COURT FILE NO.: CV-12-027A
DATE: 2018-05-07
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Elaine Marguerite Marie Paulin
Not Attending
Plaintiff
- and -
Keewatin Patricia District School Board & The Corporation of the Municipality of Red Lake
D. Lester, for the Defendant Keewatin Patricia District School Board
K. Aukema, for the Defendant The Corporation of the Municipality of Red Lake
Defendants
HEARD: January 11, 2018, at Thunder Bay, Ontario
Mr. Justice T.A. Platana
Decision On Motion
[1] There are two motions brought seeking essentially the same relief. The Corporation of the Municipality of Red Lake (“Red Lake”) under Rule 21.01 of the Rules of Civil Procedure Red Lake is seeking:
a) A determination of a question of law under Rule 21.01(1)(a) as to whether the lease agreement between Red Lake and the Keewatin Patricia District School Board requires Red Lake to defend and indemnify the school board in respect to the plaintiff’s claim for damages arising from bodily inuries sustained at the premises;
b) An order under Rule 21.01(1)(b) striking out the Third Party claim on the grounds that it discloses no reasonable cause of action; and
c) Leave under Rule 21.01(2)(a) to admit Decision No. 2285/15 of the Workplace Safety and Insurance Appeals Tribunal, dated November 22, 2016, to the extent that it is required to decide any issues under Rule 21.01(1)(a).
[2] The Defendant, Keewatin Patricia District School Board (“the School Board”) is in response to Red Lake’s Rule 21.01 motion brought against the School Board seeking to strike out the School Board’s third party claim on the grounds that it discloses no reasonable cause of action. The School Board is seeking a determination of a question of law under Rule 21.01(1) as to whether the lease agreement between Red Lake and the School Board requires Red Lake:
a) To defend and indemnify the School Board as “an additional insured” pusuant to paragraph 9(5) of the lease agreement between Red Lake and the School Board in respect of the Plaintiff’s claim for damages arising from bodily injuries allegedly sustained at the leased premises;
b) To indemnify the School Board pursuant to prargraph 9(2) of the lease agreement “against all claims and demands whatsoever by any person, whether in respect to person or property, arising out of or occasioned by the maintenace, use or occupancy of the premises…”;
c) A declaration that Red Lake or its insurer defend and indemnify the School Board as an “additional insured” pusuant to paragraph 9(5) of the Lease Agreement between the School Board and Red Lake;
d) A declaration that Red Lake is obligated to indemnify the School Board “against all claims and demands whatsoever by any person, including the Plaitniff, whether in respect to damages to a person or property arising out of or occasioned by the maintenance, use or occupancy of the premises” pursuant to paragraph 9(2) of the Lease Agreement.
Overview
[3] Red Lake (as tenant) leased space at the Red Lake Madsen Public School from the School Board (as Landlord) for a municipally run daycare for the period January 1, 2009 to January 1, 2019.
[4] At all material times, Elaine Paulin was employed as a teacher’s aide at the daycare. On July 14, 2010, Ms. Paulin attended at the daycare and allegedly slipped and fell on a wet floor sustaining bodily injuries. She applied to the Workplace Safety and Insurance Board (“WSIB”) for benefits and they were granted.
[5] On March 28, 2012, WSIB commenced a subrogated claim in the name of Elaine Paulin, against the School Board, pursuant to s. 30(1) of the Workplace Safety and Insurance Act, 1997 (“WSIA”).
[6] The School Board commenced a third party claim against Red Lake on June 3, 2013, seeking contribution and indemnity pursuant to the lease agreement and also under the Negligence Act, R.S.O. 1990, c. N-1. and at common law.
[7] On November 22, 2016, the Workplace Safety and Insurance Appeals Tribunal (“the Tribunal”) made an order pursuant to s. 29 of the WSIA that no damages, contribution or indemnity for the portion of the damages determined to be caused by Red Lake are recoverable in this action. It did not bar the School Board’s negligence because they were a Schedule II employer. The School Board amended its Third Party claim to abandon any claim for damages attributable to Red Lake’s negligence.
[8] The effect of the Tribunal’s decision is that the portion (if any) of the plaintiff’s damages attributable to Red Lake’s negligence is not recoverable. The plaintiff’s claim is limited to the damages attributable to the school board’s several liability.
[9] The School Board has amended its Third Party claim to abandon any claim for damages caused or contributed to by Red Lake’s negligence. The School Board continues to seek a defence and indemnity from Red Lake for the School Board’s portion of the loss or damages pursuant to the lease agreement, namely, under the insurance and indemnity covenant.
Lease Agreement
[10] Section 9 of the lease agreement between Red Lake (as tenant) and the School Board (as landlord) provides:
- Insurance
(1) During the term of this lease and any renewal thereof the landlord [School Board] shall maintain with respect to the premises, insurance coverage insuring against:
b) liability for bodily injury or death or property damage sustained by third parties up to such limits as the landlord in his sole discretion deems advisable;
(2) The tenant [Red Lake] covenants to keep the landlord indemnified against all claims and demands whatsoever by any person, whether in respect of damages to person or property, arising out of or occasioned by the maintenance, use or occupancy of the premises or the subletting or assignment of same or any part thereof. And the tenant further covenants to indemnify the landlord with respect to any encumbrances on or damage to the premises occasioned by or arising from the act, default, or negligence of the tenant, its officers agents, servants, employees, contractors, customers, invitees or licensees;
(5) The tenant shall maintain comprehensive general liability insurance in the amount of not less than two million ($2,000,000.00) per occurrence.
i) The insurance shall include the Tenant’s legal liability;
ii) The landlord shall be named in the insurance policy as an additional insured.
[11] Red Lake was insured under a Public Entity Casualty Policy. Red Lake provided the School Board with a Certificate of Insurance, dated December 16, 2008 for the policy period September 1, 2007 to September 1, 2008. The Certificate stated that the School Board was an additional insured but “only with respect to the above and arising out of the Named Insureds operations is the following name added to the policy as an additional Insured. The addition of such Insured shall not increase the Limits of Liability as shown above.”
Red Lake’s Position
[12] Counsel for Red Lake submits that the School Board (as landlord) covenanted to “maintain with respect to the premises, insurance coverage insuring against liability for bodily injury….sustained by third parties...”. This is the very risk that materialized. Ms. Aukema’s position is that the School Boards undertaking to secure insurance coverage insuring against liability for bodily injury is a contractual undertaking that runs to the benefit of Red Lake. This undertaking relieves Red Lake of the risk of liability for bodily injury. There would be no contractual benefit to Red Lake if the covenant did not apply in this manner.
[13] Ms. Aukema acknowledges that Red Lake covenanted to add the School Board to its Comprehensive General Liability (“CGL”) policy which covers many risks beyond liability for bodily injury. She argues that Red Lake’s CGL policy is ancillary to the School Board’s specific covenant to insure against the risk of bodily injury.
[14] Ms. Aukema further submits that Red Lake’s indemnity covenant in favour of the School Board is not triggered on the facts of this case. The loss falls squarely within the School Board’s insurance covenant. The indemnity covenant does not overtake the School Board’s insurance covenant.
[15] In the alternative, she submits that if the indemnity covenant is triggered in this case, the wording does not provided the necessary clear and unambiguous language required to encompass the school board’s own negligence, which is the only claim being asserted by the plaintiff in this action.
School Board’s Position
[16] The School Board takes the position that pursuant to the lease agreement, Red Lake has a duty to defend it and indemnify it under the “additional insured” provision of the lease agreement (s. 9 (5)) as well as to indemnify it under the “Tenant's Covenant” under the lease agreement (s. 9 (2)). Counsel submits that as Red Lake’s insurer has included the school board under the policy as an “additional insured”, neither Red Lake, the tenant, nor its insurer may attempt to have the School Board’s third party claim against Red Lake dismissed as there is no basis for doing so. An insurer cannot assert a claim against its own insured, i.e. in this case the School Board is an “additional insured” under the Red Lake policy.
[17] Second, the school board as an “additional insured” under Red Lake’s insurance policy would have coverage for any liability imposed on it by law. The school board is entitled to its separate coverage under Red Lake’s liability policy. The liability coverage applies to all sums the insured school board shall become obligated to pay by reason of liability imposed upon it by law, which coverage includes the school board’s own negligence if so found.
[18] Third, Red Lake agreed to contractually indemnify the School Board “against all claims and demands whatsoever by any person whether in respect of damage to person or property arising out of or occasioned by the maintenance, use or occupancy of the premises...”. The plaintiff’s claim arises out of the “maintenance, use or occupancy of the premises”" and as such triggers Red Lake’s obligation to indemnify the School Board. There is nothing ambiguous about this covenant. It is essentially an all risk covenant.
[19] Fourth, Red Lake’s obligation to indemnify the School Board under paragraph 9 (2) of the lease agreement and its obligation to name the School Board as “additional insured” under paragraph 9 (5) of the lease agreement are the applicable and governing provisions of the lease agreement in respect of the plaintiff’s claim. This specific indemnity given by the tenant trumps any general insurance covenants given by the landlord.
[20] Fifth, as the School Board is an “additional insured” under the insurance policy, the Workplace Safety and Insurance Board exclusion does not apply to it as the plaintiff is not one for which the School Board insured “may be liable under any Workplace Safety and Insurance Board”.
Discussion
[21] Counsel for Red Lake relies on the decision in Madison Developments Ltd. v. Plan Electric Co., 1997 CanLII 1277 (ON CA), [1997] O.J. No. 4249 where the Court of Appeal explained the principles of contractual risk allocation as established by the Supreme Court of Canada in cases involving landlord-tenant relationships. At para. 7, the Court wrote:
7 The trial judge, in brief reasons reported at (1993), 1993 CanLII 17738 (ON CJ), 18 C.C.L.I. (2d) 142, distinguished on their facts earlier authorities that held against subrogation rights under Builders' Risk policies. He concluded as follows:
A determining fact is: the contract between Edilcan and the defendants specifically provides in Article V that the defendants were responsible for obtaining their own insurance coverage. I find that it was never intended that the owner's insurance policy cover the defendants as insureds. Therefore, the insurer has subrogation rights against the defendants.
[22] In Madison, the court stated at para. 9 “A contractual undertaking by one party to secure property insurers operates in effect as an assumption by the party of the risk of loss or damage caused by the peril to be insured against.”
[23] In 2016, in Deslaurier Custom Cabinets Inc. v. 1728106 Ontario Inc., 2016 ONCA 246, the Court confirmed the principle. The Court stated at paras. 33-36,
[33] In the Trilogy, the Supreme Court considered the rights of a landlord and tenant where one party had agreed to obtain insurance for the risk of fire. In each case, the landlord’s insurer sought to exercise subrogation rights against the tenant for loss due to fire caused by the tenant’s negligence. The court held that the determination of the tenant’s liability to the landlord for such damage fell to be determined on the basis of the lease at issue, rather than by reference to insurance policy considerations: Pyrotech, at p. 41; Cummer-Yonge, at p. 224, per Laskin C.J., dissenting in part on other grounds.
[34] The court also held in each case that the landlord’s contractual covenant to insure ran to the benefit of the tenant, thus relieving the tenant of the risk of liability for fire damage, even where the fire was caused by the tenant’s negligence. The landlord, therefore, was required to look to its own insurer for recovery of its losses. It followed that the landlord’s insurer, who could be in no better position than that of the landlord, had no subrogated claim against the tenant.
[35] In subsequent cases, courts have held that the Trilogy principles also apply where the obligation to insure against specified perils is that of the tenant, rather than the landlord. In other words, a tenant’s covenant to maintain insurance for damage caused by specified perils runs to the benefit of the landlord and protects the landlord from a claim for loss or damage that is subject to the covenant to insure and is caused by its negligence. See for example, Orion Interiors Inc. v. State Farm Fire and Casualty Co., 2016 ONCA 164; Orange Julius Canada Ltd. v. Surrey (City), 2000 BCCA 467, 190 D.L.R. (4th) 1 (sub. nom. Laing Property Corp. v. All Seasons Display Inc.), leave to appeal refused (2001), [2000] S.C.C.A. No. 523.
[36] In Madison Developments Ltd. v. Plan Electric Co. (1997), 1997 CanLII 1277 (ON CA), 152 D.L.R. (4th) 653 (Ont. C.A.), leave to appeal refused, [1997] S.C.C.A. No. 659, at para. 9, this court explained the effect of the Trilogy in this fashion:
The law is now clear that in a landlord–tenant relationship, where the landlord covenants to obtain insurance against the damage to the premises by fire, the landlord cannot sue the tenant for a loss by fire caused by the tenant’s negligence. A contractual undertaking by the one party to secure property insurance operates in effect as an assumption by that party of the risk of loss or damage caused by the peril to be insured against. This is so notwithstanding a covenant by the tenant to repair which, without the landlord’s covenant to insure, would obligate the tenant to indemnify for such a loss. This is a matter of contractual law not insurance law, but, of course, the insurer can be in no better position than the landlord on a subrogated claim. The rationale for this conclusion is that the covenant to insure is a contractual benefit accorded to the tenant, which, on its face, covers fires with or without negligence by any person. There would be no benefit to the tenant from the covenant if it did not apply to a fire caused by the tenant’s negligence. [Citations omitted; Emphasis added.]
See also this court’s decisions in St. Lawrence Cement Inc. v. Wakeham & Sons Ltd. (1995), 1995 CanLII 2482 (ON CA), 26 O.R. (3d) 321 (C.A.), leave to appeal refused, [1995] S.C.C.A. No. 553, at pp. 328-32; Sanofi, at paras. 38, 47-50 and 59-60; D.L.G. & Associates Ltd. v. Minto Properties Inc., 2015 ONCA 705, 391 D.L.R. (4th) 505, at paras. 18-20; Orion Interiors, at paras. 8, 14 and 17-18. [Emphasis in original]
[24] In Deslaurier, a tenant brought a claim against the landlord after a fire destroyed the leased premises. The landlord was required by the lease agreement to maintain insurance coverage against loss or damage caused by identified perils, including, fire to “the premises” or “the property of the landlord in which the premises are located.” A provision of the lease required the tenant to obtain insurance against “[a]ll risks of loss or damage to the tenant’s property.” A further provision required the tenant to carry “fire” insurance specifically. The tenant was required to include the landlord as an additional insurer on the insurance policies the tenant was required to maintain under the lease. There were cross-indemnity covenants which provided that the landlord would indemnify the tenant with respect to “damage to the premises occasioned by or arriving from the act, default, or negligence…”
[25] The landlord argued that the tenant, by agreeing to insure against fire and by adding the landlord as an additional insurer, contractually assumed the risk of loss or damage to it’s own property.
[26] At para. 40 in Deslaurier, the Court of Appeal noted:
[40] I agree with the interpretation of the Lease urged by the Landlord, which focuses on the governing law regarding contractual allocation of risk. I conclude that the motions judge erred by holding, in effect, that the Landlord’s Indemnity Covenant overtakes the Tenant’s Insurance Covenants and the Immunity Provision, such that the Landlord, rather than the Tenant, is responsible for loss or damage to the Tenant’s property and business caused by fire.
Further, at para. 43, the Court of Appeal stated:
[43] Accordingly, the starting point for the motions judge’s analysis should have been the recognition that, by contractually undertaking to obtain insurance against “All Risks of loss or damage to the Tenant’s property” (s. 8(1.1)(ii)) and “against the risk of damage to the Tenant’s property within the Premises caused by fire” (s. 8(4)) (emphasis added), the Tenant had assumed the risk of loss or damage to its own property caused by fire. By agreeing to so insure, the Tenant relieved the Landlord from the risk of liability for such loss or damage, even where caused by the Landlord’s negligence, unless the Lease elsewhere provided to the contrary.
[27] In interpreting the landlord’s indemnity covenant, the Court commented at para. 66,
[66] In my opinion, this reasoning is apposite here. Applied to the facts of this case, this interpretive approach gives meaning to all the challenged provisions of the Lease. It holds the Tenant to its contractual bargain under the Tenant’s Insurance Covenants to assume responsibility for the risk of loss or damage to its own property caused by fire and requires the Landlord to indemnify the Tenant under the Landlord’s Indemnity Covenant for those types of risks against which the Tenant is not required to insure. It also ensures that, under the Immunity Provision, the Landlord is not exposed to negligence claims where the Tenant has agreed to insure against an underlying risk, such as fire (see Lincoln, at paras. 44 and 45).
[28] The issues raised by counsel are:
Which party assumes the contractual risk of insuring against bodily injuries sustained by third parties?
Does the indemnity covenant overtake the insurance covenant?
Does the indemnity cover the School Board’s own negligence?
[29] The following facts govern the answers to three questions:
• The lease agreement is clear that the School Board, as the landlord, agreed to maintain insurance overage against bodily injury sustained by third parties.
• Section 4(4) of the agreement provides that cleaning services and maintenance are included in the annual lease payment.
• The indemnity agreement in s. 9(2) is a covenant by the tenant to keep the landlord indemnified for damages to a person arising out of or occasioned by the maintenance, use or occupancy of the premises.
• The tenant’s (Red Lake’s) casualty policy named the School Board as an additional insured.
[30] Section 9(2) provides indemnification for damages to a person arising out of or occasioned by maintenance, the factual situation under dispute.
[31] Mr. Lester has argued that the landlord has only agreed to maintain insurance coverage on the premises. He states that by having the School Board as an “added insured” to the Red Lake general policy, the Board is entitled to separate coverage for any liability that is imposed on it by law, and it is entitled to a defence from the tenant’s insurer for any claim against it. He argues that any liability that is imposed on the School Board as landlord triggers the application of it’s coverage as an added insured.
[32] In considering s. 9(2), the indemnification clause, there is no indemnity provided by the landlord to the tenant. The clause is specific in detailing the claims for indemnification which arise specifically out of the maintenance, use or occupancy of the premises.
[33] In Deslaurier, at paras. 86 and 87, the court states:
[86] The Tenant’s insurer can be in no better position than that of the Tenant itself. The Trilogy confirms that where, as here, the risk of loss or damage by a specific peril passes to one contracting party under the terms of its insurance covenant, there is no basis for the covenantor’s insurer to assert a subrogated claim against the beneficiary of the covenant. Simply put, because the covenantor (in this case, the Tenant) has contractually assumed the risk of liability for loss or damage caused by a specific peril, neither it nor its insurer can seek to recover for loss or damage caused by that peril from the beneficiary of the insurance covenant (in this case, the Landlord).
[87] Further, had the Tenant complied with its s. 8(5) obligation to have the Landlord named as an additional insured on its property damage insurance policy, no right of subrogation for the Tenant’s property loss or damage due to fire would arise. An insurer cannot assert a subrogated claim against its own insured: T. Eaton Co., at pp. 761-62, per de Grandpré J., dissenting on other grounds; Commonwealth Construction Co. Ltd. v. Imperial Oil Ltd., 1976 CanLII 138 (SCC), [1978] 1 S.C.R. 317, at pp. 321-322; Rochon v. Rochon, 2015 ONCA 746, 392 D.L.R. (4th) 304, at paras. 73-74; Richard H. Krempulec, Property Damage Claims Under Commercial Insurance Policies, loose-leaf (2015-Rel. 21), (Aurora: Canada Law Book, 2004), at pp. 8-13 to 8-15.
[34] In Deslaurier, at para. 88, the Court dealt with the situation where the tenant said they would add the landlord on to the tenant’s policy as an additional insured, but did not. The court stated:
Thus had the tenant complied with its obligations under the lease, neither it nor its insurers would have any viable subrogated claim against the landlord for loss or damage to the tenant’s property arising from the fire.
[35] As I interpret that principle to the facts of this case, the tenant, Red Lake, had complied with its obligation to add the School Board as an insured thereby losing any right it had to subrogate against the landlord. I accept Mr. Lester’s argument that the wording of the indemnity clause in Deslaurier is virtually identical to the clause in this case.
[36] At para. 35 in Deslaurier, the court states, “In other words, a tenants covenant to maintain insurance for damage caused by specified perils runs to the benefit of the landlord and protects the landlord from a claim for loss or damage that is subject to the covenant to insure and is caused by its negligence.” The tenant is this case has covenanted to indemnify for damages to person arising out of the maintenance of the premises, the very loss now claimed for. I accept the argument of Mr. Lester that, as the School Board is an insured under Red Lake’s policy, the School Board is entitled to the same rights and obligations as Red Lake.
[37] Further, in this case, there is no cross-indemnity provision as was found in Deslaurier where the landlord specifically agreed to indemnify for damages caused by its own negligence.
[38] There is no covenant by the tenant to insure, which is reasonable considering the landlord is an added insured. The tenant’s specific covenant relates only to the damage specified in s. 9(2).
[39] The landlord’s obligation to provide insurance generally is limited by the tenant’s covenant to indemnify for damages covered in s. 9(2) and by the provision that the landlord is an added insured on the tenants General Liability Policy.
[40] The combination of these facts permits me to find that the contractual agreement between the parties should be interpreted to reflect that Red Lake assumed the risk which occasioned in this case.
[41] In Madison, the court stated that a contractual undertaking by one party to secure property insurance operates in effect as an assumption of risk by that party of the risk of loss or damage occasioned by the peril to be insured against.
[42] I agree with the interpretation of the lease by the landlord. The landlord agreed to maintain general coverage on the leased premises. However, the landlord bargained contractually for the tenant to assume coverage for damages to person arising out of maintenance of the premises. The tenant contractually agreed to secure the same coverage and that acceptance and the addition of the landlord as an “added insured” operates in effect as an assumption of risk by that party of the risk of damages occasioned by damages to person arising out of maintenance of the premise. That assumption of risk relieved the landlord of the risk for such loss or injury (Deslaurier, para. 43).
Conclusion
[43] With respect to the issues raised by the Third Party, Red Lake, I find that the lease agreement requires Red Lake to defend and indemnify the School Board in respect of the plaintiff’s claim for damages.
[44] I dismiss the request to strike out the Third Party claim.
[45] That determination covers all aspects of the motion brought by the School Board. It requires that Red Lake is required to defend and indemnify the School Board pursuant to the lease agreement. The board is an “additional insured” pursuant to the lease agreement.
Costs
[46] If the parties cannot agree on costs they shall make written submissions not to exceed five pages. The school board may make written submissions as to costs within 30 days of the release of this decision. Red Lake has 30 days after receipt of the school boards submissions to respond. If no submissions are received within this timeframe, the parties will be deemed to have settled the issue of costs as between themselves.
_______ “original signed by”_______
The Hon. Mr. Justice T. A. Platana
Released: May 7, 2018
COURT FILE NO.: CV-12-027A
DATE: 2018-05-07
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
Elaine Marguerite Marie Paulin
Plaintiff
- and -
Keewatin Patricia District School Board & The Corporation of the Municipality of Red Lake
Defendants
DECISION ON MOTION
Platana J.
Released: May 7, 2018
/sab