C.H. Robinson Worldwide Inc. v. Northbridge Commercial Insurance Corp.

Ontario Reports

Ontario Superior Court of Justice,

C.J. Brown J.

January 16, 2015

124 O.R. (3d) 390 | 2015 ONSC 232

Case Summary

Insurance — Misrepresentation — Risk — Insured motor carrier answering no when asked on application for insurance whether it had any contracts with shippers that stipulated limits of liability that were required to supersede insured's standard bill of lading — Insured failing to disclose that it had entered into contract with freight forwarder which provided that insured would be liable for full actual value of shipments — Freight forwarder constituting "shipper" — Misrepresentation being material as insurer would have increased premium had contract terms been disclosed — Policy void.

The applicant was a freight forwarder. It entered into a contract with KLM, a motor carrier, for the transportation of food products. The truck carrying the shipment was involved in an accident and the food was destroyed. The contract between the applicant and KLM provided that KLM was liable for the full, actual value of the shipments. The applicant sued KLM. KLM did not defend and was noted in default, and the applicant obtained judgment in the amount of $223,701.85, plus costs and prejudgment interest. Relying on s. 132(1) of the Insurance Act, R.S.O. 1990, c. I.8, the applicant sought payment of the unsatisfied judgment from KLM's insurer, the respondent. The respondent refused, maintaining that the policy was void for misrepresentation or, alternatively, if the respondent was liable to the applicant, that liability was limited to $65,953.29, the maximum allowed under the policy. The applicant brought an application for a declaration pursuant to s. 132(1) of the Act that it had a cause of action against the respondent for payment of the full amount of the judgment against KLM.

Held, the application should be dismissed.

The respondent was entitled under s. 132 of the Act to rely on any defence against the applicant that it would have had against KLM. On KLM's application for insurance coverage, its representative answered no when asked whether KLM had any contracts with shippers that stipulated limits of liability that were required to supersede KLM's standard bill of lading. The respondent's failure to produce KLM's standard bill of lading did not preclude it from arguing misrepresentation. Regardless of KLM's standard bill of lading, liability would be limited by O. Reg. 643/05 to the lesser of (a) the value of the goods at the time of shipment; and (b) $4.41 per kilogram, unless modified by private contract. While the applicant was a freight forwarder, practically speaking, it did act as a shipper vis-à-vis its carriers, and would have been understood by KLM to be a "shipper" in the context of the application for insurance coverage. KLM's failure to disclose the terms of the contract with the applicant was material to the respondent in that the respondent would have increased the premium had they been disclosed. The policy was void for misrepresentation.

Cases referred to

Canadian Indemnity Co. v. Canadian Johns-Manville Co., 1990 CanLII 78 (SCC), [1990] 2 S.C.R. 549, [1990] S.C.J. No. 82, 72 D.L.R. (4th) 478, 115 N.R. 161, J.E. 90-1259, 33 Q.A.C. 161, 50 B.L.R. 1, 50 C.C.L.I. 95, [1990] I.L.R. Â1-2650 at 10389, 22 A.C.W.S. (3d) 1011; [page391] Carter v. Boehm (1766), 97 E.R. 1162, [1558-1774] All E.R. Rep. 18, 3 Burr. 1905, 1 Wm. Bl. 593 (Eng. K.B.); Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, [2010] 2 S.C.R. 245, [2010] S.C.J. No. 33, 2010 SCC 33, 293 B.C.A.C. 1, [2010] I.L.R. I-5051, 406 N.R. 182, 323 D.L.R. (4th) 513, 9 B.C.L.R. (5th) 1, EYB 2010-179515, 93 C.L.R. (3d) 1, 2010EXP-3049, J.E. 2010-1683, [2010] 10 W.W.R. 573, 73 B.L.R. (4th) 163, 89 C.C.L.I. (4th) 161; Sagl v. Chubb Insurance Co., [2009] O.J. No. 1879, 2009 ONCA 388, 249 O.A.C. 234, 72 C.C.L.I. (4th) 193, [2009] I.L.R. I-4839; Stewart v. Canada Life Assurance Co., [2000] O.J. No. 2970, 103 A.C.W.S. (3d) 201 (C.A.), affg 1999 CanLII 36845 (ON SC), [1999] O.J. No. 2842, 100 O.T.C. 93, 14 C.C.L.I. (3d) 178, [2000] I.L.R. I-3792, 90 A.C.W.S. (3d) 143 (S.C.J.); Walker v. Sovereign General Insurance Co. (2011), 107 O.R. (3d) 225, [2011] O.J. No. 4106, 2011 ONCA 597, 283 O.A.C. 192, 100 C.C.L.I. (4th) 1, 343 D.L.R. (4th) 143, [2011] I.L.R. I-5199, 207 A.C.W.S. (3d) 562; Xcan Grain Ltd. v. Canadian Surety Co., 1995 CanLII 16092 (MB QB), [1995] M.J. No. 172, [1995] 5 W.W.R. 730, 101 Man. R. (2d) 218, 32 C.C.L.I. (2d) 5, [1995] I.L.R. 1-3247, 54 A.C.W.S. (3d) 1356 (Q.B.)

Statutes referred to

Highway Traffic Act, R.S.O. 1990, c. H.8, s. 191.0.1(1)

Insurance Act, R.S.O. 1990, c. I.8, s. 132, (1)

Rules and regulations referred to

Carriage of Goods, O. Reg. 643/05, Sch. 1, s. 9

Authorities referred to

McNeil, John, Motor Cargo Claims, 3rd ed. (Toronto: Carswell, 1997)

APPLICATION for a declaration that the applicant had a cause of action against the respondent.

Michael Magonet, for applicant.

Rui M. Fernandes and Kimberly Newton, for respondent.

Endorsement of C.J. BROWN J.: —

Introduction

[1] The applicant, C.H. Robinson Worldwide Inc. ("Robinson"), seeks a declaration pursuant to s. 132(1) of the Insurance Act, R.S.O. 1990, c. I.8 that it has a cause of action against the respondent, Northbridge Commercial Insurance Corporation ("Northbridge"), for the payment of moneys under the terms of a judgment obtained by Robinson as against Northbridge's insured, KLM Express Ltd. ("KLM"). Robinson also seeks a declaration that Northbridge is required to indemnify Robinson for the amount of the judgment subject to the limits of liability contained in KLM's policy number 2021043.

[2] Northbridge requests an order dismissing Robinson's claims or, alternatively, an order limiting the amount of indemnity owed by Northbridge to $65,953.29.

[3] For the reasons that follow, Robinson's claims are dismissed. [page392]

Background

[4] Both parties to this application are sophisticated corporations in the transportation and shipping industry. Robinson is a freight forwarder. Among other things, it contracts with motor carriers to transport property for its customers. Northbridge, as its name suggests, is a commercial insurance company. At all material times, it was the insurer of KLM, a motor carrier that provided services for Robinson.

[5] Robinson retained KLM to transport a shipment of food products from Ajax, Ontario to Calgary, Alberta. On or about June 22, 2012, they entered into a written agreement for motor contract carrier services (the "Contract") under which KLM would transport the goods in question. Under the terms of the Contract, KLM undertook to procure and maintain insurance coverage and to provide Robinson with written evidence of the insurance coverage.

[6] KLM had an existing insurance policy with Northbridge, but the coverage period was set to expire on August 12, 2012. Accordingly, KLM took out another policy. The new policy that KLM obtained (Policy 2021043) ran from August 12, 2012 to August 12, 2013.

[7] On July 18, 2012, KLM provided proof of the existing policy to Robinson by way of a certificate of liability insurance. Following Robinson's receipt of that certificate, it sent an e-mail to KLM dated July 24, 2012 stating, "Your insurance certificate has been accepted. You may continue conducting your business with C.H. Robinson." Shortly thereafter, KLM sent a further certificate of liability insurance covering the renewed policy.

[8] In breach of the terms of the Contract, KLM failed to transport and deliver the food products. The truck carrying the shipment was involved in an accident and the food was destroyed. In response to the breach, Robinson corresponded with KLM and Northbridge, the latter to advise of the loss and claim payment. Robinson sent a letter to both KLM and Northbridge dated April 8, 2013 and a second letter dated May 21, 2013. Robinson also provided Northbridge with a copy of the Contract. Northbridge maintains that this was the first time it had seen the Contract between KLM and Robinson.

[9] KLM failed to honour Robinson's request for payment. Accordingly, Robinson commenced an action against KLM for damages in the Ontario Superior Court of Justice. Northbridge was served with a copy of the issued statement of claim.

[10] KLM did not defend and was noted in default on October 24, 2013. Robinson obtained judgment in the amount of $223,701.85 [page393] plus costs of $1,106.07, together with post-judgment interest at the rate of 3 per cent per annum.

[11] Relying on s. 132(1) of the Insurance Act, Robinson sought payment from Northbridge of the moneys ordered to be paid under the judgment. Northbridge refused, maintaining that Policy 2021043 was void for misrepresentation and, in the alternative, if Northbridge did have liability to Robinson, that liability must be limited to $65,953.29 as the maximum allowed under that policy.

The Issues

[12] Northbridge does not dispute that Robinson has obtained judgment against KLM or that the judgment is for $223,701.85. Nor does Northbridge dispute that the judgment has gone unsatisfied. It maintains, correctly, that s. 132 of the Insurance Act does not provide Robinson with a carte blanche for recovery against Northbridge, which is entitled to use any defence against Robinson that it would have had against KLM: Walker v. Sovereign General Insurance Co. (2011), 107 O.R. (3d) 225, [2011] O.J. No. 4106, 2011 ONCA 597, at para. 13. Section 132 reads as follows:

132(1) Where a person incurs a liability for injury or damage to the person or property of another, and is insured against such liability, and fails to satisfy a judgment awarding damages against the person in respect of the person's liability, and an execution against the person in respect thereof is returned unsatisfied, the person entitled to the damages may recover by action against the insurer the amount of the judgment up to the face value of the policy, but subject to the same equities as the insurer would have if the judgment had been satisfied.

[Emphasis added]

[13] Northbridge submits that it would have had two such defences against KLM -- namely, an argument that the policy was void for misrepresentation and an argument that recovery under the policy is limited by an exclusionary clause. Hence, this application centres on the following two questions:

(1) Was KLM's policy void for misrepresentation?

(2) If not, does clause 3B(c) of the policy limit Robinson's recovery to $65,953.29?

Misrepresentation

[14] As an applicant for insurance, KLM had a common law obligation to fully and accurately disclose all matters within its knowledge that were relevant to the nature and extent of the risk to be assumed by Northbridge: Carter v. Boehm (1766), 97 E.R. 1162, 3 Burr. 1905 (Eng. K.B.); [page394] Canadian Indemnity Co. v. Canadian Johns-Manville Co., 1990 CanLII 78 (SCC), [1990] 2 S.C.R. 549, [1990] S.C.J. No. 82, 72 D.L.R. (4th) 478, at paras. 54-55.

[15] Further, clause 1 of Part III of KLM's policy states that the entire policy shall be void due to misrepresentation or fraud. It reads as follows:

1. Misrepresentation and Fraud

The entire policy shall be void if, whether before or after a loss, you have concealed or misrepresented any material fact or circumstance concerning this insurance or the subject thereof, or the interest of any Insured therein, or in case of any fraud or false swearing by you relating thereto.

[16] For Northbridge to succeed on the issue of misrepresentation, it must prove (a) that KLM concealed or misrepresented a fact or circumstance concerning the insurance or subject thereof; (b) that the fact or circumstance is material to Northbridge.

(a) Concealed or misrepresented fact

[17] The alleged misrepresentation concerns Northbridge's small business fleet transportation insurance survey (the "survey"), which was signed by Lekha Sivananthan on behalf of KLM on August 2, 2012. The survey formed part of the application that KLM completed in order to secure insurance coverage from Northbridge. On p. 8 of the survey, the following question was posed: "Does [KLM] have any contracts with shippers that stipulate limits of liability that are required to supercede [KLM's] standard Bill of Lading? (If yes, please provide copies.)."

[18] KLM placed an "X" in the no box. That "X" forms the backbone of Northbridge's misrepresentation submission. According to Northbridge, the Contract that KLM signed with Robinson six weeks earlier on June 22, 2012 expanded the limits of liability beyond the standard bill of lading terms and conditions. Clause 12(b) of that Contract reads as follows:

Carrier [KLM] shall be liable for the full, actual value of the shipments tendered by Robinson to Carrier. No released value rates, or other limitation of cargo liability, shall be valid or enforceable against Robinson or its customers unless expressly agreed to by Robinson in a signed writing separate from any bill of lading or other delivery receipt issued by Carrier.

(Emphasis added)

[19] It is pertinent that s. 191.0.1(1) of the Highway Traffic Act, R.S.O. 1990, c. H.8 deems every contract of carriage by commercial motor vehicle for compensation to include the terms and conditions set out in the regulations. Section 9 of Sch. 1 ("Uniform Conditions of Carriage") of O. Reg. 643/05 (the "Carriage of Goods Regulation") under the Highway Traffic Act limits the liability of carriers such as KLM to the lesser of (1) the value of the goods at the place and time of shipment; and (2) $4.41 per kilogram [page395] computed on the total weight of the shipment. Clause 10 of the Uniform Conditions of Carriage provides a declared value exception. If a contract of carriage declares the value of the goods on its face, the amount of any loss or damage shall not exceed that value. Unless a higher value is declared, liability is limited by the Carriage of Goods Regulation to $4.41 per kilogram.

[20] Thus, depending on the value of the goods, there may be a significant difference between limited liability ($4.41 per kilogram) and the declared value. In this case, it is the difference between $65,953.29 and $223,701.85.

[21] Northbridge has not provided evidence of KLM's standard bill of lading, but submits that this is not necessary because the fundamental terms therein are stipulated by the Carriage of Goods Regulation. Regardless of any idiosyncrasies in KLM's standard bill of lading, liability will either by limited by clause 9 to $4.41 per kilogram or KLM will have entered into a contract of carriage stipulating a higher limit of liability in accordance with clause 10. For this reason, KLM's answer to the question posed in the survey was a misrepresentation.

[22] Robinson disagrees with Northbridge's submission on a number of grounds. With regard to the specific question of whether KLM's answer to the question about limits on liability amounts to misrepresentation, Robinson makes three arguments. First, Robinson submits that it is not a "shipper" and that KLM would not have understood Robinson to be a shipper. Alternatively, if the question posed is ambiguous, it should be interpreted contra proferentem against the drafter, Northbridge. Second, the Contract was not entered into for the particular load that KLM carried and which was ultimately destroyed, but rather was an agreement between KLM and Robinson to do business generally. Third, the failure of Northbridge to produce the KLM standard bill of lading precludes it from arguing that the Contract supersedes KLM's standard bill of lading.

[23] The latter two submissions cannot succeed. Even if the Contract was entered into by KLM and Robinson to do business generally -- i.e., so that KLM would transport goods for Robinson on a regular basis -- the Contract still had the effect of raising the limits on KLM's liability for the particular load that was destroyed. Indeed, Robinson rejects Northbridge's alternative submission that, absent misrepresentation, KLM's liability is nevertheless limited to $4.41 per kilogram of the total weight of the shipment. Robinson maintains that the Contract entitles it to coverage in the full and actual value of the goods. Second, the failure of Northbridge to produce the KLM standard bill of lading does not preclude Northbridge from making its [page396] misrepresentation argument. As stated above, regardless of KLM's standard bill of lading, liability will be limited by the Carriage of Goods Regulation unless modified by private contract.

[24] While Robinson's first submission also fails, it requires closer consideration. Robinson submits that it is not a "shipper" and that KLM would not have understood Robinson to be one. Undoubtedly, Robinson acts as a freight forwarder. Robinson arranges for the transportation of goods by carriers such as KLM for its customers, who in the industry parlance are shippers. However, this is not in my view determinative of the issue of what KLM would have understood. Practically speaking, Robinson does act as a shipper vis-à-vis its carriers. There is no privity of contract between Robinson's customers and its carriers. Robinson contracts with the carriers for transportation, ensures that the carriers are paid, and, as is the case here, makes the carriers wholly liable to Robinson for actual loss and damage to shipments. As John McNeil writes in Motor Cargo Claims, 3rd ed. (Toronto: Carswell, 1997), at p. 21: "So far as the carrier is concerned, or the succession of carriers if such be the case, the freight forwarder is his or their shipper, and the carrier will usually have issued a bill of lading to the forwarder describing him in that capacity . . . As against each carrier, the freight forwarder therefore enjoys a cause of action as a shipper, in accordance with the terms of his contract with the carrier." Further, as a company that arranges for the transportation of property by carriers, Robinson falls within the term "shipper" as defined by Black's Law Dictionary, namely, "One who contracts with a carrier for the transportation of cargo."

[25] Thus, it is far from clear that KLM would not have understood its contract with Robinson to have been a contract with a shipper in the context of the question posed in the survey. I add that Robinson has submitted no evidence to the contrary regarding what KLM understood or did not understand.

[26] In any event, whether or not KLM would have considered Robinson to be a shipper, such that the Contract with Robinson expanding its liability beyond the $4.41 per kilogram limit should have been disclosed, KLM must have been aware that ascertaining the existence of such contracts was of central importance to Northbridge. An insured such as KLM has an obligation not to withhold material facts that plainly bear on the issue of insurability.

[27] Finally, I accept Northbridge's submission that the language of the survey is not ambiguous. A reasonably intelligent Canadian in the position of KLM (a sophisticated motor carrier company) would not have found this question ambiguous: [page397] Stewart v. Canada Life Assurance Co., 1999 CanLII 36845 (ON SC), [1999] O.J. No. 2842, 100 O.T.C. 93 (S.C.J.), affd [2000] O.J. No. 2970, 103 A.C.W.S. (3d) 201 (C.A.). I am of the view that it would have understood the purpose of the question. Furthermore, were the language ambiguous, the Supreme Court in Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, [2010] 2 S.C.R. 245, [2010] S.C.J. No. 33, 2010 SCC 33, at paras. 22-24, directed that,

[w]here the language of the insurance policy is ambiguous, the courts rely on general rules of contract construction. For example, courts should prefer interpretations that are consistent with the reasonable expectations of the parties. Courts should avoid interpretations that would give rise to an unrealistic result[.]

(Citations omitted)

[28] It is only after these rules of construction fail to resolve the ambiguity that a court should construe the policy contra proferentem. In this case, it is unnecessary to do so. Even if there had been ambiguity as to the meaning of "shipper", it would be an unrealistic result if question posed did not include the type of contract that KLM signed with Robinson. Thus, Robinson's submission cannot succeed.

[29] Before considering whether the misrepresentation was material, it is necessary to address one final submission by Robinson as to why there is no legal foundation for the misrepresentation argument advanced by Northbridge. Robinson submits that Northbridge was well aware (or ought to have been well aware) of the contractual liability of KLM to Robinson before the survey was signed. There are two parts to this submission. First, that Northbridge knew about the contractual relationship between Robinson and KLM. Second, that it knew about and was familiar with the terms of the Robinson agreement for motor contract carrier services from prior dealings with Robinson in other files.

[30] Putting aside the question of whether Robinson can succeed in showing that Northbridge was aware of the contractual relationship, which it likely can, due to their past dealings and the fact that Northbridge issued, through its agent, a certificate of insurance to Robinson pertaining to KLM's policy, there is no evidence that Northbridge knew about the terms and conditions of the contractual relationship. Robinson points to admissions obtained from Foster Krasilczuk on cross-examination to support its position that Northbridge knew or ought to have known about the terms of its Contract with KLM. Robinson emphasizes that Mr. Krasilczuk acknowledged that Robinson "was a substantial and big player . . . and that Robinson deals with many carriers such as KLM". Further, he acknowledged [page398] that Northridge was familiar with the general type of agreement that Robinson required its full truckload carriers to sign.

[31] These admissions, however, are not sufficient indication that Northbridge knew or ought to have known the terms of the Contract between Robinson and KLM. While Northbridge knew that, generally speaking, Robinson requires carriers to sign contracts, it also knew that Robinson does not require all carriers to sign contracts expanding liability. For example, it does not use them for "less than truckload" carriers. Further, whether Robinson required KLM to sign a contract superseding the limits of liability of KLM's standard form bill of lading during prior policy periods is not enough to impute to Northbridge the knowledge that KLM had such a contract during the subject policy period, despite answering no to the relevant question in its application for renewed coverage.

[32] I am not persuaded by Robinson's submission that this case is akin to Xcan Grain Ltd. v. Canadian Surety Co., 1995 CanLII 16092 (MB QB), [1995] M.J. No. 172, [1995] 5 W.W.R. 730 (Q.B.), in which Jewers J., after reviewing the relevant Canadian case law, held, at para. 67, that the plaintiff "was entitled to rely on the assumption that the defendant, as a reasonably competent underwriter, writing or prepared to write fidelity insurance for grain merchants, would either know or find out about, the way in which grain merchants carried on their business". The issue here is not whether the use of contracts of carriage to supersede the limits on liability imposed by the Carriage of Goods Regulations is something that a reasonably competent underwriter such as Northbridge should know about the transportation and shipping industry. It admits to knowing that. This is why Northbridge asks insureds such as KLM whether they have entered into any such contracts when deciding whether to provide coverage and/or the premium to be charged. The issue is whether Northbridge, as a reasonably competent insurer, should have known that the specific terms of this particular contract, which it had not seen, superseded the limits on liability imposed by the Carriage of Goods Regulation.

[33] Thus, I find KLM's answer to the question on p. 8 of the survey to have been a misrepresentation.

(b) Misrepresented fact was material

[34] Northbridge must also prove that KLM's misrepresentation was material and induced Northbridge into entering into a renewed policy agreement. The Court of Appeal in Sagl v. Chubb Insurance Co., [2009] O.J. No. 1879, 2009 ONCA 388, at paras. 51-52, described the misrepresentation analysis as follows: [page399]

The starting point in the analysis of this ground of appeal attracts no debate. The relationship between an insurer and an insured is contractual in nature. But contracts of insurance are no ordinary contracts; special rules apply. Chief among these is the doctrine of uberrima fides that holds the parties to a standard of utmost good faith in their dealings with each other. It places a heavy burden on applicants for insurance coverage to provide full disclosure to the insurance company of all information relevant to the nature and extent of the risk that the insurer is being asked to assume . . . A fact is relevant or material if it would influence a prudent insurer in deciding whether to issue the policy or in determining the amount of the premium . . . Whether a misrepresentation or non-disclosure is material is a matter of fact to be determined by the trier of fact. However, there is a subjective element to the test as well. The non-disclosure or misrepresentation must have induced the insurer to enter into the contract.

The duty to disclose all material facts applies even in the absence of questions from the insurer, although the absence of questions may be evidence that the insurer does not consider a fact to be material. . . . The consequence of non-disclosure or misrepresentation of a material fact by the insured is that the insurer is entitled to void the insurance contract ab initio.

(Emphasis added; citations omitted)

[35] Northbridge submits that the existence of contracts that expand the insured's or applicant's liability beyond the standard $4.41 per kilogram limitation amount on a bill of lading are material to its underwriting process. The affidavit evidence of Mr. Krasilczuk states that had this information been disclosed, it would have affected the amount of the premium charged to KLM. This was supported by Mr. Krasilczuk's evidence on cross-examination. Although Northbridge did not calculate the exact amount, Mr. Krasilczuk confirmed that the premium would have increased if the liability were in excess of $4.41 per kilogram. Robinson takes issue with the fact that Northbridge cannot specify what the exact quantum would be. It is the fact that there would be an increase, however, rather than the quantum of that increase that is relevant to materiality in this case.

[36] Thus, by withholding the fact that KLM had entered into the Contract with Robinson extending its liability, KLM misrepresented the existence of the Contract with Robinson, and this misrepresentation was material to Northbridge in that it would have increased the premium had this been disclosed. Northbridge only entered into the policy agreement that it did with KLM because of this misrepresentation. Consequently, the policy is void.

Conclusion

[37] Given this finding of misrepresentation, it is unnecessary to address Northbridge's alternative argument that its indemnity obligation is limited by clause 3(B)(c) of the policy. [page400]

[38] For these reasons, Robinson's claims against Northbridge are dismissed.

Costs

[39] I would urge the parties to agree upon costs, failing which I would invite the parties to provide any costs submissions in writing, to be limited to three pages, including the costs outline. The submissions may be forwarded to my attention, through Judges' Administration at 361 University Avenue, within 30 days of the release of this judgment.

Application dismissed.

End of Document