COURT OF APPEAL FOR ONTARIO

DATE: 20220427 DOCKET: C68699

Feldman, Pepall and Tulloch JJ.A.

BETWEEN

1152729 BC Ltd Applicant (Respondent)

and

Chicago Title Insurance Company Canada Respondent (Appellant)

Counsel: Ted Evangelidis and Dylan S. Fisher, for the appellant Paul Robson, for the respondent

Heard: October 15, 2021 by video conference

On appeal from the judgment of Justice M.J. Lucille Shaw of the Superior Court of Justice, dated November 10, 2020.

Feldman J.A.:

Introduction

[1] The appellant insurer provided the respondent insured with title insurance on a property in Bradford which the insured purchased under a power of sale from 9706151 Canada Ltd. (“970”). The insured called on the insurer to defend an action brought by the previous owner against both its mortgagee, 970, and the insured, claiming that the power of sale was exercised by 970 without notice to him, that 970 and the insured agreed to a sale at undervalue, and that the insured was not a bona fide purchaser for value without notice. The previous owner’s amended statement of claim asked the court to set aside the sale and claimed, in the alternative, a remedy for unjust enrichment.

[2] The insurer initially agreed to defend the claim, but with a reservation of rights based on two exclusions in the policy for risks created by the insured or risks known to the insured, but not the insurer, on the date of the policy.

[3] After the pleading containing a statement of defence, counterclaim, and crossclaim was delivered on behalf of the insured, it lost title to the property when the property was sold again by power of sale. Once the insured was no longer on title to the property, the insurer advised the insured that it no longer had a duty to defend or indemnify it and counsel got off the record. As a result, the insured brought the application under appeal for a declaration that the insurer continues to have a duty to defend, because although defects in title were no longer an issue, the amended statement of claim also claimed damages against the insured, and once the insurer had undertaken the defence, it could not resile from that position.

[4] On the application, counsel for the insurer conceded, based on U.S. case authority, that although the insured no longer had title to the property, if the amended statement of claim also claimed damages against the insured, the insurer’s duty to defend would remain in place. Therefore, the issue before the application judge was whether the amended statement of claim did contain a claim for damages against the insured. If it did, the duty to defend continued.

[5] The application judge found that giving the amended statement of claim a “generous” reading, it contained a claim for damages against the insured. As a result, the duty to defend continued.

[6] The application judge also conducted an alternative analysis, in the event she was wrong regarding the claim for damages. She found that if there was no claim for damages in the amended statement of claim, there would be no duty to defend once the insured no longer had title to the property, because the policy only covered claims for defects in title. Without title to the property, the insured no longer had any defect in title to defend.

[7] The insurer appealed only on the basis that the application judge erred in her interpretation of the amended statement of claim and in finding that it included a claim for damages against the insured.

[8] In oral argument, in response to questions from the bench, counsel for the insurer advised that the application judge had misunderstood their concession that if there is a claim for damages, then there was a duty to defend. Counsel stated that this concession was only made in the context of a discussion regarding U.S. cases, which the insurer says do not apply. The appellant argued for the first time in oral argument that even if there is a claim for damages, that claim is excluded by the policy exclusions. Therefore, there is no possibility that the policy would respond to the claim against the respondent, even if it is for damages, and consequently, there is no duty to defend. However, after raising this oral argument, counsel for the insurer stated that they were prepared to proceed to deal with the issue of whether the claim in fact gave rise to a claim for damages, as argued in their written materials.

[9] For the following reasons, I would dismiss the appeal regarding the insurer’s duty to defend in the circumstances of this case. If it transpires that there is an indemnity claim under the policy, it will still be open to the insurer to raise the arguments in paragraph eight and take the position that it has no duty to indemnify a damages claim under this policy. However, because those arguments were not the basis of this appeal on the duty to defend, I do not address them in these reasons.

Application Judge’s Findings

[10] The respondent insured purchased a property in Bradford under power of sale from 970 on February 16, 2018. On March 27, 2018, the former owner Chris Sapusak, who had defaulted on his mortgage to 970, sued the insured and 970, seeking a declaration that the sale to the insured was invalid, an order setting aside the sale, a certificate of pending litigation, and other relief. The claim stated that: 1) the property was sold for less than fair market value; 2) Mr. Sapusak was not served with the notice of sale; 3) the insured and 970 engineered a sale transaction for below market value; and 4) the insured was not a bona fide purchaser for value.

[11] The insured had purchased title insurance from the appellant insurer when it purchased the property. In response to the Sapusak action, on April 18, 2018, the insurer acknowledged its duty to defend and retained Bennett Jones LLP to assume the defence, subject to a reservation of rights letter. Bennett Jones delivered a statement of defence, counterclaim, and crossclaim on October 30, 2018.

[12] During the litigation, on December 1, 2018, the insured defaulted on the vendor take-back mortgage that it had entered into to purchase the property, and as a result, the property was sold again by 970’s assignee under power of sale on June 5, 2019. Before that sale, Mr. Sapusak’s statement of claim against the insured was amended to add defendants and seek additional relief, including a constructive trust over the proceeds of the sale and an unjust enrichment remedy.

[13] On July 19, 2019, the insurer informed the insured that because the insured no longer owned the property, the insurer no longer owed it a duty to defend the claim, and Bennett Jones LLP obtained an order removing itself from the record. The insured then brought this application for an order that the insurer’s duty to defend continued even though it no longer owned the property, because the Sapusak action included a claim against the insured for damages and once the insurer undertook the defence, the policy did not allow it to resile from the defence of the action.

[14] There were two issues on the application. The first was whether the claim against the insured included a claim for damages. The application judge stated: “If I find there is a claim for damages, the [insurer] concedes that it has a duty to defend the [insured] in the underlying action.” The insurer’s position was (and remains) that the amended statement of claim contains no claim for damages against the insured.

[15] The second issue was, if there was no claim for damages, then once the insured no longer owned the property, whether the insurer continued to owe a duty to defend and whether it had terminated its defence in accordance with the wording of the policy. [1]

[16] Dealing with the first issue, the application judge stated that her task was to review the amended statement of claim, reiterating that: “If I determine there is such a claim [for damages], that ends the analysis because the [insurer] has conceded, based on jurisprudence from the U.S., that it would be obligated to defend the [insured].”

[17] The application judge then identified the paragraphs in the amended statement of claim that implicated the insured for relief in addition to the return of the property, including for a remedial constructive trust with respect to the property and the proceeds of sale, and a declaration that the defendants or one or more of them had been unjustly enriched. Paragraph 28 of the amended statement of claim claims that the insured was unjustly enriched by the improper acquisition of the property at a “deep discount” without juristic reason, and para. 29 claims that the insured is not a bona fide purchaser for value without notice. In para. 32, the plaintiff seeks damages, without stating from which defendant, equal to the difference between the fair market value of the property and the sale price.

[18] The dispute before the application judge was whether the claims for damages in the amended statement of claim were only as against 970, or also against the insured.

[19] The application judge concluded that the claim for unjust enrichment was not limited to 970, but could also include the insured, which was the purchaser of the property. Although in para. 1 of the amended statement of claim, the plaintiff did not state specifically that he was seeking damages for unjust enrichment against the insured, the application judge drew that inference based on a “generous and liberal approach to interpreting the amended claim”. She referred to case law from the Supreme Court of Canada that states that upon a finding of unjust enrichment, the primary remedy is a monetary award: Kerr v. Baranow, 2011 SCC 10, [2011] 1 S.C.R. 269, at para. 47; Moore v. Sweet, 2018 SCC 52, [2018] 3 S.C.R. 303, at para. 89. In addition, she noted that since the insured no longer owns the property, the only potential remedy against it is a monetary one.

[20] The application judge also had regard to the specific denial that the plaintiff was entitled to damages from the insured in paras. 28 and 29 of the statement of defence that was filed on behalf of the insured by Bennett Jones LLP, when the insurer was defending the claim. The application judge explained that while counsel’s interpretation of the claim was not determinative, it was a factor that she considered in interpreting the claim.

[21] The application judge also considered two U.S. cases that were referred to by counsel: Chicago Title Insurance Company v. 100 Investment Limited Partnership, 355 F. 3d 759 (4th Cir. 2004), and Security Title Guarantee Corporation of Baltimore v. 915 Decatur St. NW, LLC, 2019 WL 6728449 (D.D.C.), where the courts found in the context of title insurance policies that if there was a claim for damages that occurred during the time the insured owned the property, there was a duty to defend even after the insured no longer owned the property.

[22] Based on her analysis of the claim and the case law, in the context of the insurer’s concession, the application judge concluded that even though the insured no longer owned the insured property, the insurer’s duty to defend the claim continued because there was an ongoing claim for damages against it.

Issue on the Appeal

[23] The appellant insurer appealed the decision of the application judge, raising only one ground of appeal: that the application judge erred by finding that the amended statement of claim included a claim for damages against the insured.

Analysis

[24] The appellant alleges that the application judge made the following five errors of law in interpreting the amended statement of claim to contain a claim for damages against the insured: a) considering the allegations made in the insured’s statement of defence; b) applying the wrong principles of interpretation and in particular, applying a fanciful rather than a reasonable reading of the pleading; c) failing to use r. 25.06(9) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, to assess whether the amended statement of claim seeks damages based on unjust enrichment against the insured; d) erring in the interpretation of available remedies for unjust enrichment; and e) considering extrinsic evidence in the interpretation of the claim.

[25] This court recently reviewed the principles that a court is to use in determining whether an insurer has a duty to defend a claim in Panasonic Eco Solutions Canada Inc. v. XL Specialty Insurance Company, 2021 ONCA 612, 466 D.L.R. (4th) 276, at para. 22:

The first substantive issue is the principles governing the duty of an insurer to defend claims brought against the insured. In Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49, [2001] 2 S.C.R. 699, the Supreme Court reviewed and restated the principles that govern the duty to defend. The first is the rule that the pleading by the claimant against the insured is what triggers the duty to defend. If the facts alleged in the pleading would, if true, require the insurer to indemnify, then the insurer has the duty to defend. The duty to defend is therefore broader than the duty to indemnify because it is triggered by the mere possibility of coverage: Monenco, at paras. 28-29. In addition, the pleadings themselves are to be interpreted broadly, with any doubt to be resolved in favour of the insured: Monenco, at para. 31. In that regard, where the claim alleges facts that might fall within coverage, the duty arises: Monenco, at para. 33. The required analysis is to determine the substance of the claim rather than merely the legal label chosen by the claimant.

[26] Based on those principles, I turn to each of the alleged errors.

(a) Considering the allegations made in the insured’s statement of defence

[27] The insurer argues that the application judge erred by considering the insured’s statement of defence rather than just the amended statement of claim. It refers to case law that points out that it is in the interests of the insured to structure its defence to suggest coverage: Wi-Lan Inc. v. St. Paul Guarantee Insurance Company, 2005 ABCA 352, [2006] 7 W.W.R. 458, at paras. 30-46, leave to appeal refused, [2005] S.C.C.A. No. 548. Of course, in this case, the defence was already in the hands of the insurer, so that concern is not applicable here. However, the insurer also points out that the defence was filed before the claim was amended to include unjust enrichment, and it states as well that denying a claim for damages may be just a boilerplate pleading in a defence and not indicative of a belief that damages were actually being claimed. These two points have possible merit.

[28] If the finding by the application judge turned on the pleading in the statement of defence denying that any damages were owed, I would be prepared to find an error. However, in this case, the reasons of the application judge make it clear that she determined the meaning and effect of the amended statement of claim based only on that pleading, then looked at the statement of defence and found confirmation because it was drafted by counsel representing the insurer. She emphasized that the response by counsel appointed by the insurer was not determinative of the meaning of the amended statement of claim, but only a factor to be considered. In those circumstances, I would not give effect to this ground of appeal.

(b) Applying the wrong principles of interpretation and, in particular, applying a fanciful rather than a reasonable reading of the pleading

[29] The insurer argues that the application judge erred by failing to give the amended statement of claim a reasonable reading. Instead, the application judge said that she was giving the claim a “generous” reading. The insurer argues that read reasonably, the claim does not include a claim for damages against the insured, and the remedy for unjust enrichment must be a proprietary remedy, not a monetary one. In addition, a constructive trust over the proceeds of the sale must be a remedy against 970 only, as it was the vendor of the property.

[30] In Monenco, Iacobucci J. discussed the principle that the duty to defend arises from the pleadings. A number of phrases are approved in Monenco from previous Supreme Court cases and academic commentary that discuss the standard to be applied when assessing the pleadings. Iacobucci J. uses the term “a reasonable reading”: Monenco, at para. 31. McLachlin J., as she then was in Nichols v. American Home Assurance Co., [1990] 1 S.C.R. 801, stated, “the widest latitude should be given to the allegations in the pleadings in determining whether they raise a claim within the policy”: Monenco, at para. 31, citing Nichols, at p. 812. However, Iacobucci J. also cites the proposition that the court must not give a claim a “fanciful reading”: Monenco, at para. 32.

[31] In my view, when the application judge referred to a “generous reading”, that was another way of saying she was giving the allegations “the widest latitude”. Within that parameter, the reading must be reasonable and not fanciful.

[32] I would wholly reject the insurer’s submission that the application judge gave the claim a fanciful reading. The essence of the claim against both the insured and 970 is that together they executed a scheme whereby Mr. Sapusak’s property was sold out from under him by power of sale, without notice and for undervalue. It is alleged that the insured was not a bona fide purchaser for value without notice. Therefore, from Mr. Sapusak’s point of view, both the vendor (970) and the purchaser (the insured) benefitted, and he seeks to recover his loss from both of them. This would include the proceeds of the sale. Where two parties collude, it is not clear who holds the proceeds of their endeavour.

[33] As discussed in oral argument, had counsel retained by the insurer for the insured believed that once the insured no longer owned the property, there was no other claim against it left in the amended statement of claim, counsel could have moved on behalf of the insured to have the action dismissed against it. That was not done for good reason – it would not have been successful.

[34] In my view, the application judge’s analysis of the claims in the amended statement of claim represents a reasonable and realistic view of that pleading. I would not give effect to this ground of appeal.

(c) Failing to use r. 25.06(9) of the Rules of Civil Procedure to assess whether the amended statement of claim seeks damages based on unjust enrichment against the insured

[35] Rule 25.06(9) of the Rules of Civil Procedure provides:

(9) Where a pleading contains a claim for relief, the nature of the relief claimed shall be specified and, where damages are claimed,

(a) the amount claimed for each claimant in respect of each claim shall be stated; and

(b) the amounts and particulars of special damages need only be pleaded to the extent that they are known at the date of the pleading, but notice of any further amounts and particulars shall be delivered forthwith after they become known and, in any event, not less than ten days before trial.

[36] The insurer argues that because Mr. Sapusak did not seek a specific amount of damages from the insured, his pleading does not seek a monetary remedy from it. It says that to find otherwise, as the application judge did, would endorse non-compliance with r. 25.06(9). I would not give effect to this submission. The pleading claims a constructive trust and a remedy for unjust enrichment, both of which could involve the payment of money, depending on the circumstances. These circumstances would include the state of and availability of the property, as discussed in the next section.

[37] As the application judge found, while the amended statement of claim does not explicitly seek monetary damages for unjust enrichment, it does specifically plead that the insured was unjustly enriched by improperly acquiring the property at a “deep discount”. If Mr. Sapusak is successful, the court will need to decide whether to order a monetary or proprietary remedy, and if a monetary remedy is ordered, the fair market value of the property. The pleading quantifies the damages as the difference between the sale price and the fair market value of the property.

(d) Erring in the interpretation of available remedies for unjust enrichment

[38] The insurer argues that because the property in this case was Mr. Sapusak’s home, a proprietary remedy would be more appropriate than a monetary one and the application judge erred by finding that a monetary remedy would be the only available relief in the circumstances. Again, there is no merit to this argument. The case law from the Supreme Court makes it clear that a monetary remedy is viewed as the primary remedy for unjust enrichment: Kerr, at para. 47; Moore, at para. 89. A constructive trust will only be ordered if the plaintiff first establishes that a monetary remedy would be inadequate: Moore, at para. 91.

[39] However, even if it was not the primary remedy, damages are an available remedy, depending on the circumstances at the time of judgment. While the insurer argues that on the facts of this case, Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574, and other cases would support a proprietary remedy, this is not the test when assessing whether the claim gives rise to a duty to defend. As damages are an available remedy for unjust enrichment, and indeed the “default” remedy, it is possible that the claim would fall within the policy.

(e) Considering extrinsic evidence in the interpretation of the claim

[40] Finally, the insurer submits that the application judge erred in law by considering extrinsic evidence in interpreting the amended statement of claim, which was not the type of extrinsic evidence such as documents referred to in the pleading that the courts have allowed: Monenco, at para. 36. The insurer further submits that even if other extrinsic evidence may be considered when interpreting the pleadings, this was not an appropriate case to do so: 1540039 Ontario Limited v. Farmers’ Mutual Insurance Company (Lindsay), 2012 ONCA 210, 110 O.R. (3d) 116, at para. 30. In particular, the insurer objects to the application judge considering facts that occurred after the amended statement of claim was delivered – in this case, the fact that the insured no longer owns the property – and relying on that fact to find that damages would be the only available remedy for unjust enrichment. The insurer’s position is that Mr. Sapusak could not have contemplated that turn of events when he issued and amended the claim, and therefore he limited the relief he sought from the insured to proprietary remedies.

[41] The submission that Mr. Sapusak could not have contemplated that the insured would lose the property before judgment is not borne out by the fact that he sought a certificate of pending litigation to prevent just such an occurrence. [2] Whether a party will own a property by the time of judgment cannot be known unless any transfer is prevented. As I agree with the application judge that the claims in the pleading for unjust enrichment and constructive trust over the proceeds of the sale can be read to include claims against the insured, the remedy for which can be damages, it was not a necessary part of the application judge’s interpretive analysis to consider the subsequent sale of the property. Therefore, if it was an error to do so, it was a harmless error.

Conclusion on the Interpretation of the Amended Statement of Claim

[42] In the result, I see no error in the application judge’s analysis or conclusion that the amended statement of claim can reasonably be read to include a claim for damages against the insured. Therefore, based on the concession on behalf of the insurer, referred to by the application judge, the duty to defend continues in this case, even though the insured no longer owns the property.

Conclusion on the Appeal

[43] In oral argument on the appeal, in response to questions from the court, counsel advised that the application judge had misunderstood their concession, which was that the insurer would continue to have a duty to defend a claim for damages if the U.S. cases applied, but they do not apply because the policy language here is different. In addition, counsel adverted to the reservation of rights letter that reserved the insurer’s rights to enforce the exclusions under the policy for title defects caused by the insured or known at the time of the policy by the insured but not by the insurer. Those exclusions would apply to any defect in title and to any damages claim. However, I note that the insurer undertook the defence despite the fact that the entire basis of the claim against the insured’s title was that it colluded with the mortgagee, 970.

[44] As these matters were not raised in the notice of appeal or in the factum, and were not the basis of the argument on the appeal, they do not form the basis of my analysis or decision. They can of course still be relied on by the insurer if indemnity under the policy becomes an issue.

[45] In the result, I would dismiss the appeal. The parties did not reach an agreement on costs. If they remain unable to agree, they may make brief written submissions of no more than three pages in length within two weeks of the release of these reasons.

Released: April 27, 2022 “K.F.” “K. Feldman J.A.” “I agree. S.E. Pepall J.A.” “I agree. M. Tulloch J.A.”

[1] There were two other subordinate issues that need not be addressed in these reasons. [2] An agreement was reached to avoid a certificate of pending litigation where there would be no sale by the insured without notice. It is unclear how the sale occurred in those circumstances, but that issue is not relevant to this appeal.