Le Treport Wedding & Convention Centre Ltd. v. Co-operators General Insurance Company

[Indexed as: Le Treport Wedding & Convention Centre Ltd. v. Co-operators General Insurance Co.]

Ontario Reports

Court of Appeal for Ontario

Feldman, Lauwers and Huscroft JJ.A.

July 29, 2020

151 O.R. (3d) 663 | 2020 ONCA 487

Case Summary

Insurance — Actions against insurer — Insured suffering property damage following unusually severe rainstorm — Insured advancing claims under a flood endorsement and for damages associated with business interruption losses — Trial judge finding flood endorsement did not apply and finding insufficient proof of business interruption losses — Judge erred in finding flood endorsement did not apply — Finding of no business interruption loss entitled to deference — Plaintiff entitled to recover appraised actual cash value of damage to building and contents.

Insurance — All-risk insurance — Insured suffering property damage following unusually severe rainstorm — Insured advancing claims under a flood endorsement and for damages associated with business interruption losses — Trial judge finding flood endorsement did not apply and finding [page664] insufficient proof of business interruption losses — Judge erred in finding flood endorsement did not apply — Finding of no business interruption loss entitled to deference — Plaintiff entitled to recover appraised actual cash value of damage to building and contents.

Insurance — Interpretation and construction — Insured suffering property damage following unusually severe rainstorm — Insured advancing claims under a flood endorsement and for damages associated with business interruption losses — Trial judge finding flood endorsement did not apply and finding insufficient proof of business interruption losses — Judge erred in finding flood endorsement did not apply — Finding of no business interruption loss entitled to deference — Plaintiff entitled to recover appraised actual cash value of damage to building and contents.

The plaintiff was insured under an all-risks policy issued by the defendant. The plaintiff's banquet hall suffered significant damage following an unusually severe rainstorm. An appraisal process set the value of the damage to the building and its contents and equipment. There was a sewer backup endorsement that the defendant paid to the policy limit of $500,000. The defendant denied the plaintiff's claim for indemnity for business interruption because the plaintiff's business continued to operate after the storm. The plaintiff sued for claims under a flood endorsement, for losses associated with business interruption, for extra-contractual damages for delays in making payments under the policy, and for compensation for professional fees incurred to establish the quantum of the business interruption loss. The trial judge found that the flood endorsement did not apply based on the application of a surface water exclusion, and because the event did not meet the definition of a flood because the damage was caused by an influx of water from the storm and not from the overflow of a body of water. The judge found no proof of lost profits and as such dismissed the remainder of the claims as well. The plaintiff appealed.

Held, the appeal should be allowed in part.

The trial judge erred in finding that the flood endorsement did not apply. The judge imported the exclusion of "surface water" flooding into the flood endorsement. That misapprehended the relationship between the commercial broad form policy and the flood endorsement, which were intended to be read together. On such a reading, the flood endorsement entirely displaced the flood exclusion in the broad form policy. It was difficult to imagine a realistic scenario that would constitute a flood within the meaning of the flood endorsement if the massive, forceful, and fast-moving influx of water into the plaintiff's facility did not meet the definition of a flood. Because the flood endorsement applied, the limit of covered losses in the sewer backup endorsement did not limit the plaintiff's claim. The appraisal award was binding so the plaintiff was granted judgment for $429,329.18, being the balance of the actual cash value amount awarded on the appraisal exceeding the $500,000 limit.

The trial judge made no palpable and overriding error in finding no proof of lost profits. He was not convinced that any decrease in revenue was other than a reflection of the cyclical nature of the business and in any case the plaintiff would have been the author of its own misfortune for refusing to shut down the facility to complete the repairs.

There was no basis on which to set aside the trial judge's denial of extra-contractual damages. That disposition rested on the dual finding that the plaintiff had not proven a loss of profit and revenue from the event and that it was the author [page665] of its own misfortune. The sanction for the defendant's unacceptable delay in payment was reflected in the costs award.

The plaintiff was not entitled to compensation for professional fees. A business valuator was retained for the purposes of providing evidence at trial, and not for the purposes of producing and certifying particulars of the plaintiff's business to arrive at the amount of the loss payable under the policy.

Cabell v. Personal Insurance Co. (2011), 104 O.R. (3d) 709, [2011] O.J. No. 622, 2011 ONCA 105, 278 O.A.C. 51, 331 D.L.R. (4th) 460, [2011] I.L.R. para. I-5117, 93 C.C.LI. (4th) 28 (C.A.); Pilot Insurance Co. v. Sutherland (2007), 86 O.R. (3d) 789, [2007] O.J. No. 2596, 2007 ONCA 492, 51 C.C.L.I. (4th) 12, [2007] I.L.R. para. I-4611, 55 M.V.R. (5th) 38 (C.A.), consd

Parker Pad & Printing Ltd. v. Gore Mutual Insurance Co. (2017), 138 O.R. (3d) 603, [2017] O.J. No. 3292, 2017 ONSC 3894, 69 C.C.L.I. (5th) 201, [2017] I.L.R. para. I-5982 (S.C.J.), distd

Other cases referred to

Canada (Minister of Citizenship & Immigration) v. Vavilov, [2019] S.C.J. No. 65, 2019 SCC 65, 441 D.L.R. (4th) 1, 59 Admin. L.R. (6th) 1, 69 Imm. L.R. (4th) 1; EFP Holdings Ltd. v. Boiler Inspection and Insurance Co. of Canada, [2001] B.C.J. No. 2378, 2001 BCSC 1580, 34 C.C.L.I. (3d) 212 (S.C.); Housen v. Nikolaisen, [2002] 2 S.C.R. 235, [2002] S.C.J. No. 31, 2002 SCC 33, 211 D.L.R. (4th) 577, 286 N.R. 1, [2002] 7 W.W.R. 1, 219 Sask. R. 1, 10 C.C.L.T. (3d) 157, 30 M.P.L.R. (3d) 1; Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., [2016] 2 S.C.R. 23, [2016] S.C.J. No. 37, 2016 SCC 37, [2016] 10 W.W.R. 419, [2016] I.L.R. para. I-5917, 54 B.L.R. (5th) 1, 59 C.C.L.I. (5th) 173, 487 N.R. 1, 56 C.L.R. (4th) 1, 404 D.L.R. (4th) 258, 19 Admin. L.R. (6th) 1; Le Treport Wedding & Convention Centre Ltd. v. Co-operators General Insurance Co., [2019] O.J. No. 2595, 2019 ONSC 3041 (S.C.J.); MacDonald v. Chicago Title Insurance Co. of Canada (2015), 127 O.R. (3d) 663, [2015] O.J. No. 6350, 2015 ONCA 842, 341 O.A.C. 299, [2016] I.L.R. para. I-5826, 61 R.P.R. (5th) 1, 392 D.L.R. (4th) 463, 56 C.C.L.I. (5th) 267, 52 B.L.R. (5th) 26 (C.A.) (leave to appeal to S.C.C. refused, [2016] S.C.C.A. No. 39); 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. para. I-5051, 406 N.R. 182, 323 D.L.R. (4th) 513, 9 B.C.L.R. (5th) 1, 93 C.L.R. (3d) 1, [2010] 10 W.W.R. 573, 73 B.L.R. (4th) 163, 89 C.C.L.I. (4th) 161; Sam's Auto Wrecking Co. v. Lombard General Insurance Co. of Canada (2013), 114 O.R. (3d) 730, [2013] O.J. No. 1413, 2013 ONCA 186, 305 O.A.C. 68, 361 D.L.R. (4th) 336, 20 C.C.L.I. (5th) 173 (C.A.); Wigle v. Allstate Insurance Co. of Canada (1984), 1984 45 (ON CA), 49 O.R. (2d) 101, [1984] O.J. No. 3422, 14 D.L.R. (4th) 404, 6 O.A.C. 161, 10 C.C.L.I. 1, [1985] I.L.R. para. 1-1863 (C.A.)

Statutes referred to

Insurance Act, R.S.O. 1990, c. I.8, s. 128 [as am.]

APPEAL from a judgment of Gray J., [2019] O.J. No. 2595, 2019 ONSC 3041 (S.C.J.) dismissing claims under an insurance policy.

Emily Stock and Brandon Cook, for appellant.

Robert W. Dowhan and Matthew McMahon, for respondent.

The judgment of the court was delivered by [page666]

LAUWERS J.A.: —

I. Overview

[1] The trial judge accepted this description of the catastrophic rainstorm event in the Greater Toronto Area that underpins this case [at para. 1]:

On July 8, 2013, the GTA experienced a rain event unparalleled in its recorded history. Environment Canada measured in excess of 90 mm of rain in less than two hours at Pearson International Airport. That is the highest amount of measured rainfall in that short a period of time since such data tracking began. As a result, flooding was widespread across the GTA. The storm of July 8, 2013 also produced the highest single day rainfall total in recorded history for the GTA.

[2] The entry of water into the banquet hall facility operated by the appellant, Le Treport Wedding & Convention Centre Ltd., caused significant damage.

[3] The appellant was insured under an "all-risks" policy by the respondent insurer, Co-operators General Insurance Company. It is common ground that the trial judge did not err in finding that the Sewer Back Up Endorsement applied and that the policy limit of $500,000 was fully paid out to the appellant by the insurer.

[4] The appellant argues that the trial judge erred in finding that the flood endorsement does not apply on the facts, and in refusing to require payment under several other coverages.

[5] For the reasons that follow, I would allow the appeal in part.

II. The Factual Context

[6] Representatives of the parties met on July 15, 2013, a week after the storm. The next day, the insurer sent a letter to the appellant advising of the necessary steps to take in order to mitigate losses, including shutting down to complete repairs. The appellant got a quotation for emergency repairs on July 19, 2013 for $46,396.32, excluding tax, which the insurer paid. On September 26, 2013, the insurer sent the appellant a quote, provided by the insurer's contractor, indicating that the full replacement cost to be paid after the repairs were completed was $105,533.94.

[7] The appellant was dissatisfied with the quote, believing it to be insufficient and so low that it would not justify shutting down the business to effect the repairs. Many months later, on April 21, 2014, the insurer told the appellant that the actual cash value of the repairs, quoted in the September 2013 letter, was $79,150.45, which it paid. [page667]

[8] According to the trial judge, the appellant later got a quote estimating the repair cost at $681,869.99.

[9] Because there was such a wide gap between the estimates of losses and costs, the appellant triggered the appraisal process provided under Statutory Condition 11 of the policy and s. 128 of the Insurance Act, R.S.O. 1990, c. I.8. The appraisal award, released on March 21, 2016, set the value of the damage to the building at a replacement cost of $591,552, with an actual cash value of $561,974.40. The value of the contents/equipment loss was set at a replacement cost of $337,777.18, with an actual cash value of $253,332.89.

[10] The insurer delayed the payment of the claim under the Sewer Back Up Endorsement. The April 2014 payment brought the total amount paid to about $124,000. The insurer's next payment came five years after the loss, in November 2018, when it paid the remaining balance up to the $500,000 limit of the Sewer Back Up Endorsement.

[11] The insurer denied the appellant's claim for indemnity for business interruption under the Profits Endorsement Form coverage of the insurance policy because the appellant continued to operate after the rainstorm.

[12] The appellant sued the insurer for the balance of payments it alleged were owed exceeding the $500,000 limit of the Sewer Back Up Endorsement, including for claims under the Flood Endorsement, for losses associated with business interruption, and for extra-contractual damages.

[13] The trial judge found that the Sewer Back Up Endorsement applied; the insurer had paid out the policy limit of $500,000 and owed nothing more. He dismissed the appellant's other claims.

III. The Issues

[14] The appellant asserts that the trial judge erred in finding that it was not entitled to:

(1) coverage under the Flood Endorsement Form;

(2) coverage for business losses under the Profits Endorsement Form;

(3) extra-contractual damages on the basis that the insurer delayed making payments; and

(4) compensation for professional fees incurred to establish the quantum of the business interruption loss under the Commercial Plus Endorsement Form. [page668]

[15] These asserted errors form the issues in this appeal.

IV. The Analysis

[16] Before considering the issues in this appeal, I set out the applicable standard of review and the principles of interpretation for insurance contracts.

[17] The standard of appellate review on the interpretation of the standard form insurance contract language is correctness: Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., [2016] 2 S.C.R. 23, [2016] S.C.J. No. 37, 2016 SCC 37, at para. 46; MacDonald v. Chicago Title Insurance Co. of Canada (2015), 127 O.R. (3d) 663, [2015] O.J. No. 6350, 2015 ONCA 842 (C.A.), leave to appeal refused, [2016] S.C.C.A. No. 39. Courts should strive to construe similar insurance policies similarly: 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, at para. 23.

[18] Questions of mixed fact and law are subject to the standard of palpable and overriding error, except for any extricable errors of law, which are subject to the correctness standard: Canada (Minister of Citizenship & Immigration) v. Vavilov, [2019] S.C.J. No. 65, 2019 SCC 65, 441 D.L.R. (4th) 1, at para. 37; Housen v. Nikolaisen, [2002] 2 S.C.R. 235, [2002] S.C.J. No. 31, 2002 SCC 33, at paras. 8, 10.

[19] The principles of interpretation for insurance policies bear repeating. In Sam's Auto Wrecking Co. Ltd. (Wentworth Metal) v. Lombard General Insurance Co. of Canada (2013), 114 O.R. (3d) 730, [2013] O.J. No. 1413, 2013 ONCA 186 (C.A.), Laskin J.A. gave a short statement of the general law on interpreting insurance contracts, at para. 37:

The principles for interpreting insurance policies, and in particular exclusion clauses, are well-established. The policy should be interpreted to promote a reasonable commercial result; provisions granting coverage ought to be construed broadly; provisions excluding coverage ought to be construed narrowly; in the case of ambiguity, the interpretation most favourable to the insured should be adopted; and even a clear and unambiguous clause should not be given effect if to do so would nullify the coverage provided by the policy.

In addition, the court must strive to interpret the contract according to "the whole of the contract and any relevant surrounding circumstances" in a way that "promotes the true intent and reasonable expectations of the parties at the time of entry into the contract" and avoids "either a windfall to the insurer or an unanticipated recovery to the insured": MacDonald v. Chicago Title Insurance, supra, at para. 66, per Hourigan J.A.

[20] I turn now to the issues. [page669]

(1) Issue One: Does the Flood Endorsement Apply on the Facts?

[21] The appellant argues that the Flood Endorsement applies on the facts. If that submission is correct, then it is common ground that there is no policy limit on the amount the appellant can recover under the Flood Endorsement, and the prospect of compensation on the basis of the appraisal award arises.

[22] The trial judge found that the Flood Endorsement did not apply for two reasons: first, because the "Surface Water" exclusion operated; and second, because the event did not meet the definition of a "flood" in the Endorsement. I have separated these reasons for analytical purposes, but it is not clear to me that the trial judge saw them as completely distinct. I address each in turn after setting out the relevant provisions of the policy.

(a) The policy language

[23] To summarize the insurance, the Commercial Broad Form policy excluded coverage for flood including flood by surface water, so the appellant purchased coverage under the Flood Endorsement, which excluded coverage for sewer backups. To address that risk, the appellant purchased the Sewer Back Up Endorsement.

[24] The trial judge noted that the general part of the Commercial Broad Form policy, Form No. B-1, excluded certain perils, including loss or damage caused by flood. Form No. B-1 provides:

1. INSURED PROPERTY

A. This Form insures the following items for which a limit of insurance is specified in the "Declarations" and only while at the "Premises":

"BUILDING, "EQUIPMENT", "STOCK", "CONTENTS", "ALL PROPERTY"

4. INSURED PERILS

This Form, except as otherwise provided, insures against all risks for direct physical loss of or damage to the insured property.

5. EXCLUSIONS

B. EXCLUDED PERILS

This Form does not insure against loss or damage caused directly or indirectly:

b. in whole or in part by flood, including "Surface Water", waves, tides, tidal waves, tsunamis, or the breaking out or overflow of any natural or artificial body of water. [page670]

17. DEFINITIONS

Wherever used in this Form [Commercial Broad Form policy, Form No. B-1]

J. "Surface Water" means water or natural precipitation temporarily diffused over the surface of the ground.

(Emphasis added)

[25] In this case, in addition to the general coverage, the appellant also purchased the Flood Endorsement, Form No. AB-100, which provides:

FLOOD ENDORSEMENT

This Policy is extended to include, only if indicated in the "Declarations", loss or damage caused directly by the peril of flood subject to the following conditions:

1. FLOOD

For the purpose of this endorsement, flood shall mean the rising of, the breaking out or the overflow of any body of water, whether natural or man-made and includes waves, tides, tidal waves and tsunamis.

3. EXCLUSIONS

This endorsement does not cover loss or damage caused directly or indirectly by:

a. water which backs up through sewers, sumps, septic tanks or drains;

All other terms and conditions of this Policy remain unchanged.

(Emphasis added)

[26] The appellant also purchased the Sewer Back Up Endorsement, Form No. B-1(J), which stipulates:

SEWER BACK UP ENDORSEMENT

The coverage provided by this Policy is extended to include loss or damage caused directly by the backing up of sewers, sumps, septic tanks or drains subject to the following [limits].

[27] I now turn to the trial judge's first reason for excluding coverage for the flood.

(b) Does the surface water exclusion apply?

[28] The trial judge's decision on the application of the Flood Endorsement, in light of the "Surface Water" exclusion, is brief. [page671] He found that the "Surface Water" exclusion applied to exclude coverage for the flood, explaining at paras. 233, 234 and 237:

The definition of "flood" in the endorsement is as follows:

For the purpose of this endorsement, flood shall mean the rising of, the breaking out or the overflow of any body of water, whether natural or man-made and includes waves, tides, tidal waves and tsunamis.

It is to be noted that the words "Surface Water", as defined in the policy, are not included within the term "flood" in the endorsement.

In the case before me, it is clear, from the evidence, that damage to the property was caused by an influx of water resulting from the extraordinary rain storm that accumulated on the ground, and in this case, on the roof of the building. It clearly constituted "Surface Water" as defined in the policy, and which is excluded from coverage and is not included within the definition of "flood".

(Emphasis added_

[29] The trial judge concluded, at para. 242:

The damage to the [appellant's] property was not caused by a "flood" as defined in the policy. The term "Surface Water" is not included in the definition of flood, while it is a specific exclusion in the policy itself. In my view, the case is even stronger than was the case before Charney J. [Parker Pad & Printing Ltd. v. Gore Mutual Insurance Co., 2017 ONSC 3894, 138 O.R. (3d) 620] that there is no coverage for what occurred through the Flood Endorsement.

(Emphasis added)

[30] In my view, the trial judge erred in giving any effect to the definition of "Surface Water" in the Commercial Broad Form policy when he interpreted the Flood Endorsement, for two reasons.

[31] First, the trial judge's use of the exclusion language misapprehends the relationship between the Commercial Broad Form policy and the Flood Endorsement. An endorsement is not a standalone insurance policy. It is linked to the policy to which it is attached and with which it is purchased: Pilot Insurance Co. v. Sutherland (2007), 86 O.R. (3d) 789, [2007] O.J. No. 2596, 2007 ONCA 492 (C.A.).

[32] In Pilot, this court affirmed that an endorsement "does not have an independent existence" from the policy: at para. 21. In that case, the insurer disputed whether coverage was available to an insured injured in an accident that occurred in Jamaica. The automobile insurance policy was territorially limited to Canada and the United States. Attached to the policy was the Ontario Policy Change Form 44R Endorsement for Family Protection Coverage, which did not include a territorial limitation. This court held that the territorial limit in the policy applied to the endorsement. Lang J.A. observed, at para. 21: [page672]

An endorsement changes or varies or amends the underlying policy. While it may be comprehensive on the subject of the particular coverage provided in the endorsement, it is built on the foundation of the policy and does not have an independent existence.

(Emphasis added)

[33] In other words, the policy and the endorsement must be read together. This principle also applies to property damage claims: Cabell v. Personal Insurance Co. (2011), 104 O.R. (3d) 709, [2011] O.J. No. 622, 2011 ONCA 105 (C.A.), at paras. 14-17, per Rosenberg J.A.

[34] The second reason why the trial judge erred in importing the exclusion of "Surface Water" flooding into the Flood Endorsement is that doing so would effectively nullify flood coverage, not only in this case but in almost all cases, because few buildings stand right on the edge of a body of water. The appellant's facility is on land located some distance away from water. How could the Flood Endorsement ever be engaged if it excluded a flood via surface water?

[35] The insurer effectively concedes this point, explaining:

If water breaks the banks of a body of water and then has to flow across a surface before entering a premise and causing a loss, it will still be deemed a Flood under the Policy. Surface Water is excluded from the Policy unless there is a Flood, as defined by the Policy.

[36] This concession is appropriate.

[37] In my view, the Flood Endorsement should be read as entirely displacing the flood exclusion in the Commercial Broad Form policy. It is, in the words of Lang J.A. in Pilot, "comprehensive on the subject of the particular coverage provided in the endorsement": at para. 21. The Endorsement must be read without giving the Surface Water exclusion in the Commercial Broad Form policy any weight. Because the Flood Endorsement extends coverage, it falls within the interpretative principle that "provisions granting coverage ought to be construed broadly": Sam's Auto Wrecking, at para. 37.

[38] This leaves for determination the more basic question: Did the trial judge err in finding that there was not a flood within the meaning of the Flood Endorsement?

(c) Did the flood trigger coverage under the Flood Endorsement?

[39] The Flood Endorsement provides that the policy includes "loss or damage caused directly by the peril of flood". To repeat for convenience, it defines "flood": "For the purpose of this endorsement, flood shall mean the rising of, the breaking out or the overflow of any body of water, whether natural or man-made and includes waves, tides, tidal waves and tsunamis." [page673]

(i) The trial judge's interpretation

[40] The trial judge relied on the decision of Charney J. in Parker Pad [Parker Pad & Printing Ltd. v. Gore Mutual Insurance Co. (2017), 138 O.R. (3d) 603, [2017] O.J. No. 3292 (S.C.J.)] to bolster his interpretation that the Flood Endorsement did not apply. In that case, as the result of a rainstorm, water pooled next to the foundation of the plaintiff's building. It eventually seeped through the wall and into the building. The definition of "flood" in the insurance policy was the same as in this case, and Charney J. denied coverage. He observed: "There is no question that the ordinary meaning of the word 'flood' would include the pooling of water resulting from a rainstorm": at para. 46. But he held that the "very specific and restricted definition in both the Insurance Policy and the Flood Endorsement" governed: at para. 47.

[41] In the view of Charney J., the ordinary meaning of the phrase "the rising of, the breaking out or the overflow of any body of water whether natural or man-made . . ." is "limited to pre-existing bodies of water": at para. 53. This language does not include "pooling of rain water in a location where no body of water previously existed": at para. 53. He concluded that: "[T]he pool of water did not exist before the rain, and cannot be said to rise, break out or overflow because it has no pre-determined boundary or level from which it can rise, break out or overflow": at para. 53. The damage was caused by seepage through the foundation, which was excluded from the policy: at para. 55.

[42] In this case, the trial judge noted: "In the case before me, it is clear, from the evidence, that damage to the property was caused by an influx of water resulting from the extraordinary rain storm that accumulated on the ground, and in this case, on the roof of the building": at para. 237. The factual finding made by the trial judge is set out in the decision, at para. 238:

On the evidence, I am not persuaded that the [appellant] has proven, on a balance of probabilities, that any of the water that invaded the [appellant's] property came as the result of the breaking out or the overflow of a body of water. A practical view of the evidence must be taken, and the only evidence of any possibility of water breaking out of or from the overflow of any body of water was given by Mr. Coluccio, who saw water coming from the ditch known as Tonelli Creek. No other evidence, particularly expert evidence, was tendered. Tonelli Creek is 600 metres away from the [appellant's] premises, and the evidence is that there were several inches of rain that covered the ground in all directions over a large area. In the scheme of things, I am not convinced that any of this water would have materially added to the volume of water that covered the ground and the roadways and that eventually found its way onto the [appellant's] property. The [appellant] has not satisfied me on the balance of probabilities that that is so. [page674]

[43] The appellant argues that the trial judge made a palpable and overriding error of fact in this determination because, on any reasonable view of the facts, this event was a flood.

(ii) The evidence

[44] To set the scene, the evidence was that the appellant's facility is large, at approximately 32,000 square feet, and is located at 1075 The Queensway East in Mississauga. The facility is part of a plaza. It has a large parking lot in front, between the building and The Queensway. Between the parking lot and The Queensway, there is a shallow ditch, which is approximately three or four feet wide. At the entrance to the building is a six-inch curb and then a four-inch lip. Tonelli Creek is about 600 metres east of the facility and runs from a point north of The Queensway. From there, the creek goes underground in a southerly direction.

[45] The trial judge set out the testimony of John Cipressi, the appellant's principal, at paras. 17-20, which I now paraphrase. Shortly after 5:00 p.m., the rain came pouring down in massive amounts and caused considerable flooding on The Queensway. After about half an hour of rain, water came flowing down from The Queensway across the ditch, into the parking lot, and ultimately into the building. Mr. Cipressi testified that water was entering through the doors and was falling from the ceilings. Water was also coming up into the building from floor drains. There was water, varying between two inches and at least ankle deep, in the front lobby, in the washrooms, and in the large event rooms. This is what the appellant characterizes as the flood.

[46] The trial judge also recounted the evidence of a witness, Rocco Coluccio, a school principal. In particular, the trial judge noted that Mr. Coluccio testified that as he drove west on The Queensway and passed Tonelli Creek, "the force of the water turned his vehicle into another lane because of the water gushing from the stream": at para. 75. The flow from the creek was towards the facility.

[47] Mr. Cipressi's evidence was that in addition to Tonelli Creek, there are a number of other bodies of water in the area around the appellant's facility, including the Cooksville Creek (to the northwest) and the Applewood Creek, Etobicoke Creek and Little Etobicoke Creek (to the east). He confirmed on cross-examination that, during the rainstorm, the water covering The Queensway was "coming from everywhere". [page675]

(iii) Discussion

[48] In my view, the influx of water into the appellant's facility was a flood within the meaning of the Flood Endorsement. I say this for the following reasons.

[49] First, there is no question that the ordinary meaning of the word "flood" would include the massive, forceful, and fast-moving flow of water into the facility on this occasion. It was quite unlike the situation in Parker Pad, where the stormwater pooled and then seeped into the building.

[50] Second, there was a catastrophic failure of all the water channelling features in the vicinity, both natural and man-made. Had the creeks and the stormwater management system been able to handle the volume of water, there would be no case, but they were not. Tonelli Creek contributed its water from upstream to the flood instead of channelling it away. In my view, this scenario falls well within the words of the Flood Endorsement: "the rising of, the breaking out or the overflow of any body of water, whether natural or man-made".

[51] Drainage channels, stormwater management facilities, ditches, and even creeks can be dry on occasion. How then does the "body of water" concept in the Flood Endorsement apply? In my view, the focus of the Endorsement is on the flood, that is "the rising of, the breaking out or the overflow of any body of water, whether natural or man-made" (emphasis added). There is a strong sense of unexpected and significant water movement communicated by these words. Just before a creek or a drainage ditch overflows, it constitutes a "body of water," even though it might have been dry several hours earlier. This is true for man-made channels like the drainage ditch between the facility and The Queensway. There is no sense in which the Endorsement requires the body of water to have a permanent existence.

[52] Third, this court's decision in Cabell offers support for this interpretation. In that case, the issue was whether one of the policy's common exclusions, Common Exclusion 11, applied to Endorsement 33b, Outdoor Inground Swimming Pool, Hot Tub, Spa and Sauna Coverage, with regards to damage to a swimming pool. The case turned on two points. The first was whether the endorsement was sufficiently clear. In holding that it was not, Rosenberg J.A. relied on Wigle v. Allstate Insurance Co. of Canada, where Cory J.A. stated that: "Limitations on the apparent coverage in the endorsement that are ambiguous in the sense that they are not clearly apparent, should be set out in the endorsement itself": [page676] (1984), 1984 45 (ON CA), 49 O.R. (2d) 101, [1984] O.J. No. 3422 (C.A.), at p. 120.

[53] The second point on which Cabell turned related to the concept of nullification. Rosenberg J.A. explained that the burden is on the insurer to demonstrate that its interpretation would not essentially nullify the coverage for most risks or run counter to the reasonable expectations of the ordinary person who purchased the coverage, at para. 28.

[54] Rosenberg J.A. discussed the nullification issue at some length, covering the many authorities and applying the law to the facts: at paras. 14-17, 24-28. He added that: "When counsel for the respondent insurer was pressed for an example that would not come within Common Exclusion 11, he was unable to do so": at para. 29. Counsel's inability to come up with a realistic application of the Flood Endorsement was also true in this case.

[55] In his oral submissions, counsel for the insurer acknowledged that Mr. Coluccio saw the water overflowing from the creek and heading to the facility but asserted that there was no evidence to take it to "the next level", that is, that the facility is downhill from the creek. But this is not correct. Mr. Cipressi testified in relation to exhibit number seven, which depicted the gradients, that: "This water flows downhill towards that direction, in this photo", being the direction to the facility. He then confirmed: "That water flows down from that location." He added: "And the north [being] higher elevation, and everything comes downward towards us." Based on this evidence, there is no doubt that the water flowed out of Tonelli Creek towards the facility, which, as Mr. Cipressi testified, lies at a lower elevation. The flowing water was forceful enough to redirect Mr. Coluccio's automobile.

[56] As in Cabell, counsel for the insurer struggled in oral argument to find a circumstance in which the Flood Endorsement would ever benefit the appellant. He posited an ice jam on the Credit River to the west, or an overflow from Lake Ontario to the south. Both are several kilometres away from the site.

[57] Finally, in construing the Flood Endorsement, the trial judge departed from the principle that provisions granting coverage ought to be construed broadly. His interpretation effectively nullified coverage for the "obvious risks" identified in the Endorsement and belied the reasonable expectations of the appellant in purchasing that coverage. He also made a palpable and overriding error in failing to find on the evidence that there was a flood within the meaning of the Flood Endorsement.

[58] To conclude, it is difficult to imagine a realistic scenario that would constitute a flood within the meaning of the Flood [page677] Endorsement if, on the facts, this event did not satisfy that definition. In my view, the Flood Endorsement applies and the appellant is entitled to compensation on that basis.

(iv) The consequences

[59] Because the Flood Endorsement applies to the loss or damage caused by the flood, the limit of covered losses in the Sewer Back Up Endorsement no longer serves to limit the appellant's claim. The available evidence on that additional loss is the appraisal award, calculated according to the process in Statutory Condition 11 in the policy and s. 128 of the Insurance Act.

[60] The trial judge mentioned the appraisal process and award in several paragraphs. The appellant's appraiser was David Leblanc and the insurer's appraiser was Thomas Carroll, who was employed by and had represented the insurer throughout the dealings with the appellant. The umpire was Pete Volaric, a Hamilton lawyer. Only Mr. Volaric and Mr. Leblanc signed the award. At trial, the insurer collaterally attacked the appraisal award as a means of challenging the credibility of witnesses, but the trial judge made no finding on its validity nor was that an issue before him. The purpose of an appraisal is valuation. It does not determine liability, which is the court's function.

[61] The appraisal award is binding on the parties and I would grant judgment to the appellant in the amount of $429,329.18, being the balance of the actual cash value amount awarded on the appraisal that exceeds the $500,000 Sewer Back Up Endorsement limit.

(2) Issue Two: Is the Appellant Entitled to Insurance Coverage for Business Interruption Losses?

[62] The trial judge dismissed the appellant's claim for business interruption losses under Form AB-3, the Profits Endorsement Form. It provides:

The insurer agrees to indemnify the Insured against loss directly resulting from necessary interruption of business, caused by destruction or damage by the perils insured against to property at the "Premises", up to the limit(s) of insurance stated in the "Declarations" for this Form and subject to the provisions, limitations, exclusions, conditions and other terms of this Policy including this Form.

(Emphasis added)

[63] Shutting down the business in order to conduct the necessary repairs was a bone of contention between the appellant and the insurer from the outset. The trial judge noted that had the appellant shut down, the repairs would have been the insurer's responsibility, as would the business interruption losses. [page678] Mr. Cipressi feared that the appellant would suffer a loss of reputation, did not want to disrupt already scheduled events, and plainly thought he could remediate sufficiently to permit the business to carry on. The evidence supports the trial judge's finding that Mr. Cipressi did not want to shut the business down.

[64] The trial judge heard from the business valuator, Dawson Coneybeare, on behalf of the appellant on the subject of the appellant's business losses. The insurer led no contrary opinion evidence but relied on the cross-examination of Mr. Coneybeare. The absence of contrary opinion evidence does not oblige the trial judge to accept Mr. Coneybeare's evidence, and he clearly did not, as he noted at para. 255:

I am not convinced that there were actually lost profits that have been proven. As noted earlier, in the year following the incident, there was no decrease in revenue. I am not convinced that any decrease in revenue thereafter was necessarily anything more than a reflection of the cyclical nature of the business, which appears to have been the case during the period between 2009 and 2012. Assuming, however, that the decrease in revenue can be said to have resulted from the incident, I am not convinced that it was as a result of any fault of the [insurer]. I am persuaded that the [appellant] made its own decision to keep operating, and the lack, or at least delay, of necessary remediation and repair was the more likely cause of any decrease in revenue.

[65] This is a factual finding to which this court must defer in the absence of a palpable and overriding error. I am not persuaded that the trial judge made such an error. The appellant impugns as a legal error the trial judge's statement: "I am not convinced that it was as a result of any fault of the [insurer]." I do not take much from this statement because contextually it precedes and sets in contrast his finding that Mr. Cipressi's refusal to shut the facility down to complete the repairs was the problem. He was, in the trial judge's view, the author of his own misfortune. There is evidence to support this view.

[66] Because the claim for business interruption losses was not made out on the evidence as found by the trial judge, this is not the case in which to definitively interpret the meaning of the expression "necessary interruption of business" in the Profits Endorsement Form. However, I would not want to be taken as necessarily agreeing with the trial judge that the expression requires a total cessation of business activity for a period of time for coverage to arise.

[67] I make two observations. First, I do not see this case as substantially different from the case referred to by the trial judge, at para. 249: EFP Holdings Ltd. v. Boiler Inspection and Insurance Co. of Canada, [2001] B.C.J. No. 2378, 2001 BCSC 1580, 34 C.C.L.I. (3d) 212 (S.C.). In that case, the language of [page679] the policy provided coverage where a business is "interrupted or interfered with solely as a result of an [a]ccident" (emphasis added): at para. 8. Pitfield J. read the language as disjunctive, noting at para. 16:

"Interruption" contemplates a break in the continuity of the business. "Interference" contemplates a lesser event which may not interrupt the business but impedes or interferes with the profit-making capability of the business resulting in a diminution in gross profit.

[68] In this case, the trial judge contrasted and relied on the absence of the words "interfered with" in the Profits Endorsement Form in order to hold that the Form did not cover the appellant's business interruption claim.

[69] As useful as another case might often be to the task of interpretation, the focus must be on the specific language of the Profits Endorsement Form. I point out that the absolute meaning given by the trial judge to "interruption" is inconsistent with the text of clause 7(f) of the Endorsement, which states that: "The Insured shall with due diligence do and concur in doing and permit to be done all things which may be reasonably practicable to minimize or check any interruption of or interference with the business or to avoid or diminish the loss" (emphasis added). The implication in the use of the word "interference" is that it might suffice to trigger coverage.

[70] Second, on appeal, the insurer argued that there is nothing in the trial judge's decision "which suggests that an interruption cannot be 'partial'". The insurer put forward the example of an event that shut down the banquet hall but not the catering business. One could also imagine part of the facility being shut down but not all of it. These examples lead me to doubt the trial judge's interpretation of the Profits Endorsement Form.

(3) Issue Three: Extra-Contractual Damages

[71] The amount claimed on this head is $428,000 for economic loss for consequential damages after the indemnity period, as calculated by Mr. Coneybeare. The trial judge laid any such losses at the feet of the appellant, as noted earlier, and denied liability.

[72] The appellant argues that the trial judge erred in refusing to award extra-contractual damages because the insurer delayed making payments under the policy. The insurer paid $46,396.32 for emergency services on August 6, 2013 and $79,150.45 in April 2014 for repair costs. The insurer's next payment came in November 2018, when it paid out the balance of the $500,000 policy limit of the Sewer Back Up [page680] Endorsement. This was more than two years after the appraisal award and five years after the loss.

[73] I see no basis on which to set aside the trial judge's disposition of this issue, which rests on the dual finding set out above that the appellant had not proven a loss of profit and revenue resulting from the event and that it was the author of its own misfortune.

[74] The delay in payment was not acceptable, and the trial judge acceded to the appellant's submission that some adjustment should be made to account for the delay in the costs award to the insurer by reducing the costs award.

(4) Issue Four: Payment of Professional Fees

[75] The appellant argues that the trial judge erred in not awarding $15,077.94 for professional fees paid to Mr. Coneybeare for his report, which related to establishing the quantum of loss under item K of the Commercial Plus Endorsement Form, Form No. B-1(8). It provides:

In the event of loss or damage by an insured peril, the Insurer will pay reasonable fees to auditors, accountants, architects, engineers or other professionals, other than public adjusters and the Insured's own employees, for producing and certifying particulars or details of the Insured's business required by the Insurer in order to arrive at the amount of loss payable under this Policy.

This extension applies only to fees incurred in establishing the quantum of a loss, liability for which is otherwise accepted by the Insurer. This extension may also apply to any Business Interruption loss covered under this Policy.

[76] The insurer argues that this Endorsement is intended to assist an insured in quantifying a loss in order to determine the amount payable under the policy. In order to receive payment for professional fees under the policy, the fees must be submitted to the insurer by way of a proof of loss. This was not done.

[77] This provision, says the insurer, was not intended to "indemnify a litigant for the costs of their expert trial witnesses". The insurer points out that much of Mr. Coneybeare's report is devoted to the claim for extra-contractual damages, which is not within the purview of the Endorsement.

[78] I am persuaded by the insurer's argument that Mr. Coneybeare was not retained for the purposes of producing and certifying particulars or details of the appellant's business in order to arrive at the amount of loss payable under the policy, but for the purposes of providing evidence at trial, as the timing and the content of his report shows. I would not allow the appeal of this issue.

V. Disposition

[79] I would allow the appeal in part and I would grant judgment to the appellant in the amount of $429,329.18, together with prejudgment interest and costs. I would dismiss the rest of the appeal.

[80] The appellant is entitled to costs on the appeal in the agreed amount of $20,000, plus disbursements in the amount of $7,500 all-inclusive.

[81] If the parties are unable to agree on the allocation of trial costs in light of this decision, then the court will accept written submissions no more than five pages in length beginning with the appellant, to be served and filed with the court at coa.e-file @Ontario.ca within two weeks of the release of this decision, followed one week later by the respondent's submissions, and any reply within another week.

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