Court File and Parties

COURT FILE NO.: CV-15-541573 DATE: 20180927 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: S.H.W. Investment Inc., Yau Wing Wong and Yau Kwan Wong, Plaintiffs AND: Lloyd’s Underwriters, Defendant

BEFORE: Nishikawa J.

COUNSEL: Rohan Haté, for the Plaintiffs Gerry Gill, for the Defendant

HEARD: July 31, 2018

Endorsement

[1] The Defendant, Lloyd’s Underwriters (“Lloyd’s”) brings this motion for an order compelling the Plaintiffs, S.H.W. Investment Inc., Yau Wing Wong, and Yau Kwan Wong (together, the “Plaintiffs”), to participate in the appraisal process, and to appoint an appraiser and an umpire pursuant to s. 128 of the Insurance Act, R.S.O. 1990, c. I.8, as amended (the “Insurance Act”).

Factual Background

[2] The Plaintiffs own three residential properties, Units 10, 12 and 14 Oxford Street, in the City of Toronto (the “Units”). The Units were destroyed by fire on December 1, 2014.

[3] At the time of the fire, the Units were insured against fire under a commercial insurance policy issued by Lloyd’s (the “Policy”).

[4] Lloyd’s retained Octagon Insurance Services (“Octagon”) to investigate the fire loss. On January 20, 2015, Octagon informed the Plaintiffs that there was no coverage under the Policy for the damage to Unit 12.

[5] On February 26, 2015, Octagon informed the Plaintiffs that coverage for Unit 10 and Unit 14 was available under the Policy, and that the amount payable in respect of those units was $204,204.80.

[6] On October 27, 2015, Octagon attempted to settle the claim for Units 10 and 14 on the terms previously communicated, and informed the Plaintiffs that the deadline for advancing a claim under the Policy was December 1, 2015.

[7] On November 30, 2015, the Plaintiffs issued a Notice of Action. A Statement of Claim was issued shortly thereafter.

[8] In April 2016, the Plaintiffs also commenced an action against their insurance broker, Broker Team Insurance Solutions Inc., and agent, James Hui (together, the “Broker”), alleging that the Broker failed to explain how “actual cash value” is calculated in the event of a total loss resulting from fire or otherwise.

[9] From June 2016 to April 2017, Lloyd’s wrote to the Plaintiffs numerous times in an effort to ascertain the Plaintiffs’ position as to whether there was a disagreement on the value of Units 10 and 14. In November 2016 the Plaintiffs informed Lloyd’s that they would not resolve the value of Units 10 and 14 separately from the claim for Unit 12.

[10] Lloyd’s wrote to the Plaintiffs on May 25, 2017 suggesting that a call be convened to discuss the appraisal process.

[11] In August 2017, the Plaintiffs sent Lloyd’s two reports: one from Goran Milivojevic of Exer Construction Inc., and the other from Lansink Appraisals and Consulting. The reports were filed as expert reports in both this proceeding and the proceeding against the Broker.

[12] On February 6, 2018, Lloyd’s sent the Plaintiffs written notice of its election of an appraisal, the identity of its appraiser and proposed umpire, and demanded that the Plaintiffs appoint an appraiser.

[13] To date, the Plaintiffs have not appointed an appraiser on their behalf. The crux of the parties’ dispute is that the Plaintiffs do not want to proceed with an appraisal of Units 10 and 14, or any resolution of the claims in relation to those Units, without including Unit 12. Lloyd’s wishes to proceed with the appraisal process for Units 10 and 14. The Plaintiffs also allege delay on the Defendant’s part in invoking the appraisal process.

[14] The Plaintiffs argue that they will be prejudiced if the appraisal is ordered because they will not be able to rely upon their two expert reports. Since the Broker has advised that it will not be bound by the results of the appraisal, the Plaintiffs also argue that there will be further protracted and expensive litigation to decide whether the Broker is bound.

Issues

[15] The issues to be determined on this motion are:

(i) Whether the loss in respect of Units 10 and 14 should be determined by appraisal; and (ii) If so, what timeline and process is to be followed.

Analysis

Should the Loss be Determined by Appraisal?

[16] Section 128 of the Insurance Act states as follows:

Contracts providing for appraisals

128. (1) This section applies to a contract containing a condition, statutory or otherwise, providing for an appraisal to determine specified matters in the event of a disagreement between the insured and the insurer.

Appraisers, appointment

(2) The insured and the insurer shall each appoint an appraiser, and the two appraisers so appointed shall appoint an umpire.

Appraisers, duties

(3) The appraisers shall determine the matters in disagreement and, if they fail to agree, they shall submit their differences to the umpire, and the finding in writing of any two determines the matters.

[17] Section 148 of the Insurance Act contains the statutory conditions that each insurance contract made in Ontario must contain. This includes the following condition (“Statutory Condition 11”):

11. In the event of disagreement as to the value of the property insured, the property saved or the amount of the loss, those questions shall be determined by appraisal as provided under the Insurance Act before there can be any recovery under this contract whether the right to recover on the contract is disputed or not, and independently of all other questions. There shall be no right to an appraisal until a specific demand therefor is made in writing and until after proof of loss has been delivered.

[18] The Policy incorporated Statutory Condition 11’s wording.

[19] Courts have found that the appraisal process is mandatory: 56 King Inc. v. Aviva Canada Inc., 2016 ONSC 7139, 62 C.C.L.I. (5th) 163, at paras. 23-24, aff’d 2017 ONCA 2627, 68 C.C.L.I. (5th) 197, at para. 5. The appraisal process is intended to “provide an expeditious and easy manner for the settlement of claims for indemnity under insurance policies” and to be a “final and binding determination of the loss: Seed v. ING Halifax Insurance (2005), , 78 O.R. (3d) 481 (Div. Ct.), at para. 23.

[20] Subsection 128(5) of the Insurance Act allows the court to appoint an appraiser upon the application of the insurer or the insured, where the other party has refused to do so. The court may also appoint an umpire where the appraisers fail to agree on an umpire.

[21] In 854965 Ontario Ltd. v. Dominion of Canada General Insurance Co. (2003), , 64 O.R. (3d) 234 (S.C.J.), at para. 25, Kennedy J. considered the application of s. 128(5) and noted as follows:

The appraisal process is contemplated, by the terms of statutory condition #11, to take place prior to any recovery under the contract, whether there is any dispute as to the ability to recover on the contract, and independently of all other questions. The appraisal process commonly determines value, but leaves question[s] of entitlement and defences to recovery under the contract to a lawsuit under the contract of insurance. The appraisal process can take place concurrently with a lawsuit dealing with the insured’s claim to recover under the contract and an insurer’s defences to payment. There is little, if any, discretion to refuse an application for the appointment of an appraiser or umpire under s. 128.

[22] Given the mandatory nature of the appraisal, and Lloyd’s admission that coverage is available for Units 10 and 14, the valuation of the Plaintiffs’ loss must proceed by way of appraisal. Based on the language of Statutory Condition 11, once an appraisal is invoked, there is no right to recover without an appraisal. An appraisal will determine the valuation for Units 10 and 14, and reduce the issues in dispute between the parties in this proceeding.

[23] The prejudice alleged by the Plaintiffs is speculative because it turns on the Broker’s non-acceptance of the appraisal and the possibility of conflicting results in relation to the valuation of Units 10 and 14. Contrary to the Plaintiffs’ position, the action against the Broker has no impact on whether or not an appraisal should be ordered. The cause of action alleged against the Broker is based on negligence in advising the Plaintiffs about their insurance coverage, and is distinct from the issues in this proceeding. Section 128 of the Insurance Act states that the appraisal is a mechanism to resolve a disagreement between the insured and the insurer. The Broker does not have standing to participate in the appraisal process. In any event, the Broker has elected not to take a position on this motion, and has not advanced potential prejudice as a reason for preventing the appraisal.

[24] There is no basis to the Plaintiffs’ objection that the Defendant’s election to proceed by appraisal was made too late. Neither the Policy nor the Insurance Act provides a time limit within which an election must be made. Absent proof of prejudice, delay in invoking the appraisal is not a factor: 56 King, 2016 ONSC 7139, 62 C.C.L.I. (5th) 163, at paras. 26-27; Winnipeg Regional Health Authority v. Temple Insurance Co. Inc., 2011 MBQB 92, 98 C.C.L.I. (4th) 37, at paras. 16-21. In Winnipeg Regional Health, the appraiser was appointed even though the motion was brought 6 ½ years after the date of the loss.

[25] In any event, Lloyd’s has not delayed in invoking the appraisal. The Plaintiffs did not advise until November 3, 2016 that they were retaining their own appraiser to challenge Lloyd’s evaluation. The report was not delivered until July 6, 2017. Until then, Lloyd’s would not have been in a position to know that there was a disagreement as to the valuation and thus could not have invoked the appraisal process. Moreover, this proceeding remains in its early stages. As of the date of the motion hearing, affidavits of documents have not been exchanged, and examinations for discovery have not been conducted.

What is the Appropriate Process and Timeline?

[26] Based on the foregoing, I grant the Defendant’s motion and order the following:

(a) The Plaintiffs shall appoint an appraiser on their behalf and at their expense within seven days of the date of this order, or no later than October 9, 2018; (b) If the Plaintiffs fail to appoint an appraiser by October 9, 2018, Mr. Goran Milivojevic of Exer Construction Inc. shall be appointed as the appraiser on behalf of the Plaintiffs; (c) Within 15 days of the Plaintiffs’ appointment of an appraiser or no later than October 24, 2018 the Plaintiffs’ appraiser and the Defendant’s appraiser will jointly select an umpire; and (d) The parties shall comply with the provisions of s. 128 and s. 148, Statutory Condition 11, of the Insurance Act.

[27] Lloyd’s has requested that the order include a term permitting Lloyd’s to unilaterally appoint an umpire in the event that the appraisers fail to jointly appoint an umpire. I decline to order this relief at this time, since s. 128(2) of the Insurance Act is clear that this is to be done by the appraisers. There is no reason to believe that the appraisers would not comply with their statutory obligation. If the appraisers fail to appoint an umpire, Lloyd’s may seek further relief from the court without bringing a new motion.

Costs

[28] Both parties submitted costs outlines at the hearing of the motion. Lloyd’s seeks $17,649.92 in costs on a substantial indemnity basis. Lloyd’s costs on a partial indemnity basis total $11,648.95. All amounts include disbursements and HST.

[29] Substantial indemnity costs may be warranted where a party has engaged in reprehensible, scandalous, or outrageous conduct in the proceeding: Davies v. Clarington (Municipality), 2009 ONCA 722, 100 O.R. (3d) 66, at paras. 28-29. I do not find any reprehensible conduct on the part of the Plaintiffs that would be worthy of sanction. An award of costs on a substantial indemnity basis is not warranted in the circumstances.

[30] Pursuant to Courts of Justice Act, R.S.O. 1990, c. C.43, s. 131(1), the court has broad discretion when determining the issue of costs. The overall objective of fixing costs is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the circumstances, rather than an amount fixed by actual costs incurred by the successful litigant: Boucher v. Public Accountants Council for the Province of Ontario (2004), , 71 O.R. (3d) 291 (C.A.), at para. 26. Rule 57.01(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, sets out the factors to be considered by the court when determining the issue of costs. I have considered these factors, as well as the principle of proportionality in r. 1.04(1.1) of the Rules of Civil Procedure, while keeping in mind that the court should seek to balance the indemnity principle with the fundamental objective of access to justice.

[31] Lloyd’s was successful on the motion, which was not complex. The Plaintiffs’ partial indemnity costs, at approximately $4,000.00, were significantly less than Lloyd’s. However, Plaintiffs’ counsel did not prepare a factum. It does not appear that either party engaged in steps that would prolong the proceeding.

[32] Based on the foregoing, I fix total costs on a partial indemnity basis at $10,000.00, inclusive of disbursements and HST. This includes costs incurred in the preparation of the costs submissions.

Nishikawa, J. Date: September 27, 2018