ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: C-428-08 and C-428A-08
DATE: 2012-11-27

B E T W E E N:

Daniel Lauzon

Morris Manning Q.C. and Frederick A. Shuh, Counsel for the Plaintiff

Plaintiff

• and -

Axa Insurance (Canada), Darlene Skinner and Ron Williams,

Peter Kryworuk and Tyler Kaczmarczyk, Counsel for the Defendants

Defendants

• and -

The Corporation of the City of Waterloo

James H. Bennett, Counsel for the Third Party (did not appear or participate in these motions)

Third Party

HEARD: October 22 nd , 2012

RULING ON MOTIONS

GLITHERO, J.

1This action arises out of a flood which damaged the plaintiff’s residential property on or about January 9, 2008. The property was insured by the defendant Axa and the other two defendants are employees of that defendant.

2The action was commenced May 1, 2008, and the plaintiff claims $300,000, primarily for damage to the premises, and $1,000,000 based on various allegations arising out of the manner in which the defendants responded to the claim. I will for purposes of this ruling refer to these as the “bad faith claims”.

3The defence admits that a loss was sustained, but denies liability on the basis that the damage occurred as a result of blockage of storm drains, which is said to fall within a policy exclusion.

4There are two motions before me:

a) The defendants move for an order compelling the plaintiff to attend either at an examination under oath or, alternatively, an examination for discovery to answer questions pertaining to the scope and quantum of the plaintiff’s damages, and to compel the plaintiff to produce documentation relevant to those damages.

During submissions, this was referred to as the “main motion”, understandably, as it is the existence of this motion which is the foundation for the second one.

b) The defendants move for an order quashing a Summons to Witness served on Anthony J. Bedard on May 22, 2011, returnable on July 14, 2011, and subsequently adjourned.

Mr. Bedard is the appraiser appointed under the Insurance Act by the defendants and is now counsel of record for them in the action.

5A summary of the events preceding and giving rise to these motions is necessary. These events are relevant to both motions and are as follows:

Summary of Background Events

6The flood damages are alleged to have occurred on January 9, 2008. The statement of claim was issued on May 1, 2008. The statement of defence is dated June 13, 2008. The third party claim was issued October 29, 2009, with a third party defence delivered January 28, 2010.

7By letter dated October 20, 2008, plaintiff’s counsel served proof of loss dated October 9, 2008.

8On the face page of the proof of loss the claimant claims “replacement costs” at $171,190.12, “cash value” as being the same amount and “total loss or damage” as being the same amount, and makes a claim under the policy for the same amount of $171,190.12. Attached to the proof of loss is a summary of proof of loss, with the six heads of loss being: cleanup costs, restoration costs, replacement of items costs, offsite emergency living expenses, legal fees and banking fees, with amounts for each. The total of those items plus interest amounts to $171,190.12.

9There is then a summary page which relates to the “replacement of items costs” component from the first page and breaks that claim down in terms of the amounts sought in respect of six different rooms and an item for closets. Also attached is a list of items from closets said to be damaged by floodwaters, with a “estimated value” in respect of each item, a similar page for items said to be damaged in the family room, another for items said to be damaged in the laundry room, another for the fruit cellar, another for the computer room, another for mud-room and finally one for the garage. All of these room by room itemizations of “damaged items resulting from floodwaters” contain a figure for “estimated value” only and contain no supporting original purchase information or replacement cost information and no purported breakdown of how the reported “estimated value” was calculated.

10No supporting documentation whatsoever is provided for the claimed items for cleanup costs, restoration costs, offsite emergency living expenses, legal fees or banking fees.

11By letter dated December 12, 2008, defence counsel acknowledged receipt of the proof of loss and indicated that it was being reviewed and that counsel would advise as to the sufficiency of the proof of loss with respect to the requirements of Statutory Condition 6. She also asked for the process used at arriving at the estimated value of the damaged items. By letter dated January 22, 2009, defence counsel advised the plaintiff’s counsel that Axa was prepared to accept the proof of loss as submitted “on condition that it is agreed that any further questions regarding the nature and extent of the loss, as outlined in Statutory Condition 6, can be addressed through the discovery process in this litigation, through productions, oral examinations for discovery of your client, undertakings and any follow-up thereon.” It further provided that on that basis the statement of defence would not be amended to address the issues relating to the proof of loss. By letter dated November 9, 2009, defence counsel requested immediate information pertaining to the dates of purchase for the items claimed, information as to where they were purchased, and supporting receipts, invoices and accounts in respect of replacement cost or repair, and did so after referring to the plaintiff’s document as a “partial proof of loss”. By letter dated February 22, 2010, defence counsel reiterated that their client does not have the necessary damage information as previously requested and reiterated the information sought together with the supporting documentation.

12By letter dated February 24, 2010, plaintiff’s counsel expressed the position that the plaintiff has complied with the rules with respect to document production and claimed a failure to understand any basis in contract or in law for the defendants’ request that the further documentation be produced.

13By letter March 4, 2010, defence counsel wrote plaintiff’s counsel detailing the requirements of Statutory Condition 6 as to the detail required with respect to the claim for property damage, and referring plaintiff’s counsel to Statutory Condition 9, requiring an insured to submit to an examination under oath. It also refers to plaintiff’s counsel to Statutory Condition 11, regarding the appraisal procedure available under the Insurance Act as incorporated into the policy.

14By letter dated April 28, 2010, defence counsel advised the plaintiff’s counsel that the valuation of the loss was being referred to appraisal pursuant to Statutory Condition 11 and advised that Mr. Anthony Bedard had been appointed as the insurer’s appraiser, and refers to s. 128 of the Insurance Act . The letter also indicates the defendant’s desire to proceed with the examination for discovery of the plaintiff with respect to coverage issues and to proceed with an examination under oath in respect of the quantum of the damage claim, and suggests that both examinations be conducted the same day.

15By responding letter dated May 15, 2010, plaintiff’s counsel advised that the plaintiff’s appraiser will be George Milne. Further, it advises that because the defendants elected the appraisal procedure pursuant to the statutory condition, the plaintiff was unsure as to what rights of discovery were left open to the defendants and confirmed June 11, 2010, as the day for the examinations of the plaintiff “to the extent that the insurer’s entitled to discoveries”.

16By letter dated May 30, 2010, plaintiff’s counsel reiterated the position that the property damage issue is mandated to be done pursuant to the appraisal process as the defendants had seen fit to choose that route, and asserts the only matter available for discovery is the issue of liability.

17By letter dated June 7, 2010, defendants’ counsel asserted the position that the discovery process and the appraisal process were distinct and referred to the Court of Appeal decision in Baig v. Guarantee Company of North America , 2007 ONCA 847 , 2007 O.N.C.A. 847 . The letter specifies that the examination for discovery will relate to coverage issues, while the examination under oath will relate to quantum of damages.

18The plaintiff appeared on June 11, 2010. As defence counsel sought to embark on the examination under oath with respect to damages she was met with a blanket refusal by plaintiff’s counsel on the basis that the appraisal procedure is the sole avenue available to deal with issues of quantum. The examination under oath was accordingly adjourned, and the examination for discovery on the issue of liability proceeded.

19By letter dated May 22, 2011, plaintiff’s counsel wrote Mr. Bedard at Lerners LLP confirming that he had been served with a Summons to Witness and of the plaintiff’s intention to examine him with respect to his role as appraiser for the insurer. Mr. Bedard responded by letter dated May 25, 2011, advising that the Summons is an unwarranted fishing expedition, that it is an abuse of process, that the documentation sought to be produced according to the Summons is information that would be available to the plaintiff from its appraiser, Mr. Milnes. The letter advises that steps will be taken to quash the summons. The letter reiterates that any examination pursuant to the summons has to be relevant to issues on the motion in respect of which the examination was sought. It reiterates Mr. Bedard’s view that the motion relates to defence efforts to compel the plaintiff to comply with its contractual obligation to provide evidence quantifying the damages and that the Summons to Witness served upon him can’t possibly be relevant to those issues.

20Mr. Bedard and Mr. Milnes, the respective appraisers, agreed to have to Mr. Greg Brimblecombe, a Kitchener lawyer, act as umpire in the appraisal process. Mr. Milne, the plaintiff’s appraiser, insisted that Mr. Brimblecombe proceed with the appraisal despite the fact that the defendants’ motion to compel the plaintiff to submit to examination under oath with respect to the quantum of damages was still pending before the court. The two appraisers and the umpire, Mr. Brimblecombe, had a teleconference on June 25, 2012, during which the two appraisers made their submissions. By email sent June 25, 2012, the umpire, Mr. Brimblecombe, expressed the opinion that the appraisal could not proceed as to date there was no “true disagreement” as to quantum. He opined that “the parties have to have sufficient information from one another to know that the dispute exists”. He reiterated his understanding of the defendant’s position that it had insufficient information to ascertain whether any dispute exists on the quantum issue. He expressly declined to offer any comment on whether the insurer was entitled to proceed with the examination under oath, holding that “comment on that issue is outside the scope of this proceeding”, and he agreed with the defendants’ position that the matter could not proceed immediately and could not proceed until the plaintiffs are able to provide sufficient detail about their claim so as to enable the appraisers and the umpire to accurately ascertain the dispute.

21Thereafter, both Mr. Milne, the plaintiff’s appraiser, and Mr. Shuh, one of plaintiff’s counsel, continued to contact umpire Brimblecombe seeking to have him proceed with the appraisal process. There has been no additional response from umpire Brimblecombe.

The Motion to Quash the Summons

22This is a summons issued pursuant to Rule 39.03 requiring Mr. Bedard to attend to be examined as a witness before the hearing of the pending motion (the main motion). It was originally returnable on July 14, 2011. As the defendants moved to quash the summons, the examination has been adjourned pending the outcome of the motion to quash. If the summons is not quashed then the examination of Mr. Bedard would proceed and lead to the production of a transcript of his examination which would then be available for use on the main motion. Both motions were returned before me at the same time, but obviously I must rule on the motion to quash first. If it fails I can proceed to rule on the main motion. If the summons is not quashed, the examination would proceed and the main motion will have to further adjourned.

23The summons requires Mr. Bedard to bring with him all written or electronic correspondence between he and Mr. Milne, the appraiser appointed by the plaintiff; all notes and recordings of telephone conversations between the 2 of them; and all other documents relating to the appraisal process.

24The main motion was commenced by notice of motion dated April 21, 2011 and originally returnable May 4, 2011, and subsequently adjourned to July 14, 2011. The summons to Mr. Bedard was served on him on May 22, 2011 and was returnable July 14, 2011. This motion to quash the summons was made returnable July 14, 2011 as well.

25By letter dated May 22, 2011 counsel for the plaintiff advised Mr. Beddard that he would be examined with respect to his role as the appraiser for the defendants. By return mail Mr. Beddard advised plaintiff’s counsel that was an abuse of process, and encroached on solicitor client privilege in respect to the demand for “all other documents relating to the appraisal process”.

26The examination required by the summons must be undertaken with reasonable diligence. The person summonsed to be examined must be shown to have evidence having at least a semblance of relevance to the pending motion. In the context of this case the “pending motion” is that of the defendants seeking an order to compel the plaintiff to attend for either an examination under oath, or alternatively on an examination for discovery, in respect of the quantum of the loss: Rule 39.03 (1) and (3); Apotex v Bausch , [2006] O. J. No. 3539 .

27The party seeking to examine pursuant to Rule 39.03, if the summons is challenged, has the onus of putting forth a proper evidentiary base to support the examination of the non-party, and it must amount to more than merely speculation and allegations. The evidentiary base must demonstrate that the examination is likely to produce evidence which enhances the record to be considered on the return of the motion---as opposed to amounting to nothing more than “a fishing expedition”. It is not to be used as a general discovery within the action. The record must show that the witness likely has evidence relevant to the issues on the pending motion. See Coburn v. Barber , 2010 ONSC 3342 , [2010] O. J. No. 2465 (S. C. J.-Master); Portelance v. Williams { 2010] O. J. No. 4701 (S. C. J.) .

28When the summons requires the production of documents which is overly broad it warrants an inference that the exercise is a “fishing expedition”: Coburn , (supra )

29In Manulife Securities International v Society Generale (2008), 2008 13367 (ON SC) , 90 O. R. (3d) 376, at paragraph 102 Campbell J stated the test to be “the basic premise that must be satisfied is that there will likely be evidence obtained relevant to the defendant’s motion(emphasis added)”.

30Where the party wishing to examine advances a proper evidentiary base demonstrating likely relevance the onus then shifts to the party resisting the examination to show that it would be an abuse of process, such as would be the case if the evidence sought was not necessary to the pending motion: Coburn, (supra), at para. 106.

31The jurisprudence demonstrates examples of the type of circumstances which have led to a denial of a requested examination as being an abuse of process:

-where the examination is found to be for an ulterior or improper purpose—such as a fishing trip: Palms of Pasadena Hospital v. Royal and SunAlliance Insurance Co. of Canada , [2008] O. J. No. 324 (S. C. J.) at para. 15 ;

-where the examination is sought in respect of opposing counsel as a form of retaliation for a perceived slight: GMAC Leasco Ltd. V. 1348259 Ontario Inc ., [2004] O. J. No. 150 (S. C. J.) ;

-where the examination is sought of a solicitor so as to probe solicitor-client privileged communications: Jackson v. Vaughan , [2010] O. J. No. 527 (S. C. J.) ;

32Where a party seeks to call opposing counsel as a witness, there is an onus to demonstrate not only that counsel would likely have relevant evidence, but also that such evidence is necessary (emphasis added): R. v. Elliott, ( 2003 24447 (ON CA) , [2003] O. J. No. 4694 (C.A.)

33Under s. 128 of the Insurance Act the role of the appraiser is to meet with the opposing appraiser, see if the issue can be resolved, and if not to present their clients position to the umpire. The information the appraiser might have would be that supplied by the client.

34In this case the complaint of the defendants is that they have not received any information on the issue of damages, although frequently demanded. The plaintiff’s position is that the defence isn’t entitled to any more information than it has received. It is notable that the summons requires the witness to bring written or electronic correspondence as between the appraisers, or notes and recordings of telephone calls between the appraisers, and “all other documents pertaining to the appraisal process”.

35In my assessment there is no adequate evidentiary basis shown to justify the summons. The plaintiff’s appraiser will already have copies of the correspondence, and was a party to the telephone calls. Mr. Bedard’s evidence as to what was written or said is unnecessary as the plaintiff can get that information from its own appraiser. As to the claim for “all other documents”, it signifies the very type fishing expedition which is an abuse of the rule.

36The plaintiff’s materials indicate that what is to be examined upon is discernable from the affidavits of Laura Emmett, an associate in the office of defence counsel. I have reviewed both affidavits and both set out the history of the matter and contain many references to the pleadings, the exchanges of correspondence as between counsel, and describe the various exchanges as between the 2 appraisers. Her affidavits do not refer to items on which an examination of Mr. Bedard would provide evidence relevant to the issues in the main motion.

37The affidavit material filed on behalf of the plaintiff is that of his appraiser, and that of Donna Franker, a clerk in the office of counsel. The former says nothing relevant to issues on the main motion, as it deals with exchanges between the parties as to who would be appropriate to act as an umpire---a matter now settled. The affidavit of Ms. Franker does nothing more than introduce 128 pieces of correspondence as between counsel or appraisers. Accordingly the plaintiff already has these materials and need not get copies from Mr. Bedard or examine him as to what they say.

38I conclude that the examination of Mr. Bedard is unlikely to produce evidence relevant to the main motion, and that it is unnecessary. For these reasons the Summons to Witness to Mr. Bedard is quashed.

The Main Motion

Position of the defendants, moving parties

39These defendants submit that the plaintiff must be required to provide the necessary information in support of the damages claimed, together with supporting documentation. As the plaintiffs failed to do so in the Proof of Loss, and have refused so either by examination under oath, or by examination for discovery, the defendants submit that the court should order them to do one or the other. They submit that the appraisal procedure invoked here by them does not oust the ability of the court to compel production of the information.

Position of the responding plaintiff:

40The submissions on behalf of the plaintiff are that the appraisal procedure, as invoked by the defendants here, has to be viewed as a self-contained procedure in respect of the quantum of damages, and accordingly if falls to the umpire to determine the loss based on the submissions of the parties. The plaintiff takes the position that the court has no jurisdiction to order the plaintiff to attend at an examination under oath, or an examination for discovery with respect to quantum of damages.

Relevant Legislative Provisions

41Statutory Condition 6, incorporated into the policy, requires that after a loss the insured “shall….deliver as soon as practicable to the Insurer a proof of loss verified by a statutory declaration: (i) giving a complete inventory of the destroyed and damaged property and showing in detail quantities, costs, actual cash value and particulars of the amount of loss claimed;”

42Statutory Condition 11 provides:

“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 a proof of loss has been delivered.”

43On page 6 of the policy “Actual Cash Value” is defined as being “what the property is worth and takes into account such things as the cost of replacement less any depreciation and obsolescence. In determining depreciation, we will consider the condition of the property immediately before the damage occurred, the resale value and the normal life expectancy.”

44Section III subsection 6 of the policy provides that the insurer will pay on the basis of replacement cost only if the property lost or damaged is repaired or replaced with the intention to retain as soon as reasonably possible, but in no case more than 1 year after the date of loss. Otherwise, we will pay on the basis of actual cash value.”

45Statutory Condition ix on page 15 of the policy provides “After a loss which may be insured under Section 1 of this policy, you shall as often as we reasonably require: a. submit to examinations under oath and subscribe to same; and b. produce…members of your household or others for examination under oath to the extent it is within your power to do so.”

46Section 128 of the Insurance Act R.S.O. 1990, c. I.8 provides that in any contract providing for an appraisal to determine specified matters in the event of a disagreement, each of the insured and the insurer shall each appoint an appraiser, and those 2 will then appoint an umpire. The appraisers are to determine the matter in dispute, and if they fail to agree, they are to submit their differences to the umpire. The written finding of any 2 of the 3 of them determines the matter. Where the parties fail to each appoint an appraiser, or in the appraisers fail to agree on an umpire, or where the appraiser or umpire is …“incapable of acting”…a judge of the Superior Court of Justice may appoint a replacement on application of either side.

47In Baig v. Guarantee Co. of North America (2007), 2007 ONCA 847 , 88 O.R. (3d) 161 the Court of Appeal considered the scope of statutory condition as then written which provided for the right to examine an insured under oath. The section then expressly provided that the insured was to produce all documents relating to the matter in question. But the section otherwise was as free of conditions as the current section is. The court allowed an appeal from a trial finding that the right to examine under oath pursuant to the statutory condition no longer applied after litigation had commenced. The court found that the statutory condition did not cease to exist because of pending litigation, and held at paragraph 3 that “the scope of the examination extends to all matters material to the insurers liability and extent thereof which the insurer has an objective and reasonable basis to explore.” There the car insurance was obtained on the basis of an appraised value of the car. This was not an appraisal within the scheme envisioned in s. 128 . The insured appeared for the examination but through counsel refused to allow any questions as to how the appraised value had been determined. Counsel sought to restrict the questions to issues related to the quantum of the loss. Then an action was commenced by the insured and a counterclaim based on misrepresentation was delivered. Then the insurer sought to examine the insured under oath pursuant to the statutory condition. At paragraph 15 the court noted that the statutory condition contained no words which indicated that the right to examine only applied until litigation commenced. The statutory condition was to be applied according to its plain terms”.

48While the factual situation in Baig is different, the result in my opinion is useful. Just as the commencement of a lawsuit did not oust the right to examine under oath, because the plain wording did not suggest any such restriction, similarly in this case the plain meaning does not suggest that the right terminates on an election to utilize the appraisal process under s. 128 and statutory condition 6.

49Seed v. ING Halifax Insurance 2005 41991 (ON SCDC) , [2005] O. J. No. 4870 is useful. It was also a case of flood damage and the involvement of the appraisal mechanism contained in the Insurance Act . At paragraph 23 the Divisional Court panel majority held that “the purpose of the appraisal process under s. 128 of the Insurance Act is to provide an expeditious and easy manner fort the settlement of claims ….”. The case is also instructive in that the proceedings leading up to the impugned decision of the umpire involved the Superior Court. The insured had commenced an action and then sought an order staying the appraisal and requiring the insurer to file pleadings. That application failed. The insurer sought an order that the appraisal proceed without further delay. Accordingly the case is some authority that the commencement of the appraisal process does not oust the jurisdiction of the court, and leave the umpire as the only entity with jurisdiction over the damage quantification issue submitted to appraisal. The court retains jurisdiction to interfere procedurally as required. The decision of J. Wright J. is reported at 2002 79669 (ON SC) , [2002] O. J. No. 1976.

Discussion

50I start with the position of the plaintiff, respondent. It seems to suggest that the insurer cannot explore the quantum of the loss through the lawsuit, on examination for discovery, or on an examination under oath, or at trial, because it implemented the appraisal process. And the insurer can’t explore the quantum of the loss in the appraisal process because it is a self-contained or stand alone process and accordingly the right under the Insurance Act to an examination under oath is ousted by the election to utilize the appraisal process. If this position were allowed to prevail the insured would have effectively insulated the quantum of his claim from any degree of inspection, by either the insurer, or the umpire, or the court. This submission cannot succeed.

51The proof of loss submitted by the plaintiff is substantially deficient and falls far short of the statutory requirements. As a proof of loss is a pre-condition to resort to the appraisal process, I suggested during argument that it might be appropriate to seek an order that the appraisal process be struck and the matter proceed to discovery within the lawsuit. Counsel for the insurer resisted that suggestion as clearly the insurer believes the appraisal process is the most expeditious and hence least expensive way to quantify the loss. Ordinarily it would be. It is not so given the conduct of the plaintiff. It should also be remembered that counsel for the insurer pointed out the deficiencies in the proof of loss but agreed to proceed on the express understanding that those deficiencies could be rectified during the discovery process. There was no timely rejection of that understanding. The defence proceeded on that basis and it would now be unfair to allow the plaintiff to escape any form of disclosure in terms of the quantum of his claimed loss.

52I am satisfied that I have the jurisdiction to make the order requested and require the plaintiff to attend for examination under oath on the issue of the quantum of the loss. I find some support for that view from the Bains and the Seed decisions as discussed above, as well as in s. 128 which permits judicial intervention in respect of a replacement umpire. If the commencement of litigation does not oust resort to an examination under oath, neither should resort to the appraisal process do so. Just as in Seed the court had jurisdiction to make procedural orders necessary to give effect to the intent of s. 128 , so do I in the circumstances of this case.

53Finally, I am of the view that I have inherent jurisdiction to make such orders as are necessary to facilitate the sensible implementation of the statutory scheme, and to prevent an interpretation that flies in the face of the basic concepts of modern litigation----to prevent adjudication by ambush, to promote efficient and meaningful discovery as a means of reaching just results, and to equip both sides (and here the umpire) with the information needed to present a full answer and defence.

54For these reasons an order will go requiring the plaintiff to attend for an examination under oath to answer questions relevant to the scope and quantum of his claim for damages, and requiring the plaintiff to produce at least 30 days before the examination the documentation relevant to that issue, as sought in the correspondence from counsel for the defendants and as required by statutory condition 6. The examination under oath is to take place within 75 days of the release of this ruling or such longer period as may be agreed to as between counsel.

Costs

[55] In the event counsel are unable to resolve the issue of costs, submissions in writing may
be forwarded to my chambers in Kitchener. Such submissions are not to exceed 5 typed pages
exclusive of bills of costs and supporting documents. Those of the defendants are to be received
within 21 days of the release of these reasons, with those of the plaintiff within 21 days of receipt
of those of the defendants. In the event that submissions are not received within those timelines
(or any extension which may be granted) the costs issue will be deemed to have been resolved on
consent.

C. Stephen Glithero J.

Released: November 27, 2012

COURT FILE NO.: C-428-08 and C-428A-08
DATE: 2012-11-27

ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: Danielle Lauzon Plaintiff - and – Axa Insurance (Canada), Darlene Skinner and Ron Williams, Defendants - and – The Corporation of the City of Waterloo Third Party RULING ON MOTIONS Glithero J. C.S.G // dm