Court File and Parties

COURT FILE NO.: 13-56958 DATE: 2020-01-20 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: SUSAN TATARYN and SUSAN G. TATARYN PROFESSIONAL CORPORATION, Plaintiffs -and- AXA INSURANCE CANADA (now known as INTACT INSURANCE COMPANY OF CANADA), CHARLES McLEOD, IRVIN HOFFMAN and COHEN & LORD INSURANCE BROKERS LIMITED, Defendants

BEFORE: Mr. Justice Pierre E. Roger

COUNSEL: Brian C. Elkin, for the Plaintiffs Ashlee Barber, for the Defendant, AXA INSURANCE COMPANY (now Intact) Mark Charron and Jaime Wilson, for the Defendant, CHARLES MCLEOD Pasquale Santini, for the Defendants, IRVIN HOFFMAN AND COHEN & LORD INSURANCE BROKERS LIMITED

HEARD: January 9, 2020

Endorsement

Introduction

[1] The Ottawa property of the plaintiffs was the subject of two occurrences of water damage: December 12, 2010; and March 6, 2012. The first occurrence gave rise to an unresolved action issued only against the defendant, AXA Insurance Canada, on December 9, 2011 (under court file no. 11 – 53079). This second action was issued on March 5, 2013. It incorporates both occurrences and is brought by the plaintiffs against their insurer, AXA now Intact; the independent insurance adjuster retained by AXA, Charles McLeod; and the plaintiffs’ insurance brokers, Irvin Hoffman and Cohen and Lord Insurance Brokers Limited.

[2] The plaintiffs’ property served as both her residence and place of business for her tax law practice. The first flooding event occurred following internal plumbing malfunctioning and the second event occurred when the plaintiffs’ boiler system malfunctioned. The plaintiffs’ property was undergoing significant renovations prior to the first occurrence, and these renovations remained largely in abeyance up until the second occurrence (and in fact are still currently under abeyance – her house remains uninhabited).

[3] AXA agreed that the plaintiffs’ insurance policy provides insurance coverage for the first loss, except as it later advised, coverage did not include improvements required for bylaw compliance related improvements. AXA retained ClaimsPro as its agent to investigate and adjust the plaintiffs’ first loss, and ClaimsPro appointed Mr. McLeod, who met with the plaintiffs. Some payments were eventually made by AXA for the first loss, but the parties could not agree on the amount of the loss, and litigation is ongoing. For the second occurrence, AXA took the position that there was no insurance coverage, relying on an exclusion in the policy that provides that AXA does not insure loss or damage “occurring while the building is under construction … even if we have given permission”, and this action was started by the plaintiffs on March 5, 2013.

[4] Next, I outline the various motions brought by the parties and which are the subject of this endorsement.

[5] The plaintiffs bring a motion seeking a better affidavit of documents from the defendants, AXA and McLeod, and an order requiring AXA to produce for discovery an informed representative. They also seek a finding that their property was not under construction at the time of the second occurrence, and therefore, not subject to the “building is under construction” exclusion relied upon by AXA.

[6] Charles McLeod brings a motion for summary judgment arguing that this action is statute-barred against him because it was issued more than two years after the expiry of the limitation period. He also brings a motion for summary judgment arguing that the action against him should be dismissed because, as an independent insurance adjuster, he owed no duty of care to the plaintiffs and because there is no reasonable cause of action against him due to the principle of vicarious liability.

[7] The brokers, Irvin Hoffman and Cohen & Lord Insurance Brokers Limited, bring a motion for summary judgment arguing that: (1) the plaintiff’s action is statute-barred against them because it was not started within the applicable two-year limitation period; and (2) the plaintiff’s action and the cross-claim of AXA against them, as it relates to the second occurrence, should be dismissed because the “building is under construction” exclusion does not apply.

Analysis

[8] I will start my analysis with the motion of the brokers, followed by the motion of the independent adjuster, and I will finish with the plaintiffs’ motion and any required case management orders.

General principles applicable to motions for summary judgment

[9] The court shall grant summary judgment if the court is satisfied that there is no genuine issue requiring a trial. A judge hearing a motion for summary judgment has the power to weigh evidence, evaluate credibility, and draw reasonable inferences. There is no genuine issue requiring a trial, in the context of a motion for summary judgment, when a judge can reach a fair and just determination on the merits. This is the case, despite the abbreviated nature of such a motion, when the process nonetheless: allows the judge to make the necessary findings of fact; allows the judge to apply the law to the facts; and is a proportionate, more expeditious, and less expensive means to achieve a just result (see rule 20.04 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 and Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87, at paras. 4 and 49).

[10] In addition, a motion for partial summary judgment should be a rare procedure usually reserved for an issue that may be decided without running the risk of duplicative proceedings or inconsistent findings (see Hryniak at para. 60, Butera v. Chown, Cairns LLP, 2017 ONCA 783, 137 O.R. (3d) 561 at para. 34, and York Regional Standard Condominium Corporation No. 1206 v. 520 Steeles Developments Inc., 2018 ONSC 3766, at para. 95).

Is the plaintiff’s action against the brokers Hoffman and Cohen statute barred?

[11] For reasons that follow, that part of the brokers’ motion for summary judgment is dismissed, without prejudice to that issue being revisited at trial.

[12] Other than the amount of damages claimed, the issues for the first loss of December 12, 2010, relate to the absence of coverage for bylaw required expenses.

[13] It is clear from the evidence that the plaintiffs were informed by Mr. McLeod, early in February 2011, and before February 8, that they were not covered for any expenses related to work required to comply with existing bylaws. This action against the brokers was only started on March 5, 2013, more than two years later. The plaintiff is a lawyer and is a sophisticated party. The plaintiffs retained a lawyer for the first occurrence early in December 2011, and a statement of claim for the first occurrence was issued only against AXA on December 9, 2011. Moreover, the plaintiffs are presumed, by the application of s. 5 (2) of the Limitations Act, 2002 S.O. 2002, c. 24, Sched. B, to have known of the matters required for their claims to have been discovered on the day that the act or omission took place. The brokers therefore argue that the plaintiffs’ action against them was started too late, outside of the two years allowed by the Limitations Act.

[14] However, the evidence of the plaintiffs indicates that prior to March 5, 2011, the plaintiffs did not know enough facts to base a cause of action against the brokers because the plaintiff did not know by that time that expenses related to compliance with existing bylaws would be required. As a result, the plaintiffs did not have knowledge of a potential claim prior to March 5, 2011. The facts in this case are therefore different from the facts in the cases cited by the brokers. For example, in Ramsarran v. Assaly Asset Management Corporation, 2019 ONSC 6793 at para. 28, the plaintiff confused discoverability issues with the process of assembling the necessary evidence to support a winnable claim; that is not the case here.

[15] Here, for the purposes of this motion, the plaintiffs have raised a genuine issue requiring a trial about whether the plaintiffs knew prior to March 5, 2011 that they had suffered some damage from the omission of the brokers to include coverage for bylaw related expenses. The plaintiffs’ evidence that Ms. Tataryn did not know that she had suffered some damage (not damages or the extent of her damages, but whether she had suffered any damage) prior to that date raises a triable issue (see Peixeiro v. Haberman, 1997 SCC 325, [1997] 3 S.C.R. 549, at para. 18).

[16] Indeed, the evidence of the plaintiffs indicates that they received two estimates from Mr. McLeod, one in February and the other in July 2011, and that neither identified any bylaw upgrade costs. Both estimates indicated that they addressed the cost required to bring the premises back to its pre-loss condition. As a result, even if the plaintiff knew by early February 2011 that they had no bylaw coverage, they did not know that damage had occurred until they knew that bylaw repairs were required, which they did not know and reasonably could not have known with all that was occurring between early February 2011 (when she was informed that this coverage was not included) and March 5, 2011 (which brings it within two years of March 5, 2013 when this statement of claim was issued).

[17] Therefore, prior to March 5, 2011, at best, the plaintiffs knew that they had potential exposure to damage because of the absence of bylaw upgrade insurance, not that damage had occurred. Actual knowledge of damage is required before a limitation period begins to run. A suspicion that damage has occurred or of possible damage is not sufficient (see Crombie Property Holdings Ltd v. McColl-Frontenac Inc., 2017 ONCA 16, 406 D.L.R. (4th) 252 at paras. 40 - 42).

Was the building under construction at the time of the second loss?

[18] For reasons that follow, I find that the building was not “under construction”, and that this exclusion relied upon by AXA is not applicable. Therefore, that defence of AXA is dismissed. As well, as a result, the related claims of the plaintiffs against the brokers for failing to arrange such coverage are dismissed. Furthermore, and consequently, any and all cross-claims against the brokers for failing to arrange such coverage are also dismissed.

[19] The plaintiffs’ evidence is that renovations started in September 2010, and that renovations were delayed by the occurrence of December 12, 2010. Aside from some emergency work conducted to secure the premises, very little renovation occurred at the plaintiffs’ building before the second occurrence of March 6, 2012. AXA only knows that the building was being renovated, it has no evidence of specific construction occurring between the first and the second occurrence.

[20] The onus is on AXA to prove the application of this exclusion. Coverage provisions are to be interpreted broadly, whereas exclusion clauses are to be interpreted narrowly. Courts should give effect to the clear language of the policy, reading it as a whole. If the policy is ambiguous, courts should rely on general rules of contract construction, including that it should prefer interpretations that are consistent with the reasonable expectations of the parties (see Bawden v. Wawanesa Mutual Insurance Company, 2013 ONSC 1618, 116 O.R. (3d) 9 at paras. 15 and 16; and 2091533 Ontario Limited v. Vertigo Investments Limited, 2013 ONSC 2731, 115 O.R. (3d) 457 at paras. 14 and 15).

[21] AXA points out and argues that the upper two stories of the plaintiffs’ house were undergoing extensive renovations, that some limited renovations occurred in between the two occurrences, and that the house was therefore under construction.

[22] The exclusion clause that AXA relies upon is unambiguous: “we do not insure loss or damage: … occurring while the building is under construction, … even if we have given permission”. The policy does not provide a definition of “construction”. However, the term “construction” is defined in Black’s Law Dictionary as the creation of something new, as opposed to the repair or improvement of something already existing (see Wilson v. INA Insurance Co. of Canada (1993), 1993 BC CA 1187, 80 B.C.L.R. (2d) 361 (C.A.), at paras. 10 – 17). The facts in this case are different from those in Dodge v. York Fire Insurance Co., 1911 CarswellOnt 41 (C.A.), where the building was effectively under construction.

[23] Applying the above, I agree with the reasoning of the British Columbia Court of Appeal in Wilson (at para. 16) that a house that is being worked on by a contractor does not necessarily mean that it is “under construction”. Such a finding is a question of fact, and here, the extent of the renovations are not sufficient to support a finding that the house was “under construction”. Moreover, the interpretation of those words argued by AXA runs contrary to the reasonable expectations of the parties; indeed, AXA covered the first occurrence and AXA renewed the policy after the first occurrence despite being aware of the state of the house (through its role in adjusting the first loss). As was indicated in Wilson:

… it is unnecessary to decide whether, in an exclusion clause of this sort, a building which is “under construction”, must always be taken to mean a building which is being “newly created”. … But, at the same time, I do not think it reasonable to conclude that a house is under construction simply because it is being worked on by a contractor …

[24] Consequently, the “under construction” exclusion does not apply. It is therefore not available as a defence by AXA nor by the plaintiffs as a ground of negligence against the brokers.

Is the plaintiffs’ action against the independent adjuster, Charles McLeod, statute-barred?

[25] For the same reasons as those indicated above for the brokers, that part of Mr. McLeod’s motion for summary judgment is dismissed, without prejudice to that issue being revisited at trial.

[26] Indeed, as indicated above, the evidence presented by the plaintiffs about this rebuts the applicable presumption and raises a genuine issue requiring a trial about the plaintiffs’ knowledge that damage had occurred.

Should this action be dismissed at a summary judgment motion on the basis that an independent insurance adjuster owes no duty of care to the plaintiffs and that there is no reasonable cause of action against Mr. McLeod because of the principle of vicarious liability?

[27] As indicated above, there is no genuine issue requiring a trial on a motion for summary judgement when a judge is able to reach a fair and just determination on the merits. This is the case when the process allows the judge to make the necessary findings of fact, apply the law to the facts, and the process is a proportionate, more expeditious and less expensive means to achieve a just result (see Hryniak at para. 49). Here, because of the positions taken on documentary and oral discovery by AXA and by their independent adjuster, Mr. McLeod, I find that this is not the case.

[28] Mr. McLeod has essentially limited his documentary discovery to the same documents that were disclosed by his principal, AXA. As well, Mr. McLeod has to date refused to be examined for discovery, arguing that he is not a proper party. Further, although Mr. McLeod was cross-examined for purposes of this motion, my review of the transcript of his cross examination confirms that this also does not provide me with what I need to make necessary findings of fact. Indeed, at his cross-examination, Mr. McLeod reiterated his position that he would only produce documents that his principal, AXA, was prepared to produce. As a result, although his cross-examination was long, it was nonetheless limited by this position.

[29] The above is important for a number of reasons. First, although AXA has confirmed that it has no evidence of misconduct on the part of Mr. McLeod, it has nonetheless refused to admit that all of Mr. McLeod’s actions were explicitly authorized. This is odd because AXA has access to all the relevant fact: they have examined the plaintiffs for discovery and they seemingly have access to Mr. McLeod and to his documents (this is apparent from the position of Mr. McLeod during his cross-examination, as outlined above). Second, this is all quite discomforting when I conclude, as I do later in my analysis, that AXA and Mr. McLeod have not produced all relevant documents, that AXA has refused to produce an informed representative, and that Mr. McLeod has refused to submit to any form of examination for discovery.

[30] As a result, Mr. McLeod has not convinced me that I have all the facts required to make the necessary findings of facts to conclude, as he argues, that the principle of vicarious liability is applicable. Employers are vicariously liable for the authorized acts of their employees, yet here, AXA refuses to confirm that this is the case, and Mr. McLeod and AXA have failed to comply with their discovery obligations.

[31] Consequently, Mr. McLeod’s motion for summary judgment arguing that he owes no duty of care to the plaintiffs and that there is no reasonable cause of action against him because of the principle of vicarious liability is dismissed on a without prejudice basis to return before me on another motion for summary judgment after Mr. McLeod and AXA have complied with their discovery obligations (as outlined below), or, alternatively, without prejudice to these issues returning before the trial judge.

Are the plaintiffs entitled to a better affidavit of documents from the defendants AXA and McLeod, to discovery of Mr. McLeod, and to an order requiring AXA to produce an informed representative for discovery?

[32] For reasons that follow, the answer to the above is yes.

[33] As indicated above, I cannot make necessary findings of fact on vicarious liability until Mr. McLeod is examined for discovery. Moreover, Mr. McLeod is a party to this action, and as such, he cannot decide that the Rules (rules 30 and 31) do not apply to him just because he believes that he is not a proper party. As a party to this action, he is subject to the Rules. Consequently, by May 31, 2020, Mr. McLeod shall be examined for discovery.

[34] AXA produced for discovery a representative who never worked for AXA (he worked for Intact), and who was not involved in either the first or the second occurrence. This representative never spoke to Mr. Williams (the gentleman who handled both occurrences for AXA, instructed Mr. McLeod, and who no longer works for Intact) and never spoke to any member of AXA’s underwriting department (which likely was involved in the coverage decision). AXA’s representative had no information about the scope of Mr. McLeod’s duties. He could only rely on information gleaned from documents produced by AXA. He confirmed that Mr. Williams knows more about the plaintiffs’ claim than anyone at Intact; that Mr. Williams would have been the logical discovery witness had he not left Intact’s employ.

[35] In Butler v. Dimitrieff (1988), 1989 ON SC 4178, 66 O.R. (2d) 707, (Ont. S.C. Master), the court ordered a former officer of the defendant to be produced for discovery where the former officer was the only potential representative who had had any dealings with the plaintiff. Furthermore, in another case, AXA not only proposed offering a former employee as a witness but litigated the issue and obtained an order allowing it to do so (Thorne v. AXA Canada Inc. 2012 ONSC 2409, 110 O.R. (3d) 413 at para. 16).

[36] Considering the above, AXA (now Intact) shall make all reasonable efforts to produce Mr. Williams as their discovery witness. If this is not possible, then they shall explain why which may be addressed at a case conference or, if the parties agree, may then produce another person properly and fully prepared.

[37] AXA has refused to produce adjusters’ reports, adjusters’ notes, and various undated emails between AXA and their adjuster alleging litigation privilege. The independent adjuster took the same position, and did not produce adjusters’ reports, his notes and other reports alleging litigation privilege.

[38] Rule 30.02 of the Rules requires all parties to disclose every document relevant to any matter in issue that has been in the possession, control or power of the party, whether or not privilege is claimed.

[39] The affidavit of documents provided by Mr. McLeod does not comply with the above requirements. Producing documents that AXA is prepared or consents to produce does not meet his discovery obligations. Mr. McLeod has a separate obligation to search his records and comply with the above. He cannot rely on what is disclosed by another party, albeit his principal.

[40] Neither Mr. McLeod or AXA list in his or their affidavit of documents any document that relates to the decision to deny coverage.

[41] Claiming privilege over documents that Mr. McLeod states belong to his employer, Claimspro, or refusing to produce a document unless AXA consents is not a recognized claim of privilege. As well, refusing to produce a document only on the basis that it was prepared after the first or the second occurrence, or after notice that a court action was started, does not, of its own, establish a claim of litigation privilege. Similarly, despite an order made on consent by a case management master, documents prepared after the issuance of the statement of claim in the first action and after the issuance of the notice of action in the second action are not automatically covered by litigation privilege or otherwise not producible when such documents are relevant and there is no evidence that they are privileged. The onus is on the party claiming a privilege. For litigation privilege to be maintained, the document must have been prepared for the dominant purpose of actual or anticipated litigation. Adjusters’ reports may very well serve the dominant purpose of addressing the claim rather than litigation. An insurance company addressing and investigating a claim is not necessarily in a state of anticipated litigation (General Accident Assurance Co. v. Chrusz (1999), 1999 ON CA 7320, 45 O.R. (3d) 321 (WC)(CA), at para. 50). Indeed, it is apparent when reviewing Schedule B to the affidavit of documents of AXA and of Mr. McLeod that most of the documents listed are not privileged.

[42] AXA’s refusal to produce documents relating to the termination of the plaintiffs’ insurance policy is also not tenable. The plaintiffs have pled prejudice arising therefrom at paragraph 29 of their amended amended statement of claim. AXA’s argument that this is not a recognized cause of action does not assist them because they have brought no motion to strike that paragraph. Again, a party cannot unilaterally decide that the Rules are not applicable to him or her because of a stated position. It is incumbent on that party to bring a motion to seek an exception from the Rules or else to comply with the Rules. In any event, these documents may tend to prove or disprove facts relevant to the claims of punitive, aggravated, or exemplary damages and as such are relevant and producible.

[43] Consequently, both AXA and Mr. McLeod shall serve a further and better affidavit of documents which list all relevant documents in their power, possession or control. All documents made for the dominant purpose of investigating and adjusting the claim shall be disclosed in Schedule A; if any such document contains privileged information then that information shall be redacted (and I may be consulted to review redactions and documents not produced on a clearly stated claim of privilege at a case conference). Mr. McLeod and AXA shall make diligent searches of their records to list all relevant documents. Particularly, they should inquire about documents relating to the decision to invoke the exclusion, about documents relating to the decision to refuse to renew coverage, and about documents relating to McLeod’s actions and whether his actions were authorized by AXA. As well, documents one through 17 of AXA’s Schedule B shall be listed in Schedule A, with any privileged information redacted; the same is applicable to Mr. McLeod.

Additional Orders

[44] This action (court file no. 13 – 56958) and the first action (court file no. 11 – 59079) are both ordered into case management, to be case managed by Justice Roger. Required case conferences can be arranged by the parties contacting the civil trial coordinator, and if requested and appropriate, case conferences can be held by telephone conference. When requesting a case conference, the parties shall not email motions, factums, or court documents to the trial coordinator unless specifically permitted by me beforehand; they shall follow the Rules and file any motion, factum, or court document with the civil counter in the usual way. Unless specifically permitted by me beforehand, all that the parties may send to the trial coordinator when requesting a case conference is a brief letter (not exceeding one page) explaining why a case conference is required and providing the availability of all lawyers. As indicated above, the parties may not file court documents with the trial coordinator or email court documents to my attention when requesting a case conference unless specifically permitted beforehand to do so.

[45] By May 10, 2020, all parties who have not yet done so shall comply with all outstanding undertakings, and if required by a party, shall provide an updated sworn affidavit of documents within 10 days of such a request.

[46] If the parties are unable to agree to the costs of these motions within the next 30 days, then brief written submissions not exceeding five pages plus only required enclosures shall be provided to my attention by delivery to the civil trial coordinator on the following schedule:

a) by the plaintiffs, within 45 days from today; b) by the defendants, within 55 days from today; and c) by the plaintiffs, in reply, within 65 days from today.

Mr. Justice Pierre Roger Date: January 20, 2020