COURT FILE NO.: CV-17-0297-00
DATE: 2021/06/01
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
The Corporation of the City of Belleville
Plaintiff
– and –
Gore Mutual Insurance Company, The Dominion of Canada General Insurance Company, The Guarantee Company of North America and Northbridge General Insurance Corporation
Defendants
Lawrence G. Theall and Jeffrey A. Brown, for the Plaintiff
Steven Stieber, for the Defendants, The Guarantee Company of North America and Northbridge General Insurance Corporation
C. Kirk Boggs, for the Defendant, Gore Mutual Insurance Company
Thomas J. Donnelly and Joyce Tam, for the Defendant, The Dominion of Canada General Insurance Company
HEARD: December 7, 2020 by Zoom at Belleville
decision on motion
kershman J.
Introduction
[1] Each of the Defendants has brought a motion against the Plaintiff to determine the issue of whether the Defendants owe the Plaintiff a duty to defend relating to a Director’s Order issued by the Ontario Ministry of the Environment and Climate Change (“MOECC”) on August 31, 2015 against the City of Belleville (“Belleville”). Belleville has appealed the Director’s Order and sought relief at the Environmental Review Tribunal (“ERT”).
Factual Background
Dominion of Canada General Insurance Company (“Dominion”)
[2] Dominion provided some of the factual background as set out below.
Belleville’s Ownership of the Gas Plant
[3] The Belleville Gas Plant was built in 1854 and it is believed to have started operations in the same year. The owner at the time was the Belleville Gas Company, which had a 50-year franchise for the operation of the plant.
[4] At the expiry of the 50-year period, ownership of the plant was transferred to Belleville who owned and operated the plant from January 5, 1904 to September 1, 1931.
[5] On September 1, 1931, Belleville sold the plant to the Ontario Shore Gas Company Ltd. Belleville reacquired the plant on November 5, 1936 and either it or the Public Utilities Commission (“PUC”) operated the plant until 1947, at which time gas production ceased. In mid-1948, Belleville transferred ownership of the plant to the PUC.
[6] Other parties owned the gas plant lands either before or after Belleville owned them.
Identity of the Orderees
[7] The Director’s Order was made against the following individuals and entities, all of whom are current or former owners of the lands, or who are officers or directors of corporate owners:
(a) Belleville;
(b) Sidney Spiegel;
(c) 835267 Ontario Inc.;
(d) Naomi Spiegel;
(e) 105 Pinnacle Ltd.;
(f) Kent D. Hawkins;
(g) Darlene Hawkins; and
(h) Anthony J. McGarvey.
The Director’s Findings Regarding Pollution
[8] The Director’s findings about pollution on the site are set out in the order. In summary, the Director found that:
(a) The site is contaminated with contaminants associated with the operation and/or decommissioning of the plant, including coal tar, PAHs, VOCs and PHCs.
(b) These contaminants were present on site and off-site, and off-site migration continues.
(c) The contaminants in, on or under the site were discharged into the environment for 93 years during the plant’s operation from 1854 to 1947 and/or the decommissioning of the plant.
(d) All of the orderees were previously or are currently the owners of the site or were persons in charge, management or control of the site.
Orders Made
[9] The Director’s Order requires the orderees (including Belleville) to take certain steps with respect to remediating the site. The orders are lengthy and are only summarized here:
(a) Retaining a Qualified Person as defined in the order;
(b) Submitting a work plan prepared by the Qualified Person regarding: abatement of discharge, reducing adverse effects and notifying people and entities affected by the discharge of contaminants;
(c) Consulting with such people and entities; and
(d) Submitting interim and final reports with respect to the work.
Status of the Coverage Litigation
[10] The coverage action by Belleville against the insurers remains at the pleadings stage. In particular, pleadings have closed, but no further steps have been taken. Affidavits of Documents have not been exchanged and discoveries have not been arranged.
Dominion of Canada General Insurance Company
[11] The Dominion policy was originally for 15 1/2 months ending on December 31, 1971. The policy was renewed for 11 subsequent policy terms from December 31, 1971 to December 31, 1984.
[12] The policy obliged Dominion to defend Belleville against any civil action on account of any bodily injury or damage to property, to pay or indemnify Belleville for all costs and interest awarded against Belleville in such actions and to reimburse Belleville for all reasonable costs incurred at Dominion‘s request.
Gore Mutual Insurance Company
[13] Gore Mutual Insurance Company (“Gore Mutual”) adds the following additional facts for the assistance of the Court with respect to its own policies.
[14] Gore Mutual initially insured Belleville pursuant to Municipal Liability Policy M 10269. It provided liability coverage as specified in the Insuring Agreements to Belleville and other entities set forth in the Declarations for the policy period January 25, 1969 to January 25, 1970. Thereafter, coverage under Policy M 10269 was renewed on a yearly basis until January 1, 1979.
[15] While the coverage provided by Policy M 10269 changed in limited ways over the years, none of those changes are material to the issue to be determined on this motion. In all policy years, Policy M 10269 contained the same duty to defend obligation. The relevant Additional Insuring Agreements state:
To defend in the name and on behalf of any person insured by this policy and at the cost of the Insurer any civil action which may at any time be brought against such person on account of such loss or damage to persons or property; and
To pay all costs taxed against any person insured by this Policy in any civil action defended by the Insurer and any interest accruing after entry of judgment upon that part of the judgment which is within the limits of the Insurer’s liability; [Emphasis added.]
[16] Effective January 1, 1979, Gore Mutual insured Belleville pursuant to Municipal Liability Policy M 12257. It provided liability coverage as specified in the Insuring Agreements to Belleville and other entities set forth in the Declarations for the policy period January 1, 1979 to January 1, 1980. Thereafter, coverage under Policy M 12257 was renewed on a yearly basis until January 1, 1982. In all policy years, the relevant Additional Insuring Agreements remained as set out above.
[17] Gore Mutual did not insure Belleville after January 1, 1982.
The Guarantee Company of North America and Northridge General Insurance
[18] In addition, The Guarantee Company of North America (“Guarantee”) and Northbridge General Insurance Corporation (“Northbridge”) rely upon the following facts pertaining to their respective policies of insurance.
[19] Municipal Liability Policy No. M21075 was issued to the Plaintiff by Guarantee for the policy period of January 1, 1982 to January 1, 1983 (“Guarantee Policy #1”).
[20] As set out in the insuring agreement of Guarantee Policy #1, Guarantee agreed:
To defend in the name and on behalf of any person insured by this policy and at the cost of the Insurer any civil action which may at any time be brought against such person on account of such loss or damage to persons or property; [Emphasis added.]
[21] Municipal Liability Policy No. M21586 was issued to the Plaintiff by Guarantee for the policy period of January 1, 1983 to January 1, 1984 and was renewed for two subsequent one-year policy periods from January 1, 1984 to January 1, 1985 and from January 1, 1985 to January 1, 1986 (“Guarantee Policy #2).
[22] The insuring agreement of Guarantee Policy #2 provides that Guarantee would:
[D]efend in the name and on behalf of, any person insured by this policy and at the cost of the Insurer, any civil action for damages covered by this policy which may at any time be brought against such person on account of such loss or damage to persons or property, even if any of the allegations in such action are groundless, frivolous, false or fraudulent .… [Emphasis added.]
[23] Environmental Liability Policy No. EP40412, subscribed to by Guarantee and Northbridge (previously known as Lombard General Insurance Company of Canada), was a claims-made policy issued to Belleville for the policy period of May 31, 2005 to May 31, 2006 and was renewed for a subsequent one-year policy period from May 31, 2006 to May 31, 2007 (the “Environmental Policy”).
[24] Under the Additional Insuring Agreement of the Environmental Policy, Guarantee and Northbridge agreed:
(b) To defend in the name and on behalf of, any Corporation or person insured by this Policy and at the cost of the Insurer, that part of any civil action claiming compensatory damages covered by this Policy, even if any of the allegations in the action are groundless, frivolous, false or fraudulent …. [Emphasis added.]
Issues
[25] Broadly, there are three issues in this case:
Is a Rule 21 Motion appropriate for this case?
Is the Director’s Order a “civil action” within the meaning of the Insurers’ liabilities policies?
If the answer to question no. 2 is “yes”, then do the Insurers have a duty to defend Belleville?
Issue #1: Is a Rule 21 Motion Appropriate for This Case?
[26] This motion is brought pursuant to r. 21 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. In relevant part, r. 21 reads as follows:
21.01 (1) A party may move before a judge,
(a) for the determination, before trial, of a question of law raised by a pleading in an action where the determination of the question may dispose of all or part of the action, substantially shorten the trial or result in a substantial saving of costs; or
(b) to strike out a pleading on the ground that it discloses no reasonable cause of action or defence,
and the judge may make an order or grant judgment accordingly. R.R.O. 1990, Reg. 194, r. 21.01 (1).
(2) No evidence is admissible on a motion,
(a) under clause (1) (a), except with leave of a judge or on consent of the parties;
(b) under clause (1) (b). R.R.O. 1990, Reg. 194, r. 21.01 (2).
A. The Positions of the Insurers
[27] Dominion argues that this is an appropriate case in which to bring an r. 21.01(1)(a) motion. An insurer’s duty to defend is based only on the pleadings, the documents referred to in the pleadings and the insurance policy. Accordingly, this issue is eligible for determination under r. 21.01(1)(a). To this end, Dominion relies upon Longarini v. Zuliani (1994), 1994 CanLII 1283 (ON CA), 113 D.L.R. (4th) 633 (Ont. C.A.), at pp. 637-638; Versa Fittings v. Berkley Insurance Co., 2015 ONSC 1756, 47 C.C.L.I. (5th) 96, at para. 23.
[28] Dominion argues that no evidence is admissible on an r. 21.01(1)(a) motion, but the Court can consider documents referred to in the pleadings: Web Offset Publications Ltd. v. Vickery (1999), 1999 CanLII 4462 (ON CA), 43 O.R. (3d) 802 (C.A.), leave to appeal to S.C.C. refused, 27505 (May 11, 2000). Both the Director’s Order and Dominion’s insurance policies are referred to in Belleville’s statement of claim and they are therefore admissible on this motion.
[29] Gore, Guarantee and Northbridge adopt Dominion’s submissions in this respect.
B. The Position of Belleville
[30] Belleville agrees with Dominion’s characterization of the law on r. 21 motions. Belleville also agrees that the Court can consider the Director’s Order and Dominion’s insurance policies, as they are referred to in Belleville’s statement of claim. For the same reason, Belleville argues that the Court can consider the insurance policies of Gore, Guarantee and Northbridge and Belleville’s notice of appeal, all of which are contained in the statement of claim.
[31] However, Belleville takes issue with Dominion’s argument, at para. 65 of its factum, that Belleville was not involved in the formation of the insurance contract issued by Dominion. Belleville argues that there is no evidence on this issue before the Court and that such evidence would not be admissible on an r. 21.01(1)(a) motion, except with leave. Belleville agrees that it is an additional insured to the contract but states that whether it was involved in the formation of the Dominion policy is a question for another day. Further, the focus on the identity of the parties is misplaced, since this is a standard form insurance contract, the terms of which should be construed consistently: Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, at paras. 28 and 31-32.
C. Analysis
[32] All parties agree that this is a proper r. 21 motion.
[33] The Court finds that an r. 21 motion is appropriate in this case.
[34] Belleville takes issue with Dominion’s arguement at para. 65 of its factum that Belleville was not involved in the formation of the insurance contract.
[35] As to the argument by Belleville that it was not involved in the formation of the insurance contract issued by Dominion, the Court finds that this is a question for another day.
[36] Therefore, the Court finds that this is a proper r. 21 motion.
Issue #2: Is the Director’s Order a “Civil Action” Within the Meaning of the Insurers’ Liabilities Policies?
[37] In this matter, the Court is asked to consider whether environmental regulatory proceedings should be considered a “civil action” under insurance liability policies.
A. The Positions of the Insurers
[38] The main focus of Dominion’s submission is that, because a Director’s Order is not a “civil action”, it has no duty to defend Belleville. Dominion states that this is a question of law to be determined on the wording of the insurance policy.
[39] First, Dominion argues that the starting point when interpreting an insurance policy is a consideration of the ordinary meaning of the words at issue. The ordinary meaning is to be determined by way of reference to the ordinary person, not to the person versed in the niceties of insurance law: National Bank of Greece (Canada) v. Katsikonouris, 1990 CanLII 92 (SCC), [1990] 2 S.C.R. 1029, at p. 1043. The average person would understand “civil action” to refer to private claims in court proceedings, not to a mandatory clean-up order issued by an environmental regulator. Moreover, Dominion relies on Pictou District School Board v. Royal Insurance Co. of Canada (1991), 1991 CanLII 4376 (NS SC), 102 N.S.R. (2d) 167 (S.C. (T.D.)), for the proposition that the ordinary meaning of the phrase “civil action” is restricted to court proceedings in civil matters. Dominion also notes that in Pictou the court held that the grievance and arbitration process was not a civil action and that various dictionary definitions of “action” and “civil action” were considered.
[40] Second, Dominion argues that the context of its insurance policy bolsters the claim that a “civil action” is restricted to a court proceeding. A contractual provision is to be interpreted in its context within the contract as a whole: Consolidated-Bathurst v. Mutual Boiler, 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888, at p. 901. In this case, the provisions surrounding the duty to defend clause refer to legal proceedings as well as prejudgment and postjudgment interest and taxed costs. Thus, the context indicates that “civil actions” are limited to legal proceedings. In this respect Dominion relies on Kentville (Town) v. Gestas Inc. (1989), 1989 CanLII 9782 (NS SC), 96 N.S.R. (2d) 339 (S.C. (T.D.)), aff’d (1990), 1990 CanLII 2407 (NS CA), 96 N.S.R. (2d) 338 (C.A.).
[41] Third, Dominion contends that an insurance policy will not encompass a statutory cause of action which had not been created at the time the contract was entered into. In particular, Dominion points out that its 1970 policy antedates The Environmental Protection Act, 1971, S.O. 1971, c. 86. Dominion states that an insurance policy is to be interpreted based on the circumstances known to the parties at the time of contracting: Vancouver General Hospital v. Scottish & York Insurance Co. (1988), 1988 CanLII 3228 (BC CA), 55 D.L.R. (4th) 360 (B.C.C.A.), at p. 366, leave to appeal refused, [1989] S.C.C.A. No. 100. Dominion states that the determination in Vancouver General Hospital that the policy could not be interpreted to cover a new cause of action created after the policy had first been issued is analogous to the case at bar. Since the Dominion policy was first issued to Ontario Hydro in 1970, it was not within the parties’ contemplation to insure against a statutory remedy which did not yet exist.
[42] Lastly, in a submission which Belleville contests, Dominion asserts that the contracting parties were Dominion’s predecessor and Ontario Hydro, with Belleville being allegedly added as an additional insured and not being involved in the formation of the contract.
[43] For its part, Gore adopts the reasons set out in Dominion’s factum and states that the environmental regulatory proceeding is not a “civil action” which triggers its duty to defend. Further, Gore also relies on three additional cases. It cites Re Dorothea Knitting Mills Ltd. and Canadian Textile & Chemical Union et al. (1975), 1975 CanLII 654 (ON SC), 9 O.R. (2d) 378 (Div. Ct.), for the proposition that the word “suit” was the equity form of the word “action” and that a hearing before the Ontario Labour Relations Board was not a “civil suit” or a “civil action”. Canada (Attorney General) v. Canada (Commission of Inquiry on the Blood System), 1997 CanLII 323 (SCC), [1997] 3 S.C.R. 440, at para. 34, is relied upon for its discussion of the nature of a commission of inquiry, which was held to be neither a criminal trial nor a civil action. Finally, Gore relies on Akey v. Encon Insurance Managers Inc. (2001), 2001 CanLII 62772 (ON SC), 28 C.C.L.I. (3d) 63 (Ont. S.C.), aff’d (2002), 2002 CanLII 41914 (ON CA), 161 O.A.C. 283 (C.A.), to say that an inquest is not a civil action.
[44] Guarantee and Northbridge adopt the first two of Dominion’s arguments. They add that their respective policies make it clear that the duty to defend is limited to the defence of a civil action, not a Director’s Order.
B. The Position of Belleville
[45] Belleville seeks to have the Insurers defend the MOECC proceedings as Belleville has appealed the Director’s Order to the ERT.
[46] Belleville points out that despite the novelty of this claim in Canada, courts in the United States have considered this question. Where there is little or no Canadian authority on a point of insurance law, Canadian courts have often turned to American law for assistance: Zurich Insurance Co. v. 686234 Ontario Ltd. (2002), 2002 CanLII 33365 (ON CA), 62 O.R. (3d) 447 (C.A.), at para. 34, leave to appeal refused, [2003] S.C.C.A. No. 33.
[47] Belleville relies on Johnson Controls, Inc. v. Employers Insurance of Wausau (2003), 264 Wis.2d 60 (Supreme Court of Wisconsin) in which the insured sought to recover costs incurred responding to demands by regulators to remediate contaminants. Insurers were required to defend any “suit” seeking covered damages, and the court found that regulatory demands were “suits” as they began adversarial legal proceedings which affected the insured’s obligations. The reasonable insured would have understood that the relevant policies would have covered its defence in the adversarial proceedings initiated by the regulatory demands. The demands began proceedings which were the functional equivalent of a suit: Johnson Controls, at para. 120.
[48] Further, Belleville relies on McGinnes Industrial Maintenance Corporation v. The Phoenix Insurance Company and the Travelers Indemnity Company (2015), 477 S.W.3d 786 (Supreme Court of Texas). In particular, the majority considered environmental regulatory proceedings – an order by the US Environmental Protection Agency (“USEPA”) under legislation to conduct a remedial site investigation – to be a “suit itself, only conducted outside a courtroom”: at p. 791. USEPA enforcement proceedings not only are like judicial proceedings, but they also were judicial proceedings before the enactment of the relevant legislation: at p. 792. Because there would have been coverage for a civil suit by the USEPA, there was coverage for an order made under the relevant legislation.
[49] Discussing Ontario law, Belleville argues that before the enactment of the Environmental Protection Act, R.S.O. 1990, c. E.19 (“EPA”), Ontario regulators would have had to allege common law nuisance in court. Here Belleville points to R. v. “Sun Diamond” (The), [1983] F.C.J. No. 83 (F.C. (T.D.)). Belleville reasons that a civil action alleging public nuisance would constitute a “civil action” under the insurance policies and that, by analogy, the proceedings under the MOECC should also be deemed a “civil action”. To require the Insurers to defend against public nuisance suits but not MOECC proceedings would be to ignore the true nature of the underlying proceedings. The enactment of the EPA did not change the risk insured (obligations incurred due to pollution) but only changed the forum.
[50] Responding to the Insurers, Belleville cites the Court of Appeal for Ontario’s assertion in Zurich Insurance, at para. 37, that “dictionary literalism is often a poor substitute for connotative contextual construction”. Belleville distinguishes Pictou and Kentville (Town) on the basis that these Nova Scotia decisions arose out of labour arbitration proceedings. With respect to Dorothea Knitting Mills, Belleville distinguishes on the basis that this involved the Labour Relations Act, R.S.O. 1970, c. 232.
[51] In response to Dominion’s argument about the context of the duty to defend provision, Belleville argues that the purpose of a term providing for costs is not to exclude coverage for regulatory proceedings where costs are not awarded. Coverage provisions should be construed broadly, and policy exclusions should be construed narrowly: Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., 1993 CanLII 150 (SCC), [1993] 1 S.C.R. 252, at p. 269. For the same reason, Belleville asserts that a separate coverage extension providing for interest accruing before and/or after judgment should not mean that only claims which can result in judgment are “civil actions” within the meaning of the policies.
[52] Belleville advances three arguments with respect to Dominion’s claims about the enactment of the EPA. First, it argues that the EPA did not materially change the nature of the underlying risk as the type of relief sought could have been pursued in a claim for public nuisance. That claim would be covered under the policies. Second, each time Dominion’s policy was renewed, a new contract was created: South Stormont (Township) v. Frank Cowan Co. (2008), 74 C.C.L.I. (4th) 106 (Ont. S.C.). Therefore, the only Dominion contract issued before the EPA was enacted was the policy effective between September 15, 1970 and December 31, 1971, and the argument about the policy predating the EPA does not assist Dominion for all subsequent contracts. Third, liability policies can cover risks unknown to the parties at the time the policy came into effect.
[53] In response to Guarantee and Northbridge, Belleville argues that the costs it has incurred with respect to the Director’s Order are defence costs and not compliance costs. In contrast to General Electric Canada Company v. Aviva Canada, Inc., 2012 ONCA 525, 10 C.C.L.I. (5th) 42, Belleville did not comply with a request from the MOECC. Instead, Belleville defended against a Director’s Order in filing a notice of appeal in which it argued, inter alia, that it should not be held responsible for remediating the contamination at the property.
C. Analysis of What a Civil Action Is and What a Civil Action for Damages Is
[54] The ultimate question to be answered is whether the Director’s Order is a “civil action” within the meaning of the Insurers’ liability policies.
[55] In order to answer that question, the Court must determine the answer to the following two questions:
What is an action?
What is a civil action for damages?
[56] Once those questions are answered, the Court will then be in a position to answer the question as to whether the Director’s Order from the MOECC is a civil action for which there is a duty to defend.
1) What is an Action?
I. Actions under the Rules of Civil Procedure
[57] In the Rules of Civil Procedure, a proceeding means either an action or an application: Paul M. Perell & John W. Morden, The Law of Civil Procedure in Ontario, 3rd ed. (Toronto: LexisNexis Canada, 2017), ¶1.96. Rule 1.03(1) provides that
DEFINITIONS
1.03 (1) In these rules, unless the context requires otherwise,
“action” means a proceeding that is not an application and includes a proceeding commenced by,
(a) statement of claim,
(b) notice of action,
(c) counterclaim,
(d) crossclaim, or
(e) third or subsequent party claim;
“judgment” means a decision that finally disposes of an application or action on its merits and includes a judgment entered in consequence of the default of a party;
“proceeding” means an action or application;
[58] From the Rules of Civil Procedure, it is clear that both actions and applications can result in final judgments which are appealable either to the Court of Appeal for Ontario or the Divisional Court: Perell and Morden, ¶1.96.
(a) The Stages of an Action Under the Rules of Civil Procedure
[59] An action is the long road to a judgment and an application is the short road to the same: Perell and Morden, ¶1.98. As Justice Perell and Justice Morden note, at ¶1.98, an action proceeds through several stages:
The commencement stage which includes statements of claim, notices of action, counterclaims, third party claims, fourth/subsequent claims and cross-claims: r. 14.03;
The exchange of pleadings which set out the material facts, claims and defences on which the parties rely: r. 25;
The discovery process which involves the production and disclosure of documents and oral examinations: see e.g., rr. 29.1-35;
The conferences and pre-trial procedures: rr. 46-51; and
The trial stage: rr. 52-53.
[60] For certain actions, r. 76 provides for a simplified procedure when the amount at stake is $200,000 or less exclusive of interest and costs.
(b) Different Types of Proceedings by Action
[61] As noted above, the Rules of Civil Procedure contemplate actions commenced by statements of claim, notices of action, counterclaims, crossclaims or third or subsequent party claims: rr. 1.03(1) and 14.03(1)-(2).
II. Actions Under the Courts of Justice Act
[62] The Courts of Justice Act, R.S.O. 1990, c. C.43, also defines an action with respect to a civil proceeding. Section 1 stipulates, in part, as follows:
Definitions
1 (1) In this Act,
“action” means a civil proceeding that is not an application and includes a proceeding commenced by,
(a) claim,
(b) statement of claim,
(c) notice of action,
(d) counterclaim,
(e) crossclaim,
(f) third or subsequent party claim, or
(g) divorce petition or counterpetition; (“action”)
Application to other Acts
(2) This section applies to all other Acts affecting or relating to the courts and the administration of justice. 2006, c. 21, Sched. F, s. 106.
III. Barron’s Canadian Law Dictionary
[63] In Barron’s Canadian Law Dictionary, 6th ed. (Barron’s Educational Series, Inc.) (QL), a civil action is defined as “[a]n action to protect a private, civil right or to compel a civil remedy in a dispute between private parties, is distinguished from a criminal prosecution.”
2) What is a Civil Action for Damages?
[64] This issue was dealt with in the case of Brockton (Municipality) v. Frank Cowan Co., [2000] O.J. No. 4455 (S.C.), at para. 78, varied in part on other grounds (2002), 2002 CanLII 7392 (ON CA), 57 O.R. (3d) 447 (C.A.), which states that a classic legal definition of damages is contained in Black’s Law Dictionary, 6th ed. (St. Paul, MN: West Publishing Co., 1990), and reads as follows:
Damages. A pecuniary compensation or indemnity, which may be recovered in the courts by any person who has suffered loss, detriment, or injury, whether to his person, property, or rights, through the unlawful act or omission or negligence of another. A sum of money awarded to a person injured by the tort of another. Restatement, Second, Torts, §12A. Money compensation sought or awarded as a remedy for a breach of contract or for tortious acts.
[65] Justice Caswell, at para. 91 of Brockton, states that
Legal fees associated with responses to regulatory and investigative authorities including the O.P.P., the Coroner, the MOE [Ministry of the Environment] and the Public Inquiry, engineering expenses and remediation expenses are all outside the limits of the contractual risks undertaken by the Insurers. In my view, the definition of damages in these circumstances should not be expanded to include costs and other expenses for items that I consider are only indirectly related to the defence of the civil claims.
[66] In Akey v. Encon Insurance Managers Inc. (2001), 2001 CanLII 62772 (ON SC), 28 C.C.L.I. (3d) 63 (Ont. S.C.), aff’d (2002), 2002 CanLII 41914 (ON CA), 161 O.A.C. 283 (C.A.), Speigel J. states that “[i]n construing the term ‘damages’ in an insurance contract, it should be construed in accordance with its legal, technical meaning in law”: at para. 17.
3) Is a Director’s Order from the Ministry of the Environment and Climate Change a Civil Action?
[67] In order to assess the question, the Court will review the relevant case law which has dealt with similar issues in the past.
I. Relevant Case Law
[68] The first case the Court will review is Brockton (Municipality) v. Frank Cowan Co., [2000] O.J. No. 4455 (S.C.) (“Brockton (ONSC)”), varied in part on other grounds (2002), 2002 CanLII 7392 (ON CA), 57 O.R. (3d) 447 (C.A.) (“Brockton (ONCA)”).
(a) Brockton (ONSC)
(i) Overview
[69] The matter was first heard before Caswell J. at first instance.
[70] In that case, the Corporation of the Municipality of Brockton (“Brockton”) applied for a determination of certain rights pursuant to two insurance liability polices: at para. 1. In relevant part, Brockton sought, at para. 3:
A Declaration that there is primary coverage responsibility by Cowan and MEARIE triggering their respective duties to defend Brockton under their respective policies of insurance.
A Declaration that Cowan and MEARIE each has a respective duty to defend Brockton in the civil actions, and the scope of that duty includes reimbursing Brockton for all defence costs and costs incurred in remediation, responding to regulatory compliance and criminal and regulatory investigations including the Public Inquiry.
(ii) Background
[71] In 2000, the Medical Officer of Health for the town of Walkerton discovered that the water supply system was contaminated by E-Coli: at para. 4. On May 21, a boil water advisory was issued. On May 23, the Ministry of the Environment (“MOE”) issued a request for the town to retain an engineer to respond with an action plan by May 26: at para. 4. A class action was filed. The MOE issued a field order which required immediate compliance: at para. 12.
[72] One of the issues in that case concerned the scope of the duty to defend and the type of costs and expenses to be paid in fulfilling that duty: at para. 68. Brockton argued, inter alia, that it was covered under the Cowan policy and the MEARIE policy, and that both policies had to respond to Brockton’s civil damages claims and contribute to its defence costs: at para. 30. Cowan acknowledged coverage but stated that class actions claims exceeded the limits of the policy, that the excess beyond its coverage limits was not covered, and that claims for punitive and exemplary damages were excluded: at para. 31. For its part, MEARIE denied primary coverage to Brockton and said that it would respond only to claims for negligence against the Walkerton Public Utilities Commission for which Brockton was vicariously liable: at para. 32.
[73] Brockton maintained that Cowan and MEARIE had to pay all of its costs, including: (1) legal fees for the compensatory damage claims; (2) legal fees for responses made to regulatory and investigative authorities, including the O.P.P., the coroner, the MOE and the Public Inquiry; (3) engineering expenses to respond to the MOE field order; (4) public relations expenses; and (5) remediation expenses: at para. 69. The argument was that “[a]ll these costs are intrinsic and essential to the defence of the civil damage claims”: at para. 69. Cowan acknowledged its responsibility to pay for legal fees out of the unlimited defence funds for the compensatory damages claims but denied responsibility for all other costs and reserved the right to pay for only those expenses it had authorized: at para. 70. MEARIE argued that the duty to defend the civil action rested with Cowan, who could then seek contribution for its defence costs from MEARIE after the conclusion of the civil actions: at para. 71.
(iii) Reasoning of the Court
[74] In relevant part, Caswell J. held that the expenses Brockton incurred regarding the MOE investigations and the remediation work were too remote and not covered by the liability policy at issue: at para. 81. The MOE investigation would not result in findings of liability or damages: at para. 82. As a result of MOE field orders, Brockton had to obtain engineering reports and undertake remediation work: at para. 82.
[75] The wording in the Cowan policy set out the damages and costs which the insurer was to pay: at para. 90. The legal fees associated with the responses to regulatory and investigative authorities such as the MOE were outside the limits of the contractual risks the insurers had undertaken: at para. 91. As Caswell J. noted, “the definition of damages in these circumstances should not be expanded to include costs and other expenses for items that I consider are only indirectly related to the defence of the civil claims”: at para. 91. With respect to investigation costs, the Cowan policy required the insurer to approve any expenses incurred by the insured: at para. 92.
[76] Also of interest is Caswell J.’s discussion of fairness to the insurer, at para. 93: “[I]t was not within the contemplation of the Insurers, at any time, that the liability policy would cover the broad range of costs and expenses associated with responding to the catastrophe that befell the Town of Brockton”.
[77] MEARIE had no duty to defend the civil action against Brockton or to pay legal costs or other expenses: at para. 94. A question for another day was whether MEARIE would have to contribute to Cowan after the conclusion of the civil actions: at para. 94.
[78] At para. 95, Caswell J. declared, in part:
Cowan has the duty to defend Brockton in the civil actions. The scope of that duty includes covering the Insured’s legal costs and other expenses directly related to the defence of the civil damages claims. The duty to defend does not include legal fees for the responses to the regulatory and investigative authorities, including the O.P.P., the Coroner, the MOE and the Public Inquiry. The duty to defend also does not include engineering reports ordered in response to the MOE field orders, public relations and remediation expenses.
[79] Justice Caswell’s decision in Brockton (ONSC) was appealed to the Court of Appeal for Ontario and cited as Brockton (Municipality) v. Frank Cowan Co. Ltd. (2002), 2002 CanLII 7392 (ON CA), 57 O.R. (3d) 447 (C.A.).
(b) Brockton (ONCA)
(i) Overview
[80] One issue on appeal in Brockton (ONCA) concerned Caswell J.’s holding that the insurers had a duty to defend Brockton (1) that included legal costs incurred in relation to the defence of civil actions but (2) that excluded legal fees for responses to regulatory and investigative authorities, engineering reports and other remediation expenses: at para. 51.
[81] As Goudge J.A. noted, Caswell J. determined that Cowan had a duty to defend Brockton in civil actions. However, that duty did not extend to legal fees incurred in response to regulatory and investigative authorities, including the Ministry of the Environment: at para. 25. The Cowan policy provided primary coverage to Brockton and so the respondents were obligated to provide it with a defence to civil damage claims: at para. 29.
[82] The appellant municipality sought an order including the costs that Caswell J. had excluded as well as reimbursement: at para. 52. The respondent insurers cross-appealed and sought an order (1) confirming the scope of the duty to defend but (2) limiting their duty to reimburse the appellant to the costs either authorized by the respondents or incurred at their request: at para. 53.
(ii) Reasoning of the Court
[83] At para. 54, Goudge J.A. held that this issue turned on the provisions of the insurance contract: “In my view, the resolution of this issue turns simply on the provision in the contract of insurance which obliges the insurer to reimburse the insured only for those reasonable expenses (other than loss of earnings) which were incurred at the insurer’s request.” The appellant municipality’s appeal was dismissed: at para. 56. The cross-appeal was allowed, and the order varied on other grounds: at para. 56.
[84] The next case of interest is General Electric Canada Company v. Aviva Canada, Inc., 2010 ONSC 6806, 10 C.C.L.I. (5th) 16 (“General Electric (ONSC)”), aff’d 2012 ONCA 525, 10 C.C.L.I. (5th) 42 (“General Electric (ONCA)”). The matter was first heard by Penny J. in the Ontario Superior Court of Justice.
(c) General Electric (ONSC)
(i) Overview
[85] In this case, General Electric Canada Company (“GE”) sought a declaration that its insurers had a duty to defend it with respect to a request from the Ministry of the Environment (“MOE”). The MOE had issued a request for GE to provide information about the contamination of groundwater near an industrial property GE had previously owned. GE argued that the costs it incurred in response to the MOE request were defence costs under its insurance policies. Justice Penny dismissed the application. The Court of Appeal for Ontario dismissed the appeal.
(ii) Background
[86] The industrial property in question had used a particular chemical as a degreasing agent. On February 11, 2004, the MOE wrote to GE and other former owners of the property to advise them that it was reviewing potential groundwater contamination in an area which included the property. On April 16, 2004, the MOE sent a second letter requesting further information about the potential contamination and requiring GE to take certain action. This second letter also noted that a Director’s Order would be issued if insufficient progress was made.
[87] GE agreed to cooperate. GE claimed that by responding to the MOE request, it had incurred millions in costs.
(iii) Reasoning of the Court
[88] Justice Penny noted that there were two broad issues. The first issue is relevant to the case at bar: whether the 2004 MOE letters triggered a duty to defend on the part of Aviva and/or Dominion under their insurance policies: General Electric (ONSC), at para. 7. After canvassing the case law surrounding the duty to defend and the “pleadings rule”, Penny J. noted that two sub-issues were at play: (1) whether it was “possible” that the MOE letter amounted to a claim that fell within the policies and triggered the insurers’ duty to defend; and (2) whether the applicant was seeking a defence to the MOE’s “claim” or an indemnity for the cost of compliance with the MOE request: at para. 15.
[89] GE had relied on the case of Bridgewood Building Corp. (Riverfield) v. Lombard General Insurance Co. of Canada (2005), 2005 CanLII 63763 (ON SC), 26 C.C.L.I. (4th) 93 (Ont. S.C.), aff’d (2006), 2006 CanLII 10205 (ON CA), 79 O.R. (3d) 494 (C.A.), leave to appeal refused, [2006] S.C.C.A. No. 204. Justice Penny pointed out that despite the reference to environmental proceedings, that decision involved statutory warranties under the Ontario New Home Warranty Plan which was a very different regulatory regime: at paras. 22 and 26. Case law from the United States made it clear that “most” courts in that country have not taken a particular approach with respect to whether environmental regulatory proceedings were covered by the standard language in certain insurance agreements: at para. 26. The case law was divided based on which state or federal court was deciding the matter: at para. 33. Thus Penny J. found, at para. 42, as follows: “Accordingly, I do not think the U.S. cases cited by GE on this issue have any bearing on the question of whether the cost to GE of complying with the MOE’s request in this case are defence or indemnification costs”.
[90] With respect to the Brockton case, Penny J. noted that “the policy in issue in that case was arguably more precise than the policies in issue here, given the explicit references in those policies, to ‘compensatory damages’ and to ‘civil claims’”: at para. 31 (emphasis in original).
[91] Justice Penny’s discussion, at paras. 35-36 and 38-39, of the distinction between defence and compliance costs merits being quoted in full, as it is the crux of Penny J.’s analysis:
35 I am unable to agree with this argument. A duty to investigate and defend is only triggered in the context of these policies by a “claim” arising from an alleged liability for damage. Under the pleadings rule, one looks at the “claim” to determine whether it falls within the scope of the coverage afforded by the policy. There is a distinction in the policies between the obligation to investigate/defend and the obligation to indemnify. There is, in my view, also a distinction between the cost of investigation/defence of a claim and the cost of compliance with a claim.
36 Here, the only evidence of a “claim” by the MOE was the April 16, 2004 letter in which the MOE requested GE “to take action in delineating the source area on your former property” (emphasis added). In the context of the MOE letter, therefore, any duty to investigate or defend could only arise with respect to that “claim.” Here, however, by GE’s own admission, GE did not “defend” against this claim nor did it “investigate” this claim.
38 There is no suggestion that GE investigated or desired to investigate whether it did or did not have an obligation to perform the delineation work requested by the MOE. Nor is there any suggestion that GE desired to defend or did defend against the MOE’s request by way of appeal or judicial review. There were, in fact, in respect of the MOE’s “claim,” no investigation or defence costs in the relevant sense because GE did not investigate or defend against the MOE’s “claim” at all.
39 The cost of investigation or defence of a claim is distinct from the cost of compliance with a claim. GE argues that the steps taken by GE were “in the nature of” defence costs in that they sought to delineate and reduce any liability. The flaw in that argument, in my view, is that the only “claim” by the MOE entered into evidence on this application did not allege liability for cleanup costs to ameliorate damage to the property of others but simply an obligation to conduct a delineation exercise with respect to TCE contamination on GE’s former property at the Ward Site. What GE calls “defence costs” were not costs of defending against the MOE’s claim but, in fact, the costs of complying with the MOE’s claim. GE complied with the MOE’s request and performed the work on the basis that it was thought to be in GE’s best interests to do so.
[92] GE appealed Penny J.’s decision which is reported as General Electric Canada Company v. Aviva Canada, Inc., 2012 ONCA 525, 10 C.C.L.I. (5th) 42.
(d) General Electric (ONCA)
(i) Overview
[93] On appeal, GE argued that Penny J. had erred in ignoring the reality of what was being communicated in the April letter: at para. 15. GE relied on Reid Crowther, at p. 275:
What is required, unless the policy expressly so stipulates, is a form of demand or assertion of liability, not a formal demand or assertion of liability. Under a policy such as the one in this appeal, which contains no express requirement of a formal demand or indeed any demand at all, what constitutes a claim “made” is a question to be resolved on the facts of the case. There is no magic formula. One must look to the reality of what the third party was communicating to the insured by words and conduct. If the message was clear, the fact that the third party through politeness refrained from stating its demand or intention to hold the insured liable in categorical legal terms should not preclude a finding that a claim has been made. [Emphasis in original.]
[94] GE submitted that Penny J. had erred in ignoring potential liability for property damage under the EPA, in failing to appreciate that the letter was more than a claim to undertake the delineation of the source of the contamination and in failing to consider the underlying statutory scheme: at paras. 16-18.
[95] Notably, GE relied on Johnson Controls, Inc.: at para. 18.
(ii) Reasoning of the Court
[96] Justice Armstrong, writing for the Court, began the analysis in noting that whether the duty to defend arises, depends upon the “pleadings rule”: at para. 20. Justice Armstrong cited Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49, [2001] 2 S.C.R. 699, at para. 28. Of note, Armstrong J.A. stated that “[a]lthough in most cases the ‘pleadings rule’ applies to a statement of claim or similar pleading, it can apply to a letter that asserts liability for damages against an insured. Therefore, a careful analysis of the April letter must be the starting point in the case at bar”: at para. 20.
[97] Moreover, Armstrong J.A. noted, at para. 21, that in Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at para. 50, the Supreme Court of Canada reiterated that:
The authorities establish that as a general rule, for a “claim” to be made there must be some form of communication of a demand for compensation or other form of reparation by a third party upon the insured, or at least communication by the third party to the insured of a clear intention to hold the insured responsible for the damages in question.
[98] Having reviewed the authorities, Armstrong J.A. upheld Penny J.’s treatment of the April letter: at para. 22. In particular, Armstrong J.A. remarked that the only evidence of a claim was the request in the April MOE letter that GE take action in delineating the source of the contamination: at para. 22.
[99] But GE did not oppose, defend or investigate that request: at para. 22. Instead, GE voluntarily complied with the MOE request: at para. 22. For that reason, it could not be said that GE had incurred defence or investigation costs which would be recoverable under the insurance policies: at para. 22. The costs incurred were not defence costs but compliance costs: at para. 22.
[100] With respect to the arguments about American case law, Armstrong J.A. stated that reliance on jurisprudence from the United States was not helpful: at para. 25. As Penny J. had noted, cases involving letters from regulators go in both directions and the American jurisprudence does not advance the argument: at para. 25.
[101] Justice Armstrong also dealt with two Ontario decisions.
[102] First, GE had relied on Bridgewood, as noted above. The issue in that case was whether the cost of repairing homes built under the Ontario New Home Warranty Plan was covered by the general contractors’ commercial general liability policy. At first instance, Stewart J. had analogized to environmental protection legislation and made reference to case law from the United States. Although Bridgewood was upheld on appeal, Armstrong J.A. noted that the Court of Appeal in that case did not comment on the analogy to environmental protection legislation: at para. 29.
[103] Second, for Armstrong J.A., the more important decisions to analyze were Brockton (ONSC) and Brockton (ONCA).
[104] At para. 32, Armstrong J.A. noted that the Court of Appeal decision in Brockton (ONCA) did not explicitly refer to Caswell J.’s view at paras. 81-82 of Brockton (ONSC) which read as follows:
It is my view, however, that the expenses incurred by Brockton with respect to the MOE and O.P.P. investigations, the engineering reports, remediation work, the public relations expenses and the Public Inquiry are simply too remote and are not covered by the liability policy.
The investigations of the MOE will not result in findings of liability and the imposition of damages. Brockton was required to obtain the engineering reports pursuant to the MOE field orders. The town was also required to undertake the remediation work as ordered. I do agree that prompt and efficient reaction by Brockton may ultimately impact on the ensuing litigation.
[105] Therefore, based on the cross-appeal being allowed, the Brockton (ONCA) decision did not disturb the views taken by Caswell J. at paras. 81-82 of Brockton (ONSC).
[106] Justice Armstrong pointed out that Brockton (ONSC) was similar to the General Electric (ONCA) case on its facts but noted that both Brockton (ONCA) and Brockton (ONSC) turned on the language of the insurance policy: at para. 33.
II. Analysis
[107] Having reviewed these cases, the Court will analyze how they relate to the case at bar.
(a) American Jurisprudence
[108] The Plaintiff placed a great deal of reliance on American jurisprudence and set out various case law in its factum. It argues that the American jurisprudence provides a clear path to include regulatory costs as part of the costs of a civil action.
[109] Notwithstanding the Plaintiff’s argument that this Court should be guided by American jurisprudence, in the Canadian context, this issue was addressed by both Penny J. in General Electric (ONSC) and Armstrong J.A. in General Electric (ONCA). Each of them stated that reliance on case law from the United States was not helpful, in large part because different cases go in different directions and come to different conclusions based on the particular state in which the court made the decision: General Electric (ONSC), at para. 42; General Electric (ONCA), at para. 25.
[110] Accordingly, it cannot be said that there is a consistent, authoritative approach in the United States regarding whether environmental regulatory proceedings are civil actions within the meaning of insurance liability policies.
[111] This Court finds that the American jurisprudence is not useful or relevant to the issue before the Court because of the divergent views taken in the American cases, including the cases relied upon by Belleville.
(b) Application of Brockton and General Electric to the Case at Bar
[112] Given the Court’s finding that the American jurisprudence does not apply, the Court will analyze the most relevant cases as they apply to the present case.
(i) Brockton (ONSC) and Brockton (ONCA)
[113] There are several things to note from the Brockton cases that relate to the case at bar.
[114] First, as Goudge J.A. found in Brockton (ONCA), and as Armstrong J.A. pointed out in General Electric (ONCA), the Brockton case turned on the specific provisions of the contract of insurance. For the same reason, the determination of the case at bar will turn on the specific provisions of the Insurers’ policies.
[115] Second, Caswell J. in Brockton (ONSC) distinguished between the costs of civil actions and those incurred in response to regulatory and investigative authorities. The Court found that the scope of the duty to defend included costs for civil actions but excluded regulatory and investigative costs: at para. 91.
[116] The Court of Appeal in Brockton (ONCA) dismissed the appellant’s appeal and found that the duty to defend did not include the legal fees incurred in response to regulatory and investigative authorities, among other legal fees: at paras. 51-52 and 56.
[117] Third, Caswell J. found that the policies did not contemplate the cost of responding to the E-Coli outbreak: Brockton (ONSC), at para. 93. Again, the Court of Appeal dismissed the appellant’s appeal: Brockton (ONCA), at para. 56.
[118] As stated previously, based on the cross-appeal being allowed, the Brockton (ONCA) decision did not disturb the views taken by Caswell J. at paras. 81-82 of Brockton (ONSC).
[119] Fourth, the Court finds that the relevant Cowan policy in Brockton (ONCA) contains similar language to the case at bar. The duty to defend wording in Brockton (ONCA), at para. 27, was set out as follows:
ADDITIONAL INSURING AGREEMENTS
Upon receipt of notice of loss or damage caused to persons or property, to serve any person insured by this policy by such investigation thereof, or by such negotiations with the claimant, or by such settlement of any resulting claims, as may be deemed expedient by the Insurer; and
To defend in the name and on behalf of, any Corporation or person insured by this policy and at the cost of the Insurer, that part of any civil action claiming compensatory damages covered by this policy which may at any time be brought against such Corporation or person on account of such loss or damage to persons or property, even if any of the allegations in such action are groundless, frivolous, false or fraudulent; and
To reimburse the Insured for all reasonable expenses, other than loss of earnings, incurred at the Insurer's request. [Emphasis added.]
[120] In the case at bar, the duty to defend wording in each of the Defendants’ insurance policies is similar to the wording as in Brockton (ONCA). The Court makes a finding to this effect.
[121] Therefore, the Court follows the Brockton (ONCA) decision which upheld the decision that the duty to defend did not include legal fees incurred in response to regulatory and investigative authorities.
(ii) General Electric (ONSC) and General Electric (ONCA)
[122] There are several things to note from the General Electric cases that relate to the case at bar.
[123] First, Penny J. distinguished between compliance costs and defence costs: General Electric (ONSC), at para. 39. In the case at bar, Belleville has argued that the costs it has incurred in challenging the Director’s Order are defence costs, not compliance costs. Specifically, Belleville has argued that it did not comply with a request from the MOECC but instead defended against it in filing a notice of appeal in which it argued, inter alia, that it should not be held responsible for remediating the contamination at the property.
[124] One challenge with the case at bar is that General Electric (ONSC) asserts that compliance costs are not defence costs in the context of an MOE request. The analysis in that case turns, in part, on the fact that GE did not defend against the MOE request. Instead, GE complied with it. For that reason, Belleville has sought to distinguish from the General Electric cases. By implication, it could be argued that opposing the Director’s Order constitutes defence costs. That said, in General Electric (ONSC), no Director’s Order had been issued. Justice Penny “expressly ma[d]e no finding on whether the MOE letter of April 16, 2004 constituted an order, demand, request or suggestion”: at para. 20. Justice Penny did not outright say that he would have found the costs of contesting the MOE request to be defence costs – but that could be taken to be implied.
[125] Notwithstanding the aforesaid, in the General Electric (ONSC) case no Director’s Order was issued and no party pursued the appeal process. In contrast, Belleville has appealed the Director’s Order to the ERT pursuant to s. 140(1) of the EPA. Moreover, Penny J.’s comment, at para. 38, that there was no “suggestion that GE desired to defend or did defend against the MOE's request by way of appeal or judicial review” was made in the specific context of a case involving insurance policies which defended against suits or claims as opposed to actions or civil actions. In appealing the Director’s Order, Belleville has entered into an administrative appeal process as opposed to a civil litigation process.
[126] Second, Penny J. noted that the policies at issue in the Brockton cases were more specific than those at issue in General Electric (ONSC). Specifically, the Brockton policies insured against civil actions and civil damages claims. In contrast, for example, the Aviva policy in General Electric (ONSC) provided that the insurer would “DEFEND in the name and on behalf of the insured any suit against the insured alleging such damage to or destruction of property and seeking damages on account thereof, even if such suit is groundless, false or fraudulent”: at para. 16. Similarly, the Dominion policy in General Electric (ONSC) provided that the insurer would “defend in the name and on behalf of the Insured, suits which may be instituted against him alleging such... damage to property of others, and demanding damage on account thereof even if such suit is groundless, false or fraudulent”: at para. 18.
[127] The case at bar involves insurances policies which insure against civil actions and civil actions for damages with specific paragraphs in each policy as follows: see Gore Mutual’s Policy M 10269, above at para. 12; Guarantee Policy #1, above at para. 17, and Guarantee Policy #2, above at para. 19; Guarantee and Northbridge’s Additional Insuring Agreement of the Environmental Policy, above at para. 21; and Dominion’s legal defence clause, in Dominion’s Motion Record, Tab 7, at p. 146.
[128] The Court finds that the wording and the terms of the Defendants’ policies are more specific than those at issue in General Electric (ONSC). In General Electric (ONSC), Penny J. notes that the precision of the policies is a relevant consideration: at para. 31. Justice Armstrong asserted in General Electric (ONCA) that the Brockton (ONSC) and Brockton (ONCA) decisions turned on the precise wording/terms of the insurance policy in issue: at para. 33. The Court finds that it is reasonable to conclude that the insurance policies at bar only provide coverage for civil actions – as defined by the Rules of Civil Procedure and the Courts of Justice Act.
[129] Furthermore, as mentioned above, General Electric (ONSC) also contains a useful paragraph in which Penny J. comments about how precise the respective insurance policies are in the Brockton cases as compared to General Electric (ONSC). In particular, in the Court’s view, Penny J.’s comment, at para. 31 of General Electric (ONSC), about the policies in the Brockton cases is helpful for the case at bar where he says: “It must be noted, however, that the policy in issue in [Brockton] was arguably more precise than the policies in issue here, given the explicit references in those policies, to ‘compensatory damages’ and to ‘civil claims’” (emphasis in original).
[130] In the General Electric (ONSC) case, the policies specifically deal with suits and claims. The policies do not use the words “action” or “civil action”. In the Brockton case, the policy specifically deals with civil actions.
Conclusion
[131] This Court is not prepared to accept or agree that a “civil action” or an “action” is the same as or equivalent to a “suit”, as used in the General Electric policies.
[132] Therefore, the Court relies on the wording in the Brockton policies for the authority that regulatory proceedings are not captured within the meaning of the words “civil actions” in the insurance policies before the Court.
[133] Further, the Court finds that Belleville’s appeal of the Director’s Order is not an action or a civil action as contemplated by the Rules of Civil Procedure or the Courts of Justice Act. Instead, Belleville has appealed a Director’s Order to the ERT for a hearing pursuant to s. 140(1) of the EPA.
[134] As such, the Court finds that the claim by Belleville to have the Insurers defend the MOE proceedings that Belleville has appealed to the ERT is not an action or a civil action and is therefore not covered by the insurance policies in question.
Issue #3: If the Answer to Question no. 2 is “yes”, Then Do the Insurers Have a Duty to Defend Belleville?
[135] The duty to defend is a contractual obligation which is governed by the terms of the insurance policy. This duty refers to an insurer’s obligation to retain, pay and instruct a lawyer to defend claims against the insured which are potentially covered by the insurance policy.
A. The Positions of the Insurers
[136] Dominion distinguishes between the duty to defend and the duty to indemnify. The duty to defend applies to claims that are potentially covered by the insurance policy. In this respect the duty to defend is broader than the duty to indemnify, which only extends to claims that are actually covered by the insurance policy: Halifax Insurance Co. of Canada v. Innopex Ltd. (2004), 2004 CanLII 33465 (ON CA), 72 O.R. (3d) 522 (C.A.), at para. 34, leave to appeal refused, [2004] S.C.C.A. No. 586.
[137] There are limits to the duty to defend. If the pleadings allege facts which, if true, would require the insurer to indemnify the insured for the claim, then the insurer is obliged to provide a defence: Halifax Insurance Co., at para. 34. If the pleaded allegations do not fall within the agreement or are excluded, then there is no duty to defend: R.W. Hope Ltd. v. Dominion of Canada General Insurance Co. (2001), 2001 CanLII 21205 (ON CA), 57 O.R. (3d) 425 (C.A.), at para. 20.
[138] But the duty to defend is an obligation arising from the insurance policy: Jesuit Fathers, at para. 54.
[139] Dominion states that coverage issues are to be determined not on general principles but according to the wording of the insurance policy: Bridgewood Building Corp. (Riverfield) v. Lombard General Insurance Co. of Canada (2006), 2006 CanLII 10205 (ON CA), 79 O.R. (3d) 494 (C.A.), at paras. 8-9, leave to appeal refused, [2006] S.C.C.A. No. 204. Accordingly, it is necessary to review the terms of the insurance policy. Dominion’s insurance policy provides that the insurer agrees to
defend in the name and on behalf of the insured any civil action which may at the time be brought against the insured on account of such injuries, and/or damage including actions alleging such injuries and/or damage and demanding damages therefor, although such actions are wholly groundless, false or fraudulent, unless the Insurer shall elect to settle such actions. [Emphasis added.]
[140] For its part, Gore states that while the wording of the duty to defend provision in its policy differs from Dominion’s, they share the same underlying intent. That underlying intent is that the duty to defend is restricted to the defence of claims in “civil actions”.
[141] Guarantee and Northbridge adopt Dominion’s submissions.
B. The Position of Belleville
[142] Belleville agrees with Dominion’s comments on the law surrounding the duty to defend. But it adds the caveat that it rejects the assertion that because the Director’s Order is not a “civil action” there is no duty to defend.
[143] The proper basis for determining whether the duty to defend exists requires an assessment of the pleadings to determine the substance and true nature of the claims: Monenco, at paras. 34-35.
[144] If the language of the insurance policy is ambiguous and gives rise to multiple reasonable interpretations, then the contra proferentum rule requires a court to adopt the interpretation which favours the insured: Reid Crowther, at pp. 269 and 271.
C. Analysis
[145] Since the Court has found that the answer to issue number two is “no”, the Court will not analyze this issue.
Costs
A. The Positions of the Parties
[146] At the motion, counsel said that they would try to agree as to the issue of costs. Counsel provided a letter dated December 23, 2020 that had been approved by all parties to the litigation and is being sent pursuant to rr. 1.09(a) and (b) of the Rules of Civil Procedure.
[147] The letter states that:
If the insurers win the motion, the parties have agreed as follows:
• The Plaintiff will pay costs fixed in the amount of $16,000, on a partial indemnity scale, to The Dominion of Canada General Insurance Co.;
• The Plaintiff will pay costs fixed in the amount of $8,000, on a partial indemnity scale, to Gore Mutual Insurance Co.; and
• The Plaintiff will pay costs fixed in the amount of $8,000, on a partial indemnity scale, to The Guarantee Co. of North America and Northbridge General Insurance Corp.
If the Plaintiff wins the motions, and if costs are awarded to the Plaintiff on a partial indemnity scale, the parties have reached the following agreement:
• The Defendants, the Dominion of Canada General Insurance Co., Gore Mutual Insurance Co., The Guarantee Co. of North America and Northbridge General Insurance Corp., will pay costs fixed in the amount of $16,000, on a partial indemnity scale, to the Plaintiff.
However, the Plaintiff seeks costs on a full indemnity scale, for the reasons set out in the Plaintiff’s factum. The parties have agreed that, if costs are awarded to the Plaintiff on a full indemnity scale, then the amount of such award is to be $24,000. However, the insurers dispute the Plaintiff’s entitlement to full indemnity costs, and request the opportunity to make submissions on the scale of costs following the release of the motion decision, if necessary.
B. Analysis
[148] The Defendants were successful on the motion. Therefore, in accordance with the agreement set out in the December 23, 2020 letter, Belleville will pay the following costs:
To Dominion, the sum of $16,000 on a partial indemnity basis;
To Gore, the sum of $8,000 on a partial indemnity basis; and
To Guarantee and Northbridge, the sum of $8,000 on a partial indemnity basis.
[149] Order accordingly.
Mr. Justice Stanley J. Kershman
Released: June 1, 2021
COURT FILE NO.: CV-17-0297-00
DATE: 2021/06/01
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
The Corporation of the City of Belleville
Plaintiff
– and –
Gore Mutual Insurance Company, The Dominion of Canada General Insurance Company, The Guarantee Company of North America and Northbridge General Insurance Corporation
Defendants
DECISION ON MOTION
Kershman J.
Released: June 1, 2021