2017 ONSC 5978

COURT FILE NO.: CV-17-567229

DATE: 20171005

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Brookfield Johnson Controls Canada LP o/a Brookfield Global Integrated Solutions, Applicant

AND:

Continental Casualty Company, Respondent

BEFORE: Jane E. Ferguson, J.

COUNSEL: Harrison Cooper, for the Applicant

Hillel David, for the Respondent

HEARD: September 21, 2017

ENDORSEMENT

[1] This application is brought by Brookfield Johnson Controls Canada LP o/a Brookfield Global Integrated Solutions (“Brookfield”) for a declaration that the respondent, the Continental Casualty Company (“Continental”), has a duty to defend Brookfield with respect to an action initiated by Maria and Gina Pellegrino in Ontario Superior Court File No. CV-16-559330 (the “underlying action”); indemnify Brookfield with respect to legal costs incurred to date; and that Brookfield may appoint and direct its own counsel in the underlying action entirely at the expense of the respondent.

[2] The parties agree with the following facts:

i. On July 5, 2010, Brookfield, entered into a contract (“the contract”) with Olympic Dust Control (“Olympic”). Pursuant to this contract, Olympic was to supply rental floor mats for a variety of CIBC branch locations.

ii. The contract included a provision relating to insurance. Olympic was to name Brookfield as an additional insured on their policy of insurance. Olympic was to procure and maintain comprehensive liability insurance. “The policy or policies shall cover all operations of the Olympic products and completed operations…”

iii. Article 13 of the contract contains an insurance clause, which required Olympic to do the following:

13.1 All policies required under this Clause 13 shall contain the following provisions:

(a) Name [Brookfield] and its Customers(s) as additional insured(s);

13.3 Supplier shall, at its own expense, procure and maintain in force for the duration of the agreement

(a) Comprehensive General Liability insurance, with a minimum limit not less than $5,000,000.00 inclusive for personal injury (including death) and property damage per occurrence or series of occurrences arising from one cause. The policy or policies shall cover all operations of the Supplier, products and completed operations, non-owned automobile, contractual liability and liability specifically assumed under the contract. [Brookfield] shall be added to the policy or policies as additional named insured and the policy or policies shall contain a cross-liability clause.

iv. As prescribed by the contract, Olympic obtained a commercial general liability insurance policy from Continental, under policy number MPR 2993600 (“the policy”). The policy was in effect from July 30, 2014 to July 30, 2015, at a minimum.

v. The Policy contains the following insuring agreement:

COVERAGE A – BODILY INJURY AND PROPERTY DAMAGE LIABILITY

1. Insuring Agreement

a. We will pay those sums you become legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies. We will have the right and duty to defend you against any action seeking those damages. However, we will have no duty to defend you against any action seeking damages for bodily injury or property damage to which this insurance does not apply. We may, at our discretion, investigate any occurrence and settle any claim or action that may result. But:

(1) The amount we will pay for damages is limited as described in SECTION III - LIMITS OF INSURANCE;

(2) Our right and duty to defend end when we have used up the applicable limit of Liability in the payment of judgments or settlements under Coverages A, B, D or E or medical expenses under Coverage C.

No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under DEFENSE AND SUPPLEMENTARY PAYMENTS — COVERAGES A, B, C, D, or E.

b. This insurance applies to bodily injury and property damage only if:

(1) The bodily injury or property damage is caused by an occurrence that takes place in the coverage territory; and

(2) The bodily injury or property damage occurs during the policy period; and

(3) Prior to the policy period, no insured listed under Paragraph 1. of SECTION II — WHO IS AN INSURED and no employee authorized by you to give or receive notice of an occurrence or claim, knew that the bodily injury or property damage had occurred, in whole or in part. If such a listed insured or authorized employee knew, prior to the policy period, that the bodily injury or damage occurred, then any continuation, change or resumption of such bodily injury or property damage during or after the policy period will be deemed to have been known prior to the policy period.

vi. “Occurrence” is defined in the policy as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

vii. “Action” is defined in the policy as “a civil proceeding in which damages because of bodily injury […] to which this insurance applies are alleged.”

viii. As contemplated by the contract, a Certificate of Insurance was issued to Brookfield. The Certificate of Insurance indicates that Brookfield has been added as an additional insured under the policy. The Certificate of Insurance specifically states:

Brookfield Johnson Controls Canada LP […] are added as Additional Insured but only with respect to liability arising solely out of the operations of the Named Insured and only with respect to Commercial General Liability.

ix. The policy indicates that “an additional insured is insured but only with respect to their acts within the scope of your business.”

x. The definitions section includes a definition for “your work” as follows:

i. Work or operations performed by you or on your behalf; and

ii. Materials, parts or equipment furnished in connection with such work or operations.

Your work includes warranties or representations made at any time with respect to the fitness, quality, durability or performance of any of the items included in (a) or (b) above.

xi. In the underlying action, the plaintiffs, claim general and special damages in an amount in excess of $1,000,000 for personal injuries allegedly sustained as a result of Maria Pellegrino’s tripping on a floor mat that was loose and not level with the floor and falling to the ground.

xii. It is alleged that the floor mat which gave rise to the accident was supplied by Olympic.

xiii. In the statement of claim in the underlying action, the plaintiffs allege that the injuries of Maria Pellegrino were caused by the negligence of Brookfield (as well as the other defendants), and allege the following particulars of negligence:

a) They failed and/or neglected to adequately maintain, inspect, and repair the premises, including the mat, and keep same safe for persons at the premises, and in particular for Maria;

b) They failed and/or neglected to maintain a routine and regular system of inspection, maintenance, and repair to ensure that the premises, including the mat, were safe for persons at the premises, and in particular for Maria;

c) They failed and/or neglected to warn persons at the premises of the mat, when they knew, or ought to have known, that persons at the premises could trip and fall as a result of the mat, if the mat was loose and/or not level with the floor of the premises:

d) They failed and/or neglected to employ adequate and trained personnel to ensure that the premises, including the mat, were properly maintained, repaired, inspected, and safe for persons at the premises, and in particular for Maria;

e) They employed individuals whom they knew or ought to have known were inexperienced, incompetent, and incapable of property inspecting, maintaining, and repairing the premises, including the mat, and keeping same safe for persons at the premises, and in particular for Maria:

f) They failed and/or neglected to repair, inspect, replace, and maintain the mat when they knew or ought to have known that persons on the premises, and in particular Maria, could trip and fall on the mat and suffer injuries, if the mat was loose and/or not level with the floor of the premises;

g) They failed and/or neglected to design and place the mat in a manner that would be safe for persons on the premises, and in particular for Maria;

h) They failed and/or neglected to employ adequate and trained personnel to ensure that the mat was designed and placed in a manner that would be safe for persons at the premises, and in particular for Maria;

i) They employed individuals whom they knew or ought to have known were inexperienced, incompetent, and incapable of properly designing and placing the mat in a manner that would be safe for persons at the premises, and in particular for Maria;

j) They allowed the premises to become an area of danger when they could have prevented same by the exercise of reasonable care and diligence; and

k) Such further and other grounds of negligence as counsel may ascertain prior to the trial of action.

xiv. Brookfield has formally requested that Continental provide it with coverage in connection with the underlying action. Continental has refused to do so.

[3] There are two issues to be determined:

a. Does Continental have a duty to defend Brookfield in the underlying action?

b. If there is a duty to defend, does Brookfield have the right to appoint and direct its own counsel at the Continental’s expense?

(A) Does Continental have a duty to defend Brookfield in the underlying action?

[4] Applicable Legal Principles provided by Brookfield (counsel for Continental takes no issue with these legal principles – his position is with respect to the Certificate of Insurance specifically “liability” arising solely out of the operations of Olympic. He submits that in this underlying action it does not come within the scope of Olympic’s operations)

i. The principles a court is to employ when determining whether a duty to defend exists in a given case are well established in the Canadian jurisprudence. In Monenco Ltd. v. Commonwealth Insurance Co., the Supreme Court of Canada stated these principles as follows:

The starting premise for assessing whether an insurer’s duty to defend has been triggered rests in the traditional “pleadings rule”. Whether an insurer is bound to defend a particular claim has been conventionally addressed by relying on the allegations made in the pleadings filed against the insured, usually in the form of a Statement of Claim. If the pleadings allege facts which, if true, would require the insurer to indemnify the insured for the claim, then the insurer is obliged to provide a defence. This remains so even though the actual facts may differ from the allegations pleaded.

Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49, at para 28

ii. In Nichols v. American Home Assurance Co., the Supreme Court noted that in order for the duty to defend to be triggered, “it is not necessary to prove that the obligation to indemnify will in fact arise in order to trigger the duty to defend. The mere possibility that a claim within the policy may succeed suffices.” Further, the court stated that “the widest latitude should be given to the allegations in the pleadings in determining whether they raise a claim within the policy”

Nichols v. American Home Assurance Co., 1990 144 (SCC), 45 C.C.L.I. 153, [1990] I.L.R. 1-2583, at paras 17 and 21

iii. In Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, the Supreme Court rearticulated these principles:

An insurer is required to defend a claim where the facts alleged in the pleadings, if proven to be true, would require the insurer to indemnify the insured for the claim […] It is irrelevant whether the allegations in the pleadings can be proven in evidence. That is to say, the duty to defend is not dependent on the insured actually being liable and the insurer actually being required to indemnify. What is required is the mere possibility that a claim falls within the insurance policy. Where it is clear that the claim falls outside the policy, either because it does not come within the initial grant of coverage or is excluded by an exclusion clause, there will be no duty to defend.

Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, at para 19

iv. Well established principles of interpreting insurance policies require that where there is ambiguity in the language of a policy, coverage granting provisions in the policy are to be interpreted broadly, while exclusionary clauses are to be interpreted narrowly.

Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, supra, at para 24

v. As a corollary to this principle of policy interpretation, “where pleadings are not framed with sufficient precision to determine whether the claims are covered by a policy, an insurer’s obligation to defend will be triggered where, on a reasonable reading of the pleadings, a claim within coverage can be inferred”

Monenco Ltd. v. Commonwealth Insurance Co., supra, at para 31

vi. However, in assessing a pleading to determine if it gives rise to a duty to defend, it is not sufficient to simply review the bare assertions advanced in the pleading. The court must ascertain the “substance” or “true nature” of the claims advanced in the pleading, by considering which of the legal claims advanced by the plaintiff could be supported by the factual allegations.

Monenco Ltd. v. Commonwealth Insurance Co., supra, at para 31

[5] Continental submits that in determining whether there is a duty to defend, the issue turns on the substance and true nature of the claim made in the statement of claim against the insured. I agree that the following comments show how that principle is applied in a context very similar to the one in this case:

The substance and true nature of the plaintiffs’ claim against the appellant is a claim in negligence arising out of the appellant’s alleged failure to ensure that the pylon sign was kept in a safe condition and its alleged improper placement of the pylon sign. It is based on the appellant’s conduct as owner and occupier of the plaza and not as landlord of the premises leased to Design Depot [the Named Insured]. Hydro One’s crossclaim against the appellant similarly arises out of the appellant’s conduct as owner of the property. In substance, they are not claims arising out of the operation of Design Depot’s business.

1540039 Ontario Limited v Farmers’ Mutual Insurance Company (Lindsay) 2012 ONCA 210 at para. 35

[6] Continental submits that there is no coverage available to Brookfield because the claims made against it are not, in substance, claims “arising solely out of the operations of Olympic”. Instead, the claims made against Brookfield are, in substance and true nature, claims arising out of its own allegedly negligent operations (as property manager). The claims made against Brookfield do not involve any allegations of vicarious liability for any negligence of Olympic. Even if there was an allegation that Brookfield is vicariously liable for any negligence of Olympic, Brookfield cannot be vicariously liable in law because Olympic was an independent contractor performing work that was not inherently or necessarily dangerous.

Janzen v Kovachik Aircraft Services Ltd. (1999) 1999 3050 (ON CA), 118 O.A.C. 91, C.A. at paras. 26-32; 671122 Ontario Ltd. v Sagaz Industries Canada Inc. 2001 SCC 59 at paras. 33 and 57

[7] The service that Olympic was obligated under the contract to perform with Brookfield was the supply of floor mats and the removal of worn or defective mats. The coverage provided to Brookfield as an additional insured is therefore limited to any liability that might be imposed against Brookfield because of the supply or removal by Olympic of floor mats.

[8] There is no allegation in the statement of claim that the trip incident arose out of the supply or removal by Olympic of the floor mats. The allegation is that, the plaintiff tripped and fell as a result of a floor mat that was loose and not level with the floor (which would relate to its placement and not just to its mere supply). There is no allegation in the statement of claim that any conduct of Olympic leads to liability of Brookfield.

[9] The allegations in the statement of claim are allegations of independent negligence on the part of each defendant. The fact that the same allegations are made against each defendant merely means that each defendant is alleged to have been independently negligent in the same ways, not that each or any of them is vicariously liable for the negligence on Olympic’s part.

[10] The claim is based on alleged acts or omissions of Brookfield within the scope of its own business of performing property management services, therefore being excluded from coverage by Continental pursuant to Certificate of Insurance.

[11] There is no coverage available to Brookfield through Continental because the claims made against it are not, in substance, claims arising solely out of the operations of Olympic. The addition of the word solely emphasizes the limitation of coverage provided to additional insureds. There is no duty to defend Brookfield on the part of Continental.

(B) Whether the Additional Insured Can Retain Independent Counsel?

[12] Although I have found that there is no duty to defend, I will consider whether Brookfield can retain independent counsel. (in the event that I am incorrect about Issue A)

[13] In Brockton (Municipality) v. Frank Cowan Co. the Ontario Court of Appeal explained that the test for when the insured may appoint and direct its own counsel at the insurer’s expense is when a reasonable apprehension of conflict of interest arises for the insurer’s counsel. The Court of Appeal stated:

The issue is the degree of divergence of interest that must exist before the insurer can be required to surrender control of the defence and pay for counsel retained by the insured. The balance is between the insured’s right to a full and fair defence of the civil action against it and the insurer’s right to control that defence because of its potential ultimate obligation to indemnify. In my view, that balance is appropriately struck by requiring that there be, in the circumstances of the particular case, a reasonable apprehension of conflict of interest on the part of counsel appointed by the insurer before the insured is entitled to independent counsel at the insurer’s expense. The question is whether counsel’s mandate from the insurer can reasonably be said to conflict with his mandate to defend the insured in the civil action. Until that point is reached, the insured’s right to a defence and the insurer’s right to control that defence can satisfactorily co-exist.

Brockton (Municipality) v. Frank Cowan Co., 2002 7392 (ON CA), [2002] I.L.R. I-4097, [2002] O.J. No. 20 [ONCA], at paras 41 & 43.

[14] In this case Brookfield points to the fact that there are cross-claims between Brookfield and Olympic and a threatened motion for summary judgment by Olympic against Brookfield. Brookfield submits that both create an apprehension of conflict to the extent that it has met the test to appoint its own counsel.

[15] I agree with counsel for Continental that the bias is not sufficient in this case to allow Brookfield to retain its own independent counsel at the expense of Continental. Had I found there to be a duty to defend I would have directed that Continental appoint counsel other than whom it chose to defend Olympic. That separate counsel appointed to defend Brookfield would have been required to report to a separate adjuster (rather than the adjuster instructing counsel for Olympic) and I would have further directed that neither would have had access to the other’s file.

[16] If the parties cannot agree on costs, Continental can provide brief written submissions within 14 days and Brookfield within 7 days thereafter. Submissions are to be sent to my assistant at Annette.Elek@ontario.ca.

Jane E. Ferguson, J.

Date: October 5, 2017