Certain Underwriters at Lloyd's of London v. All Spec Home Inspections et al.
[Indexed as: Certain Underwriters at Lloyd's of London v. All Spec Home Inspections]
Ontario Reports
Ontario Superior Court of Justice,
J.W. Quinn J.
November 19, 2013
118 O.R. (3d) 105 | 2013 ONSC 7149
Case Summary
Insurance — Liability insurance — Exclusions — Worker fatally injured after coming into contact with exposed energized wire in home inspected by respondent home inspector — Ministry of Labour investigating and conducting inquest into death — Respondent aware of those facts when he applied for professional liability insurance but answering "no" on application when asked if he was aware of any situation or circumstance that may result in claim in future — Worker's family subsequently suing respondent — Claim excluded from coverage under respondent's claims-made-and-reported insurance policy.
The respondent home inspector was insured under a professional liability insurance policy issued by the applicant. The policy was a claims-made-and-reported policy. On his application for insurance, the respondent answered no when asked if he was aware of "any situation or circumstance which may in the future result in a claim". The application stated that if there was knowledge of any such situation or circumstance, any claim or action subsequently emanating therefrom was excluded from coverage. When he submitted the application, the respondent was aware that a worker was fatally injured after coming into contact with an exposed energized wire in a home inspected by the respondent and that the Ministry of Labour had investigated and conducted an inquest. The worker's family subsequently sued the respondent. The applicant brought an application for a declaration that coverage was not available under the policy.
Held, the application should be granted.
The test of whether a situation or circumstance should be reported to an insurer as being one which may in the future result in a claim is an objective one. In the circumstances, the exclusion in the application applied and coverage was not available under the policy.
Cases referred to
DeGrasse v. Insurance Corp. of British Columbia, 1994 1833 (BC SC), [1994] B.C.J. No. 2743, 100 B.C.L.R. (2d) 187, 28 C.C.L.I. (2d) 15, 1994 CarswellBC 16, 51 A.C.W.S. (3d) 1160 (S.C.); Fellowes, McNeil v. Kansa General International Insurance Co., [2000] O.J. No. 3309, 138 O.A.C. 28, 22 C.C.L.I. (3d) 1, 2000 22279, 99 A.C.W.S. (3d) 504 (C.A.); Glenburn Dairy Ltd. v. Canadian General Insurance Co., 1953 294 (BC CA), [1953] B.C.J. No. 134, [1953] 4 D.L.R. 33, 1953 CarswellBC 156 (C.A.); Kozel v. Personal Insurance Co. (2013), 116 O.R. (3d) 227, [2013] O.J. No. 2067, 2013 ONSC 2670, 22 C.C.L.I. (5th) 134, [2013] I.L.R. I-5430, 48 M.V.R. (6th) 74, 227 A.C.W.S. (3d) 1154 (S.C.J.); Pacific Employers Insurance co. v. Superior Court of Los Angeles County, 221 Cal. App. 3d 1348, 270 Cal. Rptr. 779 (U.S. Cal. Ct. App. 2 Dist. 1990); Sayle v. Jevco Insurance Co., 1985 6520 (BC CA), [1985] B.C.J. No. 2574, 16 C.C.L.I. 309, 36 A.C.W.S. (2d) 462 (C.A.), affg 1984 346 (BC SC), [1984] B.C.J. No. 2757, 58 B.C.L.R. 122, 9 C.C.L.I. 54, [1984] I.L.R. Â1-1836 at 7062 (S.C.); Stuart v. Hutchins (1998), 1998 7163 (ON CA), 40 O.R. (3d) 321, [1998] O.J. No. 3672, 164 D.L.R. (4th) 67, 113 O.A.C. 12, 6 C.C.L.I. (3d) 100, [1999] I.L.R. I-3619, 1998 CarswellOnt 3540, 82 A.C.W.S. (3d) 782 (C.A.) [page106]
Statutes referred to
Courts of Justice Act, R.S.O. 1990, c. C.43, s. 98
Rules and regulations referred to
Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 14.05(3) (d)
Authorities referred to
Couch, George J., Couch on Insurance, 2nd ed., vol. 7
Lichty, Mark G., and Marcus B. Snowden, Annotated Commercial General Liability Policy, vol. 1 (Toronto: Canada Law Book, 2012)
APPLICATION by the insurer for a declaration that coverage was not available under the policy.
Anthony Cole, for applicant.
Luigi De Lisio, for respondents.
J.W. QUINN J.: —
Introduction
[1] The applicant, Certain Underwriters at Lloyd's of London ("Underwriters"), seeks various declarations, including one that coverage is not available to the respondents under a professional liability insurance policy (the "policy").
[2] This proceeding is brought pursuant to rule 14.05(3)(d) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, by which an application is available "where the relief claimed is . . . the determination of rights that depend on the interpretation of a . . . contract or other instrument".
[3] At issue here is the interpretation of a particular exclusion in the policy.
Background
The nature of Lucciola's work
[4] The respondent, Mario Lucciola ("Lucciola"), is a self-employed home inspector, operating as All Spec Home Inspections, the other respondent herein. As part of his business, Lucciola inspects residential properties. This usually involves a visual inspection, the taking of photographs and the preparation of a written report. Typically, he is hired to inspect properties by prospective purchasers of those properties.
Lucciola obtains professional liability insurance
[5] In October of 2006, Lucciola obtained, from Underwriters, a professional liability insurance policy for property inspectors, having a one-year term which was renewed annually through 2011.
The home inspection in issue
[6] In July of 2010, Lucciola attended at 32 Woodruff St., St. Catharines (the "property"), to carry out an inspection at the request of Laura Swallow ("Swallow"), the property owner. Lucciola produced a report and photographs.
The incident giving rise to the claim under the policy
[7] On August 16, 2010, Paul Anthony Mambella ("Mambella") was performing work in the attic of the property. He came into contact with an exposed, energized bare copper wire. He was electrocuted and died.
Investigation by Ministry of Labour
[8] The Ministry of Labour immediately began an investigation into the death of Mambella. Lucciola participated in the investigation.
The 2010 application for insurance
[9] On August 19, 2010, Lucciola, as he had done each year since 2006, signed an application for professional liability insurance (the "2010 application") which contained this section:
Previous Insurance/Claim Information
In the last five (5) years, has a claim ever been made against the applicant? If YES, please provide the following details . . .
Is the applicant aware of any situation or circumstance which may in the future result in a claim . . .
(Emphasis added)
[10] Lucciola answered no to questions 22 and 23.
[11] Below questions 22 and 23, these words appeared (the "application exclusion"):
Without limitation of any other remedy available to the insurer, it is hereby agreed that if there be knowledge of any such fact, circumstance or situation, any claim or action subsequently emanating therefrom is excluded from coverage under the proposed insurance.
(Emphasis added)
[12] The words "any situation or circumstance", "may" and "excluded from coverage" are crucial to the proceeding now before the court. [page108]
[13] In accordance with the 2010 application, a policy was issued for a further one year.
Lucciola interviewed by Ministry of Labour
[14] Lucciola was interviewed by an investigator for the Ministry of Labour on August 25, 2010. The interview included these questions and answers:
Q. Did you go into the attic of the house?
A. No. I looked through the attic hatch. Actually I have to correct that. I think I did go into the attic. When you see the photos you'll see I was right against it.
Q. Did you notice a wire that was strung from one end of the attic to the other?
A. I don't recall that at this time.
Q. Do you recall any evidence of wiring or lighting in there?
A. I don't recall that.
Q. Did you report or document any electrical issue in the attic?
A. I don't know that off hand.
Q. Would your report state that if you did?
A. It would. [Lucciola reviewed the report.] There's nothing stated about electrical.
[15] Later on August 25, Lucciola sent this e-mail to the investigator:
I'm not sure if this will help your investigation but after asking me about a small wire (racking my brain all day) I do remember a wire dark brown maybe black (a little smaller than the diameter of a pencil) that ran approx. a foot or two away from attic hatch in attic up to the rafters and down to the other end of attic. When I seen this I went back down stairs to get my pen electrical tester which I touch the wire with there was no result so did not report anything[.]
The inquest
[16] The Ministry of Labour conducted an inquest in late August of 2011.
The 2011 application for insurance
[17] On September 10, 2011, Lucciola signed another application for professional liability insurance (the "2011 application"). As in previous applications, it contained the same section titled "Previous Insurance/Claim Information", the same application exclusion and the same questions were asked and answered no. In accordance with the 2011 application, a policy was issued for a further one year, with an inception date of October 10, 2011 (which is "the policy" in issue).
The policy is a claims-made-and-reported policy
[18] The policy is a claims-made-and-reported insurance policy, rather than an occurrence policy and the two are quite different. The most notable difference is that it is the "transmittal of notice of the claim to the insurer which [is] the event that invoke[s] coverage": see Pacific Employers Insurance Co. v. Superior Court of Los Angeles County, 270 Cal. Rptr. 779, 221 Cal. App. 3d 1348 (U.S. Cal. Ct. App. 2 Dist. 1990), at pp. 783-784 Cal. Rptr., cited with approval in Stuart v. Hutchins (1998), 1998 7163 (ON CA), 40 O.R. (2d) 321, [1998] No. 3672, 1998 CarswellOnt 3540 (C.A.), at para. 13.[^1]
Action commenced arising from the death of Mambella
[19] In November of 2011, the widow and children of Mambella commenced an action for damages (the "action"). Named as defendants were Lucciola and Swallow. The allegations against Lucciola include the following: he failed to perform his duties in a reasonable, competent, workmanlike manner; he failed to ensure that the attic was free of dangers or hazards; he failed to inspect the electrical system of the property properly or at all; he failed to notice that the copper wire was a potential hazard.
Lucciola notifies Underwriters
[20] After being served with the statement of claim in the action, Lucciola contacted a lawyer who, in turn, advised him to notify his insurer.
Lucciola gives statement to adjuster appointed by Underwriters
[21] On January 17, 2012, Underwriters appointed an insurance adjuster to obtain a statement from Lucciola. A six-page typed statement resulted. [page110]
Lucciola examined for discovery
[22] In August of 2012, Lucciola was examined for discovery in the action. He was represented by counsel appointed by Underwriters.
Reservation-of-rights letter
[23] In February of 2012, Underwriters advised Lucciola by letter (a reservation-of-rights letter) that the insurer would defend the action but without prejudice to the right to deny coverage under the policy.
Discussion
Issuance of policy dependent upon statements and representations
[24] The policy states that it is issued "in reliance upon the statements and representations in the Application". Consequently, the answer no to question 23 in the 2011 application was relied upon by Underwriters in issuing the policy.
The policy contains exclusions, conditions and warranties
[25] Coverage in the policy contains several exclusions, conditions and warranties. However, it is agreed that a decision by this court in respect of the application exclusion is all that is required. It is a "domino" issue.
The three primary parts of a liability insurance policy
[26] A liability insurance policy has three primary parts: the insuring agreement; the exclusions; and the conditions.
[27] "The insuring agreement helps set out the scope of the coverage available. The scope is further defined by the exclusions . . . The policy exclusions limit or narrow the coverage provided by the insuring agreement . . . an exclusion which is 'clear and unambiguous' will result in there being no coverage available to the policyholder . . . If the . . . claim falls within the . . . insuring agreement and there is no exclusion which applies to remove coverage, the insurer should consider whether there has been breach of a policy condition": see Lichty and Snowden, Annotated Commercial General Liability Policy, vol. 1 (Toronto: Canada Law Book, 2012), at p. 2-3.
[28] Conditions are "a list of the respective obligations of the parties to the insurance contract. In most cases, breaches of conditions are treated by the court as nominal infractions unless [page111] the insurer can demonstrate real prejudice": see Annotated Commercial General Liability Policy, supra, at p. 37-1.
The significance of an exclusion
[29] As already stated, the existence of an exclusion "which is 'clear and unambiguous' will result in there being no coverage available to the policyholder": see Annotated Commercial General Liability Policy, supra, at p. 2-3.
[30] "Exclusion clauses . . . operate to take a risk out of coverage": see Annotated Commercial General Liability Policy, supra, at p. 13-1.
[31] It will be seen in a moment that the existence of an exclusion affects the availability of relief from forfeiture.
"[A]ware of any situation or circumstance"
[32] Question 23 in the 2010 application and in the 2011 application asks whether the applicant for insurance is "aware of any situation or circumstance which may in the future result in a claim". What level of awareness is required?
[33] Mr. Cole relies upon Glenburn Dairy Ltd. v. Canadian General Insurance Co., 1953 294 (BC CA), [1953] B.C.J. No. 134, 1953 CarswellBC 156 (C.A.), where the court considered a special condition of a policy of insurance that required an insured, "upon the occurrence of an accident", to give written notice to the insurer "as soon as practicable". At para. 7, it was held by O'Halloran J.A., one of two justices writing for the majority:
Notice of the occurrence of an accident must . . . be given in all circumstances . . . even if in the mind of the insured at the time of its occurrence responsibility would seem unlikely or validity of a claim, if ever made, would seem to have little, if any, real foundation.
[34] At para. 20, Robertson J.A., the other majority justice, when discussing the knowledge of the accident possessed by an employee of the insured, framed the issue thusly: "should [the employee] as a man of ordinary prudence have foreseen that 'a claim could arise therefrom'".
[35] The test whether a situation or circumstance should be reported to an insurer, as being one which may in the future result in a claim, is an objective test: see Fellowes, McNeil v. Kansa General International Insurance Co., [2000] O.J. No. 3309, 2000 22279 (C.A.), at paras. 46 and 49, citing Sayle v. Jevco Insurance Co., 1984 346 (BC SC), [1984] B.C.J. No. 2757, 58 B.C.L.R. 122 (S.C.), affd 1985 6520 (BC CA), [1985] B.C.J. No. 2754, 16 C.C.L.I. 309 (C.A.).
[36] I was giving thought to ordering the trial of an issue as to whether there was a basis for Lucciola to believe that he did not [page112] have reason to contemplate a claim being made. However, with the test regarding the reporting requirement under the policy clearly being objective, there would be no useful purpose for such an order. Lucciola cannot overcome the fact of the investigation by the Ministry of Labour and the fact of the inquest, and the conclusion that they called out for notice to Underwriters. The policy was issued subsequent to the 2011 application, but the inquest (and, of course, the investigation by the ministry) preceded the 2011 application.
Relief from forfeiture
[37] Section 98 of the Courts of Justice Act, R.S.O 1990, c. C.43 provides for relief from forfeiture:
- A court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.
[38] Mr. Cole argues that because the application exclusion in the 2011 application states that a subsequent claim emanating from "any situation or circumstance" is excluded from coverage, there is no coverage in existence here that can be forfeited. In other words, relief from forfeiture is unavailable where a claim falls outside of the coverage due to the operation of an exclusion. He cites this passage from Annotated Commercial General Liability Policy, supra, at pp. 2-3 to 2-4:
. . . if the . . . claim either does not fall within the insuring agreement or is removed by one or more exclusions, there is no need to interpret the language of a condition clause or to consider whether specific principles developed by the courts apply.
(Emphasis added)
[39] And also the following from DeGrasse v. Insurance Corp. of British Columbia, 1994 1833 (BC SC), [1994] B.C.J. No. 2743, 1994 CarswellBC 16 (S.C.), at para. 41, citing Couch on Insurance, 2nd ed., vol. 7, at para. 36:49 [pp. 482-83], that "the effect of [an exclusion] is to declare that there never was insurance with respect to the excluded risk".
[40] Mr. Cole further submits that even if the application exclusion were to be interpreted as a condition (and it is not a condition) it would be a condition precedent to the existence of coverage and relief from forfeiture is unavailable for such conditions. See Kozel v. Personal Insurance Co. (2013), 116 O.R. (3d) 227, [2013] O.J. No. 2067, 2013 ONSC 2670 (S.C.J.), at para. 48: "a true condition precedent . . . is a circumstance that must occur for the contractual obligation to exist . . . [t]herefore . . . s. 98 [of the Courts of Justice Act] is not available to grant relief." [page113]
Was Underwriters prejudiced?
[41] Because we are dealing with an exclusion to the policy (as opposed to, say, a condition), the existence of prejudice to Underwriters is irrelevant.
Conclusion
[42] Using terms that have been defined in these reasons, the application exclusion in the 2011 application operates to deprive the respondents of coverage under the policy. Consequently, a declaration shall issue as sought in para. A.1 of the amended notice of application.
[43] Although I do not think that it is necessary to do so (because the first declaration above renders them redundant), two further declarations (that Underwriters is not required to defend the action or to indemnify the respondents under the Policy for any amounts that the respondents may be found to owe the plaintiffs in the action) also shall issue in accordance with paras. A.2 and A.3 of the amended notice of application.
[44] This is a result that a layperson might find perplexing (because, if we were dealing with an occurrence policy, there would be coverage). But, as we function in a result-based legal system, when it comes to costs, it would normally be the case that the respondents should pay the costs of the applicant. However, I am relieved that Underwriters has provided last-minute e-mail instructions not to seek costs.
[45] I thank counsel for their detailed submissions and, in particular, for the education that Mr. Cole provided to the court regarding the cruel world of claims-made-and-reported policies of insurance.
Application granted.
Notes
[^1]: The Pacific Employers decision contains, at pp. 783-784 Cal. Rptr., a succinct historical explanation of the commercial impetus behind the origins of the claims-made-and-reported insurance policy.
End of Document