COURT FILE NO.: 12-53886
DATE: 2021/04/30
COURT OF ONTARIO, SUPERIOR COURT OF JUSTICE
RE: CARMEN SCAFFIDI-ARGENTINA, MICHAELANGELO SCAFFIDI-ARGENTINA, SHEILA SCAFFIDI-ARGENTINA and MARISSA SCAFFIDI-ARGENTINA, Plaintiffs
AND
TEGA HOMES DEVELOPMENTS INC, GOODEVE MANHIRE INC., GOODEVE MANHIRE PARTNERS INC., PATERSON GROUP INC. and THE CITY OF OTTAWA, Defendants
BEFORE: Regional Senior Justice Calum MacLeod
COUNSEL: Hamish Mills-McEwan for the moving party (Certas Insurance) Jamie Spotswood & Rachel Migicovsky for the responding party (Tega)
HEARD: March 25, 2021
DECISION and reasons
[1] This is another motion in what has become an ongoing legal saga. This motion is brought by the insurer for the plaintiff and seeks an order enforcing the settlement of its subrogated claim. The defendant agreed to pay this portion of the claim in 2015, but it has not done so. I am asked to grant judgment and to order the sum of $400,000.00 be paid immediately together with interest and costs.
[2] There is no doubt there was a settlement and a promise to pay. The issue is whether payment is now due. I have concluded that it is.
[3] There is also a procedural question. Can an agreement with the plaintiff’s insurer be enforced by a motion in this action? The latter question is complicated by an unusual set of procedural steps, but I have concluded that it is appropriate to make the requested order. It would be unjust and disproportionate to require a separate legal proceeding.
Background
[4] The facts underlying this litigation have been generally described in various decisions of the court. In 2011 the defendant, Tega, was excavating on its own property at 485 Gladstone Avenue, Ottawa, in order to construct a multi-unit condominium.[^1] The excavation and dewatering of the site resulted in subsidence of the neighbouring property at 58 Florence St. Damage started to appear in May of 2011 and worsened as work continued. In June of 2011, the City declared the plaintiff’s five-unit residential premises to be unsafe for habitation.
[5] As I will discuss, there has been a trial to assess the plaintiff’s damages, but not to determine liability. Consequently, there are findings of fact made by Justice Sheard in relation to the damage inflicted on the plaintiff’s property, quantification of that damage and assessment of mitigation efforts.[^2] It should be noted, however, that there have never been definitive findings of fact concerning the precise cause of the collapse, who should bear the ultimate responsibility for it and whether or not there was negligence on the part of any of the defendants. Nor has there been any determination as to whether or not the plaintiffs bore any responsibility themselves.
[6] This litigation commenced in March of 2012. The plaintiffs sued in negligence and in nuisance for the loss of support of their land and the resulting property damage and loss of income. The defendants in the original action were Tega, as the landowner and developer, as well as two of its sub-contractors. Goodeve Manhire was the designer and inspector and monitor of the shoring system. Paterson Group was the geotechnical soil and groundwater consultant.[^3] Tega crossclaimed against the other defendants. There is also a third-party claim against Dufresne which was the excavation and shoring sub-contractor.[^4]
[7] There were two main impediments to early resolution of this matter. The first was the demand by the plaintiff for damages which greatly exceeded what any of the defendants thought was reasonable and the second was the inability of the defendants to agree on a liability split. There were also insurance issues resulting from overlapping insurance policies, exclusions and cross-indemnity agreements.[^5] Ultimately, the parties to the litigation agreed to bifurcate the action and to have an assessment of damages prior to a trial on liability.
[8] State Farm Fire and Casualty Company was the property insurer for the plaintiffs.[^6] Pursuant to the policy, State Farm paid the plaintiff for certain damage to their property and one year of lost rental income, but the plaintiffs incurred additional damages that were not insured. Consequently, the plaintiff commenced this lawsuit seeking damages for uninsured losses in addition to State Farm’s subrogated claim. State Farm had counsel but did not take carriage of the action. I assume this is because the plaintiff’s damage claim was for much more than the subrogated claim.[^7] The plaintiffs had their own counsel and pursued the action to trial.
[9] Well before the damages trial, Tega had decided to resolve the subrogated portion of the claim separately from the plaintiff’s other claims. In May of 2015, Tega settled with State Farm by agreeing that it would pay the sum of $400,000.00 in full settlement of the subrogated portion of the claim. State Farm had been pursing recovery of slightly more than $520,000.00 so this represented a significant discount and was less than the amount State Farm had paid out to the plaintiffs. It was also a term of the settlement, that State Farm would not receive immediate payment. The agreement was that State Farm would wait for funding until a settlement with the named plaintiffs, or until the outcome of the liability trial. State Farm then advised counsel for the named plaintiffs that it was no longer necessary to protect its subrogated interest.
[10] At the time of the settlement with State Farm, the parties had agreed to bifurcation of the trial and it was anticipated there would first be an assessment of damages followed some months later by a liability trial if it was necessary. Presumably the parties felt that if the damages were quantified, resolution might be possible. At that time, however, based on the pleadings, the liability trial would have included the following issues:
a. Tega’s liability to the plaintiffs in nuisance or negligence or both;
b. Liability of Goodeve or Paterson to the plaintiffs in nuisance or negligence or both;
c. Potential contributory negligence on the part of the plaintiffs
d. Crossclaims by and against Tega with its co-defendants (Goodeve and Paterson) for contribution and indemnity based on negligence or on the duty to cross insure or under the Negligence Act.
e. The third-party claim by Goodeve and Paterson against Dufresne is based on negligence in excavating, shoring installation and other allegations.
[11] Just prior to the scheduled commencement of the damages trial, the named plaintiffs made an agreement releasing Goodeve, Paterson and the City of Ottawa from the action. The mechanism for this was, I believe, the acceptance of an outstanding offer to settle. Tega agreed to release the City from the action but continued its crossclaims against Goodeve and Paterson. As far as I am aware, counsel for State Farm was not involved in this decision. Justice Sheard signed a consent order on January 11, 2016.
[12] The damages trial proceeded in January of 2016. Justice Sheard released her decision in August of that year. The judge heard further argument and released supplementary reasons in June of 2017. One of the reasons for the subsequent hearing was to adjust the damages by deducting the insured losses sustained by the plaintiffs. Because of the settlement with State Farm, the plaintiff was not entitled to include the subrogated aspects of the claim in its own damages. Ultimately Justice Sheard gave judgment for the named plaintiff net of the insurance proceeds in the amount of $658,054.28.[^8]
[13] The situation in June of 2017 was therefore as follows. Tega had agreed to pay $400,000.00 to State Farm for the subrogated portion of the loss. The plaintiffs’ unsubrogated loss had been quantified by the court at $658,054.28. Neither of these amounts were immediately payable. State Farm had agreed that it would be paid if there was a settlement or else it would await the decision of the court following the “liability trial”. Similarly, the judgment in favour of the named plaintiff for the unsubrogated losses was not enforceable until the determination of liability.
[14] It is worth pausing to observe that there was virtually no chance of Tega avoiding liability to the plaintiffs. Liability for removing support and causing damage to neighbouring property lies in nuisance and subject to certain exceptions, is strict liability.[^9] The ability of the plaintiff to succeed against Goodeve or Paterson was far less certain because there were various theories of exactly what went wrong to cause the subsidence in the soil and of course various theories as to whether Goodeve or Paterson were negligent. Moreover, while it may seem to be the same question, the issue of whether or not Goodeve or Paterson (or both) had direct liability to the plaintiffs is not identical to the question of whether or not the co-defendants were obligated to indemnify Tega. Tega was in a direct contractual relationship with Goodeve and Paterson and as subsequent events would demonstrate, there are also insurance issues which bear on the question.
[15] At that time the liability trial was still scheduled to be heard in December of 2017 and Justice Sheard was scheduled to hear that part of the trial as well. But the named plaintiffs had agreed to dismissal of their claim against Goodeve and Paterson. So, the only issues remaining for the liability trial would have been Tega’s liability to the plaintiffs (net of any contributory negligence), any obligation on the part of Goodeve and Paterson to indemnify Tega and the third-party action against Dufresne.
[16] In November 2017, following a pre-trial, Tega decided to settle with the named plaintiffs. The settlement involved paying the plaintiffs the full amount of the damages calculated by Justice Sheard in exchange for a release. This accomplished several things. Firstly, it eliminated the plaintiffs from the lawsuit without further exposure to interest and costs. It also saw the plaintiffs fully compensated for an incident which had been no fault of theirs. It promised to streamline the liability trial which would then simply be a trial of the crossclaims – and possibly the third-party claim.
[17] Significantly, however, this decision did not involve counsel for State Farm and State Farm was not advised of this settlement. Yet, it significantly altered the landscape. Most importantly, there will now never be a liability trial as such. There will be no determination by the court on what basis Tega was liable to the plaintiffs, whether that liability was strict or negligence based or whether Tega was negligent at all. There will be no determination as to what duty Goodeve or Paterson owed to the plaintiffs and whether or not there would have been liability flowing from involvement by these defendants after the damage started to appear.[^10] The liability trial would, at that point, only be a trial of the crossclaims and perhaps the third-party claim. From that point on, the litigation was almost entirely a matter of insurance companies attempting to reallocate the loss.
[18] This had a number of consequences. Firstly, from a pleadings standpoint, the crossclaims were not fully articulated independent claims against Goodeve or Paterson for negligence or breach of contract. They were simply bare bones pleadings claims for contribution and indemnity. Secondly, and more significantly, the defendants by crossclaim had never pleaded to the crossclaims but had relied upon the deemed defence to [^11]crossclaim permitted by the rules. Both defendants indicated their intention to amend their pleadings to plead extensive technical defences under insurance law and to raise other defences that they had not specifically pleaded before that time. This was the subject of a motion ultimately argued before me in March of 2018.[^12]
[19] Amongst other factors, the debate over pleading amendments and related debates over production and discovery resulted in the postponement of the liability trial. Then the COVID epidemic hit and most civil trials were postponed. As the case management judge, I had originally refused to schedule a summary judgment motion when the trial appeared imminent[^13]. After the temporary suspension of civil trials, however, I permitted Goodeve to schedule and argue a motion on the issue of the subrogation bar.[^14]
[20] That summary judgment motion was heard and determined by Justice Hackland. Justice Hackland accepted the submissions of the moving party (Goodeve) that Tega was precluded from seeking contribution and indemnity.[^15] I understand that decision is under appeal, but if it is upheld, Tega will not be able to recover any amounts that are covered by the project insurance policy from the defendants by crossclaim. Whatever the outcome of the appeal, this illustrates the difference between a crossclaim and the plaintiff’s original action. The crossclaims involve technical legal arguments that would not have applied to the plaintiffs and may be determined without any determination of fault.
[21] State Farm has now grown tired of waiting. State Farm only became aware that Tega had settled with the plaintiff in April of 2018. At that time, counsel for State Farm was advised that Tega had settled with the plaintiff, but Tega did not intend to pay until after the liability trial which would not take place for some months. State Farm did not launch this motion immediately, but did so after it became clear that the trial would not be taking place and it also became clear that the co-defendants took the view that the trial of the cross claims was a significantly different affair than the original liability trial. This issue first came up at a case conference on November 22, 2019 in which counsel for State Farm was not involved. State Farm was involved in subsequent case conferences and announced its intention to bring this motion.
[22] State Farm takes the position that Tega did settle with the named plaintiffs and therefore is obliged to make payment to State Farm. Alternatively, Tega has unilaterally made decisions which altered the nature of the proposed liability trial. There is no reason why State Farm, the insurer of the innocent plaintiff, should now have to wait for the resolution of this intractable debate amongst the defendants’ insurers.
[23] Tega says otherwise. Tega argues that the agreement was clear. There will be no payment until the question of liability amongst the original co-defendants is determined. Alternatively, Tega argues, the agreement should be set aside.
[24] The latter proposition is untenable. State Farm cannot now pursue the original action. The named plaintiffs have signed releases and the main action has been dismissed. State Farm also released counsel for the plaintiffs from the obligation to protect its interest on the basis of the settlement. To set aside the agreement and put the parties back in their original position would also require undoing a series of other steps that would affect other parties who have long put this matter behind them.
[25] Tega (or its insurer) do not seek to resile from the agreement. It is simply Tega’s position that State Farm should wait until it is finally determined if Goodeve or Paterson or both have to contribute funds to cover the payments to the plaintiffs (and State Farm) as well as to another settlement in another action by another landowner. There is a possibility this will be resolved by the Court of Appeal shortly, but that is by no means certain. At this point, there is nothing in evidence before me to indicate that the parties agree that there will be nothing more to litigate if Justice Hackland’s decision is upheld.
Can State Farm bring this Motion?
[26] To Tega’s credit, it was never argued that State Farm did not have standing to bring this motion. Nevertheless, I should address it because the court ordinarily has no jurisdiction to make awards in favour of non-parties. The insurer of the plaintiff has no independent right to sue the defendants for amounts it paid out under the plaintiff’s insurance policy. Its right to seek recovery is through the plaintiff by right of subrogation.
[27] Ordinarily the insurer is not a party to the litigation. It would seek to step into the shoes of the plaintiff and advance the claim in the plaintiff’s name. In this case, however, the plaintiffs went to trial only to recover the non-subrogated losses (that is their damages net of the amount paid to them by State Farm) because Tega had made this agreement with State Farm to pay $400,000.00.
[28] Although State Farm was not a party to the action, Tega dealt with counsel for State Farm separately from counsel for the plaintiffs. When the settlement was made, the benefit to Tega was to cap a portion of the damages and to have the insured losses deducted from the plaintiff’s damages. As noted above, this did not stop the plaintiffs from trying to claim those damages, but Justice Sheard held that the result would have been double recovery.
[29] In a sense this arrangement was somewhat similar to a Pierringer Agreement. At trial, the plaintiffs had to prove all of their losses and then Justice Sheard deducted what they had actually received from State Farm. The only justification for that reduction in damages was the fact that Tega was to reimburse State Farm for the amount State Farm had agreed to accept.
[30] Under these circumstances, in which Tega obtained the benefit of the agreement with State Farm by having the insurance proceeds paid to the plaintiffs deducted from the judgment, it would be artificial and highly unjust to hold that State Farm had no right to enforce the agreement in the context of this action. In that case State Farm would have to start a separate lawsuit to sue Tega or its insurer under the settlement. It would not be fair to require them to sue to enforce the agreement as the settlement was integral to the action and to the calculation of damages.
[31] I conclude that State Farm does have standing to bring this motion. It would be artificial to require it to do so in the name of the plaintiffs who have signed a release. It would also be unjust to enforce the release given by the plaintiffs against State Farm. Tega never understood the plaintiffs to be releasing the subrogated claim that Tega had independently agreed to pay.
[32] Rule 20 is an appropriate vehicle. There is no genuine issue requiring a trial if there is a binding settlement. Rule 49.09 may be useful by analogy, but strictly speaking it only applies to Rule 49 offers to settle and not to agreements that are made outside the framework of that rule. In any event, Rule 49.09 engages the Rule 20 framework.[^16]
Is the money due now?
[33] To turn to the critical question, I conclude that it is. Firstly, there was a settlement with the plaintiff. Secondly, and partly because of that settlement, there will be no liability trial as such. There is now only a battle between Tega and its former co-defendants as to whether or not Tega is entitled to be indemnified for the amounts it has paid.
[34] In my view Tega was obligated to advise counsel for State Farm that it had settled with the named plaintiffs at the time that settlement was made and it similarly had an obligation to advise State Farm when it obtained a release from the plaintiffs and agreed to dismissal of the action. Tega’s actions at that time fundamentally changed the landscape of the “liability trial”. In interpreting a settlement agreement the context and surrounding circumstances are always important.[^17] When the circumstances and the context are examined, there is little doubt that an objective observer would conclude that the settlement Tega reached with the named plaintiffs to pay out the damages assessed by Justice Sheard (net of the payments made by State Farm) in order to avoid the plaintiff having to participate in the next phase of trial was a “settlement with the plaintiffs” within the meaning of the agreement and the contemplated “liability trial” would never take place as such.
[35] There is no reason in principle, that electing to pay the named plaintiffs in order to cap its liability to the plaintiffs should not also have triggered its liability to pay State Farm. As noted earlier, it is impossible or impractical to undo the agreement or to set it aside. This is due to the actions taken by Tega without the involvement of counsel for State Farm in obtaining a release from the named plaintiffs and consenting to dismissal of the main action.
[36] There is no prejudice to Tega. All of Tega’s actual payments and liability to pay damages for the impact of its excavation on the property owned by the named plaintiffs in this action are the subject of the crossclaims. If Tega is ultimately entitled to indemnity, then the indemnity will cover both the amount it has already paid to the named plaintiffs and the amount it will now be required to pay to State Farm.
Summary & Conclusion
[37] For the reasons given above, I find in favour of the moving party. Tega is to pay the sum of $400,000.00 to Certas Home and Automobile Insurance (formerly State Farm) and will also be liable for the costs of this motion to be agreed upon, fixed, or assessed.
[38] In the event there are costs issues such as an offer to settle this motion that I am not presently aware of or if the parties agree that costs should be fixed by me, they may approach my office for further direction. Similarly, no argument was directed to the question of pre-judgment interest and if that requires further submissions, I may be spoken to.
Mr. Justice C. MacLeod
Date: April 30, 2021
COURT FILE NO.: 12-53886
DATE: 2021/04/30
ONTARIO SUPERIOR COURT OF JUSTICE
RE: Carmen Scaffidi-Argentina, Michaelangelo Scaffidi-Argentina, Sheila Scaffidi-Argentina and Marissa Scaffidi-Argentina, Plaintiffs
AND
Tega Homes Developments Inc., Goodeve Manhire Inc., Goodeve Manhire Partners Inc., Paterson Group Inc. and The City of Ottawa, Defendants
BEFORE: Mr. Justice Calum MacLeod
COUNSEL: Hamish Mills-McEwan for the moving party (Certas Insurance) Jamie Spotswood & Rachel Migicovsky for the responding party (Tega)
DECISION AND REASONS
Regional Senior Justice Calum MacLeod
Released: April 30, 2021
[^1]: Tega Homes Developments Inc., referred to as “Tega” [^2]: The facts have been described in more detail in several previous decisions and in particular in the damages trial decision by Justice Liza Sheard. See Scaffidi-Argentina v. Tega Homes Developments Inc., 2016 ONSC 5448, 60 C.L.R. (4th) 138, 72 R.P.R. (5th) with further reasons at 2017 ONSC 3427, 71 C.L.R. (4th) 159. [^3]: Goodeve Manhire Inc. and Goodeve Manhire Partners Inc. “Goodeve” and Paterson Group Inc. “Paterson”. [^4]: Dufresne has the same insurer and counsel as Tega but is not involved in this motion. [^5]: See Goodeve Manhire Inc. v. Encon Group Inc., 2016 ONSC 7005, 61 C.C.L.I. (5th) 216, 63 C.L.R. (4th) 320 containing the reasons of Roger J. on a coverage motion. [^6]: State Farm is now Certas Home and Automobile Insurance. [^7]: See the decision of Justice Sheard. Originally the plaintiffs sought the cost of rehabilitating the property and rebuilding a new building code compliant rental property. Justice Sheard decided that the proper approach was “diminution in value” and assessed the damages using that approach. [^8]: This represented the diminution in value of the lands as opposed to the cost of replacing the building and the lost profits which had been the quantum of damages sought by the plaintiffs. [^9]: See Pugliese v. Canada (National Capital Commission), (1977) 1977 CanLII 49 (ON CA), 17 O.R. (2d) 129, 79 D.L.R. (3d) 592 (ONCA); Ardivicius v. Kairys, (2009) 84 RPR (4th) 316, [2009] O.J. No. 2402 (Quicklaw), 2009 Carswell Ont 3317 (Div. Ct.) [^10]: For example, the plaintiff had pleaded negligence on the part of Paterson in connection with a report prepared for the City in June of 2011 addressing the structural integrity of the plaintiffs’ property. [^11]: There was also an ill-fated motion for a ruling that Justice Sheard was seized of the matter despite having been transferred to another region. See Scaffidi-Argentina v. Tega Homes Developments Inc., 2019 ONSC 4170, 146 O.R. (3d) 542 [^12]: Scaffidi-Argentina v. Tega Homes Developments Inc., 2018 ONSC 4274, 92 C.L.R. (4th) 133 [^13]: Scaffidi-Argentina v. Tega Homes Developments Inc., 2019 ONSC 4170, supra [^14]: Scaffidi-Argentina v. Tega Homes Developments Inc., 2020 ONSC 3232 [^15]: Scaffidi-Argentina et al. v. Tega Homes Developments Inc. et al., 2020 ONSC 6656, 8 C.C.L.I. (6th) 223 [^16]: See Hashemi-Sabet Estate v. Oak Ridges Pharmasave Inc., 2018 ONCA 839 and Capital Gains Income Streams Corp. et al. v. Merrill Lynch Canada Inc., (2007) 2007 CanLII 39604 (ON SCDC), 87 OR (3d) 464 (Div.Ct.) [^17]: Puri Consulting Limited v. Kim Orr Barristers PC, 2015 ONCA 727,