COURT FILE NO.: CV-20-00645126-0000

DATE: 2021/01/21

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

PATRICK BROWN

Applicant

• and -

SOVEREIGN GENERAL INSURANCE COMPANY

Respondent

Eric J. Adams for the Applicant

Gerry Gill for the Respondent

HEARD: January 18, 2021

PERELL, J.

REASONS FOR DECISION

A. Introduction

1In this application, the Applicant, Patrick Brown sues Sovereign General Insurance Company (“Sovereign”) for indemnification for the defence costs he incurred in defending a defamation lawsuit. He claims $187,313.41 that he personally paid to defend a defamation lawsuit brought by Victor Fedeli plus punitive or exemplary damages of $200,000.

2Mr. Brown contends that he was an insured under an insurance policy, a Media Professionals Insurance Policy with errors and omissions (“E&O”) coverage issued by Sovereign to JF Moore Lithographers Inc., a division of which operated as Optimum Publishing International. Mr. Brown contends that Sovereign had a duty to defend him under the policy issued to Optimum Publishing. Sovereign, however, contends that Mr. Brown was not an insured under that insurance policy.

3For the reasons that follow, I grant Mr. Brown Judgment for $187,313.41 plus prejudgment and postjudgment interest in accordance with the Courts of Justice Act¹ plus costs.

B. Facts

4JF Moore Lithographers Inc. is an Ontario corporation. It has a division known as Optimum Publishing International, which is a book publisher. I shall refer to JF Moore Lithographers as “Optimum Publishing” or “OPI.” Its president and CEO is Dean Baxendale.

5Optimum Publishing is the named insured under a Media Professionals Insurance Policy (MEO0947-0) that includes $2.0 million of E&O coverage. The policy period was November 9, 2018 to November 9, 2019. For present purposes the following provisions of the insurance policy between Optimum Publishing and Sovereign are pertinent:

1. INSURING AGREEMENTS

1.1 Insuring Clause

Whereas the company, partnership or firm as stated in Item 1 of the SCHEDULE (the “NAMED INSURED” has made to UNDERWRITERS a PROPOSAL, which is hereby agreed to be the basis of this Policy, which shall be deemed to be incorporated herein.

We, the UNDERWRITERS, in consideration of the payment of the Premium stated in the SCHEDULE, agree, subject to all the terms and conditions of this POLICY, to pay on behalf of the INSURED all sums which the INSURED shall become legally liable to pay as DAMAGES and claimants' costs, fees and expenses as a result of any CLAIM first made against the INSURED and notified to UNDERWRITERS during the POLICY PERIOD stated in Item 3 of the SCHEDULE or during the Extended Reporting Period arising out of any WRONGFUL ACT or INFRINGEMENT by the INSURED or any negligent act, negligent error or negligent omission by others for whom the INSURED is legally liable, in or about the conduct of the INSURED'S PROFESSIONAL BUSINESS. However, coverage is not afforded to services or operations that are not specifically listed in the definition of INSURED'S PROFESSIONAL BUSINESS as contained in this POLICY.

1.2. Defence Costs

With respect to the coverage afforded by this POLICY, the UNDERWRITERS have he right to appoint legal counsel or other experts to take up the defence of the INSURED and pay those DEFENCE COSTS. DEFENCE COSTS are included in the Limit of Liability for each CLAIM. It is further agreed that UNDERWRITERS may make such investigation and settlement of any CLAIM as they deem expedient and shall have the exclusive right to contest or settle any of said CLAIMS. The INSURED shall not admit liability for or settle any CLAIM or incur any cost, charge or expense without the written consent of the UNDERWRITERS as such action may render this coverage null and void. The UNDERWRITERS' obligation to defend or continue to defend any CLAIM ends once the available Limit of Liability is exhausted. The Limit of Liability is reduced by every CLAIM payment made under this POLICY. DEFENCE COSTS are a part of and not in addition to the Limit of Liability stated as such in the SCHEDULE. The payment of DEFENCE COSTS reduces and may exhaust the Limit of Liability.

2.4 (a) "INSURED" shall mean the NAMED INSURED stated in Item 1 of the SCHEDULE and any past, present or future employee or officer of or director of or any stockholder or any partner of the NAMED INSURED;

"INSURED" shall also mean any individuals or personal corporations who from time to time have been retained under personal services contracts or personal services agreements;

"INSURED" shall also mean an independent contractor for which the NAMED INSURED has agreed in writing to provide this insurance, but only with respect to INSURED'S PROFESSIONAL BUSINESS performed by such independent contractor on behalf of the NAMED INSURED.

2.16 "INSURED'S PROFESSIONAL BUSINESS" shall mean one or more of the following:

(a) ADVERTISING, BROADCASTING, and PRINTING AND PUBLISHING as defined herein

i. ADVERTISING: including without limitation, any publicity or promotion on the INSURED'S behalf or for others, including related graphic design services;

ii. BROADCASTING: including without limitation, distribution of information by means of cable, independent network, public television, wireless devices, satellite television, radio, webcast, or Internet;

iii. PRINTING AND PUBLISHING: including without limitation, publication of books, educational materials, films, music, directories, magazines, newspapers, screenplays, scripts, training materials, plays, and media containing audio and video. PRINTING AND PUBLISHING includes exhibition, display and distribution of such material.

However, INSURED'S PROFESSIONAL BUSINESS does not include the manufacture of any electronic or computer hardware, or any physical product or devices by the INSURED.

6Mr. Brown is currently the mayor of Brampton. In 2018, Mr. Brown was the leader of the Ontario PC Party until he resigned on January 24, 2018 in circumstances that gathered considerable media attention but that for present purposes, I need not recount. After his resignation, he was replaced by Victor Fedeli as interim leader until Doug Ford, the current Premier, was elected party leader in March 2018.

7In April 2016, Mr. Brown signed a publishing agreement with Optimum Publishing under which Optimum Publishing agreed to publish a work of non-fiction to be written by Mr. Brown with the assistance of a ghost writer that had been retained by Optimum Publishing. For present purposes, the following provisions of the publishing agreement are pertinent. I have added emphasis to those portions of the agreement that are especially personal to Mr. Brown, a matter that I shall return to in the discussion and analysis part of these Reasons for Decision.

This AGREEMENT made this day of 6th day of April 2016, between Patrick Brown (referred to as the “Author”), and OPTIMUM PUBLISHING INTERNATIONAL, a division of JF Moore Lithographers Incorporated, whose registered address is 144 Rochester Avenue, Toronto, ON M4N 1P1 (“OPI”). The parties to this Agreement wish to publish and have published a certain work (the “Work”) provisionally entitled: TITLE (final title to be mutually agreed).

1. The Work.

The Author and ghost writer Francesca Grosso (or such other ghost writer(s) as the Author may designate from time to time) will deliver to OPI similar manuscript to the original book as well as the new chapters agreed to in the outline (working document attachment (A1) new and original nonfiction manuscript) of the Work, containing approximately 75,000 to 100,000 words.

3. Grant of Rights; Territories.

(a) The Author grants OPI, during the full term of copyright (including renewals and extensions thereof) applicable to the Work in each country covered by this Agreement (unless this Agreement is terminated earlier), the right to publish, distribute, sell and otherwise make available, any and all editions and/or formats of the Work, in whole or in part, and to license said rights on such terms as OPI deems advisable, as follows:

4. Advance against Royalties

(a) OPI shall pay to the Author’s writer as directed by the Author as an advance against any on account of all royalties and other sums accruing to the Author under this Agreement, the sum of $52,500.00 payable as follows:

(b) The Author is responsible for pre-selling a minimum of 800 copies of the book at a price of (the “Pre-Sale Commitment”) of which the Publisher has agreed under special provisions to split the sales at 50% to each party. […] All of the commissions earned by the author shall be used towards paying his ghost writer and retiring the obligation to said writer. […]

6. Delivery and Acceptance of Manuscript.

(a) The Author shall deliver to OPI on or before, September 10, 2018, one (1) copy of the complete Work (in an electronic format acceptable to OPI). Prior to the delivery of the complete Work, the Author shall deliver “Progress Materials” which are defined as a detailed outline due no later than July 1, 2018, and an updated detailed outline by August 15, 2018. Further to your note above “Optimum working closely with both the writer and author will make necessary adjustments to the work through the writing of the book to ensure is saleability and market opportunities for syndications, translations and other opportunities that may arise that would benefit the author and the publisher.

(ii) If OPI determines that the published Work will require critical materials such as photographs, illustrations, an appendix, a bibliography, or other supplementary matter (individually or collectively, “Related Materials”), the Author shall furnish these to OPI in reproducible form […]

(b) OPI will inform the Author in writing, within five (5) days of OPI’s receipt of the complete Work or Progress Materials delivered pursuant to Subparagraph 6(a) above, whether or not the Work or any Progress Materials are acceptable. Acceptance of Progress Materials shall in no event be deemed acceptance of the complete Work.

(i) If OPI concludes that the Work or the Progress Materials delivered are unacceptable but could be revised to OPI’s satisfaction, OPI will provide written editorial comments to the Author with respect to the revisions required, and the Author shall have thirty (30) days after receipt of the such comments to either:

(1) make the revisions requested by OPI, or

(2) decline to make some or all of such revisions if the Author, reasonably and fairly believes such revisions to be inaccurate or inappropriate or undesirable or would in any way cause harm to the Author’s reputation. At no time will OPI ever ask for any names or incidents to be added to the book for sensationalism. This must be a factually true to life book and we would never ask or demand that an author do so to enhance sales of the book.

(ii) OPI, the Author and his writer will work together to revise the book as necessary.

(c) If OPI reasonable requires that the Work receive legal vetting by counsel prior to publication, the following shall apply:

(i) the Author shall cooperate in the vetting process the Work shall be reviewed by legal counsel. The selection of legal counsel shall be made by OPI. Following such legal review, the Author shall either: (1) make the revisions requested by counsel; or (2) decline to make some or all of such revisions if the Author, in his sole and absolute discretion, believes such revisions to be inaccurate or inappropriate or undesirable or would in any way cause harem to the Author’s reputation.

(ii) Should the Author decline or fail to deliver the revisions requested by counsel within thirty (30) days, and OPI determines that it is unable to publish the Work due to the risks of liability, may reject the Work by written notice to the Author, […] Optimum will have liability and errors and omissions as well as any other coverages suitable for such publishing. However, I [sic] would like to have these decisions made in concert and as such Patrick at his sole discretion (and expense) may have such excerpts vetted by separate legal counsel and that they may provide a separate legal opinion that the publisher shall take into consideration prior to rejection of the entire manuscript at such time.

8. Publication

(a) OPI shall be under no obligation to publish the Work if:

(i) the Author fails to deliver the completed Work by deadline set out in section 6 (a) or an otherwise agreed upon timeline;

(ii) OPI rejects the Work in accordance with 6 (b)(ii);

(iii) OPI rejects the Work in accordance with 6 (c)(ii).

(b) In all circumstances other than those enumerated directly above, OPI shall be obligated to publish and distribute the Work by no later than November 15, 2018, or such other release date as the Author and publisher mutually agree or may agree.

9. Promotional Materials/Promotion by the Author

(a) The Author shall submit to OPI, for use in connection with the publication, licensing and promotion of the Work, pre-approved biographical data and pre-approved photograph of the Author, of quality acceptable to OPI.

(c) […] If OPI requests the Author’s cooperation in promoting the Work, the Author will be consulted on any Author tours organized and paid for by OPI. The Author agrees to fully cooperate to the best of the Author’s ability, subject to prior professional and/or personal commitments, and subject to mutual agreement of the itinerary, such agreement not to be unreasonably withheld.

12. Royalties

(a) OPI shall pay to the Author, or credit to the Author’s account, the following royalties […]

16. Warranties and Indemnities

(a) The Author warrants and represents:

(i) that the Author is the sole author of the Work; […] that if the Work is one of non-fiction, all statements asserted as facts are based on the Author’s careful investigation and research for accuracy; […]

(ii) […] the Work is original, […] that all information contained in the Work is lawful and has been lawfully obtained; that the Work does not contain any libelous matter, does not invade any right of privacy, any trademark, right of publicity, statutory or common law copyright, moral rights, or any other personal or property right, […]

(c) OPI shall include the Author as an “insured” in any publishing liability insurance that is in effect and that is applicable to the Work (the “Policy”). OPI shall look to the proceeds of that insurance, subject to the terms and conditions of the Policy (which may or may not include defense costs) for payment of Losses that may become due from the Author by reason of third party covered Claims alleging violations of the warranties in Subparagraph 16(a)(ii) above. The parties agree that:

(i) the Author shall not be responsible for any premiums due under the Policy;

(ii) the Author shall be an insured only with respect to the Work that is the subject of this Agreement; and

(iii) insurance coverage is for amounts in excess of the deductible but not greater than the Policy limits.

(iv) In the event it is determined by OPI or OPI’s insurer that a conflict of interest exists between the Author and OPI in a Claim brought against both of them and the Author and OPI cannot 1051469 [sic] be represented together, a separate deductible will apply to the Author’s defense of the Claim and any resulting Losses, and the Author shall be solely responsible for such deductible; and (vi) in the event a Claim is brought against the Author only, the Author shall be solely responsible for the deductible.

(d) If any Claims are received by OPI or the Author, the recipient shall promptly notify the Other party. The Author and OPI shall fully cooperate with each other in the defense of any Claims.

The Author’s failure to cooperate with OPI in the defence of any Claims shall be deemed a breach of this Agreement and could result in the loss of the insurance coverage and shall entitled OPI to terminate the liability limitations set forth in Subparagraph 16 (c)(iv) above. The Author’s warranties and indemnities shall survive the termination of this Agreement.

17. Author’s Property

OPI shall not be responsible for loss or damage to any property of the Author. In the absence of a written request from the Author made prior to publication, OPI after publication of the Work, may dispose of the original manuscript and proofs.

Next Publication of Author’s Work

The Work will be the Author’s next published work (whether under the Author’s own name or under a pseudonym, and whether alone or in collaboration with anyone else), and except with the prior written permission of OPI, the Author will not, prior to the delivery of the complete manuscript of the Work, write, publish or contract with any other publisher to write any other work for publication. […]

8It may be noted that under the publishing agreement, Optimum Publishing was obliged to include Mr. Brown as an “insured” in any publishing liability insurance that is in effect and that is applicable to the Work. However, when Optimum Publishing applied for insurance coverage from Sovereign, it did not name Mr. Brown as an insured nor did it did ever ask Sovereign to extend coverage under the Media Professionals Policy.

9At the time when Mr. Brown signed the publishing agreement, he had prepared a single page outline of the proposed chapters of his book. The book was otherwise unwritten.

10After the publishing agreement was signed, Mr. Brown met with the ghost writer, Francesca Grosso. Ms. Grosso interviewed Mr. Brown and then drafted the chapters for the book based on his interviews. Mr. Brown reviewed, commented upon, and ultimately approved the words penned by the ghost writer. Mr. Brown is the contracted author for the published edition of the Work.

11On November 14, 2018, Optimum Publishing published Takedown: The Attempted Political Assassination of Patrick Brown. The author was identified as Patrick Brown.

12Mr. Fedeli felt defamed by the publication of Mr. Brown’s book. By letter dated December 5, 2018, Mr. Fedeli wrote Mr. Brown and delivered a Notice of Libel pursuant to the provisions of the Libel and Slander Act.² The letter set out Mr. Fedeli’s defamation complaint.

13In December 2018, Mr. Brown asked Mr. Baxendale to arrange for Optimum Publishing’s insurer to provide him with a defence to Mr. Fedeli’s pending defamation action.

14On January 30, 2019, Mr. Fedeli commenced a defamation action against Patrick Brown, Optimum Publishing International, JF Moore Lithographers Inc. and Dean Baxendale. Paragraphs 2, 14, 21, and 22 of the Statement of Claim state:

2. Victor Fedeli brings action against the defendants for their publication and republication of a vicious and petulant attack on his character. As more particularly described below, by authoring and publishing the book Takedown: The Attempted Political Assassination of Patrick Brown (“Takedown”), the respective defendants have maliciously defamed Fedeli, making and widely publicizing a series of allegations intended and timed to cause maximum damage to his reputation. The defendants have aggravated the damage they have caused to Fedeli by republishing and intensifying their libel after he demanded that they retract and apologize, which they have refused to do, and by attempting to justify their misconduct under the mantle of “democracy”. Fedeli brings this action to restore his reputation and to hold the defendants to account for their calculated and serial misconduct directed at him.

3. On or about November 14, 2018, Optimum, under Baxendale’s control and direction published the book Takedown. Brown is identified as the author of Takedown though other unattributed persons may have authored or contributed to the publication. Among other things, Takedown purports to recount the events and circumstances surrounding Brown’s resignation as leader of the PCPO, including the allegations against Brown that were reported by CTV. In substance, Takedown comprises an attempt by Brown to “settle scores” against all those individuals that he perceives were responsible for, or benefited from, the circumstances leading to his resignation as leader of the PCPO. In the result, Brown fills his book with personal attacks against all of his perceived political enemies that he holds responsible for his failed ambition to become Premier of Ontario.

4. In connection with the publication of Takedown, Brown gave numerous interviews to broadcast, print, and online media outlets in which he repeated the substance of the Words Complained Of. He did so in order to give the widest possible publicity to Takedown, including the allegations contained in the Words Complained Of. In addition, numerous broadcast, print and online media outlets published stories about the publication of Takedown in which they quoted and/or paraphrased the Words Complained Of. These statements are false and defamatory of Fedeli and are underlined in Schedule “B” to this statement of claim (the “Media Words Complained Of”).

5. Brown is responsible for the publication of the Media Words Complained Of and made such statements knowing and intending that they would be published by media outlets, or with reckless disregard as to whether they would be published, and knowing and intending that they would cause harm to Fedeli, or with reckless disregard as to whether they would cause harm to Fedeli.

15On February 28, 2019, Mr. Baxendale received an email from Gerry Gill, Sovereign’s legal counsel that attached a letter written to Optimum Publishing that detailed Sovereign’s position on coverage. With respect to Mr. Brown, the letter stated:

We are coverage and monitoring counsel for Sovereign General effected through Premier Canada ("Underwriters") with respect to Media Professionals Policy No. ME00947-0 (the "Policy") issued to J.F. Moore Lithographers Inc. ("J.F. Moore") for the November 9, 2018 - November 9, 2019 policy period.

As you are aware, J.F. Moore, yourself, Optimum Publishing International ("Optimum") and Patrick Brown ("Brown") are defendants in the above noted civil action (the "Action").

This letter sets outs Underwriters' position as to the coverage available under the Policy in respect of the Action. The information contained in this letter does not modify the terms and conditions of the Policy and it should be read together with the Policy. For reasons that are set out in more detail below, Underwriters must advise as follows:

1. Neither Optimum nor Brown is an insured under the Policy. There is no coverage for either Optimum or Brown under the Policy. Underwriters have no obligation to, and will not defend or pay or reimburse these defendants in connection with their defence of the Action. Underwriters have no obligation to, and will not pay or reimburse these defendants for any damages that they may be required pay to the plaintiff.

The within coverage position is based on the information presently available to Underwriters. The contents of this letter are not, and shall not be construed as a waiver or estoppel of any term, condition, exclusion or other right available under the Policy. Underwriters reserve all rights under the Policy and at law, including the right to deny coverage, the right to assert additional defences to any claim for coverage, and the right to re-consider, update or update and amend this coverage position should evidence arising during the conduct of the defence that demonstrates that such action is warranted.

C.1 Only J.F. Moore and Baxendale are Insureds under the Policy

Under the E&O Policy, the term "INSURED" is defined to mean the NAMED INSURED identified on the declarations page, which in this case is J.F. Moore, and any director or employee of J.F. Moore, which would include Baxendale.

Underwriters acknowledged that both J.F. Moore and Baxendale are insureds under the E&O Policy.

Neither Optimum nor Brown are identified on the Policy's declaration page. Although the Application indicates that publishing activities accounts for 55% of J.F. Moore's business activities, there is no indication that J.F. Moore's publishing activities are handled by Optimum.

Under the E&O Policy, the definition of INSURED does not encompass individuals such as authors nor does the definition of INSURED encompass corporate subsidiaries or affiliated companies.

There are no endorsements the Policy indicating that either Optimum or Brown are to be added to the Policy and Underwriters are not in possession of any documentation that would suggest such a request was made.

In light of the above, it is Underwriters' position that neither Optimum nor Brown are insureds under the E&O Policy.

As neither Optimum nor Brown are insureds under the Policy, Underwriters must advise that there is no coverage under the Policy for these defendants. Underwriters have no obligation to, and will not defend or indemnify these defendants in the Action.

Any coverage that may be available under the Policy is extended only to J.F. Moore and Baxendale. For ease of reference, we will refer to J.F. Moore and Baxendale collectively as the "Insureds".

16By letter dated April 14, 2020, Mr. Brown placed Sovereign on notice that he would sue the insurance coverage for wrongful denial of coverage. Sovereign responded by letter dated May 28, 2020. The letter stated:

We write further to your letter of April 14, 2020 […]

This letter sets outs Underwriters' position as to the coverage available to Mr. Brown, under the Policy in respect of the Action and in particular, Underwriters' position regarding Mr. Brown's purported entitlement to defence funding under the Policy.

In your April 14, 2020 letter, you reference Underwriters' correspondence of February 28, 2020. Underwriters maintains the position as detailed in its prior correspondence. The terms and condition set out in the February 28, 2019 letter remain in full force and effect unless expressly modified herein.

Any coverage that may be provided by the Policy extends only to those persons and entities who are classified as insureds under the Policy. It is Underwriters' position that Mr. Brown is not an Insured under the Policy.

The Policy defines "Insured" to include a variety of individuals and entities. The following three definitions potentially apply to Mr. Brown:

Mr. Brown is not a Named Insured. Brown is not identified on the Policy's declaration page or in any schedule to the Policy. The Policy does not include any endorsement that purports to identify Brown as an Additional Named Insured under the Policy. In light of the above, it is Underwriters' position that Mr. Brown is not a Named Insured under the Policy.

Brown was not retained under a personal service contract. Mr. Brown entered into an agreement with J.F. Moore to publish a specific work of nonfiction. It is Underwriters' position that the agreement is a book publishing contract and it is neither a personal services contract nor a personal services agreement. As it is Underwriters' position that J.F. Moore did not retain Mr. Brown under a personal service contract, it is also Underwriters' position that Mr. Brown is not an Insured on that basis.

Brown is not an independent contractor. As set out above, it is Underwriters' position that the agreement between Mr. Brown and J.F. Moore was an agreement to publish a specific work of non-fiction. It is Underwriters' position that the agreement is a book publishing contract: it is not an employment contract or a contract for services.

It is also Underwriters' position that Mr. Brown was not retained to provide any services on behalf of J.F. Moore nor was Mr. Brown retained to perform any of J.F. Moore's professional business activities. It short, it is Underwriters' position that Mr. Brown was not an independent contract of J.F. Moore.

Moreover, not all independent contractors are considered to be Insured's under the Policy. Coverage is only extended to independent contractors who perform the INSURED'S PROFESSIONAL BUSINESS on behalf of J.F. Moore. The Policy defines the INSURED'S PROFESSIONAL BUSINESS as follows:

The definition of INSURED'S PROFESSIONAL BUSINESS does not include the creation of content or of written material.

While it is Underwriters' position that Mr. Brown is not an independent contractor, it is also Underwriters' position that any tasks that Mr. Brown may have undertaken in writing his work of non-fiction, are not tasks that constitute the INSURED'S PROFESSIONAL BUSINESS as that term is defined in the Policy.

In light of the above, it is Underwriters' position that Mr. Brown is not an independent contractor, and is therefore not an Insured on that basis.

17Since the time of this denial letter, Sovereign has persisted in its position that Mr. Brown is not insured.

18Sovereign acknowledges that Mr. Fedeli’s defamation action was within policy coverage for any insured covered by the policy and that the coverage includes defence costs. Sovereign does not dispute that Mr. Brown incurred defence costs of $187,313.41. The dispute between the parties is about whether Mr. Brown is an insured under the Media Professionals Insurance Policy.

C. The Arguments of the Parties

1. Mr. Brown’s Argument

19Mr. Brown’s argument is quite straightforward. He argues that as a matter of contract interpretation, he is an insured under Sovereign’s Media Professionals Insurance Policy because it provides coverage for:

a. “individuals or personal services contracts or personal service agreements,” and

b. any “independent contractor for which the [Optimum Publishing] has agreed in writing to provide this insurance … with respect to INSURED'S PROFESSIONAL BUSINESS performed by such independent contractor on behalf of the [Optimum Publishing].”

20Mr. Brown makes the further argument that Sovereign’s handling of Mr. Brown’s claim for insurance coverage demonstrated egregious bad faith and the insurer should be liable for punitive damages.

21In making these arguments, Mr. Brown relied on the evidence of Howard Winkler, who was his lawyer in the defamation action brought by Mr. Fedeli and on the cross-examination of Hilda Kariuki who was the claims examiner with responsibility for Mr. Brown’s file.

2. Sovereign’s Argument

22Sovereign’s argument is equally straightforward. It argues that as a matter of contract interpretation, Mr. Brown, who has the onus of proof, has not established that he is an insured under Sovereign’s Media Professionals Insurance Policy and there was no bad faith in the handling of Mr. Brown’s insurance claim.

23In making these arguments, Sovereign relied on the evidence of Ms. Kariuki and on the cross-examination of Mr. Winkler.

D. Principles of Contract Interpretation for Insurance Policies

24Contractual interpretation is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix.³ The goal of contractual interpretation is to determine the intent of the parties and the scope of their understanding giving the words used by the parties their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract.⁴ The rules of contract interpretation direct a court to search for an interpretation from the whole of the contract that advances the intent of the parties at the time they signed the contract.⁵

25In searching for the intent of the parties at the time when they negotiated their contract, the court should give particular consideration to the terms used by the parties, the context in which they are used, and the purpose sought by the parties in using those terms.⁶ Provisions should not be read in isolation but in harmony with the contract as a whole.⁷

26The parol evidence rule precludes admission of evidence outside the words of the written contract that would add to, subtract from, vary, or contradict a contract that has been wholly reduced to writing, but in interpreting a commercial contract, the court may have regard to the surrounding circumstances; that is, the factual background and the commercial purpose of the contract.⁸

27The factual nexus is objective evidence of the background facts at the time of the execution of the contract; i.e., knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting including anything that would have affected the way in which the language of the document would have been understood by a reasonable man.⁹

28Generally, words should be given their ordinary and literal meaning. However, if there are alternatives, the court should reject an interpretation or a literal meaning that would make the provision or the contract ineffective, superfluous, absurd, unjust, commercially unreasonable, or destructive of the commercial objective of the contract.¹⁰

29Since insurance contracts are essentially adhesionary, the standard principle is to construe ambiguities against the insurer with the corollary principle that coverage provisions should be construed broadly and exclusion clauses construed narrowly.¹¹

30Where an insurance policy is ambiguous, a court should consider the reasonable expectations of the parties, so long as such an interpretation can be supported by the text of the policy.¹²

31When there is an ambiguity or contradiction in a contract that cannot be resolved by the other rules of construction, then resort may be made to the contra proferentem rule, which posits that the language of the contract will be construed against the party that inserted the provision to the other with no opportunity to modify its meaning.¹³

32The rules of construction are applied to resolve ambiguity; they do not operate to create ambiguity where there is none in the first place.¹⁴ Ambiguity does not exist whenever a policy contains wording that could be open to two or more reasonable interpretations and an effort should be made to interpret the policy in a commercially reasonable fashion and in a way that gives effect to the reasonable expectations of the parties.¹⁵

E. Punitive Damages and Good Faith in the Performance of Insurance Contracts

33Insurance contracts are contracts of utmost good faith, and an insurer’s duty of good faith extends to the manner in which it manages claims for insurance coverage.¹⁶ In the event of a breach of the insurer’s duty of good faith, punitive damages are exceptional but may be imposed if there has been high-handed, malicious, arbitrary or highly reprehensible misconduct representing a marked departure from ordinary standards of decent behaviour.¹⁷

F. Discussion and Analysis

34In short, I agree with Mr. Brown’s interpretative argument, but I disagree that the case at bar justifies an award of punitive damages.

35I begin the analysis with five observations. Three observations are about matters for which there was no dispute between the parties. The fourth observation is about the evidence in the case at bar and about the parties’ use of that evidence. The fifth observation is about the contra proferentem rule.

36The first observation is that there is no dispute between the parties that if Mr. Brown qualifies as an insured under the policy, then he is entitled to be indemnified for the cost of his defence of Mr. Fedeli’s defamation action.

37The second observation is that there is no dispute between the parties that the amount of that indemnification is $187,313.41.

38The third observation is that there is no dispute about Mr. Brown’s status as an independent contractor. The actual dispute between the parties is about whether Mr. Brown was an independent contractor that performed with respect to Optimum Publishing’s “professional business” as a publisher.

39The fourth observation is that Mr. Winkler’s and Ms. Kariuki’s evidence about what they thought was the proper interpretation of Sovereign’s Media Professional Insurance Policy is precluded by the parol evidence rule and the evidence was helpful only to the extent that it explained the factual nexus. The evidence given by Ms. Kariuki on her cross-examination was also relevant to Mr. Brown’s arguments about the insurance company’s lack of good faith, but her subjective understanding or her subjective ignorance about the meaning of the contract is irrelevant to the objective interpretation of the insurance contract.

40The fifth observation is that there is no need to apply the contra proferentem rule in the immediate case. Although “personal services contract”, “personal service agreement” and “independent contractor” are not defined terms in Sovereign’s Media Professionals Insurance Policy, when placed in their factual nexus, their meaning is not ambiguous and these words can be interpreted in accordance with the principles of contract interpretation that I have recited above.

41The more detailed interpretative analysis of Sovereign’s Media Professionals Insurance Policy may begin with the observation that the policy is what it labels itself to be; namely, a contract providing the insurance coverage needed by a media organization of which a publishing company, like Optimum Publishing, would be a perfect example.

42It seems obvious to me that a publishing company would, as a first order of insurance business, seek to have insurance coverage for publishing words alleged to be defamatory. In the immediate case, it is fair factual inference, but one that I do not need to decide, that Optimum Publishing did not name Mr. Brown as a “named insured” because it believed that it did not need to do so because it had contracted for insurance coverage that would cover authors.

43I, thus, totally disagree with Sovereign’s arguments that Mr. Brown’s publishing agreement with Optimum Publishing was not a “personal service contract” or a “personal service agreement” and that Mr. Brown was not an independent contractor for Optimum Publishing’s publishing business. As Sovereign would have it, the publishing agreement is an agreement for the delivery of a good, a manuscript, and not a service and in delivering a good (a product) not a service, Mr. Brown was not an independent contractor engaged in the publishing business.

44I disagree with Sovereign’s argument that the publishing agreement between an author and a book publisher in the immediate case is akin to a manufacturing contract for the production of a product. I disagree with Sovereign’s argument that the publishing business does not include the acquisition of the intellectual content that is edited, then typeset, then printed, and then distributed.

45A publishing agreement is an intellectual property agreement in which an author, licenses or assigns the right to make copies of his or her intellectual property. A publishing agreement is not about tangible goods; it is about intangible property. The business of a publishing company is to make copies of an author’s work and sell them for which the author receives royalties. If the author was an employee of the publishing company, then the publishing company would already own the copyright and there would be no need for a publishing agreement and no need to pay the author/employee anything other than his or her salary. In the immediate case, Mr. Brown was not an employee and he sold his copyright. Since he was not an employee, he was an independent contractor with respect to that copyright. And that independent contracting was an engagement in Optimum Publishing’s professional business of publishing copyrighted works. I disagree with Sovereign argument’s that would equate a publisher to nothing more than a printer or photocopier of an author’s work.

46Although I have expressed the argument differently, I thus agree with Mr. Brown’s arguments. Under the Media Professionals Insurance Policy “"INSURED" shall also mean any individuals or personal corporations who from time to time have been retained under personal services contracts or personal services agreements.”

47I take it that the difference between “personal service contracts” and “personal service agreements” are that the former is for “individuals” and the latter is for “personal corporations” but for present purposes, the question is whether the publishing agreement in the immediate case is about “personal service.”

48The words personal service agreements or personal service contracts are not defined terms in the publishing agreement, but there is much about the publishing agreement that demonstrate that Mr. Brown was obliged to provide a personal service, which was to author; i.e. write an account of his own personal story. Mr. Brown signed a contract to provide a work of non-fiction. That there was a ghost writer does not change the truth that Mr. Brown was the author any more than the existence of an editor would change the truth of who is the author of a work of fiction, which if not ghost written are often substantively edited without changing who takes credit as the author.¹⁸

49As a matter of contract law “personal contracts” are a type of contract that is non-assignable.¹⁹ They are not assignable contracts because their nature is such that the performance of the promises cannot be delegated and can only be meaningfully performed by the promisor.²⁰I have identified above by emphasis added, the highly personal nature of Mr. Brown’s and Optimum Publishing’s publishing agreement where the parties wish to publish and have published a non-fiction work. The highly personal nature of this contract demonstrates, among other things, Mr. Brown’s personal intellectual property responsibilities and his personal marketing and promotional responsibilities. That Mr. Brown has personal responsibilities that cannot be delegated is perhaps best illustrated by the term of the publishing agreement whereby Mr. Brown promises that the book will be his next published work and except with the prior written permission of Optimum Publishing he will not write, publish, or contract with any other publisher to write any other work for publication. This is all very personal to Mr. Brown.

50The next published work promise borders on making Mr. Brown an indentured contractor insofar as being an author is concerned. Being indentured is very personal. And, of course, as far as being an author is concerned, it was an autobiographical work of non-fiction about Mr. Brown’s personal life as a politician for which he entered into the publishing contract. It is hard to imagine anything more personal than an autobiography.

51It also follows from the above and from the concession that Mr. Brown was an independent contractor (he certainly was not an employee) of Optimum Publishing that he performed with respect to Optimum Publishing’s “professional business” which was to publish and to have published Mr. Brown’s work of non-fiction. This relationship is confirmed by the publishing agreement under which Optimum Publishing agreed to provide liability insurance, which precisely makes Mr. Brown under of Sovereign’s Media Professionals Insurance policy “an independent contractor for which the NAMED INSURED has agreed in writing to provide this insurance.”

52I conclude that Mr. Brown is an insured under the Media Professionals Insurance Policy and therefore he is entitled to judgment for $187,313.41 plus interest, plus costs.

53I, however, do not agree with Mr. Brown’s argument that he is entitled to an award of punitive damages. There is no evidence of malice and Sovereign in a businesslike and professional way very promptly sought a legal opinion on whether there was coverage for Mr. Brown. In my opinion that legal opinion was wrong but, there is no malice in persisting in a legal opinion that at least identifies the logic of the denial of coverage. The insurer was correct in asserting that Mr. Brown was not a named insured but very wrong in concluding that he was not engaged as a contractor for the publishing business, and in concluding that he was not in a personal services agreement with the named insured. There is nothing in the evidence to show that Sovereign was motivated by malice or that it acted vindictively in making those characterizations. Sovereign’s conduct does not offend a sense of decency and is not deserving of punishment. The fact that an insurer may have been wrong, even persistently wrong, in respect of its coverage position does not by itself warrant the imposition of punitive damages.²¹

G. Conclusion

54For the above reasons, I grant Mr. Brown judgment for $187,313.41 plus prejudgment and postjudgment interest in accordance with the Courts of Justice Act²² plus costs.

55If the parties cannot agree about the matters of interest and costs, they may make submissions in writing beginning with Mr. Brown’s submissions within twenty days of the release of these Reasons for Decision, followed by Sovereign’s submissions within a further twenty days.

Perell, J.

Footnotes

1. 1R.S.O. 1990, c. 43
2. 2R.S.O. 1990, c. L.12.
3. 3Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at para. 50.
4. 4Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at para. 47; Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4 at paras. 64-65; Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21 at para. 27.
5. 5Unique Broadband Systems Inc. (Re), 2014 ONCA 538 at paras.83-90; Consolidated-Bathurst Export Ltd. v. Mutual Boiler & Machinery Insurance Co., 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888.
6. 6Frenette v. Metropolitan Life Insurance Co., [1992] 1 S.C.R. 64.
7. 7Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at para 64; Scanlon v. Castlepoint Dev. Corp. (1993), 1992 CanLII 7745 (ON CA), 11 O.R. (3d) 744 (C.A.); Hillis Oil and Sales Limited v. Wynn's Canada, 1986 CanLII 44 (SCC), [1986] 1 S.C.R. 57; McClelland and Stewart Ltd. v. Mutual Life Assurance Co. of Canada, 1981 CanLII 53 (SCC), [1981] 2 S.C.R. 6; Stevenson v. Reliance Petroleum Limited, [1959] S.C.R. 936.
8. 8Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at paras. 58-61; Canada Square Corp. v. VS Services Ltd. (1981), 1981 CanLII 1893 (ON CA), 34 O.R. (2d) 250 (C.A.); Reardon Smith Line v. Hansen-Tangen, [1976] 3 All E.R. 570 (H.L.); Prenn v. Simmonds, [1971] 3 All E.R. 240 (H.L.).
9. 9Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 at para. 58.
10. 10Ventas Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205 at para. 24; Non-Marine Underwriters, Lloyd's of London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551 at para. 71; Scanlon v. Castlepoint Dev. Corp. (1993), 1992 CanLII 7745 (ON CA), 11 O.R. (3d) 744 (C.A.); Consolidated-Bathurst Export Ltd. v. Mutual Boiler & Machinery Insurance Co. 1979 CanLII 10 (SCC), [1980] 1 S.C.R. 888; Aita v. Silverstone Towers Ltd. (1978), 1978 CanLII 1405 (ON CA), 19 O.R. (2d) 681 (C.A.); Indian Molybdenum Ltd. v. The King, 1951 CanLII 378 (SCC), [1951] 3 D.L.R. 497 (S.C.C.).
11. 11Sommersal v. Friedman, 2002 SCC 59 at para. 47; Non-Marine Underwriters, Lloyd's of London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551 at para. 70; Brissette Estate v. Westbury Life Insurance Co., 1992 CanLII 32 (SCC), [1992] 3 S.C.R. 87 at p. 92; Indemnity Insurance Co. of North America v. Excel Cleaning Service, 1954 CanLII 9 (SCC), [1954] S.C.R. 169, at pp. 179-80.
12. 12Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33 at para. 23; Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., 1993 CanLII 150 (SCC), [1993] 1 S.C.R. 252 at para. 39; Wigle v. Allstate Insurance Co. of Canada (1984), 1984 CanLII 45 (ON CA), 49 O.R. (2d) 101 (C.A.), leave to appeal to S.C.C. refused, [1985] 1 S.C.R. v.
13. 13Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33 at para. 24; Arthur Andersen Inc. v. Toronto-Dominion Bank, (1994), 1994 CanLII 729 (ON CA), 17 O.R. (3d) 363 (C.A.); Scanlon v. Castlepoint Dev. Corp. (1992), 1992 CanLII 7745 (ON CA), 11 O.R. (3d) 744 (C.A.); McClelland and Stewart Ltd. v. Mutual Life Assurance Co. of Canada, 1981 CanLII 53 (SCC), [1981] 2 S.C.R. 6; Hillis Oil and Sales Limited v. Wynn's Canada, 1986 CanLII 44 (SCC), [1986] 1 S.C.R. 57; Reliance Petroleum Limited v. Stevenson, 1956 CanLII 27 (SCC), [1956] S.C.R. 936.
14. 14Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33 at para. 23.
15. 15Solway v. Lloyd’s Underwriters (Attorney in Fact in Canada) (2006), 2006 CanLII 17254 (ON CA), 80 O.R. (3d) 401 at para. 43 (C.A.).
16. 16Fernandes v. Penncorp Life Insurance Co., 2014 ONCA 615; Whitten v. Pilot Insurance Co., 2002 SCC 18.
17. 17Whiten v. Pilot Insurance Co., 2002 SCC 18, at para. 94
18. 18After Franz Kafka’s death, Max Brod edited and published Kafka’s unpublished works. Thomas Wentworth Higginson edited the poems of Emily Dickinson. Max Perkins edited the novels of F. Scott Fitzgerald, Ernest Hemingway, and Thomas Wolfe. Ezra Pound edited the poems of T.S. Eliot.
19. 19Fredrickson v. Insurance Corp. of British Columbia (1986), 1986 CanLII 1066 (BC CA), 28 D.L.R. (4th) 414 at pp. 426-427 (B.C.C.A.).
20. 20Black Hawk Mining Inc. v. Manitoba (Provincial Assessor) 2002 MBCA 51.
21. 21702535 Ontario Inc. v. Lloyd’s of London, Non-Marine Underwriters, 2000 CanLII 5684 (ON CA), [2000] O.J. No. 866 (C.A.).
22. 22R.S.O. 1990, c. 43