business. As your independent Insurance Broker, we at Pacific Insurance Broker Inc. strive to provide to you insurance products and services that are suitable, affordable and adequate . [Emphasis added]

[42] If this was a contractual term, it was satisfied: Leung provided a quote based on industry norms, made it clear that she was not qualified to provide an accurate value, and advised the appellant to obtain an opinion from a qualified expert. As such, she strove to provide suitable insurance.

[43] A promise to “strive to provide insurance products that are suitable, affordable and adequate” is very different from a guarantee that they will be adequate. The evidence makes it clear that the respondents were not agreeing to provide a guarantee in this case.

[44] The trial judge did not err when she concluded at para. 81 that the respondents met their obligations toward the appellant:

I find that Ms. Leung did advise Mr. Kan that she was not in a position to provide accurate advice on the replacement cost value of the building on the Queen Street property and that he should obtain a professional opinion if he wanted an accurate assessment. I do not believe Mr. Kan’s evidence that he requested higher building limits and that Ms. Leung advised him that Dominion would not increase the amount of coverage.… It was made clear to the [appellant] through Ms. Leung’s words and through the documents sent to the [appellant] that the [appellant] was responsible for ascertaining the value of its property. The [respondents] were not negligent nor were they in breach of any contractual obligations, and I would dismiss the claim on this basis.

(d) Conclusion

[45] The trial judge’s conclusion that the respondents met their obligations in tort or contract is fully supported by the evidence and the law. It is also sufficient to dispose of this appeal on the merits. Accordingly, it is not necessary to address the appellant’s remaining grounds of appeal regarding causation and the trial judge’s assessment of damages.

(2) Did the trial judge’s reasons give rise to a reasonable apprehension of bias?

[46] The appellant submits that the trial judge did the following things in her reasons for judgment which create a reasonable apprehension of bias:

a) Deliberately writing the decision in such a way as to avoid assessing damages for reconstruction;

b) Drawing a faulty distinction between accurate and rough estimates; and

c) Reversing the motives of the insured and the broker.

[47] A party alleging bias has a “high burden” to meet given the “strong presumption of judicial impartiality”: Yukon Francophone School Board, Education Area #23 v. Yukon (Attorney General), [2015] 2 S.C.R. 282, at paras. 25-26. For this court to intervene, the apprehension of bias must be a reasonable one.

[48] I do not agree that the burden was met in this case. The trial judge’s approach to liability and damages was sound. The reasons for judgment give no indication that she engaged in backward reasoning and every reason to believe she decided the case based on the evidence and argument.

[49] The appellant also submits that this court should accept that the trial judge, faced with a judgment that had been on reserve for six months, decided to fashion a judgment that would allow her to deliver reasons quickly and avoid addressing the complicated evidence concerning damages. In essence, the appellant argues that the trial judge delivered reasons that do not reflect her genuine assessment of the evidence and the issues but were instead produced as an expedient was to dispose of the case. This submission invites a finding of dishonesty for which there is no support in the trial record. The argument is without merit.

(a) The failure to assess damages for reconstruction

[50] The trial judge provided four pages of analysis on damages, in her 111-paragraph judgment. The trial judge addressed each category of damages in sequence: cost of reconstruction, lost rent, and co-insurance. She then reviewed the evidence and case law in coming to her conclusions.

[51] She did not quantify the replacement cost, both because she found that the insured was not entitled to damages and because she would not have done so even if she had found that it was entitled to damages. Rather, she indicated that she would have referred this issue to a Master pursuant to r. 54.02 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[52] In addition to finding that the respondents met their duty of care and or contractual obligations to the appellant, the trial judge noted that a party is not entitled to replacement cost damages where there is no evidence it would have diligently replaced the building with a building of like kind and quality: Carter v. Intact Insurance Company, 2016 ONCA 917, 133 O.R. (3d) 721, at paras. 48-49, leave to appeal refused, [2017] S.C.C.A. No. 53.

[53] In addressing damages for reconstruction, the trial judge held that:

[T]he [appellant] has not proceeded with due diligence, nor has it built or intended to build a property of like kind and quality. There was no evidence at trial to demonstrate that the cash value of the building was more than the amount paid out by Dominion. Therefore, it is not possible to find what, if any damages, the [appellant] has suffered on this basis.

[54] Given her finding that there was no liability and therefore the appellant was not entitled to damages, she had no obligation to assess damages. In these circumstances, a trial judge’s failure to assess damages is not a freestanding ground of appeal; success on this ground depends on whether damages were owing in the first place: Tkachuk Farms Ltd. v. LeBlanc Auction Service Ltd., 2008 SKCA 31, 307 Sask. R. 188, at para. 34; Morris Architect Group v. C.L. Bain Interior Design Ltd., 1997 ABCA 32, 47 Alta L.R. (3d) 269, at para. 8.

[55] Secondly, the trial judge held that, had she found that the appellant was entitled to replacement cost damages, the trial judge would have referred the issue of quantifying the damages to a Master under r. 54.02(1)(b). She found, at para. 100, that the parties’ experts took different approaches to assessing the reconstruction costs which could not be resolved on the basis of the evidence that she heard at trial:

[T]he experts' differences require a line by line comparison of what was properly included or improperly omitted. I am not confident that the evidence at trial would allow for such an exercise. If I had found that the [appellant] was entitled to replacement cost damages, I would have been inclined to refer the damages assessment to a Master pursuant to Rule 54.02 of the Rules of Civil Procedure.

[56] Rule 54.02(1)(b) provides that:

a judge may at any time in a proceeding direct a reference of the whole proceeding or a reference to determine an issue where … a prolonged examination of documents or an investigation is required that, in the opinion of the judge, cannot conveniently be made at trial[.]

[57] Nothing in r. 54 prevents a trial judge from exercising her discretion to have the assessment of damages that she has found a party is not entitled to, addressed by a Master if necessary and where further investigation is required.

[58] In short, there is no basis to suggest that how the trial judge dealt with damages gave rise to an appearance of bias. Nor is there any evidence that she decided there was no liability so as to avoid having to deal with damages.

(b) Whether the trial judge drew a faulty distinction between accurate and rough estimates

[59] The trial judge distinguished between the value derived by the brokers to give the quote, and the actual cost of reconstruction.

[60] Given the duty of care articulated by both experts, and the fact that there was no contractual obligation to provide an accurate quote, there is no basis for concluding that this indicates any appearance of bias.

(c) Whether the trial judge reversed Kan and Leung’s Motives

[61] Lastly, the appellant argues that the trial judge “revers[ed]” the motives of the respondents and the appellant insured, which gave an appearance of bias. The appellant claims the” straw-man argument regarding “accurate” versus “rough” insurance limit estimates was compounded by the role reversal of Kan as motivated by cost to underinsure and Leung as the victim of Kan’s stratagem.” The appellant argues that it was the broker, Leung, who wanted to lower the limits rather than the appellant who sought to reduce insurance costs. To make this point, the appellant cited excerpts from trial.

[62] First, the appellant argues that the trial judge erred by finding that the appellant cancelled his policy with his previous insurer because the premiums were too high.

[63] The appellant submits this could not be true because ING never sent the policy renewal to him. In support of his submission, the appellant cites the following passage from the cross-examination of James Hui, the appellant’s previous broker:

Q: I appreciate that the file shows that you received the cancellation from Mr. Pa through Pacific, but the file does not show that you actually sent the 2009 policy to the [appellant].

A: Okay, the file show – but um, if the client did not receive the renewal policy, he would not be able to discuss with me about a premium, because the I think he received the premium, the renewal premium.

Q: I’m going to suggest to you that if he didn’t receive the policy, then he couldn’t have reviewed the policy with you.

A: Yes.

[64] However, Hui also testified that:

A: The cancellation [was] from Mr. Pa [who managed the insurance on the property at the time], but I think I at some point I did or maybe I have – I did talk to Mr. Kan through email or phone call and he asked us to cancel the policy.

Q: And the reason given? …

A: Premium.

[65] As held by the trial judge, this excerpt from the cross-examination confirms that, whether or not the written policy was delivered to Kan, either Kan or his agent informed Hui that the premiums were the reason for the decision not to renew.

[66] Secondly, the appellant suggests that it was Leung who wanted to underinsure the property, not the appellant. The appellant cites the following excerpt from the evidence of one of Leung’s superiors, who testified that Leung was concerned that the figure quoted was too high:

Q: Okay, do you remember speaking with her and being advised that the client was reluctant to increase the coverage from $550,000?

A: I can freely recall that she was worried about the premium because the figure is way higher. I said, “Well either you do it or you don’t because you’ve got to do, make sure it’s properly insured.”

[67] Leung was worried that this premium was much higher than the last insurance quote she was aware of (as provided to her by Kan), which was based on a building limit of $550,000. Leung was not provided with the 2008 revised policy which had a building limit of $924,000 and was not aware that there was a quote in 2009 based on a value of $984,060.

[68] This excerpt does not suggest a desire to underinsure but simply a concern that the quote being provided was much higher than the quote given to the appellant in the past.

[69] The trial judge concluded that:

The [appellant] cannot complain that the [respondents] did not provide proper advice, when it was in fact in possession of information that it did not disclose that was relevant to the assessment of risk. In Frost v. Asselin Insurance Brokers Ltd., [1993] O.J. No. 3070 (Gen. Div.), at paras. 19 and 20, the Court dismissed a claim of underinsurance where a plaintiff sought out new insurance without disclosing that the prior coverage was higher.

[70] This evidence supports the trial judge’s conclusion that Leung’s motive was not to minimize the premiums to be paid by underinsuring the building.

(d) Conclusion in respect of the reasonable apprehension of bias claim

[71] The appellant made serious allegations of reasonable apprehension of bias but points to no evidence substantiating their claim.

[72] For these reasons, this ground of appeal also fails.

DISPOSITION

[73] The appeal is dismissed.

[74] Partial indemnity costs are awarded to the respondents in the amount of $40,000, inclusive of HST and disbursements, as agreed by the parties.

Released: March 3, 2020 (“D.D.”)

“J.A. Thorburn J.A.”

“I agree. Doherty J.A.”

“I agree. David Brown J.A.”