Court File and Parties

Court File No.: CV-13-493849 Date: 2018-09-28 Ontario Superior Court of Justice

Between: 2049390 ONTARIO INC., Plaintiff – and – DORIS LEUNG AND PACIFIC INSURANCE BROKER INC., Defendants

Counsel: R. Lee Akazaki, for the Plaintiff Barry B. Papazian and Michael Krygier-Baum, for the Defendants

Heard: February 12-16, 20-23 and 19, 2018

Favreau J.:

Introduction

[1] The plaintiff is the owner of a property at 369 Queen Street West, in Toronto. On October 30, 2012, the building on the property was destroyed by a fire. Following the fire, the plaintiff's owner, James Kan, was advised by the insurer, The Dominion of Canada General Insurance Company (“Dominion”), that the building was underinsured. Dominion then paid out the face value of the insurance policy. To date, the plaintiff has not rebuilt on the property.

[2] The defendants, Doris Leung and Pacific Insurance Broker Inc. ("Pacific"), are the insurance broker and the brokerage firm she worked for who sold the Dominion insurance policy to the plaintiff.

[3] The plaintiff claims that the defendants breached their contractual obligations and were negligent in failing to advise the plaintiff that it should obtain an estimate of the cost of reconstruction from a professional to ensure that it had sufficient insurance coverage.

[4] Ms. Leung says that she advised Mr. Kan on a number of occasions that she was not an expert in the cost of reconstruction, and that he should get a reconstruction estimate if he wanted an accurate estimate. The defendants claim that, in any event, Mr. Kan was a sophisticated real estate agent and mortgage broker, and that he should have known to take necessary measures to ensure that the building was not underinsured, but that Mr. Kan's primary concern was to keep his costs down.

[5] For the reasons that follow, I find that the plaintiff has not demonstrated that the defendants breached any contractual obligations or were negligent in the advice they provided to the plaintiff about its insurance needs and coverage, and, in any event, the plaintiff has not demonstrated that it suffered any damages caused by the defendants.

Factual background

[6] There are many facts in dispute between the parties that turn largely on matters of credibility. This section sets out a general overview of the chronology of events leading to the dispute between the parties, which is primarily based on undisputed evidence. Further below, the factual matters in dispute relevant to the resolution of the case are addressed in more detail.

The plaintiff and the building on Queen Street

[7] Mr. Kan is the sole shareholder of the corporate plaintiff. He is a licensed real estate agent and mortgage broker.

[8] Mr. Kan's mother was the original owner of the building at 369 Queen Street West. In 2004, Mr. Kan's mother transferred her interest in the property to the corporate plaintiff. Following the death of Mr. Kan's mother in 2005, the property was held in trust through the plaintiff for the benefit of Mr. Kan and his brother, Patrick Kan. At the time of her death, Mr. Kan's mother left another property on Kennedy Road to be held in trust by another company for her two sons and their sister.

[9] Up until around 2007, Mr. Kan claims that he had very little interest in the property at 369 Queen Street West, but, despite his brother's suggestions, he did not want to sell the property out of a sense of loyalty to his mother. Up until that time, the Queen Street and Kennedy Road properties were managed by Frank Pa, who was a mortgage broker and an associate of Mr. Kan's brother. Around 2008, at his brother's request, Mr. Kan took on more responsibility for the Queen Street building, and by 2011 he acquired his brother's interest and became the sole shareholder of the plaintiff.

[10] The Queen Street property is in a commercial area in Toronto's downtown core. In 2008, the three storey building had retail space on the ground floor and residential apartments on the second and third floors. After Mr. Kan became more involved in the building, he took over the second and third floors, and had some renovation work done on the building. Initially, his intention was to set up office space for himself on the third floor and a gift shop for a friend on the second floor, but ultimately the two floors were rented out to a commercial tenant that operated a salon and spa.

[11] By 2012, the building had undergone renovations, with significant improvements to the façade and interior. The ground floor was occupied by a Roots clothes store, and the second and third floors were rented out to the company that ran a salon and spa.

Doris Leung and Pacific

[12] Pacific is an insurance brokerage firm. Pacific's principal is Ralph Hui.

[13] Doris Leung is a licensed insurance broker. She was employed by Pacific from 2004 to October 15, 2012.

[14] Ms. Leung and Pacific had been insuring the Kennedy Road property since 2005. Up until 2008, Mr. Pa had made the arrangements for this insurance.

History of insurance on the Queen Street building

[15] From 2006 to 2008, the Queen Street property was insured by ING Insurance. Mr. Pa made the arrangements for insurance on the property through the insurance brokerage firm Broker Team Insurance Solutions Inc. ("Broker Team"). James Hui is the principal of Broker Team. James Hui testified as a witness at trial.

[16] In 2006, under the ING policy, the Policy Building Limit was $484,531, and by 2008, it had increased to $550,000 due to inflation.

[17] In 2008, the plaintiff refinanced the Queen Street property. As part of the refinancing, the plaintiff was required to "insure and keep insured … the mortgaged property, in an amount not less that the Replacement cost". James Hui's evidence is that he spoke to Mr. Pa about this. Mr. Hui provided an estimate to Mr. Pa based on $200/square foot plus 10%, which totaled $924,000. Mr. Hui's evidence was that he cautioned Mr. Pa that this was an estimate, but that he should get a professional appraisal to confirm the amount. In any event, in 2008, as a result of the refinancing requirements, the ING policy building limit increased to $924,000, with the premium payable set at $4,673 plus HST.

[18] In January 2009, ING issued a policy for the Queen Street property with building coverage of $984,060 at a premium of $5,137.56. There is some dispute over whether the documents setting out the new building limit and premium came to the plaintiff's attention.

[19] In late 2008, the plaintiff started making enquiries to obtain alternative insurance for the Queen Street property. Initially, in December 2009, Mr. Kan had communications with a broker at the New World brokerage firm.

[20] Ultimately, through Mr. Kan, in late January 2009, the plaintiff contacted Ms. Leung at Pacific to find new insurance. Ms. Leung made arrangements for Dominion to insure the building. In 2009, the coverage included a building limit of $850,000 and rental coverage of $300,000, with a premium payable of $2,888 plus tax.

[21] In the following years, the coverage increased due to inflation and to adjustments requested by Mr. Kan in 2011. The coverage and premiums were as follows:

a. 2010: Building limit of $901,000 with a premium of $3,068 plus tax; b. 2011: Building limit of $1,045,060 with a premium of $3,761 plus tax; and c. 2012: Building limit of $1,107,764 with a premium of $4,017 plus tax.

Fire and its aftermath

[22] On October 30, 2012, a catastrophic fire destroyed the building. The police later determined that the cause of the fire was arson. The cause of the fire is not relevant to the issues in dispute between the parties.

[23] Following the fire, Dominion took the position that the plaintiff was underinsured on the basis that the cost of reconstruction would exceed the building limit of $1,107,764. In accordance with the terms of the policy, rather than assisting the plaintiff with rebuilding the property, Dominion paid out the full policy limits of $1,438,358, which included $1,157,613.38 for the building loss (representing $1,107,764 plus $49,849.28 as an inflation adjustment), plus an amount for lost rents minus a co-insurance penalty.

[24] Since the fire, Mr. Kan has made some efforts to rebuild on the property. However, to date, the lot remains vacant.

Positions of the parties

[25] The plaintiff's position is that the defendants are liable in contract and in negligence for failing to provide proper advice about the need for sufficient insurance coverage. Relying on an expert in the insurance brokerage industry, the plaintiff argues that Ms. Leung fell below the standard of care because she ought to have advised Mr. Kan to consult a building reconstruction expert to get an accurate estimate of the value of the building. The plaintiff asserts that Ms. Leung's failure to provide such advice is the cause of its underinsurance and the delay in rebuilding. The damages sought by the plaintiff include the difference between the payout by Dominion and the cost of rebuilding, and the rents it claims to have lost since the fire.

[26] The defendants claim that Ms. Leung did in fact recommend to Mr. Kan that he get an accurate estimate for the cost of reconstructing the building. They argue that, in any event, Mr. Kan was a sophisticated client, with experience as a real estate agent and mortgage broker, and that he understood the need for an accurate valuation of the building. They further argue that, even if Ms. Leung had an obligation to provide this advice to the plaintiff and she failed to do so, she did not cause the plaintiff's losses because Mr. Kan would not have followed her advice as the plaintiff was primarily motivated to save money in seeking insurance coverage.

Issues

[27] In order to make out a claim in negligence, the plaintiff must demonstrate that the defendants owed the plaintiff a duty of care, that they breached the duty of care and that the breach caused the damages suffered, and the plaintiff must also prove the quantum of damages and that it took reasonable steps to mitigate its damages.

[28] In this case, there is no dispute that the defendants owed the plaintiff a duty of care. However, there is some disagreement over the applicable standard of care and there is significant disagreement over whether the defendants met the standard of care, caused the plaintiff's damages, the scope of damages and the plaintiff's mitigation efforts.

[29] While the plaintiff's claim is framed in contract as well as negligence, the claim is fundamentally a negligence claim. The plaintiff does not point to any specific provision in the documents between the plaintiff and Pacific that stipulate that Pacific was obligated to ensure that the plaintiff was fully insured. Rather, the plaintiff relies on general statements in a consent to use the plaintiff's information form and a document setting out the broker's commission to the effect that Pacific's brokers "strive to provide you insurance products and services that are suitable, affordable and adequate" and to provide "products that are tailored to their needs". Framed in such generalities, the claim in contract is effectively the same as the negligence claim. The issue comes down to whether the defendants met the standards expected of insurance brokers in the circumstances of this case.

[30] Accordingly, the issues in this case are as follows:

a. Whether the defendants met their obligations to the plaintiff; b. Whether the defendants caused the plaintiff's damages; and c. What, if any, damages the plaintiff suffered.

Did the defendants breach the standard of care?

General principles

[31] There is no dispute that insurance brokers owe a duty of care to their clients. The leading authorities on the duty owed by insurance brokers to their clients are Fine Flowers Ltd. v. General Assurance Co. of Canada, [1977] 17 O.R. (2d) 59 (C.A.) and Fletcher v. Manitoba Public Insurance Co., [1990] 3 S.C.R. 191. In Fletcher, Wilson J. described the duties of insurance brokers as follows:

54 In my view, Fine Flowers stands for the proposition that private insurance agents owe a duty to their customers to provide not only information about available coverage, but also advice about which forms of coverage they require in order to meet their needs. I note that Professor Snow has summarized the effect of Fine's Flowers in "Liability of Insurance Agents for Failure to Obtain Effective Coverage: Fine's Flowers Ltd. v. General Accident Assurance Co." (1979), 9 Man. L.J. 165, in the following terms, at p. 169:

The implication of this case and many others like it in recent years seems clear. Consumers who place their faith in insurance agents holding themselves out as competent and find their faith misplaced, will frequently be able to find recourse against the agent. ... [T]he extent of the duty owed by an insurance agent, both in placing insurance and in indicating to the insured which risks are covered and which are not, as set out in this case, is a fairly stringent one for the agent. Moreover, given the general situation of the principal relying very heavily on the expertise of the agent, it does not seem to be an unreasonable burden for an insurance agent to bear.

57 In my view, it is entirely appropriate to hold private insurance agents and brokers to a stringent duty to provide both information and advice to their customers. They are, after all, licensed professionals who specialize in helping clients with risk assessment and in tailoring insurance policies to fit the particular needs of their customers. Their service is highly personalized, concentrating on the specific circumstances of each client. Subtle differences in the forms of coverage available are frequently difficult for the average person to understand. Agents and brokers are trained to understand these differences and to provide individualized insurance advice. It is both reasonable and appropriate to impose upon them a duty not only to convey information but also to provide counsel and advice.

[32] In CIA v. Lawrie, 2010 ONSC 3639 (Sup. Ct.), Whitten J. summarized the principles flowing from Fine Flowers and Fletcher as follows:

14 From the above, one deduces a strong element of service on the part of the agent. This element requires clear communication as to the limits and absence of coverage. It also requires advice and assistance in addressing any gaps.

15 The finding of a breach of the duty required of an agent is obviously contextual. From the preceding authorities, the duty is obviously quite high. The case law, unlike in the case of other professionals such as lawyers and doctors, does not reference the conduct complained of to that of a reasonable member of the profession. Such a reference may be useful but the emphasis is on reasonableness. It is very much a focus on the communication between the parties.

[33] Accordingly, the duty of care owed by brokers to their clients is stringent, and it includes providing advice about what coverage will meet their needs, and communicating about the limits or absence of coverage. The analysis involved in assessing whether an insurance broker met his or her obligations in any given case is contextual.

Expert evidence

[34] In this case, the specific issue is what, if any, advice an insurance broker should provide to a client about obtaining adequate coverage for the replacement costs of a building in the event of damage or destruction.

[35] The plaintiff relies on the expert opinion of Stephen White. Mr. White is a long time consultant in the area of insurance underwriting and brokering.

[36] Mr. White's opinion is that insurance brokers do not have the expertise to advise their clients on replacement costs or the cost of rebuilding, and that they should therefore not provide any such advice. Rather, his opinion is that the standard of practice requires insurance brokers to advise clients about the importance of having coverage that protects the full value of their property, to advise that they are not qualified to provide advice on the value of property and to recommend that clients retain the services of a reconstruction cost consultant in order to obtain an accurate estimate of the costs of reconstruction.

[37] The defendants retained Frank Szirt as an expert. Mr. Szirt has lengthy experience in the area of insurance underwriting, which includes experience dealing with the duties of insurance brokers.

[38] Mr. Szirt was not available for trial due to medical issues. However, the parties agreed that, subject to the plaintiff’s ability to challenge him as an expert, if I did qualify him, his written report could go in as the defendants' expert evidence on the standard of care to be met by insurance brokers. The plaintiff's primary objection to Mr. Szirt's report was that he appeared to address the ultimate issue to be decided by me at trial by providing his views, based in part on a review of the discovery transcripts, that Ms. Leung did not fall below the standards of care. In the context of the voir dire, I qualified Mr. Szirt as an expert, but I indicated that I would disregard the aspects of his opinion in which he purports to state that Ms. Leung met the standard of care.

[39] The opening portion of Mr. Szirt's report deals generally with what, if any, advice insurance brokers can provide to their clients about the value of their property or replacement costs. Mr. Szirt's opinion is that insurance brokers are not qualified to provide advice to their clients about the replacement value of property. In this respect, his view on the standard of care applicable to insurance brokers is not significantly different from Mr. White's opinion. While he is not as adamant as Mr. White in suggesting that insurance brokers have a duty to advise their client to obtain the advice of a cost consultant, he suggests that doing so is a best practice. In his report, Mr. Szirt states as follows:

It is an accepted tenet in the insurance industry that the responsibility for determining the limits which accurately reflect the values exposed to risks fall on the insured. This is because the special knowledge necessary to determine insurable values resides in the insured, it is the insured who is in the best position to choose the limit(s) which provides adequate protection. And, since the adverse financial consequences arising from the underinsured property will be borne by the insured, this is a non-transferrable responsibility.

The responsibility of brokers is confined to arranging insurance coverage the scope of which, within market availability, fully respond to the needs of their clients. This is the function they are qualified for by their training, licensing requirements and mandatory continuing education.

Concerning real property, brokers are untrained in property appraisal and thus lack the requisite expertise to assess their clients' values at risk. Similarly, brokers cannot provide any meaningful advice about their clients' appropriate business interruption limit, given that it is based on financial information to which the insured, and not the insurance broker, is privy. Consequently, if insureds require assistance in determining the appropriate limits, they must seek it from professional appraisers for real property and their accountants for business interruption.

In short, the proper role of brokers is to explain to their clients the need for insurance to full value. In terms of their involvement in establishing policy limits, the fail-safe recommendation is to obtain professional advice - appraisal for property and accounting for business interruption. (emphasis added)

[40] Accordingly, there is no dispute between the parties that insurance brokers are not qualified to give replacement cost advice to clients. They also both agree that it is, at the very least, a best practice to advise clients about the need to obtain expert advice on this point. The disagreement between them appears to be whether recommending the services of a cost consultant is necessary in all circumstances.

[41] As discussed below, this difference in opinion is not material to my determination in this case.

Positions of the parties on whether Ms. Leung met the standard of care

[42] The defendants' primary position is that Ms. Leung did meet the standard of care, even as it is described by Mr. White, because she did advise Mr. Kan about the need to insure the building for its actual replacement cost and recommended to Mr. Kan that the plaintiff retain an expert to get an opinion about the replacement costs of the building. In this respect, the defendants rely on discussions Ms. Leung says she had with Mr. Kan at the time the insurance was first placed on the property and at the time of each renewal, and on documents provided to Mr. Kan when the insurance was initially placed on the property and at each renewal.

[43] In contrast, Mr. Kan's evidence is that Ms. Leung never provided this advice. He claims that, on the contrary, when he first had discussions with Ms. Leung about the amount of insurance to be placed on the property, she suggested the amount of $850,000 without qualification. He inquired about placing a higher amount, and Ms. Leung told him that Dominion would not insure the property for more. He further testified that he did not read the coverage documents when he received them from the defendants, and that he expected Ms. Leung to bring anything important to his attention.

[44] The significant differences between the evidence of Ms. Leung and Mr. Kan turn on issues of credibility and reliability. Having carefully considered their evidence and the evidence of other witnesses, I find that, on balance, Ms. Leung's evidence is more reliable and credible.

The defendant's evidence of communications with Mr. Kan regarding building limits

[45] Ms. Leung's evidence is that, prior to January 2009, she had arranged for insurance on the Kennedy Road property but never on the Queen Street property. Up until then, she had dealt with Mr. Pa and never with Mr. Kan. Earlier in 2008, she had made arrangements to switch the coverage on the Kennedy Road property from another insurer to Dominion.

[46] She was first contacted about the Queen Street property by Mr. Kan on January 20, 2009. He sent a late night email in which he requested that she get a quote for insurance on the Queen Street property from Dominion. He indicated that the policy was to expire in February 2009. Accordingly, when the request came, there was a sense of urgency.

[47] Initially, there was a brief delay in obtaining the quote from Dominion, because Dominion had already provided a quote on the Queen Street property to New World, and Pacific was therefore blocked from getting another quote on the property. Ultimately, New World released its interest in the quote, and Ms. Leung worked on getting a quote from Dominion for the plaintiff.

[48] In preparing the request for a quote from Dominion, Ms. Leung obtained information from Mr. Kan about the property and asked him for the current insurance policy.

[49] Ms. Leung also spoke to James Hui, the principal of Pacific, regarding a building limit estimate, and Mr. Hui made reference to a $200 per square foot “rule of thumb”. She then spoke to Mr. Kan about insuring the building for $850,000, based on the $200 per square foot figure provided by Mr. Hui. Her evidence is that she also told Mr. Kan that she was not an expert in determining building limits and that he should consult a cost expert if he wanted an accurate estimate.

[50] Ms. Leung also discussed rental insurance coverage with Mr. Kan, and offered to obtain a quote for two years of coverage, but Mr. Kan refused the two years and indicated that he would be satisfied with one year.

[51] Ms. Leung then requested the quote from Dominion, seeking coverage for a building limit of $850,000 and one year rental coverage of $300,000.

[52] Dominion responded with a quote, indicating that it could provide the coverage requested at a premium of $2,888. On January 26, 2009, Ms. Leung sent the quote to Mr. Kan, and the next day he instructed her to accept it on the plaintiff's behalf.

[53] On January 29, 2009, Ms. Leung and Mr. Kan had an in person lunch meeting. Ms. Leung's evidence is that, at the meeting, she reviewed the quote with Mr. Kan. As part of the review, she discussed the concept of co-insurance with him. Co-insurance means that, where a property is underinsured, the insured is required to pay a penalty in the event of a claim, thereby creating an incentive for property owners to be insured to the full value of their property. In this case, the policy provided that the plaintiff would face a penalty in the event the property was underinsured by more than 10%. Therefore, their discussion about co-insurance included a warning about the need to insure the full value of the property to avoid a penalty. Ms. Leung’s evidence is that, once again, she also told Mr. Kan that the defendants were not cost consultant professionals and that he should consult a cost consultant or professional appraiser to get an accurate estimate of the cost of rebuilding the property. Ms. Leung also testified that, at the lunch meeting, Mr. Kan showed her a copy of the 2008 ING policy with coverage in the amount of $550,000. She testified that this was the first time she saw the plaintiff’s prior policy, and that she was never shown the 2008 revised ING coverage of $924,060 or the 2009 proposed coverage in the amount of $984,060.

[54] Following the lunch meeting, in a letter dated February 23, 2009, Ms. Leung confirmed the insurance coverage. The letter cautioned the plaintiff to examine Dominion's policy and to notify Pacific of any changes. The letter also included a warning about co-insurance, stating that “if you have not insured your property up to the amount of insurance required, you may become a CO-INSURER”. Enclosed with the letter was a "Guide to Co-insurance", that included the following caution:

A regular and careful review of the value of your insured property is essential if Co-Insurance penalties are to be avoided. We recommend your insurable values be frequently reviewed by a competent, independent appraisal company.

[55] Ms. Leung's evidence is that, in accordance with her usual practice, at the time of the subsequent renewals, she would have had an in person meeting or telephone conversation with Mr. Kan and cautioned him about the need to have an accurate assessment of the value of the property. In addition to verbal discussions, each year, the correspondence dealing with renewal contained the following caution:

Renewal represents an opportunity to review your policy. It may be the case that the existing policy limits (rental, business interruption, etc.) location occupancy or even the description of operations have changed over time. Therefore, we request that you examine your policy carefully and notify our office should you like to make any changes to it…"

[56] In addition, following each renewal, the confirmatory documents included the Guide to Co-insurance with the recommendation to review the value of property with an appraisal company.

[57] During cross-examination, Ms. Leung was not able to confirm that she actually spoke to Mr. Kan before all of the renewals. However, otherwise, her evidence was generally consistent that she advised Mr. Kan that the initial $850,000 coverage was just an estimate and that he should consult an expert to get an accurate assessment, that she would have had similar conversations at the time of renewal because it was her practice to do so, and that he was provided with the documents referred to above advising him to review the value of his property upon renewal.

The plaintiff’s evidence of communications regarding building limits

[58] Mr. Kan's evidence is that he took over responsibility for getting insurance on the property sometime in late 2008. In his evidence, Mr. Kan said that he sought out insurance for the property at his brother's request because his brother wanted him to become more involved in the management of the property. Mr. Kan testified that he agreed to do so because he saw this as a learning opportunity; it would allow him to learn more about insurance. I note that Mr. Kan's brother was not called as a witness at trial, and that Mr. Kan testified that he has been estranged from his brother since 2011.

[59] Mr. Kan claims that he knew very little about insurance at the time he became involved. He testified that Mr. Pa had given him some documents, but that he did not know what they were. He also denied knowing anything about the $924,060 limit on the revised ING policy in 2008 and the $984,060 limit in the 2009 renewal. He claimed that he showed Ms. Leung the $550,000 2008 policy because that was the policy provided to him by Mr. Pa. I note that Mr. Pa was also not called as a witness at trial and that Mr. Kan testified that he has not had any communications with Mr. Pa since 2011.

[60] Mr. Kan's evidence is that his initial discussions with Ms. Leung in 2009 were very perfunctory. She never told him that she was not competent to provide an estimate of the value of the property or that the plaintiff should obtain an independent valuation from a professional. In fact, Mr. Kan's evidence at trial was that, when the insurance was initially placed on the property, Ms. Leung said that Dominion would not go any higher than $850,000. He also claims that they did not talk much about the insurance coverage during the January 29, 2009 lunch meeting, but talked primarily about family and personal matters. He stated that he never read any of the documents referred to above sent by Ms. Leung, and says that Ms. Leung never drew any parts of the documents to his attention.

[61] I found that Mr. Kan's evidence lacked an air of reality, and that it was often internally inconsistent or contradicted by other evidence.

[62] First, Mr. Kan's claim that he lacked knowledge about insurance generally and the ING coverage specifically is inconsistent with other evidence. For example, in late 2008, Mr. Kan's assistant made a request for the ING policy. While there is no evidence of what was provided in response, there is no reason to believe that he was not provided with the policy setting out the $924,060 limit which was in place by that time. In addition, James Hui's evidence is that Mr. Pa or Mr. Kan, but likely Mr. Kan, contacted him to tell him that the plaintiff was cancelling the ING policy because the premiums were too high. Given the timing of the plaintiff’s search for new insurance on the Queen Street property, it is reasonable to conclude that Mr. Kan was motivated by a desire to reduce insurance costs. As indicated above, during the course of 2008, the ING policy increased from $550,000 to $924,000, with a corresponding premium increase of $1,215 for that year. Looking at this evidence as a whole, it appears more likely than not that Mr. Kan was aware of the higher insurance limit and premium, and that he was looking for coverage with a lower premium. It is hard to believe that he simply looked for new insurance at his brother’s behest, armed with scant information about the current coverage, and no other motivation than a desire to learn more about insurance.

[63] The second reason I do not find Mr. Kan's evidence credible is that his position that Ms. Leung never told him to consult a costing professional and that she told him that Dominion would not increase the limit is inconsistent with his discovery evidence. At discoveries, Mr. Kan never mentioned that Ms. Leung told him the insurance amount could not be increased. Rather, his evidence was that he did not remember much of what Ms. Leung told him:

727.Q: And then - do you have any recollection of discussing 850,000 once it was - how it came about?

A: Well, basically, I just leave it to the brokerage to tell me how much insurance is needed.

728. Q: And you remember Doris telling you that, $850,000?

A: Well, it's been like four years ago, and I don't recall exactly what had happened, what she told me, what she hasn't told me, but she gave me verbal information. Basically, everything's been on e-mail. Okay.

[64] Third, Mr. Kan's suggestion that Ms. Leung said that Dominion would not insure the building for more than $850,000 simply makes no sense. At trial the defendants called Katie Wong as a witness. Ms. Wong was the Dominion underwriter who provided the quote for the initial coverage. In her evidence, Ms. Wong stated that Dominion would not limit the amount of coverage on a property. Ms. Leung’s evidence is that insurance brokers get higher fees on higher insurance coverage, and therefore she would have no incentive to tell Mr. Kan that the coverage could be no higher than $850,000. In addition, on two occasions, Mr. Kan specifically requested increases to the limits on his insurance, and the limits were increased both times. In the first instance, he sought to insure new windows that had been installed, and the coverage was increased by $10,000, and in the second instance he sought additional content coverage and the coverage was increased by $90,000. I also note that the coverage was increased in each subsequent year to reflect the rate of inflation. In any event, if the plaintiff's motivation was to have higher coverage, it would simply have maintained the ING coverage, which was already higher.

[65] Fourth, I also find Mr. Kan's evidence of what was discussed at the January 29, 2009 lunch with Ms. Leung to lack an air of reality. The evidence from both of them is that there was some urgency to getting the insurance in place before the end of January, and so communications up to that point had occurred via email and on the phone. The meeting was the first opportunity for them to meet face to face, other than a brief prior meeting when Mr. Kan dropped off the cheque for the premiums. I have already reviewed above Ms. Leung's evidence of what occurred at the meeting. In contrast, Mr. Kan says that the lunch lasted about one hour, but that they did not talk much about insurance and mostly talked about family and other personal matters. Given Mr. Kan's evidence that he was willing to take responsibility for obtaining insurance on the property because he had an interest in learning about insurance, his evidence about what happened at the lunch meeting is surprising. In any event, given that this was their first in person meeting, it hard to believe that they did not discuss matters related to the insurance coverage.

[66] Fifth, I also note that Mr. Kan’s position that he relied on Ms. Leung to provide him with advice about reconstruction costs and that he was not aware of his responsibility for obtaining such advice independently is inconsistent with his own behaviour. As indicated above, after the insurance was place on the property, on two occasions, Mr. Kan requested an increase in coverage to reflect work that had been done on the property. These requests show not only that he was aware of his obligations, but that he was in fact in a good position to assess whether his insurance coverage was sufficient given his own role in supervising the renovations on the property.

[67] Accordingly, I did not find Mr. Kan’s evidence about his communications with Ms. Leung credible or reliable.

Whether the defendants can rely on the documents sent to the plaintiff

[68] The plaintiff suggests that the defendants should be precluded from relying on the various documents sent by Ms. Leung setting out warnings about the need to ensure that the amount of coverage reflects the value of the property, including the Guide to Co-Insurance which recommends retaining a cost consultant. In support of this argument, the plaintiff relies on a number of cases in which the courts have held that it is not sufficient for insurance brokers to rely on provisions in standard form documents; the provisions must be brought to the consumer or client's attention: see, for example, Carousel Travel Inc. v. Livio Ricci Insurance Broker Ltd., [1986] O.J. No. 1375 (H.C.), para. 20. In this case, as reviewed above, I have accepted the defendants' evidence that Ms. Leung did raise the need for the plaintiff to verify that the amount of coverage reflected the value of the property and that she specifically recommended that the plaintiff get advice from a cost consultant. In any event, these warnings were not hidden or buried in lengthy documents. For example, the letters dealing with renewals were less than two pages long and set out in bold letters the language about the need for clients to review their policy limits.

[69] In my view, in this context, it is fair to expect that Mr. Kan would read and pay attention to the documents sent to him. He was seeking insurance on a commercial property, not a personal residence. While he may have had no direct prior experience obtaining insurance on a commercial property, he certainly had experience as a real estate agent and mortgage broker, suggesting a level of sophistication that would at least lead to the expectation that he would pay attention to the documentation provided to him. I also note that Mr. Kan’s evidence that he did not pay attention to the documents again contradicts his stated intention to learn more about insurance.

The effect of the defendants’ pleading amendment

[70] The plaintiff's lawyer argues that I should not believe Ms. Leung’s evidence because of a discrepancy between the position taken in her initial statement of claim and her evidence at trial.

[71] The statement of claim initially contained the following paragraph:

20. In fact, Kan was reluctant to increase the coverage from the ING Policy of $550,000. Kan only agreed to increase the building coverage to $850,000 upon Leung's insistence.

[72] At discoveries, Ms. Leung's evidence was as follows:

68. Q: Okay. So you need to understand what the client was looking for, and you told us about that, and then you obtained information about the property. Okay. And were there any further services that you understood that you were supposed to provide as an insurance broker?

A: We would give the, the quote, but always caution them is based on the information they supplied, and you convey the same message to the insurance company, so we are not professionals, in terms of building limits and the upgrades to the building…

235. Q: Okay. That's what you have in mind, okay? But did you tell him to visit the limits according to your knowledge, your, as in Mr. Kan's knowledge?

A: In all fairness, I would say that this is only an estimate. Whether or not it is adequate, you need a cost consultant or professional engineer to determine the limit to rebuild or replace the building.

236. Q: And you told him that.

A: Yes.

[73] I note that, in accordance with Rule 31.11(3) of the Rules of Civil Procedure, I permitted the defendants to read in this evidence at trial for the purpose of qualifying read ins by the plaintiff’s lawyer.

[74] Following discoveries, the defendants amended the statement of defence to reflect Ms. Leung's evidence on discoveries. The plaintiff consented to the amendment.

[75] As reviewed above, Ms. Leung's evidence at trial about the advice she gave Mr. Kan was consistent with her evidence on discoveries.

[76] I do not accept the plaintiff's argument that the change in the pleading serves to discredit Ms. Leung. While Ms. Leung is a professional insurance broker, she is not a sophisticated litigant. The pleading was drafted by her counsel, and it is fair to assume that she did not realize the importance of confirming the accuracy of every word used in the statement of defence. Her evidence at trial when confronted with the prior wording in the pleading supports this view. In any event, once under oath, Ms. Leung's evidence was consistent both at discoveries and at trial.

The effect of the $200 per square foot estimate

[77] The plaintiff also argues that Ms. Leung should not have given the $200 per square foot estimate because it misled Mr. Kan into thinking that she had the expertise to provide an accurate estimate. While Mr. Kan's sophistication on its own may not excuse a failure to provide proper advice, it certainly allows me to find that Mr. Kan was capable of understanding the significance of Ms. Leung's advice. As a real estate agent and mortgage broker, Mr. Kan would understand that people can provide rough estimates, but that better tools and information are required for the purpose of obtaining accurate advice. I do not accept that Mr. Kan was not capable of understanding the distinction between a rough estimate and a professional estimate, and therefore I do not agree that the defendants were negligent when they provided this rough estimate to Mr. Kan.

The plaintiff’s failure to disclose key information

[78] Before concluding on the issue of whether the plaintiff has demonstrated that Ms. Leung did not meet the standard of care, in my view, there is an additional factor that weighs against the plaintiff, and that is its failure to disclose the revised ING policy limits in 2008.

[79] While Mr. Kan disputed being familiar with the documents, it is important to remember that it is the corporation and not Mr. Kan who is the plaintiff in this case. It is evident that the plaintiff, through the agency of Mr. Pa, had knowledge of the ING policy limits. When provided with the $850,000 quote from Dominion, the plaintiff would, or at least should, have been aware of the discrepancy between the ING building limits and the Dominion building limits, and yet failed to disclose this discrepancy to Ms. Leung. In fact, at the January 29, 2009 lunch meeting, Mr. Kan produced a copy of the $550,000 2008 policy rather than a copy of revised 2008 policy.

[80] The plaintiff cannot complain that the defendants did not provide proper advice, when it was in fact in possession of information that it did not disclose that was relevant to the assessment of risk. In Frost v. Asselin Insurance Brokers Ltd., [1993] O.J. No. 3070 (Gen. Div.), at paras. 19 and 20, the Court dismissed a claim of underinsurance where a plaintiff sought out new insurance without disclosing that the prior coverage was higher.

Conclusion on the standard of care issue

[81] Accordingly, I find that Ms. Leung did advise Mr. Kan that she was not in a position to provide accurate advice on the replacement cost value of the building on the Queen Street property and that he should obtain a professional opinion if he wanted an accurate assessment. I do not believe Mr. Kan's evidence that he requested higher building limits and that Ms. Leung advised him that Dominion would not increase the amount of coverage. It was made clear to the plaintiff through Ms. Leung's words and through the documents sent to the plaintiff that the plaintiff was responsible for ascertaining the value of its property. The defendants were not negligent nor were they in breach of any contractual obligations, and I would dismiss the claim on this basis.

Causation

[82] Even if I had found that the defendants fell below the standard of care in this case, the plaintiff would have to demonstrate that the defendants' negligence was the cause of its loss.

[83] In CIA, a case dealing with a claim that an insurance broker had provided insufficient advice about insurance coverage, Whitten J. described the causation test in such cases as follows:

…In other words, it must be established that there is a causal link between the breach and the damage experienced. The predominant contemporary explanation in the nature of causality is the "but for" test stated by Justice Major in Athey v. Leonati, [1996] 3 S.C.R. 458 in the following:

"(t)he general, but not inconclusive test for causation is the "but for" test which requires the plaintiff to show that the injury would not occur but for the negligence of the defendant" (at para. 14).

19 This test does not require that the defendant's negligence be the only condition to cause the injury. If another cause was attributable to the plaintiff, then the possibility of contributory negligence would have to be considered.

22 Accordingly, given the negligence alleged in this action, namely, the failure to communicate a gap in coverage, the plaintiff would have to establish; 1) that the requested policy would have covered the loss that occurred (i.e. the destruction of the inspection unit on site) and 2) that had CIA known it was indeed not covered for such a loss it would have sought other coverage or modified its business to reduce exposure to the uninsured risk.

[84] The plaintiff asserts that the defendants caused the underinsurance by failing to recommend that the plaintiff obtain an accurate assessment of the replacement cost of the building.

[85] The defendants advance two arguments in support of their position that Ms. Leung's alleged negligence did not cause damage to the plaintiff. First, the defendants argue that the plaintiff's conduct demonstrated that it was motivated to keep its costs down, and therefore the plaintiff would not have taken Ms. Leung's advice to obtain an opinion from a professional cost consultant. Second, the exercise of cost estimating is not an exact science, and the plaintiff has not demonstrated that the cost estimate it would have received at the relevant time would match the amount it now says is required to rebuild.

[86] On the first issue, the evidence at trial was that the work to be done by a cost consultant in estimating the cost of rebuilding could be as high as $15,000. As reviewed above, when seeking out an estimate from Dominion, the plaintiff seems to have been motivated by a desire to keep its costs down. It appears clear that it sought out new insurance coverage for 2009 in order to lower its premiums. In addition, there is evidence that Mr. Kan complained at least on one occasion about the rise in Dominion’s premiums, referring in an email to the increase as “unbearable”. In the circumstances, I accept the defendants' position that, if I am wrong in finding that Ms. Leung did advise Mr. Kan that if he wanted an accurate estimate of the cost of rebuilding he should retain a cost consultant, I nevertheless am not satisfied that the plaintiff would have acted differently. It is evident that the plaintiff was primarily motivated to seek out less expensive insurance and the plaintiff has not demonstrated that it would have retained a cost consultant.

[87] On the second issue, I also accept the defendants' argument. It is evident that estimating the cost of rebuilding is not an exact science. Throughout and after the insurance period, there have been a number of estimates and they have yielded different numbers. More importantly, the expert retained by the plaintiff on damages did not produce a report addressing the advice a cost consultant would have provided at the relevant point in time. In contrast, by coincidence, the same company retained by the plaintiff was retained in August 2010 to conduct a site inspection and provide Dominion with a replacement cost estimate. The cost estimate provided at that time fell within the insurance limits.

[88] Accordingly, I find that the plaintiff has not discharged its burden of proving that the defendants caused its damages.

Damages

[89] If I am wrong in concluding that the defendants were not negligent and that they did not cause the plaintiff's damages, I would assess the plaintiff's damages as follows.

[90] The plaintiff seeks the following damages:

a. Difference between amount paid by Dominion and estimated cost of construction: $451,274.16 b. Rental income loss from October 2013 to October 2018: $1,341,575.00; and c. Co-insurance penalty: $8,219.00

Cost of reconstruction damages

[91] The amount claimed by the plaintiff for the reconstruction costs is calculated as follows:

Replacement cost of buildings: $1,698,887.54 Minus indemnity paid by Dominion $1,157,613.38 Total $451,275.16

[92] The defendants dispute this amount on two grounds. First, they argue that, because the plaintiff did not diligently take steps to rebuild the building as it was at the time of the fire, the plaintiff is not entitled to the cost of replacing the building, but only to the "cash value" of the materials. Second, the defendants argue that the calculation by the plaintiff's expert is flawed and exaggerated because a number of items have been improperly included.

[93] On the first issue, the Dominion insurance policy contains the following provision defining "replacement cost":

REPLACEMENT COSTS

(i) The insurer agrees to amend the basis of settlement from actual cash value to "replacement cost" subject to the following provisions:

(a) "replacement" shall be effected by the Insured with due diligence and dispatch:

(b) Settlement on a "replacement cost" basis shall be made only when "replacement" has been effected by the insured and in no event shall it exceed the amount actually and necessarily expended for such "replacement";

(c) Failing compliance by the Insured with any of the foregoing provisions, settlement shall be made as if this endorsement had not been in effect

(iii) In this extension,

(a) "replacement cost" means the cost of replacing, repairing, constructing or reconstructing (whichever is the least) the property on the same site with new property of like kind and quality and for like occupancy without deduction for depreciation, and "replacement" includes repair, constructions or re-construction with new property of like kind and quality…

[94] In Evans v. State Farm Fire & Casualty Co. (1993), 15 O.R. (3d) 86 (Gen. Div.), the Court addressed a situation in which the property owner sold the property "as is" after a fire:

42 The final question to be determined is then the basis upon which any damages incurred by the plaintiffs as a result of the negligence of the defendant Tait ought to be assessed. I accept the submission of counsel for the defendants that the policy provides that replacement value insurance is only claimable if the property insured is in fact repaired or replaced. In the case at the bar, the plaintiffs determined not to replace the house but rather to sell the property with the ruins of the house on it. (The proceeds from the sale of the property together with the proceeds of the insurance policy were applied to pay off the mortgage on the property and a full discharge of the mortgage has been given by the mortgagee.) Accordingly, in this situation I find that the plaintiffs are entitled under the policy only to the actual cash value of the house in that, if the policy had contained appropriate replacement value insurance but the plaintiffs had determined to sell the house rather than replace it, they would not, under the terms of the policy, have been able to claim the replacement value but only the actual cash value.

[95] In Carter v. Intact Insurance Company, 2016 ONCA 917, the Court of Appeal upheld the motion judge's decision that a property owner was not entitled to replacement cost value when it did not intend to rebuild a new property “of like kind and quality”. In that case, the property owner planned to build a condominium development:

48 Finally, as I said earlier, indemnity is a main objective of insurance and, to the extent possible, coverage provisions should be interpreted with that objective in mind. Replacement cost coverage does go beyond mere indemnification of an insured because it allows for a measure of betterment. But allowing replacement cost only where the replacement is of like kind and quality to the damaged or destroyed property better reflects the indemnity principle. Replacement cost would then give insureds enough money to rebuild something equivalent to the property that was damaged or destroyed.

49 I conclude that the motion judge was correct in his interpretation of the appellants' insurance policy with Intact. The appellants were entitled to replacement cost only if they replaced their insured property with a new property of like kind and quality. As they do not propose to do so, they were entitled only to the actual cash value of their insured property…

[96] The evidence in this case is that Mr. Kan has had many plans to rebuild at 369 Queen Street West, but none of them involved building a property of "like kind and quality". The original building was 4,200 square feet with a 1,400 square foot footprint. All of the rebuilding plans involved larger buildings that would occupy the whole footprint of the property:

a. In December 2012 and January 2013, Mr. Kan retained an architectural firm to draw plan for a two storey building that would occupy the whole foot print of the property and take up 6,250 square feet. b. By June 2013, he had retained a contractor to build a three storey 9,000 square building, and in August 2013, he obtained a building permit for such a building. c. In March 2016, the plaintiff obtained an appraisal that noted a plan to construct a building of 11,450 square feet. d. In July 2016, Mr. Kan obtained an estimate for a three storey building, with an option for five storeys, with a total area of 19,000 square feet.

[97] To date, despite these projects, nothing has been built on the property.

[98] Therefore, contrary to the requirements of the policy, the plaintiff has not proceeded with due diligence, nor has it built or intended to build a property of like kind and quality. While the plaintiff may argue that the underinsurance issue has prevented it from proceeding with building diligently, an issue I will address below, it is nevertheless clear that, even immediately after the fire and before Dominion formally notified that the plaintiff was underinsured, the plaintiff intended to build a significantly larger building with a larger footprint.

[99] Accordingly, in my view, the plaintiff has not demonstrated that it would be entitled to insurance on a replacement cost basis, as it has not demonstrated that it would have diligently replaced the building with a building of like kind and quality. There was no evidence at trial to demonstrate that the cash value of the building was more than the amount paid out by Dominion. Therefore, it is not possible to find what, if any damages, the plaintiff has suffered on this basis.

[100] Given this finding, there is no need for me to address the disparity between the parties’ expert reports dealing with the cost of reconstructing the building. However, I do note that the experts' differences require a line by line comparison of what was properly included or improperly omitted. I am not confident that the evidence at trial would allow for such an exercise. If I had found that the plaintiff was entitled to replacement cost damages, I would have been inclined to refer the damages assessment to a Master pursuant to Rule 54.02 of the Rules of Civil Procedure.

Lost rent damages

[101] In calculating the amount claimed for lost rents, the plaintiff has not included the amount Dominion paid out for the first 12 months after the fire. The plaintiff bases its claim on 60 months (from October 2013 to October 2018) at a monthly rate of $22,359.58, for a total of $1,341,575.00.

[102] The defendants dispute this amount on the basis that the plaintiff has failed to mitigate its damages. The defendants concede that the plaintiff would be entitled to $55,387.60 for lost rent which represents what they say is the income loss suffered by the plaintiff in the first year due to the fire. However, the defendants argue that it is not reasonable for the plaintiff to await the outcome of this litigation to rebuild, and that the plaintiff has therefore failed to mitigate its damages.

[103] Again, I agree with the defendants that the plaintiff has failed to demonstrate that it took reasonable steps to mitigate its damages.

[104] The plaintiff obtained a report in February 22, 2013, stating that the value of the property without a building was $3.5 million, and there is some evidence that it was worth $5,000,000 by 2016. Mr. Kan, its principal, had the benefit of the pay out by the insurer and has a net worth of at least $8,000,000. As indicated above, the gap identified by his own expert between the amount paid out by Dominion and the cost of rebuilding is approximately $450,000. Under the circumstances, it is difficult to understand why the building has not been reconstructed.

[105] I do not find the plaintiff's own explanations satisfactory.

[106] As mentioned above, after the fire, the plaintiff entered into an agreement with a contractor to build on the property. Mr. Kan's evidence is that he paid $200,000 to the contractor, but that they then had a dispute. There was very little evidence about the reason for the dispute. But what is evident is that the reason why the building was not constructed at that point is not because Mr. Kan was incapable of doing so without obtaining a judgment for the insurance shortfall. Rather, it appears that the building did not go ahead because of the dispute with the contractor.

[107] In terms of the evidence as to why the building has not been constructed since the falling out with the contractor, Mr. Kan's evidence was that he was not able to obtain financing for the building. I find that this evidence lacks an air of reality. It is difficult to understand why no financing could be obtained for the $450,000 gap between the amount paid out by the insurer and the estimated cost of construction, given the value of the property and Mr. Kan’s net worth. In fact, looking at the documents the plaintiff relies on to make the argument that it has not been able to obtain financing, it is evident that Mr. Kan was seeking significant amounts of financing for the larger construction projects referred to above, and not the amount needed for a building equivalent to the one destroyed by the fire.

[108] Accordingly, I am not prepared to find that the plaintiff is entitled to lost rents up until October 2018.

Co-insurance damages

[109] In the event that I had found the defendants liable, they do not dispute that the plaintiff would be entitled to payment of the co-insurance penalty in the amount of $8,219.00.

Conclusion

[110] For the reasons above, I find that the defendants were not negligent or in breach of contract, and the plaintiff’s action is accordingly dismissed.

[111] I encourage the parties to agree on costs. If they are not able to so, the defendants' cost submissions should be sent to my attention within 10 days of this decision and responding submissions 10 days thereafter. Submissions are not to exceed 5 pages.

FAVREAU J. RELEASED: September 28, 2018