Court File and Parties

Newmarket Court File No.: CV-16-128585-00 Date: 2017-03-07 Superior Court of Justice - Ontario

Re: Jamie Patino, Applicant And: Allstate Insurance Company of Canada, Respondent

Before: The Hon. Madam Justice S.E. Healey

Counsel: S. Razenberg, for the Applicant C. Dolgay, for the Respondent

Heard: March 2, 2017

Endorsement

Nature of the Motion

[1] The respondent, Allstate Insurance Company of Canada ("Allstate") seeks an order dismissing the within application as premature and/or an abuse of process. In the alternative, Allstate seeks an order that the application be required to focus exclusively on the following legal question: whether or not Allstate was entitled to deny indemnification to the applicant in respect of the October 17, 2014 motor vehicle accident, notwithstanding that it declined to void the policy in contemplation of payment to the loss payee.

The Facts

[2] On October 17, 2014, the applicant, Mr. Patino, was involved in a motor vehicle accident while operating a 2007 Dodge Caliber (hereinafter "the vehicle"), which was owned by Tigertown Leasing Ltd. ("the loss payee"). The vehicle was leased by Mr. Patino's wife. Allstate issued a policy of automobile insurance to the Patinos, which was in effect on the date of the accident, on which the loss payee was named. As a result of the accident, the vehicle sustained serious damage and was deemed to be a total loss.

[3] Allstate paid the loss payee $4,826.33 for damage to the vehicle, plus additional amounts for towing, storage and the cost of a rental car. Allstate then learned that at the time of the accident Mr. Patino may have been using the vehicle for commercial purposes in the course of his employment with Canada Post, in contravention of the policy. Allstate commenced a Small Claims Court action against Mr. Patino to recover money paid to the loss payee (the "Allstate action"). Allstate decided not to void the policy ab initio in contemplation of the payment made to the loss payee, and instead denied Mr. Patino indemnification with respect to the accident.

[4] In his defence in the Allstate action, Mr. Patino pleads that if Allstate wished to avoid liability under the policy, its only recourse to do so would have been to void the policy ab initio. Having chosen not to void the policy, and instead to honor the claim presented, Allstate is now estopped from raising the issues giving rise to the Allstate action.

[5] The trial of the Allstate action began on September 23, 2016, and is presided over by Deputy Judge Klein. The main issues in the Allstate action are whether Mr. Patino negligently misrepresented the use of the vehicle to Allstate, whether he failed to notify Allstate of a material change in risk to the policy, and whether Allstate was entitled to deny indemnity to Mr. Patino while also honoring the obligation to the loss payee.

[6] In the course of the accident, damage occurred to a backhoe. On October 14, 2016, Aviva Insurance Company of Canada issued a Small Claims Court claim in negligence for damage to its insured backhoe (the "Aviva action"). Mr. Patino is one of the respondents in the Aviva action, as is the driver of the other vehicle involved in the collision.

[7] Mr. Patino also commenced a tort claim seeking damages against the driver and owner of the other vehicle involved in the accident, which was commenced in the Superior Court of Justice in Brampton (the "Personal Injury Litigation Proceeding"). There is also an arbitration proceeding before the Financial Services Commission of Ontario.

[8] The issue of whether there was a material misrepresentation by Mr. Patino regarding his use of the vehicle is obviously central to the litigation in the Allstate action, central to the question of indemnification raised by the Aviva action, and central to the FSCO arbitration. The issue to be adjudicated in that arbitration is, in part, whether Mr. Patino is entitled to payment of income replacement benefits, which in part will hinge on whether or not there was a material representation.

[9] On October 26, 2016 counsel for Mr. Patino requested Allstate's position on whether it intended to offer Mr. Patino a defence to the Aviva action, and indemnification for any damage award arising from that claim. The next day, Allstate's counsel advised that he had not obtained firm instructions, but anticipated that Allstate would provide a defence to Mr. Patino, but not indemnification in respect of the Aviva claim. Ultimately, Allstate has provided that defence, and takes the position that the question of indemnification in respect to the Aviva claim must await findings of fact that are to be made by Deputy Justice Klein in the trial of the Allstate action.

[10] On October 27, 2016, counsel for Mr. Patino wrote to Deputy Judge Klein requesting an adjournment of the Allstate action trial in order to bring this application before the Superior Court seeking a declaration that: a. Allstate has never voided the policy; b. Allstate has a duty to defend and indemnify Mr. Patino with respect to the Aviva claim; and c. Allstate is precluded from voiding the policy.

[11] Allstate argued against the adjournment on the basis that any such application would be an abuse of process. On October 28, 2016, Deputy Judge Klein granted Mr. Patino's request to adjourn the ongoing trial in the Allstate action in order to bring this application. The trial is scheduled to resume on March 15, 2017.

[12] At the time the application was commenced, Allstate had not provided a formal position concerning whether or not it would be providing Mr. Patino with indemnification in respect of the defence costs of the Aviva action. Subsequently, Allstate appointed counsel to provide Mr. Patino with a defence.

[13] The within application was commenced on November 1, 2016, and seeks an order declaring that the policy was in effect on the date of the accident, which is not in dispute. It seeks an order declaring that at no time did Allstate void the policy ab initio or otherwise terminate the policy, which is also not in dispute. It seeks an order declaring that the policy requires Allstate to indemnify Mr. Patino in respect of the cost of defence incurred and ongoing in the Aviva action, which is not in dispute. The application also seeks a declaration that Allstate is required by the policy to indemnify Mr. Patino in respect of any award of damages, interest and costs claimed in the Aviva action. This is currently in dispute pending, as submitted by Mr. Dolgay, a finding of fact in the Allstate action on the issue of misrepresentation. Last, it seeks interest against Allstate by reason of their "delay in the indemnifying Mr. Patino for the costs of defence incurred by Mr. Patino on his own behalf to date".

[14] This latter claim for relief arises from the fact that Mr. Patino has rejected the lawyer retained on his behalf by Allstate, and instead has retained Mr. Razenberg. Mr. Razenberg has filed a defence on behalf of Mr. Patino in the Aviva action. The basis for this is that Mr. Patino submits that there are several potential conflicts of interest in having a lawyer appointed by Allstate to represent him in the Aviva action, particularly when the issues of alleged misrepresentation and/or negligence intersect throughout all of the proceedings involving Mr. Patino.

Issues to be Determined

[15] The motion raises three issues for determination:

1. Is the application premature;
2. Is the application an abuse of process; and
3. Should the application be focused on the narrow legal issue identified in Allstate's notice of motion?

The Positions of the Parties

[16] Allstate takes the position that this application should be dismissed as being premature and/or an abuse of process because: a. All of the relief sought on the application is either not in dispute, or has been previously admitted by Allstate, with the exception of Allstate's duty to indemnify; b. Allstate's duty to indemnify is narrower than its duty to defend, and the court cannot grant the disputed relief until after the trial of the Allstate action, when findings of fact will be made. The findings of fact and law by Deputy Judge Klein in the Allstate trial will determine the scope of Allstate's duty, if any, to indemnify Mr. Patino with respect to the accident; c. Mr. Patino is attempting to put before the application judge identical issues to those which are before Deputy Judge Klein. The application judge could only grant the relief requested by Mr. Patino by making findings of fact on issues which are currently being determined by Deputy Judge Klein.

[17] Allstate makes the further argument that as drafted, the application does not seek an order declaring that Mr. Patino is entitled to have counsel of his choice and to direct the defence in the Aviva action. This dispute has never been presented to Mr. Dolgay, it is alleged, prior to receiving Mr. Patino’s factum in response to this motion. It is not an issue raised by the relief sought in the application or set out in the grounds for the application, nor was it raised in Mr. Patino's supporting affidavit sworn October 31, 2016.

[18] In the alternative, Allstate argues that the application should be focused exclusively on the legal question of whether or not Allstate was entitled to deny indemnification to the applicant notwithstanding that it declined to void the policy in contemplation of payment to the loss payee. It is submitted that a determination by the application judge of this legal issue would limit the scope of Deputy Judge Klein's adjudication, and would allow his findings of fact to assist in determining the scope of Allstate's duty to indemnify Mr. Patino, if any.

[19] The position of Mr. Patino in response to this motion is that Allstate and Mr. Patino do not agree on: a. Whether Mr. Patino is entitled to counsel of his choosing for the Aviva action; b. Whether Mr. Patino is entitled to direct the defence of that litigation; and c. Whether Mr. Patino is entitled to indemnification for any judgment arising from the Aviva action.

[20] Mr. Patino submits that he is entitled to a determination at an early stage by the only court having jurisdiction to grant such declaratory relief. Until such determinations are made, he will be forced to bear the cost of this litigation himself in order to avoid the actual or perceived conflicts that arise from having a lawyer appointed by Allstate. He also submits that, regardless of any determinations made in the Allstate action about whether there was a material misrepresentation or about whether Allstate is estopped from seeking repayment, he is entitled to a declaration that Allstate is required to indemnify him in respect any damages awarded against him in the Aviva action because the policy was in effect and never voided. As the Small Claims Court is unable to make such a declaration, he seeks such declaratory relief in this application.

Analysis

[21] Practical sense needs to be brought to bear before this litigation gets completely out of hand. The damages sought in the Allstate action are $8,191.33 plus prejudgment interest and costs. The damages sought in the Aviva action are $12,000 plus prejudgment interest and costs.

[22] An application such as this must not be brought where there are disputed facts. In this case the factual issue in dispute is whether there has been a material misrepresentation by Mr. Patino that would affect coverage. However, the answer to this question may be moot in respect of both the Aviva action and the Allstate action if Mr. Razenberg is correct in his legal position that, having failed to cancel the policy in accordance with the procedure set out in s. 236(1) of the Insurance Act once it learned of the misrepresentation, indemnification cannot be denied. If he is correct, the answer may be that Mr. Patino is entitled to indemnification under the policy in the Aviva action regardless of whether he may have made a material misrepresentation about the vehicle being used exclusively for personal use. It is not the role of the Court on this motion to assess the prospects of success of that argument, unless it is so hopelessly doomed that the proceeding amounts to an abuse of process. I cannot conclude that it does.

[23] I agree with Mr. Razenberg that the declaration sought in 1(e) of the application raises a legal question, but only if the application judge is not required to make findings on the disputed issue. I am not persuaded that a finding of fact is required before this issue can be determined by the judge determining the application. While the issue of estoppel has been raised in the Allstate action, the trial judge does not have the jurisdiction to make a declaratory order in respect of indemnification. That being the case, this application is neither premature nor an abuse of process, if strictly limited to the resolution of that issue. The issue as framed by Mr. Dolgay is succinct, but I would restate it for clarity as follows:

1. Whether or not Allstate is entitled by operation of the law to deny indemnification to the applicant in respect of the accident, given that it declined to void the policy in contemplation of payment to the loss payee; and
2. Whether a finding in the Allstate action (claim number SC-16-00002184) that Mr. Patino had misrepresented his use of the vehicle would change the answer to the preceding question.

[24] I do not agree with Mr. Ranzenberg, however, that the application as currently constituted includes a request for the relief that his client is now seeking regarding having counsel of his own choice and guiding his own defence. It was his submission that paragraph 1(d) of the application as drafted is sufficient to obtain such relief, or alternatively that such a declaration could arise from an application of the catch-all "such further another relief as this Honorable Court may deem just". What his client is seeking is very specific relief that must be formally framed, in order to give Allstate proper notice and an opportunity to respond to the grounds giving rise to the request. Yet this is obviously an issue that must be resolved in order to have all of the litigation proceed in an orderly way, and Mr. Patino has raised an arguable case for the appearance of conflict, if not actual conflict, in his affidavit sworn February 22, 2017 in response to this motion. Given the amounts involved, the most expeditious and reasonable step would be for this court to grant leave to Mr. Patino to amend the application in order to obtain a ruling with respect to whether he is entitled to counsel of his choosing, and whether he may direct the defence, in the Aviva action.

[25] Accordingly, this Court orders:

1. The issues to be determined on this application are the following: (i) Whether or not Allstate is entitled by operation of the law to deny indemnification to the applicant in respect of the accident, given that it declined to void the policy in contemplation of payment to the loss payee; and (ii) Whether a finding in the Allstate action (claim number SC-16-00002184) that Mr. Patino had misrepresented his use of the vehicle would change the answer to the preceding question.
2. Leave is granted to Mr. Patino to amend the application within the next 10 days in order to obtain a ruling with respect to whether he is entitled to counsel of his choice, and whether he may direct the defence, in the Aviva action.

[26] On balance, success on this motion has been mixed. Allstate had some success in that the alternative relief that was sought has been granted, subject to the Court’s variation. Further, Allstate quite properly took issue with the scope of the relief requested in the application in respect to the provision of a defence. However, in Mr. Patino’s favour, the application was not dismissed. In these circumstances, each side should bear its own costs.

[27] Both counsel submitted Cost Outlines at the conclusion of argument. I note that their combined fees for this motion, calculated at their actual rates, are $27,105.31 inclusive of HST. This is more than the amounts in dispute in the two Small Claims Court actions.

Hopefully this will be borne in mind in the conduct of this application, and inform issues such as whether cross-examinations should be held and whether concessions need to be made in the interests of economy and proportionality.

Healey J. Date: March 7, 2017