SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-12-468794
DATE: 20130930

IN THE MATTER of the Insurance Act, R.S.O. 1990, c. I.8,

s. 275 and Ontario Regulations 665 and 668 thereunder;

AND IN THE MATTER of the Arbitration Act, 1991, S.O. 1991, c. 17;

AND IN THE MATTER of an Arbitration

BETWEEN: INTACT INSURANCE COMPANY OF CANADA, Applicant

AND:

LOMBARD GENERAL INSURANCE COMPANY OF CANADA, Respondent

BEFORE: CHIAPPETTA J.

COUNSEL:
Joseph Lin, for the Applicant

Greg Bailey, for the Respondent

HEARD: September 16, 2013

ENDORSEMENT

Overview

[1] This application considers whether the equitable doctrine of laches applies to the applicant’s loss transfer claim against the respondent. For reasons set out below, I conclude that it does not.

Background

[2] The applicant Intact Insurance Company of Canada (“Intact”) paid accident benefits to their insured as a result of a motor vehicle accident that occurred on February 13, 2007. On September 7, 2011, Intact made its first indemnification request to the respondent Lombard General Insurance Company of Canada (“Lombard”) pursuant to s. 275 of the Insurance Act, R.S.O. 1990, c. I.18. Lombard was the insurer of a heavy commercial vehicle involved in the collision. Lombard refused to indemnify Intact based on the amount of time that elapsed from the date of the accident to the date of Intact’s first indemnification request. The matter was submitted to arbitration by delivering a Notice of Submission to Arbitrate dated May 9, 2012 in accordance with the Insurance Act and the Arbitration Act, 1991, S.O. 1991, c. 17.

[3] The arbitrator agreed with Lombard that laches applied to the circumstances of this case. He barred Intact from pursuing its loss transfer claim against Lombard due to the delayed notice under s. 275 of the Insurance Act. On consent by way of executed Arbitration Agreement, Intact appeals the learned arbitrator’s decision to a Judge of the Ontario Superior Court of Justice, without leave of the Court.

Discussion

Did the arbitrator err in finding that the equitable doctrine of laches applies to a loss transfer claim under s. 275 of the Insurance Act?

[4] The arbitrator found that the laches doctrine applies to a loss transfer claim under s. 275 of the Insurance Act. Both parties agree that the applicable standard of review for this issue, as a matter of law, is correctness. For reasons noted below, I conclude that the arbitrator’s finding on this issue was not correct.

[5] Ontario’s loss transfer claims are governed by s. 275 of the Insurance Act. Section 275 of the Act reads as follows:

275(1) The insurer responsible under subsection 268(2) for the payment of statutory accident benefits to such classes of person as may be named in the regulations is entitled, subject to such terms, conditions, provisions, exclusions and limits as may be prescribed, to indemnification in relation to such benefits paid by it from the insurers of such class or classes of automobiles as may be named in the regulations involved in the incident from which the responsibility to pay the statutory accident benefits arose.

275(4) If the insurers are unable to agree with respect to indemnification under this action, the dispute shall be resolved through arbitration under the Arbitration Act.

[6] Section 275 of the Insurance Act permits a second party insurer to indemnify a first party insurer (i.e., the party paying statutory accident benefits) in certain circumstances, including where a heavy commercial vehicle is involved. The amount of recovery is based on the respective degree of fault of each insurer’s insured under the Fault Determination Rules, R.R.O. 1990, Reg. 668.

[7] The right to loss transfer indemnity is purely statutory. The claim does not have a “distinctively equitable flavour,” whereas for example the claim to set aside a fraudulent conveyance does: Perry, Farley & Onyschuk v. Outerbridge Management Ltd. (2001), 2001 5678 (ON CA), 54 O.R. (3d) 131 (C.A.), at para. 35. Therefore, the statutory claim under s. 275 of the Insurance Act is devoid of equitable relief. Granting the equitable laches defence pursuant to this particular statutory claim is not appropriate. Only statutory limitation periods limit the statutory right to loss transfer indemnity.

[8] Neither the Insurance Act nor its associated regulations provide a limitation period for when a first party insurer must first serve a request for indemnification on a second party insurer. The Ontario Court of Appeal recently confirmed that the two-year limitation period to initiate arbitration for a loss transfer claim begins to run the day after the first party insurer sends an indemnification request to a second party insurer: Markel Insurance Co. of Canada v. ING Insurance Co. of Canada, 2012 ONCA 218, 109 O.R. (3d) 652, at para. 27.

[9] This appeal addresses the time period between the accident date and the date of the first indemnification request, i.e., the time period prior to the commencement of the limitation period.

[10] Present case law dictates that the first loss insurer retains full control and can unilaterally determine when to trigger the limitation period. In certain circumstances, this could prove contrary to the legislative purpose of the Insurance Act to provide an “expedient and summary method” of reimbursement and indemnification: Jevco Insurance Co. v. Canadian General Insurance Co. (1993), 1993 8451 (ON CA), 14 O.R. (3d) 545 (C.A.), at p. 547. It is nonetheless not appropriate to purposely re-characterize the equitable doctrine of laches in an effort to fill a perceived legislative omission, or to augment a statutory limitation period. The right of indemnity under s. 275 of the Insurance Act is a statutory right presently limited only by the statutory limitation period as prescribed by the Ontario Court of Appeal.

Did the Arbitrator err in concluding that the necessary elements of the laches defence were met in this case?

[11] I have concluded that the equitable defence of laches does not properly apply to loss transfer claims under s. 275 of the Insurance Act. I will nonetheless consider whether the learned arbitrator erred in concluding that the necessary elements of the laches defence were met in this particular case.

[12] The arbitrator found that laches precluded Intact from pursuing its claim. Both parties agree that the applicable standard of review for this issue, as a matter of mixed fact and law, is reasonableness. For reasons noted below, I conclude that the arbitrator’s application of laches to the facts of this case was not reasonable.

[13] The arbitrator quoted Sharpe J.A. in Perry, at paras. 34-36:

The appellant submits that the motions court judge erred in finding that the claim is barred by the doctrine of laches. The appellant submits, first, that as the claim arises under a statute, it is legal in nature, and the equitable doctrine has no application. Second, it is argued that even if the doctrine of laches could apply, the respondents have failed to show the necessary element of prejudice flowing from the delay.

I am not persuaded by the argument that a court entertaining a claim for relief under the Fraudulent Conveyances Act would be precluded from considering equitable defences merely because the claim arises under a statue. The elements of a claim to set aside a fraudulent conveyance have a distinctively equitable flavour and the argument is inconsistent with the modern approach to the significance of the intersection between law and equity: see Chippewas of Sarnia Band v. Canada (Attorney General) (2000), 2000 16991 (ON CA), 51 O.R. (3d) 641, 195 D.L.R. (4th) 135 (C.A.).

The appellant’s second point, however, is a strong one. As noted by the motions court judge, without more, delay in asserting a claim does not give rise to the equitable defence of laches. A party relying on the defence must show a combination of delay and prejudice. As was stated in the often-quoted passage from the leading English case, Lindsay Petroleum Co. v. Hurd (1874), L.R. 5 P.C. 221 at pp. 239-40, 22 W.R. 492:

the doctrine of laches … is not an arbitrary or a technical doctrine ... Two circumstances, always important in such cases, are, the length of the delay and the nature of the acts done during the interval, which might affect either party and cause a balance of justice or injustice in taking the one course or the other, so far as relates to the remedy.

The ingredients of an equitable defence based upon delay were recently discussed by the Supreme Court of Canada in M. (K.) v. M. (H.), supra, at pp. 77-78 S.C.R., p. 334 D.L.R.:

What is immediately obvious from all of the authorities is that mere delay is insufficient to trigger laches … Rather, the doctrine considers whether the delay of the plaintiff constitutes acquiescence or results in circumstances that make the prosecution of the action unreasonable. Ultimately, laches must be resolved as a matter of justice as between the parties, as is the case with any equitable doctrine.

[14] The arbitrator also quoted La Forest J. in M. (K.) v. M. (H.), 1992 31 (SCC), [1992] 3 S.C.R. 6, at pp. 77-78:

It is a defence which requires that a defendant can successfully resist an equitable (although not a legal) claim made against him if he can demonstrate that the plaintiff, by delaying the institution or prosecution of his case, has either (a) acquiesced in the defendant’s conduct or (b) caused the defendant to alter his position in reasonable reliance on the plaintiff’s acceptance of the status quo, or otherwise permitted a situation to arise which it would be unjust to disturb.

Thus there are two distinct branches to the laches doctrine, and either will suffice as a defence to a claim in equity. What is immediately obvious from all of the authorities is that mere delay is insufficient to trigger laches under either of its two branches. Rather, the doctrine considers whether the delay of the plaintiff constitutes acquiescence or results in circumstances that make the prosecution of the action unreasonable. Ultimately, laches must be resolved as a matter of justice as between the parties, as is the case with any equitable doctrine.

Acquiescence is a fluid term, susceptible to various meanings depending upon the context in which it is used. Meagher, Gummow and Lehane, supra, at pp. 765-66, identify three different senses, the first being a synonym for estoppel, wherein the plaintiff stands by and watches the deprivation of her rights and yet does nothing. This has been referred to as the primary meaning of acquiescence. Its secondary sense is as an element of laches – after the deprivation of her rights and in the full knowledge of their existence, the plaintiff delays. This leads to an inference that her rights have been waived. This, of course, is the meaning of acquiescence relevant to this appeal. The final usage is a confusing one, as it is sometimes associated with the second branch of the laches rule in the context of an alteration of the defendant’s position in reliance on the plaintiff’s inaction.

[15] Therefore, mere delay is insufficient to apply the laches defence. A defendant relying on the laches defence must show a combination of delay and either (a) the plaintiff’s acquiescence or (b) prejudice to the defendant.

[16] The arbitrator found delay and acquiescence under the first branch of the laches doctrine. He concluded that Intact acquiesced by failing to deliver its first indemnification request, while aware that it could seek the loss transfer.

[17] For reasons below, I conclude that the arbitrator’s finding of acquiescence was unreasonable.

[18] La Forest J. provides two meanings of “acquiescence” under the first branch of the doctrine. First, the plaintiff acquiesces by sitting idle as the defendant deprives her of her rights. Second, after the rights deprivation and with full knowledge of her rights, the plaintiff acquiesces by delaying to act; the defendant infers that the plaintiff waived her rights. Both definitions of “acquiescence” require that the plaintiff fail to react to the defendant’s conduct, justifying barring the plaintiff’s equitable claim against the defendant. However, there is no evidence of any such conduct by Lombard. There is no evidence that Lombard attempted to deny Intact of its rights and Intact thereafter delayed its first indemnification request. Intact cannot acquiesce to conduct that never occurred.

[19] Intact was aware of its right to a loss transfer claim against Lombard no later than May 23, 2007. The first indemnification request triggers the limitation period for a loss transfer claim. It cannot be said that Intact sat idle while Lombard deprived Intact of its rights. It also cannot be said that Intact waived its rights by delaying its first indemnification request. Rather, Intact chose not to start the limitation period on its rights for four years and eight months. The delay reserved, rather than waived, Intact’s loss transfer rights under s. 275 of the Insurance Act.

[20] The arbitrator also found delay and prejudice under the second branch of the laches doctrine. He found that the four years and eight months delay was inordinate and inexcusable. The delay gave rise to a presumption of prejudice. Arbitrator Robinson relied on jurisprudence from Master Dash, considering delay in the context of reinstating an administrative dismissal: Woodheath Developments Ltd. v. Goldman (2001), 2001 28019 (ON SC), 56 O.R. (3d) 658. He found that the onus was on Intact to rebut the presumption of prejudice. Intact did not meet this onus. Arbitrator Robinson concluded that Intact’s delay “severely compromised” Lombard’s ability to conduct a full and thorough investigation of the accident.

[21] For reasons below, I find that the arbitrator’s conclusions regarding prejudice were not reasonable.

[22] M. (K.) v. M. (H.) and Perry clearly require Lombard, as the party relying on the laches defence, to demonstrate both delay and prejudice as a result of that delay. Mere delay is insufficient. Laches is an “equitable doctrine by which a court denies relief to a claimant who has unreasonably delayed in asserting the claim, when that delay has prejudiced the party against whom relief is sought”: Bryan A. Garner, ed., Black’s Law Dictionary, 9th ed. (St. Paul: West Publishing Co., 2009), at 953.

[23] The learned arbitrator found that mere delay was sufficient to presume prejudice and thereby presume that laches applies. The arbitrator’s presumption effectively rejected the Supreme Court’s statement that “mere delay is insufficient” to establish that laches applies: M. (K.) v. M. (H.), at p. 77.

[24] Delay alone cannot reasonably support a presumption of prejudice in the context of a doctrine that explicitly requires evidence of delay as well as prejudice. A presumption of prejudice has no place in the context of the positive laches defence.

[25] Lombard must establish both delay and prejudice under the second branch of the laches defence: M. (K.) v. M. (H.), at p. 77 and Perry, at para. 36. However, Lombard did not submit any facts demonstrating prejudice. The agreed statement of facts before the learned arbitrator did not contain any evidence to conclude that Intact’s delayed indemnification request affected Lombard’s investigation of the accident.

[26] In this case, I conclude that there was delay without acquiescence and delay without prejudice. It was not reasonable to apply the laches doctrine to preclude Intact’s loss transfer claim against Lombard.

Disposition

[27] The laches doctrine does not properly apply to loss transfer claims under s. 275 of the Insurance Act. Even if the doctrine could apply, it was not reasonable for the learned arbitrator to conclude that Lombard established the necessary elements of the defence in this particular case.

[28] For reasons noted above, I allow the appeal of Arbitrator Robinson’s decision. Intact is not barred from pursuing loss transfer against Lombard.

Costs

[29] The parties are encouraged to agree to an appropriate resolution of costs in the circumstances of the application. If they are unable to agree, I will receive written submissions of not more than three pages. Intact shall submit first within 30 days. Lombard shall submit within 20 days thereafter.

CHIAPPETTA J.

Date: September 30, 2013