688857 Ontario Limited o/a A to Z Properties v. Aviva Insurance Company of Canada, 2018 ONSC 5891

COURT FILE NO.: CV-13-487406

DATE: 20181011

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

688857 ONTARIO LIMITED o/a A TO Z Properties Plaintiff

– and –

AVIVA INSURANCE COMPANY OF CANADA Defendant

COUNSEL: Melvyn L. Solmon and Rajiv Joshi, for the Plaintiff Anne Juntunen and Jamieson Halfnight, for the Defendant

HEARD at Toronto: March 20, 21, 22, April 16, 17, 18, 19 and 20, 2018

REASONS FOR JUDGMENT

Stinson J.

[1] This case involves a claim on an insurance policy that provided coverage for employee theft and dishonesty.

Introduction

[2] The plaintiff is a residential landlord. It asserts that a property manager whose responsibilities included collecting rental payments from tenants and depositing them into the bank, instead stole the rental money. In addition, the plaintiff asserts that the property manager misused a company credit card to pay personal expenses. In all, the claimed losses from this illegal conduct exceeded $100,000.

[3] The plaintiff submitted a claim to the defendant for reimbursement of its losses. The claim was ultimately denied by the defendant on the ground that the property manager was not an employee but rather an independent contractor, and therefore was not covered by the insurance policy.

[4] In this lawsuit, the plaintiff contends that the defendant wrongly denied coverage. It asserts that the property manager was an employee and that it supplied the defendant with the necessary and requested information to support the claim. The plaintiff further asserts that the defendant’s refusal to process and pay the claim properly was a breach of its duty of good faith sufficient to warrant an award of aggravated and punitive damages, on top of payment of the underlying loss.

[5] For its part, the defendant relies on its position that the policy did not provide coverage because the individual in question was not an employee. Additionally, the defendant asserts that the plaintiff failed to provide reliable information that established any theft or other loss for which reimbursement is due. Lastly, given the information it was provided, the defendant asserts that it processed the claim fairly and appropriately. As such, the defendant submits that not only was the denial of coverage warranted, but there was also no basis for the assertion of a lack of good faith.

Preliminary note about available documents and other evidence

[6] As I will describe in more detail below, the relationship between the plaintiff and its property manager, Troy Thompson, lasted from April 2008 until September 2012. At the time the relationship ended, many of the plaintiff’s business records were kept in an office occupied by Thompson, located at one of the plaintiff's properties.

[7] Soon after the plaintiff concluded that Thompson had stolen rent money, but before he could be confronted, Thompson disappeared. The plaintiff discovered that Thompson had completely emptied out the office where all the business records had been kept. The furniture, including the filing cabinets containing leases, rent records, receipt books and other key information, were all missing. Thus, the basic primary documentation concerning the expected, actual, and missing rental income for the plaintiff's properties was unavailable when the plaintiff submitted its claim to its insurer and when it pursued this litigation. The plaintiff had to retain a forensic accountant to calculate and prove its loss.

[8] In addition to, and quite apart from the foregoing absence of records, the plaintiff also experienced a computer failure. As a result, other electronic records including email communications between the plaintiff and Thompson containing reports of the work carried out, rental receipts or defaults, etc., are no longer available.

[9] Thompson did not testify nor did his successor as property manager or any tenants. The principal witness for the plaintiff was Gabriele Zeh-Abramsky, the owner of the company. Despite the loss of considerable documentation and other records, Ms. Zeh-Abramsky did her best to reconstruct and recount the events surrounding the claim, including the relationship between the plaintiff and Thompson. Although her evidence was not flawless and there were some gaps, I found it to be largely credible and reliable, given the circumstances.

[10] Despite the absence of the rental records and other fact witnesses, but having regard to the plaintiff's explanation for their absence, the court is required to determine whether the plaintiff has proved its case to the requisite standard.

Factual background

The plaintiff's business

[11] Gabriele Zeh-Abramsky is the principal and sole shareholder of the plaintiff company. Given this, I will be using Ms. Zeh-Abramsky’s name and the term plaintiff interchangeably. Over a period of years, starting in the late 1990s, Ms. Zeh-Abramsky acquired a portfolio of small, multiple-unit residential income properties, in Belleville and Peterborough, Ontario. The bulk of her tenants in the Peterborough properties were college and university students, and a number of individuals who were on government income support programs.

[12] Initially, the Ms. Zeh-Abramsky retained a property management company to care for the properties in exchange for a percentage of rental income, plus expenses. Over time, Ms. Zeh-Abramsky decided she did not like dealing with a management company, given that she was just one of a series of clients serviced by that entity. She decided that she preferred to work with someone under her control who would carry out repairs and manage her properties "her way". Therefore, in early 2008, she advertised for a property manager for the Peterborough properties.

[13] Ms. Zeh-Abramsky received an application for the position from Troy Thompson. She checked his references, walked through the properties with him and ultimately signed a six month contract with him in April 2008. The contract set out a job description and duties covering a range of property management responsibilities. The duties included: shoveling snow, replacing burned out bulbs, speaking with tenants and prospective tenants, cleaning and vacuuming, interior and exterior maintenance, and so forth.

[14] Although not specified in the written contract, Thompson's additional responsibilities included collecting rental payments from tenants whose rents were not paid directly by the government and dealing with rental arrears situations, including issuance of notices of default where tenants failed to pay.

[15] In October 2008, the plaintiff and Thompson signed a further contract in substantially the same terms, for the period September 1, 2008 through August 31, 2010. No further written agreements were made.

[16] The two contracts signed in April and October 2008 are both headed "Thompson Commercial & Rental Renovations" and provide that they are "between Troy Thompson and A to Z Properties, owner Gabriele Zeh-Abramsky". At some point prior to signing the second contract, Thompson registered a sole proprietorship under the name "Thompson Commercial & Residential Renovations". On certain occasions and documents he used the name "Thompson Property Management and Landscaping" while on others he used "Thompson Management". The parties agree that Thompson did not operate a limited company.

[17] The contracts provided for a fixed monthly fee to be paid by the plaintiff to Thompson. Initially, the agreed amount was $3,125 plus 5% G.S.T. When the second contract was signed in the fall of 2008, the monthly payment increased to $4,000, including G.S.T. In September 2011, when the plaintiff purchased four more properties and Thompson’s workload increased, the monthly payment increased to $7,000. The plaintiff paid Thompson either by cheque or by way of direct deposit to his bank account.

[18] No source deductions were made on account of income tax, CPP or otherwise. Ms. Zeh-Abramsky testified that Thompson told her that tax withholding was unnecessary because his spouse was a registered member of a First Nation and she accepted that explanation.

[19] To begin with, and for several years thereafter, the relationship between the plaintiff and Thompson was satisfactory. Thompson carried out the duties assigned to him under the contract. He met with Ms. Zeh-Abramsky from time to time, took her direction and also provided her written updates concerning his activities at the various properties (although the frequency of these written reports diminished over time).

[20] Thompson collected rents on behalf of the plaintiff, often in cash. He deposited the rent collections into the plaintiff's bank account in lump sums. He reported on his rental collection efforts via email and text message. This allowed Ms. Zeh-Abramsky to keep track of which tenants had paid rent and to reconcile her bank records. To do so she used a computer software program called "Microsoft My Money". She regularly performed reconciliations and, where necessary, sought additional information from Thompson. Ms. Zeh-Abramsky was content with these arrangements and trusted Thompson. She was able to use the Microsoft My Money software to manage her business and to provide adequate information to her accountant to have corporate tax returns prepared for the company.

[21] In order to perform some of the maintenance tasks, Thompson required tools and equipment. Because he had none, the plaintiff gave him a company credit card so that he was able to purchase them. Thompson also used the card to purchase supplies and materials needed for his property management responsibilities. He would report to the plaintiff about these various expenditures.

[22] From time to time, Thompson also used the corporate credit card for personal expenditures. According to Ms. Zeh-Abramsky, she discouraged this practice but tolerated it because Thompson reported the personal purchases to her. Thompson agreed to allow the personal purchases to be deducted from the monthly payments due to him. I will return to this topic later when I address the issue of defalcation in relation to misuse of the credit card.

[23] Additionally, Thompson needed a truck. The plaintiff agreed to loan him money so that he was able to purchase one. Formal documents were signed and regular monthly payments were deducted from the payments due to Thompson. Thompson used the truck and his personal cell phone in the course of carrying out his property management duties.

[24] Despite the nominal expiration of their written agreement at the end of August 2010, Thompson continued to provide his services. Ms. Zeh-Abramsky received sufficient information to maintain the plaintiff’s financial records and there were no major issues. Unfortunately, in 2012, after Thompson assumed responsibility for the maintenance of the additional four properties purchased by the plaintiff, the relationship began to deteriorate.

The events of 2012

[25] According to Ms. Zeh-Abramsky, during the first half of 2012 she began to lose confidence in Thompson. Despite her request that Thompson stop using the corporate credit card for personal purchases, he continued to do so. Ms. Zeh-Abramsky did not take the card away because Thompson needed it to buy supplies for his duties. She recouped the personal charges by way of deductions from his monthly payments, although Thompson sometimes requested that she defer doing so.

[26] During the year, Thompson also carried out a number of actions that further strained the parties’ relationship. For example, Thompson’s formal reports regarding the work on the properties became more and more infrequent. In addition, at one stage, Ms. Zeh-Abramsky discovered that Thompson was bringing his children to the office that he occupied at one of the properties. He apparently did so because his wife had to travel to Toronto with another child who was sick. Although she was sympathetic to his circumstances, Ms. Zeh-Abramsky was concerned about potential liability problems. As a result, she required Thompson to sign a waiver and indemnity, and to provide a certificate of insurance, which he did.

[27] The most significant incident occurred in early July when Thompson reported to Ms. Zeh-Abramsky that he had "lost" more than $11,000 in rental collections before he could deposit them in the bank because they had "fallen off the back of his bike". Thompson was apologetic and told Ms. Zeh-Abramsky that she could deduct the missing money from future payments due to him. He then asked for those deductions to be spread out over time.

[28] Thompson also informed Ms. Zeh-Abramsky that he no longer wished to be involved in rent collection and administration work relating to any of the properties. Rather, he proposed to reduce his responsibilities to building maintenance only, as of September 1, 2012.

[29] In the face of her declining confidence in Thompson and in view of his request to be relieved of administrative responsibilities, Ms. Zeh-Abramsky hired a new individual to take on those responsibilities, Clint Brown. Brown and Thompson were to visit with tenants jointly as of September 1 to inform them of the changes in responsibilities.

[30] Although Brown did not appear as a witness at trial, Ms. Zeh-Abramsky testified that in early September 2012, Brown reported to her that he was encountering difficulty collecting rent from some tenants. According to her evidence, Brown told her that a number of tenants claimed they had already paid their rent to Thompson and had the receipts to show this. Others claimed they had paid Thompson personally, but he had not provided them receipts. Ms. Zeh-Abramsky also learned that Thompson had developed a bad reputation with some of the tenants.

[31] Ms. Zeh-Abramsky lost all confidence in Thompson and concluded that he had stolen rent monies. Before she could confront him, however, Thompson disappeared. She discovered that the office Thompson had occupied had been emptied of all its contents, including furniture and the filing cabinets containing all business records.

[32] Ms. Zeh-Abramsky reported the situation to her insurance broker, with a view to making a claim for her losses on her policy with the defendant – a process that I will describe in greater detail below.

[33] Ms. Zeh-Abramsky also contacted the police. They were initially unable to locate Thompson. However, he eventually was found and charged with theft. Thompson was ultimately convicted of the indictable offence of theft under $5,000 committed during the time July 11, 2011 to September 30, 2012. The trial evidence before me did not specify particulars of the facts that gave rise to his conviction.

[34] Meanwhile, Ms. Zeh-Abramsky was trying to deal with the impact of Thomson’s actions on her business. Key rental records were missing and she and the new property manager were struggling to reconstruct them from available information while trying to collect rent. Some tenants who had been dissatisfied by Thompson's conduct simply moved out. Ms. Zeh-Abramsky testified that the business was in "crisis mode" over this period.

The insurance claim

[35] The plaintiff had insured the business with the defendant against the risk of loss or damage to its rental properties. Among other coverage, the policies insured against employee dishonesty. In particular, the policies stated:

Coverage A – Employee Dishonesty

This policy insures, under Coverage A of Section II, loss of "money", "securities" and other property which the Insured shall sustain, to an amount not exceeding in the aggregate the amount of insurance specified on the "Declaration Page" for Employee Dishonesty, resulting from one or more "fraudulent or dishonest acts" committed by an employee, acting alone or in collusion with others.

Definitions

Wherever used in Section II

(g) "Employee" means any natural person (except a director or trustee of the Insured, if a corporation, who is not also an officer or employee thereof. In some other capacity) while in the regular service of the Insured in the ordinary course of the Insured's business during the policy and whom the Insured compensates by salary, wages or commissions and has the right to govern and direct in the performance of such service, but does not mean any broker, factor, commission merchant, consignee, contractor or other agent or representative of the same general character…

(h) "Fraudulent or Dishonest Acts" means only fraudulent or dishonest acts committed by such employee with the manifest intent:

(i) to cause the insured to sustain such loss; and

(ii) to obtain financial benefit for the employee or for any other person or organization intended by the employee to receive such benefit, other than salaries, commissions, fees, bonuses, promotions, awards, profit sharing, pensions or other employee benefits earned in the normal course of employment.

[36] The maximum loss insured for employee dishonesty, as specified in the policies’ Declaration Page, was $25,000 per property.

[37] The plaintiff reported a claim for coverage under the defendant’s policies on September 4, 2012. The claim involved two components: (1) a missing rents portion consisting of amounts allegedly stolen by Thompson and (2) unauthorized credit card charges made by Thompson.

[38] The plaintiff's claim was submitted by the insurance broker to the defendant, where it was assigned to a fidelity claims examiner, Lisa Orr. In turn, Ms. Orr retained and instructed an independent claims adjuster, Luc Bertrand, to investigate and adjust the claim. Mr. Bertrand promptly contacted Ms. Zeh-Abramsky and requested proof of the loss, documentation to back up the amount, and documents from the personnel file of Thompson.

[39] Over the next several months, Ms. Zeh-Abramsky submitted a series of spreadsheets and calculations in an effort to document the loss. Unfortunately, and understandably due to the absence of reliable rent roll records, her calculations contained errors and varied from time to time, thereby making them difficult to understand. Processing of the claim dragged in part due to these difficulties and also in part because Ms. Zeh-Abramsky was absent from the country on multiple occasions.

[40] At the end of January 2013, Ms. Zeh-Abramsky submitted a spreadsheet to Mr. Bertrand that summarized the missing rents as totaling $149,208.54. Ms. Zeh-Abramsky subsequently retained the services of a forensic accountant who prepared a detailed report of the plaintiff’s finances. According to the accountant the estimated rental loss was calculated to be $115,032, a difference of more than $34,000 than Ms. Zeh-Abramsky’s January 2013 calculation. Since the policies contained a maximum of $25,000 coverage per property, the expert calculated the policy claim amount to be $72,147. It is therefore fair to say that Ms. Zeh-Abramsky’s initial calculations of its loss were not entirely reliable.

[41] By early April 2013, Mr. Bertrand reported to Ms. Zeh-Abramsky that he was discussing the claim with Aviva and would have to meet with her in person in order to complete his review. They met on April 30, 2013, to discuss and confirm details of the claim. Ms. Zeh-Abramsky viewed the meeting as an opportunity to put to rest any outstanding questions regarding the calculation of her loss.

[42] Subsequent to the meeting, Mr. Bertrand sent an email to Ms. Zeh-Abramsky summarizing their discussion and requesting her to make any required corrections. In response, she advised that he had understood her correctly and that no changes to his summary were necessary.

[43] Mr. Bertrand subsequently advised Ms. Orr, the defendant's claims examiner, that he had concluded, based on the information collected, that Thompson was not an employee of the plaintiff as described in the relevant provision of the policy. Acting on instructions from the defendant, on June 20, 2013, Mr. Bertrand informed Ms. Zeh-Abramsky that the claim was being denied for this reason. Mr. Bertrand also advised the Ms. Orr that there were separate grounds to deny the credit card loss claim, but these were never communicated to the plaintiff.

[44] As a result of the denial, this litigation ensued.

Issues

[45] Based upon the pleadings exchanged (as amended), and the parties’ submissions, this case presents the following issues to be decided:

1. Was Thompson an employee of the plaintiff and therefore covered by the employee dishonesty provisions of the policies?
2. Has the plaintiff proved a recoverable loss arising from Thompson's dishonesty?
3. Did the defendant breach its duty of good faith?
4. Should the plaintiff be awarded punitive damages?
5. Does the plaintiff have a claim for unjust enrichment?

Analysis

Issue 1 – Was Thompson an employee of the plaintiff and therefore covered by the employee dishonesty provisions of the policies?

[46] This issue concerns whether Thompson was an employee of the plaintiff as defined in the defendant’s employee dishonesty policy. The essential terms of that definition provide that an "employee" means a person "while in the regular service of the Insured in the ordinary course of the Insured's business … and whom the Insured compensates by salary, wages or commissions and has the right to govern and direct in the performance of such service, but does not mean any… contractor". The plaintiff asserts that Thompson was an employee, while the defendant submits that he was a contractor. On balance, for the reasons that follow, I agree with the plaintiff.

The legal framework

[47] The characterization of an individual who performs services for another either as an employee or as a contractor has been the subject of litigation in many cases. Both parties referred me to the leading decision of the Supreme Court of Canada in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59. In that case, after an extensive review of the jurisprudence, Justice Major summarized the law as follows, at paras. 46 – 48:

46. In my opinion, there is no one conclusive test which can be universally applied to determine whether a person is an employee or an independent contractor. Lord Denning stated in Stevenson Jordan, supra, that it may be impossible to give a precise definition of the distinction (p. 111) and, similarly, Fleming observed that "no single test seems to yield an invariably clear and acceptable answer to the many variables of ever changing employment relations . . ". (p. 416). Further, I agree with MacGuigan J.A. in Wiebe Door, at p. 563, citing Atiyah, supra, at p. 38, that what must always occur is a search for the total relationship of the parties:

[I]t is exceedingly doubtful whether the search for a formula in the nature of a single test for identifying a contract of service any longer serves a useful purpose.... The most that can profitably be done is to examine all the possible factors which have been referred to in these cases as bearing on the nature of the relationship between the parties concerned. Clearly not all of these factors will be relevant in all cases, or have the same weight in all cases. Equally clearly no magic formula can be propounded for determining which factors should, in any given case, be treated as the determining ones.

47. Although there is no universal test to determine whether a person is an employee or an independent contractor, I agree with MacGuigan J.A. that a persuasive approach to the issue is that taken by Cooke J. in Market Investigations, supra. The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination, the level of control the employer has over the worker’s activities will always be a factor. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker’s opportunity for profit in the performance of his or her tasks.

48. It bears repeating that the above factors constitute a non-exhaustive list, and there is no set formula as to their application. The relative weight of each will depend on the particular facts and circumstances of the case.

Application of the legal framework to the present case

[48] Given that both parties recognize the Sagaz decision as the governing authority, I turn now to an examination of the facts of this case in order to determine whether Thompson should properly be classified as an employee or an independent contractor. Before doing so, however, I wish to address a specific feature of the evidence relating to the defendant’s decision to deny coverage.

[49] As mentioned in the facts above, the plaintiff notified the defendant about the claim on September 4, 2012. It was not until April 30, 2013, however, that the assigned adjuster, Mr. Bertrand, had a face-to-face meeting with Ms. Zeh-Abramsky.

[50] In their exchanges over the eight months prior to the April 30 meeting, the principal subject discussed between Ms. Zeh-Abramsky and Mr. Bertrand was developing a proper methodology for calculating the plaintiff's alleged loss. Ms. Zeh-Abramsky provided Mr. Bertrand several iterations of her calculation and a range of back-up information. Unfortunately, her calculations contained various errors and they were difficult for Mr. Bertrand to understand. Thus, as mentioned, from the perspective of Ms. Zeh-Abramsky, her focus at the April 30 meeting was to put to rest any outstanding questions regarding the calculation of her loss.

[51] On May 22, 2013, Mr. Bertrand sent an email to Ms. Zeh-Abramsky purporting to summarize the facts she had given him at their April 30 meeting, and asked her to confirm them. In part, that email stated as follows:

A few years ago, a management company by the name of Babcock & Robinson took care of the management of your buildings, but they were replaced by a management company owned by Mr. Troy Thompson.

Mr. Thompson had answered a newspaper ad for a job and worked as a handyman first, and grew into managing the properties and replacing Babcock & Robinson. Mr. Thompson, through his company or companies, was paid $7500 per month, after you added the George Street properties to his load, in early 2012. The previous owner of the George Street properties managed these until the beginning of 2012 when they fell within the management of the Troy Thompson companies.

Mr. Thompson's company provided the following staff and equipment for the services provided to your company:

• himself, his wife on a part-time basis and two or three part-time maintenance staff;

• his own truck, equipment, insurance and any required government certificates or permits;

• any needed truck maintenance/gas and use of cell phone.

[52] On May 24, Ms. Zeh-Abramsky responded to Mr. Bertrand’s e-mail stating that "I had time to go over your transcription and you understood me correctly and no changes are necessary".

[53] Subsequently, on June 4, 2013, Mr. Bertrand wrote to the defendant stating "the insured has confirmed … that the statement we have sent her was correct. Based on this admission, we believe that the claim is not covered on the ground that Thompson was not an employee as defined under the policy." [emphasis added]. Specifically, Mr. Bertrand wrote that:

He [Mr. Thompson] operates as a management company and has staff working for him. His company is paid a monthly fee and it is up to him to decide how the work will be done and how he will use his own labour force and equipment. His company provides staff, truck, equipment, insurance, etc. The insured does not control him as if he was an employee. The insured does not tell him how to manage his staff, maintain his truck and equipment, or manage his overall cost.

[54] An examination of Mr. Bertrand’s June 4, 2013 report reveals that he went beyond the facts he recited in his May 22, 2013 email to Ms. Zeh-Abramsky. To that extent, Mr. Bertrand embellished the information he had asked Ms. Zeh-Abramsky to confirm, without providing her an opportunity to review or correct it.

[55] At trial, Ms. Zeh-Abramsky acknowledged that she had confirmed the contents of the May 22, 2013 email from Mr. Bertrand. She said that she had done so without reviewing it carefully and that she "messed up". She disputed that Thompson had provided his services through companies and asserted that she had treated him as an employee as she had hired him on that basis.

[56] I accept the evidence of Ms. Zeh-Abramsky that she did not review the May 22, 2013 email from Mr. Bertrand in detail. In fairness to her, the question of Thompson's status as an employee was never identified by Mr. Bertrand squarely as an important issue to be addressed. Her focus was where it had always been, namely, on the calculation of the loss.

[57] As well, and more significantly, there are identifiable factual errors in the Bertrand email of May 22, 2013. It refers to "a management company owned by Mr. Troy Thompson" and goes on to refer to "Mr. Thompson, through his company or companies" and later to "the Troy Thompson companies". Additionally, it refers to the fact that the companies provided staff and equipment for the services provided. In reality, Thompson never incorporated any entity that was involved in providing services to the plaintiff.

[58] The statement that Thompson's company provided staff, comprised of himself, his wife on a part-time basis and two or three part-time maintenance staff is also not borne out by the evidence that I accept. At most, Thompson's wife went with him when he collected rent from time to time. The so-called part-time staff were one or two individuals who infrequently performed specific services, often in exchange for a credit against their rent. There was no proof that Thompson employed any staff.

[59] It is true that Thompson provided his own truck, but the plaintiff paid for any equipment that was required as well as any necessary supplies. Further, there was no evidence that Thompson provided "any required government certificates or permits".

[60] I conclude and find as a fact that the Bertrand email of May 22, 2013 is not an accurate summarization of the discussion at the April 30 meeting between Ms. Zeh-Abramsky and Mr. Bertrand. It follows that I do not agree with or accept Mr. Bertrand's characterization of Ms. Zeh-Abramsky’s confirmation of his email as an "admission" that is binding on the plaintiff or determinative of the facts in this case.

[61] I therefore turn to an examination of the evidence and the facts that bear on the correct characterization of the relationship between the plaintiff and Thompson.

[62] I begin with the start of the relationship between Ms. Zeh-Abramsky and Thompson. As mentioned, in early 2008, Ms. Zeh-Abramsky decided that she no longer wished to have a management company looking after her properties in Peterborough. She wanted things done "her way" and as such set out to hire an individual whom she could direct. She placed an advertisement, received interest from and interviewed Thompson, walked through the properties with him, and signed a contract setting out in some detail the work he was expected to perform.

[63] The Bertrand email of May 22, 2013 accurately described the genesis of the relationship as Ms. Zeh-Abramsky hiring Thompson as a handyman. From her perspective, she expected him to follow her direction, carry out the tasks assigned by her, and imposed reporting obligations on him. Certainly during the first phase of their relationship, that is how things unfolded. This evidence is consistent with the view that Ms. Zeh-Abramsky was treating Thompson as her employee, which she submits was her intention. I accept that this was her intention.

[64] Moreover, the plaintiff paid for and provided the equipment and supplies that were required for Thompson to perform the agreed upon services because, according to the plaintiff, he had none. The plaintiff also arranged to loan money to Thompson so that he could purchase a truck to use for work. This was evidenced by the fact that Thompson was permitted to charge for gasoline expenses for work-related use of the truck. An employee’s use of his or her own vehicle during the course of their employment is not an unusual practice in Canada. All these factors support a finding that he was an employee.

[65] The following facts also support a finding of an employment relationship:

• there is no evidence that Thompson had any expectation of profit;
• there is no evidence that Thompson was exposed to a risk of loss;
• Thompson performed his work duties out of an office provided by the plaintiff in one of its apartment buildings;
• Thompson’s services were integral and essential to the operation of the plaintiff's business.

[66] On the other hand, there are also several factors that might suggest Thompson was an independent contractor. First, the financial relationship between the plaintiff and Thompson does not bear the hallmarks of a traditional employer/employee relationship. For example, there was no withholding tax nor any deductions on account of Canada Pension Plan or employment insurance. Although the presence of such withholdings would plainly support an employment relationship, their absence does not necessarily point to the conclusion that Thompson was an independent contractor. According to Ms. Zeh-Abramsky, she was told by Thompson at the outset that withholdings were unnecessary, given his wife's First Nation status. While her reliance on that assurance may have been naïve and ill advised, it does not confirm the absence of an employment relationship.

[67] Second, Thompson sometimes, but not always, submitted invoices to the plaintiff for his services. The evidence that he did not consistently provide the plaintiff invoices suggests that payment was not dependent upon receipt of an invoice, but rather is more in line with a monthly salary. Thompson was paid by cheque or direct deposit to his bank account after the deduction of agreed-upon amounts, including repayment for the truck loan and other personal expenses charged by him to the company credit card. I do not consider these factors to be determinative of the nature of the relationship being one with an independent contractor.

[68] Third, the contracts between Thompson and Ms. Zeh-Abramsky as well as other documents refer to several business names used by Thompson during the course of his relationship with the plaintiff. However, despite the heading used in two contracts, the substance and text of those documents provide that they are "between Troy Thompson and A to Z Properties, owner Gabriele Zeh-Abramsky." This suggests, as the plaintiff contends, that the contracts were directed at and bind Thompson personally. There is no other evidence that Thompson carried on any other business using those business names or any other businesses at all. That said, the use of a business name and the registration of a sole proprietorship utilizing that name could be viewed as consistent with providing services as an independent contractor.

[69] The defendant also points to the fact that Thompson obtained insurance and provided a waiver and indemnity when requested by the plaintiff to do so after Ms. Zeh-Abramsky discovered he was bringing his children to the office. As outlined above, she contends that this was her response to deal with concerns of potential liability. In my view, this does not bear on the legal status of the parties’ relationship.

[70] As the Supreme Court made clear in Sagaz, at para 47 "there is no universal test to determine whether a person is an employee or an independent contractor…. The central question is whether the person who has been engaged to perform the services is performing him as a person in business on his own account".

[71] In the case at hand, taking into account the factors discussed above, including Ms. Zeh-Abramsky’s intentions and her level of control over Thompson's activities as established at the outset of the relationship, the reporting requirement, the fact that the plaintiff provided Thompson's supplies and equipment (apart from his truck and cell phone), and the absence of risk and the lack of an opportunity for profit, I conclude on balance that Thompson should be classified as an employee. My finding is reinforced by the absence of any significant degree of responsibility for investment and management held by Thompson. In essence, he was employed as the on-site presence and representative of the plaintiff, carrying out the functions of property manager.

[72] For the above reasons, I hold that the employee dishonesty coverage provided by the defendant’s insurance policy provides coverage in respect of the activities of Thompson while employed as the plaintiff's property manager. Having determined the policy applies, I now turn to the question whether the plaintiff has proved a loss or losses to which that policy should respond.

Issue 2 - Has the plaintiff proved a recoverable loss arising from Thompson's dishonesty?

[73] In addition to proving an employment relationship, in order to recover under the employee dishonesty coverage provided in the policy, the plaintiff must prove both dishonest conduct by Thompson and losses flowing from that conduct. To simplify the analysis, I will deal with the two components of the plaintiff’s claim, the stolen rental payments and misuse of the corporate credit card, separately.

The claim for rental losses

[74] The plaintiff asserts that during the course of his duties, Thompson collected rental payments from tenants, issued receipts to those tenants, but failed to deposit the money he collected from them into the corporate bank account. The plaintiff faces several evidentiary hurdles in establishing these facts.

[75] To begin, most of the plaintiff’s rental records are missing or were removed by Thompson when he cleared out the business office. The missing documents include the individual tenant files and the rental receipt book. The latter document, if available, would be powerful evidence concerning cash amounts received by Thompson. In turn, it could be compared to the amount of funds deposited on the relevant dates to arrive at a calculation of the missing amounts. That direct evidence is unavailable due to Thompson’s conduct.

[76] Another approach that the plaintiff might follow would be to summons to court the individual tenants who paid rent in cash to Thompson in order to indicate what amounts were paid and when. Again, those sums could be compared to the actual bank deposits, with a view to determining the extent of Thompson's alleged misappropriation. However, this approach is not practical as a large portion of the tenant population was transient in the sense that many of the units were rented to students. Additionally, the actual rental records and tenant files were removed by Thompson thereby compounding the difficulty of locating these individuals. Moreover, from a practical standpoint, it would be difficult to summons all those individuals to court and most likely their recollections would be limited.

[77] A third possible approach would be for the plaintiff to try to locate and summons Thompson himself. If located and brought to court, he presumably could testify as to the extent of his defalcation (if any). However, his current whereabouts are unknown.

[78] Faced with the foregoing challenges, the plaintiff sought to prove the extent of its rental income loss and the defalcation by Thompson by utilizing the financial records and information still available. These included the plaintiff’s Microsoft My Money software program records, bank statements, and surviving email and other communications from Thompson. Because of the absence of other records, the plaintiff attempted to reconstruct and prove what the income stream from the residential units should have been. It then compared the calculated income stream to the amount of funds actually received and deposited. The plaintiff’s argument is that the difference between those two numbers is attributable to theft by Thompson.

[79] In order to decide whether the plaintiff has proved a recoverable loss arising from Thompson's dishonesty, I will use the following approach. First, I will examine the methodology followed by the plaintiff in attempting to prove its claimed loss. Second, I will assess the various elements of the evidence presented. Finally, I will determine whether, viewed as a whole, the evidence presented by the plaintiff proves on a balance of probabilities that Thompson misappropriated rental monies and, if so, how much.

[80] As mentioned, for purposes of reconstructing the relevant data based on the available information, the plaintiff retained the services of a forensic accountant who prepared a detailed report and testified at trial. The reconstruction effort relied upon two main sources of information, being the plaintiff's banking records and the electronic records stored in the plaintiff’s Microsoft My Money software supplemented, where necessary, by additional information provided by Ms. Zeh-Abramsky.

[81] At one stage of the trial, there was a dispute between the parties regarding the admissibility of the data from the Microsoft My Money computer program because the plaintiff had failed to serve the notice required under s. 35(3) of the Evidence Act, R.S.O. 1990, c. E.23, to permit it to tender the My Money data as a business record. Following a voir dire and an adjournment of the trial, the plaintiff served the s. 35(3) notice in advance of the resumption of the trial thereby resolving the notice issue. The defendant reserved its right, however, to argue under s. 35(4) of the Evidence Act that little or no weight should be given to the information contained in the computer records.

[82] Sections 35(2) and (4) of the Evidence Act provide as follows:

(2) Any writing or record made of any act, transaction, occurrence or event is admissible as evidence of such act, transaction, occurrence or event if made in the usual and ordinary course of any business and if it was in the usual and ordinary course of such business to make such writing or record at the time of such act, transaction, occurrence or event or within a reasonable time thereafter.

(4) The circumstances of the making of such a writing or record, including lack of personal knowledge by the maker, may be shown to affect its weight, but such circumstances do not affect its admissibility.

[83] The statute permits a party to prove a fact through the introduction into evidence of a business record of that fact, made in the usual and ordinary course of business, where it was the usual and ordinary course of the party's business to make such a record within a reasonable time after the event in question. The plaintiff relies on s. 35(2) to permit in order to prove the history of tenant payments as a business record.

[84] According to the evidence of Ms. Zeh-Abramsky, during the time Thompson was employed as property manager, he regularly collected rental payments from tenants and deposited the money directly into the plaintiff’s bank account. The deposits he made were often lump sums, comprised of an aggregate of several tenants' payments. When he made a deposit, Thompson would report to Ms. Zeh-Abramsky by text, email or otherwise, the amount deposited and would identify the tenants from whom the payments had been received. Based on that information, supplemented sometimes by telephone conversations or face-to-face meetings, Ms. Zeh-Abramsky was able to keep track of which tenants had paid their rent.

[85] This process was followed in the usual and ordinary course of the plaintiff’s business. Ms. Zeh-Abramsky then recorded the information provided by Thompson into the Microsoft My Money database. It is the information recorded in this fashion upon which the plaintiff wants to rely in order to prove the rent charged (the "rent roll") for the relevant periods, the rental receipts deposited, and the absence of expected deposits. Additionally, the plaintiff asks the court to infer that the absence of expected deposits should be attributed to defalcation by Thompson.

[86] The defendant submits that allowing the plaintiff to reconstruct the rent roll and prove its case through the use of information supplied by Thompson that cannot be tested in court is tantamount to allowing the plaintiff to prove its case by way of hearsay evidence. The defendant points out that the person who was the underlying source of the information – Thompson – is alleged by the plaintiff to be an untrustworthy thief, who also abused the corporate credit card. The defendant further submits that any information supplied by Thompson, even if it is incorporated into something that is otherwise would qualify as an admissible business record pursuant to s. 35(2), should be given no weight, as contemplated by s. 35(4).

[87] In reply, plaintiff points out that Thompson was an employee and that one of his main duties included reporting to Ms. Zeh-Abramsky regarding deposits made and the source of such funds. He did so over the course of several years. Ms. Zeh-Abramsky relied on that information to conduct her business, including for example, allocating rental receipts among particular units. Where Ms. Zeh-Abramsky had difficulty reconciling numbers or information, she would check the actual rental receipts to satisfy herself as to the accuracy of the information. She balanced and reconciled her records on an ongoing basis without issue.

[88] The plaintiff says what occurred during the period from mid-2011 to September 2012 is that the records submitted by Thompson omitted information regarding rent received from the units that he did not deposit into the plaintiff's bank account. However, there is no reason that Thompson would have misrepresented the units from which he had received funds. Rather, to the extent the records may have been inaccurate, they merely omitted units that had paid cash to him, which he then failed to deposit.

[89] In my view, the prerequisites of s. 35(2) are met in this case for the admissibility of these records to prove the underlying facts. In the course of his duties as an employee of the plaintiff, Thompson collected and reported on the collection of rental payments and Ms. Zeh-Abramsky duly recorded that information. Both of these steps took place within a reasonable time of the payments having been collected and deposited. These actions were part of the usual and ordinary course of the plaintiff’s business and the particular records in question were created in the usual and ordinary course of that business.

[90] It is worth noting that a key aspect of the plaintiff's accounting system was dependent on the accuracy and reliability of the rental collections and receipts information provided by Thompson. For example, there were situations where a tenant would not pay rent for a month, would pay only a partial amount, would default completely, or would make up back rent due. Ms. Zeh-Abramsky relied on Thompson to report such information to her so that she could update her records accordingly.

[91] It appears that this system worked satisfactorily, at least for the first 3-plus years of their relationship, because no major discrepancies were noted that gave rise to any concerns on the part of the plaintiff. In addition to tracking the rental income, Ms. Zeh-Abramsky also tracked and recorded expenses associated with the properties, miscellaneous payments, receipts from other sources, such as government payments on behalf of subsidized tenancies, and so forth. She kept careful track of the credits and debits to the plaintiff’s bank account on an ongoing basis, matching and verifying the information contained in the My Money database with the bank records.

[92] In view of the practices Ms. Zeh-Abramsky and Thompson followed for an extended period of time, during which this system produced satisfactory results and records and in light of the fact that the basic requirements for s. 35(2) admissibility are met, I am prepared to admit these records and the bank records as prima facie proof of the rent roll and the underlying history of payments received from the plaintiff’s rental units identified in the My Money data.

[93] In addition, I conclude that the plaintiff’s information on the rent roll and payments can also be received under the common law principled exception to the rule against hearsay evidence, where the evidence sought to be adduced meets the requirements of necessity and reliability. In this case, the element of necessity has been established because Thompson removed the actual rent roll, leases, and related documentation. Additionally, he is unavailable to testify and there is no other basis upon which this evidence can be proven in court.

[94] In relation to reliability, until the events that unfolded in mid-2012, the information provided by Thompson to Ms. Zeh-Abramsky in connection with the rental receipts was accepted by her as accurate. There were no signs prior to the summer of 2012 that anything was amiss, or that Thompson had started to divert rent receipts. That past practice supports a finding that the records were, historically at least, accurate.

[95] I therefore conclude that, quite apart from admissibility under s. 35(2), this evidence should be received under the common law test for admitting documentary hearsay evidence.

[96] On its face, as analyzed, tested, and summarized by the forensic accountant, this information provides a means to reconstruct the missing rent roll. I am satisfied on balance that the forensic accountant was able to reconstruct to a reasonable level of accuracy the rent roll for the various units in the plaintiff's buildings. I therefore conclude and find that the expert report prepared by the forensic accountant, Exhibit "T", dated April 9, 2018, contains a reasonably accurate statement of the plaintiff's anticipated rental income on a per unit basis for the Peterborough properties over the relevant period.

[97] The next aspect of determining the plaintiff’s claimed loss of rental income involves a comparison of the anticipated rental receipts and the actual income deposited in the plaintiff's bank account. In my view, this is where there is some merit to the defendant’s submission regarding the weight to be attributed to this evidence. Quite apart from the matter of Thompson’s untrustworthiness, there are several potentially innocent explanations for his failure to report or deposit funds from various units. For example, the tenant may have not paid or the unit may have been vacant. Thus, the omission of mention of any particular unit as having paid rent is not necessarily proof that Thompson misappropriated the rent that month from that unit. The defendant argues that these factors indicate that this evidence is so unreliable as to warrant no weight.

[98] In my view, these potentially innocent explanations for the absence of deposits from particular units do not mean that Thompson’s reported sources for deposits or the absence of rental receipts should be wholly disregarded. Ms. Zeh-Abramsky used the established system to keep track of the financial affairs of the plaintiff throughout the time that Thompson was employed as property manager. She was able, for the most part, to keep accurate records and reconcile the income and expenses of the business.

[99] It is conceivable that the lack of rental income from a particular unit in a particular month may be attributable to either the tenant failing to pay or the unit being vacant. However, that does not necessarily point to such a finding for all units for all months in which no income was reported as received. Vacant apartments and defaulting tenants are part of the normal course of business for any landlord and the plaintiff in this case is no different. That said, there is no identifiable reason why the plaintiff’s vacancy rate or experience with defaulting tenants should have risen so sharply in the period leading up to September 2012, especially in relation to the property at 723 George Street North. As shown on Schedule 4 to the expert’s report, the trend in undeposited rent increased dramatically starting in March 2012.

[100] In my view, it would be unfair to the plaintiff to attribute all of the rental shortfall experienced over the relevant period to the so-called "usual causes" of tenant default or unit vacancy. While there may be some reason to question the reliability or accuracy of some elements of the information contained in Thompson's reports regarding missing rent, the shortfall cannot completely, logically or fairly be attributed to these causes.

[101] The logical inference is that the remaining shortfall was caused by Thompson’s defalcation. I am supported in that conclusion by other evidence indicating misconduct and misappropriation by Thompson. These include the following: Thompson’s sudden disappearance after Brown (the new property manager) was told by tenants they had already paid their rent to Thompson; Thompson’s removal of all the business records that would have demonstrated his defalcation; Thompson’s questionable, if not outlandish explanation that over $11,000 worth of cash receipts "fell off the back of his bike"; Thompson’s subsequent criminal conviction; and the otherwise unexplained increase in the level of Thompson’s personal expenditures (including a new car and a new motorcycle) in the spring and summer of 2012.

[102] I would add that the apparent conversion of funds began in earnest after the plaintiff’s acquisition of the four additional properties on George Street, and once Thompson became responsible for collection of rent from them, beginning in early 2012. The plaintiff's cash flow increased significantly as a result, but without year-over-year records, the opportunity for undetected diversion of cash also increased.

[103] In relation to the calculation of the amount of the defalcation by Thompson, in Exhibit "T" the forensic accountant described in detail the process by which she analyzed the data contained in the My Money records and the plaintiff’s banking records. She cross-checked and tested the reliability and reasonableness of her calculations and assumptions. Where appropriate, she discounted or disregarded data she considered insufficiently reliable. She used a conservative approach in making her calculations and reaching her conclusions.

[104] Based on the methodology described, the various tests applied, and the assumptions made, together with the additional information obtained by the expert from Ms. Zeh-Abramsky, I am satisfied that the approach used by the forensic accountant was a sound one. No opposing expert report was tendered on behalf of the defendant providing a professional critique of the approach followed or any competing analysis to use as a basis for comparison. Based on my evaluation and assessment of the methodology used and the analysis carried out, I am satisfied that the forensic accounting report and the conclusions it reaches regarding the amounts of missing rent, are largely reliable.

[105] I am further satisfied that the calculations performed by the forensic accountant as set out in Exhibit "T" are accurate summaries of the data upon which they are based. My only hesitation in awarding the plaintiff the full amounts calculated in the report is the concern that a minor portion of the rental income shortfall may properly be due to tenant default and not misappropriation by Thompson.

[106] Based on the foregoing evidence, I find that a substantial proportion of the plaintiff’s rental losses were caused by defalcation by Thompson. I use the term substantial because, although I am persuaded that Thompson engaged in extensive theft of rental money that ought to have been deposited, the possibility of other explanations for rental shortages leads me to conclude that perhaps as much as 25% of them may have been due to causes other than his theft. Following that even more conservative approach, therefore, I would reduce the estimated rental loss by 25%. This reduces to $86,274 the $115,032 estimated rental loss calculated by the expert. My specific calculations in this regard are set out in the following table, which is based on the calculations summarized in Schedules 1 to 7 of the expert’s report, that (subject to the reduction explained above) I accept as accurate. Applying the policy maximum of $25,000 per property reduces the plaintiff’s recovery to $58,761.

A. Property	B. Expert’s estimate of loss (Sch. 1)	C. 75% of B.	D. Policy maximum	E. Net claim (i.e. lesser of C. or D.)
Rubidge St.	10,557	7,918	25,000	7,918
Stewart St.	16,868	12,651	25,000	12,651
Park St.	13,330	9,998	25,000	9,998
723 George St.	67,885	50,914	25,000	25,000
733 George St.	(140)	(105)	25,000	(105)
741 George St.	2,741	2,056	25,000	2,056
743-5 George	1,657	1,243	25,000	1,243
TOTAL	115,032	86,274		58,761

[107] In reaching the foregoing conclusions, I am mindful of the fact that I have concluded that Thompson committed a criminal act. That said, in the present context, a civil case, the criminal standard of proof beyond a reasonable doubt does not apply. Rather, I need be persuaded only on a balance of probabilities that the facts alleged by the plaintiff are true. Taking all the evidence into account, I am satisfied, on balance, that Thompson misappropriated at least $86,274 of rental receipts that were the property of the plaintiff.

[108] The Employee Dishonesty coverage insures against losses arising from "fraudulent or dishonest acts" committed by an employee with the manifest intent "to cause the insured to sustain such loss". I have no difficulty in concluding, on the facts as I have found them, that by stealing rental monies that should have been deposited, Thompson committed a dishonest act and caused the plaintiff a loss that was covered by the employee dishonesty provisions of the defendant’s policy.

The credit card claim

[109] In relation to this component of the claim, the plaintiff asserts that Thompson improperly used the corporate credit card to pay for personal expenses.

[110] In advancing this claim, the plaintiff faces several challenges. First, Ms. Zeh-Abramsky admitted that she could not prove that Thompson had used the plaintiff’s credit card to purchase goods for other jobs. Most of the claims for misuse of the credit card, therefore, fall under the category of personal purchases by Thompson. In some cases, Thompson provided receipts that indicated which expenses were personal, by way of a notation "ME" on them. This practice was not consistent, however, and it was generally not followed in the latter months of the parties' relationship. In relation to some expenses (e.g. food purchases at Swiss Chalet), it is apparent on the face of the credit card statement that certain expenses were personal and not business related. Ms. Zeh-Abramsky also relayed what she was told by Thompson regarding other personal expenses. As similarly identified above, this poses challenges with admissibility under the hearsay evidence rule.

[111] Quite apart from proof issues, however, the plaintiff faces a more fundamental problem in relation to the credit card claim. While the plaintiff now complains about Thompson’s misuse of the credit card, for several years he charged personal expenses to the knowledge of Ms. Zeh-Abramsky.

[112] It is therefore apparent that Ms. Zeh-Abramsky tolerated and condoned this (mis)conduct by knowingly permitting Thompson to use the company credit card for personal and non-business expenses. She did so on the basis of his undertaking to repay or offset such expenses against money otherwise due to him. This was the arrangement for how the plaintiff recouped the personal charges, and it followed this practice for a considerable period of time. This leads me to conclude that the use of the card was permissive on the basis that these expenses would be repaid by Thompson. Rather than a defalcation by an employee, this claim is more properly classified as a claim for repayment of a debt.

[113] The Employee Dishonesty coverage insures against losses arising from "fraudulent or dishonest acts" committed by an employee with the manifest intent "to cause the insured to sustain such loss". The understanding and agreement that Thompson was to repay any personal credit card expenses incurred by him, are inconsistent with a manifest intent to cause the plaintiff losses. I am unable to find that he intended to cause the plaintiff these losses.

[114] The plaintiff argues that around the time under which Thompson started to steal rent money, he also had the intent not to repay credit card charges. The plaintiff argues that this establishes his fraudulent intention.

[115] Despite the plaintiff’s submission on this point, there is no direct evidence to support it. Rather, the arrangement for deductions or offsets from payments due from the plaintiff to Thompson continued to the end of their relationship. Based on the evidence, it was, throughout, a debtor-creditor situation. I am therefore unable to ascribe the requisite fraudulent intent on the part of Thompson in relation to the use of the credit card.

[116] The claim based on misuse of the company credit card therefore fails.

Conclusion re insurance claim

[117] For the above reasons, the plaintiff is entitled to be paid $58,761 on account of covered losses under the insurance policy issued by the defendant, arising from the theft of rent money by Thompson.

Issue 3 - Did the defendant breach its duty of good faith?

[118] The plaintiff complains that the defendant breached its duty of good faith by failing to process its insurance claim both promptly and properly, as well as by wrongfully refusing to honour it. The defendant denies these allegations.

The legal duty of good faith in responding to insurance claims

[119] The duty of good faith owed by an insurer to an insured in relation to the response to a claim is described in Craig Brown et al, Insurance Law in Canada, 2nd ed. (Toronto: Thomson Canada Limited, 2017) as follows, at p. 10 – 29:

The general duty involves two requirements. The first is that the insurer must pay a claim in a timely fashion if there is no reason to contest it. The second is to treat the customer fairly throughout the process of investigating and assessing the claim. This applies both to the manner of investigation and assessment and the decision whether or not to pay.

[120] The insurer's duty of good faith has been discussed in a number of cases. In 702535 Ontario Inc. v. Non-Marine Underwriters, Lloyds of London, England (2000), 2000 CanLII 5684 (ON CA), 184 D.L.R. (4th) 687 (Ont. C.A.) O'Connor J.A. stated as follows, at para. 27:

The relationship between an insurer and an insured is contractual in nature. The contract is one of utmost good faith. In addition to the express provisions in the policy and the statutorily mandated conditions, there is an implied obligation in every insurance contract that the insurer will deal with claims from its insured in good faith: Whiten v. Pilot Insurance Co. (1999), 1999 CanLII 3051 (ON CA), 42 O.R. (3d) 641 (Ont. C.A.). The duty of good faith requires an insurer to act both promptly and fairly when investigating, assessing and attempting to resolve claims made by its insureds.

[121] In Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30, the Court stated, at para. 71:

[A]n insurer will not necessarily be in breach of the duty of good faith by incorrectly denying a claim that is eventually conceded, or judicially determined, to be legitimate…The question instead is whether the denial was the result of the overwhelming inadequate handling of the claim, or the introduction of improper considerations into the claims process.

[122] In Fidler, the Supreme Court approved the following statements of the law by O'Connor J.A. in 702535 Ontario Inc., at paras. 29 and 30:

29. The duty of good faith also requires an insurer to deal with its insured's claim fairly. The duty to act fairly applies both to the manner in which the insurer investigates and assesses the claim and to the decision whether or not to pay the claim. In making a decision whether to refuse payment of a claim from its insured, an insurer must assess the merits of the claim in a balanced and reasonable manner. It must not deny coverage or delay payment in order to take advantage of the insured's economic vulnerability or to gain bartering leverage in negotiating a settlement. A decision by an insurer to refuse payment should be based on a reasonable interpretation of its obligations under the policy. This duty of fairness, however, does not require that an insurer necessarily be correct in making a decision to dispute its obligation to pay a claim. Mere denial of a claim that ultimately succeeds is not, in itself, an act of bad faith: Palmer v. Royal Insurance Co. of Canada (1995), 1995 CanLII 19519 (ON CJ), 27 C.C.L.I. (2d) 249 (O.C.G.D.).

30. What constitutes bad faith will depend on the circumstances in each case. A court considering whether the duty has been breached will look at the conduct of the insurer throughout the claims process to determine whether, in light of the circumstances, as they then existed, the insurer acted fairly and promptly in responding to the claim.

[123] In 702535 O'Connor J.A. went on to state, at para.31:

A breach of the duty to act in good faith gives rise to a separate cause of action from an action for the failure of an insurer to compensate for the loss covered by the policy.

[124] In relation to the significance of the involvement of an independent adjuster, as was the case here, the following comment by Cumming J. in Bullock v. Trafalgar Insurance Co. of Canada, [1996] O.J. No. 2566, at para. 131 is apposite:

Because the adjuster for the insurer is the agent of the insurer, in fulfilling the insurer's duty to the insured to investigate, the adjuster's actions or inaction will determine whether or not the insurer has met its obligations to the insured under the insurance contract.

[125] Against the backdrop of the foregoing legal principles, I turn to the facts of this case.

Timeliness

[126] Dealing first with the issue of the timeliness of the defendant’s response to the claim, notice of the loss was first submitted by the plaintiff on September 4, 2012. The defendant immediately appointed an adjuster who began communicating with Ms. Zeh-Abramsky right away. Ultimately, the decision to deny the claim was not communicated until June 20, 2013. While this nine month delay is by no means a model of efficiency, in the particular circumstances of this case, for the reasons that follow, I cannot characterize it as evidence of bad faith conduct on the part of the defendant.

[127] From the outset, the plaintiff had difficulty determining, calculating and communicating particulars of its loss. These difficulties were largely due to the loss of the rental records when Thompson emptied out the business office. As a result, the plaintiff prepared and sent to the adjuster a series of calculations and back up material in an attempt to summarize and show Thompson's theft of rent money. Unfortunately, a number of Ms. Zeh-Abramsky’s submissions contained errors or were based on erroneous information, which resulted in mistaken calculations. The material submitted was also very difficult to understand, given that it was prepared based on Ms. Zeh-Abramsky’s attempts to reconstruct both her rent roll and the history of rental receipts, from her My Money accounting software data and her bank statements. Indeed, as late as January 29, 2013, Ms. Zeh-Abramsky apologized (again) to Mr. Bertrand for the "previous mess and non-corresponding entries".

[128] Ultimately, the plaintiff had to retain a forensic accountant to present its claim and calculations in an orderly fashion. Even then, the forensic accountant prepared a revised report that arrived in the midst of the trial. The loss calculations contained in the two reports from the forensic accountant were significantly lower than the one the plaintiff submitted in January 2013. Plainly, it was a very challenging task to locate and verify the underlying information and to calculate the plaintiff's loss.

[129] Quite apart from the difficulties associated with quantifying and assessing the alleged loss, the insured had problems communicating with Ms. Zeh-Abramsky. She was out of the country on a number of occasions for extended periods of time. I do not suggest that the fault for the delay in processing the claim was entirely hers, but her absence as well as the problems and I have previously mentioned, all contributed to the delay.

[130] Admittedly, there were some gaps as the defendant considered the various iterations of the plaintiff’s calculations. Yet there is no evidence to suggest that the defendant intentionally "dragged its heels" in assessing and responding to the claim for the purpose of forcing the plaintiff to compromise its position or for any other improper reason. Once the adjuster met with Ms. Zeh-Abramsky and received confirmation from her regarding the underlying facts, the decision to deny the claim was communicated within weeks.

[131] Based on these facts, I conclude that the nine month delay in processing and deciding to deny the claim is not, in itself, evidence of bad faith.

Fairness

[132] When assessing whether the defendant acted fairly in dealing with the plaintiff's claim, the correct starting point is the statement by O'Connor J.A. quoted above, that mere denial of a claim that ultimately succeeds is not, in itself, an act of bad faith. As the Supreme Court stated in Fidler, the question instead is whether the denial was the result of the overwhelming inadequate handling of the claim, or the introduction of improper considerations into the claims process.

[133] In support of its submission that the defendant breached its duty of good faith, the plaintiff relies on two extra-contractual documents. The plaintiff argues they reflect an acknowledgement by the defendant of the standards to which it must adhere in order to discharge its legal obligations.

[134] The first such document is Aviva’s Code of Consumer Rights and Responsibilities. This document was included in the final version of the insurance policy issued by the defendant on which the claim is based. While not formally part of the policy, the plaintiff submits that it prescribes the customer’s reasonable expectations regarding the discharge of the defendant’s duties.

[135] In relation to the rights of consumers, this document states, among other things, as follows:

The staff of Aviva Insurance Company of Canada (along with the brokers and agents who sell home, auto, and business insurance), are committed to safeguarding your rights when you shop for insurance and when you submit a claim following a loss. Your rights include the right to be fully informed, to be treated fairly, to timely complaint resolution, and to privacy. These rights are grounded in the contract between you and your insurer and the insurance laws of your province. …

Right To Be Informed

You can expect to access clear information about your policy, your coverage, and the claims settlement process. You have the right to an easy-to-understand explanation of how insurance works and how it will meet your needs. …

Right To Professional Service

You have the right to deal with insurance professionals who exhibit a high ethical standard, which includes acting with honesty, integrity, fairness and skill. Brokers and agents must exhibit extensive knowledge of the product, its coverages and its limitations in order to best serve you. …

[136] Another document relied upon by the plaintiff in support of its submission that the defendant breached its duty of good faith is the Code of Ethics of the Canadian Insurance Adjusters Association (the "CIAA"). Once again, that document does not form part of any contract between the parties. Nevertheless, the plaintiff submits, it reflects the standards of conduct to be expected of insurance adjusters who are involved in the claims resolution process on behalf of insurers such as the defendant.

[137] With respect to policyholders and claimants, the CIAA Code states, among other things, as follows:

1. Policyholders and claimants are entitled to receive, courteous, fair and objective treatment at all times;

2. Policyholders and claimants are entitled to receive prompt and knowledgeable service;

3. Policyholders will be given explanations with respect to their insurance coverage as relevant to the loss or claim being adjusted;

[138] The plaintiff argues that one of the fundamental standards by which to measure whether the defendant breached its duty of good faith is contained in the foregoing codes: the insured’s right to be fully informed. The plaintiff submits this right is explicit in the defendant’s Code of Consumer Rights and Responsibilities and is implicit in the CIAA Code of Ethics. When viewed together, the argument continues, the Codes reflect the entitlement of policyholders to be given explanations with respect to their insurance coverage where relevant to the claim being adjusted. The plaintiff submits that the defendant, both directly and through its agent, the adjuster, failed to meet this standard.

[139] In order to assess the validity of the plaintiff’s complaint, I turn to a review of the communications among the participants over the relevant period, some of which I have summarized in the following table:

Date	Event
September 4, 2012	Through her broker, Ms. Zeh-Abramsky reports the claim to the defendant.
September 5, 2012	Mr. Bertrand (the adjuster) calls and writes to Ms. Zeh-Abramsky enclosing a Proof of Loss form and advising that "the fact that we provide you with this form should not be construed as an admission of coverage or liability. The insurer reserves its rights while investigating the claim". He goes on to request key documents from Thompson's personnel file, such as his job application, record of employment and employment contract.
September 18, 2012	Ms. Zeh-Abramsky sends an email to Mr. Bertrand attaching a "letter of statement for Aviva" describing the background facts including the relationship with Thompson and asking him to let her know what else he needs.
September 19, 2012	Mr. Bertrand responds requesting, among other documents, a copy of the HR file. Ms. Zeh-Abramsky responds stating "I don't really have a HR file for Troy just his signed contract". Mr. Bertrand replies asking her to send what she has. "If you only have a contract, then send it. Did he produce invoices? If yes, we will need a copy".
September 20, 2012	Ms. Zeh-Abramsky swears a fidelity Proof of Loss, in which she states that a personnel file is not available for Thompson. She attaches a number of invoices from Thompson and other entities such as TPM and A-Z Property Rentals, a contract and an insurance policy declaration showing "Thompson Renovations Maintenance" as the named insured.
October 1, 2012	Mr. Bertrand responds requesting an explanation as to how this documentation can be used to prove the amount of her loss.
November 29, 2012	Mr. Bertrand requests a copy of the last six invoices from Thompson. Ms. Zeh-Abramsky responds that she had sent all the invoices received from Thompson and that he never gave her an invoice starting in April.
November 29, 2012 to February 20, 2013	The parties exchange multiple emails relating to the calculation of the loss.
April 7, 2013	After requests by Ms. Zeh-Abramsky for updates, Mr. Bertrand advises that he was discussing the claim with Aviva and would probably have to meet at the plaintiff's place of business later on in order to complete his review. Ms. Zeh-Abramsky proposes dates for the meeting and asks Mr. Bertrand to "let me know anything else I should have prepared for you". Ms. Zeh-Abramsky also asks Mr. Bertrand to send her an agenda for the meeting about one week ahead of time.
April 8, 2013	Mr. Bertrand responds "We will review the claim you have sent us. There is no other agenda". Ms. Zeh-Abramsky replies stating "If you have any specific questions, please let me know ahead of time so I can properly prepare for an effective meeting". On April 9, Mr. Bertrand responds "We will review the information you have sent us. You must have all your records available.… I will not give you a description of the records we need to see since we need all of them to be available".
April 8, 2013.	Mr. Bertrand sends a report to the defendant stating that "The presence of the contract, the master business license, the insurance certificate, and the invoices seem to indicate that the relationship between Troy Thompson and the insured was not an employee/employer one and that Troy Thompson acted through his company as an independent contractor. We would have to sit down with the insured and review this relationship in details before commenting any further". Mr. Bertrand went on to recommend having the insured sign a non-waiver agreement regarding the question as to whether Thompson was an employee or not.
April 17, 2013	The defendant instructs Mr. Bertrand to visit the insured, and specifically directs him to confirm the status of Thompson at the time of the loss. Mr. Bertrand responds that he will obtain as much information as possible on the employee status when he meets with the insured.
April 18, 2013	Mr. Bertrand confirms the meeting and states "It is also essential that we have all access to all your books and records". Ms. Zeh-Abramsky replies "You will have access to all records in my possession, but please note that some files and receipt books have been stolen by Troy when he took off". Ms. Zeh-Abramsky follows up with a further email stating "It would help a lot to make our meeting more effective if you could tell me which files you want to look at, since I will have to bring them to the office". Mr. Bertrand writes to Ms. Zeh-Abramsky asking her to bring with her "any vendor or payables file relating to Troy Thompson or any company he is related to and payroll records for all employees, including Thompson".
April 19, 2013	Mr. Bertrand follows up stating "Please have all available files that could be remotely connected to the claim and to … Thompson". Ms. Zeh-Abramsky confirms that she will bring all possible files.
April 30, 2000	Meeting takes place between Mr. Bertrand and Ms. Zeh-Abramsky
May 22, 2013	Mr. Bertrand sends an email to Ms. Zeh-Abramsky reciting his recollection of the information provided by her at the meeting.
May 24, 2013	Ms. Zeh-Abramsky writes back to Mr. Bertrand confirming the contents of his email.
June 20, 2013	Mr. Bertrand writes to Ms. Zeh-Abramsky informing her that the claim is being denied because Thompson was not an employee.

[140] The plaintiff submits that the defendant was not forthcoming about its concerns regarding coverage and in particular the employment status of Thompson, despite the multiple requests by Ms. Zeh-Abramsky for information about what was to be discussed at the Bertrand meeting. The plaintiff argues that in failing to do so, the defendant did not keep her "fully informed" and failed to provide her with "clear information about … the claims settlement process" as required by the Aviva Code of Consumer Rights. The plaintiff submits that this is evidence of the defendant’s failure to act in good faith.

[141] I do not accept that argument. Based on the foregoing chronology, it is apparent that the question of the relationship between the plaintiff and Thompson was raised at the outset of the investigation. At no stage did the defendant tell the plaintiff that it was satisfied the claim was covered. There were multiple follow-ups that mentioned the topic of the relationship with Thompson, including several in the various emails exchanged during the run-up to the meeting on April 30, where there were again references to Thompson's employment file.

[142] In Leblanc & Royle Enterprises Inc. v. United States Fidelity & Guaranty Co. (1994), 1994 CanLII 1255 (ON CA), 17 O.R. (3d) 704 (C.A.), the Court of Appeal addressed a complaint by an insured that its insurer breached the duty of good faith by not disclosing that it was continuing to investigate coverage issues while it assessed a claim. In rejecting the submission that an insurer must inform the insured about its strategy in evaluating a claim, Osborne J.A. said as follows:

In my view, the respondent was not required to advise the appellant of its strategy in relation to the appellant's claim. It did not breach a duty it owed to the appellant by remaining silent as to its basic position on the coverage issue, while it continued to investigate the cause of the loss.

[143] In our case, the insurer set out its position regarding coverage at the outset, and continued to request documentation about the relationship with Thompson. In light of these facts and the foregoing authority, I am unable to accept the plaintiff’s complaint that the defendant failed to meet its obligations under its Code of Consumer Rights or that it failed to discharge its duty of good faith on this ground.

[144] Before leaving the topic of fairness, I feel obliged to comment on one other aspect of the evidence. The plaintiff’s claim was handled in-house by an experienced claims examiner. She dealt with the broker who submitted the claim and the independent adjuster who investigated and evaluated the claim, and later made the internal recommendation to deny the claim.

[145] One of the central issues throughout the claim process was whether the defaulter, Thompson, was an employee or an independent contractor. Understandably, one would expect the claims examiner to have a reasonably good understanding of the legal considerations relevant to deciding that question. To my surprise, the claims examiner testified that, until this case arose, she was unfamiliar with any case law concerning the treatment of this issue by the courts. To me, that is a troubling shortfall in the defendant’s training regime for its employees who deal with processing claims on an ongoing basis.

[146] The plaintiff submits that this is further evidence of a lack of good faith by the defendant. In the present case, however, the claims examiner relied on the advice and recommendation of an even more experienced independent adjuster. In turn, the advice of the adjuster to deny the claim was based on information gleaned by him in direct discussions with the insured, and subsequently confirmed by the insured unequivocally. While this lack of proper training of its claims examiner does not reflect well on the defendant’s educational practices (and I emphasize that I am not being critical of the claims examiner herself) I cannot trace that deficiency to a resulting injustice to the plaintiff. Should the defendant fail to remedy this gap in its ongoing training practices, however, the result might well be different in a future case.

Conclusion regarding the duty of good faith

[147] I am mindful of the statement of the Supreme Court in Fidler that the question before me is "whether the denial was the result of the overwhelming inadequate handling of the claim, or the introduction of improper considerations into the claims process". In the present case, although I have reached a different conclusion regarding coverage, in the circumstances of this case, I cannot say that the handling of the claim was overwhelmingly inadequate. Nor was there any evidence that any improper considerations were taken into account when processing or deciding to deny the claim. Based on my review, I find that the claim was handled with reasonable timeliness (given the difficulties in gathering and presenting the loss information) and fairly.

[148] For the above reasons, I conclude that the plaintiff has failed to persuade me that the defendant breached its duty of good faith in relation to the plaintiff’s fidelity loss claim.

Issue 4 - Should the plaintiff be awarded punitive damages?

[149] In Whiten v. Pilot Insurance Co., 2002 SCC 18, at para. 36, Binnie J., on behalf of a unanimous Supreme Court wrote:

36. Punitive damages are awarded against a defendant in exceptional cases for "malicious, oppressive and high-handed" misconduct that "offends the court’s sense of decency": Hill v. Church of Scientology of Toronto, 1995 CanLII 59 (SCC), [1995] 2 S.C.R. 1130, at para. 196. The test thus limits the award to misconduct that represents a marked departure from ordinary standards of decent behaviour.

At para. 94 he added:

94. Punitive damages are very much the exception rather than the rule, [and are] imposed only if there has been high-handed, malicious, arbitrary or highly reprehensible misconduct that departs to a marked degree from ordinary standards of decent behaviour.

[150] In this case, as described in detail above, the defendant responded to the plaintiff’s insurance claim promptly and, for the most part, diligently. Much of the delay in dealing with the claim arose because of the plaintiff’s ongoing difficulties in presenting a coherent and accurate summary of the loss, which in turn was due to the absence of records. None of these problems can be laid at the feet of the defendant. The ultimate decision to deny coverage was based on information confirmed by the defendant.

[151] These facts cannot be described as "high-handed, malicious, arbitrary or highly reprehensible misconduct". The defendant had no "hidden agenda" save to determine, based on the information it collected, whether the claim was covered or not. This was not a case of "tunnel vision".

[152] Based on my review of the facts and the information now available, I reached a different conclusion than the one reached by the defendant. However, importantly, I found no bad faith. I have no difficulty concluding that this is not an exceptional case in which an award of punitive damages is warranted.

Issue 5 - Does the plaintiff have a claim for unjust enrichment?

[153] The plaintiff submitted that an award for unjust enrichment should be made because the defendant had the use of the plaintiff’s money while the claim was processed and ultimately denied. A suitable basis for such an award, it was argued, would be based upon the rate of return enjoyed by the investors who are shareholders of the defendant.

[154] In argument, this claim was connected to the complaint of a breach of the duty of good faith. As explained above, I found no such breach. Counsel conceded he could point to no authority for such an award against an insurer.

[155] In the face of my finding relating to good faith and in the absence of authority to make such an award based on unjust enrichment, I decline to do so. Like most successful litigants, the plaintiff is entitled to an award of pre-judgment interest on the sum awarded to it, pursuant to the Courts of Justice Act, R.S.O. 1990, c. C.43, s. 128.

Conclusion and Disposition

[156] For these reasons, I order the defendant to pay the plaintiff $58,761 on account of covered losses under the insurance policy issued by the defendant. The balance of the plaintiff’s claims are dismissed. The plaintiff is also entitled to an award of pre-judgment interest on the sum awarded to it.

[157] In relation to costs, I encourage the parties to reach agreement. Should they be unable to do so, I direct as follows:

(a) The plaintiff shall serve its Bill of Costs on the defendant, accompanied by written submissions, within 30 days of the release of these reasons.

(b) The defendant shall serve its response on the plaintiff within 20 days thereafter. I expressly invite the defendant to submit the Bill of Costs it would have presented had it been successful at trial.

(c) The plaintiff may, but is not obliged to, serve a reply within 10 days thereafter.

(d) In all cases, the written submissions shall be limited to three double-spaced pages, plus Bills of Costs.

(e) I direct counsel for the plaintiff to collect copies of all parties' submissions and arrange to have that package delivered to me in care of Judges' Administration, Room 170 at 361 University as soon as the final exchange of materials has been completed. To be clear, no costs submissions should be filed individually: rather, counsel for the plaintiff will assemble a single package for delivery as described above.

___________________________ Stinson J.

Released: October 11, 2018