ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: A-11,618-08
DATE: 2013-11-28

BETWEEN:

The Great Atlantic & Pacific Co. of Canada Ltd.

Applicant

– and –

Economical Mutual Insurance Co.

Respondent

James C. Simmons Q.C., for the Applicant
Leslie A. Wright, for the Respondent

HEARD: May 23, 2013

ENDORSEMENT ON APPLICATION

Hennessy J.:

[1] In this Application, The Great Atlantic & Pacific Co. of Canada Ltd. (“A&P” or “applicant”) seeks reimbursement from Economical Mutual Group Co. (“Economical Mutual” or “respondent”) for costs that it incurred defending an action brought against it by customers who claimed damages for injuries allegedly sustained from a fall in an A&P store on July 2, 2004.

Background Facts

[2] A&P entered into an agreement with the contractor, Central Building Services Group Ltd. (“CBSG”), for the provision of floor maintenance services to an A&P store located in Thunder Bay. As part of that agreement, CBSG was obliged to include A&P as an additional insured on their liability policies. As a result, CBSG arranged to have A&P named as an additional insured under their Commercial General Liability policy (“the Policy”) with Economical Mutual. The agreement between the parties also included the following term at para. 10 of the Floor Contractor Protocol (“Protocol”):

10. The contractor will accept full responsibility for, indemnify, hold harmless and reimburse the company forthwith for any and all damages, interest and/or costs incurred by the company, associated with the handling of any customer or employee accident claim which was caused or contributed by the contractor.

[3] On July 2, 2004, Bonita Maher allegedly slipped and fell on the floor of the premises on account of the accumulation of water left behind by a floor cleaning machine. On January 28, 2005, Ms. Maher and her husband commenced the underlying action against A&P, the CBSG contractor and its subcontractor, Adis Cleaning Services Ltd. ("Adis"), alleging that her slip and fall was caused by these parties’ negligence in failing to properly maintain the floors of the premises.

[4] The respondent, Economical Mutual, provided the contractor with a defence in respect of the underlying action. However, Economical Mutual refused to assume the defence of A&P in the action. A&P then made a cross-claim in the underlying action against CBSG for indemnity pursuant to the contract with respect to the expenses incurred in defending the action.

[5] The trial of the action took place in 2009. The action was dismissed after the jury concluded that there was no negligence on the part of any of the defendants.

[6] At the conclusion of the trial, the trial judge heard A&P’s cross-claim against CBSG for indemnity for costs incurred in defending the action. The trial judge considered the agreement between the parties, in particular para. 10 of the Protocol. He interpreted the contract to give effect to para. 10 of the Protocol. Under that term, CBSG accepted full responsibility for damages and costs incurred by A&P associated with accident claims “caused or contributed to by the contractor” (emphasis added). The trial judge concluded that the cross-claims were not for damages that had been caused or contributed to by CBSG. Accordingly, he dismissed A&P’s cross-claim (Maher v. Great Atlantic & Pacific Co. of Canada, [2009] O.J. No. 152, 2009 724 (Ont. S.C.)).

[7] A&P appealed the decision. The Ontario Court of Appeal upheld the trial judge’s decision on the cross-claim. Feldman J.A. found that the interpretation of para. 10 of the Protocol was supported by the Certificate of Insurance (“Certificate”) that named A&P as an additional insured but only insofar as A&P’s liability arose from CBSG’s negligence (Maher v. Great Atlantic & Pacific Co. of Canada Ltd., 2010 ONCA 415, 266 O.A.C. 173 (C.A.) [Maher, OCA]).

[8] Before this underlying action was tried, A&P began this Application against the respondent, seeking a declaration that the respondent had a duty to defend and indemnify for all costs incurred in defending the action.

Positions of the Parties

[9] The applicant takes the position that the language of the policy created a duty on the respondent to defend the applicant for claims arising from the work of CBSG. They argue that the true nature of the allegations in the Statement of Claim triggered the duty to defend.

[10] The respondent argues that the Statement of Claim in the underlying action does not trigger the duty to defend A&P. They further argue that this Application is subject to issue estoppel since it has been finally determined by the Court of Appeal.

[11] In response to the estoppel argument, the applicant submits that the duty to defend is separate and distinct from and broader than the duty to indemnify. The applicant submits that the issue of whether there was a duty to defend was not addressed by the trial judge nor by the Court of Appeal, and therefore, the determination of this issue is not estopped.

The Underlying Action

[12] The respondent based its denial to provide coverage on the contract, the wording of the Certificate, and on the pleadings in the underlying action.

[13] The Certificate at issue describes A&P as an additional insured pursuant to the Policy, “but only insofar as their legal liability arises vicariously out of the negligent operations of the named insured.” CBSG was the named insured.

[14] In the Statement of Claim in the underlying action, the plaintiffs claimed that the accident was caused by the negligence of the three defendants and their agents and employees. The plaintiffs specifically claimed against A&P for among other things, a failure to warn the plaintiffs that the premises were in an unsafe or dangerous condition, and a failure to instruct its cleaning personnel. The plaintiffs did not make a specific allegation that A&P was vicariously liable. The plaintiffs’ claims against the cleaning contractor and sub-contractor included failure to warn and use of products known to make floors slippery, unsafe, and hazardous.

Issue Estoppel

[15] The respondent submits that the applicant is estopped from raising the issue of reimbursement for their defence costs on this Application since that question has been judicially determined. The respondent states that this case meets the three part test for the Application of issue estoppel affirmed by the Supreme Court of Canada in Angle v. Canada (Minister of National Revenue), [1975] 2 S.C.R. 248, 1974 168 at p. 249, re-phrased as follows:

1. That the same question has been decided

2. That the judicial decision which is said to create the estoppel is final, and

3. That the same parties or their privies participated in the earlier litigation.

[16] In this Application, the applicant sought the following relief:

(i) A declaration that the Policy is binding on the respondent

(ii) A declaration that the Policy covers and indemnifies the applicant in respect of claims for damages accruing to the plaintiffs from the underlying claim

(iii) An order requiring the respondent to take over the defence in the underlying action, and

(iv) An order requiring the respondent to indemnify the applicant for defence costs incurred in defending the underlying action.

[17] The respondent argues that (a) has never been in dispute and that (b) and (c) have been rendered moot by the jury verdict and related judicial decisions. They submit that (d) is the same relief requested through the cross-claim at trial, and the same issue decided by the trial judge and upheld by the Court of Appeal (see Maher, OCA).

[18] The cross-claim by the applicant against CBSG sought:

• Contribution and indemnity for any damages, interest, costs and other relief awarded to the plaintiffs as against this defendant, and

• Its costs of defending this action and of the cross-claim.

[19] In support of their claim, the applicant relied upon the agreement between the parties.

[20] The applicant submits that the question of the duty to defend under an insurance contract is a separate and distinct question from the duty to indemnify for damages. It argues therefore that there has been no consideration of this question nor has there been a judicial decision on the question of duty to defend.

[21] The trial judge considered the agreement in order to determine whether there was an obligation to indemnify for defence costs pursuant to the contractual provisions. The trial judge found that the contract obliged CBSG to indemnify the applicant for damages arising from the negligence of the contractor but was not obliged to indemnify for defence costs.

[22] The applicant appealed that finding. The Court of Appeal framed the issue as follows:

A&P appeals from the dismissal of its crossclaim against CBSG. It contends that certain indemnification provisions in the agreements between it and CBSG render CBSG responsible for all the costs that it incurred in defending the lawsuit, irrespective of liability on the part of CBSG. It says that the trial judge erred in interpreting the indemnity provisions otherwise (Maher, OCA at para. 7).

[23] The Court of Appeal considered para. 10 of the Protocol (see para. [3] above) and agreed with the trial judge’s interpretation that CBSG was contractually liable to indemnify A&P only for damages arising from its negligence and not for defence costs of claims of negligence.

[24] At the time that this Application was filed, the question was not a moot question.

[25] The scope of the duty to defend was considered in Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49, [2001] S.C.J. No. 50 [Monenco]. Iacobucci J. stated that the starting premise for assessing whether an insurer’s duty to defend has been triggered rests in the traditional “pleadings rule” (para. 28): “If the pleadings allege facts which, if true, would require the insurer to indemnify the insured for the claim, then the insurer is obliged to provide a defence.” Monenco relied upon the reasoning of McLachlin J. in Nichols v. American Home Assurance Co., 1990 144 (SCC), [1990] 1 S.C.R. 801, which indicated that “…it is not necessary to prove that the obligation to indemnify will in fact arise in order to trigger the duty to defend. The mere possibility that a claim falling within the policy may succeed will suffice. In this sense, the insurer’s duty to defend is broader than the duty to indemnify” (para. 29).

[26] I am satisfied that the issue of duty to defend was not pleaded before either the trial judge or the Court of Appeal. The trial judge and the Court of Appeal considered solely the question of whether the contract obliged CBSG to indemnify. Neither court considered the question of whether the Statement of Claim triggered a duty to defend on the part of Economical Mutual.

[27] The applicant further notes that Economical Mutual was not a party at trial or on appeal. The duty to defend arises out of the relationship between an insurer and a named insured being A&P and Economical Mutual. This is contrasted with the contractual obligations which arose or did not arise from the relationship between A&P and CBSG.

[28] Neither the first nor the third part of the test for issue estoppel is met. As the test for issue estoppel is not met, there is no estoppel.

Was there a Duty to Defend?

[29] The applicant submits that the insured had a duty to defend arising out of the pleadings in the underlying action read together with the coverage provided by the insurance policy.

[30] The respondent submits that there was no duty to defend. The respondent contends that the Statement of Claim makes allegations directly against A&P for its negligence as an occupier and that there is no claim that A&P’s liability stems from the acts of CBSG. They further argue that the Certificate provides that coverage for A&P is limited to claims arising from vicarious liability.

[31] The duty to defend is “determined by the allegations pleaded in the underlying lawsuit, read together with the coverage provided by the insurance policy”: Halifax Insurance Co. of Canada v. Innopex Ltd., 2004 33465 (ON CA), [2004] O.J. No. 4178, 72 O.R. (3d) 522 (C.A.) [Halifax Insurance] at para. 16.

[32] As an additional insured, A&P need only be defended if it can be shown by the words of the Statement of Claim that A&P derives liability from the negligent actions or omissions of CBSG.

[33] The Policy, held by CBSG through Economical Mutual, had an Additional Insured Endorsement with respect to coverage provided under Commercial General Liability. That Endorsement reads: “This insurance applies to those stated on the Declaration as ‘Additional Insureds’ but only with respect to liability arising out of the operations of the Named Insured.” The operations of the named insured, i.e. CBSG were janitorial services.

[34] The Certificate reads: “It is understood and agreed that the Great Atlantic and Pacific Company of Canada Limited and its subsidiaries are added as additional insured but only insofar as their legal liability arises vicariously out of the negligent operations of the Named Insured.”

[35] The respondent argues that A&P’s coverage as an additional insured was limited to any liability which flowed to them because of CBSG’s liability. I do not agree with that view.

[36] The Policy is determinative. On the face of the Certificate, it reads: “The insurance afforded is subject to the terms, conditions and exclusions of the applicable policy. This Certificate is issued as a matter of information only and confers no rights on the holder and imposes no liability on the insurer.” There is no support for the proposition that the Policy is to be read subject to the Certificate.

[37] The Policy itself does not limit the coverage to liability arising vicariously out of the negligence of CBSG. The wording of the Certificate is subordinate to the terms, conditions and exclusions of the Policy. On this point, I agree with Flynn J. in Waterloo (City) v. Economical Mutual Insurance Co., [2006] O.J. No. 5252, 2006 43498 (Ont. S.C.) at para. 19. In that case, he dealt with identical wording on the Certificate and the Added Insured Endorsement.

[38] A duty to defend can arise from the mere possibility that a claim falling within the policy will succeed (Monenco at para. 29).

[39] Looking at the clear wording of the Policy, under which A&P was named as an additional insured, there is coverage with respect to liability arising out of the [janitorial] operations of CBSG.

[40] The test under the “pleadings rule” affirmed in Monenco requires the court to (paras. 28-35):

• assess the pleadings to ascertain the ‘substance’ and ‘true nature’ of the claims

• consider the factual allegations in their entirety, and

• resolve any doubt as to whether the pleadings bring the incident within the coverage of the policy in favour of the insured.

[41] I turn now to the question of whether the pleadings allege facts which, if true, would require the insurer to indemnify the insured for the claim. If so, then the insurer is obliged to provide a defence (Monenco at para. 28).

[42] The facts pleaded in the Statement of Claim are:

• the plaintiff attended A&P to purchase groceries

• the plaintiff was approached by an individual operating a floor cleaning machine who demonstrated no intention of stopping or slowing down

• the plaintiff stepped out of the path of the machine and slipped and fell on a clear colourless liquid

• there were no warning signs indicating the floor was wet or slippery, and

• the plaintiff suffered serious injuries in the fall.

[43] The plaintiff alleged that the incident was caused by the negligence of the defendants or the cumulative effect of any combination of their negligent acts or omissions. The Statement of Claim particularizes the negligence of each of the defendants.

[44] As against A&P, the plaintiff alleged:

• failure to properly instruct agents or employees with respect to safe cleaning

• employing or contracting with cleaners who were untrained and not experienced

• failure to exercise reasonable care and attention for persons lawfully on the premises

• failure to minimize the risk of harm to customers with respect to cleaning of the premises

• failure to inspect the premises

• carrying on business when it knew the premises were unsafe

• failure to warn or advise the plaintiffs when it knew the premises were unsafe and unusually slippery, and

• permitting the premises to be in a dangerous or unsafe condition.

[45] As against the defendants, CBSG and Adis, the plaintiff alleged:

• failure to warn the plaintiffs of the wet and slippery conditions

• cleaning, etc. the floor in a manner that left the floor slippery and unsafe

• cleaning, etc. without regard for the safety of persons walking on it

• failure to warn customers the floor surfaces were slippery and unsafe

• using products that made the floor slippery and unsafe

• using products in a manner that was inappropriate and hazardous, and

• employing persons to clean, etc. when such persons were untrained, incompetent or unfamiliar with the proper methods.

[46] There is a long line of decisions from the trial level dealing with the question of duty to defend in slip and fall cases on premises where the owner had contracted out the snow removal. These cases are summarized in Georgian Downs Ltd. v. State Farm Fire and Casualty Co., 2013 ONSC 2110, [2013] O.J. No. 1719 [Georgian Downs]. In these cases, the owner or tenant of the premises was named as an additional insured for liability arising out of the work of the snow removal contractor. The cases adopt the procedure of reviewing the pleadings to determine whether the duty to defend was triggered. The following cases recognized a duty to defend where the true nature of the case, on a fair reading of the pleadings, was that injuries were suffered as a result of negligence in failing to maintain the premises, whether by failure to maintain the parking lot free of ice or snow or some other feature of the snow removal process: RioCan Real Estate Investment Trust v. Lombard General Insurance Co. of Canada (2008), 2008 16073 (ON SC), 91 O.R. (3d) 63 (Ont. S.C.); Cadillac Fairview Corp. v. Jamesway Construction Ltd., 2011 ONSC 2633, [2011] O.J. No. 2182; and SREIT (Park West Centre) Ltd. v. ING Insurance Co. of Canada, 2008 NSSC 183, 65 C.C.L.I. (4th) 65, affirmed by the Nova Scotia Court of Appeal in 2009 NSCA 38, 276 N.S.R. (2d) 308. In Georgian Downs, the court was not persuaded by the argument that the Statement of Claim made independent claims of negligence against the owner of the property that the contractor would not have been obliged to defend.

[47] In Atlific Hotels and Resorts Ltd. et al. v. Aviva Insurance Company of Canada (2009), 2009 24634 (ON SC), 97 O.R. (3d) 233 (Ont. S.C.), Belobaba J. considered pleadings which advanced both covered and non-covered claims. This was another snow removal case. The court found that there were three “categories” of claims (para. 16):

(i) negligence in the removal of snow and ice

(ii) negligence in hotel operations including inadequate lighting, lack of non-slip matting etc., and

(iii) occupier’s liability.

[48] The trial judge found that these additional claims were “free standing” claims apart from ice and snow removal. The factual allegations were distinctly related to matters within the hotel’s responsibility. As a result, the insurer was only required to defend against those specific parts of the claim relating to the ice and snow. In this case, the fundamental facts underpinning the claim, as opposed to legal theories, relate to the janitorial operations, a matter covered by the insurance provided to the applicant by the respondents. There were no separate or free standing factual allegations of negligence on the part of A&P.

[49] The respondent argues that the claim against A&P is with respect to their duties as an occupier. That may have been a question put to the jury. But it does not diminish the substance and true nature of the factual basis of this claim. It is a simple slip and fall alleged to have occurred as a result of the negligent janitorial operations. A&P had contracted out the janitorial operations and the contractor, CBSG, had added A&P as an insurer with respect to commercial general liability arising out of these operations.

[50] The authorities do not require an analysis of the legal foundation which may give rise to damages, i.e. occupier liability or vicarious liability arising from the negligence of the individual operator. The focus of the assessment must be the facts alleged in the Statement of Claim. The coverage provisions should be construed broadly (Halifax Insurance at para. 34).

[51] I do not have any trouble finding that the plaintiff is alleging damages as a result of unsafe conditions left by the floor cleaning operator. The true substance of this claim, giving a fair reading to the entire pleadings, is that the plaintiff alleges that she slipped and fell on the floor in close proximity in time and place to the floor cleaner who was operating floor cleaning equipment and who left the floors in a slippery and hazardous condition. The allegations against A&P claim a breach of their obligation to ensure that the floors are safe and that the floor cleaners do not cause unsafe conditions.

[52] On the face of the pleadings, I find that the facts alleged, if true, would require Economical Mutual to indemnify A&P for the claim. As a result, in my view, the Statement of Claim in the underlying action triggered the duty to defend.

[53] The declarations sought in the Application are granted.

[54] Ordinarily the question of whether there is a duty to defend is heard “expeditiously as a preliminary matter” early in the proceedings (Halifax Insurance at para. 55). For some reason, which was not addressed before me or in the materials, this Application, filed in 2008, was not argued until 2013. The trial of the underlying action was heard in January 2009. The appeal was heard in 2010. There was no explanation provided for this delay, nor was there a challenge to the passage of time by the respondents.

[55] The underlying action is long over. The insurer refused to defend the applicant. The applicant provided its own defence and the plaintiffs’ case was dismissed as against all defendants. There is no ongoing duty to defend. There should be a remedy however, for a breach of this duty.

[56] The applicant claims their defence costs as the damages they incurred for breach of the duty. The applicant submits that the proper remedy for the failure to provide the defence in accordance with the duty to defend is indemnification for the costs incurred defending the action. This indemnification should not be confused with the indemnification sought on the basis of the contract between the parties and which was the subject of final determination by the Court of Appeal. Rather it may be more appropriate to note that the measure of damages in this case is simply the costs incurred by the applicant to mitigate damages when the respondent declined to provide a defence.

[57] There shall be an order requiring the respondent to indemnify the applicant for defence costs incurred in defending the underlying action.

[58] The applicant filed copies of bills of costs related to the defence of the action. These were not addressed during the course of proceedings. The respondent claims that the total amount incurred to defend the proceedings is over $250,000. I do not have the benefit of any submissions from the respondent on the question of quantum.

[59] If the parties are unable to come to an agreement to resolve the quantum of damages, they may seek a hearing before me on this question alone.

[60] With respect to costs of this Application, if counsel cannot agree on costs, they may make written submissions of two pages plus the bill of costs. The applicant shall make submissions within 20 days of release of this decision. The respondent shall make submissions within 15 days after that.

The Hon. Madame Justice Patricia C. Hennessy

Released: November 28, 2013