2019 ONSC 3667
Court File and Parties
COURT FILE NO.: CV-17-4092 DATE: 2019-06-28 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN: HEART ZAP SERVICES INC. Plaintiff – and – LLOYD’S UNDERWRITERS Defendant
COUNSEL: J. Sebastian Winny, for the Plaintiff Lena Vartanian, for the Defendant
HEARD: April 24, 2019
THE HONOURABLE MR. JUSTICE P.J. FLYNN
REASONS FOR JUDGMENT
Overview:
1The Plaintiff, Heart Zap Services Inc. (Heart Zap), seeks summary judgment in the amount of $37,120.50 plus costs. Heart Zap filed a claim under the all-risks commercial insurance policy (the Policy) it had with the Lloyd’s Underwriters (Lloyd’s). Lloyd’s declined the claim, as not covered by the Policy because (1) there is exclusion of coverage clause in the Policy for property sold under conditional sale, and because (2) the property was not lost from an insured location. In oral submissions, the Defendant also argued that the type of loss suffered by the Plaintiff is not covered by the Policy.
2The Plaintiff submits this case should be determined by summary judgment as there are no facts in dispute. The Defendant asks for the motion to be dismissed.
Background:
3Heart Zap is a business located at 751 Main Street in North Bay, Ontario. Part of Heart Zap’s business is selling defibrillator unites (AED Units), primarily to hospitals. On June 22, 2016, Heart Zap was contacted by a Dr. Thomas Hardy who placed an order for 25 AEDs and accessories, valued at $37,120.50 in the name of the Ottawa General Hospital. This order turned out to be fake.
4The ordered property was shipped, as directed, to an address in Brampton, Ontario, along with an invoice on June 24, 2016. A second invoice was sent on July 13, 2016, and attempts were made to contact the non-existent “purchaser”. The fraud was reported to the North Bay police, but the perpetrator was never identified or charged and the shipped property was never located.
5Heart Zap filed a claim under its all-risks commercial insurance policy with the Defendant. On November 21, 2016, the Defendant denied coverage for the loss based on an exclusion for coverage clause in the Policy for property sold under conditional sale.
6In April 2017, the Plaintiff filed a Proof of Loss which stated that the loss occurred at the Brampton address where the property was shipped. The Defendant again denied coverage, relying on the conditional sale exclusion clause and also asserting that the coverage did not apply because the loss occurred in Brampton, which is not an insured location under the Policy.
7The Plaintiff filed a revised Proof of Loss on July 4, 2018, identifying the loss location as North Bay, a location covered by the Policy.
8The Plaintiff moved for summary judgment under rule 20.04 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, for the value of the property lost through the fraudulent order.
Motion for Summary Judgment:
9Rule 20.04(2) provides that the court shall grant summary judgment if it is satisfied that there is no genuine issue requiring a trial with respect to a claim. Rule 20.04(2.1) provides, among other things, that in making such a determination, the court shall consider the evidence submitted by the parties and may weigh the evidence unless it is in the interest of justice that such power be exercised only at trial. The principles governing such a motion are set out in Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87.
10The evidence in this matter is undisputed. The circumstances of the fake order, the existence of the Policy and the circumstances of the claim are all agreed upon by counsel. Neither party has asked for conflicting findings of fact. The only issue is the application of the Policy to those facts.
11In the result, I find that there is no genuine issue requiring a trial and the record is such that I am able to "fairly and justly adjudicate the dispute [on] a timely, affordable and proportionate" in a motion for summary judgment: Hryniak, at para. 66. These are my reasons.
Issues:
12The defence raised three arguments for why the Plaintiff’s claim is not recoverable under the Policy. These defences form the issues to be determined in this motion:
- The loss was not a covered claim under the Policy as the property was not lost from an insured location;
- The loss was not a covered claim under the Policy as the type of loss suffered is not covered by the Policy; and
- If the Policy does apply, the lost property was sold under conditional sale and therefore an exclusion to the Policy removes coverage.
Analysis:
1. Was the property lost from a location which was not an insured location under the Policy?
13The Defendant submits that the loss claimed by the Plaintiff is not covered by the Policy as it did not occur at an insured location.
14The Policy provides coverage for property “only while at the location(s) specified on the Declarations Page.” The location of risk on the Declarations Page is “as per Locations and Loss Payees Schedule.” The Locations and Loss Payees Schedule lists 751 & 747 Main Street East North Bay, Ontario, and the locations of the Bank of Nova Scotia, CIT Financial Ltd. and Affiliated Financial Services Inc. where the Plaintiff presumably has accounts and files which are covered by the Policy.
15As noted, the first Proof of Loss filed by the Plaintiff stated that the loss occurred at the Brampton address where the property was shipped. The Defendant argued that, therefore, the loss did not occur at an insured location as the loss occurred in Brampton.
16The location of the loss is not affected by any misnomer in the Proof of Loss, which was revised to state the location of the loss as North Bay. This was a loss by fraud. The property was lost from the insured location in North Bay when it was shipped as a result of that fraud. A rose by any other name, etc.! The provided address in Brampton given by the fraudsters is not where the loss occurred.
17The location of a loss from fraud or theft is suffered not where the fraudsters are, it is the location from which the goods are taken.
18As the loss occurred at the Plaintiff’s address in North Bay, an insured location, the Defendant’s argument regarding lack of coverage fails.
2. Was the type of loss suffered by the Plaintiff covered by the Policy?
19The Policy insures “against all risks of direct physical loss of or damage to the property insured.” The insured property includes the AED units as merchandise.
20The Defendant argues that the loss in this case is not the type of loss covered by the Policy. It says that the loss of goods voluntarily surrendered to a fraudster are not covered.
21The Defendant relies on 6916643 Canada inc. c. Intact, compagnie d’assurances, 2015 QCCQ 6136, aff’d 2017 QCCA 660, where the trial judge found that the fraud suffered by the insured did not constitute theft. The insured sold goods to a fraudster on the basis of a fraudulent cheque. The trial judge reasoned that when an insured person voluntarily hands over a property to a person who uses the fraud, it is the consideration received that eludes her and that she loses and not the property herself that she voluntarily handed over to the fraudster. In this way, the loss is not a physical loss incurred by the insured.
22The Defendant argues that the policy in 6916643 Canada inc. was identical to the Policy here. The Plaintiff voluntarily handed over the AED Units to the fraudster, and therefore the loss suffered is not a direct physical loss such that it is covered by the Policy.
23On the other hand, the Plaintiff argues this was a direct physical loss of the property and relies on Joe Ng Engineering Ltd. v. Gerling Global General Insurance Co. (1997), 37 O.R. (3d) 359, as support. As in this case, the policy in Joe Ng Engineering insured the Plaintiff’s property “against all risks of direct physical loss or damage” occurring during the policy period. The Plaintiff had given merchandise to a rogue based on a forged certified cheque. The insurer in that case claimed that the loss was not a direct physical loss of stock but rather an economic loss resulting from the forged cheque not passing through the bank.
24In dismissing the defence’s submission, Philp J. found that the Defendant’s argument presupposes that there had been a sale resulting in the valid transfer of the interest in the merchandise. To constitute a sale there must be consensus ad idem between the buyer and seller to enter into a contract. In Joe Ng Engineering, Philp J. found that there was no sale as the rogue’s intent was rather to obtain the merchandise not through sale but through fraud. While the Plaintiff agreed to transfer the merchandise upon payment, the rogue had no such transaction in mind. As a result “what the Plaintiff really lost was the merchandise which was taken without its consent, not the proceeds arising from the contract of sale”: Ng Engineering, at p. 364.
25I agree with reasoning of Philp J. It was only in the belief that “Dr. Hardy” and his associates had capacity to pay that the Plaintiff was willing to deal with them. As evidenced by the use of fake names and contact information, “Dr. Hardy’s” intent from the beginning was to obtain the AED Units by fraud. Under the circumstances, there was no consensus ad idem and therefore no contract of sale was formed. As such, the Plaintiff did not voluntarily convey the AED Units.
26Something might be said about the apparent conflict in the cases upon which the parties’ rely, remembering that the Defendant cites a case in the Quebec Court of Appeal while the Plaintiff primarily relies upon a case from this court.
27Ms. Vartanian relies upon the Intact case from the Quebec Court of Appeal. But in reality she is relying upon a Quebec Small Claims Court decision from which leave to appeal was denied. The decision has no jurisprudential significance and the law in this province is well-stated by Philp, J. in the Joe Ng Engineering case.
3. Was the lost property sold under a conditional sale?
28Finally, the Defendant argues that if the loss was covered under the Policy, an exclusion clause removes coverage as the Policy does not insure loss under a conditional sale. Section 6A(j) of the Policy reads:
(j) property on loan or on rental or sold by the Insured under conditional sale, instalment payment or other deferred payment plan, from the time of leaving the Insured’s custody.
29The Defendant argues that the invoice and purchase order in this case are evidence that the sale of the property was conditional. A conditional sales contract is a contract in which the seller reserves title until the buyer pays for the goods, at which time, the condition having been fulfilled, the title passes to the buyer. The invoice issued to the fraudulent customer recited “Payment Net 30 days.” The purchase order provided that payment for the property “shall be net (30) days from date of delivery or invoice (whichever is later), unless otherwise agreed in writing by both parties.”
30The Defendant argues that because payment of the purchase price was deferred 30 days from either delivery or invoice, this makes the contract between the Plaintiff and the fraudulent customer a conditional sales contract.
31The Plaintiff counters that the clear and obvious intention of the exclusion is to limit exposure in circumstances where the property is out of the insured’s possession but where they still have title. While the term “conditional sale” is not defined in the Policy, one must read the exclusion using the common law understanding of a conditional sale.
32A conditional sale is a form of sales contract in which seller reserves title until the buyer pays for the goods, at which time, the condition having been fulfilled, title passes to the buyer. The items listed in the Policy exclusion convey that the exclusion is concerned with the retention of risk in the property.
33But the fraudulent sale was not a conditional sale. It was a typical cash delivery contract and there is no evidence of any agreement or intent to withhold title. If the mere inclusion of “Payment Net 30 days” were to create a conditional sale, the law of conditional sale would be substantially altered.
34Section 19 of The Sale of Goods Act, R.S.O. 1990, c. S.1, (SGA) is support for the position that, just because the payment was due in 30 days, that does not mean the sale in this case was a conditional sale.
s. 19 Unless a different intention appears, the following are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer:
Rule 1.—Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made and it is immaterial whether the time of payment or the time of delivery or both is postponed. [emphasis added]
35I agree with the Plaintiff’s submission that the Policy exclusion clause in issue is concerned with situations where the Insured retains title, and risk, to the insured property, in circumstances where it is out of their possession, for example, by way of a conditional sale.
36The Defendant’s argument presupposes that there was a contract of sale at all in this case. For the reasons I have set out above, there can be no sale, and therefore no conditional sale, where the vendor’s consent to sell was obtained by fraud. As such, the exclusion of coverage for conditional sales does not apply.
37I am not persuaded that the inclusion of a payment term of 30 days in the Invoice or Purchase order means the fraudulent transaction was a conditional sale. It was merely a deferred time of payment. Nothing in the Invoice or Purchase Order suggest that the Plaintiff intended to retain title until the payment was made.
38Section 6A(j) of the Policy does not apply in this case to remove coverage of the Plaintiff’s Claim for Loss.
39So all 3 of the Defendant’s arguments fail and the Plaintiff should have summary judgment.
Punitive Damages:
40Relying on 702535 Ontario Inc. v. Non-Marine Underwriters, Lloyd’s of London (2000), 130 O.A.C. 373 (C.A.), the Plaintiff argues that the Defendant’s refusal to pay and failure to deal with the claim fairly is contrary to its duty of utmost good faith when adjusting a claim. The Plaintiff asks for the court to award punitive damages against the Defendant. Specifically, the Plaintiff asks that if the defence takes the position that a deductible applies to the loss, the court should award punitive damages in the amount of the deductible such that the Plaintiff is able to recover the full $37,120.50 value of the AED Units.
41The Defendant argues that an insurer does not necessarily breach its duty of good faith where it incorrectly denies a claim. To award punitive damages requires a determination that the insurer’s conduct “depart[ed] markedly from ordinary standards of decency -- the exceptional case that can be described as malicious, oppressive or high-handed”: Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30, [2006] 2 S.C.R. 3, at para. 62.
42I am satisfied that when the parties entered into the Policy, both were well aware of the deductible. While the Defendant’s refusal to pay the claim may seem arbitrary and unjust, it can’t be attributed to any malice or bad motive. I would not award punitive damages.
Conclusion:
43The Defendant has not established that any of the claimed grounds for denial of coverage apply in this case.
44The Plaintiff’s motion summary judgment in the amount of $37,120.50 is granted.
Costs:
45The Plaintiff was completely successful in the case and is entitled to its costs.
46At the close of the hearing I asked for the parties’ Costs Submissions in sealed envelopes.
47The Plaintiff has submitted 2 Costs Outlines: one for the pre-motion steps, seeking $3,582.88 / $5,255.28 and one for the motion itself, seeking $4,170.54 / $6,114.14. The Defendant delivered a Costs Outline seeking $5,664.81 for partial indemnity costs at 65% of counsel’s actual rate.
48Both sides also submitted Offers to Settle. In my view, neither of the Offers merits any consideration by the court for the determination of costs on the principle of “close, but no cigar!”
49There is nothing in the conduct of the Defendant which would cry out for an award of substantial indemnity costs. So I am therefore meant to determine costs payable to the Plaintiff on the basis of the Boucher rules: what is fair and reasonable, within the reasonable expectations of the losing side?
50I find no fault with the time or hourly value claimed by the Plaintiff. Nor is any issue taken by the Defendant. Accordingly, I fix the plaintiff’s costs in the all inclusive amount of $7,500 and order them to be paid by the Defendant.
P.J. Flynn J.
Released: June 28, 2019