Court File and Parties
COURT FILE NO.: CV-18-1310-00 DATE: 2020 11 10
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
1152729 BC LTD Applicant
– and –
CHICAGO TITLE INSURANCE COMPANY CANADA Respondent
COUNSEL: P. Robson, Counsel for the Applicant T. Evangelidis and D. Fisher, for the Respondent
HEARD: June 8, 2020
REASONS FOR DECISION
L. Shaw J.
Introduction and Overview
[1] The applicant company bought property in Bradford, Ontario on February 18, 2018 from another company. Shortly after purchasing the property, the original owner commenced an action seeking to set aside the sale of the property and return title to him. As the claim challenged the applicant’s title to the property, it referred the matter to the insurance company from which it had purchased title insurance. That insurer, the respondent in this application, agreed to defend the applicant in what I will refer to as the “underlying action.”
[2] In June 2019, while the underlying action was ongoing, the applicant lost title to the property through power of sale proceedings, as it defaulted on its mortgage and the property was sold to another company. Shortly thereafter, the respondent took the position that it no longer owed the applicant a defence, as it no longer had title to the property and, in its view, the only relief sought by the plaintiff in the underlying action was a return of the property.
[3] This application was then commenced because the applicant asserts that the respondent owes it a continuing duty to defend it in the underlying action, even though it no longer owns the property. It also asserts that there is a claim for damages that must be defended by the respondent.
[4] Due to the multiplicity of proceedings that have been commenced by the plaintiff in the underlying action and the number of lawyers involved, I was assigned as case management judge. As case management judge, I am hearing all motions in connection with the various actions.
[5] While the underlying action was commenced almost 2.5 years ago, the litigation is still in the early phase of finalizing pleadings and exchanging affidavit of documents. Examinations for discovery have not yet been scheduled.
[6] For the reasons outlined below, I find that the respondent owes the applicant a duty to defend it in the underlying litigation.
Background
[7] On February 16, 2018 the applicant purchased property municipally known as 3284 Fourth Line, Bradford, Ontario (the “property”) through power of sale proceedings from 9706151 Canada Ltd (“970”). Mr. Chris Sapusak, the former owner of the property and the plaintiff in the underlying action, defaulted on the mortgage held by 970, which resulted in the power of sale proceedings. As part of the subsequent sale to the applicant, 970 registered a vendor-take-back mortgage on the property.
[8] When the applicant purchased the property, it also purchased title insurance from the respondent, identified as policy no. RO-627683-A5069 (the “title insurance policy”).
[9] On March 27, 2018 an action was commenced by the former owner of the property, Mr. Sapusak, against the applicant, 970 and other defendants, in connection with the sale of the property (the underlying action). In that action, Mr. Sapusak seeks a declaration that the sale of the property to the applicant is invalid and seeks an order to set aside the sale for the following reasons:
• the property was sold for less than fair market value;
• he was not served with a Notice of Sale;
• the applicant and 970 engineered a below market value transaction; and
• the applicant was not a bona fide purchaser.
[10] The action commenced by Mr. Sapusak also involves the sale of another property he formerly owned. For the purpose of these reasons, I will focus only on the allegations involving the property the applicant purchased.
[11] Pursuant to the terms of the title insurance policy, on April 18, 2018 the respondent acknowledged its duty to defend the applicant and assumed its defence, subject to a reservation of rights letter. It retained Bennet Jones LLP, which delivered a Statement of Defence and Counterclaim and Crossclaim on behalf of the applicant dated October 30, 2018 in the underlying action.
[12] In the underlying action, Mr. Sapusak also sought an order for a Certificate of Pending Litigation (“CPL”) to be registered on title to the property. On April 26, 2018 counsel for the applicant from Bennet Jones negotiated terms to settle the motion, whereby the applicant agreed to an order that it would give Mr. Sapusak 30 days written notice if it intended to enter into an agreement of purchase and sale for the property. That agreement was incorporated into a court order dated April 28, 2018. As a result of that agreement, a CPL was not registered on title to the property.
[13] When the applicant purchased the property, it arranged financing through a vendor-take-back mortgage with the vendor, 970. On December 1, 2018 the applicant defaulted on this mortgage. 970 assigned the mortgage to 1103715 Canada Inc. (“110”) on January 17, 2019. On the same date, 110 served the applicant with a Notice of Sale and the property was sold on June 5, 2019 to First National Holdings Corp (“First National”) under power of sale proceedings. At that time, the applicant ceased to own title to the property.
[14] In April 2019, before the applicant lost title to the property, the Statement of Claim in the underlying action was amended to name additional defendants and seek additional declaratory relief. The additional defendants named are Roy D’Mello, the alleged director and operating mind of 970; 110, which is a corporation of which Mr. D’Mello is allegedly also the director; and Bangia Property Services Ltd, which purchased the second property owned by Mr. Sapusak. The applicant has not filed a defence to the amended pleading. The applicant remains a defendant in the underlying action.
[15] On July 19, 2019 the respondent informed the applicant that because it no longer owned the property, the respondent no longer owed the applicant a duty to defend. Bennett Jones LLP subsequently obtained an order removing itself as lawyers of record for the applicant.
Issues
[16] While none of these facts are in dispute, there is a dispute with respect to the nature of the claims against the applicant in the underlying action. Specifically, the applicant alleges that Mr. Sapusak is also seeking damages against it, whereas the respondent’s interpretation of the amended Statement of Claim is that the only relief sought against the applicant is to set aside the sale of the property. As it no longer owns the property, the respondent’s position is that Mr. Sapusak will not be able to seek that relief against the applicant and it therefore has no duty to defend the applicant as the title insurance policy no longer provides any coverage.
[17] The first issue to be determined is whether there is a claim for damages in the underlying action. If I find there is a claim for damages, the respondent concedes that it has a duty to defend the applicant in the underlying action.
[18] If I find that there is no claim for damages in the underlying action, the issue is then whether the respondent owes the applicant a duty to defend when the applicant no longer owns the property, and whether it terminated its defence of the applicant in accordance with the policy’s wording.
[19] There is also an issue about whether there is any ambiguity in the wording of the title insurance policy. The applicant’s position is that if there is ambiguity, the doctrine of contra proferentem ought to be applied and any ambiguity resolved in its favour.
[20] The applicant also asserts that the respondent is now estopped from denying the applicant a defence, as it should have been brought to its attention that coverage would be terminated when the respondent negotiated a resolution of the CPL motion that contemplated a sale of the property.
Issue One: Is There a Claim for Damages in the Underlying Action?
[21] In order to address this issue, I will review the amended Statement of Claim to determine if there is a claim for damages. If I determine there is such a claim, that ends the analysis because the respondent has conceded, based on jurisprudence from the U.S., that it would be obligated to defend the applicant.
[22] For these reasons to be complete, I will also consider whether, in the absence of a claim for damages, the respondent owes the applicant a duty to defend it based on the policy wording and the applicable legal principles that govern the duty to defend analysis.
[23] There is no dispute that the respondent would owe the applicant a duty to defend it in the underlying action if it still owned the property. A review of the amended Statement of Claim in the underlying action is therefore not necessary to determine if there is a possibility that the claim falls within the title insurance policy. A review of the pleading is only necessary to determine if there is a claim for damages, in addition to a claim to set aside the sale of the property to the applicant.
[24] As the claim in the underlying action deals with both properties owned by Mr. Sapusak before he lost title through power of sale proceedings, I will only focus on the claims made against the applicant in connection with the property located in Bradford that it purchased and subsequently lost in the power of sale proceedings.
a) Review of the Amended Statement of Claim
[25] Paragraphs 1(a) to (l) set out the relief sought by Mr. Sapusak. In paragraph 1(a), he seeks an order against the defendants setting aside the sale of the property between 970 and the applicant, and in paragraph 1(b) he seeks a declaration of invalidity of the sale.
[26] In paragraph 1(f), Mr. Sapusak seeks the following relief:
In the alternative to the relief sought in paragraphs 1.a to 1.d inclusive, damages in the amount of $1,000,000, or such further and other amount as this Honourable Court may deem fit as against 9706151 Canada Ltd for improvident sale, including but not limited to failure to obtain fair market value for the properties described in paragraphs 1.a and 1.c
[27] In paragraph 1(fii) to 1(fiv), the further alternative relief Mr. Sapusak seeks includes a declaration of a remedial constructive trust with respect to the properties, a declaration that the Defendants or one or more of them have been unjustly enriched, and a declaration of remedial constructive trust with respect to the proceeds of sale of the properties.
[28] Paragraphs 23 to 32 deal specifically with the sale of the property from 970 to the applicant. In paragraph 26, Mr. Sapusak alleges that 970 failed to obtain the true market value of the property and that both 970 and the applicant were aware that the property was sold for less than fair market value. Mr. Sapusak also alleges that he was not provided with a Notice of Sale after he defaulted, and that the applicant was aware of that when it bought the property.
[29] In paragraph 28, Mr. Sapusak pleads as follows:
The Plaintiff states that the Defendants 9706151 Canada Ltd and 1152729 B.C. Ltd engineered a below market value transaction intended to confer a benefit on each of them at the Plaintiff’s expense. The Plaintiff states that 1152729 B.C. Ltd. has been unjustly enriched by the improper acquisition of the Bradford Property at a deep discount to the detriment of the Plaintiff and in the absence of any juristic reason for such enrichment.
[30] In paragraph 29, Mr. Sapusak alleges that 115 is not a bona fide purchaser for value without notice.
[31] In paragraph 30, Mr. Sapusak alleges that 970 failed to take commercially reasonable steps to ensure that the properties were sold at fair market value and that it breached fiduciary duties owing to him. In paragraph 31, Mr. Sapusak states that he seeks an order setting aside the sale or, as stated in paragraph 32, in the alternative he seeks an order for damages equal to the difference between fair market value of the property and the actual sale price. He does not state from whom he seeks those damages, although in paragraph 1(f) he specifies that he seeks those damages from 970.
[32] In paragraph 33, Mr. Sapusak alleges that he was not provided with an accounting with respect to the sale of the two properties by 970 and alleges that 970 and/or D’Mello have been unjustly enriched. He also asserts a beneficial interest in the property and pleads the remedy of constructive trust with respect to the breach of fiduciary duty and unjust enrichment “pleaded herein.”
[33] The respondent asserts that in paragraph 1 of the amended claim, the plaintiff only specifically seeks damages from 970 in para 1(f) and that the damages sought are in connection with the allegation that 970 sold the property improvidently. The respondent argues that the damages sought would be the difference between the value of what the property was sold for to the applicant and its actual fair market value.
[34] According to the respondent, the plaintiff in the underlying action has only sought declaratory relief against the applicant, which is not the same as seeking damages.
[35] The applicant asserts that the court should consider the allegations made in paragraph 28 of the amended claim. The applicant asserts that these allegations are a claim for damages based on the claim that the applicant was unjustly enriched by purchasing the property for less than fair market value and did so in concert with 970.
b) Analysis
[36] There is a general principle in duty to defend applications that pleadings should be interpreted generously in determining if a claim falls within the policy. In my view, that same approach should be applied in reviewing the amended claim to determine if it includes a claim for damages. It is clear that the plaintiff is seeking an order to set aside the sale of the property to the applicant. That is a challenge to title that clearly falls within coverage under the title insurance policy. The plaintiff has also, however, pleaded in the alternative. If the trier of fact is not prepared to set aside the sale, in my view, the plaintiff is seeking damages. These damages are sought not only against 970, but also against the applicant on the basis that it, in conjunction with 970, “engineered” a transaction which benefitted the applicant, who bought the property for less than fair market value.
[37] Support for this interpretation is found in paragraph 28 of the claim, where the plaintiff specifically pleads that the applicant was unjustly enriched.
[38] If the court were to find that the applicant was unjustly enriched, there would be two possible remedies. One is a personal remedy and the second is a proprietary remedy. A personal remedy would be monetary compensation and damages, while a proprietary remedy takes the form of a constructive trust. In Kerr v. Baranow, 2011 SCC 10, [2011] 1 S.C.R. 269, the court found that in determining which remedy to award upon a finding of unjust enrichment, the first remedy to consider is a monetary award and where a monetary award is inappropriate or insufficient, a proprietary remedy may be required: paras. 47 and 50.
[39] These principles were articulated in Moore v. Sweet, 2018 SCC 52, [2018] 3 S.C.R. 303, which found as follows at para. 89:
The remedy for unjust enrichment is restitutionary in nature and can take two forms: personal or proprietary. A personal remedy is essentially a debt or monetary obligation – i.e. an order to pay damages – that may be enforced by the plaintiff against the defendant (Sorochan v. Sorochan, 1986 CanLII 23 (SCC), [1986] 2 S.C.R. 38, at p. 47). In most cases, this remedy will be sufficient to achieve restitution, and it can therefore be viewed as the “default” remedy for unjust enrichment (Lac Minerals, at p. 678; Kerr, at para. 46).
[40] In the amended claim, the plaintiff has clearly pleaded that the applicant was unjustly enriched by the improper acquisition of the property. As the applicant no longer owns the property, the only relief available to the plaintiff, and one that is the default remedy for unjust enrichment, is an award of damages.
[41] Although in paragraph one of the amended Statement of Claim the plaintiff did not specifically state that he was seeking damages for unjust enrichment from the applicant, that is not fatal. In my view, using a generous and liberal approach to interpreting the amended claim, there is a claim for damages against the applicant based on the allegation that it was unjustly enriched. As conceded by the respondent, it therefore owes the applicant a defence, even though the applicant no longer owns the property.
[42] I also note that in the Statement of Defence filed on behalf of the applicant by counsel for the respondent, there is a specific denial in paragraphs 28 and 29 that the plaintiff is entitled to damages from the applicant. This pleading suggests that counsel retained by the respondent interpreted the pleading to include a possible claim for damages – hence the denial. While this pleading is not determinative of my finding, it is a factor I have considered in assessing whether the amended statement of claim can be interpreted to include a claim for damages based on the principle of unjust enrichment.
[43] In Chicago Title Insurance Company v. 100 Investment Limited Partnership, 355 F. 3d 759 (4th Cir. 2004), the United States Court of Appeals for the Fourth Circuit found that although the insured no longer owned the property in question, the insurer was required to defend it, as there was a claim for damages that allegedly occurred when the insured owned the property and during the period that it was insured by the title insurer.
[44] In Security Title Guarantee Corporation of Baltimore v. 915 Decatur St. NW, LLC, 2019 WL 6728449, the court applied 100 Investment and found that if the claim in the underlying litigation would result in losses or damages during the time the insured owned the property, the insurer had an obligation to defend the insured, even though it no longer owned the property: at p.11.
[45] Accordingly, although the applicant no longer owns the property, based on my finding that there is a claim for damages against the applicant in the underlying action that occurred while the applicant owned the property and the title insurance policy was in effect, the respondent owes the applicant a duty to defend it in the underlying action.
Issue Two: If There is no Claim for Damages, does the Respondent Owe the Applicant a Duty to Defend?
[46] If I am incorrect, however, and there is no claim for damages against the applicant in the underlying action, I will now consider whether the respondent owes the applicant a duty to defend it where the only relief sought is to set aside the sale of the property when the applicant no longer owns the property.
[47] Title insurance policy is unlike a general liability policy, as it provides specific coverage for a property owner that is connected to the owner’s title in the property. In describing the purpose of title insurance, the Ontario Court of Appeal in Fisher v. Stewart Title Guaranty Company, 2014 ONCA 798, adopted U.S. authority in Lick Mill Creek Apartments v. Chicago Title Insurance Co, 231 Cal. App. 3d 1654 (U.S. Cal Ct. App 6 Dist. 1991), which held at p. 6 that: “the purpose of title insurance is not to protect the insured against loss arising from physical damage to property; rather, it is to protect the insured against defects in the title.”
[48] Both parties have relied on a number of decisions from the U.S. I note that American decisions interpreting the same policy language are of assistance when those decisions have applied rules of construction that are not materially different than our own: Zurich Insurance Co v. 686234 Ontario Ltd (2002), 2002 CanLII 33365 (ON CA), 62 O.R. (3d) 447 (Ont. C.A.), at para. 34, leave to appeal refused, [2003] S.C.C.A. No. 33. I found the U.S. decisions of assistance because they dealt with, among other things, issues of duty to defend by title insurance companies when the insured no longer owned the property.
[49] The applicant’s position is that regardless of the sale of the property that occurred after the litigation was commenced, the respondent assumed its defence and it has a continuing duty to defend it. The applicant asserts that the wording of the policy is clear that the respondent’s duty to defend can only be terminated in accordance with the specific terms of the policy, which do not reference loss of title to the property as a basis by which it can terminate a duty to defend. If there is any ambiguity in the policy wording, the applicant’s position is that the doctrine of contra proferentem should be applied and the wording of the policy be interpreted in favour of the applicant.
[50] The respondent’s position is that the wording of the policy is clear and that it is a condition of the policy that coverage only continues so long as the insured owns title to the property. Without title, the plaintiff cannot be successful in its claim against the applicant, and it would be a commercial absurdity to require the respondent to defend the applicant for an uninsured risk. The respondent also asserts that the sale of the property was a breach of this condition of the policy, thereby disentitling the applicant to a defence in the underlying action.
[51] In order address these issues, I will review some general legal principles that apply to duty to defend applications and the interpretation of insurance policies, and then review the relevant policy terms.
a) Legal Principles
[52] The legal principles governing an analysis of whether an insurer has a duty to defend are well established. The three leading cases addressing an insurer’s duty to defend are Nichols v. American Home Assurance Co., 1990 CanLII 144 (SCC), [1990] 1 S.C.R. 801, [1990] S.C.J. No. 33, (S.C.C.); Non-Marine Underwriters, Lloyd’s of London v. Scalera, [2000] 1. S.C.R. 551, 2000 SCC 24, [2000] S.C.J. No. 26 (S.C.C.); and Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49, [2001] 2 S.C.R. 699, [2001] S.C.J. No. 50 (S.C.C.). These cases are often referred to as the “trilogy”.
[53] The trilogy established general fundamental principles for assessing a liability insurer’s duty to defend, which were summarized in Progressive Homes Ltd. v. Lombard General Insurance Co of Canada, 2010 SCC 33, 2010 S.C.C. 33, [2010] S.C.J. No. 33, at paras. 19-20, as follows:
i) An insurer is required to defend a claim where the facts alleged in the pleadings, if proven to be true, would require the insurer to indemnify the insured for the claim;
ii) The duty to defend is not dependent upon the insured actually being liable and the insurer actually being required to indemnify. All that is required is the mere possibility that a claim falls within the insurance policy;
iii) Where it is clear that the claim falls outside the policy, either because it does not come within coverage or is excluded by an exclusion clause, there is no duty to defend; and,
iv) When reviewing the pleadings to determine if a claim falls within the scope of coverage, the parties to the insurance contract are not bound by labels selected by the plaintiff. What is determinative is the true nature of the substance of the claim.
[54] Pleadings shall be given the widest latitude to determine whether the mere possibility of a claim within the policy exists: Nichols, at p. 812. If the claim against the insured is ambiguous, the insurer must respond and defend if the claim can reasonably be interpreted to bring it within policy coverage. Any doubt in the pleadings is to be interpreted in favour of coverage for the insured: Nichols, at p. 812; and Monenco, at para. 31.
[55] Once the insured has satisfied the initial burden of establishing that there is a possibility that the claim falls within an insurance policy, the onus shifts to the insurer to establish that the claim falls outside of coverage.
[56] If the insured beaches a condition of the policy, the insurer owes no duty to defend the insured and if there are no grounds for raising estoppel or relief from forfeiture the insured is disentitled both to indemnity under the policy and to the costs of a defence: Longo v. Maciorowski, 2000 CanLII 16897 (ON CA), 50 O.R. (3d) 595, [2000] O.J. No. 3632 (ONCA), at paras. 15 and 35, leave to appeal refused, [2000] SCCA No. 620.
[57] There are also established principles for the interpretation of an insurance policy. In Progressive Homes, the court summarized the principles at paras. 22-24 as follows:
i) When the language of the policy is unambiguous, the court should give effect to clear language, reading the contract as a whole;
ii) When the language is ambiguous, the court should rely on general rules of contract construction; and,
iii) When the rules of construction fail to resolve the ambiguity, the court shall construe the contract contra proferentem, against the insurer, coverage provisions are interpreted broadly and exclusion provisions narrowly.
b) Review of the Policy Wording
[58] The Policy describes the respondent’s duty to defend as follows:
COMPANY’S DUTY TO DEFEND AGAINST COURT CASES
We will defend your Title in any court case as to that part of the case that is based on Covered Risk insured against by this Policy. We will pay the costs, legal and/or notarial fees, and expenses we incur in that defense. We can end this duty to defend your Title by exercising any of our options listed in Item 4 of the Conditions.
[59] The policy lists 23 covered risks. Those risks include:
Someone else owns an interest in your Title
Unmarketability of the Title
[60] The Policy includes a number of Conditions. Condition 2 sets out the terms of the continuation of coverage as follows:
- CONTINUATION OF COVERAGE
(a) This Policy protects you as long as you:
(i) own your Title
(ii) take back a mortgage from anyone who buys your Land; or
(iii) are liable for any title warranties or covenants given by you or implied by the laws in the jurisdiction where the Land is located.
[61] Condition 4 sets out the insurer’s options when it is notified of a claim as follows:
- OUR CHOICES WHEN YOU NOTIFY US OF A CLAIM
After we receive your claim or in any other way learn of a matter for which we are liable, we can do one or more of the following:
(a) Pay the claim against your Title or the Land.
(b) Negotiate a settlement.
(c) Prosecute or defend a court case related to the claim.
(d) Pay you the amount required by this policy.
(e) Take other action, which will protect you.
(f) Cancel this Policy by paying the Policy Amount, then in force, and only those costs, legal and/or notarial fees and expenses incurred up to that time which we are obligated to pay.
[62] Condition 6 of the Policy provides limitations of the respondent’s liability, including the following relevant limits:
LIMITATION OF THE COMPANY’S LIABILITY
(a) We will pay up to (i) your actual loss, or (ii) the Policy Amount in force when the claim is made – whichever is less.
(e) If you do anything to affect any right of recovery you may have, we can subtract from our liability the amount by which you reduce that value of that right.
c) Analysis
[63] According to the wording of the policy, the insurer will defend the insured’s “Title” and can end its duty to defend “your Title” by exercising any of the options listed in Condition 4. The applicant’s position is that the terms listed in that condition are exhaustive and once the respondent assumed its defence, it cannot terminate that defence other than through exercising one of the listed options in Condition 4. According to the applicant, if the respondent could terminate its defence of the insured once it no longer owned the property, that ought to be specifically included as one of the options listed in Condition 4. The applicant’s position is that in reading the contract as a whole, it is clear that the respondent cannot terminate its defence of the applicant other than in accordance with the terms of Condition 4.
[64] According to the applicant, if the policy language is ambiguous even after relying on general rules of contract construction, based on the principle of contra proferentem the policy should be interpreted in a manner favourable to the insured.
[65] I will address the issue of ambiguity in the policy wording. In my view, there is no ambiguity. The purpose of title insurance is to protect the insured against defects in title. In the underlying litigation, the plaintiff is seeking to set aside the transfer of the property to the applicant on a number of grounds. As this is a claim against title, the respondent properly agreed to defend the applicant. Without having title to the property, however, there is no longer any defect in title to defend.
[66] Condition 2 of the policy deals with coverage. Coverage under the policy continues so long as the insured has title to the property. It is clear that without title there would be no defects to title to defend and the coverage provided by the policy would come to an end. In my view, the policy is not required to state that the insurer may end its duty to defend when the insured no longer owns the property as ownership is an issue of coverage. The policy clearly states that coverage ends when the applicant ceases to be the owner of the property.
[67] If there is ambiguity in the policy wording, I am to rely upon the general rules of contract construction. One of those rules is that courts should prefer interpretations that are consistent with the reasonable expectations of the parties, so long as such an interpretation can be supported by the policy wording. Courts should also avoid interpretations that would give rise to an unrealistic result.
[68] In my view, an interpretation of the policy that requires a title insurer to continue to defend a claim alleging defects in title, when the insured no longer owns the property, is an unrealistic result and is not consistent with the reasonable expectations of the parties. As the applicant no longer owns the property, there is no title to defend. As such, coverage under the policy comes to an end when the insured no longer owns the property. As the insured no longer owns the property, the plaintiff in the underlying action cannot be successful in asserting any interest in title against the insured. The plaintiff cannot be successful in seeking any relief against the insured, such as setting aside the sale of the property, as the insured no longer owns the property. Any relief the plaintiff seeks relating to title should be asserted against the current owner and not the applicant. It is not a reasonable expectation of the applicant that an insurance company that protects claims against title would continue to defend it in an action when it no longer owns title to the property.
[69] This interpretation of the policy is also consistent with the Owner’s Coverage Statement in the policy, which states that the insurance is limited by the exclusions and conditions in the policy. Hence, insurance is only available so long as the insured owns the property, as set out in Condition 2.
[70] Furthermore, once the insured lost title to the property, it was in breach of Condition 2. There is no dispute that the applicant lost title through power of sale proceedings. This is not a situation where there could be a dispute about whether the breach occurred. Furthermore, the loss of ownership of title is a significant breach for which there would be no relief from forfeiture.
[71] In both 100 Investments and 915 Decatur, the courts found that coverage ended when the insured no longer owned the property. In 100 Investments, the policy included a condition that coverage would continue as long as the insured retained an interest in the land. The court found at p. 4 as follows:
A natural reading of this policy language evinces the intent of the parties to limit the scope of title protection to the period running from the effective date of the policy until the insured conveys away its interest in the land… and any risk of loss for defective title becomes the problem of the new owner.
[72] The court also commented that the insurer has title insurance coverage during the period when the insured owns the property, when most of the adverse consequences due to defective title would occur. Once the property is conveyed, any defect in title would pass to the new owner and the insured would no longer have risk, nor coverage.
[73] 100 Investments was followed in 915 Decatur. In 915 Decatur, the court also found that the insured’s transfer of its interest in the property meant that coverage ended at the time of the transfer.
[74] This interpretation of the policy wording is also in accordance with the legal principles governing an insurer’s duty to defend. If the plaintiff in the underlying action is successful, it would have no recourse against the applicant, as the applicant no longer owns the property. The plaintiff cannot set aside the transfer of the property to the applicant, as the applicant no longer owns the property.
[75] A duty to defend only exists where the insurer would be required to indemnify the insured for the claim if the facts alleged in the pleading are proven to be true. All that is required is a mere possibility that a claim falls within the insurance policy. In this case, even if the plaintiff in the underlying litigation is successful, he cannot recover any relief from the applicant as it relates to title to the property, as the applicant no longer owns the property.
[76] Furthermore, as the applicant no longer owns the property, there is no coverage under the policy, as there are no title issues or defects to defend. Insurers are only obliged to defend those claims which, as set out in the pleadings, fall within the scope of coverage.
[77] For these reasons I find that if there is no claim for damages in the amended pleading, the respondent would have no duty to defend the applicant.
Issue Three: Is the Respondent Estopped from Denying the Applicant a Defence?
[78] During the course of the litigation, the plaintiff in the underlying action brought a motion seeking the registration of a CPL on title to the property, presumably on the basis that he was advancing a claim that asserted an interest in the property. Counsel retained by the respondent responded to the motion and negotiated a settlement that avoided a CPL being registered on title. The settlement required the applicant to give the plaintiff notice if it intended to sell the property, so that the plaintiff could then seek a CPL at that time.
[79] The applicant’s position is that by negotiating this resolution, which included a contemplation that the property might be sold, the respondent is now estopped from relying upon that sale to deny the applicant a defence.
[80] The principle of estoppel requires evidence of reliance on a representation: Maracle v. Travelers Indemnity Co. of Canada, 1991 CanLII 58 (SCC), [1991] 2 S.C.R. 50, 3 O.R. (3d) 510, at p. 57. In this matter, the applicant did not sell the property, but rather, lost title in power of sale proceedings when it defaulted on the vendor-take-back mortgage. Had the applicant sold the property and claimed that it did so, relying upon the respondent negotiating a settlement of the CPL motion that contemplated a sale, it is possible that estoppel may be made out. As the applicant lost title not by its decision to sell the property but though its inability to service the mortgage, it cannot be argued that it placed any reliance on the respondent’s settlement of the CPL motion to provide the plaintiff with notice of its intention to sell the property.
Conclusion
[81] I find that there is a claim for damages in the amended Statement of Claim and, as such, the respondent owes the applicant a duty to defend it in the underlying litigation.
[82] The applicant is entitled to its costs. If the parties cannot agree on quantum, the applicant may serve and file its Costs Outline by December 7, 2020 together with any further written submissions (maximum two pages). The respondent may serve and file its written response (maximum of two pages) by December 21, 2020.
L. Shaw J.
Released: November 10, 2020
COURT FILE NO.: CV-18-1310-00 DATE: 2020 11 10
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
1152729 BC LTD Applicant
– and –
CHICAGO TITLE INSURANCE COMPANY CANADA Respondent
REASONS FOR DECISION
L. Shaw J.
Released: November 10, 2020