SUPERIOR COURT OF JUSTICE – ONTARIO
RE: Mary Terencia Antony v. Ratnakumar Kumarasamy and Reddiar Ragunath Bakthavachalu;
The Wawanesa Mutual Insurance Company, State Farm Mutual Automobile Insurance Company and Certas Home and Auto Insurance Company, added by Orders pursuant to Section 258(14) of the Insurance Act, R.S.O. 1990, c. I.8 as amended (Third Parties)
BEFORE: MASTER GRAHAM
HEARD: July 19, 2017
COUNSEL: M. Katzman for the plaintiff (moving party) J. Kuredjian for the third parties State Farm and Certas Insurance
REASONS FOR DECISION
(Motion to compel answers to questions refused at examination for discovery)
1The plaintiff claims damages for personal injuries sustained in a motor vehicle accident that occurred on November 20, 2009. She was a passenger in a vehicle operated by the defendant Bakthavachalu that collided with a vehicle operated by the defendant Kumarasamy. At the time of the accident, State Farm Mutual Automobile Insurance Company and Certas Home and Auto Insurance Company (“State Farm and Certas”) insured the defendant Bakthavachalu under a motor vehicle liability policy (“the policy”). By order of Master Abrams dated January 28, 2016, State Farm and Certas were added as statutory third parties to the action pursuant to the Insurance Act on the basis that they denied coverage to Bakthavachalu under the policy.
2The procedure whereby an automobile insurer that denies coverage to its insured may be made a statutory third party to an action in which its insured is named as a defendant, and the insurer’s rights on being made a third party, are set out in ss. 258(14) and (15) of the Insurance Act, R.S.O. 1990, c. I.8:
258(14) Where an insurer denies liability under a contract evidenced by a motor vehicle liability policy, it shall, upon application to the court, be made a third party in any action to which the insured is a party and in which a claim is made against the insured by any party to the action in which it is or might be asserted that indemnity is provided by the contract, whether or not the insured enters an appearance or defence in the action.
(15) Upon being made a third party, the insurer may,
(a) contest the liability of the insured to any party claiming against the insured.
(b) contest the amount of any claim made against the insured;
(c) deliver any pleadings in respect of the claim of any party claiming against the insured;
(d) have production and discovery from any party adverse in interest; and
(e) examine and cross-examine witnesses at the trial,
to the same extent as if it were a defendant in the action.
3If State Farm and Certas are successful in their denial of coverage to the defendant Bakthavachalu, they are still required to respond to the plaintiff’s claims to the extent of the minimum motor vehicle liability insurance limits in Ontario of $200,000.00. I explained the operation of s. 258 of the Insurance Act in Gordon v. Pendleton (2007), 2007 CanLII 39886 (ON SC), 87 O.R.(3d) 706 at paragraph 18:
18 The procedure permitted by s. 258(14) must be considered in the context of all of s. 258. The section as a whole creates liability upon a motor vehicle liability insurer to a plaintiff who recovers a judgment against its insured (s. 258(1)) to the extent of Ontario’s minimum motor vehicle liability insurance limits of $200,000 (s. 258(9) read with s. 251), notwithstanding any act or default of the insured in contravention of Part VI of the Insurance Act or the policy (s. 258(4)). Section 258(14) provides a mechanism for an insurer facing the exposure created by the balance of s. 258 to participate in and defend the action without forcing it to defend an insured with respect to whom it is denying coverage and from whom it might ultimately attempt to recover the money that it had to pay to a plaintiff notwithstanding the insured’s breach.
4On November 11, 2016, counsel for the plaintiff conducted an examination for discovery of a representative of State Farm and Certas at which there were numerous questions refused. The plaintiff brought this motion to compel answers to those questions and I made rulings on some of the questions at the hearing of the motion. The remaining questions refused, which are the subject of these Reasons, all relate to the denial of coverage to the defendant Bakthavachalu.
5The issue to be resolved on this motion is as follows:
Must the representative of a motor vehicle liability insurer that has added itself as a statutory third party to a personal injury action based on a denial of coverage to an insured defendant answer questions at her/his examination for discovery relating to the denial of coverage, including questions about the insured’s alleged breach of the insurance policy leading to the denial?
6For the reasons set out below, based on my consideration of the parties’ submissions and my analysis of the applicable rule and case law, I have concluded that the statutory third party in this case need only provide the reason or reasons for its denial of coverage but not the details of the investigation that led to that decision.
Submissions of the plaintiff
7The plaintiff, in submitting that the questions refused must be answered, relies on sub-rules 31.06(4) and (5) of the Rules of Civil Procedure:
31.06(4) A party may on an examination for discovery obtain disclosure of,
(a) the existence and contents of any insurance policy under which an insurer may be liable to satisfy all or part of a judgment in the action or to indemnify or reimburse a party for money paid in satisfaction of all or part of the judgment; and
(b) the amount of money available under the policy and any conditions affecting its availability.
(5) No information concerning the insurance policy is admissible in evidence unless it is relevant to an issue in the action.
8There is no issue that State Farm and Certas insured the defendant Bakthavachalu and they do not dispute their obligation to provide particulars of the insurance policy including the policy limits. The plaintiff submits that the requirement in 31.06(4)(b) that a party also disclose “any conditions affecting its availability”, i.e. the availability of the policy limits, creates an obligation on an insurer denying coverage to answer questions about its reasons for the denial.
9The plaintiff also relies on Lica v. Dhaliwal, 2015 ONSC 3888, [2015] O.J. No. 4007 (S.C.J.) and Prentzas v. Rivera, 2015 ONSC 5867 (S.C.J.). The plaintiffs in both cases claimed damages arising from injuries sustained in motor vehicle accidents and the insurers of the defendant drivers and owners denied coverage to their insureds. As in the case before me, the insurers added themselves as statutory third parties under the Insurance Act. The insurers’ off-coverage positions could have limited the plaintiffs’ recovery against the alleged tortfeasors to Ontario’s minimum liability limits of $200,000.00, so both plaintiffs also sued their own insurers for underinsured motorist coverage, so that they could recover any damages assessed between $200,000.00 and the limits of their underinsured coverage.
10The plaintiff in Lica moved to compel the statutory third party insurer to answer discovery questions relating to its decision to deny coverage to its insured. In Prentzas, the plaintiff’s underinsured insurer Wawanesa Insurance moved to compel the statutory third party insurer to produce documents relevant to its denial of coverage to its insured driver and owner. In both cases, the court ordered the further disclosure, holding that the information sought, either by way of oral discovery or documentary discovery, was relevant to the plaintiffs’ pleadings that they were entitled to recovery of damages in excess of $200,000.00 from their underinsured motorist insurers as a result of the off-coverage positions taken by the statutory third party insurers.
Submissions of the statutory third party
11The statutory third party submits that the coverage issue between itself and its insured Bakthavachalu is not an issue to be resolved in the plaintiff’s action and accordingly, questions relating to the coverage issue are not relevant. Counsel submits that the plaintiff could exercise discovery rights on the coverage issue in a subsequent action commenced against the defendant’s insurer and relies on Gordon v. Pendleton, supra at paragraph 19:
19 . . . If the plaintiff wishes to challenge the basis of the insurer’s denial of coverage, presumably because his or her claim exceeds Ontario’s $200,000 minimum motor vehicle liability limits, it may proceed to judgment against the insured and then sue the insurer on the judgment pursuant to the right conferred by s. 258(1). The insurer will presumably defend the portion of the action in excess of $200,000 on the basis of its denial of coverage and will be obliged to produce documents and submit to examination for discovery on the issue of the denial. A defendant who is denied coverage and who sues the insurer for coverage would also be entitled to discovery on the same issue.
12The third party also relies on the decisions in Roach v. Policandriotis, 2008 CanLII 2753 (ONSC) and Ahmed v. Maharaj, 2010 ONSC 5281.
13In Roach, the plaintiff claimed damages from the owner and driver of a motor vehicle and from his own underinsured motorist insurer Royal Insurance arising from a motor vehicle accident. The defendant owner’s insurer CAA denied coverage to its owner and the driver and added itself as a statutory third party. Royal moved against CAA for copies of its documents relating to its denial of coverage. Eberhard J. dismissed the motion, holding that (at paragraph 14) “ruling that CAA must disclose … information going to its denial of coverage would depart from the principals [sic] in case law dealing with the determination of liability separate from insurance indemnity issues”.
14In Ahmed, the plaintiff claimed damages from the owner and operator of one motor vehicle, the insurer of which (Wawanesa Insurance) denied coverage and added itself as a statutory third party, and also from the operator of a second vehicle (Keung), whose insurer defended the action on his behalf. The defendant Keung moved for an order that the scope of his examination of Wawanesa be extended to require answers to questions on coverage issues. Stewart J., in dismissing the motion for expanded discovery of Wawanesa, accepted that third party proceedings under the Insurance Act “are not designed to enable the exploration of any right of indemnification as between an insurer and insured” (at paragraph 21).
Analysis and decision
15The court in Lica, supra, in considering the scope of examination contemplated under rule 31.06(4), cited Seaway Trust v. Markle, [1992] O.J. No. 1602 (Gen. Div.) and Brigaitis v. IQT, Ltd., [2014] O.J. No. 2843 (S.C.J.).
16In Seaway Trust, the court considered a motion in which the issue was the scope of questioning permitted under rule 31.06(4), which requires disclosure of the limits of coverage in an insurance policy under which an insurer may be liable to satisfy all or part of a judgment, and any conditions that would affect the availability of such coverage. Lane J. stated that “The purpose of the rule . . . is to enable the opposite party to have information which is necessary to the making of an informed and sensible decision as to whether to proceed with the suit.”
17Lane J. also considered the meaning of the phrase “any conditions affecting its availability” (i.e. the availability of “the amount of money available under the policy”) in rule 31.06(4)(b). In response to the argument of counsel opposing the motion for broader disclosure on the basis that “conditions” were confined to the conditions contained in the policy itself, Lane J. stated:
“The word “conditions” is not, I think, used as narrowly as counsel contended. It is intended to refer to conditions which may have come into existence as the result of non-waiver agreements or other agreements or understandings between insurer and insured, notices given by either to the other or positions taken as to the liability of the insurer under the policy in the circumstances of the case.” [emphasis added]
18This passage is significant because counsel for State Farm and Certas in the case before me attempted to argue for the same narrow interpretation of the word “conditions” as did counsel opposing the motion in Seaway Trust. My own view, based on the guiding principle in rule 1.04 that the Rules of Civil Procedure “shall be liberally construed”, is that the word “conditions” should be read broadly, and leads me to the same interpretation as that of Lane J..
19Nonetheless, even interpreting the word “conditions” broadly, Lane J. held as follows:
“It is not the intent of the rule to open up the whole file between insurer and insured. It is significant that the rule as to the production of insurance policies was not amended to broaden the scope of production of insurance-related documents beyond the policy itself. In my view, the examiner is entitled to disclosure in full of the terms of any agreement, understanding, notice or position taken, written or oral, that may affect the availability of the insurance proceeds but no more than that. The details of the information made available to the insurer by the insured or obtained by the insurer through its own investigation are not subject to disclosure under this rule even though such information will usually provide the factual basis for the agreement, understanding, notice or position in question. If the Rules Committee had intended a broader disclosure of the insurer’s file, the Rules would have explicitly provided for it.” [emphasis added]
20On the basis of this passage from Seaway Trust, although rule 31.06(4)(b) requires an insurer to disclose the basis for its off-coverage position that limits the insurance proceeds available, independent of the issues raised in the pleadings, it does not require disclosure of the details of the investigation leading to the position taken.
21In Brigaitis, supra, the plaintiffs in a class action proceeding sought an explanation as to “how, when, to whom, and for what purposes” the insurer of a group of the defendants previously paid out approximately $4.5 Million of its $5 Million policy limits. In dismissing the motion, Perell J. quoted the above passages from Seaway Trust with approval and accepted the defendants’ position that their disclosure of the remaining available policy limits under rules 30.02(3) and 31.06(4) was sufficient.
22In the Lica and Prentzas decisions relied on by the plaintiff, the court did order more detailed disclosure from the statutory third parties. However, those cases are distinguishable from the case before me. In those cases, it was the plaintiffs’ pleadings against their underinsured motorist insurers, rather than rule 31.06(4), that opened the door to the statutory third parties’ disclosure of the details of their denial of coverage. The basis for disclosure of insurance information in this case is limited to rule 31.06(4), as described in Seaway Trust and Brigaitis, supra, and it is the judges’ conclusions in those cases that I must follow in this decision.
23Roach v. Policandriotis, supra, relied on by the third party, is of limited assistance. In Roach, the court dismissed the motion for the statutory third party to produce documents relating to its denial of coverage, even though the plaintiff had also sued his own insurer for underinsured coverage. It would appear that Roach, decided in 2008, has been superseded by Lica and Prentzas, both decided in 2015, to the extent that those cases expand the disclosure obligations of a statutory third party where they are based on relevance to the plaintiff’s pleading against an underinsured motorist insurer.
24In the case before me, there is no claim or pleading against any underinsured motorist insurer based on the statutory third party’s denial of coverage. Similarly, Ahmed v. Maharaj, supra, involved only a plaintiff’s claim against a defendant owner and drivers, with one of the insurers added as a statutory third party. Although the court in Ahmed did not address the applicability of rule 31.06(4), its decision to deny a request for broader disclosure from the statutory third party is consistent with Seaway Trust and Brigaitis. There is no basis on which I could distinguish Ahmed from the case before me or to decline to follow the decision of the judge in that case.
25For these reasons, I conclude that the statutory third parties State Farm and Certas Insurance are not required to answer further questions about the basis for their denial of insurance coverage to the defendant Bakthavachalu and accordingly, the balance of the plaintiff’s motion is dismissed.
Costs
26At the conclusion of the hearing, counsel exchanged costs outlines and provided copies to the court and I informed counsel that they could make written costs submissions following receipt of the court’s decision set out in these Reasons. If the parties cannot agree on the costs of the motion, they may make written submissions, not exceeding three pages each, the statutory third party State Farm and Certas Insurance within 30 days and the plaintiff within 20 days thereafter.
Master Graham
DATE: August 18, 2017