COURT FILE NO.: CV-11-431022-00A1

DATE: 20140121

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Jun Zhou, Plaintiff

AND:

The Corporation of the Town of Markham and VTA Construction Limited, defendants

AND:

Intact Insurance Company, Third Party ats of the Defendant, the Corporation of the City of Markham

BEFORE: Justice Carole J. Brown J.

COUNSEL:
Shaneka Taylor, for the Defendant, the Corporation of the City of Markham

Kevin Bridel, for the Third Party, Intact Insurance

HEARD: December 13, 2013

ENDORSEMENT

[1] The defendant, the Corporation of the City of Markham ("Markham" or "the City") brings this motion for a declaration that the third party, Intact Insurance Company ("Intact") has a duty to defend Markham in respect of all claims made against the City in the main action pursuant to insurance policy number 500081155 issued to the defendant VTA Construction Limited ("VTA"), which policy names Markham as a named insured; a declaration that the City is entitled to appoint independent counsel of its choice, at the expense of Intact, to defend it in the main action due to a conflict between the City and VTA; and an order that Intact reimburse the City in respect of past costs of defending the main action.

[2] The notice of motion was initially brought pursuant to Rules 1.04, 21.01(1)(a) for determination of an issue before trial, and 40.01 for an interlocutory order. An amended notice of motion was subsequently served and filed seeking the same relief pursuant to the Rules above mentioned, as well as Rule 20 for partial summary judgment for the relief above mentioned.

It appears that the moving party wished to present evidence to support the motion.

[3] The third party, Intact, submits that if this motion is brought pursuant to Rule 20, there is not sufficient evidence to determine the issue or to have a full appreciation of the issues in play as the plaintiff has not as yet been examined for discovery. It is the position of Intact that without the evidence of the plaintiff, it is not possible to determine the actual reason for the slip and fall, and whether that reason evidenced failure on the part of the City or VTA to fulfill their respective duties under the contract. It argues, in the alternative, that if this motion is brought pursuant to Rule 21.01(1)(a), there is no evidence permitted without leave of the court or with the consent of the parties, which consent it does not give.

[4] As regards the rule under which the motion is brought, counsel for the City submits that if this matter should have been brought under another rule, such as Rule 14.05(d), this Court has the power pursuant to Rule 1.04 to construe the rules liberally and, if necessary, to apply another rule.

The Facts

The Action and the Pleadings

[5] The main action, which was commenced on July 19, 2011, arises from the plaintiff's alleged slip and fall on a sidewalk in the City of Markham on March 25, 2011. The statement of claim alleges that he fell on a "hazardous accumulation of snow and/or ice or black ice" on the sidewalk. The plaintiff claims that his injuries were caused by the negligence of both the City and VTA in failing to keep the sidewalk free of ice and snow. The particulars of negligence set forth in the statement of claim as against both the City and VTA are identical.

[6] More particularly, the statement of claim makes the following allegations both as against VTA and the City.

5. On or about March 25, 2011, at approximately 8 AM, the plaintiff was a pedestrian walking, in a careful and prudent manner, on the Sidewalk, when he suddenly slipped due to a hazardous accumulation of snow, ice and/or black ice on the Sidewalk and fell to the ground ("Accident").

6. The Accident was caused solely as a result of the negligence of the defendants, jointly and severally, particulars of such negligence consist of the following:

A. As to the negligence of the defendant Markham:

a) It failed to take reasonable or any care to ensure that the plaintiff would be reasonably safe while using the Sidewalk;

b) It failed to properly or at all maintain the Sidewalk free of snow, ice, and/or black ice, which is utilized by pedestrians on a daily and constant basis;

c) It failed to inspect adequately or at all the Sidewalk within a reasonable time prior to the Accident;

d) It maintained no system or, alternatively, an inadequate system of inspection for the accumulation of snow, ice, and/or black ice on the Sidewalk;

e) In the supervision and/or maintenance of the Sidewalk, the defendant Markham fell below its reasonable standard of care;

f) It knew or ought to have known of the hazardous condition of the Sidewalk prior to the Accident;

g) It failed to cordon off the area and/or post a warning of the danger to pedestrians using the sidewalk of the accumulation of snow, ice and/or black ice;

h) It created a situation of urgency from which the plaintiff, despite all reasonable efforts and precautions, could not extricate himself;

i) It acted unreasonably in the circumstances;

j) It disregarded the safety of the public using the Sidewalk; and

k) It employed agents, employees, servants or contractors who were incompetent, and who failed to properly monitor and maintain the sidewalk within the control of the Defendant Markham.

[7] The particulars of negligence as against the defendant VTA, set forth at paragraph 6B of the statement of claim are identical to those enumerated above, but for the fact that subparagraphs (e) and (k) replace "Markham" with "VTA".

The Winter Maintenance Agreement

[8] On August 2, 2006, the City contracted out winter maintenance of its sidewalks, including the sidewalk where the accident occurred, to the defendant, VTA pursuant to an agreement for sidewalk winter maintenance. Pursuant to the Agreement and the scope of work clause set forth therein, the contractor was required, inter alia, to supply all labour and equipment to carry out various winter maintenance activities, including snowplowing and sanding on designated municipal sidewalks, including the site of the alleged slip and fall.

[9] Pursuant to the Agreement, the Contract Coordinator of VTA was responsible for supervision of snow and ice control on sidewalks and walkways throughout the Corporation of the Town of Markham. The Contract Coordinator was required to be aware of sidewalk conditions at all times and be prepared to take appropriate action to correct potential hazardous conditions. Where conditions occurred which required direction from the Town, the Contract Coordinator of VTA was required to notify the City representatives.

[10] As regards the City, it was required, pursuant to the Agreement, to monitor weather conditions, patrol the roads during the contract period when there was a forecast or chance of snow, freezing rain or ice conditions; was responsible to call out the contractor to undertake winter maintenance activities when required at any time 24/7 during the contract period to determine the winter maintenance activities to be performed and to direct the contractor to perform the winter maintenance operations throughout the Town; and was responsible for the material supply and loading of salt and sand to be used and to determine the application spreading rates for the material.

[11] The evidence adduced indicates that on March 23, 2011, there was a snowfall and that the City called out VTA to conduct winter maintenance operations throughout the City. The notes and records of both the City and VTA verify that the City did call VTA out to maintain the streets and that VTA did indeed do so. The evidence adduced further indicates that there was no precipitation for the following two days.

[12] Pursuant to Section 9 of the Supplementary Conditions of the Agreement, VTA was required to keep in force a comprehensive policy of public liability and property damage insurance acceptable to the City in the amount of $5 million exclusive of interest and costs. The policy was required to name the City as an additional insured thereunder, and was required to indemnify and hold harmless the City against all claims for damage or injury to persons resulting from or arising out of any act or omission on the part of VTA.

[13] Following the close of pleadings, the City requested that the insurer of VTA, Intact, provide a defence for it as a named insured pursuant to the policy of insurance. Despite several such requests, Intact has refused to provide the defence and, hence, this motion was brought.

The Issues

[14] The issues for determination on this motion are the following:

1. Whether Intact has a duty to defend the City in the main action;
2. Whether the City is entitled to appoint independent counsel to defend it in the main action;
3. Whether the City is entitled to be paid by Intact for its past defence costs.

The Law and Analysis

Before proceeding with the central issues in this motion, I will deal with the procedural issues raised as regards the proper rule for the motion and whether evidence should be admitted. It would have been preferable that this motion be brought as an application pursuant to Rule 14.05(d) for a declaration that Intact is required pursuant to the policy of insurance in this action, No. CV-11-431022-00A1, to defend the City as a named insured. While that is not the rule under which this motion was brought, I do not find this to be fatal to the motion or the relief sought. I exercise my powers in the circumstances of this case, and taking into consideration Rule 1.04, treat the motion as if it were brought pursuant to Rule 14.05(d) as regards the declarations sought. Alternatively, I am of the view that this matter can be determined pursuant to Rule 21.01(1)(a) and that, based on the articulation of the law set forth below as regards the duty to defend, I am of the view that the issues can be determined without resort to evidence.

Does Intact have a duty to defend the City in the main action

[15] The Canadian jurisprudence clearly sets forth the legal principles governing the insurer’s duty to defend. The pleadings govern the duty to defend, and not the insurer’s view of the validity or nature of the claim or the possible outcome of the litigation. 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. Where there is doubt as to whether the pleadings bring the incident within coverage of the policy, such doubt must be resolved in favor of the insured.

[16] Where it is clear from the pleadings that a suit falls outside policy coverage by reason of an exclusion clause, the duty to defend does not arise. 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: Nichols v. American Home Assurance Co., 1990 144 (SCC), [1990] 1 S.C.R. 801.

[17] In Nichols, supra, McLachlin J. stated:

“I conclude that considerations related to insurance law and practice, as well as the authorities, overwhelmingly support the view that the duty to defend should, unless the contract of insurance indicates otherwise, be confined to the defence of claims which may be argued to fall under the policy. That said, the widest latitude should be given to the allegations in the pleadings in determining whether they raise a claim within the policy.

[18] Any doubt as to whether the pleadings bring the incident within coverage of the policy must be resolved in favour of the insured. As clearly stated by Iacobucci J.:

Where pleadings are not framed with sufficient precision to determine whether the claims are covered by a 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. This principle is congruent with the broader tenets underlying the construction of insurance contracts, namely, the contra proferentum rule, and the principle that coverage provisions should be construed broadly, while exclusion clauses should receive a narrow interpretation. In Opron Maritimes, supra, the New Brunswick Court of Appeal conveyed these principles by stating at para. 15 that, “[a]ny doubt as to whether the pleadings bring the incident within the coverage of the policy ought to be resolved in favour of the insured”.

Moneco Ltd. et al. v. Commonwealth Insurance Co. (2001), 204 D.L.R. (4th) para. 31 (S.C.C.)

[19] In the circumstances of this case, there is no ambiguity as regards the pleadings and whether they fall within the coverage afforded by the policy of insurance as regards "snow removal". The plaintiff’s claims, as against both VGA and the City, as set forth at paras. 6 and 7, above, are clear, identical, and fall within the policy of insurance issued by Intact, which affords coverage to the named insured, the City, as regards snow removal operations. As noted above at para. 18, the duty to defend is broader than the duty to indemnify, which latter issue will be determined at trial.

[20] The Insuring Agreement contained in the policy of insurance states as follows:

1. Insuring Agreement

a. The Insurer will pay those sums that the Insured becomes legally obligated to pay as "compensatory damages" because of "bodily injury" or "property damage" to which this insurance applies. The Insurer will have the right and duty to defend the Insured against any "action" seeking "compensatory damages". However, the Insurer will have no duty to defend the Insured against any "action" seeking "compensatory damages" for "bodily injury" or "property damage" to which this insurance does not apply. The Insurer may, at the Insurer's discretion, investigate any open "occurrence" and settle any claim or "action" that may result.

[21] The Intact policy of insurance provides that Intact will have the right and duty to defend the insured against any action seeking compensatory damages and, at the insurer's discretion, investigate any occurrence and settle any claim or action that may result. I find that the claims as alleged in the main action, as they relate to the City, give rise to a duty to defend on the part of Intact under the policy of insurance.

Is the City entitled to retain its own counsel with respect to the defence of the main action?

[22] The right to control the defence is that of the insurer, and such right includes the appointment of defence counsel. The insurer’s right to control the defence continues unless there is a reasonable apprehension of conflict of interest: Brockton Municipality v. Grant Cowan Co. 2002 7392 (ON CA), [2002] O.J. No. 20.

[23] Where the insurer has initially denied a duty to defend, as Intact did here, courts have found a conflict to exist: Appin Realty Corp. v. Economical Mutual Insurance Company, (2008) 2008 ONCA 95, 89 O.R. (3rd) 654 (C.A.); Glassford v. T.D. Home & Auto Insurance Co., 2009 10397 (ON SC), [2009] O.J. No. 1011 (S.C.J.)

[24] In the present case, based on the pleadings in the main action, the City and VTA have counterclaimed against one another and the conflict between the parties in this case is clear. This is conceded by counsel for Intact, who acknowledges that, in the event that this Court were to find a duty to defend, the City would be entitled to retain its own independent counsel with respect to its defence of the main action. Accordingly, the City is entitled to retain its own independent counsel, with the City’s legal expenses to be covered pursuant to the policy of insurance.

Is the City entitled to payment of its past legal costs by Intact

[25] Pursuant to this Court's finding as regards Intact's duty to defend the City pursuant to policy of insurance number 500081155 and its entitlement to retain its own counsel, with its legal costs to be covered by Intact, the City is also entitled to payment of its past legal costs by Intact.

Order

[26] Accordingly, based on all of the foregoing, I order as follows:

1. The pleadings in the main action, Court file number CV-11-431022A1, give rise to a duty on the part of Intact to defend the claims as again the Corporation of the Town of Markham;

2. Given the fact that there are counterclaims as between the two defendants, a conflict arises and the City is entitled to appoint its own counsel to defend the action as against it;

3. Intact is obligated to pay the legal costs of the City, including its past legal costs.

Costs

[27] The parties have both provided their bills of costs on this motion. Taking into consideration the findings above, and Rule 57.01 of the Rules of Civil Procedure, I exercise my discretion and award costs to the successful party, The Corporation of the Town of Markham, as set forth its bill of costs for preparation for and attendance at the motion in the total amount of $17,701.50, payable to the City forthwith.

Carole J. Brown J.

Date: January 21, 2014