Court File and Parties

COURT FILE NO.: CV-14-00512363-0000 DATE: 20160421 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

LISA FRANCIS, individually, and as Trustee of THE COLLETT FAMILY TRUST and GARY COLLETT Plaintiffs – and – AIG INSURANCE COMPANY OF CANADA Defendant

Counsel: Thomas J. Donnelly and Ashley P. Richards, for the Plaintiffs Jesse Boyd, for the Defendant

HEARD: March 16, 2016

G. DOW, J.

Reasons for Decision

[1] The plaintiffs seek partial summary judgment with regard to its Guaranteed Rebuilding Cost Coverage (“GRC”) endorsement in a homeowner’s policy issued to them by the defendant and a fire loss on February 17, 2012. The defendant insurer disputes the relief the plaintiff is seeking on the basis the plaintiff is no longer entitled to the benefit of this endorsement.

Background

[2] In 2005, the plaintiffs purchased a property on the shore of Clearwater Bay, Lake of the Woods, consisting of four buildings, known as the Main House, the Guest House, the Boat House and a Workshop. By the end of 2011 or before the fire, the Main House had been rebuilt from about 4,000 square feet into a 7,200 square foot home, the Boat House had been replaced and the Guest House, about 1,950 square feet, extensively renovated with interior renovations ongoing. The Collett family was spending summers and Christmas at this location.

[3] The purchase price and the cost of renovations was not placed before me.

[4] As part of insuring the property, the defendant agreed to provide the plaintiffs with a type of policy only available to high net worth individuals and required the plaintiffs’ principal residence in California be included. The premium charged for coverage in 2012 was $30,405 with coverage limits for the Main House of $2,669,668, the other buildings in the amount of $947,748, the value of contents of $1,334,834 and additional living expenses of an unlimited amount.

[5] In addition, the policy contained the GRC endorsement that provided for,

…the reconstruction cost of your house or other permanent structures, for each occurrence, even if this amount is greater than the amount of coverage shown on the Declarations Page. However, you must begin to repair or rebuild your house or other permanent structures within two years from the date of the loss at the same location. If not, the maximum payable is the coverage limit shown for that location on the Declarations Page.

[6] On February 17, 2012, fire destroyed the Workshop, the Main House and its contents. The Guest House was also damaged. A claim was made and the defendant assigned Joe Vena, a Claims Manager for the Private Client Group to adjust the claim. The defendant hired an independent adjustor, Harry Toews of Granite Claims Solutions to assist. The plaintiff retained Ian Corzine, a California lawyer to represent them by August, 2012.

[7] The defendant also retained Wakelee & Associates who employed Martin Wood and Kent Sommefeld to provide an opinion on the cost of rebuilding by March, 2012.

[8] By May 24, 2012, the defendant paid the plaintiff $62,207.13 with regard to demolition and cleanup work. By October, 2012, the plaintiff had submitted the following claims:

a) Travel expenses $9,812.98; b) Landscaping reconstruction $32,358; c) Driveway reconstruction $18,988.42; d) Topographical survey $5,390.

[9] On December 12, 2012 the defendant paid for the travel expenses and topographical survey.

[10] On September 18, 2012, Mr. Toews forwarded a first (and admittedly incomplete) estimate of the cost to rebuild the Main House in the amount of $1,438,443.29 which did not include overhead, profit and HST. This was prepared by Mr. Sommefeld and dated August 6, 2012. The plaintiff reviewed the estimate and concluded it greatly underestimated the actual cost so he retained his own individuals to provide estimates. This included Jamie Boychuk, who had done much of the pre-fire renovation and construction work and a second firm, Creative Spaces Ltd. that subsequently provided estimates in excess of $7 million each.

[11] The plaintiff also sent an email, through Mr. Corzine November 30, 2012, advising of the plaintiff’s intention to “build the identical structure” and take “advantage of the GRC coverage”.

[12] On January 16, 2013, the plaintiff submitted a proof of loss claiming the following:

a) Coverage A – dwelling $7,409,573.48 b) Coverage B – other permanent structures 50,000.00 c) Coverage C – contents 1,350,000.00 d) Additional living expenses 2,171,564.85 e) Miscellaneous 528,790.23 Total $11,509,928.56

[13] On May 30, 2013 the defendant paid the plaintiffs $2,122,208.30 relating to the cost of rebuilding the Main House and $1,334,834 for the value of the contents.

[14] On June 10, 2013, Wakelee & Associates on behalf of the defendant completed its estimate of the cost to rebuild the Main House at $4,195,617.98. In August, 2013, the defendant paid the remaining policy limits for the Main House in the amount of $547,459.70 although the cheque was not received until November 4, 2013.

[15] The plaintiff retained a third company to prepare and circulate an estimate of the cost to rebuild which it circulated in August, 2013 in the amount of $14,296,527.66.

[16] With the two-year anniversary of the loss approaching, on February 10, 2014, the parties executed a Tolling Agreement extending the limitation period which was an agreement between the parties that “any and all applicable statute of limitations, contractual limitation period, or similar legal or equitable defenses such as laches, estoppel or waiver, or for any claims by Collett against AIG shall be tolled until September 18, 2014 .”

Defendant’s Position

[17] On June 4, 2014, counsel for the defendant advised Mr. Corzine in writing that it was taking the position only the stated policy limits were available to the plaintiffs as it had not started to rebuild within the two years provided by the endorsement and (while not stated) the Tolling Agreement did not extend the time provided.

Plaintiff’s Position

[18] The Statement of Claim was not issued until September 17, 2014. The plaintiff maintains, initially, that it did begin to rebuild within the two years citing the following activities:

a) purchase of two identical chandeliers to ones that were in the Main House and destroyed in the fire within weeks of it occurring for more than $25,000 US and placed in storage; b) cleanup or demolition of the fire damage on the property after the fire and into April, 2012, the expense for which the defendant has paid; c) repairs completed on the Guest House such as installation of a new sewage pump control, larger subpanel and glass replacement completed by July, 2012; d) the estimate for the topographical survey of the property in October, 2012 (but not completed until August, 2014); e) work on the exterior of the Guest House commencing in June, 2013; f) the work permit issued for rebuilding of the Guest House October 7, 2013; g) landscaping and clearing of brush in preparation for construction in October, 2013; h) installation of the 400 amp electrical panel in the new garage, not commenced until July, 2014; i) pouring of the new footings for the Main House in September, 2014.

Issues

[19] Was the reconstruction, repair or rebuilding started within two years after the date of loss so as to trigger the GRC coverage? This requires a review of what occurred and an examination of the words of the endorsement.

[20] If the reconstruction was not commenced within two years, does the wording of the Tolling Agreement extend the two years and were there actions by the plaintiff that fulfilled the requirement of the endorsement to “begin to repair or rebuild”?

[21] If the first two questions are answered in the negative, does the law permit and specifically does the obligation to rebuild not attach until the insurer acknowledges its obligation to repay? That is, does the case law assist the plaintiff if it fails to fall within the wording of the endorsement?

[22] Finally, is the plaintiff entitled to relief from forfeiture under section 129 of the Insurance Act, R.S.O. 1990, c. I.8, or section 98 of the Courts of Justice Act, R.S.O. 1990, c.C. 43?

Partial Summary Judgment

[23] While this is the plaintiff’s motion, it is difficult for the defendant to strenuously oppose this issue being decided at this stage of the proceeding as a ruling in its favour would effectively end the litigation. The issue over the plaintiff’s entitlement to guaranteed rebuilding costs is one of three issues between the parties. The second issue is determining the actual amount if the plaintiff is entitled to the actual rebuilding cost. The parties advise they will proceed with an appraisal of the disputed quantum for the rebuild of the Main House under an appraisal process pursuant to the Insurance Act if the plaintiff’s motion is successful.

[24] The third issue is the plaintiff’s claim for exemplary damages arising from alleged bad faith on the part of the defendant with regard to its conduct. In my view, this would likely involve detailed evidence of the history of the dealings between the parties and thus the prospect of a shorter and more focused trial is reduced.

[25] The parties have correctly pointed to the decision in Hryniak v. Mauldin, [2014] SCC 7, which directs me to consider determining the issue where there is no genuine issue requiring a trial. This is based upon my ability to reach a fair and just determination on the material before me. Further, as part of assessing whether summary judgment is in the “interest of justice”, at paragraph 60, Justice Karakatsanis notes, “…partial summary judgment may run the risk of duplicative proceedings or inconsistent findings of fact and therefore the use of the powers may not be in the interest of justice. On the other hand, the resolution of an important claim against a key party could significantly advance access to justice, and be the most proportionate, timely and cost effective approach.” In my view, there is sufficient material before me and the absence of significant credibility issues that a fair and just determination of this issue can be made. As a result, I will address the issues as raised.

Issue 1 – Rebuild Started Within Two Years

[26] The key words or phrase or parts of the phrase in the endorsement for GRC that “you must begin to repair or rebuild your house or other permanent structures within two years from the date of loss at the same location” is not defined in the policy. As a result, the words or phrases should be given their plain meaning that is in accord with the intention of the parties.

[27] I agree with the defendant’s reliance on the Brissette v. Westbury Life Insurance Co., [1992] 3 S.C.R. 87, decision which details this approach to mean:

1. searching for an interpretation that promotes the true intent of the parties at the time the contract was entered into;
2. where words are capable of more than one meaning, selecting the more reasonable meaning;
3. ambiguities will be construed against the insurer;
4. an interpretation that results in a windfall to the insurer or unanticipated recovery for the insurer is to be avoided.

[28] In this matter, more than one of the “permanent structures” were damaged and I have summarized what the plaintiff submits was done before February 12, 2014 (and before September 18, 2014 if the Tolling Agreement extends the application of this endorsement). In my view, the disjunctive meaning of the word “or” suggests and I conclude repairs or rebuilding on one of the structures is sufficient to extend coverage to all of the structures.

[29] The defendant insurer raises the manner in which the endorsement is listed on the declaration page of the policy, that is, the “Dwelling” is named and listed separately from “Other Permanent Structures”. However, given this endorsement is the alternative to “Replacement Cost Coverage” (which only extends coverage “up to the coverage limit shown for that location on your Declaration Page”), the separate listing and repeating of “Guarantee Rebuilding Cost” under “Payment Basis” only reinforces to me the fair and understood intention of the parties.

[30] Had the defendant insurer wished to make it clear that repair or rebuilding needed to begin on all structures affected, it would have been simple to state same. Similarly, if the defendant insurer wished to make it clear that “begin to repair or rebuild” required a specific action, it would have been simple to state of what that consisted.

[31] The defendant raised, in its factum, that the separate listing of “Dwelling” and “Other Permanent Structure” on the “Declaration Page” meant the coverage could be purchased for one but not the other. However, it tendered no specific evidence to support this submission such as it was offered to the plaintiffs, or the premium differences to confirm its availability, let alone evidence from its underwriting file that it was considered by the parties.

[32] While the pace of the work has not been as fast as one might expect, this is clearly a “carriage trade” structure that requires efforts not usual for the typical northern Ontario cottage.

[33] The dividing line would appear to be steps taken after what would be necessary to secure the site following the fire to ensure the property and surrounding area was safe. This would include clearing away destroyed material or remediation or removal of contents which would be required even if rebuilding or repair was not intended. It is the additional steps taken to prepare for the actual repair or rebuilding such as what occurred with the Guest Home and, for example, the purchase of the two large identical $25,000 chandeliers to replace the ones destroyed in the Main House (and are currently stored in a warehouse) which are examples that result in my conclusion the plaintiffs fall within the GRC coverage.

[34] I am reinforced in this conclusion by the absence of any cogent evidence from the defendant insurer that the plaintiff has no intention to rebuild. There does not appear to be any evidence or response to the email of the plaintiff’s representative, Ian Corzine of November 30, 2012, that the plaintiffs “intend to build the identical structure and fully intend on taking advantage of the GRC coverage” (Exhibit Q to the affidavit of Gary Collett sworn February 8, 2016).

[35] In submissions, I did raise the delay in the plaintiff making greater efforts to commence work on rebuilding of the structures, particularly given the defendant insurer having paid to the plaintiffs the policy limits for the Main House and other structures and the contents coverage totaling $4,952,580 by November, 2013.

[36] In response, plaintiff’s counsel pointed out Canadian case law that the insured’s obligation to rebuild does not attach until the insurer acknowledges its reciprocal obligation to pay. This principle is contained in the decision of Justice Donnelly in Peters v. Commonwealth Insurance Co. [I.L.R. 1-2649] Ont. H.C.J. at paragraph 46 and was referenced with inferred acceptance by the Court of Appeal in Ferme Gérald Laplante & Fils Ltée v. Grenville Patron Mutual Insurance Co., [2002] O.J. No. 3588 at paragraphs 50-54.

[37] While $4,952,580 would appear to be sufficient to rebuild a luxurious and spectacular structure, it must be remembered that more than 25 percent of this amount relates to contents for which there is no compensation available greater than the stated limits and the plaintiff’s estimate of the cost of rebuilding is millions of dollars higher than the amount paid to date by the defendant.

Issue 2 – Tolling Agreement

[38] If I am incorrect in my conclusion to the first issue, it would appear to me the plaintiff should also succeed on the parties’ agreement to extend the limitation period to September 18, 2014. It is noteworthy the policy contained as part of the statutory conditions, at paragraph 14, a one-year limitation clause that was inconsistent with the disputed clause interpreted above.

[39] The parties were alive to this issue and Ian Corzine confirmed to Joe Vena in an email February 1, 2013 Mr. Vena’s acknowledgement his employer accepted “that there is a two-year limitation period on the subject claim which expires February 18, 2014” (Exhibit U to the affidavit of Gary Collett sworn February 8, 2016). Unfortunately, the wording of the Tolling Agreement was not as clear. Despite the lack of clarity, my interpretation of the entire phrase, “any and all applicable statute of limitations, contractual limitations period, or similar legal or equitable defenses such as laches, estoppel, or waiver, for any claims by Collett against AIG shall be tolled until September 18, 2014 ” is broad enough to include and extend the plaintiff’s obligation or right not to “begin to repair or rebuild” a “permanent structure” to September 18, 2014.

[40] As a result, the additional activity on the property such as installing the new electrical panel in the garage July, 2014 and pouring footings for the Main House in early September, 2014 would qualify and entitle the plaintiffs to the GRC coverage.

Issue 3 – Relief from Forfeiture

[41] Similarly, if I am incorrect in my conclusion to the first two issues, and dealing first with the general authority of this Court, in equity, under section 98 of the Courts of Justice Act to grant relief, plaintiff’s counsel relied on the Court of Appeal decision in Dube v. RBC Life Insurance Co., 2015 ONCA 641 in which the section was applied to insurance contracts. The direction of the Court of Appeal was for me to consider:

a) the conduct of the insured; b) the gravity of the breach; c) the disparity between the value of the property forfeited and the damage caused by the breach.

[42] Here, the conduct of the plaintiff gives me some concern. Having stated its intention as of November 30, 2013 to rebuild the identical structure and having GRC coverage, it also had been paid millions of dollars by May 30, 2013 which it could have used to begin repair or rebuilding each or all of the damaged structures. There did not appear to be sufficient evidence as to why an absolutely clear step, such as pouring of the foundation of the Main House was not or could not have been accomplished much earlier particularly given the statement of November 30, 2012 to rebuild “the identical structure”. The defendant noted Mr. Collett’s evidence under cross-examination that the reason for pouring the footings in early September, 2014 was to comply with the date in the Tolling Agreement.

[43] I acknowledge the submissions by the plaintiffs of the need for the insurer to acknowledge its obligation to pay but it is also fair to question the plaintiff’s commitment given the amounts involved.

[44] There is also the fact the plaintiff is not an unsophisticated entity. As noted in the title of proceeding, it is a family trust and was represented by counsel from shortly after the incident.

[45] With regard to the second component of the test, the gravity of the breach, this raises whether the insurer has been prejudiced. In my view, this should be resolved in favour of the insured given the insurer’s awareness of its exposure and adjusting of the claim from its outset.

[46] The third aspect of the test for the relief involving the value of the property forfeited, the plaintiff’s point to the loss being in excess of $11 million. However, in my view, a “dream home” (as Gary Collett referred to it in the materials on behalf of the plaintiffs) is capable of being constructed for the $2,669,668 policy limits. With regard to the delay in proceeding, the plaintiffs acknowledge its loss is restricted to the restoration costs “as it was in 2012” (paragraph 151 of the plaintiff’s factum). Thus, the defendant is not responsible for the increase in the cost of reconstruction since that time.

[47] My other concern is that the defendant, through its counsel, made its position clear in writing by letter dated June 4, 2014. The Statement of Claim was not issued until September 17, 2014 or the day before the Tolling Agreement expired. Overall, I would not have granted the relief requested under this section.

[48] Regarding section 129 of the Insurance Act, it is contained in “Part III – Insurance Contracts in Ontario” and the parties agree it was expanded from relating only to statutory conditions (as it states) by the decision of the Supreme Court of Canada in Elance Steel Fabricating Co. v. Falk Brothers Industries Ltd., [1989] 2 S.C.R. 778 at paragraphs 20 and 21. The section is intended for situations of imperfect compliance as opposed to non-compliance, the latter being failure to comply with a condition such as a limitation period and failing to commence action within that time period.

[49] None of the statutory conditions found in Part IV of the policy (at pages 13-15) describe what the plaintiffs are seeking and had they been found to not having begun to repair or rebuild within the time contracted for (or abridged as agreed to), I would have agreed with the submission of the defendant that relief from forfeiture was not available.

Conclusion

[50] As a result, the plaintiffs’ motion for partial summary judgment is successful, that is, they are entitled to GRC coverage under the policy between the parties given my conclusion they began to repair or rebuild the Main House or other permanent structures within the two years provided, and if not, within the additional time agreed to by the parties.

Costs

[51] The plaintiffs submitted a Costs Outline in the amount of $49,854.30 inclusive of fees, HST and disbursements on a partial indemnity basis. Defence counsel failed to have available a Costs Outline contrary to Rule 57.01(6). This undermined his submissions that the plaintiffs’ Costs Outline was excessive by an estimated 50 percent.

[52] However, I have difficulty with the hourly rates and amount of time claimed by plaintiff’s counsel.

[53] In my view, $35,000 inclusive of fees, HST and disbursements is an appropriate amount for the plaintiffs to recover from the defendant with regard to this motion. In my view, this is within the expectation of the parties and in accord with Boucher v. Public Accountants Council for the Province of Ontario, [2004] O.J. No. 2634 and Rule 57. The costs of the plaintiffs are to be paid by the defendants, forthwith.

Mr. Justice G. Dow

Released: April 21, 2016