CITATION: Senator Real Estate v. Intact Insurance, 2021 ONSC 200
DIVISIONAL COURT FILE NO.: DC-20-310-JR
(Formerly CVD-HAM-49-20JR) DATE: 20210111
ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT
R. Smith, Lederer and Favreau JJ
BETWEEN:
SENATOR REAL ESTATE HOLDINGS LTD.
Applicant
– and –
INTACT INSURANCE COMPANY
Respondent
Rory Barnable for the Applicant
Christopher P. Klinowski for the Respondent
HEARD: December 1, 2020
R. SMITH J.
[1] Senator Real Estate Holdings Ltd., (“Senator”), has applied for judicial review seeking to quash the appraisal award of umpire Agnew made pursuant to section 128 of the Insurance Act R.S.O. 1990 c-I.-8. (the “Act”).
[2] A fire destroyed Senator’s resort property located at 130 Ivanhoe Lake Road, Foleyet, Ontario. The premises were insured by Intact Insurance Company of Canada (“Intact”). The insurance adjusters retained by Intact and Senator were unable to agree on the replacement cost value (“RCV”) or the actual cash value (“ACV”) of the premises. As a result, Senator requested that these values be determined by an umpire pursuant to section 128 of the Act.
[3] Senator submits that the umpire exceeded his jurisdiction by determining a matter on which the parties were not in disagreement, namely the rate of depreciation to be applied to the RCV of the building. Senator submits that Intact had agreed to apply a maximum depreciation rate of 24% and therefore this was not a difference for the umpire to determine.
[4] In addition, Senator submits that the umpire contravened his duty of procedural fairness by completing the appraisal proceeding and determining the appropriate depreciation rate, rather than adjourning after Senator’s appraiser advised him that Intact had allegedly agreed to cap the depreciation rate at a maximum of 24%.
[5] Senator also submits that Intact’s appraiser acted in a procedurally unfair manner by not giving adequate notice that it was using 45% and not a 24% depreciation rate to calculate the ACV.
[6] Intact denies that it ever agreed with Senator to limit the rate of depreciation to a maximum of 24% when determining the ACV. Intact acknowledges that it had offered to settle the amount of the ACV on a final basis, using a depreciation rate of 24% together with the lowest estimate it had obtained for the RCV. Intact’s offer to settle was conditional on Senator signing a final proof of loss containing final releases. Senator did not accept Intact’s offer and instead submitted an interim proof of loss that did not contain any releases, leaving the total value of the claim unresolved.
[7] Intact submits that the umpire did not exceed his jurisdiction but rather followed the informal procedure contemplated by the Act. The appraisers for both parties submitted their appraisal briefs to the umpire using different RCV values, different depreciation rates, and arrived at different ACV amounts. As a result, the differences to be determined by the umpire were obvious from the differences in the appraisal briefs and were known by the umpire and the parties, without requiring a separate meeting to determine the matters in disagreement.
[8] Finally, Intact submits that the umpire did not breach his duty of procedural fairness by not accepting Senator’s appraisers submission that Intact had agreed to apply a maximum depreciation rate 24% or by not adjourning the appraisal proceeding to allow Senator to file additional evidence. When Senator’s appraiser presented Intact’s May 7th, offer to settle, the umpire considered it and listened to submissions on this issue but decided to complete his appraisal by applying his knowledge and expertise to determine the RCV, the appropriate depreciation rate, and the ACV of the building.
Issues
[9] The following issues must be decided:
a) Did the umpire exceed his jurisdiction by deciding an issue on which the parties were not in disagreement; namely the rate of depreciation;
b) Did the umpire breach his duty of procedural fairness to Senator; and
c) Did Intact’s appraiser breach a duty of fairness to Senator?
Background Facts
[10] Senator’s resort property was destroyed by fire on March 10, 2018. The property was insured by Intact with a limit of for $1,236,096.00 for the building.
[11] Intact appointed Mr. Aubin(“Aubin”), an independent adjuster, to adjust the claim. Senator retained Mr. LeBlanc(“LeBlanc”) to adjust the claim on its behalf. Both LeBlanc and Aubin hold licenses issued by the Ontario Insurance Institute permitting them to adjust claims in Ontario.
[12] Senator signed an interim proof of loss claim, which did not state a value for the RCV or ACV, and Intact issued an initial payment towards the loss of the building for $818,26.86. Intact calculated this amount using a 44% depreciation factor and the lowest replacement cost estimate in its possession.
[13] The insurance policy terms allowed Senator to elect whether to rebuild or to accept a cash payment equal to the ACV of the building. To date Senator has not elected to rebuild a structure of like kind and quality and in this situation. Intact only owes Senator a payment for the ACV. The calculation of the ACV of the building requires two steps, firstly a determination of the RCV of the building and secondly the rate of depreciation to be applied to the RCV.
[14] LeBlanc and Aubin exchanged several estimates for the cost to rebuild the building but never agreed on the RCV. In the spring of 2019 Aubin asked one of its evaluators, Bourret Appraisals, (“Bourret”) to review a video of the building and thereafter he agreed to change the depreciation percentage from 44% to 24%.
[15] On May 7, 2019 Aubin sent an email to LeBlanc advising him that he had received a revised report from Bourret wherein he changed the depreciation factor from 44% down to 24%. The email stated that Intact had accepted the change and that the revised ACV was now $1,095,886.46, leaving a difference owing of $277,624.60. The e-mail also stated that Aubin had requested payment which had been issued and he proposed to exchange the cheque for a building final proof of loss.
[16] On May 21, 2019 Aubin emailed LeBlanc and advised that he had received the final cheque of $277,624.60 to conclude the building claim. Aubin asked LeBlanc to provide him “with a signed final building notarized proof of loss for this cheque”. Senator never accepted Intact’s proposal and did not agree to provide Intact with a final proof of loss which contained final releases.
[17] On May 24, 2019 LeBlanc advised Aubin that he was not in agreement with the RCV of the building and provided Aubin with an interim and not a final proof of loss, which kept the claim open and unresolved. The interim proof of loss dated May 24, 2019 was drafted by LeBlanc and stated that the replacement cost and cash value of the building were “TBD” (to be determined). At the end of May 2019, Intact provided Senator with an additional cheque in the amount of $277,624.60.
[18] On February 11, 2020, LeBlanc informed Aubin that Senator asked to “move to appraisal” to determine the RCV and ACV of the dwelling. This letter invoked the provisions of section 128 of the Act. LeBlanc advised that he would be the appraiser for Senator and asked who the appraiser would be for Intact.
[19] Intact appointed Byron Fairfield (“Fairfield”) as its appraiser. Fairfield is a qualified appraiser but was not a licensed adjuster. Aubin did not provide Fairfield with any additional claim background or instructions. Neither Aubin or LeBlanc ever advised Fairfield that Intact had made an advance payment to Senator based on a 24% depreciation factor and its lowest estimate for RCV. Aubin also did not advise Fairfield that there was any agreement between the parties on the depreciation rate to apply.
[20] On May 6, 2020, the two appraisers agreed to appoint Mr. Agnew to be the umpire pursuant to section 128 of the Act. The agreement signed by the appraisers and umpire Agnew, stated that the umpire was to destroy all his notes and any other documents admitted into evidence or kept in conjunction with the appraisal, except for the Appraisal Award and the Appraisal Agreement. The agreement also stated that umpire was not compellable to testify or divulge any information in respect of the issues or evidence considered at the Appraisal. This agreement is consistent with the informal appraisal procedure followed under section 128 of the Act.
[21] The appraisal was conducted by umpire Agnew along with the two appointed appraisers on June 4, 2020. Both appraisers had submitted appraisal briefs to each other and to the umpire at least six days before June 4, 2020. (May 29, 2020 for Fairfield’s brief).
[22] In his appraisal brief LeBlanc stated that in terms of depreciation, the insurer was of the opinion that it should be 25%. LeBlanc stated that he felt this amount was excessive and that “We feel a rate of 10% is more appropriate.”
[23] When LeBlanc received Fairfield’s appraisal brief he recognized that Fairfield was applying a depreciation rate of 45-48 % and not 24%, he did not raise this with Fairfield or umpire Agnew.
Standard of Review
[24] The parties agree that reasonableness is the applicable standard of review in accordance with the principles set out by the Supreme Court of Canada in Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65.
Analysis
Issue # 1
Did the umpire exceed his jurisdiction by deciding an issue on which the parties were not in disagreement; namely the rate of depreciation?
[25] The parties agree that the conduct of the appraisal is governed by section 128 of the Insurance Act, the first three subsections of which read as follows:
128 (1) This section applies to a contract containing a condition, statutory or
otherwise, providing for an appraisal to determine specified matters in the event of a disagreement between the insured and the insurer.
(2) The insured and the insurer shall each appoint an appraiser, and the two appraisers so appointed shall appoint an umpire.
c572b1100b41f09e3273b357befbf8-13
(3) The appraisers shall determine the matters in disagreement and, if they fail to agree, they shall submit their differences to the umpire, and the finding in writing of any two determines the matters.
[26] Senator invoked the process outlined under section 128 of the Act to determine the RCV and ACV of the building destroyed by the fire. Senator appointed LeBlanc and Intact appointed Fairfield as their respective appraisers, and they appointed Mr. Agnew as the umpire pursuant to s. 128 (2).
[27] Section 128 (3) states that the appraisers are to determine the matters in disagreement and if they fail to agree “they shall submit their differences to the umpire” for decision.
[28] The two appraisers each prepared appraisal briefs which were submitted to the umpires. Both appraisers used a different RCV, applied a different depreciation rate, and arrived at a different ACV.
[29] The applicant submits that the appraisal process requires a two-stage process, firstly the appraisers are to meet to determine the matters in disagreement and then secondly they submit their differences to the umpire for determination.
[30] The applicant relies on the decision of Kenney v. Johnson, 2020 NSSC 196 where the court gave directions for the appraisers to identify issues of disagreement, and to determine if some can be resolved through negotiation, by an umpire or by the court. This decision was not a judicial review of a decision of an umpire but was rather a motion for directions under a provision that was similar to s. 123 (5) of the Insurance Act, which allows a party to apply to a court for directions if appraisers were not appointed or if they could not agree to appoint an umpire. In this case, neither party sought directions from the court on how to proceed and as such the Kenney decision is not applicable.
[31] In this case both appraisers and the umpire were aware of the differences to be decided because they were set out in their appraisal briefs, namely they used different RCV’s and applied different depreciation rates. The umpire acted reasonably by proceeding to conduct his appraisal with the two appraisers without requiring the appraisers hold a preliminary meeting to determine the differences. The differences were obvious from the different values used in the two appraisal briefs and, as such, a preliminary meeting to determine the differences was not necessary.
[32] The applicant’s main objection to the umpire’s decision is based on its allegation that the parties had previously agreed to apply a maximum rate of depreciation of 24% and as such this was not a difference or a matter in disagreement for the umpire to decide.
[33] The respondent denies that any agreement was reached on the rate of depreciation to be applied to the RCV of the building. Intact acknowledges that it made an offer to settle in its adjuster’s May 7, 2019 email, where it proposed to apply a 24% depreciation rate to the lowest RCV estimate in its possession in return for a final proof of loss containing releases being provided by Senator. Senator did not accept Intact’s offer and proceeded to invoke the appraisal process.
[34] Intact paid a further sum of $277,624.60 based on the receipt of a further interim proof of loss form, applying a depreciation rate of 24%. The amount Intact has advanced to Senator exceeds the amount of the ACV determined by the umpire.
[35] In Gore Mutual Insurance Company v. Carlin, 2018 ONCA 628 at para 24 the Court of Appeal stated that an advance payment was an advance pending determination of the actual cash value. An insured who continued to dispute the ACV and RCV in the appraisal process was showing that it did not feel bound by the advance. The Court of Appeal stated that a contract of insurance was one of indemnity (para 21). The insured was not allowed to retain the advance overpayment by the insurer.
[36] Following the reasoning of Gore Mutual, Intact’s advance payment above the ACV determined by the umpire does not affect the jurisdiction or the reasonableness of the umpire’s decision.
[37] Based on the briefs both sides provided, depreciation was clearly an issue in dispute and the umpire acted reasonably in proceeding on the basis that this was a difference to be decided. The umpire also acted reasonably in deciding that he was not bound by an alleged agreement to apply a maximum depreciation rate of 24% based on the documents provided to him and the fact that Senator had argued before him that a 10% depreciation rate should be applied and not the 24% that it now argues was agreed upon.
Disposition of Issue #1
[38] For the above reasons I find that the umpire’s decision was reasonable in the circumstances and that he did not exceed his jurisdiction by determining an issue on which there was no disagreement when he determined the RCV and ACV of the building.
Issue #2 – Did the umpire breach his duty of procedural fairness to Senator?
[39] Senator also submits that the umpire breached his duty of procedural fairness by completing the appraisal process after LeBlanc raised the May 7, 2019 email alleging that Intact had agreed to apply a maximum depreciation rate of 24%. Senator alleges that the umpire should have adjourned the appraisal to allow it to file additional evidence, namely a video.
[40] In its appraisal brief, LeBlanc had argued that the umpire should apply a depreciation rate of 10%. LeBlanc brought a copy of the May 7, 2019 email with him but only presented this during the appraisal meeting after the umpire had determined the RCV of the premises. Fairfield advised the umpire that he did not agree with a depreciation rate at 24% and referred the umpire to his spreadsheet calculations.
[41] The umpire listened to LeBlanc’s submissions and then said, “let’s just see what this exercise produces, let’s see where it brings us, and then we’ll discuss it”. Senator submitted at the hearing that the umpire should have adjourned the appraisal proceeding to allow LeBlanc to produce a video, showing the condition of the building before the fire. LeBlanc had the video in his possession a long time before the appraisal and chose not to introduce it as part of his appraisal brief. This was his choice did not amount to procedural unfairness
[42] When he received Fairfield’s brief, LeBlanc was aware that Fairfield was not applying a 24% depreciation rate. LeBlanc did not raise this issue to the umpire at the commencement of the appraisal meeting because he was arguing that a 10% rate should be applied and not that there was an agreement to apply a 24% depreciation rate. There is also no evidence that LeBlanc sought an adjournment to adduce additional evidence (the video), which he had in his possession for over a year and did not produce as part of his brief.
[43] An appraisal under section 128(1) is intended to be carried out as an “informal process” by which the parties determine valuation. It is supposed to be carried out by people experienced with valuation. The umpire conducted the appraisal in a procedurally fair manner.
Disposition of Issue #2
[44] In these circumstances I find that the umpire’s decision to complete his appraisal without an adjournment was reasonable and he did not breach his duty of procedural fairness to Senator. The umpire’s decision that he was not bound by an alleged agreement to apply a maximum depreciation rate of 24% was also reasonable in the circumstances.
Issue #3 – Did Intact’s appraiser breach a duty of fairness to Senator?
[45] Fairfield was appointed as Intact’s appraiser for the s. 128 process. He proceeded to conduct his appraisal without obtaining and reviewing the adjuster’s (Aubin’s) file, as a result he was unaware of the May 7, 2019 offer made by Intact that had used a 24% depreciation rate and the lowest RCV estimate. Fairfield was also unaware that Intact had made a further advance payment to Senator based on the above assumptions.
[46] The alleged unfair conduct by Fairfield was the fact that he appraised the building without regard to an alleged agreement to apply a maximum depreciation rate of 24% and therefore is alleged to have acted outside of his authority as an appraiser.
[47] Fairfield conducted his appraisal professionally and independently and was unaware of any alleged agreement to apply a maximum depreciation rate of 24%. In the circumstances Fairfield did not breach any duty of fairness to Senator, if such a duty was owed, in the manner that he conducted his appraisal, LeBlanc was aware of the depreciation rate used by Fairfield for six days before the appraisal meeting with the umpire. He did not take any steps to address this matter with Fairfield, did not advise the umpire at the outset of the meeting, and took no steps to seek directions from a judge before appearing before the umpire to address this issue.
[48] More fundamentally, Senator has not advanced any authority in support of its argument that Fairfield, as Intact’s appointee, owed it a duty of procedural fairness or that such a duty would include a requirement to obtain and consider all documents and information previously considered by Intact.
Disposition of Issue #3
[49] For the above reasons I conclude that Fairfield did not breach any duty of fairness to Senator when conducting his appraisal.
Conclusion
[48] Senator’s application for judicial review is dismissed and Senator is ordered to pay costs in the agreed amount of $20,000.00.
___________________________ R. Smith J.
I agree
Lederer J.
I agree
Favreau J.
Released: January 11, 2021
CITATION: Senator Real Estate v. Intact Insurance, 2021 ONSC 200
DIVISIONAL COURT FILE NO.: DC-20-310-JR
(Formerly CVD-HAM-49-20JR) DATE: 20210111
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
R. Smith, Lederer, and Favreau JJ.
BETWEEN:
SENATOR REAL ESTATE HOLDINGS LTD.
Appellant
– and –
INTACT INSURANCE COMPANY
Respondent
REASONS FOR JUDGMENT
Released: January 11, 2021