Court File and Parties
COURT FILE NO.: CV-16-550417 MOTION HEARD: 20170623
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: National Industries Inc. and National Steel Car Limited, Plaintiffs AND: Peter Kirkwood and Marsh Canada Limited, Defendants
BEFORE: Master Jolley
COUNSEL: Jerome R. Morse and David Trafford, Counsel for the Moving Party Plaintiffs David Elman and Natalie Kolos, Counsel for the Responding Party Defendants
HEARD: 23 June 2017
REASONS FOR DECISION
[1] The plaintiffs bring this motion to amend their statement of claim and take the position that the amendments are particulars of causes of action already pleaded. The defendants object to the amendments arguing that the amendments are new causes of action for which the limitation period has expired. All parties agree that if the allegations are new causes of action, as opposed to particulars, they are out of time.
[2] For the reasons set out below, I find that the proposed amendments constitute new causes of action and, as a result, leave to amend the claim is dismissed.
The Facts
[3] The claim seeks $30,000,000.00 in general damages and $15,000,000.00 in special damages against the plaintiffs’ insurance brokers. The plaintiffs’ directors’ and officers’ insurers denied a claim made by the plaintiffs in or about 2013 to indemnify them for a USD $22,000,000.00 settlement they paid on behalf of their president, Gregory Aziz, as a result of his indictment for securities fraud (the “Settlement”) and that denial gave rise to this negligence claim against the defendants.
[4] Before the D&O insurers agreed to provide the plaintiffs with coverage, in or about March 2011 they received and reviewed a number of documents. Included in the package was the plaintiffs’ application made in March 2010 to Guarantee Company of North America (“the GCNA renewal application”) which the plaintiffs had submitted to increase their D&O coverage at that time. The GCNA renewal application did not disclose issues that the plaintiffs were facing at the time over the financing and construction overruns of a plant being constructed in Alabama, which issues led to the removal of Mr. Aziz as CEO of National Alabama Corporation (“NAC”), a subsidiary of the plaintiff National Industries Inc. at the insistence of the lender’s CEO and, ultimately, to the indictment of Mr. Aziz. The plaintiffs allege in this claim that the defendants were aware of these issues facing the plaintiffs in March 2010 but did not advise the plaintiffs to disclose them or to provide GCNA with a notice of circumstances.
[5] In addition to the GCNA renewal application, the new proposed insurers also received and reviewed warranty statements which the plaintiffs signed in March 2011 in connection with this new coverage. The March 2011 warranty statements also did not disclose the issues noted above that the plaintiffs were facing. The plaintiffs allege that the defendants advised the plaintiffs to indicate on these warranty statements that they had no knowledge or information of any act, error or omission which might reasonably be expected to give rise to a claim, suit or action under the insurance policies. As such, the issues noted above were not disclosed in the warranty statements.
[6] When the plaintiffs made their claim for reimbursement of the Settlement, due to the failure of the plaintiffs to disclose the relevant facts and circumstances outlined above, the D&O insurers reserved their rights to deny coverage on the basis of misrepresentations in the GCNA renewal application in March 2010 and in the warranty statements that accompanied the March 2011 application for increased coverage.
The Proposed Amendments
[7] The present claim pleads that the defendants were negligent and breached their fiduciary to the plaintiffs when they failed to provide the plaintiffs with adequate insurance protection against foreseeable harm.
[8] The plaintiffs propose to expand that allegation of negligence to plead that the defendants failed to provide the plaintiffs with adequate insurance protection against foreseeable harm, without limiting the generality of the foregoing, in 2010 when the plaintiffs completed warranty statements for the GCNA renewal application and in 2011 when the plaintiffs completed warranty statements for the new D&O insurance. The defendants do not challenge these proposed amendments.
[9] However, in addition to the amendments noted above, the plaintiffs also seek to expand the negligence allegation to allege the defendants were negligent in 2008 when they failed to increase the plaintiffs’ D&O coverage from $10,000,000.00 to $25,000,000.00 and again in 2009 when they failed to recommend and obtain an increase of the plaintiffs’ D&O coverage to $25,000,000.00. The defendants object to the expansion of the negligence allegations back to events that took place in 2008 and 2009.
The Law
[10] Rule 26.01 which governs the amendment of pleadings provides that on motion at any stage of an action the court shall grant leave to amend a pleading on such terms as are just, unless prejudice would result that could not be compensated for by costs or an adjournment.
[11] The amendment provision cannot be used when doing so would allow a party to avoid an otherwise applicable limitation period.
The Issue
[12] Do the amendments plead particulars of the existing causes of action or do they assert new causes of action?
The Legal Analysis
[13] A cause of action is “a factual situation the existence of which entitles one person to obtain from the court a remedy against another person” ( 1100997 Ontario Ltd. v. North Elgin Centre Inc. 2016 ONCA 848 at para 19).
[14] If the amendments (a) plead an alternative claim for relief arising out of the same facts previously pleaded and no new facts are relied upon, (b) amount simply to different legal conclusions drawn from the same set of facts and/or (c) simply provide particulars of an allegation already pled, or additional facts upon which the original right of action is based, a new cause of action is not asserted (Morden & Perell, The Law of Civil Procedure in Ontario, 2nd ed (Markham: LexisNexis Canada Inc. 2014 at page 142).
[15] The use of a broader, factually-oriented approach to determining whether a new cause of action has been pleaded was advanced by the court in Sweda Farms Ltd. v. Ontario Egg Producers 2011 ONSC 6146 and endorsed by the Divisional Court in Farmers Oil and Gas Inc. v. Ontario (Ministry of Natural Resources) 2015 ONSC 6359. In Sweda, the court stated, “… the defendants’ basic entitlement is to have notice of the factual matrix out of which the claim for relief arises.” As summarized by Nordheimer, J. in Farmers Oil at paragraph 22:
… the distinction between the authorities relied upon by the appellant, and those relied upon by the respondent, turns on whether the proposed amendments do, or do not, arise out of the same facts, or the factual matrix, that was pleaded in the original statement of claim. If they do, then the amendments should be permitted. If they do not, and the limitation period has expired, then the amendments should be refused.
[16] The plaintiffs’ position is that they have pleaded negligence against the defendants for advice given or not given concerning their D&O coverage throughout the history of their client/broker relationship with the defendants and that they are now just particularizing the allegation and not adding any new cause of action. They take the position that the amendments simply amount to a different legal conclusion drawn from the same set of facts (Bank of Montreal v. Morris 2013 ONSC 2884 at para 46). I disagree.
[17] Reading the claim generously, I find that the proposed new allegations do not arise from the same factual matrix. It is clear from the pleading excerpts below that the factual matrix relates to the denial of coverage of the Settlement and the negligence alleged against the defendants concerns the placing of the D&O insurance policies in 2010 and 2011.
[18] With respect to the 2010 policy, the present statement of claim alleges:
- … [the defendants] were aware of the circumstances concerning the financing and construction of the Plant, the construction loans with RSA and Mr. Aziz’s removal as the CEO of NAC and did not advise National to disclose such information to GCNA or to provide GCNA with a notice of circumstances which might potentially give rise to a future claim against the plaintiffs and Mr. Aziz arising out of such facts or circumstances.”
[19] With respect to the 2011 policy, the present statement of claim alleges:
On or about March 30, 2011, Mr. Kirkwood was instructed by Mr. Aziz, on behalf of National, to obtain quotes for the cost to increase National’s D&O coverage from $10,000,000.00 to approximately $70,000,000.00.
In and around March 2011, Marsh submitted the GCNA Application, on behalf of National, to prospective insurers ACE INA Insurance (“Ace”), Chubb Insurance Company of Canada (“Chubb”), Axis Reinsurance Company (“Axis”), Travelers Insurance Company of Canada (“Travelers”) and Ironshore Canada Ltd. (“Ironshore”) (collectively “National’s Insurers”) in connection with the plaintiffs’ application to increase their D&O insurance limits. National’s Insurers relied upon the information in the GCNA Application in agreeing to afford coverage to the plaintiffs.
On or about March 30, 2011, Mr. Aziz, in the presence of Mr. Kirkwood, signed warranty statements at his office for the D&O coverage for Ace, Chubb, Axis, Travelers and Ironshore. Before signing, Mr. Aziz asked Mr. Kirkwood how he should complete the warranty statements given the situation in Alabama referable to the construction and financing of the Plant, the construction loans with RSA, and Mr. Aziz’s removal as the CEO of NAC. Mr. Kirkwood advised Mr. Aziz to indicate on the warranty statements that he had no knowledge or information of ay act, error or omission which might reasonably be expected to give rise to a claim, suit or action under the insurance policies. Mr. Kirkwood gave this advice notwithstanding that he was aware that National sought to increase its D&O insurance limits, in part, due to concerns about the potential residual exposure associated with the construction and financing of the Plant, the construction loans obtained from RSA and Mr. Aziz’s removal as the CEO of NAC.
While National and all the insurers resolved the issue of defence costs at the mediation, National’s Insurers reserved their rights to deny coverage for indemnity for the Settlement on the basis of misrepresentation in the GCNA Application and the warranty statements due to the failure to disclose facts or circumstances related to the financing and construction of the Plant, the construction loans with RSA and Mr. Aziz’s removal as the CEO of NAC. Further, Zurich denied coverage under its policy. As a result, National was unable to obtain a full indemnity from the National Insurers for the full amount of the Settlement paid with a resulting shortfall of approximately USD $17 million.
Due to the negligence of Mr. Kirkwood and Marsh referable to the execution and submission of the GCNA Application and the warranty statements, among other things, National lost the benefit of its coverage for the Settlement.
In addition, due to the negligence of Mr. Kirkwood and Marsh referable to the execution and submission of the GCNA Application and the warranty statements, among other things, National incurred damages for the cost of the mediation with the National Insurers and Zurich for indemnification referable to the Settlement and the Indictment.
[20] The existing claim contains no reference to the action or inaction of the defendants in 2008 or 2009. The facts surrounding this claim of negligence referable to the 2008 and 2009 coverages are not in the existing statement of claim, unlike the pleading before Nordheimer, J. in Farmers Oil. The factual basis on which the plaintiffs seek relief in these proposed amendments is not the same or substantially the same as set out in the factual matrix in the existing claim (Lauzon v. Dominion of Canada General Insurance Co. 2014 ONSC 1886 at para 14).
[21] The plaintiff takes the position that they have pleaded negligence against the defendants and these proposed amendments are particulars of that negligence. This is similar to the argument advanced by the plaintiff in Thompson v. Zeldin, 2008 CarswellOnt 5402. In that case, the plaintiff proposed to amend his statement of claim to plead that the doctor performed the surgery at issue in the action without his consent. He argued that this allegation was a particular of his existing pleading that the doctor (a) had fallen below the standard of care and (b) should have known that the plaintiff was not an appropriate candidate for the surgery. Master Glustein, as he then was, held at paragraphs 72 to 74, as follows:
In the present case, the use of the word “appropriate” must be read in the context of the allegations in the Claim, which set out that the basis for the claim is that Thompson was not an appropriate candidate for the Surgery because his physical condition and symptoms did not merit the Surgery. The Claim has nothing to do with, nor any reference to, any issues of consent. To find that the Claim could reasonably have put Dr. Zeldin on notice of an informed consent claim because the allegation was made that Thompson was not an appropriate candidate for the Surgery, particularly when read in the context of the factual allegations in the Claim, would be to extend the meaning of “appropriate” beyond the intent in the Claim as drafted.
Thompson’s counsel also relies on the general allegations of negligence at paragraphs 10(i) and 10(j) of the Claim that Dr. Zeldin fell below the reasonable standard of care required by a competent surgeon. However, in order to meet the Fitzpatrick test that “substantially all of the material facts giving rise to the new cause of action have been pleaded”, a plaintiff cannot simply plead that a defendant fell below the standard of care on the basis that a patient was not an appropriate candidate for surgery, and then add a new cause of action at any time.
The proposed amendment must rely on facts which have been substantially pleaded in the initial statement of claim or be a different legal conclusion drawn from the same set of facts (as per Jenkins J. in Fitzpatrick). This was not the case with the factual allegations in the Claim, which focused on Thompson’s allegations that he was not an appropriate candidate for the Surgery because his physical condition and symptoms did not merit the Surgery.
[22] As in Frohlick v. Pinkerton Canada 2008 ONCA 3, I find the allegations of negligence in failing to increase coverage in the 2008 policy and in the 2009 policy are unrelated to the existing claim and outside its factual matrix. In Frohlick, the plaintiff alleged that the defendant had breached her employment contract by constructively dismissing her. She pleaded in support of that claim that the defendant employer had transferred its business in 2001. She then sought to add another ground to her constructive dismissal claim arising from a reduction in her salary that had occurred in 1999. Both factual events were in support of her argument that her employer had breached the employment contract. Even though the claim based on the salary reduction also constituted a constructive dismissal claim and was in support of the existing claim for breach of the employment agreement, the court held that the new claim was a fundamentally different claim arising out of a different set of facts and disallowed the amendment. The motions court noted that:
“… the reference to a constructive dismissal in paragraph 13 of the claim cannot be stretched or interpreted to such an extent that it brings in the 1999 incidents that occurred between the employer and Frohlick at that time…. There is a statute limitation that exists for a particular purpose and there is no way that what happened in 1999 can be somehow protected by the events that occurred in 2001.” (2006 CarswellOnt 9475 at paras 6 and 7).
[23] Similarly, in Cicinski v. Ontario (Minister of Transportation) 2014 ONSC 443, the plaintiffs sued the defendant for flood damage arising as a result of a highway construction project. The original statement of claim alleged the plaintiffs had suffered flooding on more than one occasion and listed two dates in 2004 and one in 2005. They then sought an amendment to add two more dates in 2004. The plaintiffs argued that these claims fell within the matrix of the original claim and that the amendments were particulars of further occasions of flooding. The court disagreed. In dismissing the motion to amend the claim, the court held at paragraph 11 that the amendment “does not relate to facts already pled but to new facts involving separate incidents of flooding, and accordingly raises a new cause of action.”
Conclusion
[24] The plaintiffs’ motion is hereby dismissed. The defendants are entitled to their costs. The defendants sought costs of $8,156.34, an amount which was half of the amount sought by the plaintiffs had they been successful on the motion. I find the amount reasonable and fix costs at $8,156.34 inclusive of HST and disbursements, payable by the plaintiffs to the defendants within 30 days of this order.