COURT FILE NO.: CV-15-44-00
DATE: 20180614
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
JOHN BERNARD BREEN
Plaintiff
– and –
FCT INSURANCE COMPANY LTD.
Defendant
D. Morin and P. Reinitzer, for the Plaintiff
A. Faith and J. Haylock, for the Defendant
HEARD: May 14-18, 22 and 28, 2018
m.p. eberhard
REASONS FOR DECISION
[1] This is a Title insurance case. The issue is coverage of the loss that occurred. The value of that loss has, at the request of counsel, been bifurcated to a subsequent trial sittings pending my decision on coverage.
[2] A finding of coverage depends on whether the loss herein falls within the principles enunciated by the Ontario Court of Appeal in MacDonald v. Chicago Title Insurance Co. of Canada [2015] O.J. No. 6350, 2015 ONCA 842
[3] In that case, with the benefit of intervention from LAWPRO and the agreement of counsel appearing, the Court of Appeal corrected the motions judge who had granted Summary Judgment against the insured based on his conclusion that “in order for a municipal work order to affect an owner's interest in their property under the terms of the Title Policy, it must be registered on title.”[^1]. The court recognized the LAWPRO understanding “that "title" meant more than just those claims/impediments/documents that are registered against title, and also included defects that would only be discoverable through off-title searches.”[^2]
[4] The Defendant argues to the effect that the Court of Appeal did not say more than that. Otherwise, he agreed with my query, there would be a floodgate of claims. To the contrary, counsel agree, this is the first case to consider the breadth of the impact of the 2015 case in Ontario.
[5] The Plaintiff argues that the MacDonald v Chicago Title case speaks to what should be considered to be a title defect.
[6] In MacDonald v Chicago Title, broadly described, a previous owner had, years earlier removed support walls in his home without obtaining a building permit. Had that owner applied for a building permit it would not have permitted the removal of the weight bearing walls. Later discovered, the City of Toronto issued an Order to Remedy an Unsafe Building. The Court of Appeal found this set of circumstances rendered the new owner’s title unmarketable and that there was coverage under the title insurance policy.
[7] In the present case, broadly described, a previous owner had, years earlier built the home having obtained a building permit. No problems were noticed until the Plaintiff prepared in 2011 to construct an addition whereupon his engineer reported structural deficiencies and warned the Plaintiff not to occupy the home. The Plaintiff has not occupied the home since 2012. Subsequent investigations, it is alleged, demonstrated that the building permit was issued on the basis of an application without drawings as required, and was incomplete on its face concerning beams and post information. Thereafter, it is alleged that the building department failed to enforce Ontario Building Code standards pertaining to structural safety to the effect that the building of the home would not have been permitted if the purposes for which a building permit is granted had been addressed. The building permit was revoked without final inspection or an occupancy certificate due to a failure of the builder to call for inspections for over a year.
[8] The Defendant provided an framework for analysis, including where the onus lies on each question, which I accept and generally follow hereafter:[^3]
III. Questions to be answered in this proceeding
For the plaintiff to be successful, the Court must answer all of the following questions in the affirmative:
Has the plaintiff proven the facts that he alleges have caused him loss?
If so, has the plaintiff proven that these facts are Title Risks under Clauses 10, 15, 16, 18 or 19?
If so, has the defendant failed to prove that coverage is excluded because of actual knowledge under Exclusion 3?
If so, has the defendant failed to prove that coverage is excluded under any other Exclusion?
If so, has the plaintiff proven that he has suffered a loss that was actually caused by the covered Title Risk?
If so, has the plaintiff proven the value of the loss?
Actual Loss
[9] Three engineers testified, two of whom (Koerth and Davis) were declared expert in this trial for the purpose of giving opinion evidence, the third (Duke) as a participating expert witness. The current Chief Building Official for the Township of Lake of Bays (Watson) testified to the extent he could, about the practices of the building department in the early 1990’s under the 1986 Ontario Building Code and the local bylaw of the time.
[10] Dan Duke, civil engineer expert in Part 4 and 9 of Ontario Building Code and building sciences, was retained by builders to consult on an addition to the Breen cottage in March 2012. He found structural defects such that some areas of the home were unsafe to occupy. He found numerous Building Code deficiencies and since everywhere he looked he found problems, he suspected he would find more. Speaking from the perspective of an engineer brought in to accomplish an addition, he stated the architect must report the deficiencies, that the Building Inspector would not allow construction until the deficiencies were addressed and doubted that the cottage was salvageable.
[11] Other experts were called to opine on the defects so I don’t rely on Duke’s evidence for the determination of the extent of the actual loss but Duke’s evidence demonstrated the dilemma the Breens found themselves in. They had been advised not to occupy the cottage. The architect had been advised to report the deficiencies and certainly they could not sell their cottage without disclosure of the now known defects. It was also evidence that practically speaking, any addition requiring a Building Permit would engage the current building department and correction would be required by work order or some other enforcement mechanism. Dan Duke is an engineer of a genre whose stamp might well be required for whatever remedy and whoever undertakes them, so his misgivings are instructive.
[12] Stephen Watson, the current Chief Building Official for Township of Lake of Bays gave testimony that spoke not to the extent of actual loss but what various entries in the building department file might have meant. I mention him here only for the fact that he testified the Breens have in fact obtained Building Permits in 2013 relating to garage roof repair and kitchen renovations including insulation, replacing roof members and some minor plumbing. These Building Permits are open and the Breens have not requested final inspection. I conclude that the building department has not yet been engaged in plans to remedy actual loss. This is all in the context of the fact that the Breens, in a separate tort action, are suing the Township of Lake of Bays.
[13] Having mentioned Stephen Watson, I take this opportunity to comment on his testimony. He was in an impossible situation and really unable to assist. He was aware that there had been a fire in the building department in 1996 but everything, including the 1989 Building Permit, that could be located relating to the early 1990s construction of the cottage had been produced. He was not present in the early 1990s and did not know the Chief Building Official Huggett whose practices and file entries he was asked to interpret. He was able to report that Chief Building Official Huggett did frequently send revocation letters to close the file if the owners had not called for an inspection for a year. In light of the evidence in this case that in doing so he merely assumed the project was complete and should now be assessed for tax purposes, there is concern that, in Huggett’s period as Chief Building Official, assumption replaced inspection in the Township of Lake of Bays as a curious method of advancing the requirements of the 1986 Ontario Building Code.
[14] The Defendant’s expert on the actual loss was Kenneth Davis who was qualified to give opinion evidence on the structural engineering for houses and small buildings, compliance of houses and small buildings with Parts 4 and 9 of Ontario Building Code, construction project management services for houses and small buildings including costing.
[15] His instruction was to comment whether he agreed with the May 2015 Giffin Koerth report; whether a final inspection would have revealed the actual loss and what was the cost to rectify damage from such deficiencies.
[16] In summary, his opinion emphasized that most of the deficiencies relate to poor building practice and were not Building Code violations; that none of the identified structural defects require remediation; that final inspection may have identified the two Building Code violations that were present which can be easily repaired for low cost; that the pre drywall inspections that were carried out would have been when the Building Inspector presumably saw footings, foundations, structural framing, hvac and electrical; and the two Building Code violations were not responsible for the damage to the great room floor but lack of ground covering may have contributed to that damage.
[17] Mr. Davis was a fair witness and I do not reject his evidence. In some instances (stair support) he had a better opportunity to observe than Koerth as more had been uncovered by the time of his inspection. In other instances he has a confidence in systems that other evidence suggests may not have been operating as he assumed (prior inspections, vendor-engineered components). Finally, he offered some alternatives for structural integrity that may be in place with no demonstration that they were (joist connections, rafters, beams). As such, he really did not reduce the credibility or reliability of the Mr. Koerth’s opinion. In addressing what would be caught on a final inspection by a building inspector there was little disagreement between the two. I agree with Mr. Davis that the two Building Code Violations he observed would be repairable at relatively low cost.
[18] Ronald Koerth was qualified to give opinion evidence in building science, forensic engineering and the Building Code. His expertise added the element of relating building and construction failure during construction and when completed. He could comment with considerable education and experience on structural failure analysis under Parts 4 and 9 of the Building Code. I found his evidence credible, reliable and measured. Where they differ, I prefer the comprehensive analysis of Koerth to the critique analysis of Davis.
[19] Mr. Koerth co-authored the May 2015 Giffin Koerth report and provided a March 29, 2018 report under his current company Envista Forensics. This created a slight problem in semantics but no confusion.
[20] Parts 4 and 9 of the Ontario Building Code, simplified here to address the impact in the present case, distinguish between plans and construction that can be completed without involvement of an engineer and inspected by a municipal Building Inspector (Part 9) from those parts of construction that must have plans and construction approved by an engineer and inspected by an engineer (Part 4).
[21] In the present case we have no plans or drawings. We do not know if they are lost or non-existent. We have evidence of 3 inspections by Huggett as Building Inspector. We have photographs that demonstrate even to an untrained eye that this cottage was no simple structure and we have Koerth’s opinion of aspects of construction that would require engineering.
[22] During cross-examination of Koerth, a useful flip chart was developed and labeled in accordance with Koerth’s expert report.
(i) Stair Support issue (5.2.4.2 1st paragraph)
[23] Koerth’s concern was resolved when after his initial inspection drywall was removed such that adequate support could be observed. All agreed, and I find, this did not constitute an Ontario Building Code deficiency. It has no further significance in this trial except to serve as an example that (as here) structural concerns may be alleviated when drywall is removed or further concerns of the type noted by Koerth, and feared by participating engineer Duke, could be discovered behind drywall that has not yet been removed.
(ii) Stair Height Clearance issue (5.2.4.2 paragraph 2-4)
[24] The height was about 6 inches shorter than required by the Ontario Building Code and, I find, is therefore an Ontario Building Code deficiency. It could have been caught on a post drywall inspection but, depending on the height of the Building Inspector, may or may not have been detected. Both experts recognized this deficiency but I find it has no impact on the question of marketability.
(iii) Skylight Placement issue
[25] Skylights in the kitchen were placed such that a roof valley led directly toward them making it likely the skylights would eventually leak which they did. Koerth somewhat agreed with Davis who did not think it likely that a Building Inspector would have detected this unless present when it was raining because it depends on the Building Inspector’s ability to understand the Part 4 problem. He opined that it was an Ontario Building Code deficiency, not of an explicit requirement relating to placement of skylights but of the overarching requirement that the engineer or builder should design and the engineer or building inspector should inspect for water not being directed to shed water effectively. I accept Koerth’s evidence that this constituted a Building Code deficiency under Part 4 criteria, such that it may be inferred that if the building department had required engineered drawings, this placement would not have occurred.
(iv) Ground Cover issue (5.2.4.3)(structural)
[26] All experts agree that there should have been ground cover to act as a vapour barrier and that this is a Building Code violation. When Koerth observed it some of the drywall had been removed. He doesn’t know that it would not be observed in a post drywall inspection noting that the stairwell drywall may not necessarily be up as not all drywalling necessarily occurs at the same time.
[27] Davis minimizes the lack of ground cover in causing the decay of the great room floor noting that the most severe damage was at the door where leakage from snow accumulation and rain accounts for the problem developing.
[28] Koerth explained that the purpose in the Ontario Building Code was to not introduce moisture from the ground into the air in the crawl space. Eventually wood in the flooring would accumulate moisture, deteriorate and decay. Dan Duke had been in the space and noted rot not just at doorway but more widespread. I find that this Building Code Violation impacted the structural safety of the great room floor.
(v) Roof Ventilation issue (5.2.4.4)
[29] The issue is there is no ventilation. Koerth opines this is a Building Code deficiency. Davis opines it was not required because of the type of insulation. The material used, if sprayed in, will fill every space but Koerth’s concern is that this material was layed in, not sprayed, and pockets of air are likely such that ventilation is required. Whether his concern is valid would have to be determined at the time of inspection. Since it should not have been approved without venting before the drywall went on, Koerth reasons that since the lack of vents could be seen at any time, including at the post drywall inspection, it should have come to the Building Inspector’s attention even at that late stage.
(vi) Double I-joist to Rafter issue (5.2.3.3) (under title Structural Deficiencies)
[30] This issue refers to the third level floor beam where it joins to the rafter. Koerth describes that the Ontario Building Code requires support by bearing (hand on table) or appropriate connection (side of table). I-joists may be connected by bracket, bolts, even glue in some circumstances depending on architect or engineer judgment. None of these were found by Koerth. Not the bolts, not the brackets, not the glue and no evidence of any architect or engineer. It is a Part 4 analysis to come up with the assessment as Part 9 doesn’t give that much latitude.
[31] Davis found no evidence of stress or shifting and assumes it was supported. Koerth notes that the drywall which would have demonstrated stress had been removed, that shift would be hard to see visually and, as in much he worried about, his view is that just because something hasn’t failed does not mean it will not fail in the future. Koerth recommends a steel beam and proper brackets. I agree and find that an engineer would require this before putting a stamp on any plan for repair.
(vii) Inadequate Blocking issue (5.2.3.4) (under title Structural Deficiencies)
[32] Koerth described the purpose of blocking to to ensure continuous load path top to ground, simply put, to support what’s above. He observed they need more and wider blocking and opined it was a Building Code violation that would not have been observed in a post drywall inspection.
[33] Davis acknowledged the need to install blocking between joists and typically nail them together but reasoned that what they observed had been in place since construction with no sign of movement so there is no reason to believe it is faulty. He assumed they nailed it but the only way to know if connected is to pull it apart. While he stated it is difficult to determine if acceptable, there is no reason to suspect anything is wrong with this connection. I disagree with Mr. Davis’s reasoning. Neither the current owner, an engineer whose stamp is required for repair, nor a perspective buyer would rely on that wishful thinking.
(viii) Balconies issue (5.2.4.6)
[34] The level of balconies to the doorways led to leakage problems. Koerth agrees however that this was not a Building Code deficiency nor would it have been required to have been seen by a Building Inspector.
(ix) Third Floor Beams Structural adequacy issue (5.2.3.1-5.2.3.3 paragraph 1) (under title Structural Deficiencies)
[35] In addition to the beam which he recommended be replaced with steel and the beam to rafter connection discussed in (vi) above, Koerth opined that the LVL beam supporting the third floor loft was overstressed and required a post to support the third floor load and the glulam ridge beam that ran along the ceiling. He disagreed with Davis’s calculation that the post was redundant on an assumption of lower load based on intended use. He observes that engineers can disagree, and it is the engineer who takes on the liability. The Township has to approve plans based on the engineer’s design. If the plans are stamped by an engineer the Building Department is unlikely to question it. An engineer has to inspect. If a building inspector sees a glulam beam – if beam is called for by drawings there that’s all building inspector can do. There is no way for building inspector to say a beam is undersized without drawings. It is the designer responsible for the design deficiencies and the building inspector could only identify if it was a different size than in the plans.
[36] I am not persuaded by Davis’s speculations that the glulam beam may not be load bearing so as to not require a post. No other source for bearing that load was demonstrated. I reject his reliance on vendor engineered components as the evidence demonstrated that panels stamped with a Nascor label were not used in this construction in a manner that maintained their assumed integrity.
[37] I find that Koerth’s opinions about structural deficiency are validated
[38] Obviously, beam problems would not have been detected in a post drywall inspection by a building inspector. The June 1991inspection that said it was okay to put up the drywall was irrelevant to safety because it was not an inspection problem, it was an approvals problem. A building inspector is not qualified to see or understand these Part 4 design deficiencies. These structural problems were not within a defined Building Code Violation but did not conform with Part 4 design criteria.
[39] In summary, I find the Plaintiff has proven Building Code Violations in structural deficiencies in the third floor beams and connections and blocking; insufficient stair height clearance, improper skylight placement; missing ground cover leading to floor damage; and missing roof ventilation
[40] I find that the structural deficiencies and floor damage are sufficient reason to recommend that the structure not be occupied until remedied and remedy will require a building permit. I reason that before the structure can be occupied the Building Department would properly insist on such remedy and issue a work order or some method of enforcement.
[41] That circumstance invites comparison with the facts in MacDonald v Chicago Title.
[42] The Defendant focused on whether any such deficiencies would have been observed in a post drywall inspection. The significance of the finding that a Ontario Building Code deficiency would not have been detected in a post drywall inspection is to distinguish between:
• which of the losses could have been detected had there not been a failure to call for final inspection and failure to obtain an occupancy certificate
• losses which arose from earlier failure of the building department to require a proper drawing and complete Application before issuing a Building Permit or failure to inspect all nine stages required by the Ontario Building Code.
Title Defect
[43] My analysis of whether the Plaintiff has established that the actual losses which I have found are title defects begins with a comparison to MacDonald v Chicago Title. I begin there, before examining the terms of the insurance policy, so as to understand the overarching framework of the problem. The Defendant submits that MacDonald v Chicago Title stands for no more than clarifying that title defects may include unregistered defects detected by off-title searches. But the facts of MacDonald v Chicago Title appear to extend relief to information revealed long after a conveyance and from investigation far beyond conventional off-title searches at the time of a purchase when title insurance is put in place.
[44] For this larger framework I rely on the following[^4]:
73 Chicago Title does not contest that the discovery of the dangerous condition of the Property would permit a potential purchaser to refuse to close a purchase transaction. However, it submits that the structural condition of the Property is a latent defect that is not subject to coverage under the Title Policy. It argues that the failure of the previous owner to obtain the necessary permit from the City of Toronto was not the cause of the problem; it was the improper construction that caused the problem.
74 I would not give effect to this argument. There is no issue that the unpermitted work led to the issuance of the City Order. It is clear that had the necessary approval for this dangerous construction been sought from the City of Toronto it never would have been granted. The dangerous condition of the Property, therefore, flows directly from the failure of the previous owner to attempt to obtain the necessary municipal approval. That failure has made the appellants' title unmarketable within the meaning of clause 11 of the Title Policy.
75 Chicago Title also contends that the Title Policy was never intended to cover the type of loss suffered in the present case, and had it been so, the premium would have been much higher. There are two problems with this contention. First, as I mentioned earlier, a party's subjective intentions are not relevant to the exercise of contractual interpretation. Second, if this argument were accepted it would, in effect, reverse the business relationship between the parties such that the appellants become the insurers of Chicago Title, with the appellants bearing the loss caused by Chicago Title's failure to properly draft the coverage provisions and properly price the policy. This is a commercially absurd result.
[45] Although it is not entirely clear from the background facts, I conclude that when the MacDonald’s property was purchased there was no work order that could have then been discovered by an off-title search. The work order appears to have been issued after the current owners discovered the defect and the absence of a Building Permit when work had been done by the previous owners:[^5]
4 The appellants purchased a multi-story family home in Toronto in 2006 (the "Property"). As part of the purchase, they also acquired the Title Policy, which provides under the heading "Covered Title Risks":
This Policy insures against actual loss resulting from the following covered risks, if they affect your Title on the Policy Date, or to the extent expressly stated below, if they affect your title [sic] after the Policy Date.
5 The term "Title" is defined under s. 1(f) of the Definitions section of the Title Policy as "...the ownership of your interest in the Land, as shown in Schedule A."
6 In 2013, the appellants discovered that load-bearing walls at the Property had been removed during renovation work undertaken by a previous owner without a building permit, rendering the second floor unsafe. The City of Toronto issued an Order to Remedy an Unsafe Building (the "City Order"), requiring that work be done to temporarily support the floor. The appellants undertook the required temporary work and made a claim under the Title Policy for the costs of those repairs and the permanent repairs needed to make their home structurally sound.
[46] I find that the facts in the present case are similar inasmuch as our current owners only discovered structural defects when an engineer was retained to consult on an addition. There was no work order to discover when they were purchasing the property in 1999. The defects were latent. It has taken the investigations in this law suit to uncover the inadequacy of the Building Permit process, and subsequent futility of inspection by a Building Inspector to detect design problems which must be designed and inspected by an engineer, and insufficient inspection to justify an assumption that the building was complete.
[47] These facts may appear to be an unexpected extension of what is understood to be a title defect, but I heed the admonition of the Court of Appeal upon the motion judge in MacDonald v Chicago Title:[^6]
62 While Chicago Title has conceded that the motion judge erred in his conclusion regarding the requirement that work orders be registered, it maintains that the motion judge's finding that there is no coverage is correct and that his reasoning is sound.
63 I disagree. On a review of the motion judge's reasons, it is apparent that his misapprehension of the scope of title insurance permeated his analysis of the Title Policy. For example, the motion judge explicitly rejected the applicability of Covered Title Risks 13 and 15 on the basis that nothing was registered on title. More broadly, when considering his reasons as a whole, the motion judge's approach was plainly that title insurance offers very limited coverage and that the claim asserted by the appellants clearly falls outside of his understanding of the purpose of title insurance and the risks it is designed to cover. This caused the motion judge to adopt an unduly restrictive interpretation of the coverage provisions in the Title Policy.
64 In my view, the decision of the motion judge is not correct. Leaving aside the impact of the evidentiary error regarding Mr. Mineo's admissions, it contains numerous legal errors. Fundamentally, as described below, the motion judge failed to properly apply the governing principles of interpretation for contracts of insurance. Further, as I will also explain, he interpreted clause 11 of the Title Policy in a manner that is inconsistent with the actual wording of the clause. These errors are distinct from, and compound, his factual error regarding the registration of municipal work orders.
[48] I find the differences between how the defects arose in MacDonald v Chicago Title and how they arose in the present case are of details, not of kind.
[49] On the issue of marketability too, the cases are similar. In the present case I have found the current owners cannot occupy, the defects would surely allow a purchaser to refuse to close and it is no answer that they could sell the property at a reduced price (or, in the case of Muskoka property at the price the land would fetch cottage or no cottage).
[50] The Court of Appeal in MacDonald v Chicago Title was clear:[^7]
70 The motion judge found that the Title Policy provided coverage for the specific risks as described therein, but only if they affect the appellants' title. According to the motion judge, the appellants' title has not been affected because it is as marketable now as it always was, although it is now subject to a duty to disclose the nature of the structural problems, and the Property would therefore be sold for an amount that is less than what the appellants paid for it. Chicago Title adopts this analysis on this appeal.
71 Again, I disagree. It is entirely irrelevant and speculative to postulate, as the motion judge did and Chicago Title invites us to do, that the appellants might be able to sell the Property to someone else at some undetermined lower price. The fact that someone might be willing to purchase a dangerously defective building does not mean that it is marketable under the Title Policy. Marketability must be determined in accordance with the language of clause 11.
72 The motion judge's interpretation of clause 11 is overly restrictive and violates the principle that coverage provisions must be construed broadly. It also imports a definition of unmarketable that is inconsistent with the wording of clause 11. The correct approach to the issue of coverage is to determine, first, whether the defect in issue has rendered the Property unmarketable as that term is defined in clause 11 (i.e. can a potential purchaser refuse to close an agreement of purchase and sale on learning of the defect). The next question is whether coverage is excluded under the exclusions or limitations of liability provisions of the Title Policy. In my view, for the reasons that follow, clause 11 of the Title Policy provides coverage for the appellants and is not caught by any contractual exclusion or limitation.
73 Chicago Title does not contest that the discovery of the dangerous condition of the Property would permit a potential purchaser to refuse to close a purchase transaction. However, it submits that the structural condition of the Property is a latent defect that is not subject to coverage under the Title Policy. It argues that the failure of the previous owner to obtain the necessary permit from the City of Toronto was not the cause of the problem; it was the improper construction that caused the problem.
74 I would not give effect to this argument. There is no issue that the unpermitted work led to the issuance of the City Order. It is clear that had the necessary approval for this dangerous construction been sought from the City of Toronto it never would have been granted. The dangerous condition of the Property, therefore, flows directly from the failure of the previous owner to attempt to obtain the necessary municipal approval. That failure has made the appellants' title unmarketable within the meaning of clause 11 of the Title Policy.
[51] I find that the structural defects which flow directly from the inadequacy of the Building Permit process, and subsequent futility of inspection by a Building Inspector to detect design problems which must be designed and inspected by an engineer, and insufficient inspection to justify an assumption that the building was complete, resulted in the dangerous condition of the property which has made the Plaintiff’s title unmarketable.
Coverage Under the Title Insurance Policy
[52] Under the heading “COVERED TITLE RISKS” the policy states:
This policy covers the following risks if they affect your Title on the Policy Date, or to the extent expressly stated below, if they affect your title after the Policy Date. Item 16 (f) of the Covered Title Risks will be subject to a separate deductible amount and to a maximum dollar limit which may be less than the Policy Amount.
The covered risks are:
Your Title is unmarketable, which allows another person to refuse to perform a contract to purchase, lease or make a mortgage loan.
Work orders, unless you agreed to be responsible for them.
You are forced to remove or remedy your existing structure, or any part of it, other than a boundary wall or fence, or you cannot use it for single family residential purposes, because:
e. of any outstanding notice of violation or deficiency notice
f. any portion of it was built without obtaining a building permit from the proper government office or agency. Your insurance under this item 16(f) is limited to your actual loss in excess of a deductible amount equal to one percent (1%) of the Policy Amount and to our maximum dollar liability of $25,000.
Any adverse circumstance affecting the Land which would have been disclosed by a Local Authority Search of the Land at the Policy Date.
Any other defects, liens, or encumbrances.
[53] But, what the contract giveth, the contract also taketh away.
[54] Under the heading “EXCLUSIONS” the policy states:
In addition to the Exceptions in Schedule B, you are not insured against loss, costs, legal fees, and expenses resulting from:
- Governmental power and the existence or violation of any law, by-law, order, code or governmental regulation. This does not include subdivision or development agreements, but does include zoning by-laws, and also laws, by-laws, orders, codes and regulations concerning:
• land use
• improvements on the Land
• environmental protection
This exclusion does not apply to violations or the enforcement of these matters which appear in the Public Records at Policy Date. This exclusion does not limit the coverage described in Items 9, 14, 15 and 16 of the Covered Title Risks.
- Title Risks:
• That are actually known to you, but not to us, on the Policy Date-unless they appeared in the Public Records
[55] The Plaintiff claims coverage under Title Risk 10 – Marketability; Title Risk 16 – Forced to Remove or Remedy; Title Risk 16(e)-Outstanding notice of violation or deficiency notice; Title Risk 18: Adverse Circumstances Affecting Land; Title Risk 19: Any other defects, liens, or encumbrances
[56] The Defendant disputes coverage under the named title risks and asserts that the circumstances fall within the Exclusion 3 where coverage is excluded because of actual knowledge of the purchaser. It is argued that Exclusion 1 was not considered in MacDonald v Chicago Title.
[57] No significant differences were demonstrated in the wording of the standard form policy in MacDonald v Chicago Title from the wording in the standard form policy of FCT.
[58] The Defendant argues that the Court of Appeal has recently reaffirmed that in the interpretation of insurance contracts clear contractual language governs. If there is ambiguity, the court will consider the expectations of the parties, the commercial context, and the contract as a rational and coherent whole. Only if that fails will the court resort to contra proferentem:[^8]
The primary interpretive principle is that when the language of the policy is unambiguous, courts will give effect to clear language, reading the contract as a whole. If the language of the insurance policy is ambiguous, courts will apply the general rules of contract construction. When these rules fail to resolve the ambiguity, courts will construe the policy contra proferentem against the insurer. A corollary of the contra proferentem rule is that coverage provisions are interpreted broadly and exclusion clauses narrowly.
[59] I don’t read that as a correction of the approach in MacDonald v Chicago Title which specifically averted to these principles:[^9]
Interpretation of the Title Policy
66 The following principles of interpretation for insurance contracts cited by the appellants in their factum are well settled in Canadian law and are not disputed by Chicago Title:
The court must search for an interpretation from the whole of the contract and any relevant surrounding circumstances that promotes the true intent and reasonable expectations of the parties at the time of entry into the contract;
Where words are capable of two or more meanings, the meaning that is more reasonable in promoting the intention of the parties will be selected;
Ambiguities will be construed against the insurer having regard to the reasonable expectations of the parties;
An interpretation that will result in either a windfall to the insurer or an unanticipated recovery to the insured is to be avoided;
Coverage provisions are to be construed broadly, while exclusion clauses are to be construed narrowly;
The contract of insurance should be interpreted to promote a reasonable commercial result; and
A clause should not be given effect if to do so would nullify the coverage provided by the policy.
See e.g. Amos v. Insurance Corp. of British Columbia, 1995 66 (SCC), [1995] 3 S.C.R. 405, at para. 19; Non-Marine Underwriters, Lloyd's London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551, at paras. 67-71; Derksen v. 539938 Ontario Ltd., 2001 SCC 72, [2001] 3 S.C.R. 398, at para. 49; Zurich Insurance Co. v. 686234 Ontario Ltd. (2002), 2002 33365 (ON CA), 62 O.R. (3d) 447 (C.A.), leave to appeal refused, 189 O.A.C. 197 (note), at paras. 23-28; Tannahill v. Lanark Mutual Insurance Co., 2010 ONSC 3623, 86 C.C.L.I. (4th) 69, at para. 26; and, Sam's Auto Wrecking Co. v. Lombard General Insurance Co. of Canada, 2013 ONCA 186, 114 O.R. (3d) 730, at para. 37.
67 Responsible consumers purchase insurance policies for indemnification. Canadian courts have developed these fundamental principles of interpretation as a means of ensuring that these consumers are treated fairly and that their reasonable expectations are protected. The principles are to be applied rigorously in the interpretation of insurance contracts. It is not sufficient, as the motion judge did in this case, to cite the principles and then move on to an interpretation of a contract of insurance that is free from any analysis of how the principles apply to the contract in issue.
[60] The court went on to interpret their clause 11 which is our clause 10 on which the Plaintiff relies:[^10]
68 As mentioned above, the appellants rely upon several Covered Title Risks under the Title Policy. For the purpose of this appeal, it is sufficient to focus on clause 11, which provides for coverage in circumstances where "Your Title is unmarketable, which allows another person to refuse to perform a contract to purchase, to lease, or to make a mortgage loan."
69 Contrary to Chicago Title's submission before this court, in order to understand the meaning of the term "unmarketable" in clause 11, it is unnecessary to look beyond the wording of the clause. This is a standard form contract and Chicago Title defined within the clause those circumstances that would constitute an unmarketable title. Chicago Title is fixed with the language it chose to include in its contract. That language must be interpreted broadly as this is a coverage provision.
70 The motion judge found that the Title Policy provided coverage for the specific risks as described therein, but only if they affect the appellants' title. According to the motion judge, the appellants' title has not been affected because it is as marketable now as it always was, although it is now subject to a duty to disclose the nature of the structural problems, and the Property would therefore be sold for an amount that is less than what the appellants paid for it. Chicago Title adopts this analysis on this appeal.
71 Again, I disagree. It is entirely irrelevant and speculative to postulate, as the motion judge did and Chicago Title invites us to do, that the appellants might be able to sell the Property to someone else at some undetermined lower price. The fact that someone might be willing to purchase a dangerously defective building does not mean that it is marketable under the Title Policy. Marketability must be determined in accordance with the language of clause 11.
72 The motion judge's interpretation of clause 11 is overly restrictive and violates the principle that coverage provisions must be construed broadly. It also imports a definition of unmarketable that is inconsistent with the wording of clause 11. The correct approach to the issue of coverage is to determine, first, whether the defect in issue has rendered the Property unmarketable as that term is defined in clause 11 (i.e. can a potential purchaser refuse to close an agreement of purchase and sale on learning of the defect). The next question is whether coverage is excluded under the exclusions or limitations of liability provisions of the Title Policy. In my view, for the reasons that follow, clause 11 of the Title Policy provides coverage for the appellants and is not caught by any contractual exclusion or limitation.
73 Chicago Title does not contest that the discovery of the dangerous condition of the Property would permit a potential purchaser to refuse to close a purchase transaction. However, it submits that the structural condition of the Property is a latent defect that is not subject to coverage under the Title Policy. It argues that the failure of the previous owner to obtain the necessary permit from the City of Toronto was not the cause of the problem; it was the improper construction that caused the problem.
74 I would not give effect to this argument. There is no issue that the unpermitted work led to the issuance of the City Order. It is clear that had the necessary approval for this dangerous construction been sought from the City of Toronto it never would have been granted. The dangerous condition of the Property, therefore, flows directly from the failure of the previous owner to attempt to obtain the necessary municipal approval. That failure has made the appellants' title unmarketable within the meaning of clause 11 of the Title Policy.
75 Chicago Title also contends that the Title Policy was never intended to cover the type of loss suffered in the present case, and had it been so, the premium would have been much higher. There are two problems with this contention. First, as I mentioned earlier, a party's subjective intentions are not relevant to the exercise of contractual interpretation. Second, if this argument were accepted it would, in effect, reverse the business relationship between the parties such that the appellants become the insurers of Chicago Title, with the appellants bearing the loss caused by Chicago Title's failure to properly draft the coverage provisions and properly price the policy. This is a commercially absurd result.
76 In my view, there is coverage under Covered Title Risk 11. The analysis now shifts to whether the coverage is negated by any exclusions or limitations of liability in the Title Policy.
[61] I earlier made the finding that the Plaintiff’s title is unmarketable. Based on the foregoing I find it falls within the policy coverage under Title Risk 10.
[62] In MacDonald v Chicago Title the Court of Appeal found that coverage was not negated by an exclusion, mentioning exclusion 3 relied on by the Defendant:[^11]
77 Chicago Title relies upon the following language from the exclusions section of the Title Policy to deny coverage on the basis that coverage is excluded for defects discovered after the policy date:
In addition to the Exceptions in Schedule B, you are not insured against loss, costs, legal and/or notarial fees, and expenses resulting from:
Title risks:
(d)
that first affect your Title after the policy date -- this does not limit the coverage in items 3, 20 and 21 of the Covered Title Risks.
[63] I accept the finding that the loss there, and the loss in the present case, is not subject to a discoverability limitation:[^12]
79 This is an exclusion provision and must be restrictively interpreted. There is nothing in the Title Policy indicating that a defect rendering title unmarketable under clause 11 that is extant at the time of the policy date is not covered unless the insured discovers the defect as at the policy date. The introduction of this discoverability concept is a significant broadening of the exclusion provision that is not supported by the language of the Title Policy. The fact is that the unpermitted construction affected the appellants' title on the date of purchase; in other words, their title was unmarketable within the meaning of the Title Policy from the moment they acquired the Property, even if they were not yet aware of that fact.
[64] But the Defendant in the present case relies on exclusion 1, asserting that had it been argued in MacDonald v Chicago Title, it would have negated coverage in that case and should also in the present case.
[65] In a sense I agree with the Defendant that had it been considered it would have purported to wipe out the coverage found in MacDonald v Chicago Title but this does not assist the Defendant because my reason for concluding he is right is that the exclusion on its face is so broad as to exclude all risks, including those that otherwise mentioned in the policy.
In addition to the Exceptions in Schedule B, you are not insured against loss, costs, legal fees, and expenses resulting from:
- Governmental power and the existence or violation of any law, by-law, order, code or governmental regulation. This does not include subdivision or development agreements, but does include zoning by-laws, and also laws, by-laws, orders, codes and regulations concerning:
• land use
• improvements on the Land
• environmental protection
This exclusion does not apply to violations or the enforcement of these matters which appear in the Public Records at Policy Date. This exclusion does not limit the coverage described in Items 9,14,15 and 16 of the Covered Title Risks.
[66] What is meant by “government power” not defined? Would the wording not also exclude defects found by off-title searches such as those contemplated by the Court of Appeal in MacDonald v Chicago Title and, indeed, in contradiction to title risk 18:
- Any adverse circumstance affecting the Land which would have been disclosed by a Local Authority Search of the Land at the Policy Date.
[67] The Defendant argues to the contrary that there are lots of examples of matters that could be covered by an off -title search that would survive this exclusion such as hydro easements and the listed exceptions in items 9 (use restrictions), 14 (Planning Act), 15 (work orders), and 16f (remove and remedy).
[68] I am not going to second guess the Court of Appeal by accepting that they should have applied exclusion 1 and the case should have been determined under the limited recovery remove and remedy risk 16. Rather I find that exclusion 1 is vague, that as an exclusion it is to be given narrow interpretation and the Court of Appeal has not told me I should be applying it to the title risk of unmarketability.
[69] So, I find the Plaintiff has brought itself within a covered title risk 10 and that risk is not caught by exclusion 1.
[70] That leaves the other claimed title risks into which the facts of this case could be fit and the exclusion based on the knowledge of the Plaintiff of risks not known to the insurer.
[71] That brings me to an analysis of additional facts, separate and apart from the actual loss, proven; which is a title defect, proven; which is not excluded, proven; to a consideration of the conduct of lawyers, Building Department responses, title insurance adjusters and pleadings:
The Claim
[72] In March 1999 the conveyancing solicitor for the Breens conducted an off-title search with the Building Department speaking also with Mr. Watson, the chief building official who testified in this trial. It was learned that the last inspection was done in June 1991 and that notice was sent to the owners in 1992 that no final inspection had been conducted, however it may have been subsequently conducted but all records had been lost in a 1996 Building Department fire. If a final inspection were required the fee would be $150.
[73] On March 4, the conveyancing solicitor reported to Mrs. Breen that “the Building Department does not appear to be concerned as to whether or not the cottage had a final inspection. I am inclined to leave things as is and not request the Building Department conduct a final inspection of the cottage prior to closing. If you disagree with my suggestion, please call me”.
[74] The Breens deferred to the lawyer’s advice.
[75] The purchase was completed on March 15, 1999 and title insurance put in place.
[76] After the engineer Duke reported in 2012, a claim was made against the policy. Initially, by letter of March 3, 2014, FCT’s Ms. Marshall confirmed coverage for an open building permit under covered title risk 16
[77] The 2014 tort action against the Township had generated production of everything in the Township files including the records of the three inspections that were done in 1991 and two letters to the previous owner which are worth quoting in their entirety:
January 28, 1992
Upon checking our files, I noticed you had a building permit No 89-385 issued on October 30, 1989 for building a single-family dwelling. Out records indicate you have not requested any inspections for this project for over six months.
If you wish this permit extended, please request it in writing, so that we may issue a new permit and correct the permit fee.
If you do not respond by February 14, 1993, we will assume the project is complete and will make the necessary entrants to close our files on your project.
Huggett
Chief building official
June 15, 1993
Our records show that the last inspection requested and completed was on June 12, 1991.
In accordance with the Ontario Building Code Act, Section 6(4)(c), having had no request for inspections for more than one year, it is assumed this building project is complete, and therefore subject to any re-assessed value applicable to this project.
Accordingly, we are now advising the Assessment Commissioner that the work is assumed to be completed and should be added to the roll. Our files are now closed on this permit.
All future construction activity on this property will require new permits.
Huggett
Chief building official
[78] On reading those letters FCT resiled from their coverage position by letter dated May 21, 2014 stating that such coverage “for loss as a result of an outstanding notice of violation or deficiency notice. A review of the building department’s file indicates that as of the policy date, there was no notice of violation, deficiency notice or open permit as the Township had closed its file”.
[79] Correspondence between FCT and counsel for the Breens focused on the effect of the 1993 revocation letter.
[80] In that context the Plaintiff served its Statement of Claim.
[81] The amended Statement of Claim cites title risks 10, 15, 16, e and f, 18 and 19. If refers to exclusions 1 and 3, to the off-title search with the Building Department, the discovery of deficiencies, the claim brought for insurance, and the 1993 letter revoking the building permit. In the underlined amendments, the allegations against FCT are pleaded:
24 the Plaintiff pleads that the structural deficiencies at the property arising from an open or revoked building permit, make his property unmarketable.
25 The Plaintiff further pleads that the Township of Lake of Bays’ letter dated June 15, 1993 amounts to a work order for which he did not agree to be responsible.
26 the Plaintiff is forced to repair his structure in order to remedy the notice of violation or deficiency set out in the Township of Lake of Bays’ letter dated June 15, 1993.
[82] In the Damages section, the Plaintiff pleads:
30 Full particulars of these losses are not available at the time of delivery of this Statement of Claim. The Plaintiff undertakes to provide full particulars of these losses prior to the trial of this action.
[83] I have included paragraph 30 in this discussion, recognizing that that it is not an allegation, but it predicts the process that occurred with the development of the expert reports.
[84] The Defendant, at the conclusion of the Plaintiff’s closing submissions, raised the objection that the theory of the Plaintiff’s case as argued had not been raised in the pleadings. On that basis, the Defendant argued the claim should be dismissed.
[85] Notwithstanding this position which, if successful would be fatal to the Plaintiff’s case, the Defendant elected to put forward its arguments on the merits of the case as presented in the evidence.
[86] In the evidence, it was apparent that the Defendant focussed in cross-examination on whether Building Code deficiencies could have been detected on a post drywall inspection notwithstanding that evidence in chief clearly addressed that structural defects were caused by the permitting process which failed to require necessary engineering (no drawings and no entry on its face re posts and beams) and the necessary inspections during construction which would have observed the structural deficiencies.
[87] I find too that the Defendant’s expert, Mr. Davis, reported and testified about these engineering deficiencies and though his opinion differed, he certainly realized that was what was at issue.
[88] The Defendant argued prejudice arising from the failure to plead material facts:
• Defendant could not deduce the relevance of facts in the expert reports produced by the Plaintiff in this case because they were also to be used in the tort case against the Township.
• Defendant may have led different evidence to address whether drawings would have made any difference or mandatory inspections have uncovered deficiencies that the three actual inspections did not.
• That allowing the Plaintiff’s theory to dramatically change the law of what title insurance covers without pleading it would be a gross injustice.
• Defendant was denied opportunity in the litigation to respond in its Statement of Defence; present expert evidence on practices of Building Departments; present further engineering evidence; present expert evidence about conveyancing practice in the late 1980s; examine the Plaintiff’s conveyancing lawyer on what she could have known in 1999
• Defendant would have seen consolidation with the tort action against the Township as essential.
[89] In the trial as it played out before me, I find these assertions of being blind-sided less than impressive. The evidence, largely dependent on the expert reports served, contained no surprises. The only surprise was the late objection to evidence on the basis of the pleadings.
[90] I particularly find that the prejudice arguments are weak because they are all based on the first: that the Defendant could not deduce from the expert reports that the opinions of how and why the defects arose were relevant to this trial. The responding report and cross-examinations did not suggest blindness to these issues.
[91] Early in the trial I asked about consolidation and was told the Defendant had not sought to consolidate but claimed subrogation from the Township of Lake of Bays. I was not alerted to a pleadings issue.
[92] My impression is that the Defendant strategically wore blinders. I say that not as a rebuke but as an observation that this is litigation, it is formal and they chose to rely of strategies arising from the Rules of Practice and supporting jurisprudence.
[93] However, I find the Defendant was aware of the issues and chose not to consolidate, launch other investigations or call other witnesses.
[94] As to the “gross injustice” of changing the law on a theory not pleaded, I return to MacDonald v Chicago Title which both counsel identified in their opening as central to my determination. The Defendant urged me to read the whole and I do so again now. I have been transparent throughout in stating my task to be, not to consider a change in the law but an application of the law as expressed by the Court of Appeal in MacDonald v Chicago Title. I cite briefly from the whole now as a reminder that the Court of Appeal did not see itself as changing the law, simply expressing the law.[^13]
67 Responsible consumers purchase insurance policies for indemnification. Canadian courts have developed these fundamental principles of interpretation as a means of ensuring that these consumers are treated fairly and that their reasonable expectations are protected. The principles are to be applied rigorously in the interpretation of insurance contracts. It is not sufficient, as the motion judge did in this case, to cite the principles and then move on to an interpretation of a contract of insurance that is free from any analysis of how the principles apply to the contract in issue.
68 As mentioned above, the appellants rely upon several Covered Title Risks under the Title Policy. For the purpose of this appeal, it is sufficient to focus on clause 11, which provides for coverage in circumstances where "Your Title is unmarketable, which allows another person to refuse to perform a contract to purchase, to lease, or to make a mortgage loan."
69 Contrary to Chicago Title's submission before this court, in order to understand the meaning of the term "unmarketable" in clause 11, it is unnecessary to look beyond the wording of the clause. This is a standard form contract and Chicago Title defined within the clause those circumstances that would constitute an unmarketable title. Chicago Title is fixed with the language it chose to include in its contract. That language must be interpreted broadly as this is a coverage provision.
[95] The Defendant is armed with strong precedent. Dambrot J. expressed the Defendant’s concerns:[^14]
The risks of unfairness to the Defendants is obvious – they have not only crafted their pleadings and conducted their investigations , discoveries and preparation in response to the claim as drafted, but they have conducted themselves for more than fifty days of trial in reliance on the existing pleadings.
[96] The Court of Appeal states: [^15]
It is fundamental to the litigation process that lawsuits be decided within the boundaries of the pleadings.
[97] The Plaintiff responds that the building permit and inspections do not raise a new theory and the law of pleading does not require a Plaintiff to plead evidence or particulars of evidence. The Plaintiff asserts the elements of the cause of action in contract have been pleaded and the Defendant’s complaints relate to facts which support the elements.
[98] The Plaintiff points to the instructions to and response from the Defendant’s expert Davis demonstrating the Defendant was alive to the theory and supporting evidence of the Plaintiff.
[99] I agree that the Defendant was not blinded by the state of the pleadings.
[100] Nor was this a case like those relied on by the Defendant where liability in tort was found but the case was pleaded in contract[^16]; or where liability of a shareholder in a personal capacity was not pleaded nor a live issue at trial[^17]; nor where the Trial Judge relied on a section of the contract not pleaded[^18]. Rather, the Plaintiff argues that all the coverage clauses were pleaded. This has always been a title insurance action and not a tort action.
[101] The Plaintiff argues it was a cascade of events that began with the 1993 letter, which was pleaded, and revealed in the course of the full extent of the history all based fundamentally in the absence of inspection which was pleaded.
[102] The Plaintiff cites a case from the Federal Court of Appeal[^19] as authority that where there is no surprise or prejudice and all parties have dealt with the evolving evidence, the decision does not have to fit squarely into the pleadings as long as there has been opportunity to respond.
(1) Did the Tribunal base its decision on a theory of the case that had not been pleaded?
[69] The Tribunal found that Tervita’s acquisition of the Babkirk Site would substantially prevent competition since the Vendors would have turned the site into a competing secure landfill once their bioremediation operation would have failed.
[70] The appellants allege that the Commissioner did not plead this theory, and that it was consequently an impermissible error of law for the Tribunal to have determined the case based on this theory. They add that they had no reason to believe that the future viability of the bioremediation operation was at issue, and that they were thus precluded from adducing evidence regarding this matter.
[71] In the normal course of judicial proceedings, parties are entitled to have their disputes adjudicated on the basis of the issues joined in the pleadings. This is because when a trial court steps outside the pleadings to decide a case, it risks denying a party a fair opportunity to address the related evidentiary issues: Rodaro v. Royal Bank of Canada (2002), 2002 41834 (ON CA), 59 O.R. (3d) 74 (C.A.) at paras. 60 to 63; Nunn v. Canada, 2006 FCA 403, 367 N.R. 108 at paras. 23 to 26; Labatt Brewing Company Ltd. v. NHL Enterprises Canada, L.P., 2011 ONCA 511, 106 O.R. (3d) 677 at paras. 4 to 9 and 21.
[72] However, this does not mean that a trial judge can never decide a case on a basis other than that set out in the pleadings. In essence, a judicial decision may be reached on a basis which does not perfectly accord with the pleadings if no party to the proceedings was surprised or prejudiced: Lubrizol Corp. v. Imperial Oil Ltd., 1996 4042 (FCA), [1996] 3 F.C. 40 (C.A.) at paras. 14 to 16; Barker v. Montfort Hospital, 2007 ONCA 282, 278 D.L.R. (4th) 215 at paras. 18 to 22; Colautti Construction Ltd. v. Ashcroft Development Inc., 2011 ONCA 359, 1 C.L.R. (4th) 138 at paras. 42 to 47.
[73] A trial judge must decide a case according to the facts and the law as he or she finds them to be. Accordingly, there is no procedural unfairness where a trial judge, on his or her own initiative or at the initiative of one of the parties, raises and decides an issue in a proceeding that does not squarely fit within the pleadings, as long as, of course, all the parties have been informed of that issue and have been given a fair opportunity to respond to it: Pfizer Canada Inc. v. Mylan Pharmaceuticals ULC, 2012 FCA 103, 430 N.R. 326 at para. 27; Murphy v. Wyatt, [2011] EWCA Civ. 408, [2011] 1 W.L.R. 2129 at paras. 13 to 19; R. v. Keough, 2012 ABCA 14, [2012] 5 W.W.R. 45.
[74] These principles also apply to contested proceedings before the Tribunal. It acts as a judicial body: section 8 and subsection 9(1) of the Competition Tribunal Act. Though the proceedings before the Tribunal are to be dealt with informally and expeditiously, they are nevertheless subject to the principles of procedural fairness: subsection 9(2) of the Competition Tribunal Act. Accordingly, the Competition Tribunal Rules, SOR/2008-141(“Rules”) provide that an application to the Tribunal must be made by way of a notice of application setting out, inter alia, a concise statement of the grounds for the application and of the material facts on which the applicant relies, as well as a concise statement of the economic theory of the case: Rules at paras. 36(2)(c) and (d). Similar provisions apply to a response and to a reply: Rules at paras. 38(2)(a)(b) and (c) and subsection 39(2). The Rules also set out a detailed and complete system of pre-hearing disclosures: Rules at sections 68 to 74 and 77-78.
[75] In order to resolve the first ground of appeal raised by the appellants, it must be first determined whether the pleadings encompassed the eventual failure of the bioremediation service and the subsequent transformation of the Babkirk Site into a full service secure landfill. If the pleadings did not encompass these matters, we must determine whether the appellants’ right to a fair hearing was prejudiced by the manner in which the Tribunal proceeded.
[76] In its notice of application filed with the Tribunal, the Commissioner alleged that Complete had obtained the regulatory approvals to operate a secure landfill at the Babkirk Site, that it was a “poised entrant” into the market for hazardous waste disposal into secure landfills, and that it would have competed directly with Tervita had it not been for the merger:…..
[83] Taking into account the pleadings as a whole, and after reviewing the evidentiary record before the Tribunal, I am of the view that the feasibility of a bioremediation facility at the Babkirk Site was squarely before the Tribunal, as was the issue of whether Complete was a “poised entrant” in the market for secure landfills once it ceased to pursue bioremediation.
[84] Accordingly, the appellants’ argument must fail. In any event, even if these issues were not included in the pleadings, the appellants have failed to convince me that they were prejudiced by the fact that these issues were considered and decided by the Tribunal.
[103] The Plaintiff argues that each of the 6 items the Defendant says were not pleaded are raised by what was pleaded. The incomplete building permit and lack of drawings, the 1992 letter citing a failure of the owner to call for inspections all cascade from the revocation letter that was pleaded. The lack of occupancy certificates was in issue through the pleading that the Breens were illegally occupying. And, the Plaintiff says the Statement of Claim was drafted in the context of the FCT position that there would be coverage which was withdrawn after seeing the 1993 letter so the pleading naturally focussed on the letter.
[104] I have found herein that there was plenty of correspondence and the filed expert reports that gave ample notice that the permitting process and appropriate inspection at a time and by an engineer who could detect structural deficiencies were in issue.
[105] I look to the amended Statement of Claim and find that those issues fall within the allegation at paragraph 24:
24 the Plaintiff pleads that the structural deficiencies at the property arising from an open or revoked building permit, make his property unmarketable.
[106] That paragraph brings in the considerations under the then newly released MacDonald v Chicago Title.
[107] That paragraph patently gives notice of the claim that the marketability of the property gives rise to coverage regardless of whether the building permit was open or not at the time of the claim.
[108] The further pleadings reflect the correspondence between the parties that FCT considered the 1993 “revocation” letter pivotal in denying the Plaintiff’s claim it had earlier accepted.
[109] Although much evidence and argument was focussed on that letter and what effect it had on the building permit or whether it constituted an order invoking the various covered title defects, I find that letter is a red herring, a distraction, a method invented by chief building official Huggett to clean up his files.
[110] The significance of the 1993 letter is as a demonstration that chief building official Huggett was not recognizing the safety purpose of the 1968 Ontario Building Code. The idea that, not having heard from an owner for inspection, the correct response was to assume the building was complete and could now be assessed for taxation, is absurd. It is a waste of energy to debate what was the effect of that letter under the Ontario Building Code and its consequential effect on title insurance. It was no more than chief building official’s method of housekeeping and should have no effect on a principled analysis of whether the facts of construction fall within the title insurance policy.
[111] The Court of Appeal was content to focus on title defect 11 (our 10) regarding marketability though other defects were also claimed in MacDonald v Chicago Title. So too, I rely on the marketability claim.
[112] As mentioned previously, the moment the Breens attempt repair or sale, they will face the certainty of needing an engineer to approve and stamp plans. Failure to do so would result in a competent and co-operative Building Department issuing orders in the nature of other covered risks under the policy:
Work orders, unless you agreed to be responsible for them.
You are forced to remove or remedy your existing structure, or any part of it, other than a boundary wall or fence, or you cannot use it for single family residential purposes, because:
e. of any outstanding notice of violation or deficiency notice
[113] While these cascading events have not yet occurred because repair has not commenced, and the Breens are in litigation with the Building Department such that they are not yet engaged as a competent co-operative Building Department, future events can be anticipated:[^20]
78 Chicago Title's position is that the unpermitted construction was discovered many years after the policy date and, consequently, there is no coverage. I would decline to give effect to this argument for the following reasons.
79 This is an exclusion provision and must be restrictively interpreted. There is nothing in the Title Policy indicating that a defect rendering title unmarketable under clause 11 that is extant at the time of the policy date is not covered unless the insured discovers the defect as at the policy date. The introduction of this discoverability concept is a significant broadening of the exclusion provision that is not supported by the language of the Title Policy. The fact is that the unpermitted construction affected the appellants' title on the date of purchase; in other words, their title was unmarketable within the meaning of the Title Policy from the moment they acquired the Property, even if they were not yet aware of that fact.
80 This conclusion is supported by this court's decision in Krawchuk v. Scherbak, 2011 ONCA 352, 106 O.R. (3d) 598, leave to appeal refused, 297 O.A.C. 395 (note). In that case, the purchaser of a home discovered serious latent structural and plumbing defects after closing. She was successful in claiming under her title insurance policy and then sued the vendors, her real estate agent and the real estate brokerage. The court was focused on her ability to assert claims against these parties and not on the issue of coverage under the title policy. Nonetheless, Epstein J.A.'s comments, at para. 105, are instructive:
In my view, title insurance is a contract of indemnity, designed to compensate for actual loss: see Grunberger v. Iseson, 75 A.D. (2d) 329, 331 (N.Y. App. Div. 1980). While title insurance is different from most insurance products in that it has not traditionally insured against a future event but has been used only to insure against loss from a title defect in existence at the date of the policy, it is nonetheless designed to respond as well to a future loss. Ms. Krawchuk's loss from the existing defects in the house crystallized when it became necessary for her to spend the money to do the repairs required by the City's order to comply, an event that took place after the policy was in place.
81 Similarly, in the present case, the unpermitted construction was an existing defect that crystalized when the appellants became aware of the defect.
[114] So, I have found that the Plaintiff has proved facts within a covered title risk and that it was adequately pleaded in the context of other evidence demonstrating notice. I have found coverage was not excluded by exclusion 1.
[115] I now turn to exclusion 3.
3 Title risks:
• That are actually known to you
[116] As indicated earlier, in March 1999 the conveyancing solicitor for the Breens conducted an off-title search with the Building Department, also speaking with Mr. Watson, the chief building official who testified in this trial. It was learned that the last inspection was done in June 1991 and that notice was sent to the owners in 1992 that no final inspection had been conducted, however it may have been subsequently conducted but all records had been lost in a 1996 Building Department fire. If a final inspection were required the fee would be $150.
[117] On March 4, the conveyancing lawyer reported to Mrs. Breen that “the Building Department does not appear to be concerned as to whether or not the cottage had a final inspection. I am inclined to leave things as is and not request the Building Department conduct a final inspection of the cottage prior to closing. If you disagree with my suggestion, please call me”.
[118] Nothing in the evidence persuades me that the conveyancing lawyer, learning that there are no work orders or concerns from the Building Department, would be put to a deeper investigation.
[119] Some might say why not do a final inspection for $150? But the Defendant has focused on evidence in this trial that demonstrates that a post drywall inspection would not have revealed the structural defects so the conveyancing lawyer had no opportunity to discern title risks by requiring the available inspection.
[120] There is nothing before me that would have suggested a lawyer to do the “deep dive” as counsel have described it, trying to locate the Building Department file after the fire, or undertaking the explorations that have been the subject of this trial
[121] I find the exclusion does not apply. The Plaintiff did not know of the potential that defects would be discovered.
[122] I return to the issues framed by the Defendant:
Questions to be answered in this proceeding
For the plaintiff to be successful, the Court must answer all of the following questions in the affirmative:
Has the plaintiff proven the facts that he alleges have caused him loss?
If so, has the plaintiff proven that these facts are Title Risks under Clauses 10, 15, 16, 18 or 19?
If so, has the defendant failed to prove that coverage is excluded because of actual knowledge under Exclusion 3?
If so, has the defendant failed to prove that coverage is excluded under any other Exclusion?
If so, has the plaintiff proven that he has suffered a loss that was actually caused by the covered Title Risk?
If so, has the plaintiff proven the value of the loss?
[123] The answer to questions 1-5 is yes. Partial judgment in favour of the Plaintiff to issue.
[124] Question 6 has been adjourned to the trial sittings in November 2018.
[125] If the parties wish to address costs at this point they should advise the judicial secretary in Barrie by June 29, 2018. Thereafter if proceeding now, the Plaintiff may file with the judicial secretary in Barrie written submissions of no more than 3 pages, together with any offers and a bill of costs, by July 20, 2018; the Defendant file written submissions of no more than 4 pages, together with any offers and a bill of costs by August 3, 2018; and the Plaintiff may reply with no more than 2 pages by August 10, 2018.
M.P. EBERHARD
Released: June 14, 2018
JOHN BERNARD BREEN
Plaintiff
– and –
FCT INSURANCE COMPANY LTD.
Defendant
Released: June 14, 2018
[^1]: MacDonald v Chicago Title para 56 [^2]: MacDonald v Chicago Title para 60 [^3]: Defendant factum para 7 [^4]: MacDonald v Chicago Title para 73-75 [^5]: MacDonald v Chicago Title para 4-6 [^6]: MacDonald v Chicago Title para 62-64 emphasis added [^7]: MacDonald v Chicago Title para 70-74 emphasis added [^8]: G & P Procleaners and General Contractors Inc. v. Gore Mutual Insurance Company, 2017 ONCA 298 at para. 13 [^9]: MacDonald v Chicago Title para 66-67 [^10]: MacDonald v Chicago Title para 68-72 [^11]: MacDonald v Chicago Title para 77 [^12]: MacDonald v Chicago Title para 79 [^13]: MacDonald v Chicago Title para 67-69 emphasis added [^14]: Mele v Thorne Riddell 1997 CarswellOnt 193 at para 6 [^15]: Rodaro v Royal Bank of Canada 2002 41834 [^16]: Kalkanis (Guardian of) v Allstate Insurance Company of Canada 6879 [^17]: 460635 Ontarion Ltd v 1721789 Ontario Inc. 1999 789 (Ont. C. A.) [^18]: Holmes v Hatch Ltd. 2017 ONCA 880 [^19]: Tervita v Commissioner of Competition 2013 FCA 28 [^20]: MacDonald v Chicago Title para 78-81 emphasis added