Court File and Parties

COURT FILE NO.: CV-18-607080 DATE: 20190226 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: ROYAL & SUN ALLIANCE INSURANCE COMPANY, Applicant – and – INTACT FINANCIAL CORPORATION, Respondent

BEFORE: E.M. Morgan J.

COUNSEL: Ryan Truax, for the Applicant Daniel Himelfarb and Jonathan Heeney, for the Respondent

HEARD: February 25, 2019

Reasons for Judgment

[1] The Applicant seeks an Order requiring the Respondent to contribute its proportionate share to the settlement of a claim brought by Stephen Peter Novak (“Novak”) against Sanjay Patel (“Patel”) in Court File No. CV-15-519329.

[2] The underlying claim arises from injuries sustained by Novak when he fell off a ladder at the premises of Lakeland Engineering (“Lakeland”). Those premises were in a building owned by 1062220 Ontario Inc. (“106”), a company controlled by Patel. The Applicant is the insurer of Lakeland through a commercial general liability policy and the Respondent is the insurer of Patel through a homeowners comprehensive coverage policy.

[3] The action in Court File No. CV-15-519329 settled at a mediation on February 28, 2017 for an all-inclusive payment of $380,000. It is the Applicant’s view that responsibility for the settlement amount should be split three ways as between the insurers of Lakeland, 106, and Patel.

[4] Patel has brought a previous application against the Respondent seeking an Order that it defend and cover the claim. That application, Court File No. CV-15-535694, was heard by Mew J. on January 20, 2016. In the first stage of his analysis he found that although the accident occurred on Patel’s business premises, it did not relate directly to his business and so the exclusion in the Respondent’s policy for injuries sustained on “business property” did not apply and that the pleadings on their own “raise the possibility of the claim against Mr. Patel falling within coverage and, thereby, triggering the respondent’s duty to defend”: Patel v Intact Financial Corporation, 2016 ONSC 521, at para 6.

[5] Justice Mew went on in his reasoning to hold that a limiting factor in the Respondent’s coverage is that the Applicant’s policy provides primary coverage for this claim, and that the Respondent’s policy which overlaps with it is to be treated as excess coverage. He concluded, at paras 11-12 of his reasons, that in light of this limitation the Respondent had neither a duty to defend nor a duty to cover the claim unless the primary coverage was used up:

[11] As a result, the respondent’s policy is excess to the RSA policy. The coverage provided by the respondent’s policy only becomes available once the RSA coverage (and any other primary coverage available to the applicant) is used up. As a result, no obligation for the respondent to defend has arisen yet. See: Axa v. Dominion (2004), 73 O.R. (3d) 391 (C.A.) and Chretien v. Ryder Truck, 2015 ONSC 5347, at para. 13.

[12] The application is therefore dismissed with costs, without prejudice to the right of the applicant to seek coverage from the respondent if all other applicable primary coverage is used up.

[6] The Respondent’s position is that the present Application seeks to re-litigate its liability for coverage, which was the very issue already decided by Justice Mew. Respondent’s counsel submits that as a consequence the issue is estopped and the Application should be dismissed. Respondent’s counsel stresses the fact that Justice Mew’s decision was never appealed, and the present motion is in effect a disguised attempt to appeal that decision at this late date.

[7] The Applicant’s position is to concede that it is estopped from revisiting the duty to defend that was decided by Justice Mew, but to argue that the coverage question itself is still open. Applicant’s counsel stresses that Justice Mew’s reasoning was incorrect and that his conclusion that the Respondent is not liable for coverage unless all other applicable coverage is used up is not binding with respect to the coverage itself even though it is binding with respect to the duty to defend.

[8] Applicant’s counsel also points out that Aviva Insurance Co. (“Aviva”), the insurer of Patel’s corporation, 601, brought its own application to compel the Respondent to contribute to the settlement, and was successful in obtaining the Order sought. In that application, Kristjanson J. concluded that Intact must reimburse Aviva for Intact’s proportionate share of the settlement and defence costs: Aviva Insurance Co. v. Intact Insurance Co., 2018 ONSC 238, at para 62. At para 3 of her decision, she also observed that the relevant clauses in the Aviva policy and the Respondent’s policy are identical. Effectively, therefore, Kristjanson J. and Mew J. came opposite conclusions on the question of interpretation of the same clause in the respective insurance policies.

[9] In Family Insurance Corporation v. Lombard Canada Ltd., 2002 SCC 48, [2002] 2 SCR 695, at para 14, the Supreme Court of Canada addressed a situation much like the one here where there are multiple policies with overlapping coverage: “It is a well-established principle of insurance law that where an insured holds more than one policy of insurance that covers the same risk, the insured may never recover more than the amount of the full loss but is entitled to select the policy under which to claim indemnity”. Justice Mew reasoned that where the Applicant is the applicable policy, the Respondent is only liable when the Applicant’s coverage has run its course.

[10] As Justice Kristjanson points out, however, that is a mischaracterization of the situation here. At para 35 of her judgment, she described the Respondent’s policy and Aviva’s policy as “not overlapping policies but complementary policies, and as such, the Intact policy could never sit as excess coverage over the Aviva policy.” At para 36, she put the various policies together as follows:

The [Applicant’s] policy considered by the application judge insured Patel in his capacity as an officer of Lakeland, expressly excluding coverage for his personal liability. The Intact policy covered Patel’s personal liability, expressly excluding coverage for any business pursuits of Patel. A similar analysis applies to the Aviva policy, which insured Patel in his capacity as a principal of 1062220 and expressly excluded coverage for personal liability. Aviva argues that the leading Supreme Court of Canada decision in Family Insurance Corporation v. Lombard Canada Ltd., 2002 SCC 48, [2002] 2 SCR 695…establishes the test for determining when insurance policies are overlapping and thus subject to the doctrine of equitable contribution, which they submit is a necessary pre-condition to consideration of the ‘other insurance’ clauses.

[11] Justice Mew looked at the “other insurance” clause in the Respondent’s policy as he viewed the two as irreconcilably applicable to the identical coverage, and found that one policy lies behind the other in priority. The Court of Appeal has held that, “Such a conclusion is only possible where the policies in question cover the same level of risk”: McKenzie v Dominion of Canada General Insurance Co., 2007 ONCA 480, at para 21. As Justice Kristjanson expressed it, at para 37, the “other insurance” clause only applies “where an insured holds more than one policy of insurance that covers the same risk” [emphasis in the original].

[12] Counsel for Applicant explains that his predecessor counsel for the Applicant apparently was unaware of the Supreme Court’s Family Insurance decision and so did not bring it to Justice Mew’s attention. Accordingly, Mew J. did not scrutinize the coverage applicable under the two policies to ensure that the coverage overlap was really a complete overlap rather than just an incidental or tangential one. Instead, he considered two policies that covered distinguishable or partly distinguishable risks in the same way that he would have considered two policies that covered identical risks, and saw them as stacked up with one behind the other rather than standing on the same level and proportionately participating with each other.

[13] Justice Kristjanson also perceived this problem, and was alive to the issue of Justice Mew not having had his attention drawn to Family Insurance as the Supreme Court’s leading case on overlapping policies. Citing the Court of Appeal’s decision in Wolfe v Wyeth, 2011 ONCA 347, at paras 19-24, 38, she reasoned that it is not incumbent on her to apply follow a decision that is erroneous and thus inherently unjust. She went on to hold, at para 33, that she retains residual discretion not to apply a rule or doctrine in a way that would work an injustice and so distinguished her own judgment from Justice Mew’s previous one. She therefore concluded, at para 55, that it would be unjust enrichment to hold the Respondent not to be liable for its share of the coverage upon settlement of the claim.

[14] Without commenting on the merits of either Justice Kristjanson’s or Justice Mew’s approach, it appears to me that there is no need to re-think Justice Mew’s earlier decision. It is obvious from that motion that while the duty to defend issue was squarely before him, any comment that Justice Mew made with respect to coverage itself was unnecessary to his holding and was collateral thereto. The doctrine of issue estoppel precludes the re-litigation of issues decided in a prior proceeding, but it must be an issue which decided between the same parties, with finality, and, most importantly, that was necessary and germane to the prior decision: Toronto (City) v CUPE Local 79, 2003 SCC 63, [2003] 3 SCR 77, at para 23.

[15] In Angle v Minister of National Revenue, [1975] 2 SCR 248, 225, Dickson J. (as he then was) stated specifically that “ [i]t will not suffice if the question arose collaterally or incidentally in the earlier proceedings or is one which must be inferred by argument from the judgment.” As Kristjanson J. observed, the ultimate coverage question was not formally before Mew J. and so he could not have formally decided it. She reasoned, at para 28 of her judgment, that, “A court hearing a duty to defend application is not in a position to determine the question of indemnity, in the absence of evidence concerning issues of liability and damages: Papapetrou v. 1054422 Ontario Ltd. 2012 ONCA 506 (Ont. CA) at paras. 24-25 and 28.”

[16] In my view, there is no reason to re-visit Mew J.’s judgment as to the issue of coverage. That issue, as opposed to the duty to defend issue, was not before him at that pre-settlement stage of the litigation. He may have spoken about coverage, but he made no binding holding in respect of coverage. On this Application the Applicant is estopped from re-litigating the duty to defend, but is not estopped from raising the Respondent’s liability for coverage.

[17] The Applicant’s policy and the Respondent’s policy each provide primary coverage for different risks – the Applicant’s policy applies to Patel’s business and premises and the Respondent’s policy applies to Patel’s household and person. Accordingly, and in accordance with the guidance provided by the Supreme Court of Canada in Family Insurance and the Court of Appeal in McKenzie, the “other insurance” provisions of those policies are inapplicable. The two policies may overlap somewhat but they are not identical. They therefore are on par with each other and share coverage between them rather than one standing behind the other as excess insurer.

[18] The Applicant shall have an Order requiring the Respondent to reimburse the Applicant for its proportionate share of the settlement funds paid to the Plaintiff in respect of Court File No. CV-15-519329.

[19] The circumstances giving rise to this Application relate to the confusing disjunction between Justice Mew’s decision and Justice Kristjanson’s decision. Given the equities found by Justice Kristjanson, I cannot blame the Applicant for bringing the matter back to court; likewise, given the broad language of Justice Mew’s decision, I cannot blame the Respondent for contesting the need to review what was already been previously before the court. In this situation, I am inclined to exercise my discretion under section 131 of the Courts of Justice Act not to award costs for or against either party.

Morgan J. Date: February 26, 2019