Court File and Parties
COURT FILE NOS.: CV-15-22443 (Windsor) CV-18-26497 (Windsor) DATE: 20190314 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Ryan Reeb Applicant – and – The Guarantee Company of North America and The Co-operators General Insurance Company Respondents
Counsel: Myron W. Shulgan, for the Applicant David J. Strangio, for the Respondents
AND BETWEEN:
Royal & Sun Alliance Insurance Company of Canada Applicant – and – The Guarantee Company of North America and The Co-operators General Insurance Company Respondents
Counsel: Mark M. O’Donnell, for the Applicant David J. Strangio, for the Respondents
HEARD: March 4, 2019
Corrected Decision: The text of the original Reason on Applications was corrected on March 14, 2019 and the description of the correction is appended. March 14, 2019: The sentence “RSA opposed the amendment” in paragraph 10 was replaced with “The respondents opposed the amendment”.
Reasons on Application #1
Thomas, RSJ.
The Application
[1] This is an application for a declaration that The Guarantee Company of North America (“Guarantee”) and Co-operators General Insurance Company (“Co-operators”) owe a duty to defend the applicant, Ryan Reeb, in this action commenced against him by James Riley.
Background
[2] It is alleged that on February 25, 2007, 14-year old Ryan Reeb (“Reeb”) and 14-year old James Riley (“Riley”) were playing with “BB guns” at Reeb’s house. It is further alleged that one of the pellets from Reeb’s BB gun struck Riley in his left eye and Riley subsequently lost some vision in that eye.
[3] On December 18, 2012, Riley commenced an action in negligence against Reeb, Laura Reeb, Reeb’s mother and Tim Reeb, Reeb’s father, for $1,500,000. At all material times, Reeb was living with both parents at their separate residences, pursuant to a joint custody arrangement.
[4] Laura Reeb had a homeowner’s insurance policy with Royal & Sun Alliance (“RSA”), with a third party liability limit of $1 million. RSA appointed counsel to defend the claim on behalf of Reeb and his mother.
[5] Tim Reeb had a homeowner’s insurance policy with Guarantee. Tim Reeb’s second wife, Theresa Curry-Reeb, had a policy with Co-operators.
[6] Reeb commenced an application for a declaration that he was an insured under both the Guarantee and Co-operators policies. He was represented by counsel appointed by RSA in that application. Bondy J. heard the application on November 28, 2016. The application was dismissed because the evidence before the court was found to relieve the insurers from an obligation to indemnify Reeb.
[7] The Court of Appeal heard the appeal of the application on July 20, 2017. After hearing the argument on the Appeal, Alison Warner, the Senior Legal Officer for the Court of Appeal wrote to counsel seeking information for the Panel on the continuing coverage position of RSA if the appeal was dismissed and whether Mr. Mitchell who acted for the applicant was in a conflict.
[8] On October 5, 2017 the Court of Appeal allowed the appeal, set aside the judgment of Bondy J., finding that the information Reeb’s counsel put before the court was presented in circumstances in which Reeb’s counsel may have been in an apparent conflict of interest. (Reeb v. The Guarantee Company of North America, 2017 ONCA 771) [Reeb v. Guarantee]
[9] On November 7, 2017 the Senior Legal Officer of the Court of Appeal, Falguni Debrath, wrote to Myron Shulgan requesting that he consider representing the applicant. The letter indicated that RSA was prepared to pay the legal fees if Shulgan accepted this role.
[10] On or about December 7, 2017, Reeb retained Myron Shulgan, Q.C. to represent his interests. On July 17, 2018 Shulgan obtained an order from Bondy J. amending the original application to delete the request for indemnification. As a result the application now before me seeks an order compelling the respondents Guarantee and Co-operators to simply defend the applicant. The respondents opposed the amendment. On September 5, 2018 Mr. Shulgan served a notice of change of solicitors.
[11] The applicant now requests a declaration that Guarantee and Co-operators have a duty to defend Reeb in the action against him commenced by Riley, and an order compelling Guarantee and Co-operators to defend Reeb under the provisions of their policies.
Conflict
[12] As a threshold issue I invited all counsel to address the issue of a continuing conflict. It was the position of the respondents Guarantee and Co-operators that since Shulgan had now served a notice of change of solicitors indicating he had been retained by the applicant Reeb and since he was being paid by RSA he was in the same position of potential conflict as had confronted prior counsel. The same situation that prompted the Court of Appeal to set aside the Bondy judgment. I note the substance of the correspondence of the Court of Appeal requesting Shulgan to represent Reeb and noting that RSA would pay his fees. I note the content of paragraph 15 Court of Appeal decision in Reeb v Guarantee:
In our view, there is reasonable apprehension of a conflict between the interests of Mr. Reeb and Royal & Sun Alliance. While we are not saying that appellant’s counsel actually preferred the interests of Royal & Sun Alliance over those of Mr. Reeb, the apprehension of a conflict precludes this court from ruling on the merits of the appeal. In order to protect his interests in these proceedings in light of the conflict, Mr. Reeb ought to have had independent counsel who did not report to or take instructions from Royal & Sun Alliance to advise him on the advisability of bringing the underlying application in the face of a settlement offer, and representing him on this appeal. There is no way of knowing how things would have unfolded had Mr. Reeb been represented by independent counsel throughout, which impugns both the application and this appeal.
[13] Previous counsel was retained by RSA and acted for both Reeb and Laura Reeb. Mr. Shulgan confirms that in accordance with the concerns of the Court of Appeal he acts for Reeb only and reports to and takes direction only from Reeb.
[14] I see no continuing apprehension of a conflict in Mr. Shulgan’s representation of the applicant Reeb.
Position of the Parties
[15] It is Reeb’s position that he is entitled to be defended by the respondents. His counsel argues that Reeb is confronted by a claim in negligence and that nothing should be considered on this issue in these particular circumstances beyond the statement of claim.
[16] Reeb maintains that the discovery transcripts and affidavit materials filed for consideration by Bondy J. and filed again by the respondents in this application should not be considered by me. It is argued that that evidence was part of a conflict tainted proceeding and that extrinsic evidence has no application in my assessment of the “duty to defend”.
[17] Counsel for the respondents maintains that the law allows for me to consider the extrinsic evidence which he claims makes it readily apparent that coverage is excluded as the injury is the result of an intentional act by Reeb causing bodily harm. He states that packaging the act by calling it negligence does not make it so. The answers by Reeb to questions on discovery he argues make it clear he intended to cause an injury and the fact that he did not mean to shoot Riley in the eye is unimportant.
[18] Counsel further argues that the claim itself suggests that Reeb “ignored” an agreed timeout called in the boys’ game and fired the last “BB”. He maintains the definition of ignored imputes intention to Reeb’s actions.
[19] It is conceded that both homeowner’s insurance policies in issue contain a provision providing coverage for Reeb if the injury to Riley is unintentional.
Analysis
[20] It should first be noted that I am faced with a different application than the one which Bondy J. confronted in his reasons of December 6, 2016. The amendment to the application to delete the request for a declaration of indemnity focussed this application only on whether the respondents have a “duty to defend”. The issue of an indemnification must be left to the trial itself.
[21] The law with respect to this single claim leads me to a contrary conclusion than the one reached by Justice Bondy. It is clear to me from the endorsement of the Court that the respondents knew that was likely to be so when they chose to oppose the amendment itself.
[22] Below I have set out a summary of the cause of action plead in the statement of claim:
- Reeb and Riley were born on December 15, 1993, and March 1, 1993, respectively, and were therefore each only 14 years old at the time of the incident;
- Riley and Reeb were playing a game; and,
- The incident (described as an “accident”) and resulting injuries and damages were caused solely as a result of the negligence of Reeb and the other defendants, and the particulars of such as to Reeb include, but are not limited to, the following: (i) Failing to ensure that Riley remained in a place of safety when he knew or ought to have known that discharging a BB gun posed a substantial risk to Riley’s health and safety; (ii) Failing to recognize, respond to and prevent the inherent dangers involved in discharging a BB gun; (iii) Breaching the duty of care impressed upon him and owed to Riley when Riley was in a position where Reeb was directing a projectile; (iv) Failing to look where he was aiming, creating a situation of danger from which Riley was not able to extricate himself; (v) Allowing himself to be unmindful and/or unconcerned of the risks inherent in his conduct and wilfully disregarding the risk inherent in his conduct; (vi) Failing to notify an adult or anyone, that he and Riley intended to use BB guns; (vii) Failing to take reasonable or any precaution to avoid an accident when he saw, or ought to have seen, that by reason of his participation in the BB gun game, an accident was likely to occur; (viii) Breaching the duty of care impressed upon him and owed to Riley by failing to ensure that at all material times he discharged the BB gun in a safe manner; (ix) Being an incompetent BB gun operator on the occasion in question; (x) Lacking in reasonable skill and self-command and who ought not to have attempted to operate the BB gun; (xi) Failing to have the BB gun under proper control; (xii) Discharging the BB gun without regard to the safety of Riley; (xiii) Discharging a defective BB gun or a BB gun with defective components; (xiv) Engaging in reckless, dangerous and/or inappropriate behaviour while using the BB gun, which caused Riley to be shot in the eye; (xv) Creating and perpetuating a situation of danger from which Riley, despite all reasonable effort and precaution on his part, was unable to extricate himself;
[23] In paragraph 14 of his reasons Bondy J. described the claim.
In this case, when read in isolation, the pleadings appear to fit within the description of perils insured against and to not come within the exclusion clauses. I say that because all of the particulars pleaded are founded in negligence. None of the pleadings are suggestive of an intentional tort.
[24] I agree this is a claim grounded in negligence. The statement of claim makes no mention of an intentional act causing bodily harm.
[25] Paragraph 5 of the statement of claim is set out below. Despite the respondents’ argument to the contrary, the use of the word “ignored” does not make the injury to Riley the result of an intentional act. That is surely so in the context of a “game” played by two 14-year old boys.
On February 25, 2007, James and Ryan were playing a game whereby they were shooting BB guns at each other in James’s bedroom. At some point during the game, James called for a time-out to signify to Ryan to stop shooting. Ryan ignored the call to stop the game and took one last shot. The pellet struck James in the eye and caused him to suffer serious and permanent injuries, including the loss of vision in his left eye.
[26] The conclusion reached by Bondy J. came as a result of an application that demanded a declaration of indemnity. As was considered by the Supreme Court of Canada in Nichols v. American Home Assurance Co., [1990] 1 S.C.R. 801 at para. 17 an insurer’s duty to defend a claim is broader than its duty to indemnify.
At the same time, it is not necessary to prove that the obligation to indemnify will in fact arise in order to trigger the duty to defend. The mere possibility that a claim within the policy may succeed suffices. In this sense, as noted earlier, the duty to defend is broader than the duty to indemnify. O’Sullivan J.A. wrote in Prudential Life Insurance Co. v. Manitoba Public Insurance Corp. (1976), 67 D.L.R. (3d) 521 (Man. C.A.), at p. 524:
Furthermore, the duty to indemnify against the costs of an action and to defend does not depend on the judgment obtained in the action. The existence of the duty to defend depends on the nature of the claim made, not on the judgment that results from the claim. The duty to defend is normally much broader than the duty to indemnify against a judgment. [Emphasis added.]
[27] In Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49 [Monenco] at para. 37 the Supreme Court viewed the duty to defend as a matter that needed to be determined expeditiously.
It should be recalled that the question whether an insurer is bound to provide defence coverage in an action taken against the insured arises as a preliminary matter. Of course, after trial, it may turn out that there is no liability on the insurer, and thus, no indemnity triggered. But that is not the issue when deciding the duty to defend. Consequently, we cannot advocate an approach that will cause the duty to defend application to become “a trial within a trial”. In that connection, a court considering such an application may not look to “premature” evidence, that is, evidence which, if considered, would require findings to be made before trial that would affect the underlying litigation.
[28] In Halifax Insurance Company of Canada v. Innopex Ltd. (2004), 72 O.R. (3d) 522 (C.A.) Borins J.A. commented on the same unfortunate circumstances that have befallen the matter I consider here.
Motions or applications to consider whether an insurance company has a duty to defend a policyholder who is a defendant in an underlying lawsuit are intended to be decided expeditiously. Invariably, such proceedings are decided by reading the claim or claims asserted in the statement of claim in the underlying action with the coverage provided by the insurance policy. If one or more of the claims in the underlying action fall within the coverage, the insurer has a duty to defend the action on behalf of the insured. As the Supreme Court of Canada has observed, a duty to defend application should not be permitted to become “a trial within a trial”. However, that is what happened in this case.
[29] The issue that confronts me is whether I should appropriately consider the extrinsic evidence that was placed before Bondy J.
[30] In Monenco the Court commented upon the proper use of extrinsic evidence when determining a duty to defend.
Based on this line of authority, it follows that the proper basis for determining whether a duty to defend exists in any given situation requires an assessment of the pleadings to ascertain the “substance” and “true nature” of the claims. More specifically, the factual allegations set out therein must be considered in their entirety to determine whether they could possibly support the plaintiff’s legal claims.
While these principles are instructive for the purposes of the present case, one important question arising in this appeal has been left open by the jurisprudence to date. That is, whether, in seeking to determine the “substance” and “true nature” of a claim, a court is entitled to go beyond the pleadings and consider extrinsic evidence. Without wishing to decide the extent to which extrinsic evidence can be considered, I am of the view that extrinsic evidence that has been explicitly referred to with the pleadings may be considered to determine the substance and true nature of the allegations, and thus, to appreciate the nature and scope of an insurer’s duty to defend. I now turn to that question.
[31] In Monenco the court went on to consider a contract and a joint venture agreement specifically referred to in the statement of claim. The extrinsic evidence sought by the respondents to be considered here is evidence created after delivery of the claim and extrinsic to its content.
[32] The respondents rely in part upon the decision of the Supreme Court in Non-marine Underwriters, Lloyd’s of London v. Scalera, 2000 SCC 24 [Scalera]. At paras. 50-52 Iacobucci J. sets out a three part test for the triggering for a duty to defend.
First, a court should determine which of the plaintiff’s legal allegations are properly pleaded. In doing so, courts are not bound by the legal labels chosen by the plaintiff. A plaintiff cannot change an intentional tort into a negligent one simply by choice of words, or vice versa. Therefore, when ascertaining the scope of the duty to defend, a court must look beyond the choice of labels, and examine the substance of the allegations contained in the pleadings. This does not involve deciding whether the claims have any merit; all a court must do is decide, based on the pleadings, the true nature of the claims.
At the second stage, having determined what claims are properly pleaded, the court should determine if any claims are entirely derivative in nature. The duty to defend will not be triggered simply because a claim can be cast in terms of both negligence and intentional tort. If the alleged negligence is based on the same harm as the intentional tort, it will not allow the insured to avoid the exclusion clause for intentionally caused injuries.
Finally, at the third stage the court must decide whether any of the properly pleaded, non-derivative claims could potentially trigger the insurer’s duty to defend. In this appeal, I conclude that the respondent has no duty to defend. The plaintiff has alleged three basic claims against the appellant: sexual battery, negligence, and breach of fiduciary duty.
[33] The respondents argue that I must look beyond the label of negligence to the true substance of the act and that I should utilize the extrinsic evidence to determine that the claim is based on an excluded intentional tort.
[34] It is important to understand that Scalera considered allegations of sexual touching of children by two bus drivers. The bus drivers sought coverage under their homeowners’ policies. There could never be negligent sexual abuse and so on its face the claim in negligence simply could not survive.
[35] For the respondents to benefit from Scalera I would have to find at this stage on the basis of the pleadings that Reeb’s liability could only be the result of an intentional act. That finding being made in the context of two 14-year olds playing a game with a “BB” gun.
[36] I cannot come to that determination at this stage.
[37] Scalera also directs at para. 84
…It is important to emphasize that at this stage a court must not attempt to determine the merit of any of the plaintiff’s claims. Instead, it should simply determine whether, assuming the verity of all of the plaintiff’s factual allegations, the pleadings could possibly support the plaintiff’s legal allegations.
Conclusion
[38] In the context of this application seeking a declaration that the respondents defend Reeb in the action brought by Riley (Riley v. Reeb, Court File No. 8882/12 (London)). I find that the claim is framed only in negligence and that on the circumstances of this claim it would be improper for me to look further than the pleadings to determine this issue.
[39] Counsel for the respondents has argued that this matter is no longer in the early stages of litigation and that concerns about expeditiously determining the duty to defend should no longer prevail. I find it unfortunate that on these facts this issue has spawned so much litigation and generated such costs. I agree with counsel that much time has passed but that is not the fault of the insured applicant.
[40] The application is granted. There is an order that the respondents defend the applicant Reeb under the provisions of their respective policies.
Reasons on Application #2
The Application
[41] This is a second application brought by Royal & Sun Alliance Insurance Company of Canada (“RSA”) against The Guarantee Company of North America (“Guarantee”) and The Co-operators General Insurance Company (“Co-operators”) as a companion application to CV-15-22443 (Reeb v. Guarantee and Cooperators) which was the subject of the reasons above.
[42] RSA seeks similar declarations that the respondents have a duty to defend Ryan Reeb (“Reeb”). In addition RSA requests a declaration that each of the respondents is obligated to pay along with RSA one-third of the ongoing defence costs and disbursements solely in defence of Reeb in the underlying action brought by Riley. RSA relies upon the doctrine of equitable contribution, equitable subrogation, and restitution.
Position of the Parties
[43] RSA requests a contribution to the defence costs on a “go forward” basis. It is not seeking contribution toward any potential indemnity.
[44] The respondents argue that the right to claim contribution has been extinguished by the two year limitation period which is triggered by its clear denial of coverage. The respondents say they denied coverage to Reeb’s former counsel on July 21, 2015.
[45] RSA did not serve this application until May 18, 2018 more than two years and nine months after the denial of coverage.
Analysis
[46] I do not find the limitation argument compelling. As a result of the order I just made requiring the respondents to defend I have impliedly made a finding that the respondents have breached the duty owed to their insureds. The claim made by RSA is for a contribution for costs incurred in the future and as such I find the limitation period cannot be applied in the manner argued.
[47] It is important to note that RSA does not seek contribution for past payments.
[48] I am anxious to move the issue of Reeb’s defence forward. I am desirous of heading off further related applications if I am able.
[49] The issue of shared defence costs was considered by Steele J. in General Assurance Co. of Canada v. Ontario Provincial Police Force (Commissioner) (1988), 64 O.R. (2d) 321 (H.C.J.). The trial judge found that if the matter had been properly before him as between primary insurers, where they both had a duty to defend, he would have found that the defence costs should be borne equally.
[50] The issue was considered by the Court of Appeal in Broadhurst & Ball v. American Home Assurance Co., [1990] O.J. No. 2317 [Broadhurst].
- One of the leading authorities holding the primary and excess insurers each liable for a share of the costs of defence is Continental Casualty Co. v. Zurich Insurance Co., 17 Cal. Rptr. 12 (1961), a decision of the Supreme Court of California. On the facts of that case, three insurers covered the use of a logging truck which was involved in a loading accident causing personal injury. After Zurich Insurance, the primary carrier, refused to defend the action brought by the injured third party, one of the two excess insurers did defend. The action resulted in a judgment against the insured which exceeded the amount of coverage provided by the primary carrier.
The court rejected a contention that the primary carrier should bear the entire costs of the defence, noting that in none of the cases where that had been the result had it been shown “that the primary coverage was inadequate to indemnify the loss or that the excess policies would at all be reached”. In American Home’s submission, the court’s reasoning in the following often-quoted passages of its judgment at pp. 18-19, is equally applicable to the circumstances of the present case:
Under general principles of equitable subrogation, as well as pursuant to the rule of prime importance--that the policy is to be liberally construed to provide coverage to the insured--it is our view that all obligated carriers who have refused to defend should be required to share in costs of the insured’s defense, whether such costs were originally paid by the insured himself or by fewer than all of the carriers. A contrary result would simply provide a premium or offer a possible windfall for the insurer who refuses to defend, and thus, by leaving the insured to his own resources, enjoys a chance that the costs of defense will be provided by some other insurer at no expense to the company which declines to carry out its contractual commitments.
The facts that the agreement to defend the insured may be severable from the general indemnity provisions, and that each insurer independently owes that duty to its insured, constitute no excuse for any insurer’s failure to perform.
…no insurer which deliberately breaches its obligation to the insured should be permitted thereby to profit, whether at the expense of the insured, or of an insurer which faithfully discharges its obligation.
[51] Broadhurst considered a $20 million claim against a law firm which had access to several policies of insurance.
[52] At paragraph 40 the Court concluded that in those circumstances the costs of the litigation should be equitably shared.
On the facts of the present case, it appears to me that, as a simple matter of fairness between insurers under concurrent obligations to defend, and, as well, in fairness to the insured, Guardian should pay a proper share of the costs of defence. It follows that American Home should be able to compel such payment. Since these insurers have no agreement between themselves with respect to the defence, their respective obligations cannot be a matter of contract. Nonetheless, their obligations should be subject to and governed by principles of equity and good conscience, which, in my opinion, dictate that the costs of litigation should be equitably distributed between them.
[53] On the matter before me there are three concurrent policies in place regarding this claim. Each has a duty to defend Reeb. There is no reason why the principles considered in Broadhurst would not apply.
Conclusion
[54] The declaration sought by RSA regarding defence costs is granted. The respondents Guarantee and Co-operators are each ordered to pay an equal one-third of the defence costs and disbursements for the defence of Reeb in the underlying actions brought by Riley.
[55] That responsibility commences on the day after the release of these reasons.
Costs
[56] After the arguments of these motions counsel provided their bills of costs. I have therefore incorporated my costs order for both these motions into these reasons.
[57] If successful the respondents Guarantee and Co-operators in both motions seek $15,350.66 in partial indemnity costs inclusive of fees, disbursements and tax. The applicant Reeb seeks $10,186.62. The applicant RSA seeks $7,957.64.
[58] Costs are in my discretion. On the circumstances here I find partial indemnity costs to be the appropriate level of indemnity to be ordered. I have considered the factors set out in Rule 57.01 of the Rules of Civil Procedure. I find the motions to be moderately complex and of significant importance to Reeb.
[59] I have reviewed the bills of costs and find the amounts claimed and the time spent to be reasonable.
[60] The unsuccessful respondents could reasonably expect to pay the amounts claimed by RSA and Reeb particularly considering the costs claimed in their own bill of costs.
[61] The respondent will pay the applicant Reeb $10,186.62 and the applicant RSA $7,957.64 as their partial indemnity costs.
“Original Signed B. Thomas” Bruce Thomas Regional Senior Justice