COURT FILE NO.: CV-09-993-00

DATE: 2019 02 25

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Carolina Caputo, Personally and as Estate Trustee for the Estate of Francesco Caputo, Silvio Caputo and Rosa Maria Caputo, Applicants

AND:

Wayne Sydney Novak, Respondent, in Default

AND:

Lawyers' Professional Indemnity Company, Garnishee

BEFORE: Trimble J.

COUNSEL: A. Hillier and Rose Book, for the Applicants ava@avahillier.ca

H. Travassos and M. Marrie, for the Garnishee heldertravassos@shilbleyrighton.com

HEARD: December 12, 2018

ENDORSEMENT

The Nature of the Motion

1This is a Garnishment Hearing under Rule 60.08(16), in which the Caputos bring a motion for a declaration that they should be able to garnishee the insurance proceeds that they say should be available to their former lawyer, Mr. Novak, to satisfy the default judgment that the Caputos obtained against Mr. Novak. Further, the Caputos say that they should be able to garnishee the insurance proceeds regardless of policy violations by Mr. Novak.

2The Lawyers' Professional Indemnity Company is the professional errors and omissions insurer for lawyers in Ontario, who insured Mr. Novak. It operates under the name of LawPro.

Positions of the Parties:

3The Caputos say that LawPro has an obligation to indemnify solicitor Novak. Its denial of coverage to Mr. Novak was improper. Therefore, the indemnity payable under the policy is a debt owed by LawPro to solicitor Novak, and that constitutes a debt to Mr. Novak that the Caputos can be garnishee. Alternately, the Caputos are entitled to relief from forfeiture under the Insurance Act or the Courts of Justice Act.

4The heart of Caputos’ argument, however, is not based on technical issues of law. Rather, it is based on fundamental fairness. In this case, the late Mr. and Mrs. Caputo are as innocent as innocent parties can be. They have been wronged at every turn. They were wronged by a negligent driver who injured them both. They were wronged by a lawyer who did nothing, causing them to lose their rights for compensation. They say that they have been wronged by an insurance company, which is owned by the Law Society of Ontario, whose purpose is to protect the public. That insurance company has relied on technical defences and refused to compensate them when they did everything correctly.

5The Caputos say that it is unfair, when they have done nothing wrong, that they should go uncompensated. Where there is a wrong, there must be a remedy. They ask this Court to exercise its discretion and permit them to recover compensation for their losses.

6LawPro says that the Caputos' claim is subject to all the equities that exist between the insurer and the insured. In garnishment proceedings, the Caputos stand in Mr. Novak’s shoes, and therefore, their rights against LawPro can be no greater than Mr. Novak’s. Mr. Novak did not cooperate in the defence of the policy. The denial of coverage is appropriate. Mr. Novak never contested the denial of coverage. LawPro owes nothing to Mr. Novak which the Caputos can attach.

Background:

7On August 26, 2004, Francesco Caputo was driving south on Bramalea Road in Brampton with his wife as a passenger. They were involved in an automobile accident when the tortfeasor turned left into the Caputos' vehicle. The tortfeasor was charged and convicted with making an improper left turn.

8Mrs. Caputo was seriously injured, suffering a closed head injury and many broken bones. She spent three weeks in intensive care before being moved to a regular ward. Because of her injuries, Mrs. Caputo became a partial invalid, could not return to her own home, and was discharged to live with her son and daughter-in-law, Silvio and Rosa Caputo.

9Mr. Caputo also suffered serious injuries, although less serious than Mrs. Caputo’s.

10The retained a lawyer, Wayne Novak, to pursue their claim against their own automobile insurer for accident benefits under their own automobile policy, and to prosecute an action against the driver that struck them. They paid Mr. Novak a retainer of $2,000.00.

11On June 9, 2005 Mr. Caputo died of a heart condition which the family believes may have been related to the accident. We will never know.

12As if all of this were not enough, after the expiry of any limitation period, when the Caputos inquired of Mr. Novak as to the status of their claim for accident benefits and the action in tort, Mr. Novak said that he had not commenced an action against the accident benefit insurer or the tortfeasor. He said that they would have to sue him to recover any money for the injuries they sustained in the auto accident.

13Undeterred, the Caputos retained their current lawyer who, June 23, 2008, put Mr. Novak on notice of their claim against him. He did not respond.

14The Caputos sued Mr. Novak on March 5, 2009, and served him on June 16. He did not respond.

15The Caputos put LawPro on notice of the claim against Mr. Novak on September 29, 2009. Mr. Novak did not report the claim, until LawPro hounded him. When he did report the claim, he did not cooperate with his insurer in defence of the claim despite LawPro’s, its investigator’s and defence counsel’s attempts to obtain a statement and file from him. He made promises to them. He never kept them.

16By the end of October, LawPro had denied coverage and discharged the lawyer that they appointed to defend Mr. Novak. He was self-represented after that. Still, Mr. Novak did nothing.

17On April 24, 2014, the Caputos obtained default judgment against Mr. Novak for $321,500, $10,000 in costs, pre judgment interest of $7,505.40, and post judgment interest at 3%.

18The Caputos obtained a Writ of Seizure and Sale on June 24, 2014, which was returned nulla bona.

19They served a Notice of Examination in Aid of Execution. Mr. Novak did not attend.

20They searched Mr. Novak. Not surprisingly, Mr. Novak is bankrupt. He has no assets.

21On January 13, 2015, the Caputos issued a Notice of Garnishment to LawPro. LawPro responded by saying that it owed nothing to Mr. Novak.

22Mrs. Caputo died too. Her son and daughter-in-law continue the fight.

Issues on this Application

1. What is this Court’s Jurisdiction?

2. Was LawPro’s Denial Appropriate?

a Is a claim against an Insurer an exigible asset?

b Was LawPro correct to deny coverage?

3. Is Relief from Forfeiture Available under the Insurance Act or Courts of Justice Act?

4. Is There Waiver or Estoppel?

5. Does Public Policy Provide a Remedy?

Result

23For the reasons that follow, the motion is dismissed.

Discussion

Issue 1: What is this Court’s Jurisdiction?

24This Court’s jurisdiction arises from the fact that this motion was brought within a garnishment hearing under Rule 60.08(16).

25Rule 60.08(16) gives the court wide ranging powers including the power to “(b) determine the rights and liabilities of the garnishee, the debtor, a co-owner of the debt and any assignee or encumbrancer” or “(d) determine any other matter in relation to a notice of garnishment.” The intention is that the proceeding will be a summary proceeding.

26Rule 60.08(16)’s language is broad. The court may make whatever order it deems just in the particular circumstances of any given case. In determining the “rights and liabilities” of the parties, the court must look at the realities of the parties. Rule 60.08(16), like any other Rule, must be liberally construed (rule 1.04). (See: I.U.P.A.T. Local 200 v. S. &S. Glass and Aluminum (1993) Ltd., 2004 CanLII 12611 (ON CA), [2004] O.J. No. 1284 (C.A.), at paras. 19-27).

Issue 2: Was LawPro’s Denial Appropriate?

27The propriety of LawPro’s denial raises two questions. The first is whether proceeds payable under a liability policy are exigible and, therefore, can be subject of a notice of garnishment. Second question is whether, on the facts, LawPro’s coverage denial was justified.

28All parties agree that in the Caputos' case against LawPro it is subject to all of the equities that exist between LawPro and Mr. Novak. In other words, LawPro has available to it against the Caputos any defence it would have had under the policy against Mr. Novak. The Caputos' rights in garnishment against LawPro can be no greater than Mr. Caputo’s rights under that policy.

a. Is a claim against an Insurer an exigible asset?

29In Abuzor v. Heydary, 2014 ONSC 6229, [2014] O.J. No. 5199 (SCJ), Penny J., held that an insurer’s obligation to indemnify an insured and under a liability policy is a debt, subject to garnishment by the client seeking to enforce a judgment against the insured. A precondition to the client’s recovery from the insurer is that there must be an obligation on the insurer under the policy to indemnify the insured (at para. 24 to 26). In Abuzor, the insurer acknowledged that there was coverage for the respondent law firm’s partners (other than the fraudulent partner) under the innocent party coverage, which was subject to a $1 million aggregate limit. Accordingly, there was a debt owed to the innocent partners at the time of the garnishment.

30LawPro argued that since the coverage grant said that the insurer agreed "to pay on behalf of the insured…," not "to the insured", there was no indebtedness to the insured lawyer that could be garnisheed. Rather, it created an indebtedness to the claimants on behalf of the insured, and as such, was not subject of a garnishment. Further, the insurer argued that the Plaintiff’s claim to garnishee the available money was premature. Their claim had to await the assessment of all claims against the same available fund.

31Penny J. rejected the first argument as too technical. Regardless to whom the money was paid, it was paid on behalf of the insured. The second argument, Penny J. dismissed as incorrect. In Ontario, the available funds were paid to the first claimants to receive a judgment.

32What is clear from this case is that the insurer recognized that it owed indemnity to the innocent partners under the policy, subject to the policy limit.

b. Was LawPro correct to deny coverage?

33The Caputos' argue that LawPro’s obligation to indemnify Mr. Novak is still alive. They say this because:

1. LawPro’s policy, issued to Mr. Novak, was never “canceled” properly as LawPro never demanded that the Law Society require performance by Mr. Novak of his policy obligations.

2. Condition G, on which LAWPRO relied in denying coverage, did not terminate the obligation to indemnify.

The Policy

34LawPro is an independent professional liability insurer, wholly-owned by the Law Society of Ontario (formerly Law Society of Upper Canada). Under Law Society regulations and bylaws, professional liability insurance is mandatory for all lawyers practicing in Ontario, subject to paying a premium. A lawyer cannot practice in Ontario without such coverage.

35The policy under which Mr. Novak and every other lawyer is insured is a policy issued by LawPro to the Law Society, listing the Law Society as the "named insured." A lawyer who is insured is issued a Certificate under the policy and is "an insured" under the policy.

36The coverage grant under the policy reads:

Lawyers’ Professional Indemnity Company in consideration of the payment of the premium and in reliance on the Declarations of the INSURED and subject to the LIMITS OF LIABILITY, SUB LIMITS OF LIABILITY, DEDUCTIBLE and all other terms and conditions of this POLICY, agrees with the INSURED and NAMED INSURED as follows:

A. DAMAGES: to pay on behalf of the INSURED all sums which the insured shall become legally obligated to pay as DAMAGES arising out of a claim provided the liability of the insured is the result of an error, omission or negligent act in the performance of or the failure to perform PROFESSIONAL SERVICES for others.

(Emphasis mine).

37Under Part IV of the policy, entitled GENERAL CONDITIONS, is “Condition G: Assistance and Cooperation of the INSURED;” which says, in part:

The INSURED shall not interfere in the investigation and defense of any CLAIM… but whenever requested by the INSURER shall aid in securing information and evidence and the attendance of any witness, and shall cooperate with the INSURER in the investigation and defense of any CLAIM.

In the event that any INSURED shall refuse to comply with the terms of this condition … the NAMED INSURED may, in its sole and absolute discretion, take the place of the INSURED to ensure such compliance or reporting; provided that any act of the NAMED INSURED in so complying or reporting on behalf of the INSURED with the requirements of this or any other condition in respect of any one CLAIM shall not affect the rights of the INSURER to rely upon a breach of this or any other condition by such INSURED with respect to the claim in question....

Further Coverage Facts

38As indicated, the Caputos retained solicitor Novak to pursue tort and accident benefit claims arising out of their motor vehicle accident. He did not do so. The limitations for both actions passed.

39The Caputos retained their current counsel who put Mr. Novak on notice of the Caputos' claim against him by letter dated June 23, 2008. When they had no response from Mr. Novak, by letter dated September 29, 2009, they put LawPro on notice of the claim. LawPro replied to the Caputos’ counsel on October 15, 2009 advising that they had forwarded the notice letter to Mr. Novak and awaited his report of the claim.

40Under General Condition F, an insured person under the policy is required to give LawPro immediate notice of any claim, and “promptly thereafter” to give the insurer “all information on the claim which is in the insured’s possession or knowledge.”

41LawPro never received notice of the claim from Mr. Novak before receiving the notice letter from the Caputos. LawPro wrote to Mr. Novak on October 15, 2009, attaching the notice letter LawPro received from the Caputos' lawyer. LawPro reminded Mr. Novak that he must report the claim and must do so immediately, and requested a response within a week. The insurer wrote again on November 27, 2009.

42Having heard nothing from Mr. Novak, the insurer wrote to the LSO on January 7, 2010 asking it if it wished to report the claim under Condition G. Mr. Novak responded to LawPro by email on January 15, 2010 saying he wished to officially report the claim. Therefore, LawPro advised the SLO on that date that the insured had reported the claim.

43By letter dated February 2, 2010, LawPro wrote to Mr. Novak acknowledging receipt of his notification of the claim, and reserving its rights on coverage, pending further investigation.

44In its February 2 letter, LawPro raised the fact that Mr. Novak had a meeting with his clients before June 23, 2008 in which he advised the clients that he had missed the limitation periods and that the Statement of Claim was served on Mr. Novak on June 16, 2019. It advised Mr. Novak that his failure to report both of these events was in breach of his policy obligations, but said that LawPro was unable to say whether that the failure to report these two events had caused any prejudice to the insurer. LawPro advised that it would undertake its investigation and the defense under a non-waiver agreement and the reservation of rights in its February 2 letter.

45Mr. Novak never returned the signed non-waiver agreement, and never responded to the February 2 letter. LawPro followed up by letter of February 17 and March 8, 2010. Mr. Novak did not respond to those, either.

46In a second letter dated March 8, 2010, LawPro advised Mr. Novak that he had not been returning defence counsel’s telephone calls, nor had he provided his file to defence counsel, notwithstanding his promises to do so on December 17. LawPro warned Mr. Novak that if he did not cooperate as required by Condition G, it would recommend that coverage be denied. It urged him to cooperate.

47In the face of Mr. Novak’s continued silence, LawPro appointed an adjuster to obtain a copy of Mr. Novak’s file. Mr. Novak did not respond in any meaningful way to the adjuster. He wrote on April 26, 2010, outlining Mr. Novak’s unfulfilled promises to cooperate.

48On April 27, 2010, LawPro also wrote to Mr. Novak, outlining the attempts that defence counsel and the adjuster had made to speak to him and obtain a file. LawPro warned Mr. Novak that his continued breach of the policy was endangering his coverage. The claims handler said that if Mr. Novak did not retrieve his file by the end of April the insurer would have "… no choice but to review our coverage position in this matter and recommended denial of coverage in this matter for both indemnity and defense."

49By email sent at 7:47 p.m. on April 27, Mr. Novak indicated that he had told his adjuster that he was on a jury trial and unable to respond until it was over. He fully intended to cooperate.

50By May 11, 2010, LawPro had not heard from Mr. Novak. It wrote to Mr. Novak outlining its attempts to obtain his cooperation, and said “As a result of your continuing breach of policy Condition G (assistance and cooperation of the insured), please be advised that coverage under the policy is hereby denied to you with respect to both defense and indemnity.” It advised Mr. Novak that the defence lawyer LawPro appointed under its reservation of rights letter would be removing himself from the record. On June 14, 2010, having heard nothing from Mr. Novak, LawPro closed its file and advised Mr. Novak that it was doing so.

51Defence counsel’s motion to remove itself from the record was heard on October 5, 2010. Mr. Novak attended and was granted an adjournment for a week so that Mr. Novak could speak to counsel and attempt to repair the relationship.

52By letter sent October 12, 2010 (incorrectly dated October 6, 2010) LawPro wrote to Mr. Novak explaining that defence counsel had sent Corbett J.’s, Endorsement to LawPro. The claims handler referred to the denial letter of May 11, 2010 denying coverage. She referred to a series of letters written with respect to Mr. Novak’s failure to cooperate with defence counsel and the adjuster retained by LawPro. Notwithstanding Mr. Novak’s representations of health problems during the course of the file, the claims handler noted that Mr. Novak was healthy enough to conduct a week-long jury trial, and attended at the motion to remove the solicitor from the record. She noted that Corbett J. adjourned the lawyer’s motion to get off the record until October 19. The claims handler added:

“In the event you should seek coverage from LawPro for the defense of this action against you, we wish to advise you that you will need to provide us with the medical evidence you are going to put forward in your responding materials and you will need to confirm, in writing, that you intend to provide us with your full, consistent and continuing cooperation forthwith. This would include the production of your file and your cooperation with [the adjuster] so that he may retrieve your file, on immediate basis. In that case we would have to appoint alternate alternative defense counsel as [current defense counsel] has made it clear to us that he will not act for you and he intends to request again that he be removed this was to record. In the event that coverage for defense is sought an extended on this basis, we would refer you to our letter to you if February 2, 2010 and we would confirm again that any investigation or defense undertaken respect to this matter will be the subject will be subject to the non-waiver agreement and LawPro’s reservation of rights as already set out and the defense or other steps taken on your behalf should not be interpreted as a waiver of those rights of the policy.”

53The claims handler then imposed deadline of October 8 (four days before the letter was sent) to respond failing which LawPro would conclude that he was not interested in the defense.

54In internal email discussions, notwithstanding LawPro’s coverage position, it was clear that if Mr. Novak decided to cooperate and comply with its policy obligations, LawPro would re-consider its policy position.

Canceling the Policy

55The Caputo’s argued orally and at para. 79 to 82 of their factum, that the insurer’s duty to indemnify Mr. Novak continued because the policy was not “cancelled.”

56The Caputos are correct to the extent that the policy was never cancelled, nor was Mr. Novak’s certificate under the policy. It was in full force and effect at all material times. That the policy remained in effect is of no moment. It is the denial of coverage with respect to the Caputos' claim, if valid, which disentitles Mr. Novak to a defence and indemnity.

57The Caputos also argue that Condition G did not affect the coverage grant in the policy. In their view, there was nothing in the policy which stated that a breach of Condition G nullified or extinguished the obligation to indemnify.

58This is an incorrect reading of the policy.

59The first five lines of the policy provide that LawPro’s obligations are subject to "… all other terms and conditions of this POLICY…"

Denial of Coverage

60LawPro’s denial of coverage was proper. On the evidence before me, Mr. Novak did not cooperate as required by the Policy in any way. In not providing a statement or his file, he deprived LawPro of the ability to mount a defence to the Caputos’ claim or even determine whether there was a defence to it.

61The Caputo’s advance several arguments in support of their position that LawPro’s denial of coverage was improper.

62First, they argue that LawPro’s failure to notify the LSO of Mr. Novak’s failure to cooperate is fatal to LawPro’s position on coverage. Had LawPro complained to the LSO about Mr. Novak’s failure to cooperate, the LSO could have intervened to force Novak to cooperate or stepped in as the named insured under the policy, as it is entitled to under the remedial portion of Condition G.

63It appears that LawPro contacted the LSO in light of Novak’s failure to report the claim, in order to let the LSO do so. LawPro, however, did not notify the LSO of Novak’s continued failure to cooperate.

64LawPro’s failure to ask the LSO if it wished to ensure Mr. Novak’s compliance, would not have affected the outcome of this case. Mr. Novak’s obligation to report and cooperate with the investigation and defence of a claim is independent of the named insured’s rights and obligations. This is made clear by the second half of the second paragraph under Condition G which provides that the LSO’s complying with the policy requirements on behalf of an insured does not prejudice the insurer in relying on a breach of “this or any other condition by such insured with respect to the claim in question….” In this case, LawPro made its decision with respect to coverage based on Mr. Novak’s failure to meet his requirements under Condition G.

65Second, the Caputos say that the October 12, 2010 (incorrectly dated October 6, 2010) letter was an extension of coverage and defence, and because LawPro closed the door on a response from Mr. Novak four days before the letter was sent, LawPro cannot now say there is no coverage.

66The October 12, 2010 letter is not an extension of coverage. The letter is clear that LawPro is maintaining its denial of coverage position because of Mr. Novak’s breach of Condition G. It does not rescind its position. The letter says that if Mr. Novak wishes to challenge the denial or to reopen coverage discussions, he could do so by meeting certain terms. It is correct that the date for doing so expired four days before the letter was sent. The fact is, however, that Mr. Novak never responded to this letter. He never questioned the denial. He never asked LawPro to reconsider its coverage position, even after he filed a Notice of Intention to Act in Person.

67Third, the Caputos argue that, notwithstanding its correspondence with Mr. Novak, LawPro’s own internal communications indicate that LawPro never considered coverage to be at an end.

68I disagree.

69LawPro made first contact with Mr. Novak on October 15, 2009. In an undated email to the file Cynthia Martin, a supervisor at LawPro, indicated that coverage was a live issue because of the failure of Novak to respond. This note, while undated, precedes the appointment of defense counsel who were appointed on February 2, 2010. That email does not concede coverage.

70The file contains a series of emails between various LawPro individuals all dated on May 11, 2010. The first email is a claim handler’s email to her supervisor recommending that coverage should be denied. Two levels of supervisor above the claims handler agreed that coverage should be denied, although one of them speculated that on receipt of the denial letter, Mr. Novak might have a change of heart. Mr. Novak never replied.

71The Caputos say that the letter from LawPro of June 21, 2010 to Mr. Novak implicitly waves LawPro’s previous denial of coverage.

72My conclusion that LawPro’s denial of coverage to Mr. Novak is appropriate acts as a bar to the Caputos' notice of garnishment. LawPro owes no debt to Mr. Novak and therefore, there is nothing exigible under the policy, for the Caputos to garnishee.

Issue 3: Is Relief from Forfeiture Available under the Insurance Act or Courts of Justice Act?

73Relief from forfeiture is equitable relief, and therefore, discretionary. It is provided for in section 129 of the Insurance Act and section 98 of the Courts of Justice Act. Those sections read as follows:

Insurance Act, RSO 1990, C. I8, s. 129

Where there has been imperfect compliance with a statutory condition as to the proof of loss to be given by the insured or other matter or thing required to be done or omitted by the insured with respect to the loss and a consequent forfeiture or avoidance of the insurance in whole or in part and the court considers it inequitable that the insurance should be forfeited or avoided on that ground, the court may relieve against the forfeiture or avoidance on such terms as it considers just. R.S.O. 1990, c. I.8, s. 129.

Courts of Justice Act, RSO 1990, c. C.43, s. 98

A court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just. R.S.O. 1990, c. C.43, s. 98; 1993, c. 27, Sched.

74Relief from forfeiture under section 129 if the Insurance Act applies where there has been imperfect or incomplete compliance with a condition of the policy. Section 129 does not give judges broad discretion to grant relief from forfeiture generally, where the conditions of an insurance policy are breached. To do so would grant the power to the court to alter the terms of the policy or conditions of coverage (see Williams v. York Fire and Casualty Insurance Co. (2007), 2007 ONCA 479, 86 O.R. (3d) 241 (C.A.), at paras. 31, 33 – 34).

75In this case, Condition G relates to the insured’s obligation to cooperate in the defence of the action. Under section 129 of the Insurance Act, relief from forfeiture only applies where there has been imperfect compliance with a policy term. It does not apply where there has been no compliance. Therefore, in determining compliance with the condition the court must have regard to the condition that was allegedly breached.

76In this case, Mr. Novak did not comply perfectly with condition requiring reporting the claim. He ultimately reported the claim, but only after the insurer and hounded him to do so. In any event, LawPro does not rely upon imperfect compliance with Condition F for its denial of coverage.

77LawPro relies on Mr. Novak’s breach of Condition G. Mr. Novak did not cooperate, at all, with the defence of the claim. LawPro, its adjuster, and defence counsel (the latter two appointed subject to the reservation of rights letter), all requested, many times, that Mr. Novak produce his file and give a statement. He never did so. He made promises to do so but did not meet them. Relief from forfeiture under the Insurance Act is no available to the Caputos.

78Section 98 of the Courts of Justice Act is also of no assistance to the Caputos.

79Relief from forfeiture is granted to prevent hardships to the beneficiaries of insurance policies where there has been a failure to comply with the condition for receipt of the insurance proceeds and where leniency in respect the strict compliance of conditions will not result in prejudice to the insurer (see: Falk Brothers Industries LTD. v. Elance Steele Fabricating Co., 1989 CanLII 38 (SCC), [1989] 2 S.C.R. 778, at p. 783).

80Since relief from forfeiture is an equitable remedy, the court must have regard to the conduct of the breaching party, the gravity of the breach, and the disparity between the value of the thing forfeited and the damage caused by the breach. There are two threshold questions. First, does the breach in this case go to the imperfect compliance with a policy term or noncompliance with a condition precedent to coverage? Second, is relief available under section 98 despite the existence of a specific relief against forfeiture provision Insurance Act? (See: Kozel v. Personal insurance Co., 2014 ONCA 130, at para. 28 to 31, and 39.)

81The focus is on whether the breach of the term is serious or substantial. Where term is incidental, its breach is deemed to be imperfect compliance. Where the provision is fundamental or integral, that breach is deemed to be noncompliance with a condition precedent. Where the breach constitutes non-compliance with the condition precedent, relief from forfeiture is not available (see: Kozel, para. 40-41). A breach of an insurance policy duty of cooperation can qualify as imperfect compliance. However, where the lack of cooperation was substantial, the insurer can deny coverage and refused to defend (see: Canadian Newspapers Co. v. Kansa General Insurance Co., 1996 CanLII 2482 (ON CA), [1996] O.J. No. 3054 (CA), at para. 70).

82This Court has already held that where a solicitor completely refuses to cooperate with the insurer’s investigator in spite of efforts made to get his cooperation, the insurer is prejudiced by the solicitor’s failure to report and his failure to cooperate. Refusal to cooperate in any way is so egregious that relief from forfeiture is inappropriate and there is no responsibility on the insurer to defend (see: El- Amad v. Goldberg, 1997 CarswellOnt 105 (Gen. Div.)).

83Mr. Novak claimed in email that his failure to cooperate was, in part, the due to health issues. However, those health difficulties did not prevent him from undertaking a week long jury trial, during the time at which he ought to have made a copy of his file, nor prevent him from attending before Corbett J. on October 5. Further, their health issues were never substantiated.

84Mr. Novak’s failure to cooperate was not due solely to health issues. His failure to cooperate stretched from January 15, 2010 (when he officially report of the claim) through to and including October 19, 2010 when he delivered his Notice of Intent to Act in Person. He made several promises to deliver his file and cooperate in the defence making a statement. He did none of this. His inactivity was contumelious, and either intentional or grossly in different.

85Mr. Novak’s breach was most serious. LawPro was given no information upon which it could defend the claim against Mr. Novak or even determine if there was a defence. He gave LawPro no file, no statement, and no interview with the insurer’s adjuster. All of this is notwithstanding attempts by the insurer, the defence counsel, and the insurer’s adjuster to obtain cooperation.

86Mr. Novak was given every opportunity to cooperate. The door was left open to him following the May, 2010 denial letter as well as after the October 12 (misdated October 6) 2010 letter to meet certain conditions following which the insurer would reconsider its coverage position. He did nothing.

87Given the facts in this case, relief from forfeiture under section 98 of the Courts of Justice Act is not available to Mr. Novak or the Caputos.

Issue 4: Is There Waiver or Estoppel?

88The Caputos say that the insurer, having undertaken the defence of the action, waived any reliance on any exclusion or policy breach, and is estopped from denying coverage. The Caputos rely on Commonwealth Mutual Assurance Group v. Campbell, 2018 ONSC 5899.

89Commonwealth is of little assistance. In that case, the insured was named in an action arising from Mr. Campbell’s hitting an all-terrain vehicle with his dirt bike. He claimed coverage under two separate policies. The insurer under the first policy presented Campbell with a non-waiver agreement and a reservation of rights letter and ultimately denied coverage. The second insurer did not present the insured with a non-waiver agreement and a reservation of rights letter. Instead, it appointed counsel who delivered a defense and represented Mr. Campbell in the action. At oral examinations, the second insurer took the position that it made a mistake defending and sought an order that it was not obliged to continue the defense.

90The court held that by defending without a non-waiver agreement or a reservation of rights letter, second insurer had waived any policy breach or exclusion.

91In this case, however, LawPro issued to Mr. Novak a non-waiver agreement and reservation of rights letter. Although the non-waiver agreement was not returned signed, LawPro clearly reserved its rights to deny for lack of cooperation under Condition G in its reservation of rights letter. Mr. Novak could not have been under any misunderstanding. It was clear that LawPro, in appointing defence counsel, was doing so under a full reservation all of its rights under the policy.

Issue 5: Does Public Policy Provide a Remedy?

92The Caputos argue that the court should exercise its discretion to allow the garnishment of the LawPro policy, notwithstanding Mr. Novak’s policy breaches. It is in the public interest to allow garnishment in this case. They are completely innocent, Mr. Novak completely responsible, and LawPro will suffer no prejudice. In coming to this conclusion, the Caputos urge me to consider and apply Johnson v. R & D Enterprises, Carolina Casualty Insurance Co., Garnishee, 106 Ill. App. 3d 496; 435 N.E. 2d 1233 (1982).

93In Johnson, the plaintiff’s husband was killed in a car accident with the Defendant. The Plaintiff obtained default judgment then brought garnishment proceedings against the Defendant’s insurer. The insurer argued that the insured had breached the terms the policy by not reporting the claim.

94The Illinois Court held that automobile insurance was mandatory in Illinois and was designed for the protection of the public. It was uncontested that the defendant breached the insurance policy. However, the trial division found for the plaintiff ruling that, as a matter of public policy, any defences available to the insurer were enforceable only against the insured, and not against an uninsured third-party, as a matter of public policy.

95The Court of Appeal agreed, holding that the insurer’s liability to the Plaintiff is predicated upon the public policy of the State of Illinois who enacted mandatory auto insurance to protect the public in its use of highways. Therefore, to uphold that public policy, it was necessary to allow the Plaintiff to recover in garnishment against the tortfeasor’s insurer notwithstanding the tortfeasor’s breach of policy conditions.

96The Caputos argue that since professional liability insurance for lawyers is mandatory in Ontario, is designed to protect the public, and LawPro is the exclusive underwriter of that insurance, I should apply to LawPro the same reasoning as the court in Johnson.

97Johnson does not apply to LawPro. I say this for several reasons:

• Johnson involves automobile insurance, not professional liability insurance.

• The automobile insurance at issue in Johnson is significantly different from automobile insurance in Ontario. There are no ‘no fault’ provisions in Illinois as are provided in s. 265 of Ontario’s Insurance Act, which sets up no fault liability for uninsured and unidentified automobiles, and provides for minimum limits being available to a tortfeasor notwithstanding a tortfeasor’s breach of the policy or condition.

• The Illinois legislation specifically stated that the purpose of mandatory insurance was for the protection of the public.

98The concerns that motivated the trial and appeal courts in Johnson, are absent in this case.

99Further, the LawPro policy was not created for the same purpose as the Illinois mandatory auto policy.

100According to section 4.2 of the Law Society Act, RSO 1990, c. L.8, the LSO in discharging its functions, duties and powers, it has a duty to protect the public interest.

101LawPro, specifically, does not have that mandate, although it was considered.

102The Law Society of Upper Canada’s Report to Convocation of the Insurance Task Force and the Insurance Committee, dated October 28, 1994, and amended on November 15, 1994 studied the insurance crisis that had developed with respect to the LSUC’s insurance program. The Report was accepted by Convocation, and became the LSUC’s policy with respect to professional liability insurance coverage for Ontario Lawyers.

103Until that time, the LSUC placed its insurance program in the private insurance market, with the same policy arrangement as it has now, with the LSUC as the named insured and individual members as insureds. The coverage was quite broad. A portion of the risk was retained by the LSUC. The LSUC had amassed a considerable deficit and the policy was becoming difficult to place in the private insurance market.

104As a result of the insurance crisis, the LSUC did two things. First, it established the respondent insurer to provide immediate coverage for lawyers while it studied the crisis. Second, the LSUC established the Task Force to analyze and explain the deficit, report on management and legal costs, to address the question of whether the LSUC should continue with the E&O program, and to recommend short and long term solutions.

105The Report recognized that an E & O program was in the best interests of the public and the profession because mandatory coverage for all practitioners spreads the risk across the whole profession and thus protects the public. However, it begs the question as to whether the public has the right to be protected in every circumstance of every misconduct of a lawyer (para. 27). The question required a balancing between a) ensuring that the public would be reasonably sure that in most circumstances there was available insurance for lawyers, and b) the members of the society and the society itself, and their assets, would be protected from exposure because of their own mistakes (para. 16). Whatever the Society’s decision was, it had to reflect the costs and consequences to the public, the costs and consequences to the Society and its members in terms of leaving professional liability insurance to the private market or maintaining its own insurance program (para. 19).

106The Task Force concluded that if the LSUC was to maintain its own E & O insurance program “it cannot be on the basis that every solicitor in every circumstance will have coverage. In other words, the E & O program must operate in the fashion of an insurance company, one prepared to pay claims fairly, honestly, and expeditiously, but also one that needs to be sensitive to costs, risks, and policy coverage.” (para. 28).

107The Task Force recognized that if the LSUC adopts this approach, then some solicitors, because of their conduct and claims history, will be denied coverage. Others will not be able to afford coverage and therefore be forced out of practice (para. 29). Task Force indicated that if mandatory coverage is not enforced, protection of the public will be diminished.

108The Task Force made observations which are equally applicable to the relief the Caputo seek. These are:

• The right to rely on a policy breach and to deny coverage is an insurer’s fundamental right.

• The insurer’s obligation and guiding policy is to deal with third parties in a commercially reasonable manner and to settle claims fairly and expeditiously.

• As a matter of law, the insurer is entitled to expect that its insured will act with utmost good faith when dealing with the insurer. If the insured is in breach of a policy condition, the insurer may deny coverage.

• The insurer has a corresponding obligation to deal with its insurance with utmost good faith. Therefore, the insurer cannot accept every complaint from the public and pay every claim irrespective of its merits.

• If it is in the public interest that the insurance fund should exist to compensate members of the public when solicitors make errors, there is a corollary that solicitors are insureds and have to comply with policy conditions.

• The profession cannot afford to fund program that pays every claim without regard to fault, without regard to whether a solicitor is an insured, and without regard to whether the solicitor has complied with policy conditions. The policy cannot be operated as a no-fault regime.

• LawPro has a contractual relationship with its re-insurers who are entitled to assume that LawPro is acting in a commercially reasonable fashion. If LawPro were operated in any other matter, its reserve practices will have to be altered, and its ability to find reinsurance would be prejudiced because those costs increase with no-fault coverage. That would increase the deficit.

• The Task Force recognized that its recommendations would mean that in a limited number of cases, claimants asserting claims against lawyers would not have access to the insurance fund either because there is no insurance or because the lawyer breached policy conditions.

(See: Task Force Report, paras. 38-50)

109The Task Force’s ultimate recommendation was that in the greatest protection of the public and the greatest interest for the majority of the LSUC’s membership, the LSUC must continue the E & O program. That program would have to address “certain financial realities” such that the program could no longer deliver the "Rolls Royce coverage at the Ford price". Realistic levys would have to be put in place and the program would have to allow for a reduction in the scope of coverage and recognize that solicitors who repeatedly err may not be able to afford to practice.

110To accede to the Caputos' request and declare that LawPro has an obligation to Mr. Novak which can be enforced through garnishment, would turn the Ontario lawyers E & O insurance plan into a no-fault scheme.

111I accept the comments of Morgan J. in Cusack v. Lawyers Professional Indemnity Company, (2013) O. J. No. 3927 that LawPro is a regulatory insurer mandated by Convocation to provide professional liability insurance, and by doing so operates in the public interest. Those comments, however, were made in the confines of the discussion of whether LawPro should report to the LSO Discipline Department law society matters reported to LawPro, or whether that is a breach of privacy legislation. Morgan J.’s comments do not apply to the circumstances before me.

112What the Caputos are really asking is that the court engage in judicial legislation. By its acceptance of the E & O insurance program in its current form, which follows the Task Force’s recommendations, the LSO, under its statutory mandate, has accepted the fact that LawPro will be operated as a commercial insurer. Therefore, it’s liability to its insureds, and its obligation to respond to claims against its insureds is governed by policy wording which sets out rights and obligations of both parties. The LSO has accepted the Task Force’s observation that the insurance program would not provide coverage for everyone who has suffered a loss because of the actions of their lawyer.

113It is not the court’s job to legislate. The court can interpret legislation and apply the law to a particular set of facts. The court often has discretion, and can apply its discretion in appropriate circumstances. Where the facts warrant it, the court can expand a legal principle to cover that set of facts. The court, however, cannot (except in very limited circumstances which do not apply here) re-write or nullify provisions in an insurance policy. In order to give relief to the Caputos, I would have to declare, in effect, that the LawPro policy provides no-fault coverage. The policy does not.

114The question of whether there should be no-fault coverage for lawyers in Ontario is a question for the LSO within its statutory mandate, or the legislature.

115The limited ability of the courts to legislate in circumstances close to this was subject comment by the Court of Appeal in Perry v. General Security Insurance Company of Canada, [1984] O.J. No. 330.

116In Perry, a lawyer’s clients obtained default judgment against his negligent lawyer and applied under what is now section 132 of the Insurance Act for payment by the lawyer’s insurer of the judgment they had obtained. That section allows a judgment creditor of a person who has done bodily injury to the creditor or damage to the creditor’s property, to present that judgment to the judgment debtor’s liability insurer for payment. A precondition to recovery is that the creditor must have tried to execute and received a writ of nulla bona. The judgment creditor’s claim against the judgment debtor’s insurer, however, is subject to the same equities as the insurer would have had against the insurer.

117The three judges in the Court of Appeal held that damages caused by a solicitor to his client are not damage to a person or property. Rather, they are economic losses unrelated to physical injury or damage to property. Therefore they fall outside of the scope of section 132 (see for example, MacKinnon, A.C.J.O., at para. 13).

118The Court of Appeal found support for its decision in the history of what is now section 132. The court commented that the section’s predecessor, section 109, originally applied to all types of insurance. As a result of case law in the 1920s, the Insurance Act was amended to make special provisions for no-fault liability and special third-party rights for the insurers in cases arising out of an automobile accidents. No such special provisions were enacted with respect to insurance policies for other than automobile liability (para. 18).

119Notwithstanding its decision, the court went on to consider whether, in the circumstances, the “equities as the insurer would have if the judgment had been satisfied”, meant that the claimant could have recovered. In that case, the court commented that the case was one of a flagrant flouting of the conditions of the policy by the solicitor. There was nothing that justified granting relief from forfeiture to the solicitor (paras. 23 to 25).

120All three judges in the Court of Appeal were unanimous in the result. Two Court of Appeal judges, however, offered comment with respect to the unfortunate result and the remedy.

121In paragraphs 33 and 34, McKinnon, A.C.J.O. suggested that the legislature should amend the legislation as it did for automobile accident victims. He said “… it is to be hoped that a prompt solution is provided by the legislature or otherwise.” Arnup J.A., commented on the unfairness of the result. He said at paragraph 61 “Finally, I heartily endorse the view of McKinnon A.C.J.O. that immediate action should be taken by the Law Society or the legislature, or both, so that the present unfairness to the innocent clients of insured solicitors can be ended.”

122I, like the court in Perry, am bound by the law and the facts of this case. If there is a remedy for the Caputos, that remedy lies with the Law Society or the legislature. For these reasons, the Caputos’ motion is dismissed.

Costs

123If the parties cannot agree to costs, then I can be spoken to at 9:00 a.m., by conference call, any day I am sitting, to timetable costs submissions and any hearing on the subject.

Trimble J.