Court File and Parties
COURT FILE NO.: Woodstock 207/11
DATE: July 13, 2012
SUPERIOR COURT OF JUSTICE – ONTARIO
RE: The Corporation of the County of Oxford and The Corporation of the City of Woodstock, applicants
AND:
The Guarantee Company of North America and Lombard General Insurance Company of Canada, respondents
BEFORE: MITROW J.
COUNSEL: David Boghosian and Laura Day for the respondents
Thomas J. Donnelly and Sarah L. Jones for the applicants
HEARD: February 17, 2012 and March 27, 2012
ENDORSEMENT
INTRODUCTION
[1] The applicants, both duly incorporated municipalities, have been sued in two separate actions (“the underlying actions”) which have yet to come to trial, despite those actions having been commenced in Toronto in November 2005 over six years ago.
[2] The respondents issued errors and omissions insurance policies (“the insurance policies”) to the applicants.
[3] The applicants now bring this application for a declaration that the respondents have a duty to indemnify the applicants pursuant to the insurance policies for all damages sought in the underlying actions (other than punitive damages, which all parties agree are excluded from coverage, and for the balance of these reasons any reference to “claims” or “damages” is deemed not to include punitive damages unless otherwise indicated).
[4] The relief sought by the applicants is necessarily grounded on the following foundation: it is impossible for the trial judge, based on the current state of the pleadings in the underlying actions, to make an award of damages that falls outside the ambit of coverage afforded by the insurance policies. A determination as to whether this foundation has been established engages the central issue in this application: should the question as to whether the respondents have a duty to indemnify the applicants pursuant to the insurance policies be left for determination after trial or other final resolution of the underlying actions?
[5] The application was argued on the basis of affidavit evidence.
[6] For the reasons that follow, I find that the determination of the respondents’ duty to indemnify the applicants pursuant to the insurance policies (and also the applicants’ alternative claim that the court should at least declare that certain named exclusion clauses set out in the insurance policies are not applicable) should await a trial or other final disposition of the underlying actions and, accordingly, that the application should be dismissed but without prejudice to the applicants’ rights to bring a similar claim after trial or other final determination of the underlying actions.
BACKGROUND FACTS
A. The Parties and Underlying Actions
[7] The applicants are the Corporation of the County of Oxford (“Oxford’) and the Corporation of the City of Woodstock (“Woodstock”).
[8] The respondents, Guarantee Company of North American and Lombard General Insurance Company of Canada issued identical municipal errors and omissions insurance policies to their insured, Oxford and Woodstock.
[9] Blandford Square Developments Limited (“Blandford”) was the owner of approximately 95.5 acres of land located in Oxford County (“the subject lands”). A retail shopping mall was located on a portion of the subject lands.
[10] Vincorp Financial Ltd. (“Vincorp”) is the holder of a first and second mortgage in the amount of nine million dollars on the subject lands.
[11] The underlying actions are comprised of two statements of claim: an action commenced by Blandford naming the applicants as defendants and an action commenced by Vincorp naming the applicants as defendants.
[12] In the underlying actions, Blandford and Vincorp (“the plaintiffs”) alleged that Oxford and Woodstock engaged in wrongful and bad faith conduct as against each of the plaintiffs by taking steps to expropriate the subject lands to benefit Toyota Motor Manufacturing Canada Inc. (“Toyota”). Toyota had made known to the applicants that Toyota was planning to build a motor vehicle manufacturing plant on an identified parcel of land (comprising approximately 1,000 acres) located in Oxford County (“the development site”). The development site included the subject lands. Toyota was prepared to proceed with its project if the development site could be assembled for, and then acquired by, Toyota. As it turned out, except for the subject lands, the remaining lands comprising the development site were acquired from the various owners on a voluntary basis through negotiations. The applicants eventually had to resort to expropriation to acquire the subject lands because no agreement was reached with the plaintiffs to sell the subject lands.
[13] Blandford’s statement of claim contains claims and allegations that include the following (with the relevant paragraph number in the statement of claim shown in brackets):
a) Prior to December 2004, Her Majesty the Queen in Right of Ontario (the “Crown”) undertook to assemble the development site to allow Toyota to build “a manufacturing, assembly and processing plant” (paragraph 5);
b) In or about early 2005, the Crown delegated the responsibility for the land assembly to Oxford with the assistance of Woodstock (paragraph 6);
c) As of early 2005, all lands for the development site had been acquired (except for the subject lands) through a numbered company in order to conceal both the identity of the buyer and the purpose of the land acquisition (paragraphs 8 and 9);
d) On or about June 30, 2005, Toyota’s plan for development was announced to the public (paragraph 9);
e) On or about August 17, 2005, the Crown “in breach of its statutory duty,” as represented by the Minister of Municipal Affairs and Housing, adopted a zoning order under s. 47(1) of the Planning Act, R.S.O. 1990, c P.13 that was filed as a regulation on August 17, 2005 (Minister’s Zoning Order or “M.Z.O.”) and that had the effect of down-zoning the subject lands from “Shopping Centre Commercial to Traditional Industrial” (paragraph 11(a));
f) On or about September 1, 2005, Woodstock annexed the development site and this included the subject lands (paragraph 11(b));
g) On or about September 2005, pursuant to a resolution Woodstock tabled for discussion and enacted a “Proposed Down-Zoning Bylaw” and, on or about October 12, 2005, Oxford passed the “O.P.A. Bylaw” (Official Planning Act By-Law). Both by-laws had the effect of down-zoning the subject lands in the manner set out in subparagraph (e) above; (paragraphs 11(c), (d).
h) On or about October 26, 2005, the Crown “in breach of its statutory duty” issued an order through Cabinet under subsection 6(3) of the Expropriations Act, R.S.O. 1990, c E.26, denying Blandford the right to require a “Hearing of Necessity” in respect of a threatened expropriation of the subject lands, thereby “abrogating [Blandford’s] right to a fair and due process afforded under section 7 of the Expropriations Act, and the rules of natural justice” (paragraph 11);
i) Blandford states that the steps described above “were taken in bad faith, are discriminatory vis-à-vis [Blandford]” and were in furtherance of the improper purposes of prejudicing Blandford’s development rights relating to the subject lands and devaluing the subject lands prior to their expropriation. Blandford then cites the particulars of this conduct by the applicants, including misrepresenting to the Crown that the subject lands were necessary for the success of the Toyota plant when such was not the case, and engaging in bad faith negotiations with Blandford prior to making public any intention to expropriate (paragraph 12);
j) The applicants engaged in a course of conduct to acquire the subject lands “by expropriation, in a manner intended to depress their true market value, and without regard to whether Oxford County had the statutory authority or jurisdiction to do so” (paragraph 11);
k) In examining the possibilities that unfold if the subject lands are expropriated, Blandford alleged that Oxford could transfer the subject lands to Toyota or a Toyota supplier, thereby assisting Toyota or its supplier by providing lands not available in the open market and assisting in a land assembly unachievable in the open market, thus conferring on Toyota or its supplier a “bonus” contrary to s. 106(1) of the Municipal Act, 2001, S.O. 2001, c 25 (paragraph 13(b), (c));
l) Oxford “does not have the statutory authority under the Municipal Act, 2001 or Planning Act or otherwise” to expropriate the subject lands given its admission that the subject lands are unnecessary for the success of the Toyota plant (paragraph 14);
m) In relation to Blandford and the subject lands, the Minister’s Zoning Order and regulation pursuant to s. 47(1) of the Planning Act, the s. 6(3) Cabinet order and the O.P.A. bylaw are “de jure without legal foundation,” and “de facto unnecessary” and therefore “discriminatory” (paragraph 15);
n) Oxford and Woodstock, “via the unlawful means described above, have wrongfully interfered with [Blandford’s] economic interests and/or relations.” Blandford then pleads various conduct in support of this allegation, including causing tenants to terminate their occupancy and casting “a stigma” over the subject lands, all of which conduct is alleged to be directed specifically towards Blandford and with the intention to injure Blandford (paragraph 16);
o) The unlawful conduct alleged constitutes breach of statutory duty “to act intra vires and in good faith in respect of the exercise of any municipal planning and expropriating powers or authorities” (paragraph 17);
p) As a consequence of the unlawful conduct described, Blandford has “sustained substantial damages, particulars of which will be provided in due course” (paragraph 18);
q) In addition to claims for interim and permanent injunctive relief (including, in the alternative, claims for interim orders pursuant to s. 4 of the Judicial Review Procedure Act) against Oxford and Woodstock, Blandford seeks declaratory relief that includes:
i. a declaration that Oxford does not have the statutory authority or jurisdiction to expropriate the subject lands;
ii. a declaration that Oxford’s by-law passed on October 12, 2005, which adopted an amendment to Oxford’s Official Plan is ultra vires Oxford and has no legal force or effect respecting the subject lands, and an order is sought quashing the bylaw;
iii. a declaration that any attempt by Woodstock to pass a bylaw for the purpose of down-sizing is void ab initio or, alternatively, has no legal force or effect respecting the subject lands. (paragraphs 1(1), (a), (b), (c), (d)).
r) Blandford claims damages as against each of Oxford and Woodstock:
i. $20,000,000 for breach of statutory authority;
ii. $20,000,000 “for unlawfully interfering with [Blandford’s] economic interests and/or relations in respect of the [subject lands]”;
iii. punitive damages in the amount of $5,000,000. (paragraphs 1(3), (a), (b), (c)).
[14] The claims and allegations set forth in Vincorp’s statement of claim are substantially similar to the claims and allegations advanced by Blandford. In its claim for damages (as set out in paragraph 1 of the statement of claim), Vincorp seeks as against each of Oxford and Woodstock:
a) $25,000,000 for unlawful interference with its economic interests and/or relations in respect of the subject lands;
b) damages in the amount of $25,000,000 “for vicarious liability for abuse of public office on the part of officials employed by [Oxford] and Woodstock who are to be identified”;
c) damages in the amount of $25,000,000 “for conspiracy to unlawfully expropriate the [subject lands]”; and
d) punitive damages in the amount of $5,000,000.
B. The Insurance Policies
[15] The relevant terms of the two identically-worded insurance policies are not in dispute and are contained in the applicants’ compendium of insurance policy excerpts. Each policy has a coverage limit of $15,000,000 and a deductible of $10,000.
[16] The insurance policies provide coverage for “compensatory damages” which the applicants are required to pay because of a “wrongful act.” The term “wrongful act” is defined in the insurance policies but the term “compensatory damages” is not defined.
[17] There are two exclusions in the insurance policies that all parties agree are relevant for the purpose of this application: exclusion 4 (the insured gaining any personal profit or advantage to which the insured was not legally entitled) and exclusion 7 (any claim for legal or equitable restitution or any expenditure, compensation or damages payable pursuant to a Statute or Regulation).
[18] The wording of the relevant portions of the insurance policies is as follows:
INSURING AGREEMENT
The Insurer agrees with the Insured ...:
To pay in accordance with the provisions of this policy, on behalf of the Insured, compensatory damages which the Insured shall become obligated to pay by reason of the liability imposed upon the Insured by a court of civil law because of a wrongful act.
ADDITIONAL INSURING AGREEMENTS
With respect only to the coverages provided by the Insuring Agreement the Insurer further agrees with the Insured:
- To defend in the name and on behalf of, any Corporation or person insured by this policy and at the cost of the Insurer, that part of any civil action claiming compensatory damages covered by this policy, even if any of the allegations in the action are groundless, frivolous, false or fraudulent; ...
DEFINITIONS
- “WRONGFUL ACT” means any actual or alleged error or misstatement or misleading statement or act or omission or neglect or breach of duty by the Insureds in the discharge of their duties individually or collectively ...
EXCLUSIONS
This policy does not apply to any claim for a Wrongful Act that directly or indirectly causes, results in or arises out of:
the Insured(s) gaining any personal profit or advantage to which they were not legally entitled or the return by the Insured(s) of any money paid to them if payment of such money is held to be in violation of law;
Any claim for legal or equitable restitution or any expenditure, compensation or damages payable pursuant to Statute or Regulation;
C. Additional Facts
[19] The applicants received a letter dated December 14, 2005 from the claims manager at Frank Cowan Company, advising that the insurance policies could not respond to various claims made in the Blandford action. The relevant portion of this letter states as follows:
The Errors and Omission Policy will not respond to pay for the cost of purchasing this property/building and/or reduction in value of the property due to the zoning changes and/or claims involving the Expropriations Act including claims for injurious affection. To further explain, the purchase of the property and building is not a claim for damages. Payment pursuant to Statute or Regulation is specifically excluded and therefore any claim involving the Expropriations Act is excluded.
[20] By letter dated January 9, 2006 forwarded to the applicants, the claims manager adopted her letter dated December 14, 2005 in relation to the Vincorp action. However, as noted below, a decision was soon made that the insurers will defend all claims.
[21] The two letters from Frank Cowan Company elicited a quick response from the applicants’ counsel. This prompted a reply letter from the claims manager dated January 23, 2006, advising that Frank Cowan Company will be assuming the defence “of all claims” made in the underlying actions against the applicants effective immediately. This letter noted that it was not an acknowledgement that the position taken in previous letters (December 14, 2005 and January 9, 2006) was incorrect. The letter further confirmed that “the policy does not respond to any claim relating to expropriation or injurious affection, or for any costs or expenses relating to the taking or purchase of the Shopping Centre Lands.”
[22] On December 21, 2005, Oxford passed a bylaw approving the expropriation of the subject lands.
[23] In March 2006, a number of motions in the underlying actions were heard by C.L. Campbell J. (Blandford Square Developments Ltd. v. Oxford (County)[^1]. The motions sought:
a) on behalf of Oxford and Woodstock (the defendants), an order striking various portions of the statements of claim and, in the alternative, granting summary judgment in favour of Oxford and Woodstock with respect to some or all of the claims made in the statements of claim; and
b) on behalf of Blandford, supported by Vincorp (the plaintiffs), interim injunctive relief until trial requiring Oxford to discharge and vacate from title to the subject lands the plan of expropriation filed by Oxford on December 21, 2005 under the purported authority of the bylaw passed to that effect, and further, restraining Oxford and Woodstock from taking any further steps to expropriate the subject lands.
[24] The results of the motions in Blandford v. Oxford were summarized as follows in paras. 86 – 88 of the reasons:
86 The motion for injunctive relief to restrain the expropriation of the Mall Lands is dismissed.
87 The motion for summary judgment is granted in part only. That claim that seeks to set aside the expropriation as per se unlawful or without jurisdiction is dismissed.
88 Otherwise, the motion for summary judgment with respect to the tort claims is dismissed. Particulars are to be provided if requested in respect of the tort claims.
[25] Blandford and Vincorp appealed that portion of the order granting summary judgment in favour of Oxford and Woodstock by dismissing those portions of the claims advanced by Blandford and Vincorp seeking to set aside the expropriation as per se unlawful or without jurisdiction. The Court of Appeal for Ontario allowed the appeal[^2]. In its reasons, the court noted the following:
a) The argument of Blandford and Vincorp that Oxford conferred an unlawful bonus on Toyota by turning the subject lands over to Toyota at the expropriation price requires evidence that the expropriation price is below fair market value. The motion judge described the conflicting evidence on this point as the most significant contested factual issue between the parties. It will take a trial to determine this issue;
b) It will also require a trial to determine the following two issues: the plaintiffs’ allegations that the expropriation was unlawful and, secondly, that Oxford acted in bad faith and the resulting expropriation bylaw was passed without lawful authority.
[26] After the subject property was acquired following expropriation, it was “flipped” (to use the words of Mr. Joseph Chetti, president of Blandford) to Toyota for $4,200,000. Mr. Chetti signed an affidavit sworn July 2, 2008, filed in the underlying actions, and this affidavit was part of the material relied on by the respondents in the present application. Mr. Chetti further deposed that Blandford “has not received one penny” from Oxford and Woodstock as compensation for the expropriated subject lands.
[27] By letter dated April 1, 2011, Mr. Boghosian reaffirmed to applicants’ counsel the respondents’ position regarding off coverage, referring to previous letters forwarded by Frank Cowan Company and referring also to the applicability (in the respondents’ view) of exclusions 4 and 7.
[28] Although the applicants’ material indicated the underlying actions were set for trial for two to three weeks, scheduled to commence March 5, 2012, counsel advised that the trials in fact were not proceeding on that date.
[29] There was no evidence on the application as to when the underlying actions would be tried, nor was there any evidence as to whether any party in the underlying actions had invoked any of the procedures in the Expropriations Act to determine compensation payable to the plaintiffs.
THE POSITION OF THE PARTIES
[30] The applicants’ submissions can be summarized as follows:
a) The claims in the underlying actions are for damages as a consequence of wrongful acts, including misleading statements, allegedly engaged in by the applicants in the execution of municipal planning;
b) Any damages awarded by the trial judge will necessarily amount to “compensatory damages” within the meaning of the insurance policies and would compensate the plaintiffs for the applicants’ alleged wrongful tortious acts;
c) The applicants submit that the two exclusions relied on by the respondents are not engaged on the facts;
d) The applicants submit that exclusion 4 (the insureds gaining any personal profit or advantage to which they are not legally entitled) cannot apply in the case at bar because in the phrase “personal profit or advantage,” the word “personal” modifies both “profit” and “advantage,” with the result that the exclusion can only apply to employees or officers of a municipal corporation, but not the municipal corporation itself. (Oxford and Woodstock are the only defendants named in the underlying actions.);
e) Exclusion 7 (any claim for legal or equitable restitution or any expenditure, compensation or damages payable pursuant to Statute or Regulation) sets out two potential exclusions;
f) The first is whether there is any claim for “legal or equitable restitution.” The Applicants argue that the plaintiffs do not plead or seek legal or equitable restitution in either statement of claim in the underlying actions. The applicants submit that nowhere in their respective statements of claim do the plaintiffs claim unjust enrichment or plead any of the necessary elements for unjust enrichment and, further, the plaintiffs do not seek a remedy in restitution. The applicants submit the prayers for relief in the statements of claim are for damages for tortious conduct. Finally on this point, the applicants submit it is well established that a trial judge cannot award damages against a defendant based on a finding of liability not pleaded in the statement of claim. The respondents take no issue with this principle of law;
g) In relation to the portion of exclusion 7 relating to “any expenditure, compensation or damages payable pursuant to Statute or Regulation,” the applicants focus on the word “pursuant” and submit any breach of s. 106 of the Municipal Act, 2001 does not create a statutory right to compensation or damages because the Municipal Act, 2001 itself contains no provision for compensation or damages in the event the trial judge finds that the applicants violated the prohibition against bonusing contained in s. 106(1) of that Act. Similarly, the applicants argue that although the plaintiffs make reference to the Expropriations Act, they make no claims for compensation or damages arising from expropriation and that reference to the Expropriations Act is made by the plaintiffs only in support of their claims for compensatory damages for the denial of their procedural rights. The applicants characterize the plaintiffs’ claims in relation to the Expropriations Act as allegations they were denied due process by the applicants’ actions and that this denial of due process can only attract common law compensatory damages because the Expropriations Act provides no statutory right for such compensation or damages.
[31] In seeking a declaration that the respondents are obligated to indemnify the applicants for all damages which may be awarded at trial, the applicants acknowledge it is fundamental to their position that on the current state of the pleadings it is not possible for the trial judge to make an award for damages that falls outside the scope of coverage.
[32] The position of the respondents can be summarized as follows:
a) The application is premature and the court should not engage in a process of determining the obligation to indemnify until after the trial. Coverage disputes are not to be resolved in advance of adjudication on the underlying proceeding in the absence of an agreed statement of fact or where all facts are easily ascertainable and not in dispute. In the present case, the facts within the underlying actions are substantially in dispute and many material facts relating to coverage are in dispute;
b) The applicants, through the expropriation bylaw, have taken Blandford’s lands. If the applicants were to be indemnified under the insurance policies for the value of the lands taken (which is the essence of the claims in the underlying actions), then this would constitute a “windfall” to the applicants. The windfall would be created because the applicants took the subject lands from the plaintiffs, gave those lands to Toyota, received money from Toyota for the lands, kept the money and now wish to have the respondents, in effect, pay to the plaintiffs the value of the land taken by the applicants. The respondents submit that this would shift the cost of expropriation from the municipality to its insurer and that municipal errors and omissions insurance policies were never designed to allow a municipality to expropriate land, keep the money and then, in effect, have the benefit of both the land taken or its proceeds with no obligation to compensate the landowner whose land has been expropriated;
c) Oxford and Woodstock are legally required to compensate the plaintiffs for the lands taken and, on that basis, this would not constitute “compensatory damages” within the meaning of the insurance policies;
d) At least a portion of the damages claimed by the plaintiffs in the underlying actions are for “expropriation value” of the subject lands pursuant to the Expropriations Act and, accordingly, that portion of the damages falls within the exclusion as being “an expenditure, compensation or damages payable pursuant to Statute or Regulation”;
e) The relief sought in the underlying actions falls within the claims relating to “legal or equitable restitution.” The respondents submit the facts pleaded are sufficiently broad to allow the trial judge to grant relief on the basis of restitution;
f) In relation to the exclusion dealing with “personal profit or advantage,” the respondents submit that the authority relied on by the applicants predates the Municipal Act, 2001, which said Act now stipulates that municipalities have “natural person powers” (s. 9) and, accordingly, a municipality is now able to secure a “personal” advantage;
g) The respondents submit that if there is any possibility that a monetary award made at trial could fall outside of coverage, then that must result in a dismissal of the application.
AT WHAT STAGE IN AN ACTION SHOULD AN INSURER’S DUTY TO INDEMNIFY BE DETERMINED?
A. The Law
[33] In the context of considering an insured’s duty to defend, the Supreme Court of Canada in Nichols v. American Home Assurance Co. stated the following in relation to the contention that the duty to defend is broader than, and independent of, the duty to indemnify: “This is so, in the sense that the duty to defend arises where the claim alleges acts or omissions falling within the policy coverage, while the duty to indemnify arises only where such allegations are proven at trial.”[^3]
[34] In dealing with the issue of the duty to defend, the Court of Appeal for Ontario in Halifax Insurance Co. of Canada v. Innopex Ltd. stated that “... the insurer’s duty to defend is broader than its duty to indemnify. The time to determine the insured’s duty to indemnify, if at all, is at the conclusion of the underlying litigation.”[^4]
[35] In a later decision in Goodman v. AIG Commercial Insurance Co. of Canada, the Court of Appeal for Ontario stated: “While a duty to defend will arise where a claim is made that may possibly fall within cover, indemnity is only required when a claim is proved to fall within cover.”[^5]
[36] The three cases cited above were dealing with the issue of a duty to defend, and accordingly, may be characterized as obiter on the issue of an insurer’s duty to indemnify. Even if such is the case, the obiter do not stray far from the “dispositive ratio decidendi”[^6] and, as such, are entitled to significant weight, especially considering the high authority of the obiter.
[37] In Twin Cities Mechanical and Electrical Inc. v. Progress Homes Inc.[^7], a decision of the Newfoundland and Labrador Supreme Court, the court was faced with an application brought by an insurer prior to trial for a declaration that it did not have to defend or indemnify the insured. The court found there was no duty to defend but found that the application to determine the duty to indemnify was premature and could only be determined after trial. In commenting on the timing of a request to determine an insurer’s duty to defend, Orsborn J. stated as follows, in Twin Cities, at paras. 41 and 42:
41 The relationship between the pleadings and any ultimate judgment is a matter for the trial judge. ... The trial judge may take a more expansive view of the pleadings and may allow amendments in the pleadings. A trial judge should not be precluded by this decision on the duty to defend from, after hearing all of the evidence, rendering a judgment that may legally oblige Twin Cities to pay compensatory damages that would be within the scope of the insurance policy. ...
42 The authorities make clear that the duty to defend is assessed by reference to the pleadings, but that the duty to indemnify is assessed by reference to the facts. It is not appropriate, without either an agreed statement of facts or findings of fact following a trial, to make any ruling on Atlantic’s duty to indemnify Twin Cities. ...
[38] Can a duty to indemnify be determined before trial of the underlying action? The applicants rely on the Court of Appeal for Ontario decision in Lefor v. McClure[^8] where this was done but, as conceded by the applicants, there was no dispute as to facts relating to the coverage issue, and all parties agreed it was appropriate to determine the narrow coverage issue before trial of the underlying action. The court commented on the procedural approach as follows at para. 10:
I note finally the somewhat unusual way in which the question of coverage has been presented. This is not a case ... where at the pleadings stage, an insured seeks an order requiring an insurer to provide a defence on the basis of facts alleged in the statement of claim. In the case at bar, the insured moved for declaratory relief on the basis of a substantial factual record. All parties took the position ... that there was no dispute as to any fact relevant to the issue of coverage. ... [T]he issue of [the insured’s] insurance coverage for any liability that might be found against her may, in these unusual circumstances, be resolved at this stage of the proceedings.
B. Discussion
[39] The authorities cited above articulate clearly that as a general rule the determination of an insurer’s duty to indemnify must await the trial of the underlying action. In certain circumstances, exceptions may arise where it is appropriate to determine the coverage issue prior to trial – usually in cases where there are no material facts in dispute or the facts are agreed or the issue is very narrow. The cases of Lefor and also Markham General Insurance Co. v. Bennett[^9] relied on by the applicants would fall within those exceptions.
[40] The trial judge in an underlying action will be making findings of fact and may award damages and other relief based on those findings. For that reason, it makes sense to defer the determination of the insurer’s duty to indemnify until after a trial is held because only then has the essential ingredient – the trial judgment – become known. Where the underlying actions involve a significant dispute as to facts, then the coverage issue should not be determined prior to trial.
IS THE APPLICANTS’ RELIEF FOR A DECLARATION THAT THE RESPONDENTS HAVE A DUTY TO INDEMNIFY PREMATURE
[41] In the underlying actions both the motions judge and the Court of Appeal for Ontario have commented on the substantial extent of the disputed facts. The motions judge (at para. 31) indicated Mr. Chetti was willing to sell the subject lands for $16,000,000, but Oxford was only prepared to buy for approximately $4,000,000. Mr. Chetti’s affidavit (forming part of the application record and previously mentioned) refers to obtaining “current” updated appraisals valuing the property as of December 2005 between $32,500,000 and $38,500,000.
[42] The scope of the disputed facts in the underlying action is reason alone to defer dealing with the coverage issue until after trial.
[43] The applicants argue that the motions judge made findings (at paras. 83 and 84 of his reasons) that the plaintiffs could only recover damages not obtained through the expropriation process, and further, that the motions judge characterized the claims in the underlying actions as claims for damages. The applicants submit this corroborates their position that all of the plaintiffs’ claims are for compensatory damages.
[44] I do not read the reasons of the motions judge as broadly as suggested by the applicants, nor would findings of fact (made by the motions judge for the purpose of disposing of the issues before him) necessarily be binding on the trial judge.
[45] The respondents raise the prospect that a damage award at trial could fall outside of coverage.
[46] The applicants argue this cannot happen based on the claims as pleaded. The applicants allege that “wrongful acts” as defined in the insurance policies have been committed by the applicants for which the plaintiffs seek “compensatory damages” within the meaning of the insurance policies. The applicants rely on Peterborough (City) v. General Accident Assurance Co., 1998 CarswellOnt 1466, 108 O.A.C. 361 (Ont. C.A.) at paras. 23-24) that “compensatory damages” means any sums “payable by way of compensation, whether at law or under statute”.
[47] The respondents point to authorities applying the “windfall” principle, and submit that a municipal errors and omission policy was never intended to shift to an insurer the financial burden of compensating individuals whose land has been expropriated.
[48] The respondents rely on the Court of Appeal for Ontario decision in Moore (Township) v. Guarantee Co. of North America ([1995] O.J. 3702, 26 O.R. (3d) 733 (C.A.)). The court reversed the trial decision and found that a refund of overpaid taxes from the Township to Shell did not qualify as “damages” under the municipal liability policy.
[49] In the underlying actions, the plaintiffs are alleging that the expropriation was unlawful. This raises the possibility that a damage award could be made for the entire value of the subject lands (rather than just the difference between the true value of the subject lands and the plaintiffs’ entitlement pursuant to the Expropriations Act – assuming for the purpose of this application that the Expropriations Act applies and that such a claim is maintainable at law).
[50] The respondents submit, by analogy, that money wrongly taken as taxes is no different than private land taken by a municipality via an unlawful expropriation (or even lawful expropriation). The payment by the municipality for the value of what was taken does not constitute “compensatory damages”.
[51] The respondents rely also on decisions from the Supreme Court of Canada (Brissette Estate v. Westbury Life Insurance Co., [1992] 3 S.C.R. 87) and from the Court of Appeal for Ontario (Segnitz & Royal and Son Alliance Insurance Co. of Canada, [2005] O.J. No. 2436, 199 O.A.C. 266, 76 O.R. (3d) 161). In Brissette, the Supreme Court of Canada discussed the rules of construction relating to interpreting an insurance contract and stated that the rules include the following: “An interpretation which will result in either a windfall to the insurer or an unanticipated recovery to the insured is to be avoided” (para. 4). The Court of Appeal for Ontario, in Segnitz, relied on Brissette, stating “that an interpretation that produces windfall results should be avoided” (para. 74). In Segnitz, it was pointed out that a windfall to the insured can occur where the insured has not paid a premium for the benefit received.
[52] The applicant strenuously argues that the respondents’ position as to what was intended to be covered and whether this is a windfall misses a most important point: coverage is determined “not upon general insurance principles, nor upon the general nature of the policies, but upon the exact terms of the insurance policies themselves” (see Bridgewood Building Corp. (Riverfield) v. Lombard General Insurance, 2006 CarswellOnt 2017, 79 O.R. (3d) 494 (Ont. C.A.).
[53] At this stage, and prior to trial, it is premature to dismiss the respondents’ argument on the windfall issues, which would be the necessary result if I accede to the plaintiffs’ position. The findings at trial will be a factor in assessing this potential coverage defence. It follows that the applicants have failed to demonstrate that any potential trial award must be compensatory damages falling within policy coverage.
[54] The plaintiffs argue it is critical to resolve the coverage issue prior to trial, as the coverage stance taken by the insurers is an impediment to settlement of the underlying actions. I reject this argument as there is little, if any, evidence in the application material to support this argument.
[55] Within the context of determining whether the application is premature, it is necessary to consider the potential exclusion defences advanced by the respondents.
[56] Both parties cite authorities and generally agree on the following principles:
a) the applicants (being the insured) must prove that their losses are covered by the policies of insurance;
b) the respondents (the insurers) have the onus of proving that an exclusion applies;
[57] It is necessary to consider whether the exclusion clauses could potentially apply or whether, as the applicants allege, there is no possibility that the exclusion clauses apply, thus entitling the applicants to a declaration to this effect (even if the court declines to find that the respondents have a duty to indemnify).
Exclusion 4 – the Insured(s) gaining any personal profit or advantage to which they were not legally entitled
[58] The applicants argue that “personal profit or advantage” means “personal profit” or “personal advantage” on the basis that where an adjective precedes a series of two or more nouns, it modifies all of them (see British Columbia v. Surrey School District No. 36, 2005 BCCA 106, 2005 CarswellBC 412, 2005 B.C.C.A. 106 (B.C.C.A.) at para. 22). The applicants also rely on a decision of this court where the phrase “personal profit or advantage” was considered and the adjective “personal” was found to apply to both nouns (see Moore (Township) v. Guarantee Co. of North America, 1991 CarswellOnt 639, 2 O.R. (3d) 370, (Ont. Ct. Gen. Div.) at paras. 24 – 25). However, both parties acknowledge that the trial decision in Moore was reversed on appeal (see Moore (Township) v. Guarantee Co. of North America, [1995] O.J. No. 3702, 26 O.R. (3d) 733 (C.A.)).
[59] The respondents suggest that the trial decision in Moore may be of questionable authority, as the result was overturned on appeal. However, assuming that the reversal was “on other grounds,” the respondents argue that the Moore decision predates the Municipal Act, 2001, and that municipalities now have “natural person powers” and, accordingly, a municipality is now able to secure a “personal advantage.” The respondents cite s. 9 of the Municipal Act, 2001, which states as follows:
A municipality has the capacity, rights, powers and privileges of a natural person for the purpose of exercising its authority under this or any other Act.
[60] The respondents argue that if Blandford can prove at trial it did not receive true market value for the subject lands, then the respondents may be entitled to pursue a coverage defence on the basis that the applicants have received an advantage to which they are not legally entitled.
[61] Given the current wording of the Municipal Act, 2001, and without the benefit of the trial judgment, I am not persuaded that this exclusion can be found at this time to be unavailable.
Exclusion 7 – Any claim for legal or equitable restitution or any expenditure, compensation or damages payable pursuant to Statute or Regulation
[62] The first part of this exclusion relates to whether any claim has been made for “legal or equitable restitution.”
[63] In order to respond to the applicants’ argument that no claims for “legal or equitable relief” are pleaded, it is important to view the statements of claim in the context that they included claims for injunctive relief to prohibit the expropriation, and they were filed before the subject lands were expropriated and transferred to Toyota.
[64] The plaintiffs’ claim for interim injunctive relief was dismissed over six years ago. Toyota has since owned the subject lands for many years. Toyota is not a party to the underlying actions. Mr. Chetti’s affidavit is clear that the underlying actions, to the knowledge of all parties in those actions, are all about compensating the plaintiffs for the subject lands. The plaintiffs want money. There was no evidence on the application that any party in the underlying actions expects Toyota to return the subject lands.
[65] Blandford’s statement of claim includes a provision that particulars of its “substantial damages” will be “provided in due course.”
[66] The applicants rely, in part, on U.S. authorities in interpreting the meaning of “legal or equitable restitution” including a decision of the United States District Court in United States Commodity Futures Trading Commission v. Capitalstreet Financial et al. (2012) W.L. 79758 (W.D.N.C.). At page 10 of the decision, the court dealt with principles relating to restitution some of which can be summarized as follows:
a) the object of restitution is to restore the status quo and return the parties to the positions they occupied before the transactions at issue occurred;
b) restitution consists of restoring an injured party to the position he or she formerly occupied either by the return of something which the injured party had or by the receipt of its equivalent in money;
c) restitution has the goal of making the aggrieved party whole;
d) the object of restitution is to return the parties to the position that existed before the transactions occurred.
[67] I disagree with the applicants’ submission that it would not be possible for the trial judge to make an order of restitution in the underlying actions as currently pleaded. I find that the statements of claim may be sufficiently broad, especially when considered in the context of the evolving facts and the main issue, to support a claim for restitution as discussed in United States Commodity Futures Trading Commission v. Capitalstreet Financial et al. Further, the potential applicability of this portion of the exclusion clause will depend substantially on findings of fact at trial.
[68] The second portion of this exclusion relates to “any expenditure, compensation or damages payable pursuant to Statute or Regulation.”
[69] While the applicants take no issue that the plaintiffs are alleging that (1) the applicants breached the “anti-bonusing” provisions of s. 106(1) of the Municipal Act, 2001, and that (2) the applicants acted unlawfully and in derogation of the plaintiffs’ procedural rights under the Expropriations Act, the applicants also submit that neither statute provides a remedy for statutory breach and, hence, the exclusion clause cannot apply because any award would be for “compensatory damages” and not pursuant to those statutes.
[70] The applicants submit no authorities in support of this position.
[71] The respondents argue that a trial judge is not precluded from fashioning a remedy relating to damages for breach of statute that could subsequently be argued by the respondents on a coverage application as engaging this exclusion clause defence. (There is some support for this position in the decision of the United States District Court in General Star Indemnity Company v. Virgin Islands Port Authority, 2007 U.S. Dist. LEXIS 4444; 48 V.I. 696 at page 5, relied on by the respondents.) I do agree it could be argued that any amount for damages in relation to the Expropriations Act is unlikely, given the provisions in the Expropriations Act conferring on the Ontario Municipal Board the exclusive jurisdiction to determine compensation where land is expropriated.
[72] However, it still remains premature at this time to determine that this exclusion cannot apply in any possible circumstances on the current state of the pleadings. Again, the findings of the trial judge would be an important factor to consider.
ORDER
[73] For the foregoing reasons, an order shall issue as follows:
The application is dismissed.
This order is without prejudice to the rights of the applicants to seek similar relief after trial, or other final disposition, in respect of the action commenced in Toronto by Blandford against Oxford and Woodstock and the action commenced in Toronto by Vincorp against Oxford and Woodstock.
The parties may make written submissions as to the costs of the application within 30 days, said written submissions to be forwarded in care of the trial coordinator at London.
[74] I wish to thank all counsel for their thorough submissions and excellent facta.
“Justice Victor Mitrow”
Justice Victor Mitrow
Date: July 13, 2012
[^1]: [2006] O.J. No. 1168, 20 M.P.L.R. (4th) 27, 41 R.P.R. (4th) 300, 91 L.C.R. 206, 147 A.C.W.S. (3d) 54, 2006 CarswellOnt 1828 (Ont. S.C.J.) [^2]: O.J. No. 1475, 2007 ONCA 298, 224 O.A.C. 200 [^3]: [1990] 1 S.C.R. 801; 68 D.L.R. (4th) 321 [^4]: [2004] O.J. No. 4178; 72 O.R. (3d) 522; 190 O.A.C. 356 at para. 38 [^5]: 2010 O.J. No. 2298; 2010 ONCA 391; 263 O.A.C. 207; 101 O.P.R. (3d) 714 at para. 15 [^6]: R. v. Henry, 2005 SCC 76, [2005] 3 S.C.R. 609; 260 D.L.R. (4th) 411 at para. 57. In this case, the Supreme Court of Canada discussed the effect and weight to be given to obiter dicta. [^7]: 2004 NLSCTD 157, [2004] N.J. No. 282; 2004 NLSCTD 157; 132 A.C.W.S. (3d) 982 [^8]: 2000 CarswellOnt 2092; 189 D.L.R. (4th) 89; 49 O.R. (3d) 557; 133 O.A.C. 160 [^9]: 2006 CarswellOnt 3058 (Ont. S.C.J.)