SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: 12-55444
MOTION HEARD: July 11, 2014

RE: Dustbane Products Ltd. et al v. Gifford Associates Insurance Brokers Inc. et al

BEFORE: MASTER MACLEOD

COUNSEL:
Michael S. Rankin, for the Plaintiff

A. Benson Forrest, for the defendants

REASONS FOR DECISION

[1] This action arises because of a coverage despite in connection with two very serious motor vehicle claims arising out of an accident with a leased transport truck operated by Dustbane. In those actions Dustbane is a defendant and carried primary motor vehicle insurance of $1,000,000.00. Though it is being defended by its primary insurer, it is exposed to any claims beyond the policy limits.

[2] Dustbane had arranged umbrella insurance with AXA through the defendant Gifford. AXA has denied coverage in the motor vehicle actions because of an exclusion in the umbrella policy and because of the failure to specifically list the underlying insurance in the cover page. As Dustbane had retained Gifford as an insurance broker to arrange umbrella coverage it has commenced this action and seeks indemnity of up to $15,000,000.00 in the event it is exposed to uninsured liability.

[3] There are two issues before the court. The first is a production issue which has largely been resolved. The second is a request to amend the statement of defence.

Production of AON documents

[4] Dealing firstly with the productions, the defendant asks that in advance of discovery the plaintiff should seek and obtain documents from the previous broker, AON Reed Stenhouse and produce the AON file. The plaintiff has provided a list of AON documents in its possession or communication between itself and AON which it is prepared to produce though it does not agree the documents are relevant. The plaintiff argues that this is sufficient and it resists making a separate request to AON itself for production of the AON file. The plaintiff did business with AON for several years and believes that the AON file would result in production of a large volume of potentially irrelevant file contents. It is the plaintiff’s position that AON’s file is not within its possession, power or control and it should not have to request documents from AON unless there is a more specific, targeted and necessary request which emerges through the discovery process.

[5] The documents the defendant is seeking are in aid of two questions which the defendant wants answered. It seeks to understand the extent of discussions, advice and recommendations between AON and Dustbane in connection with listing of underlying policies in a rider and the same facts in relation to exclusions.

[6] In my view the agreement to produce the documents listed by Mr. Rankin is a suitable starting point. The questions may then be put to Mr. Merkley. Subsequently if there is a basis for requests to AON that may be pursued either by undertaking or under Rule 30.10 or 31.10 as may be appropriate. In addition of course the scope of discovery may be affected by the proposed pleading amendment.

[7] In summary, the plaintiff is to produce the documents listed in the e-mail and may be questioned on discovery concerning the relevant dealings with former brokers and insurers.

Pleading Amendments

[8] The statement of defence in this action was delivered in January of 2013. The defendant also commenced a third party claim against AXA in March of 2013 seeking a declaration of coverage. That was in turn defended by AXA in August of 2013. AXA did not defend the main action. AXA played no role in this motion.

[9] The defendant now seeks to amend the defence to add certain material facts and defences. Not all the proposed amendments are opposed. I heard argument only in relation to proposed paragraphs 14B, 18, 22A, 30, 30A, 30B and 31A are opposed.

Paragraphs 18 & 30

[10] The defendant is in a difficult position since it simultaneously seeks to assert that the umbrella insurance was put in place and is effective while at the same time saying that if AXA is correct it is not the defendant’s fault.

[11] The proposed amendment would graft words onto paragraphs which currently agree with the plaintiff that the intention was for the plaintiff to have sufficient insurance coverage for vehicles leased from Ryder. If the amendment is permitted, the added words would say that notwithstanding the intent of the plaintiff to obtain insurance and the intent of the defendant to place that insurance the defendant never specifically represented that Ryder’s insurance would constitute underlying insurance for the purpose of the umbrella policy. They also seek to plead that the AXA policy contained no reference to the Ryder policy as underlying insurance.

[12] The plaintiff opposes these two amendments because it argues that read in context, they constitute withdrawal of an admission. I agree.

[13] While it is true that paragraph 15 of the statement of claim was not formally admitted, paragraph 18 of the defence as originally drafted and read in context clearly concedes that the defendant understood it was to place insurance for vehicles leased from Ryder. Indeed the defendant asserts in the third party claim that it did just that. The first additional sentence proposed in the amendment changes the meaning of the paragraph and is in my view a withdrawal of an admission. Such a withdrawal is not justified by any evidence meeting the test under Rule 51.05.

[14] Even if I am in error and this is not technically an admission within the meaning of Rule 51.05 however, the amendment should be refused because it is prejudicial for the plaintiff to have to respond to it. The added words would render the proposed paragraph incomprehensible and internally contradicting. It should not be allowed under Rule 26 because it offends Rule 25.

[15] The second proposed sentence to be added to paragraph 18 is unnecessary because it is really a plea of contributory negligence and is separately dealt with in another proposed amendment. The amendment to paragraph 18 and similar amendment to paragraph 30 will not be allowed.

Contributory Negligence

[16] In proposed paragraphs 14B, 22A, 30A and 30B the defendant seeks to plead that the plaintiff had the policy and the summaries and binders and that if they were in any way defective it was or should have been apparent to the plaintiff. The defendant then seeks to plead that the plaintiff contributed to its own misfortune by taking no steps to rectify any apparent ambiguity or omission in the policy.

[17] Mr. Rankin does not take issue with the pleading that his client “knew” (though that is denied) but that does take issue with the wording that the plaintiff “ought to have known”. This he argues is an untenable plea because it seeks to plead contributory negligence in opposition to the very duty of care for which the broker was retained. I agree there are cases in which this defence has failed for exactly the reason Mr. Rankin suggests, but I do not agree this renders the pleading untenable.

[18] The pleading is not that the broker can rely on the plaintiff’s failure to read a policy as relieving the broker from liability. Rather, the defendant seeks to plead that the plaintiff did or should have reviewed the binders and cover pages and should then have been alert to the potential ambiguity or exclusion. If the defect in the policy (assuming there is one) is that it does not list Ryder’s policy of insurance as underlying insurance or because it appears to exclude “long term leased vehicles” then if the plaintiff had read the wording it ought to have been alerted to the potential problem and it had sufficient time before the accident to address it in some fashion. The failure of a sophisticated business parties to take steps to protect their own interest if the defect is readily apparent can provide a partial defence in some circumstances. (See: Insurance law in Canada, Vol. 1, pp. 3-34-3-34-1.) There is a contrary legal argument in Casyns v. Smith (1983) 1983 1750 (ON CA), 41 O.R. (2d) 488 (C.A) but I do not read that decision as holding that there can never be a duty on a contracting party to take care to manage its affairs by reading a contract and taking steps to mitigate. Each case will turn on its own facts including the level of sophistication of the purchaser of insurance.

[19] The proposed plea of contributory negligence may well fail of course but it must be impossible of success to be untenable at a pleading stage. It otherwise cannot be disallowed pursuant to the wording of Rule 26.11. These paragraphs will be allowed.

Argument

[20] Paragraph 31A is opposed on the basis that it is argument and not simply a conclusion of law as permitted in Rule 25.06(2). I agree that the wording of paragraph 31A is more appropriate to a factum. The thrust of the paragraph is that the action is premature because the court has not yet determined whether or not the impugned policy provides coverage. Pleaded in that way it might be appropriate. Alternatively if the intent of the paragraph is a plea that the plaintiff has failed to mitigate by pursuing its remedies against AXA that might also be appropriate but it is not my task to reword a proposed pleading. This amendment is not allowed.

Summary

[21] In summary the proposed amendments to paragraphs 14B, 22A, 30A and 30B are allowed. The balance of the motion is dismissed.

[22] This does not preclude a further motion to amend in the future and of cause if the parties can agree on additional amendments on a consent or an unopposed basis I invite them to do so.

Costs

[23] There has been divided success on the motion but the plaintiff was at one point amenable to consenting to the amendments I have allowed. They were opposed only when the additional amendments were requested. This exchange of correspondence does not amount to a Rule 49 offer but is a factor to be considered in awarding costs.

[25] The plaintiff incurred considerable costs in arguing the matter as did the defendants. In light of the original offer to consent and the success on the questions actually argued, the plaintiff shall have modest costs fixed at $2,500.00 on a partial indemnity scale.

Master MacLeod

DATE: July 14, 2014