Court File and Parties

CITATION: The Dominion of Canada General Insurance Company v. Nelson, 2023 ONSC 386 DIVISIONAL COURT FILE NO.: 605/21 DATE: 20230116

ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT

RSJ Edwards, Stewart and Nishikawa JJ.

BETWEEN:

The Dominion of Canada General Insurance Company Appellant

– and –

Eutice Nelson, a.k.a. Janet Ross Respondent

COUNSEL: Christopher I.R. Morrison, for the Appellant Osborne Barnwell, for the Respondent

HEARD at Toronto via videoconference: June 16, 2022

REASONS FOR DECISION

Stewart J.

Nature of the Appeal

[1] The Dominion of Canada General Insurance Company appeals, with leave, the decision of Steele, J. dated July 7, 2021 which dismissed for delay the Appellant’s motion brought under Rule 21 of the Rules of Civil Procedure, RRO 1990, Reg 194. That motion sought a determination before trial of the preliminary legal issue of the court’s jurisdiction to hear and determine the matters in dispute that the Respondent had raised in her civil action commenced in the Superior Court of Justice.

[2] On this appeal, the Appellant submits that the motion judge erred in failing to determine that the Superior Court of Justice lacks jurisdiction over the subject matter of the Respondent’s action and in dismissing the motion pursuant to Rule 21.02 simply on the basis that it had not been brought early enough in the proceedings.

[3] The Respondent takes the position that the decision of Steele, J. under appeal should not be disturbed.

Background

[4] The dispute between the parties centres on the amount of fire insurance coverage available to the Respondent under a policy issued by the Appellant.

[5] In October, 2017 the Respondent’s home was destroyed in a fire. The Respondent had a policy of insurance issued by the Appellant which covered the cost of repairs to and/or replacement of the home.

[6] The parties were unable to agree on the precise quantum of the required payment to the Respondent for the loss due to fire. They then elected to proceed to an appraisal process as provided in s. 128 of the Insurance Act, RSO 1990, c I.8. Under s. 128, parties may seek to determine such claims in a comparatively speedy and cost-effective method in accordance with the governing statute.

[7] In March 2020, the Respondent’s fire loss was appraised at $465,000 for replacement cost of her home and $372,000 for its actual cash value, subject to deduction of amounts previously paid by the insurer. This led to a dispute regarding the deductibility of amounts previously paid to the Respondent by the Appellant. This dispute was submitted to an Insurance Umpire as provided for in the Act.

[8] The Respondent submitted throughout this process that the appraised amount was to reflect an amount owing to her that was not subject to any deduction of indemnity payments already made to her by the Appellant.

[9] The ultimate decision of the Insurance Umpire agreed with the position of the Appellant on the amounts owing to the Respondent and on the proper deductibility of indemnity payments already made to and received by her.

[10] In June 2020, the Respondent brought a civil action in the Superior Court of Justice against the Appellant in which she claims damages for alleged breach of the contract for insurance coverage as referred to above. In her action, the Respondent seeks all amounts owing to her for the fire loss as well as damages for mental distress, breach of duty of good faith, and punitive damages.

[11] The Appellant defended the action and raised in its Statement of Defence the issue that the Superior Court of Justice lacks jurisdiction to deal with any complaint arising out of the appraisal or the decision of the Insurance Umpire as those were steps taken and decisions made pursuant to the Act. The Appellant took the position that, after exhausting any internal means of reconsideration or review available to her under the regime, the Respondent’s only recourse if dissatisfied with the result was an application to Divisional Court for judicial review.

[12] In August 2020, the Respondent brought a motion for summary judgment pursuant to Rule 20 before Papageorgiou J. The motion judge dismissed the motion, having concluded that there were factual disputes as to the purpose of the appraisal and as to what had occurred during the appraisal process that she was unable to determine on the record before her. No actual determination of the legal issue of jurisdiction was made by the summary judgment motion judge.

[13] Following the summary judgment motion no examinations for discovery were conducted nor were or other steps in the proceedings taken by either party.

[14] At a case conference before Papageorgiou J. on December 15, 2020 the Appellant advised the Respondent and the court that it was seeking to have the issue of jurisdiction determined by way of a motion under Rule 21. The Appellant’s Rule 21 motion was heard by Steele J. who had been assigned to replace Papageorgiou J. as case management judge for the action.

[15] The Appellant’s Rule 21 motion sought a legal determination from the motion judge of the issue of jurisdiction raised in its Statement of Defence and argued that the Respondent must elect either (a) that she is challenging the results of the appraisal of fire damage and replacement costs conducted pursuant to s. 128 of the Act, in which case she must proceed through the avenues available to her under the Act or by judicial review, or (b) that she is not challenging in any way in her action the results of the appraisal or the decision of the Insurance Umpire to whom the parties’ dispute regarding the proper amounts to be owing as, or deducted from, the insurance proceeds had been submitted under the Act.

[16] On the hearing of the Rule 21 motion, the Respondent raised the issue of alleged delay in the bringing of the motion and submitted that it should be dismissed on that basis alone. In so doing, the Respondent relied on Rule 21.02 which states as follows:

A motion under rule 21.01 shall be made promptly and a failure to do so may be taken into account by the court in awarding costs. R.R.O. 1990, Reg. 194, r. 21.02.

[17] The motion judge held that the pleadings and reasons of the summary judgment judge made it clear that the appraisal and decision of the Insurance Umpire were in issue and that the Appellant had asserted in its Statement of Defence that the court lacked jurisdiction to deal with the subject matter of the action. The motion judge also recognized that any challenge to the appraisal should be pursued by way of an application for judicial review in Divisional Court, noting that the issue of jurisdiction had not been decided on the Respondent’s summary judgment motion and therefore could not be appealed by the Appellant.

[18] The motion judge nevertheless concluded that the Appellant ought to have brought its Rule 21 motion earlier in the proceedings and that to allow the motion would be highly prejudicial to the Respondent.

[19] The motion judge relied upon the decision in Schellenberg v. International Brotherhood et. al., 2014 ONSC 7305. In that decision, Rule 21.02 was interpreted as entitling a motion judge to summarily dismiss a motion brought under Rule 21 on grounds of delay alone, and that delay was not merely a factor to be considered by a motion judge when deciding costs.

[20] The motion judge also interpreted the provisions of Rule 2.01(1) and 2.02 as being a basis upon which to characterize the failure of the Respondent to seek judicial review of the decision of the Insurance Umpire as a mere “irregularity”. Those provisions provide as follows:

The term “irregularity” is set out in Rule 2.01 as follows:

2.01(1) A failure to comply with these rules is an irregularity…

Rule 2.02, upon which the motion judge relied to decline to hear the motion, states:

2.02 A motion to attack a proceeding or a step, document, or order in a proceeding for irregularity shall not be made except with leave of the court

(a) after the expiry of a reasonable time after the moving party know or ought reasonably to have known of the irregularity, or

(b) if the moving party has taken any further step in the proceeding after obtaining knowledge of the irregularity.

[21] The motion judge, relying on the above-noted provisions of the Rules, declined to hear the motion on its merits and dismissed the motion for delay and ordered the Appellant to pay costs of the motion to the Respondent.

[22] For the reasons that follow, I would allow the appeal.

Jurisdiction

[23] This court has jurisdiction to determine appeals from interlocutory orders, with leave, pursuant to s. 19(1)(b) of the Courts of Justice Act, RSO 1990, c C.43. As indicated, leave to appeal was granted by a panel of the Divisional Court.

Standard of Review

[24] The parties agree that appellate standards of review apply to the issues under appeal. Questions of law are reviewable on a correctness standard. Issues of fact or mixed fact and law are reviewable on a standard of palpable and overriding error unless an extricable question of law can be identified (see: Housen v. Nikolaisen, 2022 SCC 33).

[25] Although the motion judge’s dismissal of the motion on the basis of delay may arguably involve issues of mixed fact and law, there are in this case extricable errors in law. Extricable errors in law include application of incorrect principles, the failure to consider a required element of a legal test, or failure to consider a relevant factor.

Law and Discussion

[26] The principal argument advanced by the Appellant is that the motion judge erred in law in the interpretation and application of the provisions of Rules 21, 2.01(1) and 2.02 in declining to hear the motion on its merits and in summarily dismissing it for delay.

[27] The Rule 21 motion was brought by the Appellant to determine the jurisdictional issue raised in its Statement of Defence before any party had incurred unnecessary expense in pre-trial discoveries or other proceedings.

[28] The nature of the appraisal process for property damage valuation disputes arising under a policy of insurance is set out in s.128 of the Act, 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. R.S.O. 1990, c. I.8, s. 128 (1).

Appraisers, appointment

(2) The insured and the insurer shall each appoint an appraiser, and the two appraisers so appointed shall appoint an umpire. R.S.O. 1990, c. I.8, s. 128 (2).

Appraisers, duties

(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. R.S.O. 1990, c. I.8, s. 128 (3).

[29] In this case, statutory condition 11 under s. 148 of the Act provided for such an appraisal:

In the event of disagreement as to the value of the property insured, the property saved or the amount of the loss, those questions shall be determined by appraisal as provided under the Insurance Act before there can be any recovery under this contract whether the right to recover on the contract is disputed or not, and independently of all other questions. There shall be no right to an appraisal until a specific demand therefor is made in writing and until after proof of loss has been delivered.

[30] The appraisal process is a fundamental tool in the resolution of these kinds of insurance disputes. In essence, the Act provides a comprehensive process for determining the amount of insurance to be paid for property damage caused by fire. Both parties had engaged this process as provided by the insurance contract and the governing legislation and administrative framework.

[31] In 854965 Ontario Ltd. v. Dominion of Canada General Insurance Co 2003 42670 (ON SC) the appraisal process under the Act was described as follows (at para. 25):

The appraisal process is contemplated, by the terms of statutory condition # 11, to take place prior to any recovery under the contract, whether there is any dispute as to the ability to recover on the contract, and independently of all other questions. The appraisal process commonly determines value but leaves question[s] of entitlement and defences to recovery under the contract to a lawsuit under the contract of insurance.

[32] The appraisal process under the Act has been described as unique. As summarized by the Divisional Court in its decision in Birmingham Business Centre Inc. v. Intact Insurance Company, 2018 ONSC 6174:

There have been a number of cases that have commented upon the unique statutory scheme and context that govern the award under review see Krofchick et al and Provincial Insurance Co. Ltd. et al, 1978 1304 (ONSC); Barrett et al and Elite Insurance Co. et al, 1987 4160 (ONCA); Seed v. ING Halifax Insurance et al, 2005 41991 (Div. Ct); Madhani v. Wawanesa Mutual Insurance Company, 2018 ONSC 4282 (Div. Ct.)

What emerges from these cases is the following:

(1) The purpose of this appraisal process is to provide an expeditious and easy manner for the settlement of claims for indemnity under insurance policies. It is intended to be a final and binding determination of the loss.

(2) Courts have afforded substantial deference to an appraisal under the Insurance Act and the appraisal process. Unless there is proof of misconduct or that the appraisers or umpire exceeded their jurisdiction courts have been reluctant to interfere.

(3) The appraisal process established by the Insurance Act is considered to be a valuation not an arbitration.

(4) The appraisal process is not adjudicative in nature. The process is based on discussion and on the sharing of expertise in valuation. Appraisers can arrive at a decision based on their own knowledge and expertise.

(5) An appraisal is not subject to the provisions of the Statutory Powers Procedure Act, R.S.O. 1990 c. S.22. (6) An appraisal under s. 128 of the Insurance Act requires neither a hearing, a consideration of evidence nor reasons.

[33] Similarly, as noted in DK Manufacturing Group Ltd. v. Co-operators General Insurance Co. 2016 ONSC 3983, at paragraph 45:

Importantly, as a matter of law the appraisal process provided for under a policy pursuant to s.128 of the Insurance Act is not optional once it is invoked; rather, it is mandatory: Seed v. ING Halifax Insurance, 2002 79669 (ON SC), [2002] O.J. No. 1976 (Ont. S.C.J.). Moreover, the case law is clear that an Umpire’s ruling constitutes a final determination of the issue and is binding on all parties. If a party wishes to dispute the ruling of an Umpire, that party must bring an application for judicial review to the Divisional Court. Even then, the courts are cautioned against “lightly interfering” with an Umpire’s ruling. This has been interpreted as requiring misconduct on the part of the Umpire. Seed v. ING Halifax Insurance, 2005 41991 (ON SCDC), [2005] O.J. No. 4870 (Ont. Div. Ct.) at para. 23; Barrett v. Elite Insurance Co. (1987), 1987 4160 (ON CA), 59 O.R. (2d) 186 (Ont. C.A.) at para. 13.

[34] Again, as noted by Perell J. in Northbridge General Insurance Corp. v. Ashcroft Homes-Capital Hall Inc., 2021 ONSC 1684 (at paras 22-23):

The purpose of the appraisal process under the Insurance Act is to provide an expeditious and easy means for the settlement of claims for indemnity under insurance policies. The appraisal process may be demanded only where there is a dispute about the valuation of the loss. There is no time limit within which to request the appraisal process, and absent proof of prejudice, delay in invoking the appraisal process is not a factor in the right to an appraisal.

The appraisal process is intended to be a final and binding determination of the loss. The appraisal process is mandatory, and unless waived by both parties or unless impossible to perform, there must be an appraisal before there can be recovery under the policy. The appraisal process is intended to a facilitate a quick resolution of a dispute about the value of the property insured, the value of the salvage, or the quantification of the damage to the property, but it is not intended to be an arbitration or an alternative dispute resolution method that will resolve all the issues between the parties; all other non-valuation issues are outside the province of the appraisers and umpire to resolve.

[35] In Northbridge General Insurance Corp. v. Ashcroft Homes-Capital Hall Inc., supra, Perell J. further stated (at para 33):

As noted above, the appraisal process is subject to judicial review, but the appraisal process is not subject to the provisions of the Statutory Powers Procedure Act. On a judicial review application, 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. On a judicial review application, the court may determine on a case-by-case basis whether there was procedural fairness in the appraisal process having regard to: (a) the nature of the decision being made and the process followed in making it; (b) the nature of the statutory scheme being administered; (c) the importance of the decision to the affected individual; (d) the legitimate expectations of the person challenging the decision; and (e) respect for the choice of the procedures made by the administrative agency itself.

[36] The appraisal process is not necessarily exhaustive of all potential disputes between the parties who engage it. For example, there may be a dispute about the scope of coverage such as whether landscaping restoration is covered under the policy of insurance. While the value of such a loss might be determined as part of the appraisal process, that process does not address entitlement to indemnity for it (see: Desjardins General Insurance Group v. Campbell, 2022 ONCA 128). In the present case, however, the Respondent’s action as pleaded challenges the valuation presented to and accepted by the Insurance Umpire.

[37] The results of an appraisal are therefore final, binding and subject only to an application for judicial review in the Divisional Court, generally on a standard of reasonableness. In such cases the remedy available, if the application is successful, is an order setting aside or varying the valuation.

[38] Accordingly, the Superior Court does not have jurisdiction to hear and decide a claim relating to an appraisal of fire insurance damages under an insurance policy that has already been the subject of an appraisal process and determination by an Insurance Umpire under the Act. In failing to so find, the motion judge erred in law.

[39] Apart from the specific statutory provisions and the case law referred to above, there are good policy reasons for this approach to the issue. Permitting the parties to expend their own and court resources on pursuing and defending a civil action in such circumstances runs contrary to the statutory scheme under the Act which is designed to be simple and cost-effective. Moreover, allowing a trial judge to set aside or vary an appraisal in the absence of statutory authorization to do so undermines the appraisal process. Insureds and insurers could sidestep the standard of review and the deference expected to be afforded to the appraisal process and the Insurance Umpire.

[40] In the present case the motion judge held that it would be “highly prejudicial” to determine the jurisdiction issue prior to trial, noting “it would be more costly and take significantly more time if at this stage of the proceedings the action were to be stayed and the plaintiff required to first seek judicial review at the Divisional Court.” The motion judge erred in this regard, as this finding appears to misconstrue the nature of the appraisal process and the Respondent’s action which asserts that the appraisal is incorrect and should be varied. If, as is the case here, the trial judge lacks jurisdiction to set aside or vary the appraisal, waiting until trial to deal with that issue would be a waste of time, money and judicial resources.

[41] Further, in my view the decision under appeal unduly and incorrectly expands the scope of an “irregularity” beyond what is contemplated by Rule 2.01(1).

[42] Commencement of an action in a court that lacks jurisdiction over its subject matter cannot be overlooked or treated as a mere irregularity, even if one of the parties fails to immediately bring the issue to the attention of the court. If the court lacks jurisdiction to hear and determine the subject matter of the action, the action must be stayed or dismissed.

[43] Rule 21.02 does not provide any express basis to refuse to hear a Rule 21 motion due to delay and to dismiss it instead. In my opinion, this motion ought to have been heard on its merits and the proceedings stayed on the basis of lack of jurisdiction.

[44] Even if Rule 21.02 is correctly considered in certain cases as a proper basis upon which to decline to hear or to dismiss a Rule 21 motion for delay, the decision in Schellenberg, supra, relied upon by the motion judge in so doing is distinguishable on its facts. In Schellenberg, a Rule 21 motion had been brought more than 3 years after the commencement of the proceedings, after the action had been set down for trial and 6 weeks before the date of commencement of the trial. In his decision, the motion judge held that Rule 21.02 provided grounds to dismiss the motion for delay, despite the absence of such wording in the Rule. In the present case, no discoveries had occurred in the year following commencement of the action and the action had not yet been placed on the list for trial.

[45] Having said that, I also note that the interpretation in Schellenberg is at odds with the decision of the Divisional Court in Toronto-Dominion Bank v. Kopman, 2000 29061 (ON SCDC) in which the panel dealt with a Rule 21 motion that had not been brought until the first round of discoveries in the action had been completed. The majority of the panel interpreted the purpose of Rule 21.02 as being related solely to the disposition of costs following such a motion, contemplating that a successful moving party may be deprived of an order of costs or even be required to pay the other side’s costs if the motion is not brought in a suitably timely matter. The majority decision stated (at paras. 11 and 12):

Rule 21.02 reads: “A motion under rule 21.02 [to strike out a pleading on the ground that it discloses no reasonable cause of action] shall be made promptly and a failure to do so may be taken into account by the court in awarding costs."

[11] Rule 21.02 seems to indicate that the penalty for failing to move promptly may in some cases be an award of costs to compensate for delay…

[13] It is in the interest of the court to avoid unnecessary time being spent by judges and masters on pleadings that are invalid, that is to say that raise no cause of action. Accordingly the matter of delay should not deter us from holding that the pleadings of abuse of process and intentional infliction of mental suffering disclose no cause of action.

[46] It remains arguable that Rule 21.02 may allow a court to dismiss a motion when the delay in bringing it has been egregious. In Toronto-Dominion Bank v. Kopman, Southey J. in dissent on the issue indicated that he would have dismissed the appeal on the merits, but stated as to effect of delay:

While rule 21.02 provides that, where a motion is brought other than promptly, the court may take account of that fact in awarding costs, there may be merit in the proposition that, where the moving party's delay is egregious, the motion can be dismissed on that ground.

[47] However, there is a strong line of authority following the decision of Williams Beauty Products v. State Farm Fire and Casualty Co. (2001), 2001 62781 (ON SC), 31 C.C.L.I. (3d) 126 wherein the issue of delay is limited to the question of costs only. The history of the jurisprudence was noted by MacDonnell, J. in Project 360 Investments Limited (Sound Emporium Nightclub) v. Toronto Police Services Board, 2009 36380 (ON SC) which involved a motion to strike a pleading:

The parties have taken me through the cases that have considered the sanction to be imposed for a failure to comply with Rule 21.02. I acknowledge that in some circumstances, courts have held that a failure to move promptly should lead to a refusal to hear the motion: see, e.g., Fleet Street Financial Corp. v. Levinson (2003), 31 C.P.C. (5th) 145 (Ont. Sup. Ct.). Other courts have held that delay is not a basis for dismissing a motion to strike but rather a factor to be taken into account in awarding costs: see, e.g., Mujagic v. State Farm Automobile Insurance Co., 2009 9424 (ON SC), [2009] O.J. No. 889 (Sup. Ct.); North York Academy of Golf and Practice Range Inc. v. Toronto (City), [2008] O.J. No. 4128.

[48] There is greater justification for adopting the approach of limiting the impact of delay to the disposition of costs in motions brought under Rule 21.01(3)(a) such as this one. Rule 21.01(3)(a) does not merely determine a discrete issue of law or strike out a pleading for failure to disclose a cause of action, but challenges the very jurisdiction of the court to hear and determine the matter.

[49] In Brillon v. General Dynamics Land Systems - Canada, 2018 ONSC 7442, the Court considered the applicability of Rule 21.02 in the context of a motion that was heard 7 years following the exchange of pleadings. The issue was whether the Court had jurisdiction over the dispute or whether the matter should be determined by a labour arbitrator. In holding that Section 21.02 was not a bar to the motion, the court stated:

At issue in the present case is whether the court or labour arbitrator has jurisdiction over the subject matter under the Labours Relations Act s. 48(1). Where there is a law such as s. 48(1) which deals with the court’s jurisdiction, I would be surprised if, as the plaintiff’s factum seems to suggest, a law may be circumvented or ignored because a party conducts itself contrary to it. I do not agree with the argument that the defendant is, in the face of s. 48(1), able to attorn to this court’s jurisdiction based on its conduct in this litigation. Whether the case should proceed in this court is an issue to be determined on other grounds. The delay in bringing this motion is a matter to be dealt with through costs, according to Rule 21.02, which states:

21.02 A motion under rule 21.01 shall be made promptly and a failure to do so may be taken into account by the court in awarding costs. R.R.O. 1990, Reg. 194, r. 21.02.

Indeed, in submissions, plaintiff’s counsel agreed that delay in and of itself in bringing this motion does not vest jurisdiction in the court given the wording of the Labour Relations Act. He agreed that, if motions challenging jurisdiction are not brought promptly, the remedy is in costs. Consequently, I find that the delay in bringing this motion does not vest jurisdiction in the court given the wording of the Labour Relations Act, s. 48(1).

[50] As in Brillon v. General Dynamics Land Systems - Canada, the result of the decision being appealed from in the case at bar is effectively to vest in the Superior Court jurisdiction over a matter that is to be dealt with by way of judicial review, or alternatively, to defer that decision to trial. The motion in the present case was attempted (through case management) to be scheduled within 5 months after the receipt of the Plaintiff’s Reply, and two weeks following the striking out of various paragraphs of the same document. No discoveries were conducted and affidavits of documents had not been exchanged before the motion was brought. There was no delay here that can be described as egregious.

[51] The Respondent takes the position in this action that the conduct of the appraiser attracts potential punitive and bad faith damages. The Appellant argues that, as an insurer, it is not legally responsible for the appraiser’s conduct at law and also submits that punitive damages cannot flow vicariously to the Appellant in any event.

[52] Although the motion judge did not rule on the issue, the requisite elements to establish vicarious liability on the party that appoints the appraiser under the Act are missing. An appraiser in this process is not acting as an employee of the insurer but rather as a statutory decision-maker. Consequently, the requisite element of control that is a requirement for vicarious liability is missing. In any event, these complaints arise out of the statutory process established by the Act and are the proper subject matter for pursuit by way of judicial review.

[53] Finally, the Supreme Court of Canada has made it clear that the doctrine of vicarious liability does not apply to claims for punitive damages. In its decision Blackwater v. Plint, 2005 SCC 58, [2005] 3 SCR 3 McLachlin C.J explained that for a party to be found liable for punitive damages the reprehensible conduct had to be referrable to the party itself and could not flow vicariously through the conduct of an employee.

Conclusion

[54] For these reasons, the appeal is allowed and the Order of the motion judge is set aside. All claims made by the Respondent in the action that relate to or arise out of the appraisal process established by and conducted pursuant to the Act are hereby stayed for want of jurisdiction.

Costs

[55] By agreement of the parties costs of the appeal fixed at $10,000.00, inclusive of all disbursements and applicable taxes, are to be paid to the successful party by the other. Accordingly, that sum shall be paid to the Appellant by the Respondent within 90 days of the date of this decision.

I agree _______________________________ RSJ Edwards

Stewart J.

I agree _______________________________ Nishikawa J.

Released: January 16, 2023