ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 4953/13
DATE: 2013-11-19
BETWEEN:
10825652 ONTARIO LIMITED o/a MASTER MYUNG’S TAE KWON DO ACADEMY
Applicant
– and –
CHARTIS INSURANCE COMPANY OF CANADA
Respondent
Maurice Vaturi, Counsel for the Applicant
Ramon V. Andal, Counsel for the Respondent
HEARD: November 7, 2013
REASONS FOR JUDGMENT
Gray J.
[1] This is an application to require the respondent insurance company to pay the legal costs of the applicant in a wrongful dismissal action. The insurance policy in question provides only for the payment of legal costs up to a certain maximum, and subject to a deductible. It does not provide coverage for any damages for wrongful dismissal.
[2] For the reasons that follow, the application is granted.
Background
[3] The applicant provides training in tae kwon do. One of the teachers formerly employed by the applicant is Christian Doroja. The applicant alleged that complaints were made about Mr. Doroja’s conduct, following which Mr. Doroja was no longer employed by the applicant.
[4] Mr. Doroja issued a statement of claim on November 7, 2012, in which he claims $60,000 in damages for wrongful dismissal; $15,000 for “moral damages” for emotional distress resulting from the alleged bad faith manner in which his employment was terminated; and $100,000 for punitive and exemplary damages for alleged high handed and malicious conduct. He also asserts a claim for defamation. He also makes various claims against the individual principal of the applicant, Mr. Myung, for various torts. A statement of defence has been filed.
[5] It is clear from an examination of the statement of claim and the statement of defence that the circumstances surrounding the dismissal of Mr. Doroja are in dispute.
[6] Mr. Doroja alleges that in September 2010, he was advised by Mr. Myung that there had been a complaint about him and that the Children’s Aid Society was investigating. He alleges that no concern was expressed about this until February 2011, when he was told he should take a break from his teaching duties because the Children’s Aid Society investigation was ongoing. He alleges that he was sent home and was never contacted again or recalled to work. He alleges that he received neither notice that his employment had been terminated, nor pay in lieu of notice.
[7] Mr. Doroja alleges that he secured work with another martial arts school and alleges that his new employer was subsequently advised by Mr. Myung that Mr. Doroja was a dangerous person who could not be trusted around children, and that he should be fired. As a result, Mr. Doroja lost his employment with his new employer.
[8] Mr. Doroja alleges that on investigation he discovered that the Children’s Aid Society had actually determined that there was no legitimate complaint against him, and had closed its file.
[9] In the statement of defence, the applicant and its principal, Mr. Myung, allege that Mr. Doroja was dismissed for cause. They allege that many complaints were received from parents and students about Mr. Doroja. They allege he was given many opportunities to correct his behaviour, but finally they decided to terminate his employment for cause in February 2011. They denied that the Children’s Aid Society investigation was the cause of Mr. Doroja’s dismissal, but rather his dismissal was as a result of Mr. Doroja’s repeated misconduct.
[10] The applicant was issued a policy of insurance by the respondent, which covers a number of different things. Among other things, the respondent undertook to pay compensatory damages arising out of “personal and advertising injury” which did not include claims for wrongful termination of employees. “Wrongful termination” is defined as “termination of an employment relationship in a manner which is against the law, wrongful or in breach of an implied or written agreement to continue employment”.
[11] Notwithstanding the exclusion for wrongful termination, through an endorsement to the policy (endorsement #5), the insurer undertook to pay up to $100,000 in legal defence costs subject to a deductible of $5,000, for wrongful termination; workplace torts; discrimination of an employee; and discrimination of a customer.
[12] The term “workplace tort” is defined in the endorsement as follows:
“Retaliation, defamation, infliction of emotional distress, invasion of privacy, negligent evaluation, wrongful discipline, wrongful reference, failure to grant tenure, negligent hiring, employment related misrepresentation, wrongful failure to employ or promote, wrongful deprivation of career opportunity or wrongful demotion”
[13] For workplace torts, legal defence costs are payable only if the insured is found to be innocent, exonerated, or the claims or “actions” are dropped. That is not the case for claims for legal defence costs for claims of wrongful termination.
[14] The applicant requested the respondent insurer to cover its legal costs. The respondent declined.
[15] In this application, the applicant seeks payment of its legal defence costs only for the wrongful dismissal claim. It does not seek, at this time, payment for any potential damages for defamation, nor does it seek legal defence costs for the claims made against Mr. Myung personally for the various torts.
Submissions
[16] Counsel for the applicant submits that the insurance policy clearly covers legal costs for claims made for wrongful dismissal. Whatever other claims are made in the statement of claim, one claim is for wrongful dismissal. Thus, the applicant submits, the respondent insurer must be required to defray the applicant’s legal costs for the wrongful dismissal claim, up to the maximum provided under the policy, and subject to the deductible.
[17] Counsel for the respondent notes that the plaintiff in the statement of claim claims $15,000 in moral damages for bad faith, and $100,000 in punitive and exemplary damages for malicious and high handed conduct. Counsel for the respondent submits that it is alleged, in the statement of claim, that Mr. Myung committed intentional violations of the rights of the plaintiff, and/or intended to cause him harm.
[18] Counsel for the respondent notes that the policy itself exempts from coverage “personal and advertising injury” caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict “personal and advertising injury”. He submits that this reflects the well-known and common exclusion from coverage for deliberate acts of the insured. It must be concluded that this exclusion would also apply to any legal costs arising out of a claim based on intentional acts.
[19] Counsel for the respondent also submits that apart from any specific exclusion in the policy, intentional violations of a claimant’s rights and/or intentional harm are excluded in any event by the “fortuity principle”. Under that principle, insurance claims are excluded if they result from the intentional actions of the insured.
[20] Counsel for the respondent relies on Non-Marine Underwriters, Lloyd’s of London v. Scalera, 2000 SCC 24; Liberty Mutual Insurance Co. v. Hollinger Inc. (2004), 2004 10995 (ON CA), 236 D.L.R. (4th) 635 (Ont. C.A.); and Hodgkinson v. Economical Mutual Insurance Co. (2003), 2003 36413 (ON CA), 68 O.R. (3d) 587 (C.A.).
Analysis
[21] The only issue raised in this application is the respondent’s duty to defend. It is not argued that the respondent has a duty to indemnify. For wrongful dismissal claims, the only obligation on the insurer is to pay legal defence costs. There is no obligation to pay any wrongful dismissal damages.
[22] The principles governing the duty to defend have been summarized by Hoy J.A. (as she then was) in Tedford v. TD Insurance Meloche Monnex (2012), 112 O.R. (3d) 14 (C.A.), at para. 14, as follows:
The insurer has a duty to defend if the pleadings filed against the insured allege facts which, if true, would require the insurer to indemnify the insured: Monenco Limited v. Commonwealth Insurance Company, 2001 SCC 49, [2001] 2 S.C.R. 699, at para. 28.
If there is any possibility that the claim falls within the liability coverage, the insurer must defend: Nichols v. American Home Assurance Co., 1990 144 (SCC), [1990] 1 S.C.R. 801, at p.810.
The court must look beyond the labels used by the plaintiff to ascertain the “substance” and “true nature” of the claims. It must determine whether the factual allegations, if true, could possibly support the plaintiff’s legal claims: Monenco, at paras. 34-35; Scalera, at para. 79.
The court should determine if any claims plead are entirely “derivative” in nature, within the meaning of that term as set out in Scalera. A derivative claim will not trigger a duty to defend.
If the pleadings are not sufficiently precise to determine whether the claims would be covered by the policy, “the insurer’s obligation to defend will be triggered where, on a reasonable reading of the pleadings, a claim within coverage can be inferred”: Monenco, at para. 31.
In determining whether the policy would cover the claim, the usual principles governing the construction of insurance contracts apply, namely: the contra proferentum rule and the principle that coverage clauses should be construed broadly and exclusion clauses narrowly: Monenco, at para. 31; Scalera, at para. 70. As well, the desirability, where the policy is ambiguous, of giving effect to the reasonable expectations of the parties: Scalera, at para. 71.
Extrinsic evidence that has been explicitly referred to in the pleadings may be considered to determine the substance and true nature of the allegations: Monenco, at para. 36; see 1540039 Ontario Limited v. Farmers’ Mutual Insurance Company (Lindsay), 2012 ONCA 210.
[23] In my view, legal defence costs for the wrongful dismissal claim clearly fall within coverage under the policy and must be paid by the insurer. I do not accept that simply because the plaintiff claims moral damages resulting from alleged bad faith, and punitive and exemplary damages for alleged high handed and malicious conduct, that this somehow takes the claim outside coverage under the policy or that it is affected by the fortuity principle.
[24] Damages for wrongful dismissal arise simply because an employee has been dismissed without adequate notice. Conduct of the employer, that may serve to increase the damages, does not affect this basic principle.
[25] As noted by the Court of Appeal in Tedford, supra, if there is any possibility that the claim falls within the liability coverage, the insurer must defend. There is at least a possibility, in my view, that the claim for legal costs here falls within coverage. Accordingly, the respondent must pay for a defence.
[26] In a case such as this, one must be cautious about potentially excluding coverage on the ground that is arises from an intentional act of the insured. Wrongful dismissal claims, by their very nature, will almost invariably arise from an intentional act of the insured. To exclude coverage on that ground alone would potentially mean that the policy provides no coverage at all.
[27] In my view, it would need to be crystal clear that coverage is excluded before it can be said that the insurer has no duty to defend in a case such as this. In this case, it is not crystal clear.
[28] As noted, the applicant at this time does not raise any issue regarding the claim for defamation. Furthermore, there is no issue raised with respect to the specific torts alleged against Mr. Myung personally. All that is claimed is legal defence costs for the wrongful dismissal claim alone.
[29] What has been billed so far is $15,633.57. It is not alleged by the respondent that this amount is unreasonable, and I direct the respondent to pay the sum of $10,633.57 which represents the amount billed so far less the deductible of $5,000. Having regard to what has transpired to date, I think it is unrealistic to expect that the respondent could now assert its usual right to select counsel to defend the action. Accordingly, I direct that the respondent pay the applicant’s counsel for its legal defence costs.
[30] I recognize that it may be difficult to differentiate between the legal defence costs related to the wrongful dismissal claim from the costs related to the other claims asserted in the statement of claim. Nevertheless, counsel for the applicant must bill the respondent only for costs related to the wrongful dismissal claim.
[31] As was the case in Tedford, supra, and in Hanis v. Teevan (2008), 2008 ONCA 678, 92 O.R. (3d) 594 (C.A.), if there is a dispute about the allocation of costs it may be necessary for a judge of this Court to resolve the matter. That can be done after the matter is concluded, or at such other time as the parties agree.
[32] Furthermore, if it is alleged by the respondent that the legal fees and disbursements charged by the applicant’s counsel are excessive, it is open to the respondent to apply to the Court, pursuant to section 9 of the Solicitors Act, to have the costs assessed.
Disposition
[33] For the foregoing reasons, I hold that the respondent must pay the legal defence costs arising out of the wrongful dismissal claim, up to the maximum under the insurance policy and subject to the deductible.
[34] I will entertain written submissions with respect to costs of this application, not to exceed three pages together with a costs outline. Counsel for the applicant shall have five days to file submissions, and counsel for the respondent shall have five days to respond. Counsel for the applicant shall have three days to reply.
Gray J.
Released: November 19, 2013
COURT FILE NO.: 4953/13
DATE: 2013-11-19
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
10825652 ONTARIO LIMITED o/a MASTER MYUNG’S TAE KWON DO ACADEMY
Applicant
– and –
CHARTIS INSURANCE COMPANY OF CANADA
Respondent
REASONS FOR JUDGMENT
Gray J.
Released: November 19, 2013