COURT FILE NO.: CV-17-587701

DATE: 2018-11-15

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Manoaka Developments Incorporated operating as Dolphin Fiberglass Pools Canada/Dolphin Fiberglass Pools, Applicant

AND:

Allen Vissers carrying on business as Down to Earth Landscaping, Respondent

BEFORE: Pollak J.

COUNSEL: Christopher Dunn, for the Applicant

Mark Barrett, for the Respondent

HEARD: August 29, 2018

ENDORSEMENT

[1] The Applicant Manoaka Developments Incorporated, operating as Dolphin Fiberglass Pools Canada/Dolphin Fiberglass Pools (“Dolphin”), is a manufacturer and retailer of fiberglass swimming pools. The Respondent, Allen Vissers carrying on business as Down to Earth Landscaping (“Down to Earth”), is a dealer authorized to sell the Dolphin pools. Dolphin seeks an interpretation of the “hold harmless and indemnity provision” (the “Indemnity Provision”) in the Dealership Agreement (the “Agreement”) between the parties.

[2] The Indemnity Provision provides that Down to Earth will hold Dolphin harmless against any litigation against Dolphin which “arises out of” the negligence of Down to Earth with respect to the sale, installation or maintenance of a Dolphin pool by Down to Earth. This includes an obligation on Down to Earth to defend any such litigation against Dolphin Pools.

[3] A plaintiff purchaser of a Dolphin pool contracted with Let’s Landscape Together (“LLT”) to install a Dolphin pool. LLT subcontracted with Down to Earth for the installation of the pool. Down to Earth then contracted with Dolphin to assist it with, and oversee, the installation of the pool.

[4] That plaintiff seeks damages against LLT and Down to Earth in the amount of $125,000.00. Down to Earth and LLT have brought third party claims against Dolphin for contribution and indemnity. In a related action dealing with insurance issues (the “Insurance Action”), the defendant, Allstate Insurance Company of Canada (“Allstate”), has brought a third party claim against Dolphin. In this Application, Dolphin seeks a declaration that Down to Earth must defend it against these third party claims and reimburse it for its costs already incurred in defending the two actions.

[5] Down to Earth's third party claim states that it “retained Dolphin Pools to provide on-site supervision, training, assistance and technical support during the installation of the pool.” It alleges that Dolphin held itself out as having the necessary skill, experience and expertise with the product and the installation process in order to oversee the installation of the pool, and that Dolphin is vicariously liable for the acts and omissions of its employee. It also alleges that it detrimentally relied on the representations and instructions of Dolphin during the process of the installation and that Dolphin owed it a contractual and common law duty of care to ensure both that the site was properly prepared and suitable for the installation of the pool, and that the pool was installed in accordance with the manufacturer’s specifications and industry standards.

[6] The third party claim seeks contribution and indemnity from Dolphin under the Negligence Act, R.S.O. 1990, c. N.1, based upon Dolphin's own negligence.

[7] The third party claim of LLT is materially the same as to Down to Earth's third party claim.

[8] In the related Insurance Action against Allstate, the plaintiffs asked for a declaration that they are entitled to coverage under the homeowners' policy of insurance issued by Allstate. In the Insurance Action, Allstate commenced a third party claim against LLT, Down to Earth and Dolphin. That third party claim against Dolphin is also for contribution and indemnity under the Negligence Act.

[9] The specific relief Dolphin asks from this Court is for:

(a) A declaration that the Agreement between Manoaka and Vissers dated March 15, 2010 is valid and subsisting;

(b) A declaration that Vissers is required to defend Manoaka in the following claims/actions, on the basis that such claims/actions allegedly arise out of, or may arise out of, the negligence of Vissers, or the negligence of Vissers’ agents, employees or representatives, with respect to the installation, sale, servicing and use of Dolphin Fiberglass Pools Canada products:

(i) An action commenced in the Ontario Superior Court of Justice (Hamilton Registry, Court File No. 16-57868) by Dean Crabbe and Caroline Crabbe (the “Crabbes”) against a number of defendants, including the third party claim of 1165298 Ontario Inc. carrying on business as Let’s Landscape Together (Court File No. 16-57868-A1) and the third party claim of Vissers (Court File No. 16-57868-A2)(the “Tort Action”);

(ii) A third party claim commenced by Allstate in the Ontario Superior Court of Justice (Hamilton Registry, Court File No. 16-57755A1), further to an action commenced against Allstate by the Crabbes in the Ontario Superior Court of Justice (Hamilton Registry, Court File No. 16-57755)(the “Insurance Action”);

(c) A declaration/order that Vissers is required to reimburse Manoaka for the defence costs and expenses incurred by it in defending the Tort Action and the Insurance Action;

(d) Pre-judgment interest in accordance with Section 128 of the Courts of Justice Act, R.S.O. 1990, c. C.43, as amended;

(e) Post-judgment interest in accordance with Section 129 of the Courts of Justice Act;

(f) The costs of this application, plus all applicable taxes and disbursements.

[10] Dolphin submits that any liability against it "arises out of" the negligence of Down to Earth and that the duty to defend it against the third party claims, pursuant to the Indemnity Provision, is triggered by the “mere possibility” of the need for a defence.

[11] Down to Earth, however, submits that on a reasonable interpretation of the Indemnity Provision, in light of relevant law, the duty to defend does not apply to a third party claim.

[12] The parties agree that on this application, the Court may accept the facts pleaded as true for the purpose of interpreting the Agreement. Further, no factual determinations that could have any substantive impact on the related litigation are required.

[13] The Agreement provides that:

The dealer/distributer agrees to hold Dolphin Fiberglass Pools Canada Harmless for any loss or claim, which arises out of its negligence or the negligence of its agents, employees or representatives with respect to the installation, sale, servicing, and use of Dolphin Fiberglass Pools Canada products. This indemnification includes providing Dolphin Fiberglass Pools Canada a defence for any such claims with said defence being expressly controlled by Fiberglass Pools Canada.

[14] Down to Earth submits that Dolphin’s interpretation of the Agreement would have the effect of converting the Agreement into a policy of liability insurance. Further, it submits that any jurisprudence relating to a liability insurer's duty to defend is irrelevant and of no assistance to this Court. As the parties are commercial entities involved in an arm's-length commercial transaction, there is no relationship requiring the utmost of good faith which would impose the duty to defend principles from the insurance law.

[15] Down to Earth submits that the relevant jurisprudence has held that in the absence of the clearest of language to the contrary, the scope of a hold harmless and indemnity agreement, including any defence obligation contained therein, is limited to liability of the indemnitee for, or arising out of, the indemnitor's negligence.

[16] Down to Earth relies on the case of Consumers’ Gas v. Peterborough, 1981 CanLII 66 (SCC), [1981] 2 S.C.R. 613, wherein the Supreme Court at page 615 endorsed the view that:

“… we know of no authority which allows a party to be indemnified for its own negligence in the absence of a contractual right thereto and we were referred to none.

The authorities to which we were referred were not similar to the instant case in that in none of the cases cited was there found to be negligence by the one claiming indemnity towards the one from whom indemnity was claimed. Further, in most of the cases cited, there were contractual warranties between the parties and damages were being claimed for breach of such warranties. … If one is to be protected against and indemnified for one's own negligence there would have to be an indemnity clause spelling out this obligation on the other party in the clearest terms. In our view there is nothing in the relationship between the parties arising out of their membership in the Co-ordinating Committee which would support a claim for indemnity for loss occasioned by the claimant's own negligence …. The bar to recovery of indemnity by Consumers is its negligence to the plaintiffs, independent of anyone else's negligence, and it cannot recover indemnity from the Commission beyond the 75 per cent allowed by The Negligence Act ….”

[17] Further, Down to Earth relies on the case of Tinkess v. N.M. Davis Corp., 2007 CanLII 8644 (ONSC) [Tinkess], which summarizes how a defence obligation in a hold harmless and indemnity agreement is to be interpreted. The defence obligation is co-extensive with the indemnity obligation. It does not apply to claims arising out of the indemnitee's own negligence. Down to Earth submits that Dolphin seeks to be defended for its own negligence.

[18] Down to Earth submits that jurisprudence relied on establishes that the defence obligation is limited only to cases of liability arising out of Down to Earth's negligence and cannot be applicable to defend against Dolphin's own negligence. There are no words in the Indemnity Provision that could reasonably lead to the conclusion that the duty to defend extends to liability which arises out of Dolphin's own negligence. On its face, the Indemnity Provision is limited to claims against Dolphin arising out of the negligence of Down to Earth: "dealer/distributer agrees to hold Dolphin Fiberglass Pools Canada harmless for any loss or claim, which arises out of its negligence or the negligence of its agents, employees or representatives."

[19] In the case of Tinkess, it is submitted that the Court held that the contractual duty to defend and the contractual duty to indemnify were co-extensive only to claims arising from the indemnitor’s own negligence. It is emphasized that the words, "arises out of its (Down to Earth’s) negligence" are used instead of words such as "arises out of its operations" or “arises out of its use of the property".

[20] In this action, the third party claims against Dolphin are each claims for contribution and indemnity under the Negligence Act in respect of the Plaintiff's claims for damages.

[21] If Down to Earth and/or LLT and/or Allstate are successful in their third party claims against Dolphin, their remedy will be that a percentage of liability will be assigned to Dolphin for its apportioned share of negligence under the Negligence Act. Down to Earth, LLT and Allstate cannot get contribution and indemnity under the Negligence Act for any part of their own negligence.

[22] I am of the view that the Supreme Court of Canada's reasons in Consumers' Gas v. Peterborough are applicable. It was held that the hold harmless and indemnity in Consumers' favour only entitled Consumers' to indemnity for amounts in excess of the 25 per cent liability that had been allocated to Consumers' under the Negligence Act. Consumers' was not entitled to seek any indemnity with respect to the 25 per cent allocated for its own negligence. Similarly, Dolphin, in this case, is not entitled to be defended for potential liability as a result of its own negligence under the Negligence Act, pursuant to the third party claim against it.

[23] Further, Down to Earth relies on the case of Kocherkewych v. Greyhound Canada Transportation Corp., 2006 BCSC 534, 35 C.C.L.I. (4th) 221, wherein the British Columbia Supreme Court held that the phrase "arising out of" imposes a causal requirement greater than a simple "but for" test, and requires "an unbroken chain of causation" that is more than "merely incidental or fortuitous."

[24] In this case, it is argued that there is no "unbroken chain of causation" between Down to Earth's alleged negligence and the claims for contribution and indemnity under the Negligence Act in respect of Dolphin's allocated share of negligence. Dolphin's allocated share of negligence is independent of any negligence by Down to Earth. This is a persuasive argument. There are no losses or claims arising out of Down to Earth's negligence to which the hold harmless and indemnity could ever potentially apply.

[25] For all of these reasons, this Application is dismissed.

Costs

[26] During the course of the proceedings the parties agreed that costs, all in, should be in the amount of $10,000.

[27] As Down to Earth was the successful party, Dolphin should pay $10,000 to Down to Earth. If the parties wish to make submissions to vary the cost award, they may make brief written submissions to me no longer than three pages in length. Down to Earth’s submissions are to be delivered by 12:00 p.m. on November 23, 2018, and Dolphin’s submissions are to be delivered by 12:00 p.m. on November 30, 2018. Any reply submissions are to be delivered by 12:00 p.m. on December 7, 2018.

Pollak J.

Date: November 15, 2018