NEWMARKET COURT FILE NO.: CV-16-128933-00 DATE: 20170523 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
THE CORPORATION OF THE CITY OF MARKHAM Applicant – and – INTACT INSURANCE COMPANY Respondent
Counsel: Luciana I. Amaral, for the Applicant Avi Sharabi, for the Respondent
HEARD: May 12, 2017
REASONS FOR DECISION DiTOMASO J.
The Application
[1] The Applicant, The Corporation City of Markham (“the City”) brings this Application pursuant to Rule 14.05(d) of the Rules of Civil Procedure against the Respondent, Intact Insurance Company (“Intact”) for the following relief:
(a) A declaration that Intact is required to defend the City in respect of all claims made against the City in Ontario Superior Court of Justice, Court Action CV-15-122526-00 commenced at Newmarket (“the Main Action”);
(b) An order that the City is entitled to appoint and instruct counsel of its choice, who need not report to or take instructions from Intact, at the expense of Intact, in respect of the Main Action;
(c) An order that Intact reimburse the City for all past legal and administrative expenses incurred in defending the Main Action; and
(d) Costs of this Application on a full indemnity basis.
Overview
[2] The Main Action arises out of an incident involving the plaintiff, Hasan Jalal, where he allegedly slipped and fell on an “icy and snowy” sidewalk on Old Kennedy Road between Denison Street and Aldergrove Drive in the City Markham (“the Sidewalk”) on February 24, 2014.
[3] In the Statement of Claim, Mr. Jalal claims that his injuries were caused by the negligence of both the City and VTA Construction Limited (“VTA”) in failing to keep the Sidewalk free of snow and ice. The particulars of negligence against VTA and the City are identical.
[4] On or about July 14, 2008, the City contracted out winter maintenance of its sidewalks including the location of the accident to VTA (“the Maintenance Agreement”).
[5] Pursuant to the Scope of Work clause in the Maintenance Agreement, VTA was required to plough, sand and/or salt the Sidewalk, upon being requested to do so by the City, within specified time frames and to provide and maintain the equipment used for ploughing, sanding and salting.
[6] The City called out VTA to maintain the Sidewalk every day from February 18 to 22, 2014. Although VTA was not called out on February 23 or 24, 2014, there were no subsequent weather conditions giving rise to a need for further ploughing, sanding or salting of the Sidewalk between the time VTA purportedly maintained the Sidewalk to the time of Mr. Jalal's accident on the morning of February 24, 2014.
[7] At all material times, the City held a policy of insurance as a named insured with Intact bearing policy number 500081155 (“the Policy”). Pursuant to the provisions of the Policy, the City was covered for Commercial General Liability for $2,000,000 with respect to liability arising out of the operations of VTA.
[8] The City asserts that the claims in the Main Action arise out of the operations of VTA and, in particular, failure to plough and sand/salt the Sidewalk adequately or at all. The City maintains that it is entitled to a defence from Intact.
[9] Intact takes the position that the City is not entitled to a defence and, with regards to the Policy, for this claim, the City is not an Additional Insured.
[10] The City commenced this Application against Intact for failure to respond to its duty to defend the City. The City also asserts that Intact has an interest in establishing that Mr. Jalal's injuries were caused by independent omissions on the part of the City as opposed to negligent winter maintenance on the part of VTA. The City contends that Intact would be in a conflict if allowed to appoint counsel to defend the City in the Main Action. The City seeks to appoint its own counsel to defend the Main Action without reporting to Intact or taking instructions from Intact at Intact’s expense. The City also seeks costs of the action and costs of the application.
[11] Intact denies that there is any sort of conflict and it should be allowed to appoint counsel of its choice to defend the City in the Main Action. Intact also asserts that the City is not entitled to any costs.
Issues
[12] The following issues are to be determined on this Application:
(a) Is Intact required to defend the City in respect of all claims made against the City in the Main Action?
(b) Is the City entitled to appoint and instruct counsel of its choice to defend the Main Action without reporting to Intact or taking instructions from Intact at Intact’s expense? and
(c) Is Intact required to pay for the City's defence of the Main Action and reimburse the City in respect of past costs of defending that action?
Position of the Parties
Position of the City
[13] The City submits that it is an Additional Insured pursuant to the Policy of Insurance between VTA and Intact. As an Additional Insured, the City submits that it is entitled to coverage and a defence by Intact for claims arising in the Main Action out of the liability for activities of VTA regarding sidewalk snow and ice removal where this accident happened.
[14] The City asserts the Policy and coverage is engaged and that Intact owes the City a defence.
[15] Although VTA was not called out on February 24, 2014, the City maintains that VTA was at all material times responsible for clearing the snow and ice from the Sidewalk including from February 18 to 22, 2014. The City submits that the damages and injuries allegedly sustained by Mr. Jalal as pleaded in the Statement of Claim arise as a direct result of the operations performed by VTA pursuant to the Maintenance Agreement.
[16] Further, the City submits that as there is a duty to defend in this case, it is entitled to appoint and instruct counsel of its choice without having to report to Intact. The City points to VTA’s Statement of Defence and Cross-claim as evidence of an inherent conflict of interest where VTA seeks to shift liability to the City for failing to call out VTA and failing to monitor VTA.
[17] Lastly, the City submits that it is entitled to costs of defending the action already paid on a full indemnity basis as well as costs of the Application on the same basis. The City asserts that payment of such costs are provided in the Policy of Insurance between VTA and Intact where the City is named as an Additional Insured.
Position of Intact
[18] Intact submits that while the City is named as an Additional Insured in the Policy of Insurance, the City is not an Additional Insured for the purposes of this underlying claim. It is submitted that the City failed to call out VTA on the date of the accident February 24, 2014. Because no services were provided by VTA on that day, VTA asserts that no claims could have arisen out of the VTA’s operations which on that date did not exist.
[19] VTA denies that Intact has a duty to defend the City in respect of the Mr. Jalal's claims.
[20] In addition, Intact asserts that it has the right to appoint and instruct counsel in this case and that and the City has no entitlement whatsoever to appoint its own counsel without reporting to Intact. Intact asserts that there is no reasonable apprehension of conflict of interest. Neither is there any conduct issue that exists here on the part of Intact that would give rise to any conflict issue.
[21] As for costs, Intact submits that the duty to defend does not arise until it has been made aware by the City of a coverage claim. Notice of coverage was delivered by letter dated March 10, 2016 from by the City to Intact. The City is not entitled to its costs prior to that date in respect of defending the Main Action.
Analysis
A. Is Intact required to defend the City in respect of all claims made against the City in the Main Action?
[22] Intact has raised the issue that while the City is named as an Additional Insured in the Policy of Insurance, the City is not an Additional Insured for the purposes of the claims made by Mr. Jalal in the Main Action. Intact asserts that there were no operations undertaken by VTA on February 24, 2014 (the date of the accident) and because there were no such operations, there could be no liability arising where no operations were undertaken by Intact on that date.
[23] I reject this argument. While it is clear that the Mr. Jalal allegedly slipped and fell on February 24, 2014, Mr. Jalal alleges negligence against both the City and VTA contending that at all material times they were responsible for the proper care and safe maintenance of the Sidewalk which they failed to do. These allegations are not restricted to the condition of the Sidewalk on the date of the accident but rather necessarily include the care and maintenance of the Sidewalk on days prior to the accident.
[24] I find that the Policy of Insurance and Maintenance Agreement speak to the claims arising out of the operations undertaken by VTA which relate to the claims of Mr. Jalal in the Main Action. I conclude that the City is an Additional Insured covered by the Policy of Insurance regarding Mr. Jalal’s claims in the Main Action arising out of the operations of VTA.
[25] Regarding the duty to defend, for the following reasons, I find that Intact is required to defend the City in respect of all claims made against the City by Mr. Jalal in the Main Action. The Main Action arises from a slip and fall incident. Essentially, Mr. Jalal claims an alleged failure on the part of the City and VTA to remove snow and/or ice from the Sidewalk. This is at the heart of what VTA was contracted to do under the Maintenance Agreement with the City which also formed the basis of the Policy of Insurance with Intact in which the City is named as an Additional Insured.
[26] It is well settled law that if the pleadings allege facts which, if proved, would require the insurer to indemnify an insured on a particular claim, the insurer is obliged to defend that particular claim. See Carneiro v. Durham (Regional Municipality), 2015 ONCA 909 at para. 15.
[27] General principles relating to the construction of insurance contracts support the conclusion that the duty to defend arises where the pleadings raise claims which would be payable under an agreement to indemnify. See Non-Marine Underwriters, Lloyd's of London v. Scalera, 2000 SCC 24 at para. 74.
[28] The existence of a duty to defend depends on the nature of the claim made, not the judgment that results from the claim. The duty to defend is normally much broader than the duty to indemnify against the judgment. The mere possibility that a claim falls within the policy triggers the duty to defend. See Carneiro, supra, at para. 15.
[29] In determining the scope of the duty to defend, courts must take factual allegations as plead and then ask which of the plaintiff's legal claims could potentially be supported by those factual allegations.
[30] In the case at bar, it is obvious that a number of Mr. Jalal’s allegations fall squarely within the coverage afforded by Intact’s Policy of Insurance. Also, Intact agreed to defend VTA in the Main Action.
[31] It is well established in the jurisprudence that an insurer’s duty to defend is determined by looking at the pleadings, the insurance policy and the contract referred to in the statement of claim. See Halifax Insurance Company of Canada v. Innopex Ltd., [2004] OJ No. 4178 (Ont. C.A.).
[32] In Carneiro, the Ontario Court of Appeal at para. 15, confirmed the applicable test regarding whether a duty to defend exists as follows:
First, when pleadings allege facts that, if true, require the insurer to indemnify the insured, the insurer is obliged to defend the claim: Monenco v. Commonwealth, 2001 SCC 49, [2001] 2 S.C.R. 699, at para. 28. The mere possibility that a claim may fall within the policy is sufficient to trigger the duty to defend: Monenco, at para. 29. In assessing whether the facts pleaded fall within the policy, the court must consider the substance and true nature of the claim: Monenco, at paras. 34-36. Extrinsic evidence expressly referred to in the pleadings may be considered: Monenco, at para. 36.
The Statement of Claim
[33] The particulars of negligence outlined in the Statement of Claim in the Main Action are as follows:
(a) They failed to take reasonable care and reasonable precautions to ensure that pedestrians were reasonably safe while walking on the sidewalk;
(b) They failed to properly maintain the sidewalk which would include shoveling, sanding, and salting of the sidewalk;
(c) They failed to, or were negligent in, preventing and removing the accumulation and existence of icy portions of the sidewalk which they knew or should have known posed a risk and harm to persons;
(d) They failed to inspect the sidewalk and surrounding areas for the existence of a dangerous condition, properly or at all;
(e) They failed to have in operation at the time of the accident, and immediately before, a proper and efficient system to detect and abate dangerous conditions upon its area, such as the presence of various walking hazards;
(f) They failed to devise practices and policies providing regular inspection and repair of the sidewalk. In alternative, they failed to comply with their own practices and policies;
(g) They failed to take all reasonable and effective measures and precautions to prevent injury to the Plaintiff and to ensure that the accident would not occur;
(h) They had full knowledge, or should have had full knowledge, of the sub-standard precautions taken to prevent injury to pedestrians on the sidewalk and had reasonable time to remedy same but failed to take proper and adequate steps to do so;
(i) They, with full knowledge of the danger posed by the condition of the sidewalk, permitted and allowed the pedestrians to continue to traverse the dangerous areas;
(j) They failed to instruct or warn the public of the dangers and condition of the sidewalk;
(k) They failed to erect and maintain a suitable notice, warning pedestrians of the danger posed by the condition of the sidewalk;
(l) They failed to inspect or adequately inspect the sidewalk and they failed to ensure proper repair of the sidewalk;
(m) They failed to supervise or adequately supervise the system of inspection of the sidewalk;
(n) They permitted the sidewalk to be in an unsafe condition, such as would cause serious injuries to persons using the sidewalk, thereby creating a situation of danger;
(o) They failed to provide a reasonable alternative location for the passage of pedestrians through and/or around that area;
(p) Any such other negligence as may be in the sole knowledge and control of the Defendant;
(q) They failed to, or were negligent in, hiring, employing, and instructing competent maintenance service providers;
(r) In an effort to reduce expenses, they eliminated service contracts, or reduced staff and equipment and took other cost cutting measures. Consequently, the sidewalk would not and could not be kept free of unsafe conditions;
(s) They failed to take remedial action to ensure the walking hazards no longer remained on the sidewalk in a dangerous condition;
(t) They knew or ought to have known that the material area on the occasion in question was unsafe for the pedestrians and constituted an unusual danger to the members of the public and, in particular, to the Plaintiff; and/or
(u) Such other and further grounds as counsel may advise and this Honourable Court may deem just and proper.
See Statement of Claim, Application Record, Tab 2, paras. 6-8.
[34] The allegations of negligence in the Statement of Claim in essence concern the failure to remove snow and/or ice on the Sidewalk. The allegations are identical as against both VTA and the City.
The Agreement between the City and VTA
[35] On or about July 14, 2008, the City entered into the Agreement with VTA to perform various winter maintenance activities on designated City sidewalks, including the Sidewalk located on Old Kennedy Road between Denison Street and Aldergrove Drive. This Agreement was in effect at the time of the Plaintiffs accident.
[36] Pursuant to the Scope of Work clause of the Agreement, VTA was required to supply labour and equipment and plough, sand and/or salt certain sidewalks, including the location of the accident.
[37] Pursuant to the Contract Coordinator Provision of the Agreement, VTA was to be aware of sidewalk conditions at all times and be prepared to take appropriate action to correct potential hazardous conditions.
[38] Pursuant to section 9 of the Supplementary Conditions of the Agreement, VTA is required to indemnify and hold harmless the City against all claims for damage or injury to persons resulting from or arising out of any act or omission on the part of VTA.
[39] Pursuant to section 9 of the Supplementary Conditions of the Agreement, VTA was required to obtain a comprehensive policy of insurance for public liability and property damage and to name the City as an additional insured. The policy was required to protect the City against all claims for all damage or injury including death to any person or persons resulting from or arising out of any act or omission on the part of VTA or any of its servants or agents during the execution of the Agreement.
[40] Pursuant to section 9, VTA delivered a Certificate of Insurance, evidencing that it obtained a Commercial General Liability Policy of Insurance, issued by Intact, as Policy 500081155, naming the City as an additional named insured in respect of any liability arising out of the operations of the named insured, VTA ("the Policy").
[41] The Intact Policy provides for indemnity for legal fees incurred in the defence of the insured without limitation or reduction in respect of allegations made against the insured that fall outside the coverage provided under the Policy. In other words, there is no restriction on the payment of 100% of the defence costs simply because some (or maybe even most) of the allegations fall outside the coverage provided for under the Policy.
[42] I find that the damages and injuries allegedly sustained by Mr. Jalal as pleaded in the Statement of Claim arises as a direct result of the operations performed by VTA pursuant to the Maintenance Agreement.
[43] Further, Mr. Jalal’s allegations fall squarely within the coverage afforded by Intact’s Policy of Insurance. Intact has agreed to defend VTA in the Main Action. I find that Intact is obliged to also defend the City in the Main Action.
[44] I find Intact’s Policy imposed on it a duty to defend its insured, including an Additional Insured against “any action” seeking damages to which the insurance applied. Similarly worded policies have been found to require the insurer to defend both covered and non-covered claims, save only where a particular aspect of the defence would solely advance the defence of a non-covered claim. See Carneiro, supra, at para. 13.
[45] In our case, there is nothing in the Intact policy to qualify the duty to defend or to suggest that the duty to defend does not apply to defence costs that advance both covered and non-covered claims. See Carneiro, supra, at para. 21.
[46] I further find that in his action Mr. Jalal seeks damages against the City and VTA to which the Intact Policy of Insurance applies. Intact has a duty to defend the City in the Main Action, for the same reasons it has already agreed to defend VTA.
[47] The facts underlying the Main Action are virtually identical to the facts in the recent decisions of Carneiro, Zhou v. Markham (Town), 2014 ONSC 435 and Sinclair v. Markham (Town), 2015 ONSC 1550. All of these decisions involved a duty to defend motion against an insurer in respect of claims made against the municipality in the main action for failing to remove ice or snow from a sidewalk or road. In all of these decisions, the municipality had contracted the ice/snow removal to a third party which had obtained insurance naming the municipality as an Additional Insured. See Carneiro, supra, paras. 4, 8 and 9, Zhou, supra, paras. 1 and 5, and Sinclair, supra, para. 2.
[48] The decision of Justice Carole J. Brown in Zhou, supra, at para. 1, is particularly noteworthy because it was a motion against Intact seeking a defence under the very same policy of insurance at issue in this Application (policy number 500081155).
[49] In each of the decisions reported above, the insurer was ordered to defend the municipality and to pay its legal fees in full. See Carneiro, supra, at para. 27, Zhou, supra, at para. 26, and Sinclair, supra, at para. 21.
[50] For these reasons, I find the City is entitled to a complete defence from Intact.
B. Is the City entitled to appoint and instruct counsel of its choice to defend the Main Action without reporting to Intact or taking instructions from Intact at Intact’s expense?
[51] The answer to this question is yes. I do not agree with the submissions on behalf of Intact that there is no conflict of interest in this case.
[52] To the contrary, I find that there is a conflict of interest which exists between Intact’s defence of the allegations against VTA and the duty to defend owed to the City. It is clear on examination of VTA’s Statement of Defence and Cross-claim that Intact’s objective and that of legal counsel appointed by Intact to defend VTA is to attempt to shift liability to the City for not calling VTA out and/or failing to adequately monitor the weather and thereby minimize its own responsibility for inadequate ploughing, salting and sanding. In fact, VTA in its Cross-claim repeats and relies upon the allegations set out in the Statement of Claim as against the City only.
[53] I reject the argument that there was no reasonable apprehension of conflict of interest in this case. The fact that there was no misconduct by Intact is irrelevant. I reject the argument that any conflict could be best dealt with by the creation of “ethical walls” separating Intact insurance adjusters regarding claims arising out of the Main Action. To the contrary, I find that the conflict in this case is real and is best dealt with by the City continuing to retain independent counsel in respect of all allegations in the Main Action without having to report to Intact or take instruction from Intact.
[54] I find separate counsel for the City is necessary as on the face of the pleadings there exists a conflict which I have previously indentified by referring to VTA’s Statement of Defence and Cross-claim against the City.
[55] Accordingly, I find that the City is entitled to appoint and instruct counsel of its choice at the expense of Intact, without having to report to Intact or take instruction from Intact and to defend the City in the Main Action at Intact’s expense. See Seidel v. Markham (Town), 2016 ONCA 306 at para. 11; Pabla v. Singh, 2015 ONSC 5156 at para. 19.
C. Is Intact required to pay for the City's defence of the Main Action and reimburse the City in respect of past costs of defending the Main Action?
[56] The answer to this question is yes.
[57] Where there is an unqualified obligation to pay for the defence of claims covered by the policy (as in this case), the insurer is required to pay all reasonable costs associated with the defence of those claims, even if those costs further the defence of uncovered claims. See Carneiro, supra, at para. 19.
[58] Courts have generally refused to allocate defence costs before trial or settlement. Insurers should cover all defence costs in situations where it is impractical to apportion costs during the litigation.
[59] Where there is no practical means of readily distinguishing the costs of defence between the covered and not covered claims, or where it is impossible to do so, it is not appropriate to attempt to allocate defence costs and, therefore, the insurer should absorb them all. See Carneiro, supra, at para. 19.
[60] Given that the allegations against the City that do not relate to VTA’s operations, that is supervising, inspecting, posting hazard warning signs or cordoning off the hazard are ancillary to the Sidewalk winter maintenance at best and would only be relevant if VTA failed to properly plough, sand and/or salt the Side from February 18 to 22, 2014, there is no practical means of distinguishing the covered and uncovered claims and Intact ought to assume the costs of the City’s defence in their entirety.
[61] Counsel for Intact submits that the City is not entitled to “pre-tender costs” which were incurred by the City prior to March 10, 2016. In this regard, counsel relies upon the Lloyd’s Underwriters v. Blue Mountain Log Sales Ltd., 2016 BCCA 1. The Blue Mountain case is distinguishable from the case at bar. The policy of insurance and facts in that case are much different than Intact’s Policy of Insurance, the Maintenance Agreement and the facts of our case.
[62] The Policy of Insurance can be found in the Respondent’s Application record at Tab B. Under the heading SUPPLEMENTARY PAYMENTS, the policy provides as follows:
- The Insurer will pay, with respect to any claim the Insurer investigates or settles, or any “action” against an Insured that the Insurer defends: a. All expenses the Insurer incurs. b. The cost of bonds to release attachments, but only for bond amounts within the applicable limit of insurance. The Insurer does not have to furnish these bonds. c. All reasonable expenses incurred by the Named Insured at the Insurer’s request to assist in the Insurer in the investigation or defence of the claim or “action”, including actual loss of earnings because of time off from work. d. All costs taxed against the Named Insured in the “action”.
[63] Counsel for the City has relied on cases previously cited herein where defence costs were awarded to the municipality (see Carneiro, Zhou and Sinclair, supra).
[64] In support of its claim for costs already paid in defending the Main Action and costs for this Application, the City relies upon College of Massage Therapists of Ontario v. Frank Cowan Co..
[65] In that case M.A. Penny J., held that a duty to defend arose. Given the unqualified obligation to pay for the defence of claims covered by the policy, the insurers were required to pay all reasonable costs associated with the defence of those claims even if those costs furthered the defence of un-covered claims. Justice Penny held that the amount to defend the claim was not unreasonable and granted judgment representing the costs of defending the claim. The insurance contract provided for defence on a full indemnity basis. Justice Penny also awarded costs of the Application on a full indemnity basis.
[66] I adopt the reasoning of Justice Penny.
[67] At para. 25 in the College of Massage Therapists case, Justice Penny found that College was entitled to recover the cost of its defence to be put in the same position as if the contract had been performed. He found that the burden of proving which costs were not covered is on the insurer. In our case, there was no issue as to whether costs were either unreasonable or unrelated to uncovered claims. There was no evidence from Intact to prove that the costs were either unreasonable or unrelated to covered claims.
[68] I find the that the City is entirely successful on this Application and is entitled to reimbursement on a full indemnity basis in respect of the costs incurred in defending the Main Action. Counsel for the City provided a Bill of Costs in the amount of $14,517.67 which I have considered. I find that the City’s costs claimed in the defence of the Main Action are fair, reasonable and proportional. Accordingly, it is ordered that Intact reimburse the City for all past legal and administrative expenses in defending the Main Action in the amount of $14,517.67.
[69] With respect to costs of this Application, I agree with counsel for the City that full indemnity is the appropriate scale of costs given the City's success on this Application. The Policy of Insurance provided for the cost of a defence on a full indemnity basis. I agree that to put the City in the same position it would have been in had the Policy been performed, the City must be able to recover its reasonable full indemnity costs, even if the behaviour of Intact has not been high-handed or inappropriate. See College of Massage Therapists of Ontario, supra, at para. 26.
[70] Counsel for the City has submitted a costs outline in the amount of $13,134.62 representing a claim for full indemnity costs of this Application. I find those costs to be fair, reasonable and proportional. Costs of the Application are therefore allowed on a full indemnity basis payable by Intact to the City of Markham regarding this Application in the amount of $13,134.62.
Conclusion
[71] For these reasons, I grant the declaration where Intact is obliged to provide the City with a defence for the negligence claim asserted by Mr. Jalal in the Main Action. Further, it is hereby ordered that the City is entitled to appoint and instruct counsel of its choice without reporting to or taking instructions from Intact, at the expense of Intact regarding the defence of the Main Action.
[72] Lastly, it is ordered that Intact reimburse the City for all past legal and administrative expenses incurred in defending the Main Action in the amount of $14,517.67 on a full indemnity basis and costs of this Application in the amount of $13,134.62 on a full indemnity basis.
[73] Intact shall pay those costs totaling the sum of $27,652.29 to the City within the next 30 days.
Justice G.P. DiTomaso
Released: May 23, 2017