RULING ON MOTION

COURT FILE NO.: 5867/14 (Chatham) DATE: 20180801 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Allen Glenn Schives, and Bernadette Marie Schives Plaintiffs – and – Brenda Marie Donais (also known as Brenda Marie MacIntyre), Randolph James Thiessen, Darlene Gail Thiessen, The Corporation of the Municipality of Chatham-Kent, and Stewart Title Guaranty Company Defendants

COUNSEL:

James E.S. Allin, for the Plaintiffs Gemma Charlton, for Brenda Marie Donais Emily Crawford appearing for David Taylor, for the Municipality of Chatham-Kent Mark Veneziano, Margaret Robbins and Dena Varah, for Stewart Title Guaranty Company No one appearing for Randolph James Thiessen and Darlene Gail Thiessen

HEARD: February 5, 2018

hebner J.

[1] The plaintiffs brought this motion for summary judgment as against the defendant, Stewart Title Guaranty Company (“Stewart Title”) in the amount of $223,555.74. The result is dependent on the appropriate interpretation of the title insurance policy.

[2] The positions of the parties are summarized as follows:

1. The plaintiffs submit that this is a proper case for summary judgment on both liability and damages, and that they are entitled to judgment as against Stewart Title.
2. Stewart Title agrees that this is a proper case for summary judgment on liability and submits that the claim as against Stewart Title ought to be dismissed. If the plaintiffs are successful on liability, then Stewart Title submits that the issue of damages ought to be the subject of a hearing.
3. The Corporation of the Municipality of Chatham-Kent (“the Municipality”) and Brenda Marie Donais submit that there ought not to be a finding that the subject property was not built in accordance with the Ontario Building Code (“the OBC”).

BACKGROUND FACTS

[3] The plaintiffs, Allen Glenn Schives and Bernadette Marie Schives (“the Schives” or “the plaintiffs”), purchased their home, known municipally as 56 Rose Avenue, Tilbury, Ontario (“the subject property”), from Randolf James Thiessen and Darlene Gail Thiessen (“the Thiessens”) on June 15, 2007. The purchase price was $228,000. The home is a single-family residential home situated in a residential neighbourhood in the former town of Tilbury, now the Municipality of Chatham-Kent. It is a single-storey brick structure, built in 1993.

[4] The plaintiffs claim that, prior to purchasing their home, they thoroughly inspected the interior and exterior of the residence. The basement of the home was mostly finished with drywall, ceiling tile, and floor coverings such as carpet or hardwood. Most of the exterior perimeter walls in the basement were covered with drywall. The basement had partition walls to create separate rooms and a utility area. The plaintiffs planned to use the basement for additional bedrooms and/or a family room.

[5] The plaintiffs retained a solicitor to act for them on the purchase. Based on that solicitor’s advice, the plaintiffs purchased a policy of title insurance from Stewart Title. The policy amount was $228,000 and the one time premium required was $351. The purchase transaction was completed on June 5, 2007, and the plaintiffs began to live in the home immediately thereafter.

[6] In approximately 2013, the plaintiffs noticed a problem with the rear basement wall of their home. The wall had begun to noticeably sag and lean inward. Using a level placed outside and vertically along the rear wall of the house, the plaintiffs found that the entire rear wall of the home was noticeably out of level and leaning inward. In an effort to determine the cause of the problem, the plaintiffs removed some of the drywall from the interior surface of the rear wall. They found substantial diagonal cracks in the poured concrete of the outer rear wall. It appeared as though someone had tried to fill in the cracks with a type of compound that had, itself, cracked open.

[7] The plaintiffs depose in their affidavit evidence that, through investigation, they determined that on June 30, 1993 the former town of Tilbury issued a building permit to Mr. Ronald Donais to construct the single-family residence. On November 19, 1993, Brenda Marie Donais purchased the building lot. Mr. Donais acted as his own contractor, filed building plans with the then town of Tilbury, and was issued a building permit by the town.

[8] Although the plaintiffs depose in their affidavit that a building permit was issued, a letter from Judy Smith, Manager of Municipal Governance with the Municipality, states that “our records department researched the former Town of Tilbury files and found monthly report of July 1993 (attached), however, no actual building permit or inspection report were located.”

[9] The plaintiffs allege that during construction, a problem was discovered. The hole for the basement had been dug too low into the ground, leaving the top of the poured concrete basement walls at or near ground level rather than above ground level. The plaintiffs allege that Mr. Donais returned to the building official of the town of Tilbury for advice. It is unclear what advice was given, as the file of the former town of Tilbury has been lost or destroyed, which may explain why no building permit was discovered.

[10] The Schives retained the services of a professional engineer, David C. McCloskey, who conducted an inspection and prepared a report. The engineer found that something called a “knee wall” had been built on the top of the concrete basement wall and below the wooden floor of the ground level of the house. The knee wall was approximately ten inches high. In his report, at p. 4, Mr. McCloskey said “[T]he fundamental structural issue is that the top of the perimeter basement wall is not properly supported by the first-floor structure and contravenes the requirements of the OBC. [ Ontario Building Code Act, 1992, S.O. 1992, c. 23 (“OBC”)]” He continued on to say:

“The OBC does not permit the height of a basement wall to be increased by adding a wood framed knee wall on top of the concrete wall as was done at this residence. This condition creates a hinge in the wall at the interface of the concrete and wood framing making it unstable and is the main contributing factor that has caused the exterior basement walls to tilt inward.”

[11] Mr. McCloskey concluded that, if left unrepaired, the perimeter basement walls will continue to tilt inward causing additional cracks in the walls themselves and other finish materials, and could collapse suddenly with little warning.

[12] In order to quantify their damages, the plaintiffs have obtained a report from Winmar Property Restoration Specialists. Winmar’s report, dated September 22, 2016, determined that the amount required to carry out the necessary repairs, as well as moving the plaintiffs out of and then back into their home, will total $223,555.74.

The Stewart Title Policy

[13] The first page of the title policy insured the plaintiffs against actual losses resulting from “any risks described in the Covered Title Risks as set out in this Policy if the event creating the risk existed on the Policy Date or, to the extent expressly stated, after the Policy Date.”

[14] There is a list of 33 covered title risks (“CTR”) in the policy. The relevant ones are CTR clauses 15, 19, and 20. They read as follows:

15. Your Land is unmarketable, which allows another person to refuse to perform a contract to purchase, lease or make a mortgage loan because: (a) it violates a restriction set out in Schedule B; (b) of adverse matters that would have been disclosed by an up-to-date Survey; (c) your Land violates an existing zoning by-law or ordinance; or; (d) your existing structures or any part of them are located on land under the jurisdiction of conservation or similar Governmental Authority without approval.

16. Your Title is unmarketable, which allows another person to refuse to perform a contract to purchase, to lease or to make a mortgage loan.

17. You are forced by a Governmental Authority (or in the case of 20(a) hereunder, you are forced by the affected neighbour or a party who benefits from the Easement) to remove or remedy your existing structure(s), or any portion thereof, other than a boundary wall or fence, because: (a) it extends onto adjoining land or onto any Easement (even if the Easement is excepted in Schedule B); (b) it violates a restriction, covenant or condition affecting the Land, (even if the restriction, covenant or condition is excepted in Schedule B): (c) it violates an existing zoning by-law or ordinance: (d) it is located on land under the jurisdiction of conservation or similar governmental authority without approval; (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 Governmental Authority, provided a building permit would have been required by such Governmental Authority at the time of construction of the structure or relevant portion thereof.

[15] The relevant exclusion reads:

In addition to the Exceptions in Schedule B, you are not insured against loss, costs, legal fees, and expenses resulting from:

7. The failure of your existing structure(s) or any part of them to be constructed in accordance with applicable building codes. This exclusion does not apply to violations of building codes if notice of the violation appears in the Public Records at the Policy Date or if the existence of the violation would have been disclosed by a Local Authority Search of the Land at the Policy Date. This exclusion does not limit the coverage described in Item 20(f) or 29 of the Covered Title Risks.

[16] The relevant definitions are:

(d) Land – the land or condominium unit described in Schedule A and any improvements on the land which are real property. (i) Title – the ownership of your interest in the land, as shown in Schedule A.

[17] Schedule A sets out the particulars of insurance, including the municipal address and legal description of the subject property.

The Position of the Plaintiffs

[18] The plaintiffs claim that their home is unmarketable. In support of that allegation, they provide correspondence from a real estate agent with RE/MAX who said, “[I]t would be a waste of time, energy, and marketing dollars to offer the home in its current state”. They claim that, as a result, they are entitled to coverage under CTR clauses 15, 19, and 20 of the Stewart Title policy, reproduced above. They correctly submit that I need only to find coverage under one of the clauses. Their position on each of the clauses is set out in the following paragraphs:

1. The plaintiffs submit that they are entitled to coverage under CTR clause 15(c). The definition of “land” in the policy includes improvements on the land, which would include the house. As the house construction violates the OBC, and the land is unmarketable, the plaintiffs contend that they are entitled to coverage.
2. The plaintiffs submit that they are entitled to coverage under CTR clause 19 because their title to the subject property is unmarketable. In support of that proposition, the plaintiffs rely on the Court of Appeal decision in MacDonald v. Chicago Title Insurance Company of Canada, 2015 ONCA 842, 127 O.R. (3d) 663.
3. The plaintiffs submit that they are entitled to coverage under CTR clause 20(f). The plaintiffs acknowledge two issues with that argument: a. The plaintiffs acknowledge that the Municipality has not issued a property standards order to repair the subject property. They submit that because one of the defendants is the Municipality, if the Municipality were to issue a property standards order to repair the subject property, such an act would constitute an admission that the Municipality allowed the home on the subject property to be built in an unsafe condition. The plaintiffs submit that I should interpret the words “you are forced” to mean that the plaintiffs could be forced at any time to remedy the problem. b. In respect of the CTR clause 20(f) argument, the plaintiffs filed affidavit evidence to the effect that a building permit had been issued. However, it appears from the Municipality’s letter, that the building permit may not have been issued. The plaintiffs submit that the best evidence available on the motion is that there was no building permit issued, and that the affidavit of the plaintiffs represents a mistaken assumption by counsel. c. As for exclusion number 7, the plaintiffs submit that the exclusion does not apply to the coverage described in CTR clause 20(f). The plaintiffs further submit that Stewart Title has not provided evidence that the exclusion applies to any of the coverages.

General Principles of Insurance Policy Interpretation

[19] The general principles of insurance policy interpretation are not in dispute. They are summarized in Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] S.C.R. 245, as follows (citations omitted):

1. The primary interpretive principle is that when the language of the policy is unambiguous, the court should give effect to clear language, reading the contract as a whole: see para. 22;
2. Where the language of the insurance policy is ambiguous, the courts rely on general rules of contract construction. For example, courts should prefer interpretations that are consistent with the reasonable expectations of the parties, so long as such an interpretation can be supported by the text of the policy. Courts should avoid interpretations that would give rise to an unrealistic result or that would not have been in the contemplation of the parties at the time the policy was concluded. Courts should also strive to ensure that similar insurance policies are construed consistently. These rules of construction are applied to resolve ambiguity. They do not operate to create ambiguity where there is none in the first place: see para. 23; and
3. When these rules of construction fail to resolve the ambiguity, courts will construe the policy contra proferentem – against the insurer. One corollary of the contra proferentem rule is that coverage provisions are interpreted broadly and exclusion clauses narrowly: see para. 24.

[20] Progressive Homes also sets out the manner in which policy interpretations are to be undertaken:

1. The insurance contracts in this appeal are CGL (Commercial General Liability) policies. CGL insurance policies typically consist of several sections. The policy will set out the types of coverage contained in the agreement, for example, property damage caused by an accident: see para. 26;
2. This is typically followed by specific exclusions to coverage. Exclusions do not create coverage – they preclude coverage when the claim otherwise falls by 5193994 and a you and you will now on I will you will will win an hour ago within the initial grant of coverage. Exclusions, should, however, be read in light of the initial grant of coverage: see para. 27; and
3. A CGL policy may also contain exceptions to exclusions. Exceptions also do not create coverage – they bring an otherwise excluded claim back within coverage, where the claim fell within the initial grant of coverage in the first place. Because of this alternating structure of the CGL policy, it is generally advisable to interpret the policy in the order described above: coverage, exclusions and then exceptions: see para. 28.

[21] Although the Stewart Title policy in this case is not a commercial general liability policy, the structure of the policy is similar and so the comments still apply.

[22] My task, then, is to apply these interpretative guidelines to the policy in this case.

[23] MacDonald v. Chicago Title also dealt with a title insurance policy. The plaintiffs brought a motion for summary judgment seeking a declaration that the defendant, Chicago Title Insurance Company of Canada (“Chicago Title”), provide coverage and indemnification for a dangerous structural condition affecting their multi-storey family home in Toronto. The condition had been caused by unpermitted construction done by a previous owner. The plaintiffs had purchased their home, and title insurance, in 2006. In 2013, they discovered that load-bearing walls in their home 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, requiring that work be done to temporarily support the floor. The plaintiffs undertook the work and made a claim under the title policy for the cost of the temporary repairs and the permanent repairs needed to make their home structurally sound. Chicago Title denied the claim based on a lack of coverage.

[24] In support of their motion, the plaintiffs in MacDonald v. Chicago Title relied on a coverage clause (clause 11) that was virtually identical to CRT clause 19 in this case. That clause provided 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.”

[25] The motions judge ruled that the title policy was unambiguous and the covered title risks did not apply in the circumstances of the case. The motions judge concluded that the plaintiffs’ title was unaffected by the unpermitted construction because it remained marketable, even though it was marketable for an amount that was less than what the plaintiffs had paid for the property.

[26] The Court of Appeal allowed the appeal and granted the plaintiffs’ motion for summary judgment on the issues of coverage and indemnification under the policy. Appeal Court Justice Hourigan, speaking for the court at para. 72, said the following about the coverage clause:

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.

[27] Chicago Title argued that the failure of the previous owner to obtain the necessary permit from the city was not the cause of the problem; the improper construction was the cause of the problem. Justice Hourigan said, at para. 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.

[28] Chicago Title argued that the title policy was never intended to cover the type of loss suffered. Had it been so, the premium would have been much higher. Justice Hourigan said, at para. 75:

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.

[29] Justice Hourigan found that there was coverage under clause 11.

Analysis

[30] I shall deal with each of the claimed coverages separately.

1. CTR Clause 19

[31] I am bound by the Court of Appeal decision in MacDonald v. Chicago Title. The case cannot be distinguished on the facts, in so far as the interpretation of clause 19 is concerned. In my view, the plaintiffs have established that the “title is unmarketable”, as that clause is interpreted by the Court of Appeal. Accordingly, I must conclude that there is coverage under CTR clause 19.

[32] Counsel for Stewart Title urges me to interpret CTR clause 19 differently than it was interpreted by the Court of Appeal in MacDonald v. Chicago Title, due to the existence of CTR clause 15. It does not appear as though CTR clause 15 was in the policy before the Court of Appeal. Stewart Title submits that CTR clause 15 and CTR clause 19 must be read together. CTR clause 15 deals with whether “your land is unmarketable”, whereas CTR clause 19 deals with whether “your title is unmarketable”, so CTR clause 15 is the appropriate clause to apply rather than CTR clause 19. Stewart Title asks me to limit the ratio in MacDonald v. Chicago Title to the factual landscape in that case; specifically, where there is a forced remediation by a governmental authority of the dangerous defect caused by unpermitted construction and coverage is not otherwise provided under the terms of the policy. I reject that argument. As Hourigan J.A. pointed out at para. 66, coverage provisions are to be construed broadly. If I were to construe CTR clause 19 more narrowly than was construed by the Court of Appeal because of the existence of CTR clause 15 it would be contrary to this interpretive principle. There is nothing wrong with finding coverage under more than one clause, and if Stewart Title has drafted its policy so that that is the result, then they are not in a position to suggest a narrow interpretation.

[33] The next step is to determine whether the coverage is negated by exclusion number 7, which excludes coverage when the loss is resulting from “the failure of your existing structure(s) or any part of them to be constructed in accordance with applicable building codes.” There was no similar exclusion in MacDonald v. Chicago Title. The plaintiffs have obtained an engineering report that the structure contravenes the requirements of the OBC. Mr. Schives, in his affidavit, stated “I now know as a result of my Engineer’s Report that the knee wall was constructed in direct violation of the provisions of the Ontario Building Code Act and its regulations”: see para. 37. In para. 39 he states, “Finally the installation of the knee wall itself was a direct violation of the Ontario Building Code Act and its regulations”. The best evidence before me is that the structure violates the OBC and that is the fundamental reason for the loss. There is no evidence to the contrary.

[34] Ms. Charlton, on behalf of Ms. Donais, points out that the exclusion refers to the “applicable building codes” and the report is not clear as to which building code is used. She submits that there have been many variations to the OBC since 1992. She submits that we cannot assume that the engineer is referring to the correct one. I note that the McCloskey Engineering report is dated January 14, 2014. Although I do not know of the exact date when it was provided to the defendants, it is contained in the motion record of the plaintiffs that was first returnable February 14, 2017. The defendants have had that report for over a year at least. It seems to me that, if Ms. Donais felt that a particular building code ought to have been considered whereby the structure would comply with that version of the code, then that evidence ought to have been put before the court. It was not. I can only conclude that the construction of the home does not comply with any version of the building code that would be applicable.

[35] As a result, I find that coverage is excluded under exclusion clause 7.

2. CTR Clause 15

[36] It is not necessary to consider whether coverage is available under CTR clause 15 because, if it is, exclusion 7 applies for the same reasons articulated above.

3. CTR Clause 20

[37] Coverage under CTR clause 20 is afforded where “you are forced by a Governmental Authority… to remove or remedy your existing structure(s)”. It seems to me that the pre-requisite for coverage under this clause is an order or demand made by a government agency for remedial work, such as was the case in MacDonald v. Chicago Title. There is no evidence of any such order or demand here. The plaintiffs urge me to interpret “you are forced” to mean “you could be forced at any time”. Even though I am required to interpret coverage clauses broadly, it seems to me that to interpret the clause thusly would be to extend coverage to circumstances outside of the ordinary meaning of the clause.

[38] The circumstances in this case are akin to the circumstances that existed in Krawchuk v. Scherbak, 2011 ONCA 352, 106 O.R. (3d) 598. In that case, Ms. Krawchuk purchased title insurance from Stewart Title when she purchased her home in June 2004. In July 2004, after the plaintiff moved into her home, she discovered that the entire north foundation wall and the northern portion of the east and west foundation walls had settled and were continuing to settle. The settlement resulted in significant weakness in the floor joists. The settlement ultimately jeopardized the stability of the building itself. The City of Sudbury was contacted and the city ordered that the structural problems be rectified. The dispute was between the plaintiff and another party and did not involve Stewart Title. However, at para. 25, the court described the circumstances that had previously involved Stewart Title as follows:

Ms. Krawchuk claimed against Stewart Title for her losses. Stewart Title initially rejected the claim on the basis that the City had not issued any work orders or notices of violation that would qualify Ms. Krawchuk for coverage under her policy. Later, after the City issued the order to comply, the insurer agreed that Ms. Krawchuk then qualified for coverage under a provision of her policy that Stewart Title said, in a letter to Ms. Krawchuk, provided coverage in the event that the insured “suffers a loss or damage as a result of being forced to remove [the] existing structure or a portion of it as a result of any portion of the structure being built without a building permit from the proper government office or agency, provided one would have been required at the time and the Municipality is forcing its removal as a result of not obtaining a building permit.”

[39] The clause in that policy is similar, but not identical, to CTR clause 20(f) here. It seems to me that the type of order issued in that case is necessary before this coverage clause comes into force.

[40] Coverage under CTR clause 20(f) also requires that the structure, or any portion of it, “was built without obtaining a building permit.” The plaintiffs have pleaded in their amended statement of claim, at para. 7, that “Ronald Donais applied for and was issued a Building Permit by the then town of Tilbury”. In his affidavit evidence filed on the motion, at para. 28, Mr. Schives repeated that allegation. The plaintiffs suggest that, in light of the letter provided by the Municipality advising that they could not locate the actual building permit, I ought to ignore the admission made in the statement of claim, and the affidavit evidence of the plaintiffs, and find that the structure was built without a building permit. I am not able to do so. There was no motion before me seeking leave to amend the statement of claim. In any event, in my view, a finding one way or the other is not required given the absence of any evidence that the plaintiffs “are forced by a Governmental Authority” to perform remedial work. The plaintiffs could not get past the preamble in CTR clause 20 and so a finding of whether or not a building permit was issued is not necessary.

Disposition

[41] In summary, then, on each of the plaintiffs’ arguments I find:

1. The plaintiffs are not entitled to coverage under CTR clauses 15 and 19 because exclusion number 7 applies; and
2. The plaintiffs are not entitled to coverage under CTR clause 20 because there is no evidence that a government authority has forced the plaintiffs to remedy the defective structure.

[42] As a result, the plaintiffs’ claim is dismissed as against Stewart Title Guaranty Company, without prejudice to any claim the plaintiffs may choose to bring in the event that they are forced by a government authority to remedy the defects.

Costs

[43] In the event that the parties cannot agree on costs, they may provide written submissions according to the following timelines:

1. Stewart Title (and any of the other defendants who seek costs) may provide submissions within 20 days;
2. The plaintiffs may provide submissions within 20 days thereafter;
3. Stewart Title may provide reply submissions within 10 days thereafter.

“original signed and released by Hebner J.”

Pamela L. Hebner Justice

Released: August 1, 2018