Small v Chicago Title Insurance Co., 2016 ONSC 3876

Court File and Parties

COURT FILE NO.: 09-11485 (Hamilton) DATE: 20160615

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

RYAN SMALL and VESNA KONIC Plaintiffs

- and -

CHICAGO TITLE INSURANCE COMPANY and CONSTANTINE GLINOS Defendants

Counsel: Robert W. Dowhan, for the Defendant/responding party, Chicago Title Insurance Company Gavin J. Tighe, for the Defendant/moving party, Constantine Glinos

HEARD: April 5, 2016

BEFORE: R. A. Lococo, J.

REASONS FOR JUDGMENT

I. Introduction

1Constantine Glinos has brought a motion for summary judgment on his cross-claim against Chicago Title Insurance Company. Mr. Glinos and Chicago Title were defendants in an action that arose out of the purchase of a multi-unit residential property in Hamilton. The purchase price was $344,000. Mr. Glinos was the lawyer for the purchasers, Ryan Small and Vesna Kondic. Chicago Title issued a title insurance policy for the subject property.

2The dwelling that Mr. Small and Ms. Kondic purchased contained four residential units. The property was zoned for three residential units.

3On behalf of the purchasers, Mr. Glinos completed the application for title insurance from Chicago Title. When indicating the type of dwelling on the application, Mr. Glinos in error checked a box to indicate that the building was a single-family dwelling, rather than a multi-unit dwelling with a specified number of residential units. The title insurance policy that Chicago Title issued covered a dwelling with up to six residential units.

4Subsequent to closing, structural damage to the dwelling came to light when a basement wall collapsed. The previous owners had removed a load-bearing wall without obtaining the required building permit. The City of Hamilton issued a work order requiring remediation of the resulting damage.

5The purchasers made claims under the title insurance policy, seeking coverage for the cost of the required remediation work. Chicago Title initially indicated that one of their claims was covered under the policy, subject to further review. Ultimately, however, Chicago Title rejected their claims.

6The purchasers commenced an action against Chicago Title, seeking coverage under the title insurance policy. In the alternative, they claimed damages from Mr. Glinos for professional negligence, breach of contract and breach of fiduciary duty.

7Mr. Glinos cross-claimed against Chicago Title, relying on Chicago Title’s indemnity obligation set out in correspondence between Chicago Title and the Law Society of Upper Canada. The indemnity obligation applies where Chicago Title has issued a title insurance policy in favour of transferees obtaining an interest in land that is the subject of a real estate transaction. Chicago Title agreed to indemnify and hold harmless Ontario lawyers acting for transferees and chargees from and against any “claims arising under the title insurance policy” except for the lawyers’ gross negligence or wilful misconduct.

8On the eve of trial, the main action settled. The purchaser’s action against Chicago Title and Mr. Glinos was dismissed without any admission of liability. To settle the action, Chicago Title paid the purchasers $320,000, which was $24,000 short of the policy limit. The purchasers had previously realized an additional $115,000 upon sale of the property.

9Mr. Glinos’s cross-claim against Chicago Title remains outstanding. Mr. Glinos seeks summary judgment against Chicago Title. Relying on the indemnity agreement, he seeks to recover the legal costs he incurred defending the purchasers’ claim in the main action. Mr. Glinos and Chicago Title both agree that it is appropriate for Mr. Glinos’ entitlement under the cross-claim to be determined on this summary judgment motion.

10In support of his position that he is entitled to recover against Chicago Title under the indemnity agreement, Mr. Glinos argued that the purchasers’ claim against Chicago Title was a claim arising under the title insurance policy. According to Mr. Glinos, this determination would be made by reference to the purchasers’ Statement of Claim rather than the ultimate outcome of the purchasers’ claim. Since the purchasers’ alternative claim against Mr. Glinos was in respect of the same loss, the purchasers’ claim against Mr. Glinos also arose under the title insurance policy, in Mr. Glinos’s submission. Therefore, Chicago Title was required to indemnify and hold Mr. Glinos harmless for his legal costs defending the main action, in accordance with the indemnity agreement.

11Chicago Title denied liability under the indemnity agreement for Mr. Glinos’s legal costs. The purchasers’ claim against Mr. Glinos, as set out in the Statement of Claim, was for professional malpractice in the conduct of a real estate transaction. Mr. Glinos made a material misrepresentation in the purchasers’ title insurance application. He failed to obtain title insurance that applied to the subject property. As a result, the purchasers’ claim did not arise under the title insurance policy, and the indemnity agreement did not apply. According to Chicago Title, if Mr. Glinos had a remedy for recovery of his legal costs, it was against his professional malpractice insurer rather than against Chicago Title.

12Based on the forgoing, the issues to be determined are as follows:

1. Summary judgment – Is it appropriate to determine the cross-claim by summary judgment?
2. Policy coverage – Did the purchasers’ claim against Chicago Title and Mr. Glinos arise under the title insurance policy?

13I will deal with each of these issues in turn.

II. Summary judgment

14Under rule 20.04(1) of the Rules of Civil Procedure [1], summary judgment will be granted if (a) the Court is satisfied that there is no genuine issue requiring a trial, or (b) the parties agree to have all or part of the claim determined by summary judgment and the court is satisfied that it is appropriate to grant summary judgment.

15On this motion, the parties have agreed to have the cross-claim determined by summary judgment, satisfying the first part of the test in paragraph (b) of rule 20.04(1). Therefore, summary judgment will be granted if I am satisfied that it is appropriate to grant summary judgment in this case.

16The recent Supreme Court of Canada decision in Hryniak v. Mauldin [2] provided guidance as to the circumstances in which summary judgment should be granted. The following passage from that decision specifically addresses the summary judgment test in paragraph (a) of rule 20.04(1), that is, no genuine issue requiring a trial. The same considerations apply when determining whether it is appropriate to grant summary judgment under paragraph (b) of rule 20.04(1).

There will be no genuine issue requiring trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result. [3]

17Applying the foregoing principles, I am satisfied that it is appropriate to decide the cross-claim by way of summary judgment as requested by the parties. The main action has already been settled. The issues to be determined on this motion are circumscribed. Only limited findings of fact are required and do not involve issues of credibility. In these circumstances, no purpose would be served by proceeding to trial.

18For the reasons set out below, I have concluded that summary judgment should be granted to Mr. Glinos, declaring that Chicago Title is required to indemnify and hold harmless Mr. Glinos with respect to his legal costs defending the purchasers’ action against Mr. Glinos and Chicago Title, including his legal costs relating to the cross-claim against Chicago Title.

III. Policy coverage

19Did the purchasers’ claim against Chicago Title and Mr. Glinos arise under the title insurance policy?

20The threshold question is whether the purchasers’ claim against Chicago Title arose under the title insurance policy issued in this case. Under the indemnity arrangement in place with the Law Society, Chicago Title’s indemnity obligation to the purchasers’ lawyer applies to “claims arising under the title insurance policy” except for the lawyer’s gross negligence or wilful misconduct. There is no dispute that there was no gross negligence or wilful misconduct by Mr. Glinos in this case. There is also no dispute that if the purchasers’ claim against Chicago Title arose under the title insurance policy, Chicago Title would be required to indemnify Mr. Glinos for his legal costs defending the purchasers’ action against Mr. Glinos and Chicago Title.

21That being said, a significant point of dispute between the parties relates to the basis upon which the court determines whether the purchasers’ claim against Chicago Title arose under the title insurance policy. Mr. Glinos argued that this determination would be made by reference to allegations in the purchasers’ Statement of Claim rather than the ultimate outcome of the purchasers’ claim. Chicago Title did not agree.

22In support of his position, Mr. Glinos relied on the decision of Justice Brown (when a member of this court) in Stewart Title Guarantee Co. v. Zeppieri [4], in which he considered and interpreted the indemnity obligation of another title insurer under parallel arrangements with the Law Society. In that case, Justice Brown provided background for the indemnity arrangements between the Law Society and private title insurance companies. In brief, because of those indemnity arrangements, as long as purchasers and chargees obtained title insurance for property that is the subject of a real estate transaction, all lawyers who provide legal services for the transaction are exempt from a transaction levy surcharge that the lawyers would otherwise be required to pay to their professional malpractice insurer, Lawyer’s Professional Indemnity Company (LAWPRO).

23In Zeppieri, the purchasers in a real estate transaction sued their own lawyers for professional negligence, alleging that the lawyers failed to obtain good title for the property for them. The title insurer conceded that it was required to indemnify the lawyer for legal costs incurred to defend the claim, but argued that it was not required to do so until the end of the action when a court found that the claim under the title insurance policy was made out, or when the action settled. As set out in the passages that follows, Justice Brown found that the title insurer was required to fund the lawyer’s legal costs from its outset. According to Justice Brown, the obligation to indemnify arose when the claim was made, based on the allegations in the Statement of Claim.

I accept the respondents' submission that the obligation to "save harmless" means that a LSUC member should never have to put his hand in his pocket in respect of a claim covered by the terms of the 2005 Indemnity Agreement. Accordingly, the 2005 Indemnity Agreement requires Stewart Title to pay for the member's ongoing costs of defending a claim that falls within the coverage of agreement. This interpretation not only is consistent with the plain meaning of the phrase "indemnify and save harmless", it also is consistent with the case law, the business sense underpinning the 2005 Indemnity Agreement and the reasonable expectations of the parties. [5]

24In making the determination that the obligation to indemnify arose at the time the claim was made based on the pleadings, Justice Brown relied by analogy on case law relating to an insurer’s duty to defend under an insurance policy. In this regard, he made the following observations:

It is well accepted that a court must decide an insurer's duty to defend by looking at the pleadings and the insurance policy…. 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, even though the actual facts may differ from the allegations pleaded…. Any doubt as to whether the pleadings bring the incident within the coverage of the policy should be resolved in favour of the insured…. Nonetheless, there is no duty to defend an action if, on a review of the pleadings, no obligation to indemnify clearly exists…. [6]

25Later in his reasons, Justice Brown also made the following observation:

An obligation to defend may well arise in cases where it eventually turns out that an insured is not entitled to indemnification…. [7]

26From that passage, it is clear that Justice Brown recognized that the title insurer may be required to indemnify the purchaser’s lawyer for his or her costs in defending the action, even if the court does not ultimately find a valid claim under the title insurance policy.

27Upon review of the purchasers’ Statement of Claim as well as the title insurance policy issued by Chicago Title, I have concluded that the purchasers’ claims were claims “arising under the title insurance policy.”

28In the recent decision of the Ontario Court of Appeal in MacDonald v. Chicago Title Insurance Co. [8], the title insurer was required to indemnify the insured purchaser with respect to structural damage resulting from unpermitted construction work under a policy term that provides coverage if the insured’s title is unmarketable. Applying that principle to the matter before me, Chicago Title would be required to indemnify the purchasers for the structural damage to the subject property under the equivalent term of the policy issued to the purchasers. In so finding, I am assuming that no building permit had been issued for the work that caused the structural damage, as alleged in the purchasers’ Statement of Claim.

29Since the purchasers were claiming as against Mr. Glinos for the same loss, I am satisfied that their claim against Mr. Glinos also arose under the policy. Accordingly, Chicago Title has an indemnity obligation with respect to Mr. Glinos’s legal costs in defending the purchasers’ action against Mr. Glinos and Chicago Title, as provided for in Chicago Title’s indemnity letter to the Law Society.

30As previously mentioned, Chicago Title argued that there was no claim arising under the policy since there was no valid title insurance policy in this case. According to Chicago Title, as a result of the material misrepresentation Mr. Glinos made in purchasers’ title insurance application, he failed to obtain title insurance that applied to the subject property. This argument fails on a number of grounds.

31First, it is inconsistent with the so-called pleadings rule set out in the Zeppieri decision. Chicago Title’s argument fails on that ground alone. According to Zeppieri, the obligation to indemnify arose when the claim was made, based on the allegations in the Statement of Claim. As previously indicated, the title insurer may be required to indemnify the defence costs of the purchaser’s lawyer based on those allegations, even if a valid claim under the title insurance policy is not ultimately proven.

32Second, even though the validity of the purchasers’ claim against Chicago Title was not ultimately determined because the main action settled, Chicago Title effectively paid the full amount of the policy limit to the purchasers. Chicago Title argued that there were other economic considerations that factored into its decision to settle on those terms, including the fact that they had previously reserved for the claim in U.S. dollars at a time when the Canadian dollar was more valuable in U.S. dollars than it was at the time of settlement. Nevertheless, in my view, the terms of the settlement would be a persuasive factor in support of the validity of the claim arising under the policy, had I been required to make that determination. Because of the pleadings rule, it was not necessary for me to do so.

33Third, I am not satisfied that there was a material misrepresentation in this case that affected the validity of the policy that was issued. That policy covered a building with up to six residential units. According to the evidence filed in support of the motion, the same standard form policy would have been used whether the policy application indicated a single family dwelling or a multi-unit dwelling with up to six units. In the latter case, a brief “Multi-Unit Endorsement” would have been added to the policy that would not have materially affected the policy terms. As well, the lawyer for the party applying for a title insurance policy for a multi-unit property would be required to complete certain searches prior to issuance of the policy, including searches for building work orders, zoning searches and fire department searches. A defect in any of those searches would cause an underwriting review to determine whether to include a policy exclusion for the defect.

34On the evidence before me, I am not persuaded that any such exclusion would have had any material relevance to the loss suffered by the purchasers in this case. The purchasers’ claim under the policy was for loss resulting from the previous owners’ failure to apply for and obtain a building permit before undertaking defective structural alterations. No search would have revealed an application that was never made or a building permit that was never issued.

IV. Conclusion

35For the foregoing reasons, an order will issue, declaring that Chicago Title Insurance Company is required to indemnify and hold harmless Constantine Glinos with respect to his legal costs defending the Plaintiffs’ action against Mr. Glinos and Chicago Title, including his legal costs relating to the cross-claim against Chicago Title, in accordance with Chicago Title’s indemnity obligation set out in Chicago Title’s correspondence with the Law Society of Upper Canada in favour of the latter’s members.

36If the parties cannot agree on the costs of this motion, each party may serve and file within 21 days brief written submissions (not to exceed three pages), together with a costs outline and any pertinent offers. Each party may reply by brief written submissions within seven days. All such submissions shall be forwarded to the Trial Coordinator and also to me at 59 Church Street, 4th Floor, St. Catharines L2R 7N8. If no submissions are received within this timeframe, the parties will be deemed to have settled the issue of costs.

The Honourable Mr. Justice R.A. Lococo