COURT FILE NO.: CV-18-591971 and CV-18-592104 DATE: 20190222 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Peter B. Cozzi Professional Corporation Applicant – and – Jerzy Szot Respondent
William G. Scott, for the Applicant Peter B. Cozzi Professional Corporation Vanessa A. Tanner and Christopher Scotchmer, for the Respondent Aviva Insurance Company of Canada
BETWEEN:
Aviva Insurance Company of Canada Applicant – and – Peter B. Cozzi, Peter B. Cozzi Professional Corporation and DAS Legal Protection Insurance Company Limited Respondents
Vanessa A. Tanner and Christopher Scotchmer, for the Applicant Aviva Insurance Company of Canada William G. Scott for the Respondents Peter B. Cozzi, Peter B. Cozzi Professional Corporation Thomas Donnelley, for the Respondent DAS Legal Protection Insurance Company Limited
Nishikawa J.
Overview and Procedural History
[1] The issue in this application and cross-application (the “Applications”) is the entitlement to $100,000.00 in insurance proceeds (the “Proceeds”) from an after the event legal protection insurance policy (the “ATE Policy”). After the event insurance, commonly referred to as “adverse costs insurance,” insures a plaintiff against the risk of an adverse costs award in the event that they lose their lawsuit, and may also include disbursements incurred by the plaintiff’s lawyer.
[2] In the underlying civil proceeding (the “Civil Action”), the Plaintiff, Quoc Nguyen, through his Litigation Guardian, commenced a civil proceeding against Jerzy Szot for injuries sustained in a motor vehicle accident. Mr. Nguyen obtained the ATE Policy through his lawyer, Peter Cozzi. In the Civil Action, a jury found Mr. Szot liable for the accident. However, the damages awarded did not exceed the statutory deductible. After the trial, on June 22, 2019, Archibald J. found that Mr. Nguyen did not meet the statutory threshold, and ordered costs of $161,790 against Mr. Nguyen: Nguyen v. Szot, 2017 ONSC 3705 (the “Costs Order”).
[3] The Respondent, DAS Legal Protection Insurance Company Limited (“DAS”), paid the Proceeds to Mr. Cozzi in trust for Mr. Nguyen. Mr. Nguyen then executed a direction authorizing Mr. Cozzi to apply the Proceeds to his disbursements in the amount of $68,636.73, and the balance to pay the Costs Order.
[4] In his Application, Peter B. Cozzi Professional Corporation (“Mr. Cozzi”), seeks a declaration that: (i) the Proceeds are the sole property of Mr. Nguyen, (ii) the ATE Policy is not a bond of insurance for any person, third party or non-party to the contract, and (iii) the Proceeds were properly paid to Mr. Nguyen, who had the legal right to assign the Proceeds to Mr. Cozzi.
[5] Aviva Insurance Company of Canada (“Aviva”), who defended the Civil Action on behalf of Mr. Szot, brings a cross-application for a declaration that Aviva is entitled to the Proceeds or, in the alternative, that it is entitled to a pro rata share of the Proceeds.
[6] Both Applications were scheduled to proceed before me on September 28, 2018. Mr. Nguyen and his Litigation Guardian in the Civil Action, Hoan Phan, were not named as Respondents to the Applications. Aviva had served them with the Notice of Application, but Mr. Cozzi had not. They did not respond and had no notice of the hearing date. The outcome, however, could potentially have a significant impact on them since, for example, a determination that the Proceeds could be applied to Mr. Cozzi’s disbursements would leave them subject to the Costs Order and the enforcement mechanisms available under the Rules. As a result, I adjourned the hearing and ordered that Mr. Nguyen and Ms. Phan be added as Respondents to both Applications. I also required that Mr. Nguyen, Ms. Phan, and the Office of the Public Guardian and Trustee (the “PGT”) be served with the materials on both Applications and the new hearing date.
[7] At the hearing on December 7, 2018, Mr. Nguyen and Ms. Phan did not appear, despite having been served with the application materials. Counsel advise that they did not respond or otherwise indicate an intention to participate. Counsel also provided a letter from the PGT advising that the PGT has no role or standing to participate since Mr. Nguyen has a court-appointed Guardian of Property and Litigation Guardian.
[8] For the reasons that follow, I have determined that neither Mr. Cozzi nor Aviva are entitled to the Proceeds, and both Applications are dismissed.
Factual Background
The Civil Action
[9] On January 14, 2003, Mr. Nguyen was involved in a motor vehicle accident in which his vehicle was rear-ended by the defendant’s vehicle. In May 2007, Mr. Cozzi commenced a claim on Mr. Nguyen’s behalf. From the outset of the Civil Action, Ms. Phan, who was Mr. Nguyen’s spouse at the time, was appointed as Mr. Nguyen’s Litigation Guardian.
[10] In October 2006, pursuant to the order of Low J., Mr. Nguyen was deemed incapable of managing his property. Ms. Phan was appointed as his Guardian of Property. In November 2011, pursuant to the order of O’Marra J., Ms. Phan was appointed as Mr. Nguyen’s Guardian of Personal Care.
[11] In December 24, 2015, Mr. Nguyen’s claim for statutory accident benefits before the Financial Services Commission of Ontario (“FSCO”) was dismissed. The arbitrator found that Mr. Nguyen had not suffered a catastrophic impairment as a result of the accident, and that he was not entitled to any benefits. Mr. Cozzi sought judicial review on Mr. Nguyen’s behalf before the Divisional Court, which was unsuccessful.
[12] The Civil Action proceeded to trial in May 2017. The jury found the defendant, Mr. Szot, liable and awarded $2,700.00 in general damages and $3,124.00 for past loss of income. This was less than the applicable statutory deductible at the time. In addition, on the defendant’s threshold motion, Archibald J. found that Mr. Nguyen had not suffered permanent serious impairment of an important physical, mental or psychological function: Nguyen v. Szot, 2017 ONSC 3705. The Costs Order in favour of the defendant included $90,790.00 in costs and $71,000.00 in disbursements, for a total of $161,790.00 including HST.
[13] At trial, Mr. Cozzi submitted a list of “assessable disbursements” for a total of $30,149.40.
The Contingency Fee Agreement and ATE Policy
[14] On April 6, 2016, approximately one year before the trial, and almost nine years after the proceeding was commenced, Mr. Cozzi and Mr. Nguyen entered into a written contingency fee retainer agreement in relation to the Civil Action (the “CFA”). Mr. Nguyen attended at Mr. Cozzi’s office and executed the agreement. Mr. Nguyen was accompanied by a social worker and a Vietnamese translator. Mr. Nguyen’s Litigation Guardian, Ms. Phan, was not present.
[15] On the same day, Mr. Nguyen also executed a “Retainer Agreement Addendum” (the “Addendum”) which states:
Legal Expense Insurance
I have been advised of the option of purchasing After The Event (ATE) insurance through DASjusticesolutions. ATE insurance would indemnify me against an adverse cost award or any outstanding disbursements owing to [Law Firm LLP] up to $100,000.00. The premium that is paid at the conclusion of my case out of the proceeds of my settlement is $1,350.
[ ]Yes, I want ATE insurance.
I hereby authorize Peter B. Cozzi to provide any information about my file to DASjusticesolutions that it requests pursuant to the terms of the DAS Terms of Agreement attached as Schedule “A”.
[16] On Mr. Cozzi’s advice, Mr. Nguyen purchased litigation protection insurance from DAS. The premium was $1,350.00 to be deducted from the Proceeds when paid out. The ATE Policy would provide litigation protection insurance to a maximum of $100,000.00.
[17] The ATE Policy states that “under the terms of this policy we will pay what you owe for your opponent’s assessed legal costs and disbursements direct to your lawyer.” The ATE Policy also includes a term that states: “Your policy attaches to your Contingency Fee Agreement and operates for the duration of that Agreement.” Although it was completed in 2016, the ATE Policy start date was October 14, 2005.
[18] The CFA entered into between Mr. Cozzi and Mr. Nguyen includes the following term in relation to the ATE Policy:
- DISBURSEMENTS
IN ADDITION TO THE FEE SET OUT IN SECTION ‘1’ HEREIN, I AGREE TO PAY ALL DISBURSEMENTS incurred by Peter b. Cozzi on my behalf upon the rendering an account for same, without regard to the success of my claim for damages. I hereby assign all proceeds from the DAS Litigation Protection Insurance to PETER B. COZZI as security for those disbursements.
[19] Mr. Cozzi was able to obtain the ATE insurance for Mr. Nguyen by virtue of a “Business Agreement” that he entered into with DAS, also on April 6, 2016 (the “Business Agreement”). The Business Agreement enabled Mr. Cozzi to fulfil the function of “insurance intermediary” for DAS. The Business Agreement states that the firm “agrees to offer and supply DAS products and information to its clients in respect of all cases that are capable of qualifying for after the event insurance, as outlined in Schedule I.” Schedule I specifies that the firm has delegated authority to issue insurance in “standard personal injury cases,” which includes motor vehicle accidents. The case must have prospects of success of 51% or above and the quantum must be above the small claims limit. The CFA must be no more than 180 days old or must have been executed within 360 days of the incident date.
[20] The Business Agreement states:
- Third Parties
Apart from DAS, its successors and assignees, a person who is not a party to this Agreement has no right to enforce any term of this Agreement.
[21] Mr. Cozzi states that without ATE Policy, he would not have agreed to continue to represent Mr. Nguyen and to take Mr. Nguyen’s case to trial.
The Proceeds are Paid
[22] After the Costs Order was made, on July 19, 2017, Mr. Cozzi applied to DAS for payment of the Proceeds on behalf of Mr. Nguyen. On the “Claims Reporting Form” submitted to DAS, Mr. Cozzi identified adverse costs in the amount of $161,790 and submitted a copy of Archibald J.’s judgment. The Claims Reporting Form does not identify an amount for disbursements, but Mr. Cozzi provided supporting documentation for $37,858.91 in disbursements.
[23] On August 1, 2017, Aviva wrote to DAS seeking payment of the Proceeds toward the Costs Order. DAS responded advising Aviva that the indemnity was payable to Mr. Nguyen and that Aviva would have to contact Mr. Cozzi for payment of the Costs Order.
[24] On August 3, 2017, DAS sent a letter to Mr. Nguyen advising him that Mr. Cozzi had made a claim on the ATE Policy on his behalf and that DAS would be paying the Proceeds to Mr. Nguyen by sending a cheque to Mr. Cozzi in trust. No letter was sent to Ms. Phan.
[25] On August 9, 2017, Mr. Nguyen signed a direction authorizing Mr. Cozzi to pay $68,636.73 of the Proceeds toward his disbursements and HST and the balance of the Proceeds to the Costs Order (the “Direction”). On the day that the Direction was signed, Mr. Nguyen was not accompanied by Ms. Phan or by a Vietnamese interpreter.
[26] On August 10, 2017, DAS issued a payment of $100,000 to Mr. Cozzi in trust for Mr. Nguyen. At some point, Mr. Cozzi transferred the money from his trust account to his general account.
[27] On August 21, 2011, Aviva sought payment of costs by Mr. Cozzi and inquired as to whether a claim had been made on the ATE Policy.
[28] On August 29, 2017, Mr. Cozzi wrote to Aviva advising that under the terms of his retainer, Mr. Nguyen had assigned the Proceeds to him as security for his disbursements and that those were now paid. On Mr. Nguyen’s behalf, Mr. Cozzi offered to pay $30,000 in full satisfaction of the Costs Order.
[29] In a letter dated September 7, 2017, DAS confirmed in a letter to Mr. Cozzi that Mr. Nguyen had a valid policy of insurance and that the indemnity limit was $100,000.00. DAS also confirmed that the ATE Policy contains no provisions in respect of priority of payment of adverse costs or disbursements, and that DAS takes no position as to any such priority.
[30] When Aviva became aware that Mr. Cozzi had transferred the Proceeds to his general account, it brought an urgent motion in the Civil Action to compel that the funds be returned and held in Mr. Cozzi’s trust account. On September 12, 2017, Monahan J. ordered that the Proceeds be returned to Mr. Cozzi’s trust account and held there until the conclusion of these Applications.
[31] On September 25, 2017, Mr. Nguyen was provided with independent legal advice by Jordan Sobel in respect of the CFA and Addendum. Mr. Nguyen attended with a Vietnamese interpreter. Ms. Phan received independent legal advice separately from Mr. Sobel that day, and attended with her daughter. Mr. Nguyen and Ms. Phan each signed an authorization confirming the CFA and Addendum.
[32] Mr. Cozzi commenced his Application on February 12, 2018. Aviva brought its Application on February 14, 2018.
Analysis
Position of the Parties
[33] Mr. Cozzi submits that the beneficiary of the ATE Policy was Mr. Nguyen, and that Mr. Nguyen was entitled to direct that the Proceeds be paid toward the disbursements that he owed to Mr. Cozzi pursuant to the CFA. Mr. Cozzi further submits that Aviva is not entitled to the Proceeds because there is no privity of contract between DAS and Aviva, and it is not a beneficiary of the ATE Policy. Mr. Cozzi argues that the court should not look behind the CFA, which is a matter between him and his client.
[34] Aviva submits that the purpose of the ATE Policy is to pay a costs award and that the Costs Order should take priority over Mr. Cozzi’s disbursements. Aviva also states that Mr. Cozzi was not entitled to apply the Proceeds to over $68,000 in disbursements when he had advised the court that his disbursements were approximately $30,000 and because many of the disbursements are unsubstantiated or relate to the failed proceeding before FSCO and the Divisional Court.
[35] DAS takes no position on the issue of who is entitled to the Proceeds, but submits that paying the Proceeds to Mr. Cozzi in trust was proper under the terms of the ATE Policy. At the hearing, counsel for DAS advised that under the circumstances of this case, in the event that it is determined that the CFA or Direction are invalid, DAS does not seek the return of the Proceeds.
Who is Entitled to the Proceeds?
The Contingency Fee Agreement is not Enforceable
[36] In order to determine the entitlement to the Proceeds under the ATE Policy, it is necessary to examine the agreements that govern the parties’ relationships, including the CFA. While Mr. Cozzi argues that the CFA governs his arrangement with Mr. Nguyen and that the court should not look behind it, in this case, Mr. Nguyen is, and was at all relevant times, a person under a disability with a Litigation Guardian, a Guardian of Property and a Guardian for Personal Care.
[37] Under s. 5 of O. Reg. 195/04 (the “Regulation”), a solicitor who enters into a contingency fee agreement with a person under a disability represented by a litigation guardian shall: (i) apply to a judge for approval of the agreement before the agreement is finalized; or (ii) include the agreement as part of the motion or application for approval of a settlement or a consent judgment under r. 7.08 of the Rules of Civil Procedure, R.R.O. 1990, Reg 194. By virtue of the Regulation, the court has jurisdiction, and a responsibility, to oversee a CFA between a person under a disability and their lawyer. A contingency fee agreement is not binding on a person under a disability unless approved by the court: Morris v. Sparling, at para. 12. In Marcoccia v. Gill, at para. 39, Wilkins J. stated:
It may well be that the litigation guardian and even, possibly, the guardian of property might be prepared to make agreements with respect to contingency fees or other payments of fees to the solicitor, but, in my view, the scope of rule 7.08 is such that none of these agreements has any force and effect in the absence of approval by a judge and there is no obligation on the judge to award the solicitor fees and disbursements in accordance with any such agreement, unless that judge might be satisfied, having regard to the total circumstances of the settlement, that such additional fees and disbursements are correct and justified.
[38] Although the Applications do not involve the approval of a settlement under r. 7.08, I nonetheless find that similar concerns arise, and should inform this court’s approach to the CFA. Mr. Cozzi is seeking a determination from this court that his disbursements may properly be paid from the Proceeds. His entitlement to payment for the disbursements arises under the CFA with Mr. Nguyen. I reject his argument that the CFA is a matter between Mr. Nguyen and himself, and that the court ought not interfere. The court has jurisdiction to ensure that contingency fee agreements comply with the requirements of the Solicitors Act, R.S.O. 1990, c. S.15, which has been labelled “consumer protection legislation” as it relates to contingency fees: Laushway Law Office v. Simpson, 2011 ONSC 4155 at paras. 143-45. In the case of a person under a disability, the court must ensure that the contingency fee agreement is fair, reasonable and in the person’s best interest.
[39] Here, at no time was the CFA was approved by the court. Based on the evidence before me on these Applications, I decline to approve the CFA. The CFA was executed by Mr. Nguyen, and not his Litigation Guardian, Ms. Phan, who was not present when the CFA was signed. As noted above, Mr. Nguyen had a Guardian of Property since 2006 and a Guardian of Personal Care since 2011. Mr. Cozzi was aware of this and ought to have ensured that Ms. Phan was present when he asked Mr. Nguyen to enter into the CFA. While Mr. Cozzi argues that a social worker and Vietnamese interpreter were present when Mr. Nguyen signed the CFA, they are not subject to the same responsibilities as the Litigation Guardian or Guardian of Property, and cannot stand in her place. Once Ms. Phan was appointed Litigation Guardian and Guardian of Property, Mr. Cozzi was required to obtain instructions from her. Based on the nature of their relationship, Mr. Nguyen might have signed anything that Mr. Cozzi requested. The interpreter’s notes of the meeting state: “writer advised client to spend time to look over the contract before signing but he said he trusted his lawyer 100% and signed immediately.”
[40] I reject Mr. Cozzi’s evidence that Mr. Nguyen had sufficient capacity to understand what he was signing. Mr. Cozzi relies upon a letter dated July 20, 2016, from Mr. Nguyen’s treating psychiatrist, Dr. Fung, which states only that “his mental capability was able to make decisions on his treatment plan and financial issues.” The letter, which was written at Mr. Cozzi’s request, states nothing about his understanding of the litigation. Moreover, a capacity assessment, ordered by this court and conducted by Dr. Kaminska in December 2016, closely examined Mr. Nguyen’s capacity, particularly as it related to his understanding of the Civil Action. Based on a number of questions pertaining to the litigation, Dr. Kaminska determined that Mr. Nguyen did not know why he attended at court at various times and had little understanding of the Civil Action. Dr. Kaminska concluded that Mr. Nguyen lacked the capacity to instruct his lawyer and to make decisions concerning the financial and legal matters involved in his litigation.
[41] I acknowledge the evidence that Mr. Nguyen and Ms. Phan were separated in 2015 or 2016 after an incident that involved the police, and that Mr. Nguyen has been living separately from the family since that time. Nonetheless, Ms. Phan continued to be Mr. Nguyen’s Litigation Guardian or Guardian of Property. No alternative arrangements had been put into place, and it was not open to Mr. Cozzi to disregard the existing arrangement.
[42] The CFA suffers from other defects. It was entered into nine years after the proceeding was commenced. Under s. 28.1(4) of the Solicitors Act, a CFA must be provided to the client in writing. (See also, O. Reg 194/05 s. 1). There is no evidence of a written CFA between Mr. Cozzi and Mr. Nguyen before the 2016 CFA. Since there was no agreement in writing, there could have been no valid CFA between Mr. Cozzi and Mr. Nguyen from 2007 to 2016. It is unclear what the terms of Mr. Cozzi’s retainer was during that time, or what Mr. Nguyen or Ms. Phan understood them to be. The CFA does not meet other requirements of the Regulation: it is not titled “Contingency Fee Retainer Agreement” and it is not signed by Mr. Cozzi or witnessed. The timing of the signing of the CFA suggests that it was entered into solely for the purposes of obtaining the ATE Policy. Under the circumstances, I decline to approve the CFA, and it is of no effect as between Mr. Cozzi and Mr. Nguyen.
[43] Since the CFA is ineffective, it is unnecessary to consider the legal effect of the Direction, which was made pursuant to the CFA. In any event, I would find that the Direction executed by Mr. Nguyen in August 2017 is also void. The Direction was signed by Mr. Nguyen, and not Ms. Phan, who was not present. On that occasion, no Vietnamese interpreter was present. Given Mr. Nguyen’s lack of capacity and limited English language abilities, he could not have made an informed decision to make the Direction.
[44] It is worth noting that the Direction attaches a “Disbursements Account” for a total of $68,636.73. This is more than double the “assessable disbursements” that Mr. Cozzi submitted at trial and significantly more than the $37,000 in disbursements disclosed to DAS. Many of the disbursements pre-date the CFA, and a significant portion relates to the accident benefits proceeding before FSCO and the Divisional Court. Mr. Cozzi’s suggestion that Mr. Nguyen could have had the disbursements assessed or that he could have directed that the Proceeds be paid to Aviva is unsatisfactory. He lacked the knowledge and capacity to do so.
[45] While Mr. Cozzi places significant reliance on the fact that Mr. Nguyen and Ms. Phan obtained independent legal advice and approved the CFA and Addendum, this was not until September 25, 2017, over a year after the agreements were signed and after the Civil Action was concluded. By that time, Mr. Nguyen had already executed the Direction. In fact, independent legal advice was only obtained after the commencement of these Applications. Under the circumstances, independent legal advice was not obtained in a timely manner that would permit Mr. Nguyen or Ms. Phan to make informed decisions. They simply ratified what had already taken place. The after-the-fact approval of the CFA and Addendum is thus ineffective.
[46] Since the CFA and Directive are both unenforceable, they cannot be the basis upon which Mr. Cozzi’s disbursements are paid.
Aviva Has No Entitlement to the Proceeds Under the ATE Policy
[47] According to the terms of the ATE Policy, the policy “attaches” to the CFA and operates for the duration of the CFA. For the reasons given above, the CFA cannot be enforced by Mr. Cozzi. While this could potentially affect the ATE Policy, DAS’s position is that the Proceeds were paid under a valid ATE Policy, and it is not seeking their return.
[48] My finding that Mr. Cozzi is not entitled to apply the Proceeds to his disbursements does not necessarily mean that Aviva is entitled to the Proceeds in satisfaction of the Costs Order. I find no legal basis upon which Aviva can assert a claim to the Proceeds.
[49] When interpreting an insurance policy, the court must look to the wording of the policy to derive its intent and purpose with respect to the scope of coverage: Bridgewood Building Corp. v. Lombard General Insurance Co., , [2006] O.J. No. 1288 (Ont. C.A.) at para. 9. General principles standing alone do not determine coverage but are an interpretive aid that may be helpful when interpreting the provisions of a policy: Ibid.
[50] Mr. Cozzi submits that the ATE Policy is an indemnity policy, as opposed to a liability policy, where the obligation to compensate arises when the specified event occurs. The obligation to indemnify is not limited to responding to claims against the insured by third parties: TransCanada Pipelines Ltd. v. Potter Station Power L.P., , [2002] O.J. No. 429 (Sup. Ct.) at para. 35. A contract of insurance is personal to the insured and is for their benefit only, so that any proceeds is a debt owing to the insured: Austin Powder Ltd. v. Howard, [2003] O.J. No. 3090 (Sup. Ct.) at para. 12.
[51] The ATE Policy states: “If you lose, we will pay your opponent’s legal costs as assessed or agreed (including our agreement which will not be unreasonably withheld) and your own disbursements.” The ATE Policy further states:
Payments for Costs and Disbursements
Under the terms of this policy we will pay what you owe for your opponent’s assessed legal costs and disbursements direct to your lawyer.
Your lawyer will deal with this on your behalf. Alternatively you can contact us at the address shown on page 1 of this policy.
[52] The ATE Policy is between DAS and Mr. Nguyen. Aviva is not a party to the ATE Policy, and is not a named beneficiary. The doctrine of privity of contract states that a contract cannot confer rights or impose obligations arising under it on any person except for the parties to the contract: London Drugs Ltd. v. Kuehne & Nagel International Ltd., , [1992] 3 S.C.R. 299 at para. 200. The exceptions to the doctrine of privity do not apply here, as there is nothing in the terms of the ATE Policy to suggest that the parties intended to extend the benefit to Aviva or to assign the benefits to Aviva: see London Drugs at paras. 255-58.
[53] Contrary to Aviva’s submission, the ATE Policy contains no ambiguity in respect of the payment of costs and disbursements. The terms of the ATE Policy clearly state that it is applicable to both. The court should not create an ambiguity where there is none: Chilton v. Co-operators General Insurance Co., , [1997] O.J. No. 579 (Ont. C.A.) at para. 26. Given that there is no ambiguity, it is not open to the court to rewrite the terms of the ATE Policy: Skunk v. Ketash, 2018 ONCA 450 at para. 10; Axa Insurance Canada v. Ani-Wall Concrete Forming Inc. (2008), 2008 ONCA 563, 91 O.R. (3d) 481 (Ont. C.A.) at paras. 30-31.
[54] Nothing in the language of the ATE Policy requires that an adverse costs order be paid before the disbursements owed to the insured’s lawyer. The issue of priority does not arise because the only beneficiary of the ATE Policy was Mr. Nguyen. According to DAS, once the Proceeds are paid to the beneficiary, the beneficiary can decide how to apply the proceeds. Based on the terms of the ATE Policy, this is the only logical result.
[55] Moreover, Aviva’s claim does not fall within the limited circumstances under the Insurance Act, R.S.O. 1990, c. I.8, where a non-party is entitled to pursue a claim against the insurer. (Insurance Act ss. 132 and 258). The statutory exceptions to the requirement of privity support an interpretation of the ATE Policy that is consistent with its terms.
[56] In support of its entitlement to the Proceeds, Aviva relies upon case law where security for costs was not ordered in reliance upon the existence of an ATE Policy. Although the ability to recover costs from an ATE Policy may be a relevant factor on a motion for security for costs, this does not entitle the adverse party to the Proceeds. That will depend upon the specific terms of the policy and the circumstances of the case. In Hontaru v. Doe, 2018 ONSC 1014 at paras. 38 to 43, the policy at issue provided that the opponent could be named as beneficiary under the policy, at the court’s discretion. In Frantz v. NB Thrilling Films 4 Inc., 2017 ONSC 4637 at para. 7, the court noted that adverse costs insurance was a factor to be considered on security for costs motions, but each case has its own circumstances and the unique terms of the policy should be reviewed. In this case, Aviva did not bring a motion for security for costs. There was no order or undertaking that would entitle Aviva to the Proceeds.
[57] While Aviva suggests that DAS breached its duty of good faith in paying the Proceeds to Mr. Cozzi in trust for Mr. Nguyen, this was what it was required to do under the terms of the ATE Policy. It was not DAS’s responsibility to ensure that the Proceeds were applied to the Costs Order.
What Should be Done with the Proceeds?
[58] As the only beneficiary of the ATE Policy, Mr. Nguyen is the only person entitled to them, and has the right to determine how they are to be used. The evidence is that both Mr. Nguyen and Ms. Phan are impecunious and rely upon social assistance. Mr. Nguyen and Ms. Phan did not participate in these proceedings, which suggests to me that they did not fully understand the potential consequences to them.
[59] Under the circumstances, it would be insufficient to order that the Proceeds be paid to Mr. Nguyen. At the very least, Ms. Phan, as his Litigation Guardian in the Civil Action and Guardian of Property, must also be involved. The evidence before me is that Mr. Nguyen and Ms. Phan are separated. Ms. Phan was not present when the CFA and Direction were executed, giving rise to concerns as to whether she continued to act as Mr. Nguyen’s Litigation Guardian in the Civil Action. Although Ms. Phan’s role as Litigation Guardian ended with the Civil Action, as far as I am aware, she continues to be his Guardian of Property and of Personal Care. It is unclear to me how this works, given their estrangement. At the time of the capacity assessment, Mr. Nguyen was living alone in a basement apartment and understood that he was previously required to live apart from his family. He stated that Ms. Phan and their daughter attended court and spoke to his lawyer, but that he had no contact with them.
[60] Pursuant to r. 7.04, the court can appoint a litigation guardian for a person under a disability who is a party or a non-party. At this stage, I have not determined that Ms. Phan cannot act as Mr. Nguyen’s Litigation Guardian but have questions as to whether she continues to be willing and able to fulfil this role. I have no information subsequent to the capacity assessment in December 2016, and circumstances may have changed since then.
[61] Based on the foregoing, it seems appropriate to me to require a further attendance before me to determine whether Ms. Phan may continue to act as Mr. Nguyen’s Guardian of Property or whether it is necessary to appoint the PGT as Mr. Nguyen’s litigation guardian in these Applications, for the purpose of assisting Mr. Nguyen with the disposition of the Proceeds.
Conclusion
[62] For all of the foregoing reasons, I find that neither Mr. Cozzi nor Aviva are entitled to the Proceeds. Both Applications are dismissed without costs.
[63] Before the Proceeds can be distributed, it is necessary to determine who should act on behalf of Mr. Nguyen in relation to these Applications.
[64] To this end, I order that: (a) the Proceeds continue to be held in Mr. Cozzi’s trust account until further order of this court; (b) a copy of these Reasons be sent by the Registrar to Mr. Nguyen, Mr. Nguyen’s Guardian of Property, Ms. Phan, and counsel for the PGT; and (c) counsel for the PGT and Ms. Phan attend before me on April 24, 2019 to determine next steps.
Nishikawa J.
Released: February 22, 2019
COURT FILE NO.: CV-18-591971 and CV-18-592104 DATE: 20190222 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Peter B. Cozzi Professional Corporation, Applicant – and – Jerzy Szot, Respondent Respondent
BETWEEN:
Aviva Insurance Company of Canada, Applicant Applicant – and – Peter B. Cozzi, Peter B. Cozzi Professional Corporation and DAS Legal Protection Insurance Company Limited, Respondents Respondents
REASONS FOR JUDGMENT Nishikawa J. Released: February 22, 2019