COURT FILE NO.: CV-21-655102
DATE: 2021-08-04
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: AIG Insurance Company of Canada, Applicant
AND:
Lloyd’s Underwriters, Respondent
BEFORE: W.D. Black J.
COUNSEL: Sébastien A. Kamayah, for the Applicant
Heather Gray and Julia Vizzaccaro, for the Respondent
HEARD: July 27, 2021
ENDORSEMENT
[1] This is an Application in which AIG Insurance Company of Canada (“AIG”) seeks equitable contribution form Lloyd’s Underwriters (“Lloyd’s”) towards the cost of defending the Corporation of the City of Timmins (the “City”) in an action by homeowners for damage to their property occurring between April 2016 and December of 2019.
[2] AIG and Lloyd’s each provided Public Entity General Liability Insurance to the City during successive policy years: effectively AIG was “on risk” for 2016 and 2017, and Lloyd’s was “on risk” for 2018 and 2019.
[3] The question before me is whether or not Lloyd’s has a duty to defend. Counsel have advised that if I find such a duty, it is agreed that the sharing of costs incurred to date and going forward would be on a 50/50 basis.
The Underlying Action
[4] In the underlying action the homeowners (the “Forgets”) sue the City (and others) and claim $750,000, alleging negligence and other causes of action.
[5] The Forgets purchased vacant land in Timmins (at 220 Wallingford Road) in 2012. They built a home on the property and moved in some time in December of 2013.
[6] It is common ground that before the Forgets constructed their home, certain issues concerning drainage on the property were identified and that a pre-construction soils report discussed those issues to some extent. The author of that soils report, a professional engineer, is a co‑defendant in the underlying action.
[7] The owners of the neighboring property at 230 Wallingford Road (the Carrieres) are also co‑defendants in the underlying action. It is alleged that their actions contributed to the slope failure that ultimately occurred on the Forgets’ property (set out in more detail below).
[8] Starting in April of 2016, the slope on the adjoining Carrieres’ property began to fail (allegedly because of inappropriate and unauthorized landscaping, excavation and regrading, including redirecting of their septic drainage).
[9] Since September of 2016, ongoing erosion has impacted the stability of the Forgets’ property, including progressive damage to their stone retaining wall and loss of several trees.
[10] Sometime in 2017, the City ordered the Carrieres to vacate the adjoining property at 230 Wallingford Road.
[11] The continued erosion at the Forgets’ property ultimately led in September of 2019, to the City likewise issuing an Order prohibiting occupancy of the Forgets’ home and use of the Forgets’ property until stabilized. On December 20 of 2019, the City issued an Order requiring the Forgets to remove, relocate or demolish their dwelling.
[12] It is fair to observe that the underlying claim emphasizes the City’s alleged negligence in failing to appreciate and address the risk of ongoing erosion (due to drainage issues) on the property, and the impact of that erosion on the structural integrity of the home to be and then in fact constructed on the property.
[13] In its defense, the City denies that it had responsibility for certain specific actions and conduct attributed to it in the claim, alleges contributory negligence, and generally denies the allegations of negligence.
The Insurance Policies
[14] As set out above, between April 2016 and December 2019, when the property damage is alleged to have occurred, AIG and then Lloyd’s provided consecutive policies of Public Sector Entity General Liability Insurance to the City (AIG for the first two years and Lloyd’s for the latter two years).
[15] Counsel agree that the operative provisions of the respective insuring agreements (AIG’s and Lloyd’s) are virtually and functionally identical.
[16] Both policies set out coverage for property damage caused by an occurrence if it occurs during the policy period. Both policies also exclude coverage for “Expected or Intended Injury”.
[17] AIG agreed to defend the City under a reservation of rights for indemnity for claims in relation to any occurrence giving rise to property damage during the currency of the AIG policy. That policy by its terms does not respond for any occurrence giving rise to property damage taking place after the policy period.
[18] Lloyd’s, on the other hand, denied coverage under its functionally identical policy.
Lloyd’s Denial of Coverage, and Legal Considerations
[19] Lloyd’s maintains that any property damage alleged to have occurred during the currency of the Lloyd’s policy was not caused by an “occurrence” as required to engage coverage under the policy, or, in the event that there was an occurrence, Lloyd’s purports to rely on the exclusion in the policy for “expected or intended” property damage.
[20] The parties agree that they each have a duty to defend if an insured shows a “mere possibility” that the true nature or substance of a claim, if proven, would trigger a duty to indemnify (Progressive Homes Ltd. v. Lombard General Insurance Company of Canada, 2010 SCC 33 [2010] SCJ No. 33).
[21] There is some modest disagreement between the parties about the extent to which the parties may refer in characterizing the nature and substance of the claim, to extrinsic evidence. There is agreement that the contents of the Statement of Claim may be considered and, with some equivocation by Lloyd’s, the contents of the Statement of Defence. There is less agreement about the extent to which parties can resort to other documents, including those to which reference is made in the pleadings and debate about a purported distinction depending on whether the documents in question are “controversial” or “non-controversial”.
[22] Generally, and appropriately, the prohibition established by the case law is against reliance on contested evidence in this context, since to import and debate such evidence would risk the Application Judge having to conduct a “trial within a trial” and lead to premature findings on such contested facts best left to the Judge hearing the underlying trial (Moneco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49 [2001] SCJ No.50).
The Role of the Amec Report
[23] In this Application, the document attracting the most debate about its role and impact is a report prepared in May of 2017 by the geotechnical engineering firm Amec Foster Wheeler (the “Amec Report”). Amec was awarded a contract pursuant to a Request for Proposal from the City for a “Drainage & Erosion Investigation on Wallingford Road”. Lloyd’s places considerable weight on the Amec Report, pointing in particular to two recommendations about (1) upgrading the drainage on Wallingford Road by installing a manhole at the discharge area of a culvert on the Forgets’ property and (2) redirecting drainage away from the ditch and culvert running between the Forgets’ property and the Carierres’ property.
[24] In denying that there was an “occurrence” that would trigger coverage under its policy, Lloyd’s argues that any property damage caused by the occurrence of drainage and erosion problems “had completely manifested by May 2017 when the Amec Report commissioned by the City is delivered”. It says that, even though there was ongoing deterioration of the Forgets property after the Amec Report in May of 2017, the loss had “crystallized” once the insured had knowledge of how to remedy the cause of that ongoing deterioration and that the Amec Report provided that knowledge. It says that the failure to proceed with the remediation recommended by the Amec Report meant that any ongoing damage to the Forgets’ property thereafter was no longer “accidental”, and no longer “fortuitous loss” as that term is defined in the case law.
[25] Lloyd’s punctuates this argument in its factum by saying: “The “occurrence” alleged in the Forgets’ action effectively terminated once the Amec Report was issued. Any further property damage occurred as a result of the City’s failure to effect remediation”.
[26] The Amec Report plays a similarly prominent role in Lloyd’s reliance on the “expected or intended injury” exclusion under its policy.
[27] The exclusion states that “this insurance does not apply to expected or intended injury,” being “property damage expected or intended from the standpoint of the insured”.
[28] After fairly conceding that the “expected or intended” injury exclusion has not been the subject of extensive judicial consideration in Canada, and noting that cases considering the exclusion have focused on the term “intentional”, Lloyd’s argues, persuasively in my view, that the fact the terms “expected” and “intended” are separated, in the exclusion language, by the disjunctive “or” means that the words are alternatives with individual meanings.
[29] Proceeding from this premise and arguing, again persuasively, that words in policies are generally to be given their plain and ordinary meaning, Lloyd’s argues that in the Forgets’ action, any alleged property damage after January 1, 2018 (the beginning of the Lloyd’s policy period) can be fairly seen as (at least) “expected” from the standpoint of the City.
[30] This is so, argues Lloyd’s, in that “prior to January 1, 2018, the City’s own expert, Amec, recommended to the City that the flow from subcatchment 2 be directed away from the Forgets’ and Carierres’ property (sic) and the City advised the Forgets that it intended to install a new drainage system to rectify the drainage issues that were impacting the Forgets’ property.”
[31] Lloyd’s says that based on the City’s knowledge (in turn based on the Amec Report) as of May 2017, any “property damage” which manifested after January 1, 2018, was “probable or certain”.
[32] I pause to note that I have some reservations about placing the Amec Report into the fray in the way that Lloyd’s urges.
[33] While the Amec Report, and even some of its substantive content are referred to in the Forgets’ Amended Statement of Claim (see paras 64, 65, 67, 68 and 71), which, Lloyd’s argues, means that the document can be fairly reviewed and considered in assessing the issues in this Application, those same paragraphs make it clear that the Forgets felt and expressed at the time of its issue that the Amec Report contained factual inaccuracies and was missing information.
[34] To the extent that the caselaw, in the effort to avoid a “trial within a trial” limits importing evidence to “non-controversial” evidence, the Amec Report may cross that line.
[35] In any event, in my view the Amec Report is not sufficiently robust in its analysis and conclusions to bear the weight and force Lloyd’s purports to accord it.
[36] On its face, the Amec report is preliminary and, as befits a preliminary report, somewhat equivocal.
[37] It is entitled “Preliminary Drainage and Slope Condition Assessment, Wallingford Road, Timmins, Ontario.” The preliminary nature of the investigation is specifically confirmed in s. 3.3 of the Report, where the analysis of surface water and drainage is set out.
[38] In the discussion of slope stability in section 4.0 of the Amec Report, the opening words say: “the slope condition assessment on private property has presented numerous challenges related to site access and as such, to date a detailed investigation of the slope has not been completed”. That section later says: “No positive subsurface soil and groundwater information was available at the time of this assessment. The bathymetric survey and drilling information is necessary to advance the assessment of the slope and must be completed in order to develop meaningful remediation options”.
[39] Similarly, in section 4.2 of the Report, dealing with “Preliminary Slope Analyses”, after stating some assumptions, the authors say: “It is important to note that a detailed field sampling and testing program must be completed to validate these assumptions and results and to refine this very preliminary stability model”.
[40] In the very section of the Amec Report to which Lloyd’s points in particular, noting and relying on certain recommendations in sections 5.1.1 and 5.1.2, the introductory language in section 5.0 from which the recommendations follow says: “the following sections of the report review possible remedial options focused on these two areas. Again, these are preliminary discussions and must be confirmed by additional field work and analysis.”
[41] There are various other such qualifications in the Amec Report. This is not intended to say that the Amec Report is somehow inappropriate or incorrect. It is not my function and nor do I have the evidence to make that determination. Rather, my purpose in reviewing the qualifying language is to observe that, in my view, the delivery of the Amec Report cannot fairly be construed as the definitive “crystallizing” event after which any ongoing damage on the property should no longer be seen as accidental and must be seen as “expected or intended”.
[42] To the contrary, the evidence suggests before me confirms that there were ongoing investigations and ongoing discussions of potential remediation of the properties in issue. I expect that the pending trial will determine if those steps were the right ones, who had responsibility for them, and whether or not the investigation and remediations in which the City was involved met the standard required, but in my view the Amec Report in no way ends that debate as Lloyd’s would have it.
[43] Moreover, it appears clear that the damage to the property did in fact continue and progressed throughout the period of investigation and throughout the currency of the Lloyd’s policy. I find that the evidence more than meets the test of a “mere possibility” that the underlying claim triggers a duty to defend.
Conclusions re “Intended or Expected”
[44] While I agree that “intended” and “expected” are two different alternatives with individual meanings, in my view the evidence before me, including in the way discussed above, the Amec Report, does not rise to the level required to recharacterize what appears to have been accidental and/or negligence to an outcome to be “expected” let alone “intended”.
[45] In that regard, both parties refer in argument to the Court of Appeal’s decision in Alie v. Bertrand & Frere Construction Co. Ltd, 2002 ONCA. 2002 CanLII 31835 (ON CA), [2002] O.J. No. 4697. AIG cites it for the proposition discussed in paragraphs 58-63 of the decision, that in that case, in which concrete provided for a major construction project was found to be defective, the damage that took place to the plaintiffs’ foundations was certainly not expected or intended by the defendants and thus was fairly construed as an occurrence under the various insurance policies in issue. AIG argues that this (and other cases) confirm the need for a degree of intentionality and/or knowledge before an outcome can be said to be intended or expected.
[46] For its part Lloyd’s points me to the discussion in Alie at paragraphs 129-138, where the Court notes that if the trial judge had accepted evidence of what could have been learned about the defective concrete with proper testing, and if thereby the injury had in fact been manifest and complete before the period that certain policies were in place, then those policies would not have been called upon to respond. While acknowledging that the “manifestation theory” would have a role in other cases, the Court noted that the trial judge, to whom they deferred, had not made the necessary findings in that case.
[47] As discussed above, I find that the Amec Report does not achieve the “manifestation” that would be required to give effect to that approach in the case before me.
Conclusion
[48] In all of the circumstances I find that Lloyd’s has a duty to defend the City in this case (relative to the underlying action) and, as counsel have agreed, that as such Lloyd’s should reimburse AIG for a 50% share of the costs already incurred by AIG to defend the City in the underlying action (which counsel for AIG has advised are approximately $60,000 to date) and to contribute equally with AIG to the City’s ongoing costs of the underlying action.
[49] Order to go to that effect. I believe that costs should follow the event and be paid to AIG. If counsel cannot agree on costs, which I expect will be relatively modest, within 10 days, AIG should provide a one page submission as to the cost to which it says it should be entitled, and Lloyd’s may deliver a one page response within a further five days.
W.D. Black J.