SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-15-521377
DATE: 20151230

RE: Ludwick Zochowski, Plaintiff

AND:

Security National Insurance Company o/a TD Insurance Meloche Monnex and David Lex Arbesman, Defendants

BEFORE: Justice Edward P. Belobaba

COUNSEL: Eric J. Adams for the Plaintiff

Marc D. Isaacs for the Defendant Security National

HEARD: December 7, 2015

Question of Law: Limitations

[1] While cycling, the plaintiff struck and injured a pedestrian. The pedestrian sued the plaintiff for damages. The plaintiff’s insurer denied coverage and refused to fund his defence. The plaintiff then sued the insurer but waited almost three years to do so. The insurer says that the plaintiff’s action is time-barred. The plaintiff disagrees.

[2] The parties bring cross-motions for summary judgment – the plaintiff for a declaration that the insurer is obliged to fund his defence of the personal injury action and the insurer for an order dismissing the plaintiff’s action against the insurer because it is time-barred under s. 4 of the Limitations Act, 2002.[1]

[3] The parties agree that the limitations issue should be decided first as a question of law. If the action against the insured is time-barred, that will be the end of it. If it is not time-barred, then I will have to decide if the insurer was right to deny coverage, and if so whether this is a case for relief against forfeiture.

[4] For the reasons that follow, I find that the plaintiff’s action against his insurer is indeed out of time and must be dismissed. This ends the litigation against the insurer. [2]

Background

[5] On July 23, 2006 the plaintiff, Ludwick Zochowski, who was 55 years old at the time, was cycling through a park and struck Sofia Tubis, aged 78, while she was walking with her family. Ms. Tubis sustained injuries and sued the plaintiff a few months later (“the Tubis Action.”)

[6] The plaintiff says he had no idea that Ms. Tubis had sustained injuries and thought nothing further about the incident for more than five years until he received a letter from her solicitor on March 8, 2012. The letter advised that a default judgment had been obtained against the plaintiff in the Tubis Action[3] in the amount of $146,110 and steps were being taken to enforce the damages award. It was only at that point that the plaintiff contacted his home insurer, the defendant Security National.

[7] After reviewing the matter, the insurer responded. In a letter dated April 16, 2012 the insurer declined coverage. The letter was clear and unequivocal: the insurer would neither defend nor indemnify. The plaintiff was advised to “seek legal counsel at your own expense ...” The defendant insurer said it was denying coverage because the plaintiff breached the policy conditions that required timely notice of the accident or any subsequent claims or lawsuit-related letters or notifications.[4] Here no notice of any kind was provided to the insurer for more than five years.

[8] The insurer says that the plaintiff should have realized that Ms. Tubis had sustained injuries (police and ambulance had been called) and should have reported this in timely fashion to the insurer. The insurer points to the telephone call that the plaintiff made to the insurer’s call centre on January 18, 2007 (about six months after the accident) asking if his home insurance policy provided coverage if he or a family member struck a pedestrian while cycling “in a park”. The plaintiff was advised that he would be covered. The insurer says this telephone inquiry provides additional evidence that the cycling accident was still very much on the plaintiff’s mind and was obviously a significant occurrence that should have been reported to the insurer.

[9] The insurer also points to six separate letters relating to the Tubis Action that were sent to the plaintiff over a span of more than four years by lawyers from two different law firms representing Ms. Tubis –none of which the plaintiff says he received. The insurer says it is hard to believe that the plaintiff, who otherwise had no problems with his mail delivery, did not receive any of the six lawyer-letters that were sent to him by two different law firms.

[10] The default judgment was eventually set aside by the plaintiff.[5] The Tubis Action is still at the discovery stage. The plaintiff says the insurer is obliged to fund his defence. The insurer says the action against it for denial of coverage is time-barred.

Analysis

[11] Several points are not in dispute. Both sides agree that the insurance policy clearly obliges the insurer to both defend and indemnify in bodily injury cases. The duty to defend obliges the insurer to:

[D]efend any suit against an Insured alleging such Bodily Injury or Property Damage and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; but the Insurer may make such investigation, negotiation and settlement of any claim or suit as it deems expedient …

[12] The duty to indemnify obliges the insurer:

[T]o pay on behalf of the Insured all sums which the latter shall become obligated to pay by reason of the liability imposed by law upon the Insured … because of Bodily Injury or Property Damage.

[13] Both sides also agree that the limitation period in Statutory Condition 14 (“SC-14”) is two years, not one year. SC-14 provides that any action against the insured “for recovery of any claim under or by virtue of this contract” is “absolutely barred” if not commenced within one year after the loss or damage occurs, unless the applicable provincial law “stipulates otherwise.” Given that s. 4 of the Limitations Act provides for a two-year limitation period, SC-14 must be read as imposing a two-year limitation on actions against the insurer.

[14] There is no dispute about the fact that the April 16, 2012 denial of coverage letter stated clearly and unequivocally that coverage was being denied and that it was being denied because the plaintiff-insured failed to provide timely notice of either the cycling accident or the Tubis Action as required under the insurance policy.

[15] There is also no dispute that the merits of the insurer’s decision not to defend or indemnify are not relevant in establishing whether the action against the insurer was commenced in a timely fashion.[6] An erroneous reason for the denial does not affect the validity of the refusal for the purposes of the limitation period.[7]

[16] If the only provision at issue was SC-14, there is no doubt that this action against the insurer would be time-barred. The law is clear that a clear and unequivocal denial of coverage triggers the two-year limitation period.[8] The plaintiff was told on April 16, 2012 that coverage was being denied because of his failure to provide timely notice and that he should retain his own lawyer. The plaintiff had every right to sue the insurer and argue that it was wrong to deny coverage but he was obliged to do so by April 16, 2014. He commenced this action on February 5, 2015, almost ten months too late.

[17] Counsel for the plaintiff, however, points to Additional Condition 2 (“AC-2”) and argues, in essence, that AC-2 creates an ambiguity about the applicable limitation period. The plaintiff submits that this ambiguity should be resolved in his favour allowing him to sue the defendant insurer on its duty to defend up to and until such time as the underlying Tubis Action has been judicially decided or settled. In other words, the plaintiff’s action herein is not and will not be time-barred until there is a judgment or a settlement in the Tubis Action.

[18] This is, to say the least, a highly creative submission that requires careful examination.

[19] AC-2 appears under the “Additional Conditions” heading. It is one of three additional conditions that relate to Section II, which is the Liability Insurance section of the policy. Here is the AC-2 condition in its entirety:

With respect to Section II

2. Action against Insurer – Coverages F and G

No action shall lie against the Insurer unless, as a condition precedent thereto, the Insured shall have fully complied with all the terms of this Policy, nor until the amount of the Insured’s obligation to pay shall have been finally determined either by judgment against the Insured after actual trial or by written agreement of the Insured, the claimant and the Insurer. With respect to Coverage G, the notice of the assessment issued by the Condominium Corporation is deemed sufficient determination of the insured’s obligation.

[20] It is important to note that AC-2 begins with a heading that reads “Action against Insurer – Coverages F and G.”

[21] Coverage F deals with “comprehensive personal liability” and obliges the insurer to “pay on behalf of the insured all sums which the latter shall become obligated to pay by reason of the liability imposed by law upon the insured … because of bodily injury or property damage.”

[22] Coverage G deals with condominium corporation loss assessments and has no application here.

[23] Counsel for the plaintiff, however, argues that A-2 is not limited to indemnification. That “no action” means “no action whatsoever” and applies to both the duty to defend and to indemnify. Because the Tubis Action has yet not been judicially decided or settled, the plaintiff’s action against his insurer for the April 16, 2012 denial of coverage, argues counsel for the plaintiff, is not out of time. Counsel for the plaintiff submits that AC-2 creates an ambiguity that vitiates the two-year limitation period in SC-14 and establishes a new limitation period for all actions against the insured that begins to run only after the underlying action has been judicially decided or settled.

[24] In my view, this interpretation of AC-2 is completely untenable. It asks the reader to ignore words and phrases that make clear the scope and content of this provision.

[25] It is plain on its face that AC-2 deals only with actions against the insurer in relation to Coverage F (and G, which is not applicable). In other words, it deals with actions against the insurer on its obligation “to pay on behalf of the insured all sums which the latter shall become obligated to pay by reason of the liability imposed by law upon the insured … because of bodily injury or property damage.” Thus, AC-2 only deals with the insurer’s obligation to indemnify the insured once liability has been imposed by law and sensibly provides that no action can be brought by the insured against the insurer (for indemnification) until, amongst other things, the amount of the insured’s obligation to pay (the injured third party) has been decided by judgment or settlement.[9]

[26] I accept that insurance contracts are contracts of adhesion that are provided to the insurer on a “take it or leave it” basis and must therefore be scrutinized with care. I also acknowledge that where there are two or more reasonable interpretations that results in an ambiguity, the ambiguity must be resolved contra proferentem, that is, against the insured and in favour of the insured.

[27] But that is not the case here. There is no ambiguity that must be resolved in favour of the insured.

[28] AC-2 only defers actions against the insurer relating to indemnification until the amount of the insured’s obligation to pay (the injured third party) has been determined by a judgment or settlement. The “no action” clause in AC-2 reflects the sensible proposition that it would be premature to bring an action against the insurer for declarations of coverage where the facts at issue or the extent of the liability are not fully known and determined.[10]

[29] The “no action” language in AC-2 refers to Coverages F and G and does not bar actions against the insurer for allegedly breaching its duty to defend. To repeat, the plaintiff had every right to bring an action against the insurer challenging the denial of a defence – provided the action was commenced with the two-year limitations period.[11]

[30] In sum, AC-2 is not ambiguous. There is only one reasonable interpretation of its scope and content – and it is an interpretation that not only accords with the whole of the insurance contract and with the heading just discussed, but also gives plain and ordinary meaning to each of its words and phrases.

[31] The plaintiff’s ambiguity argument does not succeed.

Disposition

[32] The question of law is answered in favour of the defendant insurer. The plaintiff’s action against Security National is time-barred and must be dismissed. Order to go accordingly.

[33] Given this result, there is no need to decide whether the insurer was right to deny coverage and whether this is a case for relief against forfeiture. In my view, the plaintiff’s complaint, if he has a complaint, should be directed at his lawyer who has now been added to this litigation for allegedly missing the two-year limitation period.

[34] If costs cannot be resolved by the parties, I will be pleased to receive brief written submissions within 14 days from the defendant insurer and within 14 days thereafter from the plaintiff.

Belobaba J.

Date: December 30, 2015

[1] Limitations Act, 2002, S.O. 2002, c. 24, Sched. B.

[2] The plaintiff has added his former solicitor to this action (alleging that he missed the limitation period) but the defendant-solicitor did not participate in these cross-motions for summary judgment.

[3] Lederer J. granted default judgment on October 7, 2011: see Tubis v. Zochowski, 2011 ONSC 5905.

[4] “Security National is denying coverage to you due to your breach of the insurance policy conditions relating to notification of potential losses and the reporting of lawsuits made against you.” The letter referred to General Conditions 6 and 7 that required timely notice of any accident, occurrence, claim or suit.

[5] The default judgment was set aside by Chiappetta J. on January 3, 2013 because the court found on a balance of probabilities that Mr. Zochowski had not been served with Ms. Tubis’ statement of claim.

[6] Turner v. State Farm Mutual Automobile Insurance Co., 2005 2551 (ON CA), at para. 8; and Sietzema v. Economical Insurance, 2014 ONCA 111, at para. 13.

[7] Ibid.

[8] Sietzema, supra, note 6, at para. 13. Also see Dachner Investments Ltd. v. Laurentian Pacific Insurance Co. (1989), 1989 2723 (BC CA), 59 D.L.R. (4th) 123 and Dueck Chevrolet Cadillac Hummer Ltd. v. Insurance Corporation of British Columbia, 2012 BCCA 493.

[9] The case law is clear that that the limitations clock for indemnification complaints does not begin to run (that is the an insured may not sue the insurer for indemnity) until there is a judgment or settlement: Dundas v. Zurich Canada 2012 CarswellOnt 3580 (C.A.) and Jeffrey v. Guarantee Co. of North America 1985 CarswellOnt 561 (H.C.J.)

[10] Counsel for the insurer makes a compelling point: if AC-2 precludes all actions against the insurer including actions for breach of the insurer’s duty to defend (until after judgment or settlement) this means that the plaintiff’s motion herein for summary judgment is itself premature and must be dismissed for this reason alone.

[11] It is a “basic principle” that the insured “suffers a loss” from the moment the insurer can be said to have failed to satisfy its legal obligation under the policy of insurance: Daverne v. John Switzer Fuels Ltd., 2015 ONCA 919 at para. 33.