ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 11-CV-433940
DATE: March 22, 2012
BETWEEN:
Federation Insurance Company of Canada
Applicant
- and -
Markel Insurance Company of Canada
Respondent
COUNSEL:
• Anna-Marie Musson for the Applicant
• Brian G. Sunohara for the Respondent
HEARING DATE: March 21, 2012
PERELL, J.
REASONS FOR DECISION
A. INTRODUCTION
[ 1 ] The Applicant, Federation Insurance Company of Canada (“Federation”), submits that the Respondent, Markel Insurance Company of Canada (“Markel”), has reneged on a written agreement to settle a loss transfer claim. With no facts being in dispute, Federation applies for an Order requiring Markel to pay $60,733.57 together with interest and for an order requiring Markel to comply with s. 275 of the Insurance Act , R.S.O. 1990, c. I.8.
[ 2 ] In response, Markel submits that Federation breached the written agreement and Markel elected to terminate the agreement, and, therefore, Markel, as the innocent party, has been discharged from further performance of the written agreement.
[ 3 ] The answer to this dispute between Federation and Markel lies in fundamental principles of the law of remedies for breach of contract. Applying that law and for the reasons that follow, I grant Federation judgment in the amount of $ 8,775.73 plus pre-judgment interest.
[ 4 ] It is not necessary to make a peremptory order directing Markel to perform its obligations under the Insurance Act or under the written agreement.
B. FACTUAL BACKGROUND
[ 5 ] On February 7, 1994, Sandra Saccucci-Zaher, who was insured by Federation, was injured in an automobile accident involving a transport truck that was insured by Markel.
[ 6 ] In August 1994, Ms. Saccucci-Zaher applied for accident benefits and Federation began making payments to her.
[ 7 ] Pursuant to the loss transfer provisions of s. 275 of the Insurance Act , in June 1995, Federation submitted a $30,281.64 claim for indemnification from Markel. This claim was paid on January 17, 1996.
[ 8 ] Considerable time passed, and in April 2002 and in November 2003, Federation made new claims for indemnification.
[ 9 ] Markel refused to pay these claims, and the matter was referred to arbitration. A further request for indemnification was made in January 2006 for the period between November 2003 and January 2006.
[ 10 ] Federation and Markel agreed to settle their dispute. The settlement was memorialized by a Partial Full and Final Release signed by the parties and dated April 12, 2006.
[ 11 ] The terms of the settlement agreement are set out below:
PARTIAL FULL AND FINAL RELEASE
FEDERATION INSURANCE COMPANY OF CANADA … (collectively the “Releasor”) in consideration of the sum of ONE HUNDRED AND TEN THOUSAND DOLLARS ($110,000.00) inclusive of all indemnity payments, costs, interest, disbursements and taxes … hereby remises, releases and forever discharges MARKEL INSURANCE COMPANY OF CANADA … (collectively the “Releasee”) of and from all actions, causes of action … and demands whatsoever which the Releasor ever had, now have or may hereinafter have against the Releasee which was or could have been asserted in any dispute between insurers under the Insurance Act , including section 275 and the Regulations made thereunder, in court or pursuant to private arbitration with respect to all claims for indemnity (Loss Transfer Claims) for statutory accident benefits and expenses paid to or incurred on behalf of Sandra Saccucci-Zaher up to and including January 12, 2006 in connection with a motor vehicle accident which occurred on or about the 8 th day of February, 1994 (“the subject benefits”)..
AND IT IS FURTHER AGREED AND UNDERSTOOD THAT, in exchange for the aforesaid consideration, the Releasor will submit any further Requests for Loss Transfer indemnity for statutory benefits and expenses paid to or incurred on behalf of Sandra Saccucci-Zaher to the Releasee on a quarterly basis (subject to file activity) together with sufficient documents in support of the requests which identify the date of payment, payee, amount paid and reason for payment for which indemnity is being claimed.
AND IT IS FURTHER AGREED that, in exchange for the aforesaid consideration, the Releasor will involve the Releasee in settlement discussions prior to any full and final settlement of the accident benefits claim with the insured. ….
[ 12 ] Markel paid the $110,000 as required by the Partial Full and Final Release.
[ 13 ] It is necessary to note that the April 2006 Partial Full and Final Release settles the loss transfer claim up to January 12, 2006, but the agreement between the parties anticipates further claims.
[ 14 ] For present purposes, the provision at the centre of the dispute between the parties is the provision for these future payments. The provision states:
The Releasor will submit any further Requests for Loss Transfer indemnity for statutory benefits and expenses paid to or incurred on behalf of Sandra Saccucci-Zaher to the Releasee on a quarterly basis (subject to file activity) …
[ 15 ] Markel takes the position that this provision is at the heart of the bargain between the parties; i.e. that it is a fundamental term. It interprets the words “(subject to file activity”) to mean that if there was file activity in a quarter, Federation shall submit a request for the loss transfer payment.
[ 16 ] Markel’s representative, Ernest Knoblauch, who negotiated the settlement, deposed that the requirement that Federation submit claims on a quarterly basis was an important and material term to the written agreement and that Markel would not have agreed to settle without the term. He deposed that Markel was displeased with the history of late arriving claims from Federation and that it was important to Markel to have prompt notice of claims so that it could properly set its insurance reserves.
[ 17 ] Foundation, however, takes the position that the requirement that Federation submit claims on a quarterly basis was not a fundamental term and it was not a term for which time was of the essence.
[ 18 ] Foundation interprets the words “(subject to file activity”) to mean that if there was a reasonable amount of file activity in a quarter, Federation shall submit a request for the loss transfer payment. It submits that so interpreted, it has never breached the settlement agreement and that it is Markel that repudiated the agreement.
[ 19 ] Returning to the narrative, after the settlement agreement, over a year passed, and in August 2007, Federation submitted a $15,008.02 claim for indemnity. The period for the claim was from January 13, 2006 to August 29, 2007.
[ 20 ] Markel refused to pay, and its lawyer wrote Federation and advised that it was Markel’s position that it was no longer obliged to pay loss transfer payments.
[ 21 ] Once again, time passed, until December 2010, almost three and half years later, when Markel received a $56,322.14 claim (inclusive of the $15,008.02), for the period August 13, 2006 to December 13, 2010. Of the amount requested, all but $2,360.65 was for other than the most recent quarter. Once again Markel refused to pay.
[ 22 ] Markel’s position throughout was that there had been file activity, and, accordingly, there should have been quarterly claims, in default of which Federation was not entitled to indemnification.
[ 23 ] On February 18, 2011, Federation made a $1,202.47 claim for indemnification for the period December 11, 2011 to February 17, 2011. On May 12, 2011, Federation made a $793.97 claim for the period February 18, 2011 to May 11, 2011. On August 12, 2011, Federation made a $2,414.99 claim for the period May 12, 2011 to August 12, 2011.
[ 24 ] Markel refused to pay these claims, and its position was that Federation’s prior failures to make quarterly claims had already discharged Markel’s obligations under the Partial Full and Final Release.
[ 25 ] On November 9, 2011, Federation made a $2,003.65 claim for the period August 13, 2011 to November 10, 2011. Once again payment was refused.
[ 26 ] Ms. Saccucci-Zaher’s accident benefits claim remains open, and Federation continues to make payments to her for benefits. She is entitled to housekeeping, attendant care, and medical rehabilitation benefits subject to policy limits over her lifetime.
C. DISCUSSION
[ 27 ] As already noted, the parties agree that there are no factual issues in dispute and that there are only legal issues to resolve. To be more precise, there are four legal issues to be determined; namely: (1) What is the interpretation of the contract term requiring Federation to submit claims on a quarterly basis? (2) Was the contract term requiring Federation to submit claims on a quarterly basis breached? (3) From a remedial perspective, what is the legal classification of the contract term requiring Federation to submit claims on a quarterly basis? and (4) If the term was breached, what is the appropriate remedy?
[ 28 ] On the first issue of contract interpretation, I agree with Markel’s argument. Its interpretation gives the term requiring quarterly claims its ordinary meaning without adding uncertain language to the provision.
[ 29 ] Federation’s rival interpretation, in effect, adds the words “a reasonable amount of file activity” to the contract without providing any measure about what a reasonable amount of activity might be.
[ 30 ] Markel’s interpretation is straightforward and gives the term business efficacy. Placed in the factual nexus of the circumstances in which the Partial Full and Final Release was negotiated, in my opinion, Markel’s interpretation better reflects what appears to have been the intent of the parties.
[ 31 ] Turning to the second issue, the question becomes whether the contract was breached by Federation. Based on the above interpretation, the answer to that question is yes with respect to the August 2007 claim ($15,008.02) and yes with respect to all but $2,360.65 of the December 2010 claim ($56,322.14).
[ 32 ] The answer is no with respect to the February 18, 2011 claim ($1,202.47), the May 12, 2011 claim ($793.97), the August 12, 2011 claim ($2,414.99), and the November 9, 2011 claim ($2,003.65).
[ 33 ] This brings the discussion to the third issue, which to repeat is: From a remedial perspective, what is the legal classification of the contract term requiring Federation to submit claims on a quarterly basis?
[ 34 ] The third issue is important because as a matter of legal theory, it does not follow that if there has been a breach of contract that the innocent party is discharged from his or her performance obligations under the agreement. In other words, the fact that Federation breached the agreement with respect to submitting two claims does not necessarily discharge Markel from its unperformed promises.
[ 35 ] The legal theory is that the innocent party has the right to treat the agreement at an end and to be discharged from further performance if time is of the essence and there has been a repudiation or a breach of a fundamental term of the contract. If, however, the guilty party has breached a lesser term of the contract; i.e. a term classified as a warranty, then the innocent party is not discharged from further performance but has the remedy of damages.
[ 36 ] Provided that time is of the essence, the breach of a fundamental term of the contract; that is, a term classified as a condition as opposed to a warranty, is a repudiation of the contract that the innocent party may accept to treat the contract as at an end: Jorian Properties Ltd. v. Zellenrath (1984), 46 O.R. (2d) 775 (C.A.); Spirent Communications of Ottawa Ltd. v. Quake Technologies (Canada) Inc. (2008) 2008 ONCA 92, 88 O.R. (3d) 721 (C.A.) at paras. 35-36; Place Concorde East Limited Partnership v. Shelter Corp. of Canada Ltd. (2006), 2006 16346 (ON CA), 211 O.A.C. 141; Johnson v. Agnew, [1979] 1 All E.R. 884 (H.L.).
[ 37 ] In contrast, a breach of a warranty does not discharge the innocent party from its obligations to perform the contract. Warranties are the lesser promises in the contract, and when a breached promise is classified as a warranty, the innocent party is not discharged from performing its own obligations but may seek the remedy of damages for breach of the warranty: Bentsen v. Taylor, Sons & Co., [1893] 2 Q.B. 274 (C.A.); Field v. Zein, [1963] S.C.R. 632; Jorian Properties Ltd. v. Zellenrath, supra; Penner v. Williamson (1993), 101 D.L.R. (4th) 289 (B.C.C.A.).
[ 38 ] A fundamental breach is a refusal by a party to perform his or her major promise or promises under the contract. A fundamental breach deprives the innocent party of substantially the whole benefit of the contract. There are five factors that a court will consider in determining whether there has been a fundamental breach. The five factors are: (1) the ratio of the party's obligations not performed to that party's obligations as a whole; (2) the seriousness of the breach to the innocent party; (3) the likelihood of repetition of such breach; (4) the seriousness of the consequences of the breach; and (5) the relationship of the part of the obligation performed to the whole obligation: Spirent Communications of Ottawa Ltd. v. Quake Technologies (Canada) Inc. supra at paras. 35-36; Place Concorde East Limited Partnership v. Shelter Corp. of Canada Ltd., supra; 968703 Ontario Ltd. v. Vernon (2002), 58 O.R. (3d) 215 (C.A.).
[ 39 ] Repudiation is conduct that demonstrates that a contracting party has absolutely renounced its contractual obligations: Piggot Const. Co. v. W.J. Crowe Ltd., [1961] O.R. 305 (C.A.), aff’d. [1963] S.C.R. 238; Mersey Steel & Iron Co. v. Naylor, Benzon & Co. (1884), 9 App. Cas. 434 (H.L). A party to a contract repudiates by clearly stating that he or she does not intend to perform his or her obligations under the contract: Netupsky v. Hamilton, [1970] S.C.R. 203.
[ 40 ] Applying this law to the circumstances of the case at bar, at no time was Federation’s conduct repudiatory and there was no fundamental breach. Federation wished the contract to be performed, and based on its mistaken interpretation of the provision requiring quarterly claims, it thought it was compliant with the agreement. Its interpretation was wrong, and it breached, but it did not repudiate or fundamentally breach the Partial Full and Final Release.
[ 41 ] In my opinion, Federation breached a warranty and not a condition of the agreement. The provision requiring quarterly claims was a part of the bargain between the parties but it was a lesser term.
[ 42 ] In my opinion, Federation’s failure to submit a quarterly claim would entitle Markel to the financial remedy of damages, in this case equivalent to being relieved of making the particular loss transfer payment, but it would not entitle Markel to end the agreement and to be discharged from further performance.
[ 43 ] The breach of the requirement to make quarterly claims if there was file activity was not such a serious matter as to make termination of the agreement a fair and appropriate remedy.
[ 44 ] The same result is reached even if the term requiring quarterly claims is classified as a condition or fundamental term of the contract. This follows because time was not of the essence of the Partial Full and Final Release. As noted above, contract law theory requires time to be of the essence if a party wishes to treat a breach of the agreement as grounds to terminate the contract, and in the case at bar, the parties did not make time of the essence.
[ 45 ] Time was always of the essence at common law, but equity took a softer position. Equity’s position, which now governs, is that timely performance is generally not required unless the parties expressly specify that time is of the essence or the nature of the subject-matter of the contract or the surrounding circumstances call for prompt performance in the sense that it would be inequitable not to require prompt performance: Sail Labrador Ltd. v. Challenge One (The), [1999] 1 S.C.R. 265. In Sail Labrador, supra a majority of the Supreme Court held that commercial parties should be familiar enough with the law to know that they must use very precise words if their intention is to make time the essence of a contract. In my opinion, time was not of the essence of the Partial Full and Final Release.
[ 46 ] The circumstance that the parties did not make time of the essence is a further indication in the case at bar that the term requiring quarterly claims was a warranty and not a condition of the agreement.
[ 47 ] In my opinion, the nature of Federation’s breach was not such as to entitle Markel to treat the agreement at an end and, in doing so, it became the breaching party.
[ 48 ] Indeed, it could be said that Markel repudiated the agreement. Federation, however, does not seek to treat the agreement at an end. It has not accepted Markel’s breach as grounds to treat the Partial Full and Final Release as terminated, and, rather, it seeks to enforce the agreement by a claim for damages.
[ 49 ] In my opinion, it is entitled to that remedy for the properly submitted claims, which I calculate to have a value of $8,775.73.
[ 50 ] This judgment spells out the rights of the party under the Partial Full and Final Release with respect to future claims. I see no need to make any peremptory declaratory order about Markel’s future performance of the agreement.
D. CONCLUSION
[ 51 ] In the result, I grant Federation judgment in the amount of $8,775.73 plus pre-judgment interest in accordance with the Courts of Justice Act, R.S.O. 1990. c. C.43.
[ 52 ] In my opinion, given the divided success on the Application and given the finding that there was a breach of a contract term, albeit not a fundamental breach, there should be no order as to the costs of the Application.
Perell, J.
Released: March 22, 2012
COURT FILE NO.: 11-CV-433940
DATE: March 22, 2012
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Federation Insurance Company of Canada
Applicant
‑ and ‑
Markel Insurance Company of Canada
Respondent
REASONS FOR DECISION
Perell, J.
Released: March 22, 2012.