COURT FILE NO.: 13-58047
DATE: 2018-11-06
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Mustafa Elevli Plaintiff
– and –
Crain & Schooley Insurance Brokers Ltd. Defendant
COUNSEL: Christopher McLeod and Alexander Bissonnette, for the Plaintiff Samantha A. Iturregui, for the Defendant
HEARD: October 24, 2018 (Ottawa)
REASONS FOR JUDGMENT
J. PARFETT, J
[1] The Defendant on this motion requests summary judgment dismissing the Plaintiff’s claim against Crain & Schooley Insurance Brokers (CSIB). The Plaintiff requests dismissal of the Defendant’s summary judgment motion and requests instead that their motion for summary judgment against the Defendant be granted
Background
[2] In November 2005, the Plaintiff purchased a property known municipally as 841 Grenon Avenue. His intention was to use the property as a rental property.
[3] The Plaintiff engaged the Defendant, CSIB to find an appropriate insurance policy for the property. He advised the broker that the property was to be a rental property.
[4] The Defendant was successful in finding a policy. The policy in question contained an exclusion clause denying coverage after thirty days of vacancy.[^1] In addition, there was a statutory condition that required the insured to advise the insurer of any change in material risk.[^2] The policy also provided coverage for any mortgage listed on title.[^3]
[5] Initially, the property had two mortgages on title. The second mortgage was with a private lender and the Plaintiff paid off that mortgage with funds from his line of credit. The second mortgage was discharged.
[6] In October 2006, it came to the attention of the insurer that the property may have been vacant for several months. They contacted the Defendant, who in turn, contacted the Plaintiff. The Plaintiff advised the Defendant that his tenants had moved out at the end of September and that he was doing some cosmetic work on the property. He indicated that he expected new tenants to move in on November 1. The Plaintiff also asked the Defendant why there was a problem with the property being vacant and he was advised that ‘in the insurance industry’s eyes, a vacant home is more apt to be vandalized or burnt.’[^4]
[7] In fact, the property was never again rented.[^5] The Plaintiff indicated that it was never his intention that the property would remain vacant for years. It had always been his intention for the property to be rented.[^6]
[8] Ultimately, the property was boarded up by the City of Ottawa. The City advised the Plaintiff that the property was being used by street people and/or teenagers as a flop house. Some of the utilities were disconnected. The Plaintiff used the property for storage for a period of time.[^7]
[9] In June 2012, there was a fire at the property and it was rendered a total loss. The insurer denied coverage on the basis the property had been vacant for more than thirty days. However, the insurer did pay the mortgagee for the mortgage on the property.
[10] The Plaintiff brought an action against the insurer and the Defendant CSIB for damages resulting from the denial of coverage.[^8] The Plaintiff alleges that the Defendant CSIB was negligent in that they failed to advise him of the gap in coverage in relation to vacancy. Additionally, he alleges that the mortgage that he discharged by using funds from a line of credit should be paid out as he was not advised by CSIB that discharging the second mortgage would result in no insurance coverage.
Issues and Legal Principles
[11] In the present case, there is a threshold issue to be determined. The Plaintiff objected to the use of the Defendant’s witness’ transcript from the discovery as part of the Defendant’s evidence. He relied on Rule 39.04(2) of the Rules of Civil Procedure[^9], which holds that evidence on a motion cannot be led by filing a transcript of an examination for discovery. The purpose of the rule is to prevent parties from avoiding cross-examination by using their own examination for discovery instead of providing an affidavit.[^10]
[12] The Defendant responded by pointing out that their witness incorporated her evidence led at discovery into her affidavit for this motion and she was cross-examined by the Plaintiff’s counsel on her affidavit. There were a few objections to questions asked on cross-examination that Defendant’s counsel argued had been fully answered at discovery, but otherwise the Plaintiff was able to cross-examine the Defendant’s witness.[^11] In my view, this procedure did not offend Rule 39.04(2) and the Defendant could lead their evidence in the fashion they did.
[13] The next issue to be determined is whether a just result can be obtained using the summary judgment process.
[14] Rule 20.04 of the Rules of Civil Procedure provides that summary judgment should be granted if the court is satisfied there is no genuine issue requiring a trial. The onus is on the moving party to show that there are no material facts in issue that would require a trial. If the case is one requiring findings of credibility or a significant weighing of evidence, then a summary judgment cannot be made.[^12] If the court finds there is a genuine issue for trial, the additional powers set out in Rules 20.04(2.1) and (2.2) may be used if it results in a timely and affordable decision making process.[^13] Ultimately, the court must determine whether a full appreciation of the evidence and issues required to make a dispositive finding can be achieved by way of summary judgment.[^14]
[15] Neither party in the present case suggested that this matter required a trial. I agree. There are no significant facts in issue. Importantly, there is no dispute concerning the following facts:
• The Plaintiff owned the property in question;
• He insured the property as a rental property through the Defendant broker;
• The property only ever had one tenant and consequently, was left vacant for over five years;
• The Plaintiff intended to use the property as a rental property and did not foresee that it would remain vacant for such a lengthy period of time;
• The policy issued by the insurer and recommended by the Defendant contained an exclusionary clause in respect of any vacancy of more than 30 days;
• The policy also provided for insurance for the mortgagee;
• The Plaintiff initially had two mortgages on the property, but paid off the second mortgage using funds from his line of credit;
• The Defendant provided letters to the Plaintiff that contained information concerning the impact of a vacancy on coverage, but the Plaintiff did not read those letters; and
• The insurer denied coverage after the premises was seriously damaged in a fire.
[16] There are three legal issues that arise from these facts:
(1) whether the Defendant met the duty of care it owed to the Plaintiff;
(2) whether there had been a material change to the risk, and
(3) whether the insurer should have paid the Plaintiff for the debt on his line of credit.
[17] The duty of care owed by an insurance broker to a client is to use a reasonable degree of skill and care to provide the client with the type of insurance that he has indicated he needs.[^15] Where the client gives no specific instructions and instead relies on the broker to ensure that he is protected, ‘when an uninsured loss arises [the broker] cannot shrug off the responsibility he has assumed.’[^16]
[18] Furthermore, the fact that a client does not read the policy or ask questions about the policy does not absolve the broker of the responsibility to advise the client about any gaps in the policy coverage.[^17] Depending on the circumstances, a form letter setting out the details of any exclusion may, or may not, be sufficient to discharge the broker’s duty of care. In Bronfman v. BFL Canada Risk and Insurance Services Inc.[^18] a form letter was not considered to be sufficient. In that case, the court found,
The Bronfmans are very wealthy people whose lifestyle was known to Goldsmith as a result of his handling of Paul’s corporate needs. The inadequate coverage for jewellery is among the gaps that should have been reviewed with them by Goldsmith, and the covering letters do not serve to eliminate that obligation.[^19]
[19] Once a broker has provided a client with the required insurance, and advised them of any gaps in coverage, the broker has fulfilled its duty of care. If, however, there is a material change in the risk during the coverage period, it is the client’s duty to inform the broker or the insurer. As noted in Ken Murphy Enterprises Ltd., v. Commercial Union Assurance Co. of Canada,[^20]
Because it is the customer’s duty to report material changes in risk, the agency is not called upon to actively monitor the nature of the risk during the term of the policy. Once the agency becomes aware that there has been a material change in the risk, however, its responsibility changes.[^21]
Analysis
[20] The Plaintiff argued that he was never advised that coverage might be denied if his property was vacant for more than 30 days. He stated that he did not read his policy; he relied on the Defendant to advise him if there was any significant gap in coverage.
[21] The Defendant for its part contended that the Plaintiff was advised of the potential loss of coverage on at least three separate occasions. The first occasion occurred during the course of a conversation between Ms. McLellan, an employee of the Defendant and the Plaintiff. Ms. McLellan called the Plaintiff because the Defendant was concerned that the property was vacant. The Plaintiff told Ms. McLellan that he was between tenants and was doing some cosmetic work on the property. He also asked why the fact the property was vacant was a problem and he was told that a vacant property was vulnerable to vandalism and fire.
[22] What is critical with respect to this conversation is that Ms. McLellan never advised the Plaintiff that because of that vulnerability, the insurer might decline to cover any losses that might occur while the property was vacant. That piece of information was essential. Consequently, I cannot find that the Defendant discharged its duty of care at this point in time.
[23] The letters sent to the Plaintiff are a different matter. As noted earlier, such letters may or may not be sufficient to discharge the Defendant’s duty of care depending on the specific circumstances of the case. In a letter sent by the Defendant to the Plaintiff in September 2010, it is noted that,
You are required to notify your broker of any material changes to the risk (property and/or liability) covered by the policy. This would include but is not limited to such things as:
• Change in the occupancy or use of your dwelling: for example – if your dwelling becomes vacant, or your tenant(s) commence operation of a business from the dwelling.
• Notification of such changes should be made within 30 days of commencement of the change.[^22]
[24] In a subsequent letter sent in January 2014, it is noted,
As you look over your policy, we ask that you consider the following points:
• Dwelling Vacancy and Dwelling under Construction: damage or loss caused by vandalism or malicious acts, water damage and loss due to glass breakage occurring as soon as your dwelling is under construction or becomes vacant is not covered. All other coverage ceases after 30 days of vacancy unless you have notified us and permission for vacancy has been granted by the Insurer.[^23]
[25] As noted in Fletcher v. Manitoba Public Insurance Co.,[^24] ‘since [the insurer] chose to communicate by mail it was incumbent upon it to make sure the written materials it sent out were cast in the clearest of terms.’[^25] In the present case, the written material was explicit and, in the second letter, the specific issue was outlined in bold print.
[26] The Plaintiff did not deny receiving the letters, but he said on discovery that he paid no attention to the letters. He simply ignored them. In his affidavit, the Plaintiff stated that he may not have received the letters, he may have discarded them as junk mail or he may simply not have read the letters. The letters were correctly addressed to the Plaintiff and in the absence of any evidence that he did not receive him, the appropriate inference to draw is that he did receive them but took no notice of the letters.
[27] The Plaintiff argued that his circumstance was similar to that of the Bronfmans. I disagree. In the Bronfman case the court found that the broker knew the Bronfmans and therefore had to know that the standard jewellery clause in their insurance was inadequate in their specific circumstances. That situation is distinguishable from the present case. The Plaintiff asked for, and received, a policy for a rental property. There was nothing unusual about his circumstances. It was foreseeable that he might have a period of vacancy while he was between tenants only because it would be foreseeable in relation to any rental property. There was nothing about his circumstances that would lead to the conclusion that something more than the standard communications were necessary. Consequently, in this case, the form letters sent to the Plaintiff did discharge the Defendant’s duty of care.
[28] In any event, what occurred in this situation was a great deal more than merely a short vacancy between tenants. As noted earlier, the property had been vacant for more than five years. The Plaintiff had not been inside the property for at least six months prior to the fire. He had shut off the gas at the property and had tried to shut off the water and electricity.[^26] Three windows had been boarded up and the side door had been sealed by the City of Ottawa By-law Services so as to keep vagrants out of the property.[^27] The Plaintiff was aware of this situation and indicated that he was very concerned by it.[^28] The Plaintiff cut the grass at the property and used it for storage purposes, but otherwise did not carry out any maintenance on the property.[^29]
[29] The Plaintiff’s evidence was that he never intended for the property to remain vacant for such a lengthy period of time. The Plaintiff also testified that when he received the policy, he was satisfied that it met his needs at the time.
[30] The only conclusion that can be drawn from this evidence is that the property was no longer a rental property. It was not only vacant; it was uninhabitable. The Plaintiff was aware that his property had been boarded up and that vagrants were getting into the property. He also knew that his insurance was for a rental property, not an uninhabitable property. In the circumstances, the Plaintiff was under an obligation to advise the insurer that there had been a change in material risk. He did not do so.
[31] The Defendant was not aware of the situation with respect to the property and could not therefore advise the Plaintiff that his insurance was inadequate. Nor was the Defendant in a position to advise the insurer of the situation. As noted in the Murphy case, the Defendant was not obliged to keep tabs on the Plaintiff’s rental property; it was for him to advise them of the change in risk.
[32] The last issue relates to the second mortgage that was initially placed on the property. The policy purchased by the Plaintiff protected the mortgagees. After the fire, the insurer paid out the mortgagee listed on title. However, prior to the loss, the Plaintiff had paid the second mortgagee and that mortgage was discharged from title. The Plaintiff used funds from his line of credit to pay out the second mortgage. The Plaintiff seeks payment by the insurer for those funds. However, the policy is clear that the insurance covers mortgagees. The Plaintiff was not a mortgagee. Consequently, there was no obligation on the insurer to pay his line of credit.
Conclusion
[33] For the reasons set out above, the Plaintiff’s claim against the Defendant Crain & Schooley Insurance Brokers Ltd is dismissed.
Costs
[34] I encourage the parties to settle this issue themselves. However, if the parties cannot resolve the issue of costs for themselves, they may send submissions of no more than two pages, with any necessary attachments such as Offers to Settle or jurisprudence within fifteen (15) days of this decision with a right of reply five (5) days later.
Madam Justice J. Parfett
Released: November 6, 2018
COURT FILE NO.: 13-58047
DATE: 2018-11-06
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Mustafa Elevli
Plaintiff
-and-
Crain & Schooley Insurance Brokers Ltd.
Defendant
REASONS FOR JUDGMENT
Madam Justice J. Parfett
Released: November 6, 2018
[^1]: Affidavit of Catherine MacPherson at paras. 6-10. [^2]: Affidavit of Catherine MacPherson at paras. 6-10. [^3]: Tab 1b, Second Supplementary Motion Record of the Defendant. [^4]: Tab 1g, Second Supplementary Motion Record of the Defendant. Spelling errors in original corrected. [^5]: Transcript of cross-examination of Mustafa Elevli, dated December 1, 2017 at p. 32, Q.89. [^6]: Transcript of cross-examination of Mustafa Elevli, dated December 1, 2017 at p.33-34, Q.93. [^7]: Transcript of cross-examination of Mustafa Elevli, dated December 1, 2017 at p. 35, Q.97. [^8]: The action against the insurer was settled prior to this motion being heard. [^9]: R.R.O. 1990, Reg. 194. [^10]: Lana International Ltd. v. Menasco Aerospace Ltd., 2000 CarswellOnt 3093 (O.C.A.) as cited in 3574423 Canada Inc. v. Baton Rouge Restaurants Inc., 2008 CarswellOnt 2477 (SCJ) at para. 30. [^11]: See Ontario (Securities Commission) v. McLaughlinI, CarswellOnt 2048 (SCJ). [^12]: Malleck v. Batten, [2015] O.J. No. 1021 (SCJ) at paras. 14-15. [^13]: Ibid at para. 13. [^14]: Hryniuk v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87 at paras. 53 & 57. [^15]: Fines Flowers Ltd. v. General Accident Assurance Co. of Canada, 1977 CanLII 1182 (ON CA), [1977] O.J. No. 2435 (CA) at para. 43. [^16]: Ibid. at para. 44. [^17]: Newbigging v. M. Butler Insurance Brokers Ltd., 2012 ONSC 5174 at para. 30. See also Shaeen v. Meridian Insurance Group Inc., 2011 ONSC 1578 at para. 41. [^18]: 2013 ONSC 5372. [^19]: At para. 61. [^20]: 2005 NSCA 53 [^21]: At para. 43. [^22]: Tab 1K, Second Supplementary Motion Record of the Defendant. Emphasis in original. [^23]: Tab 1L, Second Supplementary Motion Record of the Defendant. Emphasis in original. [^24]: 1990 CanLII 59 (SCC), [1990] 3 S.C.R.191. [^25]: At p. 225. [^26]: Affidavit of Catherine MacPherson at paras. 35-36, 39-42. [^27]: Supplemental Affidavit of Catherine MacPherson at paras.3-4. [^28]: Affidavit of Catherine MacPherson at paras.49-55 [^29]: Affidavit of Catherine MacPherson at paras. 56-57.