SUPERIOR COURT OF JUSTICE – ONTARIO
COURT FILE NO.: CV-10-4049-00A1
DATE: 20130318
RE: GEORGE CHRYSANTHIS and FRANCESCA CHRYSANTHIS
Plaintiffs
AND:
ZAHID SHAH ALI, RE/MAX KINGS REALTY LTD., RUBAL KUNDRA, ROYAL LEPAGE YOUR COMMUNITY REALTY, MARCO CHIAPPETTA and ANTHONY CONTE operating as H.I. HOME INSPECTION SERVICES CORPORATION
Defendants
AND
TD GENERAL INSURANCE COMPANY
Third Party
BEFORE: Baltman J.
COUNSEL:
James S.G. Macdonald, for the Defendant, Zahid Ali Shah
Chester Wydrzynski, for the Third Party
HEARD: February 20, 2013
ENDORSEMENT
THE MOTION
[1] The defendant Shah sold his house to the plaintiffs. The plaintiffs later sued Shah for failing to disclose damages caused by an earlier fire in the residence. Shah then launched a third party claim against TD Insurance for coverage under his homeowner policy. TD brings this motion for summary judgment on the basis that the policy does not cover the claims being advanced, and therefore it is not obliged to provide a defence.
FACTUAL BACKGROUND
The Property
[2] This action arises out of the sale of a residential property. In the spring of 2010 the plaintiffs decided to look for a new home in the Brampton area, and retained a real estate agent, Marco Chiappetta, to help them. In April Chiappetta showed them the defendant Shah’s property. According to the statement of claim, while walking through the property the plaintiffs noticed black marks on a door hinge in the house, possible evidence of fire damage. This concerned them as the plaintiff Francesca Chrysanthis had respiratory difficulties, and so they instructed their agent to inquire whether a fire had ever occurred on the property.
[3] Chiappetta later reported back to the plaintiffs that according to the defendant’s agent, Rubal Kundra, there had never been a fire or smoke damage to the property. The plaintiffs proceeded to purchase the property and the sale was completed on April 6, 2010. On June 26, 2010, the plaintiffs took possession of the property.
[4] Shortly after taking possession of the property, the plaintiffs were informed by neighbours that a fire had indeed occurred on the property. Further investigation revealed that Shah had “received a cash settlement to fix the damage from the fire to the kitchen.”
[5] The plaintiffs issued a claim in which they named Shah and five other parties as defendants. The claim against Shah was for fraudulent misrepresentation and breach of contract. The claims against the other defendants (agents and appraisers) were in negligence. Shah’s counsel wrote to TD requesting that it defend and indemnify him pursuant to his homeowner’s insurance policy. TD declined on the basis that its coverage related solely to unintentional bodily injury or property damage, and therefore a claim for fraudulent misrepresentation was not covered under the policy.
The Policy
[6] The relevant portion of the policy is contained in Section II, entitled “Liability Coverage”. Under the heading “Personal Liability” it stipulates that the insurer will pay “all sums which you become legally liable to pay as compensatory damages because of unintentional bodily injury or property damage”, arising out of “your personal actions anywhere in the world” and/or “your ownership, use or occupancy of the premises”. [my emphasis]
[7] The policy then lists various exclusions, beginning with claims arising from “liability you have assumed by contract unless your legal liability would have applied even if no contract had been in force…”
The Pleading
[8] As noted, in its original incarnation the claim against Shah was framed in fraudulent misrepresentation and breach of contract. In support of those allegations the plaintiffs included the following material facts, with emphasis added by me:
(a) Kundra (the Vendor’s agent) “assured” them there “had never been a fire or smoke damage to the property and nothing was wrong with the house”;
(b) The plaintiffs “relied on these representations”;
(c) Contrary to what had been stated, there had in fact been a “grease fire in the house with substantial damage throughout”;
(d) The vendor Shah had “received a cash settlement to fix the damage from the fire to the kitchen…”
[9] In support of the specific allegation of fraudulent misrepresentation against Shah, the Statement of Claim further alleged that:
• Shah stated there was “never” a fire in the house;
• There were latent defects that were “concealed”;
• Shah “claimed” that due to his religion, lights could not be turned on in the evenings, thereby further “concealing” the defects.
[10] After this motion was brought, the plaintiffs amended the pleading in order to delete the word “fraudulent” in the two locations where it appeared before the word “misrepresentation”. The pleading was otherwise not altered or added to in any way.
THE ISSUE and the PARTIES’ POSITIONS
[11] This motion concerns the duty to defend under a homeowner’s insurance policy. The parties therefore agree that the sole issue is whether the plaintiff’s claim is covered under the wording of the policy. If so, TD must defend the claim. If not, TD is not obliged to defend or indemnify.
[12] TD maintains that the claims for breach of contract and misrepresentation are, in essence, about deliberate acts of concealment by Shah and therefore cannot be considered “unintentional” bodily injury or property damage, as provided for under the policy.
[13] Shah, on the other hand, argues that as the amended claim simply pleads “misrepresentations”, and nowhere includes words such as “fraudulent”, “deliberate” or “intentional”, there can be no exclusion based on intentional conduct.
legal framework
The Test for Summary Judgment
[14] Rule 20.04 provides that the court “shall” grant summary judgment if the court “is satisfied that there is no genuine issue requiring a trial” with respect to a claim or defence. In making that determination, the court shall not only consider the evidence submitted by the parties but may weigh evidence, evaluate credibility or draw reasonable inferences from the evidence, unless in the interests of justice such powers should only be exercised at a trial.
[15] In the leading case of Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764, at para. 50, the Ontario Court of Appeal clarified the test on summary judgment (the “full appreciation” test): Can the full appreciation of the evidence and issues required to make a determination be achieved by way of summary judgment, or can this full appreciation only be achieved by way of a trial?
[16] In determining what evidence is required to apply the “full appreciation” test, the Court must consider whether the motion record is sufficient or whether a trial is required in order that she can hear and observe the witnesses (para. 55):
Unless full appreciation of the evidence and issues that is required to make dispositive findings is attainable on the motion record – as may be supplemented by the presentation of oral evidence under rule 20.04(2.2) – the judge cannot be “satisfied” that the issues are appropriately resolved on a motion for summary judgment.
[17] Significantly, in assessing the record, the “full appreciation test” still requires that “[e]ach side must ‘put its best foot forward’ with respect to the existence or non-existence of material issues to be tried” (para. 56, citing Transamerica Life Insurance Co. of Canada v. Canada Life Assurance Co. (1996), 1996 7979 (ON SC), 28 O.R. (3d) 423 (Gen. Div.) at 434). This obligation continues to apply under the amended Rule 20.
Duty to Defend and Indemnify under a Homeowner Insurance Policy
[18] Neither party disputed that the following principles must guide any analysis of whether an insurer is obliged to defend a particular claim.
[19] First, it is irrelevant whether the allegations in the pleadings can be proven in evidence. If there is a “mere possibility” that the claims in the underlying action may fall under the coverage provided by the insurance policy – described as a “low threshold” – then TD is obligated to defend on behalf of Shah: Progressive Homes Ltd. v. Lombard General Insurance Company of Canada, [2010] SCC 33, at paras. 19 and 41.
[20] Second, the onus is on the insured to show that the allegations contained in the pleadings, if proved, possibly bring the claim within the “four corners” of the relevant policy; if this threshold is met, the onus then shifts to the insurer to show that the claim falls outside coverage because of an applicable exclusion: Aitken v. Unifund Assurance Company, 2012 ONCA 641, para. 9
[21] Third, a court must construe coverage provisions broadly and exclusion clauses narrowly. Any ambiguity shall be construed against an insurer under the contra proferentum principle of construction: Progressive, paras. 22-24 and 51.
[22] Fourth, in determining whether or not a claim could trigger indemnity, courts are not bound by the legal labels chosen by the plaintiff. In Non-Marine Underwriters, Lloyd’s of London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551, the Supreme Court was alert to the danger of plaintiffs manipulating pleadings to attract insurance, noting that a plaintiff “cannot change an intentional tort into a negligent one simply by choice of words”; rather the court must decide, based on the pleadings, “the true nature of the claims”. (paras. 50-51, 84).
[23] Finally, in a dispute over insurance coverage, a court should determine if any claims are entirely derivative in nature. If the alleged cause of action is based on the same harm as the intentional tort, it will not allow the insured to avoid the exclusion for intentionally caused injuries: Scalera, para. 51.
SUBMISSIONS AND ANALYSIS
[24] As noted above, the claim against Shah is twofold: “misrepresentation” and “breach of contract”. In my view, neither allegation attracts coverage under the policy.
[25] Dealing first with the allegation of misrepresentation, when the statement of claim is read in its entirety it is clear that the claim against Shah is essentially one of fraud. It is undisputed that there was a fire in his residence and that he did receive a cash payout for the damage caused thereby. Against this backdrop the pleading alleges that Shah denied there had ever been a fire. It is utterly implausible that Shah could have forgotten or been mistaken about whether there was a fire in his house and whether he received a cash payment in compensation. This omission cannot be a mere oversight or attributable to carelessness. The only possible inference is that he lied about that fact in order to facilitate a sale.
[26] The defendants note that during the examinations for discovery, it emerged that when Shah was approached about any previous fires the specific question may not have been clearly expressed, and that English is Shah’s second language. Therefore, argue the defendants, it is open to the trial judge to find that Shah never intended to mislead the purchasers; it was simply a misunderstanding or miscommunication.
[27] In my view this submission confuses liability with coverage. Implicit in a “misrepresentation” is that the questioner and respondent are talking about the same thing. If, as the defendants suggest, the question was unclear or Shah did not understand it, then whatever he said in response cannot amount to a misrepresentation – innocent or otherwise - and therefore he would not be liable. On the other hand, if Shah knew what he was saying – i.e. that there was never any fire in the house – that can only be a deliberate attempt to mislead. On these facts nothing in between makes any sense.
[28] In other words, if Shah made any statement that amounts to a representation that there was no fire, then that can only be intentional. That the plaintiffs amended the claim to delete the word “fraudulent” wherever it appeared matters not; as stated in Scalera, it’s not the labels set out in the pleadings that matter, but what is truly being alleged. At its heart, the claim against Shah is about deceit.
[29] This case can be distinguished from the result in Aitken, upon which the defendants rely. There, our Court of Appeal upheld the motion judge’s finding that the insurer had a duty to defend the vendors of a home when they were sued by the purchasers for alleged misrepresentations in the Seller Property Information Statement. As here, the purchasers amended the original claim and then argued the alleged misconduct was negligent rather than intentional. However, in Aitken, when the plaintiffs amended the pleading they specifically labelled the impugned conduct as negligent and added particulars to support that claim, including that the defendant owners were careless about claims they made regarding the property and renovations made thereto[^1]. As Epstein J.A. noted at para. 30:
[T]he plaintiff, in his amended claim, has advanced various possibilities relating to the Aitkens’ state of mind when making the alleged misrepresentations – from making them deliberately, knowing they were false or making them carelessly. As noted by the application judge, the facts set out in the amended pleading, if proven, could support a finding either of negligent or intentional misconduct.
[emphasis added]
[30] Importantly, the underlying facts in Aitken logically allowed for both alternatives, because the claim concerned defects that may or may not have been evident to the previous homeowners, such as bad wiring and the improper removal of load-bearing walls.
[31] Here, by contrast, other than deleting the word “fraudulent” on the two occasions where it appeared in the statement of claim, the plaintiffs have not added any wording to suggest the impugned behaviour may have been negligent rather than deliberate. And realistically they cannot do so, given the undisputed fact that there was a fire in Shah’s house and he received a payout for it. Unlike bad wiring, a fire would not be undetected or forgotten. In those circumstances any representation by him that there was no fire could only be deliberate; the facts simply cannot support a finding of negligent misconduct.
[32] For similar reasons I would also distinguish Poplawski v. McGrimmon, [2010] ONSC 108 (S.C.), and Hector v. Piazza, 2011 ONSC 1302 (S.C.) (upheld on other grounds: 2012 ONCA 26). In Poplawski, McKinnon J. held an insurer was obliged to defend former homeowners when they were sued for “misrepresentations, non-disclosure and negligence”. There the alleged misrepresentations were widespread and included a defective septic system, non-compliance with building and fire codes, and various electrical and plumbing problems, all defects that conceivably the seller was not aware of when the house was sold and therefore do not necessarily imply deliberate concealment.
[33] Hector concerned the sale of a building in which the plaintiff later sued for faulty construction, framing the action in “negligent misrepresentation and breach of contract”. Annis J. held that the insurance policy covered the impugned behaviour; however, once again, the pith and substance of the claim was negligent construction and renovation, not deliberate camouflage.
[34] By contrast, on the unique facts of this case, the claim for “misrepresentation” necessarily implies intentional behaviour, and therefore is not covered under the policy.
[35] As for the claim of breach of contract, it too must fail, as it is derivative of the misrepresentation claim. The essence of the alleged “breach of contract” is the very same misconduct that founds the claim for misrepresentation, namely Shah’s deliberately false statement regarding the fire. In other words, the breach of contract claim, on these facts, is akin to an intentional tort claim, neither of which is covered under the policy. See also Brant Mutual Insurance Co. v. Sinden, [2002] O.J. No. 5956 (S.C.), paras. 11-13; Randhawa v. Da Rosa, [2000] O.J. No. 3801 (S.C.), paras. 11-14; McCullough v. Guarantee Co. of North America, [1999] O.J. No. 499 (C.A.) para. 3.
CONCLUSION
[36] As it is clear there is no plausible way to categorize the claim here as anything other than deceit, and therefore beyond the scope of the policy, there would be no advantage in proceeding to examinations for discovery or trial. I am satisfied that the full appreciation needed to resolve the issues in this case is available on the motion record, and summary judgment should issue.
[37] On the agreement of counsel the defendants shall pay TD $2,000 in costs, inclusive of GST and disbursements.
Baltman J.
Date: March 18, 2013
COURT FILE NO.: CV-10-4049-00A1
DATE: 20130318
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: GEORGE CHRYSANTHIS and, FRANCESCA CHRYSANTHIS
AND:
ZAHID SHAH ALI, RE/MAX KINGS REALTY LTD., RUBAL KUNDRA, ROYAL LEPAGE YOUR COMMUNITY REALTY, MARCO CHIAPPETTA and ANTHONY CONTE operating as H.I. HOME INSPECTION SERVICES CORPORATION
AND
TD GENERAL INSURANCE COMPANY
BEFORE: Baltman J.
COUNSEL:
James S.G. Macdonald, for the Defendant, Zahid Ali Shah
Chester Wydrzynski, for the Third Party
ENDORSEMENT
Baltman J.
DATE: March 18, 2013
[^1]: See para. 30 of Ont. C.A. decision and paras. 25-26 of underlying decision by Warkentin J., 2011 ONSC 1809, [2011] O.J. No. 5083 (S.C.)