2019 ONSC 5826
COURT FILE NO.: 12-330
DATE: 2019 10 08
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
DIANE GIANGRANDE carrying on business as DUNDALK POULTRY PROCESSING
Plaintiff
– and –
SECURE INSURANCE SOLUTIONS GROUP INC. and NORTH WATERLOO FARMERS INSURANCE COMPANY
Defendants
Donald E. Crabbe, for the Plaintiff
Barry Papazian and Michael Krygier-Baum for the Defendant, Secure Insurance Solutions Group Inc., and David Zuber for Defendant, North Waterloo Farmers Insurance Company
HEARD: April 11, 2019
REASONS FOR DECISION
Shaw J.
1. Introduction
[1] During the overnight of February 14 and 15, 2012, a fire destroyed a poultry processing plant owed by the plaintiff, Ms. Giangrande. The damages for the loss of the building and its contents was approximately $2 million. The business was insured by North Waterloo Farmers Insurance Group Inc. (“North Waterloo”). North Waterloo paid Ms. Giangrande $340,240, which was the full amount owing pursuant to the terms of the insurance policy it had issued. The business was therefore underinsured as the damages exceeded the coverage provided by the insurance policy.
[2] Ms. Giangrande commenced this action against her insurance broker, Secure Insurance Solutions Group Inc. (“Secure”) in December 2012. She alleges that Secure owed her a duty of care to ensure her business was adequately insured and that they breached this duty. That claim is proceeding to trial in the next trial sittings.
[3] Ms. Giangrande named North Waterloo as a party to that action and alleges that it also owed her a duty of care. She claims North Waterloo breached its duty of care when it failed to inform her of the results of an inspection of the poultry plant business conducted in 2010. That inspection revealed that the original application for insurance described a much smaller building than what existed at the time of the inspection and at the time of the loss. As the size of the building was a fey factor to determine the coverage needed for the building and contents, there was insufficient insurance in place at the time of the fire. Ms. Giangrande claims that North Waterloo learned that the poultry plant building was five times larger than described in the application for insurance and that North Waterloo failed to inform her of that error. Ms. Giangrande claims that, had she been aware of the error in the initial insurance application, she would have arranged for insurance with higher limits.
[4] There are also cross-claims between the two defendants relating to the size of the building. Secure alleges it was owed a duty of care to be informed about the building size error once North Waterloo learned of it during its property inspection. Secure claims that, had it been given the proper information about the size of the building, it would have then reviewed the information with Ms. Giangrande and discussed the impact this had on her insurance coverage.
[5] It is undisputed that the size of the building was used as a basis to determine the appropriate amount of insurance that would be required. Hence, a larger building would have resulted in Secure recommending to Ms. Giangrande that she should obtain higher insurance coverages for the building and contents.
[6] This motion only deals with whether North Waterloo owed Ms. Giangrande and/or Secure a duty of care to inform either (or both) that the property was larger than as described in the application for insurance. North Waterloo brings this summary judgment seeking an order to dismiss the claim and cross-claim against it on the basis that it owes neither party a duty of care.
[7] Neither Ms. Giangrande or Secure have brought a cross-motion for a declarative order that North Waterloo owed them a duty of care. They respectively submit that a trial is required to determine this issue because there is conflicting, or insufficient, evidence before the Court on this motion. In the alternative, they argue that if I am prepared to make such a finding, I should find that North Waterloo owed both parties a duty of care to report the error.
[8] Although not raised by any of the parties until I asked a question during submissions, Ms. Giangrande and Secure also now take the position that North Waterloo is seeking partial summary judgment. Given the principles set out in Butera v. Chown, 2017 ONCA 783, 137 O.R. (3d) 561 they submit that this is not an appropriate case for summary judgment:
[9] Whether Secure breached its duty of care to Ms. Giangrande is not an issue before the court on this motion. That issue will proceed to trial regardless of the outcome of this motion. I anticipate that one of the issues at trial will relate to what information Ms. Giangrande provided to Secure regarding (a) the initial size of the poultry plant or (b) whether the plant increased in size after Secure completed the initial insurance application.
[10] Another issue will be what steps Secure took, or ought to have taken, to determine the size of the poultry plant before it submitted the insurance application to North Waterloo. For the purpose of this motion, however, I need not consider why the original insurance application contained incorrect information. Such a finding is a factual dispute to be resolved at trial and is unrelated to whether North Waterloo owed either Ms. Giangrande or Secure a duty of care.
[11] There may be other insurance coverage disputes between Ms. Giangrande and Secure. During submissions, counsel for Ms. Giangrande indicated he is not asserting that North Waterloo owed Ms. Giangrande a duty of care to discuss any other coverage issues with her, such as her failure to have business interruption insurance or replacement cost insurance for the building and its contents. The sole focus on this motion is what, if any, duty of care an insurer owes when it discovers an error that impacts on the sufficiency or adequacy of existing coverage.
2. Issues
[12] The issues are as follows:
i) Is summary judgment the appropriate means to determine if North Waterloo owed Ms. Giangrande and/or Secure a duty of care?
ii) Can I grant partial summary judgement dismissing the action against North Waterloo if I find that North Waterloo did not owe a duty of care to Ms. Giangrande and/or Secure?
iii) Can I determine, on a motion for summary judgment, whether North Waterloo owed either Ms. Giangrande or Secure a duty of care?
3. Review of the Evidence
[13] North Waterloo asserts that I must first determine if it owed a duty of care to either parties. I agree. The issue in dispute on this motion is not whether there was a breach of the standard but rather whether North Waterloo owed a duty of care. Both Ms. Giangrande and Secure filed expert opinions that North Waterloo had breached the standard of care of an insurer. If the claim against North Waterloo is to proceed to trial, that will be an issue for the trial judge to determine. North Waterloo submits that the affidavits filed and the transcripts from examinations for discovery of the parties are sufficient for me to rule whether a duty of care existed.
[14] Before reviewing the evidence, I will address two preliminary issues. First, I am concerned with North Waterloo’s delay in bringing this motion. The action was commenced 6.5 years ago. North Waterloo delivered its Statement of Defence and Cross-claim in February 2013. Discoveries were conducted in November 2013 and the first pre-trial was scheduled for February 2019. The pre-trial was adjourned as a result of this summary judgment motion and is now set to proceed in October 2019, with the trial set to commence shortly thereafter. North Waterloo claimed not to owe any duty of care in its Statement of Defence but waited six years to bring this motion. No explanation was provided for the delay, other than perhaps a change in counsel.
[15] Summary judgment is a useful means by which matters can be disposed of early in the litigation process. It is not a tool that should be used on the eve of trial, particularly when all the evidence and issues have been identified much earlier. This summary judgment motion has had the effect of delaying the litigation. I will deal with the motion on its merits, but counsel should understand that given the pressures on court and judicial resources – particularly in the Central West Region – summary judgment motions on the eve of trial defeat the objectives of proportionality, efficiency and cost effectiveness.
[16] The second preliminary issue is the very “light” evidentiary record upon which North Waterloo is relying to have the claims against it dismissed. North Waterloo relied on an eight-paragraph affidavit from Mr. James Zyta, the Vice President of Loss Prevention of North Waterloo and a second affidavit sworn by Mr. Jordan Dunlop, a lawyer from the law firm representing North Waterloo. In addition to the pleadings, the only additional material North Waterloo relied upon were two documents created during the inspection conducted in 2010 – a Request for Loss Control Inspection Report and the Loss Control Inspection Report – as well as a copy of the Enhanced Broker Contract that was in place between itself and Secure at the time of the loss.
[17] North Waterloo did not respond to any of the affidavits filed in response to the motion by Ms. Giangrande or Secure. It did not file a report from an expert. In addition, none of the parties sought to conduct cross-examination on the various affidavits filed for this motion. As will be reviewed in these reasons, the thin evidentiary record makes it difficult to deal with the duty of care issue that is at the heart of this motion.
a) The Application for Insurance
[18] Ms. Giangrande and her late husband, built, owned and operated Dundalk Poultry Processing, a poultry processing plant (the “business”). Ms. Debra Wilson, a broker with Secure, deposed in her affidavit that she was a very experienced broker having worked in that capacity since 1980. She was familiar with Ms. Giangrande and her business because Ms. Wilson had previously arranged insurance for the business prior to 1999 when she was employed with a different insurance brokerage. When she moved to work at Secure, Ms. Wilson took the Plaintiff’s account with her. There is no dispute that Ms. Wilson had a long-standing relationship with Ms. Giangrande and was familiar with the insurance needs of her business.
[19] On January 29, 2003, Secure sent North Waterloo an application for a commercial insurance policy seeking a coverage quotation for the building and contents of the business. The application, which was 13 pages, provided information about the nature of the business, the construction materials used and information regarding the electrical, heating and plumbing systems. The building was described as having two sections; the main building and an addition. In the application, the building was described as “Brick – 1,152” square feet” and “Add Steel – 288” square feet. The total size of the building was therefore 1,440 square feet. The application requested building and contents coverage with limits of $210,000 and $8,640, respectively. There was also a request for liability insurance with a limit of $1,000,000.
[20] According to Ms. Wilson, the building dimensions quoted in the application were based on her understanding of information received from Ms. Giangrande. Ms. Wilson did not physically inspect the building before sending this application to North Waterloo.
[21] Ms. Giangrande’s evidence was that she was not aware that the square footage of the building had been, as she deposed in her affidavit, “drastically understated” to North Waterloo in the application. Although she was not cross-examined on her affidavit, I infer that this means she was aware that the building was larger than 1,440 square feet when the insurance application was submitted, which conflicts with Ms. Wilson’s evidence. However, this evidentiary dispute does not have to be resolved on this motion. It will be an issue to resolve at trial, regardless of the outcome of this motion.
[22] It is not in dispute that North Waterloo did not question or challenge the request for building coverage of $210,000 and contents of $8,640 based on a 1,400 square foot building. It is also undisputed that the policy was issued as per the coverages requested in the application.
[23] Mr. Ajay Gill, an underwriter manager at North Waterloo, gave evidence as North Waterloo’s representative at examination for discovery conducted on November 11, 2013. His evidence was that the underwriter would have considered the size of the building recorded in the application to assess the reasonableness of the $210,000 coverage for the building that was requested in the application. This underscores the importance of the accuracy of the information regarding the size of the poultry plant building.
b) The 2003 Inspection
[24] It is also not in dispute that, on April 11, 2003, Mr. Ted Brown conducted an inspection of the business at the request of North Waterloo. While his inspection report did not record the size of the building, it described the property as having an “original (main) section” that was built in 1976, as well as a “1985 addition” and a “smaller frame addition which is steel clad.” This report was not given to Secure. There is no evidence that this report was given to Ms. Giangrande.
[25] Mr. Gill’s evidence at examinations for discovery was that the purpose of the inspection, which he described as a “loss prevention report,” was to help the insured prevent a loss. His evidence was that “at least 50% of the service we provide is…experience[,] expertise and guidance on how to avoid losses.”
c) Annual Adjustments to the Policy Limits
[26] It is not in dispute that the building and content limits were increased based on an annual inflationary adjustment when the policy was renewed. This occurred for eight policy renewals such that, at the time of the fire loss, the building limit was $324,000 and the contents limit was $16,240. The amount of the annual inflationary adjustments was determined by North Waterloo.
d) The 2010 Inspection of the Business
[27] At the request of Mandeep Kullar, an underwriter at North Waterloo, Mr. Ted Brown, conducted another inspection of the business on July 23, 2010, and completed a report based on his inspection. According to Ms. Giangrande, she met with Mr. Brown and another individual from North Waterloo during this process.
[28] The report Mr. Brown completed following his inspection is a pre-printed form entitled “Request for Loss Control Inspection Report – October 2009 Version.” In the section for “Coverage Summary” it says: “See attached Declaration Sheet for Information.” The Declaration Sheet, which would have been available to Mr. Brown, sets out all the coverages that were in place, including the building and contents limits. There is no other reference to insurance coverage in the 12-page report.
[29] In the General Comments on the first page of the from, Mr. Brown wrote the following:
I spoke with Diane Giangrande, the owner, who was very pleasant and accommodating. There was some very minor recommendations that she said she will have the electrician correct…I discussed with Diane a plan to come back again in a few weeks and do another thermal inspection when more of the equipment is running. By then the electrician should have been there to complete his work. The plant is clean and tidy and in good condition. The meat inspector was there doing his work while I was there. They kill two or three days a week but are there and open five days I believe. There are 12 employees. They do custom killing and also buy the same day so that they are not there over night which takes away the risk of theft of customer’s chickens. They do not have an alarm system.
The original section of the plant was built in 1979. There are three additions built on later. The portion of the roof on the additions that is flat built up roofing was re-done six or seven years ago. The building is all concrete/concrete block and steel structure other than the roof structure on the original sections that has steel roofing.
[30] The second page of the report is another pre-printed form entitled “Loss Prevention Recommendation Summary,” which was not completed. It has a section for recommendations that was not completed. It has a section for risk management that was not completed. It has a line for the policyholder to sign. It was not signed. There is also a sentence that says:
Please return this document to your broker or to North Waterloo Farmers Mutual directly. Thank you for your cooperation.
[31] I heard no evidence about why North Waterloo expected the insured to sign the report and why it did not do so in this instance. The evidence of both Ms. Giangrande and Secure is that they were never given a copy of this report. That evidence is not in dispute.
[32] On the third page of the report there is a sketch or plot plan of the layout of the building. It includes what is described as the original concrete block section and then four other steel attached structures. The dimensions of each of those sections were recorded on the diagram. Based on the total of those dimensions, the building was 7,198 square feet. This is five times the size noted in the initial insurance application and was the basis upon which the building and contents limit coverage was calculated.
[33] The last nine pages of the report are entitled “Loss Control Inspection Report – Liability.” It is also a pre-printed form. On eight of those nine pages, were photographs of the exterior and interior of the building. On page one of that section, the property is described as follows: “Building is in good condition. No real concerns, only very minor verbal electrical recommendations.”
[34] The last page of this section of the report has a pre-printed list with the heading: “Liability Information - Existing Exposures/Hazards – Explain if Checked.” There are various headings such as “Premises” and “Environmental” and then several items listed under each heading with a box beside each to check, presumably, if it is applicable. For example, under “Environmental” is “chemical/pesticide storage.” None of the boxes on this page of the report were checked seeming to suggest there were no existing hazards identified by Mr. Brown.
[35] Mr. Gill’s evidence at examination for discovery was that Mr. Brown would have had access to a Policy Works form, which is the application package that refers to the size of the building as 1,440 square feet. There is no evidence from Mr. Brown, however, about what he knew or did not know about the information in the original application, as it related to the size of the building. He has also provided no evidence regarding what he believed the amount of coverage was for the building and contents at the time he did the inspection. Nor has he provided any evidence regarding: (1) his discussions with Ms. Giangrande during the inspection process; (2) what he did with this report; (3) any discussions he had with anyone at North Waterloo about it; or (4) why he did not have Ms. Giangrande sign page 2 of the report.
[36] The report itself does not indicate whether there was any discussion with Ms. Giangrande about insurance coverage issues or of the adequacy of the insurance, such as the amount the building was insured for given its size. There is no evidence from North Waterloo that any of these issues were or were not discussed with Ms. Giangrande.
[37] Mr. Zyta deposed in his affidavit that a loss control inspection is a service offered to “help and reduce our client’s exposure to loss.” His evidence was that the underwriting department routinely requests such inspections as it is a valued-added service provided to all North Waterloo’s farm and commercial clients.
[38] He further deposed that the purpose of the inspection was to complete a physical risk inspection of the building and equipment by identifying hazards and defects such as electrical deficiencies, fire hazards and liability exposures. His evidence was that the inspection was requested by the underwriter to identify possible physical exposures which Ms. Giangrande could make changes to in order to reduce risk, if needed.
[39] He deposed that the service was not performed, nor was information gathered to determine or assess whether the policy of insurance was appropriate, as doing so, would infringe on the broker’s expertise. He deposed that it is the broker’s business to assess the appropriate coverage along with the correct replacement value. He deposed that assessing whether the policy of insurance is appropriate is not something that North Waterloo would consider.
[40] This evidence conflicts with Mr. Gill’s evidence from examination for discoveries. His evidence was that North Waterloo’s usual practice was for an underwriter to review the loss inspection report, including the diagram and the total square footage and then do “a quick comparison to the actual cash value on the policy for reasonableness and if it falls out of the reasonableness range she would have initiated a dialogue with the broker to discuss it in more detail.” He also deposed that the underwriter is relied on for their experience as farm and commercial underwriters to read every item in the inspection report and to verify it against the information that is on the policy.
[41] Based on Mr. Gill’s evidence, North Waterloo played a more active role in assessing the reasonableness of the coverage on the building and, in fact, would have contacted the broker to discuss it further if they had concerns about the reasonableness of the coverage. Again, this conflicts with Mr. Zyta’s evidence regarding the purpose of the inspection, which he deposed is more restricted and limited to a service provided only to assist the insureds in assessing risk.
[42] Ms. Giangrande’s evidence, which was not disputed, was that she met a North Waterloo representative in 2003 and two representatives during the inspection process in 2010. She deposed that, based on her conversations with them, she knew that they were there to “make sure everything was in order and to give me advice so that I would not have any problems concerning my insurance.” She further deposed that the meetings were all about her insurance and she expected that any issues would be brought to her attention. She knew that Secure had not been through the plant and she thought that Secure and North Waterloo were working together to ensure the building and business were understood so that she would be appropriately insured. She discussed the age of the various sections of the building with the two men from North Waterloo, as well as materials that each section was made of. It was her evidence that the meetings with North Waterloo involved a thorough discussion of her business and the building. She expected that, if the representatives discovered anything amiss regarding any aspect of her insurance, she would be notified. She was never told that the amount of insurance coverage in place was based on much the smaller dimensions of 1,440 square feet.
[43] According to Ms. Giangrande, when the insurance was transferred to North Waterloo from the previous insurer in 2003, she was not aware that the square footage of the plant was described as 1,440 square feet. She deposed that it was obvious from looking at the building that it was larger than 1,440 square feet. Her evidence was that, when she met with the representatives of North Waterloo in 2010, they took measurements of each section of the plant. She described the two men as being very thorough when the inspection was conducted.
[44] As she did not hear from North Waterloo following the inspection, she felt that there were no other concerns for her to address. She also followed the advice given to her to make electrical changes to the building.
[45] According to Ms. Giangrande, she would have acted on any advice or information given to her by North Waterloo regarding a mistake in the size of the building and the effect that this may have had on the amount of insurance required. This evidence suggests an element of reliance by Ms. Giangrande on the inspection process carried out by Mr. Brown on behalf of North Waterloo.
[46] There was no evidence on this motion from Ms. Kullar, the underwriter who requested the inspection, about why she requested the inspection. There is no evidence from her about what she would have done with the report in the normal course of business. There is also no evidence about whether she would have provided Secure or Ms. Giangrande with a copy of the report, particularly if it disclosed that the original application contained some erroneous information that affected coverage.
[47] Ms. Wilson’s evidence is similar to Mr. Gill’s evidence. She deposed that, based on her industry experience of 30 years, it is normal practice for an insurer to inform the broker of discrepancies in the condition, state, nature and description of an insured property, including any underinsurance. It was her expectation that North Waterloo would have followed this practice. This evidence also suggests an element of reliance as between Secure and North Waterloo.
[48] It is undisputed that the underwriter who requested the inspection, Ms. Kullar, did not review the inspection report until one month after the fire. It is also undisputed that North Waterloo did not contact Secure after the inspection to discuss the difference in square footage between the application and the inspection report. There was no discussion between North Waterloo and Secure regarding the reasonableness of the insurance coverage, given the discrepancy of the building being five times larger than originally described.
[49] According to Ms. Wilson, had she been informed that the square footage of the property was 7,198 square feet, she would have brought this discrepancy to Ms. Giangrande’s attention.
e) Expert Reports
[50] Both Ms. Giangrande and Secure relied on expert opinions regarding the conduct of North Waterloo and whether it breached its standard of care as an insurer. A breach of the standard of care presumes that North Waterloo owed either party a duty of care. As stated, this is a threshold issue to determine before considering what the standard of care would be and whether North Waterloo breached that standard. Those latter issues are not before the court on this motion.
[51] Mr. John Gelston was retained by Ms. Giangrande and swore an affidavit for this motion. He was not cross-examined. While much of his evidence focuses on the relationship between Ms. Giangrande and Secure, there were also some references to North Waterloo. According to Mr. Gelston, when Mr. Brown inspected the building, he would have known that he was to be inspecting a 1,440 square foot complex, yet the plot plan Mr. Brown drew revealed the building was close to 8,000 square feet.
[52] It was Mr. Gelston’s opinion that alarm bells should have sounded. He said the same regarding the underwriter who should have reviewed the inspection report. If the building was 1,440 square feet, he believed the amount of insurance purchased made some sort of sense – around $260 per square foot. Based on the actual square footage, the amount of insurance applied for would have been $53 per square foot, which he deposed made no sense. According to Mr. Gelston: “Even though insurance brokers and insurers are not appraisers, they would easily know that $53 a square foot is way offside, and reconstruction would cost many times that amount.”
[53] He also gave the following opinion in a report dated March 3, 2019:
Commercial Insurance Policies are typically written with either an 80% or 90% co-insurance clause. What this means is that an insured is expected to insure to within 80% or 90% of the value of the building. In turn, this allows an insured a margin of error of 10-20% without being penalized in the event of a partial loss.
I am not aware of any insurer that would knowingly under insure a building for a factor of less than the coinsurance requirement. Any insured and/or their broker attempting to do so would likely have their submission declined by insurers. When a building is under insured, it deprives the insurer from the appropriate premium for the risk. It also causes problems with loss adjustment at the time of a claim as the insurer will only pay for a portion of a partial loss...Although brokers are the “architects of coverage” on behalf of the insured, an insurer would not knowingly agree to underinsure a building. In this case, they knew or should have known that the building was dramatically underinsured and chose to do nothing about it.”
[54] Secure retained two experts. Each swore an affidavit. Their reports were attached and neither expert was cross-examined. In Mr. Szirt’s report dated July 5, 2017, he gave more detailed information about the dealings between Secure and Ms. Giangrande over the years. These dealings included annual letters from Ms. Wilson to Ms. Giangrande asking her to review the limits on the insurance and her recommendation for a professional appraisal of the property. None of this evidence was before the court on this motion.
[55] With respect to the lack of information-sharing in the inspection report, it was his opinion that “since the sharing of risk-related information underpins successful business relationships, an important part of Ms. Kullar’s (sic) was to foster the company’s relationship with Secure, which in the circumstances of this case obligated her to advise Ms. Wilson of the correct square footage.”
[56] Mr. Szirt also stated:
…it is my opinion that it was reasonable for Ms. Wilson to expect Ms. Kullar to correct the information which formed the basis upon which the risk was accepted and priced. I say this because both Ms. Wilson and North Waterloo – in this case via Ms. Kullar – served Ms. Giangrande, albeit in different capacities, and this common interest entailed the sharing of important information about the risk, regardless of when it came to light…Mutual reliance is implicit in any business relationships which exists between brokers and insurers in any event, and therefore brokers could reasonably expect to be advised of information which assisted them in delivering professional services to their clients – and to policyholders of North Waterloo. In this instance, however, Ms. Wilson had even more reason to expect such an advice owing to Secure’s “enhanced” status in its relationship with North Waterloo...It is safe to assume that the correct square footage of the building, if communicated by Ms. Kullar, would have enabled Ms. Wilson to calculate its approximate replacement costs. This, in turn, would have revealed the extent of the underinsurance, thus providing Ms. Wilson with concrete information with which to convince Ms. Giangrande of the need to increase the building limits to a more realistic level.”
[57] Mr. Tisi was also retained by Secure to provide an opinion, and he filed an affidavit and a copy of his report. It was his opinion that North Waterloo’s failure to communicate the correct square footage contributed to the underinsurance on the building. If the correct square footage had been communicated to Ms. Wilson, it would have prompted her to discuss the inadequacy of the current limits of the policy with her client.
[58] Mr. Tisi’s opinion was that the type of inspections done by North Waterloo was not to appraise the value of the insured premises or to determine if the insured had purchased adequate coverage under the policy. His opinion was as follows:
In my experience, inspection reports are provided to their underwriting department as a normal course of action and the underwriters follow up with the brokers if there are any discrepancies. Often the inspection reports are forwarded to the broker to support the findings and the discrepancies to allow the broker to follow up with their client and rectify the coverage and/or the limits as those changes to the policy often bring upon an increase in the insurance premium.
f) The Contract between North Waterloo and Secure
[59] Secure and North Waterloo entered into an Enhanced Broker Contract effective January 1, 2010. Pursuant to the terms of that agreement, Secure was an independent contractor and not an employee of North Waterloo (para 3). It had exclusive control of the conduct of the brokerage and the selection of companies it represented. Pursuant to the contract, it was authorized to solicit and submit applications for insurance contracts and to bind North Waterloo on insurance contracts. The client lists for the business written by North Waterloo through Secure remained the sole property of Secure and the policyholders remained Secure’s customers (para 4).
[60] According to the contract, North Waterloo agreed to pay Secure a commission and fees based on a percentage of each premium written (para 5). North Waterloo also agreed to pay Secure contingent profit sharing based on the three-year average profit of the qualifying business placed with North Waterloo. There was also a provision for an enhanced contingent profit sharing based on a three-year loss ratio.
[61] The contract contained mutual hold harmless provisions (para 9). According to those terms, North Waterloo agreed to indemnify and hold harmless Secure arising from its mistakes, other than broker’s negligence. There was a similar term stating that Secure would also indemnify and hold harmless North Waterloo because of its negligence, error or omission or breach of law or breach of duty on the part of Secure in the conduct of North Waterloo’s business.
Position of the Parties
[62] North Waterloo’s position is that when the two inspections were conducted in 2003 and 2010, at its request, the purpose was a risk assessment of the property and not for any purpose associated with the adequacy of coverage. The inspections were conducted to provide information to assist the insured to identify any possible issues that might pose a risk to the property. It had no duty of care to provide any information to the insured regarding the types or adequacy of insurance coverage on the property. It also owed no duty of care to Secure to inform it of any information it obtained through the inspection process.
[63] Ms. Giangrande’s position is that when she met with representatives of North Waterloo, in 2003 and 2010, the purpose was to discuss all aspects of her insurance. She assumed that she would be provided with information that would identify concerns with her insurance, not just any possible risks. She submits that North Waterloo owed her a duty of care as it would have become aware that the size of the property was markedly larger than what was identified in the original application and that, therefore, the property was underinsured. The alleged duty of care is to ensure that Ms. Giangrande was made aware of this information that had a direct bearing on the adequacy of the insurance on the property.
[64] Secure’s position is that North Waterloo had a duty to provide it with copies of the inspection reports or any information that could identify concerns with the adequacy of insurance so it could then pass the information onto Ms. Giangrande for further consideration. More precisely, Secure ought to have been informed of the significant size difference of the building from what had been submitted in the initial application, as this had a direct bearing on the property being underinsured.
4. Analysis
Can this issue be determined by way of a Summary Judgment Motion?
[65] North Waterloo asserts that this court can find that it did not owe a duty of care to Ms. Giangrande or Secure based on the evidentiary record presented on this summary judgment motion. Its position is there is no conflicting evidence that requires a trial and that this is really a determination of a question of law. Furthermore, there are no credibility issues that require viva voce evidence to resolve.
[66] The test for summary judgment is set out in rule 20.04(2.1) in the Rules. Summary judgment is to be granted where the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence. Rule 20.04(2.1) and (2.2) provides for additional fact-finding powers available to the court. Specifically, rule 20.04(2.1) permits the court to weigh the evidence, evaluate the credibility of the deponent and draw any reasonable inference from the evidence in order to consider whether there is a genuine issue requiring a trial.
[67] In Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, the Supreme Court of Canada held that, on a motion for summary judgment, the court should first determine if there is a genuine issue requiring trial based only on the evidence in the motion record without using any of the enhanced fact-finding powers available under rule 20.04 (2.1) and (2.2). The factual record should be reviewed, and summary judgment granted if there is sufficient evidence to fairly and justly adjudicate the dispute. The court should also consider if summary judgment would be a timely, affordable and proportionate procedure. The Court specifically found that summary judgment rules are to be interpreted broadly. The focus must be on providing access to justice in a timely manner. At para. 50, Karakatsanis, J wrote:
When a summary judgment motion allows the judge to find the necessary facts and resolve the dispute, proceeding to trial would generally not be proportionate, timely or costs effective. Similarly, a process that does not give a judge confidence in her conclusions can never be the proportionate way to resolve a dispute. It bears reiterating that the standard for fairness is not whether the procedure is as exhaustive as a trial, but whether it give the judge confidence that she can find the necessary facts and apply the relevant legal principles so as to the resolve the dispute.
[68] In Sweda v. Egg Farmers of Ontario, 2014 ONSC 1200, aff’d 2014 ONCA 878, Corbett J. reviewed the process by which the court considers whether summary judgment is appropriate. At paragraph 33 he found:
…the court on a motion for summary judgment should undertake the following analysis:
The court will assume that the parties have placed before it, in some form, all of the evidence that will be available for trial;
On the basis of this record, the court decides whether it can make the necessary findings of fact, apply the law to the facts, and thereby achieve a fair and just adjudication of the case on the merits;
If the court cannot grant judgment on the motion, the court should:
a. Decide those issues that can be decided in accordance with the principles described in 2), above;
b. Identify the additional steps that will be required to complete the record to enable the court to decide any remaining issues;
c. In the absence of compelling reasons to the contrary, the court should seize itself of the further steps required to bring the matter to a conclusion.
[69] For the purpose of determining North Waterloo’s position, that it did not owe either Ms. Giangrande or Secure a duty of care, I am satisfied and confident that I can make findings of fact and apply the legal principles to arrive at a just and fair determination of the issue. What cannot be determined, for the reasons to be set out herein, is whether North Waterloo does owe either Ms. Giangrande or Secure a duty of care. Given the conflicting evidence from North Waterloo regarding the purpose of the inspection it conducted and the lack of evidence from some key witnesses, the issue of whether it owes a duty of care must proceed to trial where there will be a complete evidentiary record. Given the immediacy of the trial date, the most efficient means to resolve the evidentiary issues is to proceed to trial.
Is There a Recognized Common Law Duty of Care?
[70] North Waterloo relies upon three decisions that stand for the proposition that insurers do not owe insureds or brokers a duty of care to advise of any coverage issues. In my view, those decisions are distinguishable from the unique facts in this case and as such do not support North Waterloo’s position. That does not necessarily mean, however, that it does owe a duty of care. That is a separate analysis which, for the reasons set out herein, requires that the matter proceed to trial so that the court has a complete evidentiary record on which to determine if North Waterloo owes a duty of care to either Ms. Giangrande and/or Secure.
[71] As the cases are distinguishable on their facts, I will review, in some detail, the facts of each decision and the basis on which they are distinguishable and not determinative of the issue in this matter.
[72] The first case North Waterloo relies upon is Drader v. Sebastian 2009 SKCA 44, [2009] 324 Sask R. 269, (Sask. C.A.). In that case, the plaintiffs/insureds had an endorsement in their homeowner’s insurance policy that covered a crystal collection for accidental breakage. When the plaintiffs changed brokers, the policy with the insurer was cancelled and a new application for insurance submitted to the same insurer by the new broker. That new policy did not include coverage for accidental damage. When the crystal collection was destroyed, the insurer denied coverage based on the exclusion. The plaintiffs sued the broker alleging negligence for breach of contract for failing to obtain coverage as instructed. The broker issued a third party claim against the insurer for failing to issue a policy of insurance in accordance with the application it submitted.
[73] The trial judge found the broker was in breach of his duty of care owed to the plaintiffs as he failed to properly identify the nature and extent of their existing insurance, which he could have done had he reviewed the prior policy. At trial, the broker admitted that he undertook to provide the plaintiffs with insurance coverage equal to or better than the one that had been in place. He was not aware that the plaintiffs had special coverage for the crystal collection. The trial judge also found that the insurer had a duty of care which it breached which was the subject of the appeal
[74] On appeal, the court found that there was no duty owed by an insurer when it received an application for insurance from a broker on behalf of a homeowner, to conduct its own review of the needs, wishes or desires of the homeowner. Further there were no cases where a broker’s breach of its duty of care for failing to procure the appropriate insurance for the customer had been extended to recognize an independent duty owed by the insurer to the customer to procure the appropriate insurance.
[75] The court found that there were no facts in the case which led it to conclude that the insurer owed a duty to an insured, independent of the duty owed by a broker to an insured. The insurer’s obligation to the insured was to issue a policy in accordance with the application submitted. The court commented that there may be other circumstances where the law requires more of an insurer but that facts in Drader did not support that.
[76] The court also found that there was nothing that warranted the creation of a duty of care owing by an insurer to a broker applying for insurance of behalf of its clients.
[77] At para 62, the Court commented that the relationship of brokers to insureds and to insurers is a matter of long-established law, both in contract and in tort. The court found that there was nothing in the case which should cause long-standing commercial relationships or the expectations of the parties to those relationships to be altered. Further, the court noted that the established duty of brokers to their clients is adequate to protect insureds.
[78] The facts in Drader are distinguishable. In this case, if North Waterloo had provided the insurance as requested in the application (which it did) and there was a loss, even if the property was underinsured, it would owe no duty of care to the insured or broker as it provided the insurance as requested. It had no duty to assess whether the insurance coverages applied for were appropriate. In Drader, the insurer did not, on its own initiative, contact the insured to conduct an inspection. The court did not have to consider whether a duty of care arose in that situation. It did not have to determine whether an error discovered by the insurer that would have a direct bearing on the amount of insurance that was obtained by the insured gave rise to a duty of care to inform the insured and/or broker of the error.
[79] Drader does not address what, if any, duty an insurer has when it becomes aware, through its inspection process, of an error in the application for insurance. In Drader, the insurer provided the exact coverage that was requested by the broker. It had no duty to the broker or insured to do anything other than provide the insurance requested, even if that coverage was different that what it had previously provided. As noted in Drader, there may be circumstances where the law requires more from an insurer, but those facts did not exist in Drader. The issue is whether, in these circumstances, something more is required from the insurer given the information it obtained during the inspection.
[80] I do not find Drader to be authority that North Waterloo did not owe either Ms. Giangrande or Secure a duty of care.
[81] North Waterloo also relies on Boudreau v. Ontario Soccer Assn., 2012 ONSC 4461. In that case, the plaintiff was rendered a paraplegic while playing soccer in a league operated by the defendant/insured. The insurer had issued an insurance policy which provided $40,000 coverage for quadriplegia resulting from injury occurring while playing in the league. The plaintiff sued the insurer alleging that the insurer had an advisory role with the insured with respect to insurance coverage and insurance with higher limits ought to have been provided. The insurer argued that at no time prior to the issuance of the policy did anyone with the insurer meet or communicate directly with a representative of the insured/soccer league to discuss its insurance needs, nor did anyone from the insured league ask the insurer to comment on whether the coverage limits were adequate.
[82] The insurer was successful on a summary judgment motion and the plaintiff’s action was dismissed against it. The court found that when dealing with an experienced broker, the insurer owes no personal duty directly to the insured and that the insurer’s only obligation to the insured is to issue a policy in accordance with the application submitted. The court found that that there was no authority for the proposition that there is a legal obligation imposed on an insurer represented by an experienced broker to counsel an insured regarding a perceived inadequate request of insurance coverage during contract negotiations.
[83] At the risk of being repetitive, there is no dispute that North Waterloo provided the coverage as requested in the application for insurance. The distinguishing fact is the information North Waterloo subsequently obtained during its inspection that the building was much larger and therefore underinsured.
[84] Furthermore, unlike in Boudreau there was direct contact between the insured and the insurer. According to Ms. Giangrande’s undisputed evidence, when she met with representatives from North Waterloo, she understood the purpose was to address all insurance issues and that it was not merely a risk assessment. While her evidence is vague about what was discussed, there was no cross-examination conducted on her affidavit or evidence from the inspector, Mr. Brown, about what he discussed with Ms. Giangrande during the inspection process and whether he entered into more of an advisory role, as she suggests. There is a lack of evidence from North Waterloo in this regard, which leaves the door open to a finding at trial that the insurer may have played more of an advisory role. This, in turn, could lead to a finding that a duty of care existed in this case.
[85] North Waterloo also relies on Ostrenda v. Miranda, 2012 ONSC 7346, which it asserts is most factually similar to this matter. In Ostrenda, the defendant insurer brought a summary judgment motion seeking an order that the action against it be dismissed on the basis that it did not owe a duty of care to the broker. The plaintiff was a truck driver employed by a trucking company who was the insured. The driver was seriously injured in a motor vehicle accident. The insurer had issued a fleet motor vehicle policy to the insured company and the plaintiff was therefore covered by that policy. The at-fault driver’s insurer had insufficient limits given the catastrophic nature of the plaintiff’s injuries. In those circumstances, if an insured has “family protection endorcement–OPCF44R” issued by the insurer, he/she can look to his/her own insurer to pay any additional amount above the underinsured at-fault driver’s policy limits. In this case, the fleet policy issued by the insurer to the employer/insured did not have that endorsement and, therefore, the plaintiff could not advance a claim for underinsurance pursuant to that policy.
[86] The plaintiff named his employer’s broker as a defendant. He claimed that the broker owned a contractual and tort duty of care to the employer and to himself to advise about the need for underinsurance coverage and then to obtain it. The plaintiff also claimed that the insurer was negligent for failing to advise the employer/insured and the plaintiff of the availability and need to obtain underinsurance coverage.
[87] In the initial application for insurance, the broker did not include a request for an OPCF44R endorsement. After receiving the application, the insurer undertook a risk management survey which involved making its own inquiries regarding the insured’s business to assess the risk for underwriting purposes. It then prepared a risk assessment report that it submitted to the insured. The document contained a statement that the purpose of the visit was to gather information for underwriting purposes and to offer advice that may help reduce or eliminate accidental losses.
[88] The insurer undertook two similar risk assessments when the policy was renewed in subsequent years. In those reports, the insurer did not mention that the employer/insured neither had nor was requesting underinsured coverage for its drivers.
[89] In dealing with the duty of care of the broker, the Court found that it is well-established that insurance brokers owe a duty to their customers to provide not only information about available coverage but to advise about what forms of coverage is required to meet their needs. (Fletcher v. Manitoba Public Insurance Co., 1990 59 (SCC), [1990] 3 S.C.R. 191 at p. 214, citing Fine’s Flowers Ltd. v. General Accident Assurance Co. of Canada (1977), 1977 1182 (ON CA), 17 O.R. (2d) 529 (C.A.).
[90] The Court noted that in the course of conducting its risk assessments, the insurer interacted with, and provided copies of the report to, the employer. The plaintiff argued that this interaction with the employer and advising it of its risks imposed a duty of care on the insurer to warn the employer regarding potential gaps in its coverage. The plaintiff argued that the insurer was therefore exposed in the same fashion as the broker. Alternatively, it argued that the extent of the insurer’s advisory involvement with the employer and the reliance placed on it by the employer were issues that required a trial to resolve.
[91] The Court relied on both Drader and Boudreau to support the insurer’s position that it owed no duty of care. The Court found that there was an experienced broker acting for the employer and, as such, it was expected and reasonable that the insurer would rely on the broker to explore and counsel the customer regarding the coverages it required, including underinsured coverage. To impose the same duty on the insurer would require the court to accept that the customer looked to the insurer and relied on it as it would to its own broker. It would also require the court to accept that the insurer knowingly and willingly undertook the responsibilities of a broker in the same fashion.
[92] The Court also commented that there was no evidence from the employer on the motion and, as such, there was no evidence of what reliance (if any) this placed on the insurer in relation to the scope of coverage it decided to procure.
[93] With respect to the risk assessment reports, the Court found that since it was asked to underwrite the risk, the insurer had to make its own assessment of the potential for claims in relation to the coverage sought. At para. 40, the Court held that the basis upon which the insurer conducted its assessments was from the perspective of underwriting the risk. The evidence did not establish that the insurer conducted the assessments to become familiar with the business and insurance needs of the employer in the same fashion as a broker – that is – to advise the customer as to its insurance requirements. While the reports included recommendations and advice to the employer regarding steps it could take to reduce its potential exposure, it did so to reduce the potential for claims on the policies and to reduce the employer’s long-term insurance costs.
[94] The court found that it was important to note that the front page of the risk assessment reports had a disclaimer that the insurer had no legal liability arising from the risk assessment. At para.43 the court held:
This reinforces my view that, unlike the efforts imposed upon and undertaken by a broker to become knowledgeable about the business of a customer for purposes of advising regarding the scope of required insurance coverage, Zurich’s purpose in doing so was with a view to understanding the risk that it was underwriting. To the extent that it offered advice or recommendations to the insured, such advice or recommendations did not extend to addressing the scope of insurance coverage required and any advice given was expressly provided on a “no liability basis”.
[95] The court found that there was no evidence of reliance having been placed by the insured on the insurer to advise it regarding the scope of its insurance requirements and that any advice given was expressly provided on a “no liability” basis.
[96] At paras 44 to 47, the Court also discussed policy considerations and found that, if the law were to impose upon insurers a similar duty to that undertaken by brokers – which is to explore and advise regarding a customer’s insurance requirements – there would be considerable duplication of effort and the costs of this would be passed on to the customer. The Court also found that it is logical that an insurer must develop some familiarity with the customer and its operations in order to assess the risks that the insurer agrees to underwrite. In doing so, it might become aware of the customer’s practices and its insurance coverages. The purpose of that should not be confused with the responsibility imposed upon a broker whose duty is to become familiar with such matters for purposes of giving proper coverage advice.
[97] The facts in Ostrenda are similar to this case, as North Waterloo also conducted a risk assessment. Representatives from North Waterloo attended at Ms. Giangrande’s place of business and, as reflected in the report, discussed the nature of her operations and made recommendations regarding electrical issues. These recommendations were then implemented by Ms. Giangrande. The purpose of the report was to assess risk and the report does not address any issues of existing insurance coverages. Nonetheless, in conducting that risk assessment, North Waterloo discovered an error. It was not an error about what coverages were or were not in place but an error in the description of the size of building.
[98] There are other distinguishing facts. First, there was no warning on the inspection reports regarding a waiver of liability. The inspections were not being conduction on a “no liability basis.” Furthermore, there was a page specifically for the insured to sign which was left blank, with no explanation provided. Secondly, the reports were not provided to either Ms. Giangrande or Secure. Secure’s evidence is that, had it received the report, it would have become aware that the building was much larger and then discussed with Ms. Giangrande the impact this had on the limits of her existing insurance.
[99] Unlike in Ostrender, there was evidence from the insured, Ms. Giangrande, about her discussions with the representatives from North Waterloo or her belief that they were discussing all her insurance issues. While her affidavit lacked specificity about discussions regarding insurance coverages, or any discussions about the change in the size of the structure from the initial application, her undisputed evidence is that she relied on the inspectors from North Waterloo for all her insurance needs.
[100] The issue to be determined on this motion, which is not addressed in any of these cases, is what (if any) duty does an insurer have if it discovers an error that could impact the amount of coverage in place. It is not about providing advice about the type or adequacy of coverage but about what duty of care is owed when an error is discovered by the insurer. I see this as a different situation than the decisions relied upon by North Waterloo. I agree that those cases make it clear that, when a broker is submitting an application on behalf of a customer, an insurer’s duty is to provide a policy as per the coverages requested. Their duty is not to identify any lapse in coverage or provide any recommendations regarding other coverages that might be available. As such, the cases relied upon by North Waterloo do not cover the circumstance of an error being discovered by an insurer. The real question is: can an insurer essentially turn a blind eye when it discovers an error? These cases do not answer that question.
[101] These cases relied upon by North Waterloo do not support its position that North Waterloo did not owe a duty of care to either the broker or the insured based on the facts. This is not a case where the question is whether the insurer had any duty to discuss coverage issues. It is clear based on the above line of authorities that the duty does not exist.
[102] Based on these cases, I am not prepared to find that North Waterloo did not owe Ms. Giangrande and/or Secure a duty of care to inform either of an error it discovered during an inspection process that it initiated and conducted. While I am satisfied that the purpose of that inspection was primarily to discuss risks, in the course of that inspection, North Waterloo discovered an error that directly impacted the sufficiency of the coverage. It has presented conflicting evidence about how it would have used the information in the report and what steps, if any, the underwriter who was supposed to have reviewed the report would have taken. While North Waterloo had no duty to discuss coverage issues with the insured or broker, these cases do not stand for the principle that a duty of care is not owed when the insurer discovers an error that directly affects the sufficiency of coverage.
Does the Anns/Cooper Test Create a Duty of Care?
[103] While I am not prepared to find that North Waterloo did not owe Ms. Giangrande or Secure a duty of care, the next issue is whether I can find that it did owe either or both a duty of care.
[104] I must also be mindful that this is a request for partial summary judgment, as the trial involving Ms. Giangrande and Secure is proceeding, regardless of the outcome of this motion. In Butera, the Court of Appeal overturned an award for partial summary judgment as partial summary judgment would create, rather than solve a number of problems. On a motion for summary judgment, the court should consider a number of factors in determining if the relief should be granted. These factors include delay, expense, limited judicial resources, and inconsistent findings. The court must consider the litigation, as a whole, and whether partial summary judgment would serve the objectives of proportionality, efficiency, and cost effectiveness. (See Butera at paras. 30-34, 38).
[105] The case law is clear that no duty of care is owed to an insured by an insurer regarding coverages where the insured uses an intermediary as a broker to procure insurance. Also, no duty of care is owed to the broker. The question is whether on the unique facts of this case that is, where an insurer discovers an error in the application for insurance, does the insurer have a duty to inform the broker or insured of the error?
[106] Counsel did not provide any judicial authority regarding the recognition of a duty of care on an insurer when it identifies an error which may have a direct bearing on the adequacy of coverage. As a result, an Anns v. Merton London Borough Council analysis is required: (1977), [1978] A.C. 728 (U.K.H.L.), as refined in Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537 (S.C.C.). As set out in these cases, the three requirements for a duty of care are:
a) Reasonable foreseeability;
b) Sufficient proximity; and
c) the absence of overriding policy considerations which negate a prima facie duty established by foreseeability and proximity.
[107] In Rankin (Rankin’s Garage & Sales) v. J. J., 2018 SCC 19, 1 S.C.R. 587, the court found that it is not necessary to conduct a full Anns/Cooper analysis if a previous case has already established that the duty of care in question (or an analogous duty) exists: (para. 18). If it is necessary to determine whether a novel duty exists, the first stage of the Anns/Cooper test is whether there is a relationship of proximity in which the failure to take reasonable care might foreseeably cause loss or harm to the plaintiff. Once foreseeability and proximity are made out, a prima facie duty of care is established: (para 18). The plaintiff bears the onus to establish the cause of action and the existence of a prima facie duty of care. To do so, the plaintiff must provide a sufficient factual basis to establish that the harm was a reasonably foreseeable consequence of the defendant’s conduct in the context of a proximate relationship: (para 19).
[108] Once the plaintiff has shown that a prima facie duty of care exists, the burden then shifts to the defendant to establish that there are residual policy reasons why this duty should not be recognized: (para 20).
[109] In Rankin, the court described the rational for the first two requirements at paras 22 and 23 as follows:
The rationale underlying this approach is self-evident. It would simply not be just to impose liability in cases where there was no reason for defendants to have contemplated that their conduct could result in the harm complained of. Through the neighbour principle, the defendant, as creator of an unreasonable risk, is connected to the plaintiff, the party whose endangerment made the risk unreasonable; E.J. Weinrib, “The Disintegration of Duty”, in M.S. Madden, ed, Exploring Tort Law (2005), 143 at p. 151. The wrongdoing relates to the harm caused. Thus, foreseeability operates as the “fundament moral glue of tort”, shaping the legal obligations we owe to one another, and defining the boundaries of our individual liability: D.G. Owen, “Figuring Foreseeability” (2009) 44 Wake Forest L. Rev 1277, at p. 1278.
In addition to foreseeability of harm, proximity between the parties is also required: Cooper, at para. 31. The proximity analysis determines whether the parties are sufficiently “close and direct” such that the defendant is under an obligation to be mindful of the plaintiff’s interests: Cooper, at para. 32; Hercules Managements Ltd. v. Ernst & Young, 1997 345 (SCC), [1997] 2 S.C.R. 165 at para. 24. This is what makes it just and fair to impose a duty: Cooper at para. 34. The proximity inquiry considers the “expectations, representations, reliance and the property or other interests involved” as between the parties: Cooper at para. 34. In cases of personal injury, when there is no relationship between the parties, proximity will often (though not always) be established solely on the basis of reasonable foreseeability: see Childs, at para. 31.
[110] The duty of care alleged by Ms. Giangrande and Secure is a positive duty; that North Waterloo ought to have informed both parties of the error in the insurance application upon which the property coverage was determined. North Waterloo asserts that had it been told that the poultry plant was five times larger, it would have spoken with Ms. Giangrande so that she could make an informed decision regarding the appropriate levels of coverage. Similarly, Ms. Giangrande states that, had she been informed of the error in the application, she would have ensured that there was appropriate coverage on the building and contents – meaning larger limits.
[111] In Lavender v. Miller Berstein LLP, 2018 ONCA 729, the Court considered whether an auditor owed a duty of care to a group of investors with a securities dealer that had been placed in receivership. The Court relied on the analysis in Deloitte & Touche v. Livent Inc., 2017 SCC 63, [2017] 2 S.C.R. 855, which considered the Anns/Cooper framework to define the duty of care owed by an auditor. At paras. 35 and 36 the Court held:
In cases of pure economic loss arising from negligent misrepresentation or performance of a service, two factors are “determinative” of the proximity analysis: (i) the defendant’s undertaking; and (ii) the plaintiff’s reliance; Livent, at para. 30. Where the defendant undertakes to provide a representation or service in circumstances that invite the plaintiff’s reasonable reliance, the defendant becomes obligated to take reasonable care, and the plaintiff has a right to rely on the defendant’s undertaking to do so. These “corollary rights and obligations create a relationship of proximity”: Livent, at para. 30
However, the plaintiff’s reliance must be within the scope of the defendant’s undertaking – that is, the purpose for which the representation was made, or the service was undertaken. Anything outside that scope will fall outside the scope of the proximate relationship and the defendant’s duty of care; the defendant cannot be liable for a risk of injury against which it did not undertake to protect: Livent at para. 31. Further, as the majority in Livent observed, at para. 31, “the proximity analysis not only determines the existence of a relationship of proximity, but also delineates the scope of the rights and duties which flow from that relationship” (emphasis in original).
[112] In Lavender, the Court found that proximity had not been established based on the nature of the services provided by the defendant auditor and the connection between those services and the loss claimed by the investors.
[113] In addition, the Court found that the plaintiffs, the class of investors, did not rely on the audited reports. The specific reports were prepared for the Ontario Securities Commission. They were not shared with the investors and were not intended to inform or induce investors into making investment decisions.
[114] These decisions underscore the necessity for a complete factual record in order to assess, in particular, the proximity branch of the Anns/Cooper test. In Lavender, the Court found that in conducting the proximity analysis, the court must examine all relevant factors arising from the relationship between the parties which factors may vary, depending on the circumstances of the case. The factors may include the parties’ reliance, expectations, representations, as well as property or other interests or statutory obligations. In addition, the absence of a personal relationship between the parties, while not determinative, is an important factor to consider: Lavender at paras. 61-62.
[115] I am reluctant, on the record before me, to find that North Waterloo owed either Ms. Giangrande or Security a duty of care to inform them of the error. Foreseeability may not be an issue. When dealing with proximity, however, there is conflicting evidence on this motion from North Waterloo regarding the purpose of the inspection and what use would be made of the information gathered from the report. That conflict cannot be resolved on this motion. While Mr. Zyta’s evidence is that the inspection was meant to assist the insured and was limited to assessing risk, Mr. Gill’s evidence was that the underwriter would also be using information gathered by looking at the square footage and comparing that to the actual cash value on the policy for reasonableness. I infer from this that the underwriter would be considering the reasonableness of the coverage in place based on the size of the building and that the purpose of the report went beyond risk assessment.
[116] The reason North Waterloo undertook the inspection has an impact on the proximity assessment and the rights and duties that flow from a relationship of proximity. Given the conflicting evidence, it is an issue for the trial judge to determine.
[117] In assessing reliance, Ms. Giangrande’s affidavit evidence was quite vague and lacked specificity about what was discussed with Mr. Brown and the other unidentified person who conducted the inspection in 2010. Also missing is any evidence from Mr. Brown, the inspector, and Ms. Kullar, the underwriter who requested the inspection regarding the reason why the inspection was requested, what was to be done with the report and what was discussed with Ms. Giangrande. The viva voce evidence from these witnesses will assist the court in determining the reliance and expectation of the parties.
[118] There is also expert opinion evidence to consider. North Waterloo chose not to present any expert opinion evidence on this motion. While expert opinion is often presented in the context of standard of care, it may assist the trial judge to consider that evidence in the proximity analysis, as required in the Anns/Cooper test.
[119] There is incomplete evidence to determine on a motion for summary judgment whether, based on an Anns/Cooper analysis, North Waterloo owed either Secure or Ms. Giangrande a duty of care to inform either of the error it discovered during the inspection process.
[120] Had this motion been commenced at an earlier point in litigation it may have possible to consider using the enhanced powers under Rule 20.04(2.2) to have a focused inquiry on this issue. As the matter is already on the upcoming trial list, it is not an efficient use of judicial resources to conduct a further inquiry on this issue. The most efficient use of resources is to proceed to trial.
5. Conclusion
[121] North Waterloo’s summary judgment motion is dismissed and the issue of whether it owes a duty of care to either Ms. Giangrande and/or Secure shall proceed to trial. Given this finding, I do not have to consider the issue of partial summary judgment.
[122] Ms. Giangrande and Secure are entitled to their costs of this motion. If the parties cannot agree on costs, they shall file their Bill of Costs and Costs Outline together with written submissions, of no more than two pages, and any relevant offers to settle by December 3, 2019.
L. Shaw J.
Released: October 8, 2019
2019 ONSC 5826
COURT FILE NO.: 12-330
DATE: 2019 10 08
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
DIANE GIANGRANDE carrying on business as DUNDALK POULTRY PROCESSING
Plaintiff
– and –
SECURE INSURANCE SOLUTIONS GROUP INC. and NORTH WATERLOO FARMERS INSURANCE COMPANY
Defendants
REASONS FOR DECISION
L. Shaw J.
Released: October 8, 2019