CITATION: Douglas v. Stan Fergusson Fuels Ltd. et al., 2016 ONSC 442
DIVISIONAL COURT FILE NO.: DC-15-2087
DATE: 2016/01/18
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Marrocco A.C.J., Herold, Whitten JJ.
BETWEEN:
ART DOUGLAS and WENDY DOUGLAS
Plaintiffs/Respondents
– and –
STAN FERGUSSON FUELS LTD, IMPERIAL OIL LTD and IMPERIAL OIL, a partnership of IMPERIAL OIL LIMITED and McCOLL-FRONTENAC INC.
Defendants/Appellants
Matthew Gervan, for the Plaintiffs (Respondents),
Amy Pressman and Diana Weir, for the Defendants (Appellants),
HEARD AT OTTAWA: October 27, 2015
BY THE COURT
[1] The respondents, Arthur and Wendy Douglas, were a married couple living in Kingston, Ontario who jointly purchased a home there at 4475 Highway 2 West R.R. #3 in 1999 (the Douglas property). At the time they bought the property, the respondents arranged for the appellants to deliver fuel oil.
[2] The respondents separated in January 2005.
[3] On January 25, 2007, Wendy Douglas made an assignment for the benefit of her creditors. Her Statement of Affairs declared assets of approximately $48,000 and liabilities of approximately $159,000. Ms. Douglas’s Trustee replaced her on the title to the Douglas property on January 29, 2007. Ms. Douglas received a discharge from her debts on November 14, 2007, however her discharge was subject to the stipulation that her interest in the Douglas property remained vested in her Trustee.
[4] Despite the deletion from title and the stipulation in her discharge, Ms. Douglas remained a named insured under the material State Farm Homeowners Policy insuring the Douglas property.
[5] On January 9, 2008, a representative of the appellants attended at the Douglas property for a routine home oil delivery. During the delivery, the entire shipment of heating oil (622 litres) escaped and contaminated the property. At the time of the oil spill, the material State Farm Homeowners Policy insured the Douglas property against this type of loss.
[6] The Homeowners Policy contained the following specific endorsement concerning fuel oil leaks (FE-5470):
You are insured for sudden accidental direct physical loss or damage to the dwelling and your personal property caused by the accidental escape of fuel oil from a fixed household type tank or apparatus and pipes which are part of a heating unit for the insured dwelling.
[7] The policy also contained a specific subrogation clause enumerating State Farm’s right to assume and enforce all rights of recovery in the event of a payment under the policy. The specific clause provided as follows:
We will be entitled to assume all of your rights of recovery against others and bring an action in your name to enforce these rights when we make payment or assume liability under this policy. Your right to recover from us is not affected by any release from liability entered into by you prior to loss. [Emphasis added]
[8] On January 9, 2008, the same day as the oil spill, Mr. Douglas informed the appellants about the oil spill. Stan Ferguson Fuels Ltd., one of the appellants, alerted an emergency response service provider, who in turn engaged an environmental clean-up company.
[9] The following day, State Farm appointed an adjuster, John Crawford. Mr. Crawford determined that the existing State Farm Homeowners Policy provided coverage.
[10] On March 17, 2008, Brad Wilson, the appellants’ adjustor, sent to Mr. Crawford’s attention $137,596.76 in invoices from the clean-up provided in January 2008. State Farm paid these invoices. State Farm also advised Mr. Wilson that it intended to recover these and any future clean-up costs from the appellants. At this point it was clear that State Farm had assumed liability under the Homeowners Policy and was entitled pursuant to the subrogation clause to assume Mr. Douglas’s right of recovery and sue in his name to enforce that right.
[11] Over the following months, as engineering and environmental clean-up work progressed at the Douglas property, State Farm continued to make payments under the Homeowners Policy.
[12] On or about June 4, 2009, Mr. Douglas filed an assignment for the benefit of his creditors. Mr. Douglas’s Trustee also replaced him on the title to the Douglas property at that time. Mr. Douglas’s Trustee informed State Farm of this assignment on June 5, 2009. Mr. Douglas’s Statement of Affairs declared assets of $25,000 and liabilities of approximately $100,000.
[13] Mr. Douglas was an undischarged bankrupt when State Farm commenced this action in the name of Arthur and Wendy Douglas on January 7, 2010. The claim asked for damages for tort, breach of contract and various breaches of statutory duties.
[14] In July 2009, State Farm settled all of the personal contents claims arising from the oil spill.
[15] Mr. Douglas’s Trustee sold the property in October 2009, by which time State Farm had paid out or assumed liability for over $800,000 in expenses associated with the oil spill.
[16] The appellants unsuccessfully moved for summary judgment. Their motion was dismissed on August 13, 2014.
[17] The appellants’ position before the motion judge was that Arthur and Wendy Douglas had no capacity to bring the action because each had become bankrupt before the claim was issued with the result that their property, as well as any causes of action, had vested in their respective Trustees, who were not named as plaintiffs. The appellants pointed out that the limitations period had expired, and for that reason it was not possible to simply amend the claim and add the Trustees for Arthur and Wendy Douglas as plaintiffs. Accordingly, they submitted the claim was a nullity and, even if valid, could not be amended. Permitting this claim to proceed, they argued, would subvert the federal bankruptcy scheme which vested a bankrupt’s property in his or her Trustee.
[18] The motion judge found that this action comprised only the subrogated claims of State Farm.
[19] The motion judge found that State Farm had not been advised of any other insurance claims, actions or intentions to commence an action for uninsured or other claims by the plaintiffs or by their respective Trustees and that there was no dispute between State Farm and the plaintiffs or their Trustees concerning control of this matter.
[20] The motion judge also determined that the plaintiffs had been fully indemnified under the State Farm policy and that this action represented a fully subrogated claim by State Farm for the recovery of payments made under the policy.
[21] The motion judge determined that State Farm was dominus litis, i.e., the party making decisions in this matter.
[22] The motion judge found that granting an order for summary judgment would result in the appellants (the potential tortfeasors) benefiting from the fact that the plaintiffs were insured.
[23] The motion judge concluded that granting the motion would incorrectly emphasize form over substance and also offend one of the underlying objectives of the doctrine of subrogation described by the Supreme Court of Canada in Somersall v. Friedman, 2002 SCC 59, [2002] 3 S.C.R. 109, at para. 50; namely that the loss should fall on the person who is legally responsible for causing it.
[24] Finally, the motion judge concluded that allowing the motion for summary judgment would lead to an inequitable result, namely that State Farm would be prevented from prosecuting this matter in circumstances where neither the plaintiffs nor their Trustees had any motivation, intention or obligation to protect or pursue State Farm’s subrogated claim.
[25] In Somersall v. Friedman, at paragraph 118, Justice Binnie, for the minority, stated that subrogation was “a contingent right that vests at the time the policy is entered into.” The majority did not specifically address this proposition because it concluded that the wording of the underinsured driver coverage endorsement, with which it was concerned, resulted in the insurer’s subrogation rights arising as soon as the insured made a claim for that coverage.
[26] According to the motion judge, the State Farm Homeowners Policy, with which we are concerned, was effective from September 30, 2007 to September 30, 2008. Therefore, State Farm had, from September 30, 2007 to September 30, 2008, a vested contingent right to assume any right of recovery which Arthur and Wendy Douglas had against any person who caused an oil spill to occur on the Douglas property and a vested contingent right to bring an action in the names of Arthur and Wendy Douglas to enforce that right of recovery.
[27] By September 30, 2007, the effective commencement date of the material State Farm Homeowners Policy, Wendy Douglas had already made assignment in favour of her creditors (January 25, 2007) in circumstances where her liabilities were more than three times her assets and her Trustee had replaced her on the title to the Douglas property (January 29, 2007). Further, on November 14, 2007, the date the Deputy Registrar discharged Wendy Douglas from her debts; Wendy Douglas’s interest in the Douglas property remained vested in her Trustee by order of the Deputy Registrar. In other words, after November 14, 2007, subject to applicable provincial exemptions, Wendy Douglas had no right of recovery for damages caused to the Douglas property.
[28] On September 30, 2007, the effective commencement date of the material State Farm Homeowners Policy, Arthur Douglas was not under any such legal disability. Accordingly, he had a right of recovery against anyone who spilled oil on the Douglas property. In turn, State Farm had, from that date to September 30, 2008, a vested contingent right to assume his right of recovery and a vested contingent right to bring an action in his name to enforce his right of recovery,
[29] Shortly after March 17, 2008, when State Farm assumed liability for the loss caused by the oil spill by paying $137,596.76 in invoices from the clean-up, its vested contingent right to assume Mr. Douglas’s right to recover and to bring an action to enforce that right crystalized.
[30] Therefore, when Arthur Douglas made an assignment in favour of his creditors on June 4, 2009, and his right to recover against the appellants vested in his Trustee, it was a right to recover, which was subject to State Farm’s vested right to assume it and State Farm’s vested right to commence an action in Mr. Douglas’s name to enforce it.
[31] Mr. Douglas’s Trustee cannot be in a different or less encumbered position than Mr. Douglas in this regard.
[32] In addition, on May 27, 2009 Arthur Douglas’s Trustee, who was also Wendy Douglas’s Trustee, in anticipation of Mr. Douglas’s assignment, disclaimed interest “in insurance claims by Wendy Faye Douglas (neé Rose) and /or Arthur John Charles Douglas for loss or damage in the oil spill….” See pages 170 & 171 of the Exhibit Book.
[33] Accordingly, State Farm was entitled to commence this action in Mr. Douglas’s name without the consent of his Trustee, and, accordingly, the appellant’s motion for summary judgment was properly dismissed by the motion judge. As a result, this appeal is dismissed.
[34] Permitting State Farm to continue this action in the name of Arthur Douglas should not impede Mr. Douglas’s Trustee. The law has been clear for some time that an insured receives proceeds from litigation commenced in his or her name by a subrogated insurer as a trustee for the insurer: see Randle v. Cochran, 1 Ves. Sen. 98, (1749), 27 Eng. Rep. 916; Yates v. Whyte (1838), 4 Bing. N.C. 272, 132 Eng. Rep. 793. As a result, no doubt about the existence of such a trust should arise. Property held in trust by a bankrupt is not divisible amongst the creditors: see section 67(1) (a) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3. In addition, the Trustee in completing administration of a bankrupt’s estate may apply to the court for directions concerning property, which includes a cause of action, upon which the Trustee is unable to realize without commencing or continuing litigation: see section 40(2) of the Bankruptcy and Insolvency Act and Murphy v. Stefaniak, 2007 ONCA 819, 37 C.B.R. (5th) 6. In this regard, as indicated, the Trustee had on May 27, 2009 disclaimed interest in the insurance claims.
[35] The parties have agreed that $25,000, inclusive of disbursements and applicable taxes, should be payable to the successful party. We believe that this is a reasonable amount and accordingly the appellants will pay the respondents $25,000 on account of costs.
MARROCCO A.C.J.S.C.
HEROLD J.
WHITTEN J.
Released: January 18, 2016
CITATION: Douglas v. Stan Fergusson Fuels Ltd. et al., 2016 ONSC 442
DIVISIONAL COURT FILE NO.: DC-15-2087
DATE: 2016/01/18
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
Marrocco A.C.J., Herold, Whitten JJ.
BETWEEN:
ART DOUGLAS and WENDY DOUGLAS
Plaintiffs/Respondents
– and –
STAN FERGUSSON FUELS LTD, IMPERIAL OIL LTD and IMPERIAL OIL, a partnership of IMPERIAL OIL LIMITED and McCOLL-FRONTENAC INC.
Defendants/Appellants
REASONS FOR JUDGMENT
Released: January 18, 2016