Court File and Parties

COURT FILE NO.: CV-14-498099 DATE: 20170403 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

EDWARD HORSEFIELD, and EDWARD HORSEFIELD, ESTATE TRUSTEE OF THE ESTATE OF THE LATE CYNTHIA HORSEFIELD, DECEASED Plaintiffs – and – ECONOMICAL MUTUAL INSURANCE COMPANY Defendant

COUNSEL: A. Ottaway, for the Plaintiffs D. Searle, for the Defendant

HEARD: March 27, 2017

BEFORE: M. D. FAIETA, j.

Reasons for Decision

INTRODUCTION

[1] On February 28, 2017 the parties attended Civil Practice Court to schedule the plaintiff’s motion for summary judgment. Justice McEwen directed that the plaintiff’s motion for summary judgment be heard on July 19, 2017 and approved a schedule for the exchange of materials and cross-examinations that the parties had agreed upon. Justice McEwen also directed that a case conference be set up “… to deal with the Rule 39.03 issue”.

[2] The “Rule 39.03 issue” is whether the defendant, Economical Mutual Insurance Company (“Economical”), should be permitted to examine the plaintiff Edward Horsefield as well as its insured Ian Horsefield under Rule 39.03 of the Rules of Civil Procedure before the hearing of the plaintiff’s motion for summary judgment.

[3] The plaintiffs commenced an action against Ian Horsefield for damages arising from his negligence causing fire. On February 8, 2013, with the consent of the parties, the following Judgment was granted by Master Dash:

THIS MOTION, made by the Plaintiffs, on consent of the Defendant for property damages, rental income loss, prejudgment and postjudgment interest, and the costs of the Action and such other relief this Honourable Court deems just, was heard this day at Toronto.

ON READING the pleadings, the Consent of the Plaintiffs and Defendant, filed, and the Affidavit of Andrew Ottaway, filed:

THIS COURT ORDERS AND ADJUDGES that the Defendant pay to the Plaintiffs their damages in this Action in the total amount of $167,293.67;

THIS COURT ORDERS AND ADJUDGES that the Defendant pay pre-judgment interest at the rate of 1.3% from the date of loss to October 31, 2012, being the amount of $11,738.05;

THIS COURT ORDERS AND ADJUDGES that the Defendant pay costs in the amount of $50,000.00 plus disbursements in the sum of $2,577.05, and HST in the sum of $6,662.47, being the total amount of $59,239.52.

[4] The affidavit of Andrew Ottaway, counsel for the plaintiffs, referenced in the Judgment, states:

The Defendant, Ian Horsefield, rented the subject premises, the property municipally known as 448 Duke Street, Prescott, Ontario (the “Premises”) from the Plaintiffs, his parents. On June 10, 2007, the Defendant was performing maintenance and mechanical work on his automobile in the Premises’ attached garage. While working, the Defendant removed the automobile’s gas tank from its normal position. The gas tank fell or was dropped, and gasoline spilled. The gasoline or the fumes from the gasoline were ignited and resulted in a fire which destroyed the Premises. The Plaintiffs claimed damages of $175,000 for property damage, $5,000 in lost income, pre-judgment interest and post-judgment interest, and costs. A true copy of the Amended Statement of Claim is attached hereto as Exhibit “A”.

[5] Economical’s submission for this Case Conference states:

The original Statement of Claim claimed that Ian Horsefield was operating a welding torch in maintaining his vehicle at the time the subject fire started [“the 2009 Action”]. The Statement of Claim was eventually amended to remove all reference to the use of a welding torch.

Ian Horsefield has a valid policy of tenant’s insurance with Economical Insurance Group at the time of the subject fire and made a claim for coverage for the claims advanced in the 2009 Action.

The Defendant conducted an investigation and determined that Ian Horsefield was not covered under the policy given the negligent acts and subsequent damages arouse out of the use, operation or ownership of an automobile, which was specifically excluded under the policy.

During its investigation, the Defendant obtained a statement from Ian Horsefield wherein he confirmed that he had been operating a welding torch at the time of the fire, and it was involved in starting a fire.

[6] As noted, Ian Horsefield consented to judgment on the claims made in the Amended Statement of Claim and admitted the facts contained in the Amended Statement of Claim which had removed all reference to the welding torch.

[7] This action was commenced on February 7, 2014 by Notice of Action. The Statement of Claim, dated June 17, 2014, alleges that as a result of the fire the plaintiffs sustained damages of $165,293.67 (for the building) and $2,000 (for loss of rental income). These amounts were paid by the plaintiff’s insurer, North Waterloo Farmers Mutual Insurance Company. As a result, North Waterloo is subrogated to the plaintiffs’ rights of recovery. The plaintiffs allege that the claim is covered by the policy and also allege that the fire arose independently from the ownership, use or operation of a motor vehicle.

[8] The Statement of Defence, dated July 29, 2014, admits that Economical issued a policy of property insurance to its insured Ian Horsefield that was in effect on the date of the fire. However, Economical denies coverage for the damages arising from the fire on the basis of exclusions in the policy in respect of loss arising from the use or ownership of a motor vehicle.

[9] Paragraph 13 of the Statement of Defence also challenges the Judgment. It states:

The Defendant pleading further states that there has been no adjudication on the merits of the claim being asserted either by way of liability or damages, as the Judgment Creditor did not defend himself in respect of the claim asserted against him. This Defendant puts the Plaintiffs to the strict proof thereof with respect to any and all damages claimed and their entitlement thereto.

[10] Economical brought a motion for a further and better Affidavit of Documents that includes all documents related to the investigation and adjusting of the fire, as well as an order compelling Ian Horsefield to attend examination for discovery. Master Short dismissed this motion on February 2, 2017. He stated, at paras. 16-18:

The appellate courts seem to conclude that in a case such as is now before me the only meaningful issue is “the construction of the terms of the policy”.

I find that it is too late for an insurer that chose to be totally uninvolved for what is approaching 10 years from the fire, to now seek further information that might have had a bearing on the factual matrix.

They made their bed and now must take it as it stands, at least for the purposes of productions.

[11] Economical raises two issues.

Issue #1: Does this Court have the jurisdiction to determine whether an examination should be held under Rule 39.03 at a case conference? If so, is it appropriate to do so?

[12] This case conference was held pursuant to Rule 50.13(6):

At the case conference, the judge or case management master may, if notice has been given and it is appropriate to do so or on consent of the parties,

(a) make a procedural order;

(b) convene a pre-trial conference;

(c) give directions; and

(d) in the case of a judge,

(i) make an order for interlocutory relief, or

(ii) convene a hearing.

[13] Counsel for the plaintiff attended in person and counsel for the defendant attended by telephone. The defendant submits that the requested order is not a “procedural order”. The Rules of Civil Procedure do not define the phrase “procedural order”. Although neither party provided any case law that has considered the phrase “procedural order”, the Ontario Court of Appeal’s decision in Sutt v. Sutt, [1969] 1 O.R. 169 (C.A.) is instructive. In that case, the Ontario Court of Appeal, at para. 8, distinguished substantive laws from procedural laws as follows:

It is vitally important to keep in mind the essential distinction between substantive and procedural law. Substantive law creates rights and obligations and is concerned with the ends which the administration of justice seeks to attain, whereas procedural law is the vehicle providing the means and instruments by which those ends are attained. It regulates the conduct of Courts and litigants in respect of the litigation itself whereas substantive law determines their conduct and relations in respect of the matters litigated. … [Emphasis added.]

[14] Applying that analysis to this case, the plaintiff’s right to claim under s. 132 of the Insurance Act, R.S.O. 1990, c. I.8 against the defendant is substantive law whereas the examination of a witness in relation to determining the merits of that action is procedural law. Accordingly, the order sought by the defendant is a procedural order, not a substantive order and therefore, may be ordered at a case conference.

[15] Economical submits that “fifteen minutes with 4 or 5 pages of written submissions is not sufficient time or space for appropriate legal argument.” However, those are not the circumstances. The case conference was heard over 45 minutes. The plaintiff submitted 29 pages of written material, including three pages of submissions and case law. The defendant submitted 95 pages of written material, including six pages of submissions, an affidavit and case law.

[16] Moreover, the parties were given almost one month’s notice that the Rule 39.03 issue would be addressed at this case conference. The schedule for the motion for summary judgment, which was agreed up on by the parties, contemplates the completion of any examinations by May 12, 2017. To decline to determine the Rule 39.03 issue at the case conference would mean that the issue would be placed before a Master sometime months from now and therefore likely mean that the July 19, 2017 hearing date, agreed upon by the parties and directed by Justice McEwen, would be vacated.

[17] Given the above context, and having considered Rules 1.04(1) and 1.04(1.1) of the Rules of Civil Procedure, I find that it is appropriate to make the procedural order related to the Rule 39.03 issue.

Issue #2: Should Edward Horsefield and Ian Horsefield be compelled to an examination under Rule 39.03?

[18] Rule 39.03(1) provides that “… a person may be examined as a witness before the hearing of a pending motion or application for the purpose of having a transcript of his or her evidence available for use at the hearing.”

[19] A person should only be compelled to attend an examination under Rule 39.03 if the party seeking to conduct the examination shows: (1) the examination would be conducted on issues relevant to the pending motion or application; (2) the proposed witness is in a position to offer relevant evidence: see Ontario Federation of Anglers & Hunters v. Ontario (Ministry of Natural Resources) (2002), 211 D.L.R. (4th) 741 (C.A.), at para. 30. Such examination must not be an abuse of the court’s process: see Canada Metal Co. v. Heap (1975), 7 O.R. (2d) 185 (C.A.), at p. 192 (C.A.)

Relevance

[20] Economical submits:

The examination of Edward Horsefield as Plaintiff in this action will be related to facts, and information relevant to the issue of coverage, which is the crux of the Plaintiffs’ claims.

The examination of Ian Horsefield, the individual whose negligent actions while maintaining his vehicle caused the loss, will be related to facts and information relevant to the issue of coverage under the policy. He is the only witness to the events of the fire and to the nexus between his negligent vehicle maintenance and the cause of the fire. The nexus between the vehicle maintenance and the loss is directly relevant to the Court’s determination of whether the loss arises out of the use, operation or ownership of a vehicle.

[21] Economical has not explained what relevant evidence Edward Horsefield may provide related to the use, operation or ownership of an automobile exclusion. What relevant evidence he may have to offer is doubtful given Economical’s submission that Ian Horsefield is “the only witness to the events of the fire and to the nexus between his negligent vehicle maintenance and the cause of the fire”. Accordingly, I dismiss Economical’s request to summons Edward Horsefield to testify pursuant to Rule 39.03.

[22] I am satisfied based on Economical’s submissions that Ian Horsefield has relevant evidence to offer, subject to my determination of the abuse of process argument advanced by the plaintiffs.

Abuse of Process

[23] The plaintiffs submit that no evidence from Edward Horsefield or Ian Horsefield is required on a motion for summary judgment given the nature of the action under s. 132 of the Insurance Act.

[24] Subsection 132(1) of the Act provides a judgment creditor with a direct cause of action against a judgment debtor’s insurer for the recovery of the judgment debt subject to any defence that could be raised by the insurer against the judgment debtor. It states:

Where a person incurs a liability for injury or damage to the person or property of another, and is insured against such liability, and fails to satisfy a judgment awarding damages against the person in respect of the person's liability, and an execution against the person in respect thereof is returned unsatisfied, the person entitled to the damages may recover by action against the insurer the amount of the judgment up to the face value of the policy, but subject to the same equities as the insurer would have if the judgment had been satisfied. [Emphasis added]

[25] The following principles are applicable when an action is brought by a judgment creditor under section 132 of the Act.

[26] First, it is not open to an insurer to contest the findings of liability or damages upon which the judgment is based. In Stoyka v. General Accident Assurance Co. of Canada (2000), 47 O.R. (3d) 407 (C.A), the Ontario Court of Appeal stated, at paras. 22-24:

There is nothing in the language of this section that suggests that the insurer in defending such an action can effectively reopen the judgment to contest the findings of liability and damages. Indeed, the clear inference is to the opposite effect. The statutory cause of action allows the injured person to recover the amount of the judgment. It does not suggest that the injured person must prove the quantum of his loss.

Moreover, s. 132(1) specifies the defences available to the insurer. It defines those defences as the equities which the insurer would be able to raise against its insured. The findings of liability and damages in the original action between the injured party and the insured cannot be said to be matters of equity between the insured and his insurer. Equally, while the alleged fraud of the injured party itself in obtaining the original judgment might be a basis for setting aside that judgment, it does not constitute an equity as between the insured and the insurer.

There are sound policy reasons to support this conclusion. Where the insurer had had notice of the original proceedings and has chosen not to provide its insured with a defence at trial or seek to be added as an intervener (as it could have done here under rule 13.01), it is simply unfair to the injured party to require that it again prove the insured’s liability and the resulting damages. The injured party has done so once with success and is entitled to regard that judgment as final. In addition, it is clearly in the interests of the sound administration of justice to discourage the unnecessary re-litigation of the same issues. [Emphasis added.]

Also see Ernst & Young Inc. v. Chartis Insurance Co. of Canada, 2014 ONCA 78, 118 O.R. (3d) 740, at paras. 32-33.

[27] Second, the judgment in favour of the judgment creditor need not result from a defended action and may arise from an undefended action: Cannon v. Constitution Insurance Co. (1996), 26 O.R. (3d) 500; Stoyka, para. 12.

[28] Third, to establish a prima facie case against the judgment debtor’s insurer, a judgment creditor need only file or prove at trial: (a) certified copies of the record proven by the Registrar of the Court, the judgment, and the reasons for judgment; (b) that there was no appeal; (c) the issuance of an execution against the judgment debtor and the return of a nulla bona thereon; (d) a copy of the policy insuring the judgment debtor in respect of the cause of action set forth in the pleadings: see Stoyka, at paras. 6 and 25.

[29] Fourth, a judgment creditor stands in no better position than the insured. Therefore, if the insurer has a defence against its insured, that defence would apply to the judgment creditor seeking recovery: Walker v. Sovereign General Insurance Co., 2011 ONCA 597, 107 O.R. (3d) 225, at para. 13; C.H. Robinson Worldwide Inc. v. Northbridge Commercial Insurance Corp., 2016 ONCA 364, 132 O.R. (3d) 73. The “equities” that may be raised by an insurer include defences such as: (1) the policy is void ab initio by reason of misrepresentation in the application; (2) the policy does not insure the individual against whom the judgment was obtained; (3) the insured breached a condition of the policy; (4) there was no coverage, or that the coverage alleged was excluded under the terms of the policy: see George L. Mitchell, Q.C.,"Rights of Unnamed Insureds and Third Parties" (1962) Lectures L.S.U.C. 331, at pp. 336-337.

[30] Fifth, an insurer who disputes coverage and refuses to defend its insured will be bound by findings made by a court in the underlying action that gave rise to the judgment (unless, of course, the judgment is set aside): Global General Insurance Co. v. Finlay, [1961] S.C.R. 539; Bank of Montreal v. Pilot Insurance Co. (1996), 93 O.A.C. 125 (C.A.), leave to appeal refused [1996] S.C.C.A. No. 557.

[31] In Global General Insurance Co. v. Finlay, [1961] S.C.R. 539, the Supreme Court of Canada stated, at paras. 36-38:

36 So long as the judgment of Stewart J. stood (and it was proved that no appeal was taken from it and that the time for appealing had expired) it, read in the light of the pleadings, furnished the best evidence of the nature of the claim asserted against Margaret Jean Campbell in her capacity as executrix for which the judgment had been recovered; and the question whether or not that claim, which had become merged in the judgment, was covered became simply a question of the construction of the terms of the policy. I have already expressed my agreement with the view of the Court of Appeal that on the true construction of the policy the claim was covered.

37 In an action brought under s. 214(1) the question to be determined is whether the plaintiff has made against an insured a claim for which indemnity is provided by a motor vehicle policy and has recovered a judgment therefor; the question is not whether that judgment was correct.

38 The judgment of Stewart J. was a final judgment pronounced by a court of competent jurisdiction and constituted conclusive evidence against all the world of its existence, date and legal consequences; (vide Halsbury, 3rd ed., vol. 15, p. 395 and the cases there collected). The legal consequence of that judgment was to impose upon Margaret Jean Campbell in her capacity as executrix a liability arising from the ownership of the automobile described in the policy. That liability was clearly one imposed by law and fell within the terms of the insuring agreements set out in section A of the policy. I can find no support for the appellant's submission that it was necessary for the respondent to prove again in the action against the insurer under s. 214(1) the facts on which the judgment of Stewart J. was founded. To so hold would be to disregard the maxim, interest reipublicae ut sit finis litium.

[32] Similarly, in Bank of Montreal v. Pilot Insurance, the Ontario Court of Appeal refused to allow the court’s finding, that a fire was caused by the insured’s negligence rather than his intentional act, to be re-litigated for the purpose of determining whether coverage was excluded. It stated, at para. 3:

It voluntarily chose not to defend on the question of liability. The appellant [insurer] submitted that it would have been inappropriate for it to prejudice the case of its insured at the main action. This argument cannot prevail. The proper course, given the conflict of interest between the appellant and Reid [the insured], would have been for the appellant to provide Reid with independent legal counsel. The trial judge then could have determined the manner in which the main action was to proceed in light of the third party action.

[33] Applying these principles, I find that Economical may not re-litigate the nature of the claim including the circumstances surrounding the fire. I agree with the submission of the judgment creditor that the affidavit of Andrew Ottaway, referenced in the Judgment, forms part of the record and thus the judgment can be read in light of the facts disclosed in his affidavit as well as the Amended Statement of Claim. It is open in this action for Economical to argue the proper construction of the policy exclusions as well as the proper characterization of the nature of the claim in light of the Judgment.

CONCLUSIONS

[34] I have concluded that Economical is not entitled to examine Edward Horsefield or Ian Horsefield under Rule 39.03 of the Rules of Civil Procedure for the purposes described above.

[35] In order to efficiently use this court’s judicial resources, I will hear the summary judgment motion currently scheduled for July 19, 2017.

Mr. Justice M. D. Faieta Released: April 3, 2017