Court File and Parties

COURT FILE NO.: CV-16-546841 DATE: 20170223 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Adrien Doucet and Barbara Doucet, Applicants AND: State Farm Fire and Casualty Company and Co-operators General Insurance Company, Respondents

BEFORE: Madam Justice A.M. Mullins

COUNSEL: Camille Dunbar, Counsel for the Applicants Luke J. Saites, Counsel, for the Respondent, Co-operators General Insurance Company Jessica Kuredjian, Counsel for the Respondent, State Farm Fire and Casualty Company

HEARD: February 21, 2017

Endorsement

The Facts

[1] The applicants seek a declaration that each of the respondent insurers have a duty to defend them and indemnify them for costs incurred in defending a claim. As well they seek punitive damages and the costs of this application.

[2] The applicants own a home. Adrien Doucet is the sole shareholder of Prime Carpentry Inc. Prime Carpentry Inc. is one of three partners of Diva Construction 2008. Diva Construction Inc. was the general partner of Diva 2008. Diva Construction Inc. is owned and operated by Boudreau.

[3] Diva Construction 2008, Diva Construction Inc., Boudreau and Adrien and Barbara Doucet are defendants in an action commenced by Jones. Jones and Boudreau got involved in an altercation at a Christmas party held at the Doucets’ home on December 12, 2012. Though the particulars are not well known at this stage, the party appears to have been a seasonal celebration on behalf of Diva Construction 2008. Jones was an employee of Diva Construction 2008 and an invited guest. Boudreau is alleged to have be one of the owners, directors or officers of Diva Construction. Jones commenced an action on October 7, 2013 claiming damages for personal injuries alleged to have been caused to him in the altercation with Boudreau while in the Doucets’ residence during the Christmas party. Mr. Jones alleges that the Doucets’ owed him a duty of care pursuant to the provisions of the Occupiers' Liability Act, RSO 1990, c O.2, that Diva Construction was responsible for supervising the behaviour of guest and to monitor the consumption of alcohol. Jones pleads that the incident in which he was injured by Mr. Boudreau was caused by the joint and several negligence of the Doucets and the other defendants and/or their respective officers, directors, agents or employees. Diva Construction, it is alleged, was, at all material times vicariously responsible for the actions of Mr. Doucet and Mr. Boudreau by reason being in the course of their employment.

[4] The Jones claim was delivered to each of the respondents by the Doucets. State Farm Fire and Casualty Company issued a homeowner’s policy which identified each of the Doucet’s as named insureds, effective at the material time. Co-operators General Insurance Company issued a commercial general liability policy in which Diva Construction Inc. was a named insured.

[5] On February 6, 2015, the Co-operators wrote to Mr. Doucet acknowledging that it had a commercial policy in effect for Diva Construction Inc. and a home policy in effect for Boudreau. The letter observed that the allegations against Mr. Doucet and his wife in the statement of claim were not related to the company, wherefore Co-operators would not provide a defence under the policy. Enquiries or questions were directed to the counsel that was defending the file with respect to Mr. Boudreau.

[6] By letter dated February 21, 2014, State Farm wrote to Mr. and Mrs. Doucet. It said that, having considered the facts that had been provided and the allegations in the statement of claim, the exclusions and definitions of the policy were such that the claim was not within their coverage under the policy.

[7] The applicants engaged counsel on March 3, 2015 for themselves to defend the Jones claim.

[8] On July 21, 2016, counsel for the applicant was advised by Mr. Saites that the respondents had agreed on the following:

1. Either Mr. Reisler’s client, State Farm or the Co-operators, (or both) will take over the defence of Mr. and Mrs. Doucet; and
2. The insurers have agreed to pay the reasonable legal fees insured by the Doucets to date.

The letter went on to request that counsel provide the particulars of the legal fees and the disbursement that had been incurred to date.

[9] In light of the developments in the matter, the original application that had been served by the applicant was held in abeyance. Unfortunately, the discussions that ensued as to the costs payable between the respondents and the applicants were unsuccessful. The applicants renewed their application and amended it to include claims for general and punitive damages.

[10] In response to requests from the respondents, the applicant provided copies of invoices and costs outlines. As of September 26, 2016, the applicant sought the sum of $19,719.73 in costs for the defence of the Jones action and the sum of $22,812.50 in respect of the coverage dispute. In respect of the former, costs outlined to date have increased to a total of $20,510.32. With respect to the coverage issue the costs incurred to date have increased to $51,445.06, contends the applicant.

[11] The respondents’ position has been that the reasonable costs payable for both the tort and coverage dispute between the parties is $21,709.88. They have examined the particulars of the costs outlines found at Tab F of the respondent State Farm and Casualty Company’s record. While the respondents have no quarrel with the hourly rates particularized in the applicants’ costs outline, they call into question the number of hours expended by Ms. Dunbar at 56.9 in relation to documentary and oral examination for discovery, and 9.2 hours to have prepared for and attended a relatively brief cross-examination. The respondents submit that certain of the work done by Ms. Dunbar for scheduling might have been done at a reduced costs by assistants or law clerks.

[12] The relief sought by the applicant today is:

a) A declaration that State Farm and Co-operators have a duty to defend the Doucets in the Jones claim; b) State Farm and Co-operators should pay jointly and severally all future costs of defending the Doucets in the underlying action; c) State Farm and Co-operators should jointly and severally fully indemnify the Doucets for all costs they have incurred in defending the Jones action d) State Farm and Co-operators should pay jointly and severally on a full indemnity basis all costs of this application; and e) State Farm and Co-operators should pay jointly and severally punitive damages to the applicants in the sum of $25,000.00.

[13] The applicants take the position that the respondents’ letter of July 21, 2016 was insufficient to recognize the obligations of the respondents to defend the Jones action. The respondents take the position that the letter was and is sufficient acknowledgement of their duty to defend. The only outstanding issue which required a hearing was the matter of what costs were payable as between the parties. The applicants complain that the defendants ‘compelled’ Mr. Doucet, unnecessarily, to attend at a cross-examination. The respondents complain that counsel refused to permit Mr. Doucet to answer any questions at the cross-examinations.

[14] In so far as the claim for punitive damages, the applicant says this is warranted due to the respondents’ failure to pay costs to date even if only to the extent they contend they are liable. This constitutes a breach of their contractual duty of good faith and stands as an independent actionable wrong. As well, the applicants assert that in conducting a cross-examination of Mr. Doucet, the insurers were looking for a basis to deny or continue to deny the applicants’ claims. The questions he was asked were in pursuit of the facts in dispute in the underlying action. This was an abuse of process and a breach of the insurer’s duty of good faith.

[15] Punitive damages are to be awarded, submits the applicants, where the insurer has engaged in high-handed, malicious, arbitrary or highly reprehensible misconduct. These awards are designed to address retribution, deterrence, and denunciation.

[16] The position of the applicant is that the insurer’s unjustified refusal to provide a defence and ongoing refusal to pay undisputed portions of the applicants’ fees deserves an award of punitive damages.

[17] In the costs outline of the applicants, the factors set out in rule 57 are addressed. In respect of the complexity of the proceeding the applicant adverts to the insurers’ ongoing breaches of duties of good faith, unjustifiable denial of the duty to defend, failure to properly investigate and respond to the claim, etc. With respect to the conduct of any party that tended to shorten or lengthen unnecessarily the duration of the proceeding, the applicant submits that it was obvious on a plain reading of the pleadings that both respondent insurers had a duty to defend. As to whether any step in the proceeding was improper, vexatious or unnecessary or taken through negligence, mistake or excessive caution, the applicant observes that the insurers instead of acknowledging their respective duties to defend chose to cross-examine Mr. Doucet in a manner aimed to obtain facts in dispute of the underlying action which were irrelevant to the duty to defend and, for almost three years, the insurers have been unjustifiably denied their duty to defend and only admitted this on the eve of the original application date in August 2016. As yet the respondents have not yet tendered payment towards any of the applicants costs.

Disposition

[18] In the Jones statement of claim the chain of liability as between each of the plaintiffs and the defendants is not a simple matter to discern. One not unreasonable view of the statement of claim that was served upon the applicants is that the respondent State Farm had a duty to defend the Doucets’ under the homeowner’s policy given that the pivotal event took place at their home at the Christmas party. Another view is that the Co-operators had an obligation to defend under the comprehensive general liability policy that insured Diva Construction Inc., because the party was for the principals and employees of Diva Construction 2008, a partnership of entities that included Diva Construction Inc. The better view may well have been that each had a duty to defend, because of the circumstances of Mr. Jones allegedly being injured by Mr. Boudreau at a business related Christmas party hosted in the Doucet home.

[19] I find that, by the letter dated July 21, 2016 the respondents did acknowledge, in writing, that they would undertake their duty to defend Mr. and Mrs. Doucet and their obligation to pay reasonable legal fees. To the extent this application seeks a declaration that the respondents have a duty to defend, the issue has been moot since that date.

[20] The respondents do not contest that the applicant is entitled to costs on a full indemnity basis. They do not quarrel with the hourly rates of counsel. I accept the submission made on behalf of the applicants, that the reasonableness of the applicants’ accounts is not fairly judged by the amount of time counsel for the respondents say is that which they would have expended for the same work. The nature of the claim brought by Mr. Jones, particularly as to liability, and the coverage questions engaged are somewhat complex.

[21] I find that the value of the work done on behalf of the applicants as reflected in the costs outline for the coverage issue totalling $22,812.50 and in defence of Mr. Jones’ tort claim in the amount of $19,719.73, to be reasonable. These sums shall be paid by the respondents jointly and severally as between the respondents and the applicants, without prejudice to the rights of the respondents to have them allocated between them.

[22] In the leading decision of Whiten v. Pilot Insurance Company notes the applicant, the factors to be considered relative to punitive damages are said to include:

1. Whether the misconduct was planned and deliberate;
2. The intent and motive of the insurer;
3. Whether the insurer persisted in the outrageous conduct over a lengthy period of time;
4. Whether the insurer concealed or attempted to cover up the misconduct;
5. Whether the insurer was aware that they were doing something wrong;
6. Whether the insurer profited from the misconduct; and
7. Whether the interest violated by the misconduct was known to be deeply personal to the insured.

[23] In so far as the plaintiffs claim for punitive damages, the facts of this case fall well short of those which meet the criteria outlined in Whiten. There is no evidence, direct or circumstantial that the insurers acted in a planned or deliberate manner or were inappropriately motivated. It might be imagined or surmised that the applicants have suffered some distress over having been sued and not having insurers respond, but, other than having to pay costs, the applicant proffered no evidence of the adverse consequences to them of the respondents’ lackadaisical approach to their duty to defend. Though the insurers took their time on the matter, their conduct was not outrageous, nor did they conceal or attempt to cover up misconduct. There will have been no profit to them.

[24] The factors relating to the costs outlined by the applicants, which I have allowed in significant measure, are one and the same as those upon which they were basing the claim for punitive damages. The claim for punitive damages is therefore, dismissed.

[25] As between October 7, 2016 to date, the applicants sought a further $25,034.69 together with HST in costs from the respondents, on the coverage issue. Given the letter from the respondents of July 21, 2016 conceding that the respondents would undertake the defence and that the remaining dispute was the fees to be paid, these further costs are not reasonable.

[26] Success on this application was partial. A reasonable sum for the costs of proceeding with this application to determine the sums payable in costs is, I find, the sum of $4,500.00 for the preparation of the detailed costs outlines, the revival of the application and counsel fee at this hearing, together with HST. The respondents shall be jointly and severally liable to the applicants for this sum without prejudice to any adjustment as between them.

Madam Justice A.M. Mullins Date: February 23, 2017