COURT FILE NO.: CV-21-765

DATE: 2021-10-14

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Lambrini Kutlarovski and Zoran Kutlarovski, Plaintiffs

AND:

Aviva Insurance Company of Canada and FirstOnSite Restoration Ltd., carrying on business as FirstOnSite Restoration, FirstOne Site Restoration Inc., carrying on business as FirstOneSite Restoration, FirstService Corporation carrying on business as FirstOnSite Restoration, Defendants

BEFORE: Conlan J.

COUNSEL: Ms. Assuras, Counsel for the Plaintiffs

Mr. Cook, Counsel for the Defendant, Aviva Insurance Company

Ms. Sillanpaa, Counsel for Defendant, FirstOnSite

HEARD: October 13, 2021

ENDORSEMENT on motion

I. Introduction

[1] On October 13, 2021, via Zoom, this Court heard argument from counsel on a motion brought by the Defendant, Aviva Insurance Company of Canada (“Aviva”). That motion was opposed by the Plaintiffs, Lambrini and Zoran Kutlarovski (“Kutlarovskis”), while the Defendant, FirstOnSite Restoration Ltd. (“FirstOnSite”), did not oppose the motion and did not advance any evidence or submissions on the motion.

[2] The motion, dated June 11, 2021, seeks two things: (i) an order appointing an appraiser pursuant to section 128(5) of the Insurance Act, R.S.O. 190, c. I.8, as amended, and (ii) an order compelling the Kutlarovskis to participate in that appraisal pursuant to Statutory Condition 11 of the policy (the relief being sought is set out at page 7 of Aviva’s Motion Record).

[3] I enjoyed listening to the submissions of Mr. Cook and Ms. Assuras. They were excellent.

[4] For the reasons that follow, the motion by Aviva is granted. An order shall issue as per the relief sought by Aviva and outlined above.

[5] If the parties cannot agree on costs, this Court will accept written submissions. Each submission shall be limited to two pages in length, excluding attachments. Aviva shall file within thirty (30) calendar days of today, and the Kutlarovskis shall file within fifteen (15) calendar days after their counsel is in receipt of Aviva’s submissions. No reply is permitted by Aviva. FirstOnSite shall not participate in the written costs submissions without leave of the Court.

II. The Facts

[6] The facts are not in dispute. Very briefly stated, the Kutlarovskis’ cottage property was damaged in a windstorm. They made an insurance claim. Various estimates have been commissioned by both the insured and the insurer. A dispute has arisen between the parties about the appropriate quantum of the insurance payment. The outstanding court action is wider than the scope of the insurance claim, and it is moving along to examinations for discovery to be held in December 2021.

[7] Aviva has demanded that an appraiser be appointed, but the Kutlarovskis have refused.

III. The Issue to be Decided

[8] I would characterize the question before this Court a little different than counsel did. Does this Court, on these facts and on the wording of Statutory Condition 11 in this policy, have any choice but to grant the relief sought by Aviva? With much respect for the able submissions of Ms. Assuras, and quite frankly with some level of a feeling of surrender, I have concluded that the answer to that question is “no”.

IV. The Law

[9] I agree with Ms. Assuras that a recent decision of Justice Perell is instructive. In Northbridge General Insurance Corp. v. Ashcroft Homes-Capital Hall Inc., 2021 ONSC 1684, at paragraphs 23, 24, and 34 (all relied upon by the Kutlarovskis), Justice Perell stated the following.

[23] The purpose of the appraisal process under the Insurance Act is to provide an expeditious and easy means for the settlement of claims for indemnity under insurance policies.[^7] The appraisal process may be demanded only where there is a dispute about the valuation of the loss.[^8] There is no time limit within which to request the appraisal process, and absent proof of prejudice, delay in invoking the appraisal process is not a factor in the right to an appraisal.[^9]

[24] The appraisal process is intended to be a final and binding determination of the loss.[^10] The appraisal process is mandatory, and unless waived by both parties or unless impossible to perform, there must be an appraisal before there can be recovery under the policy.[^11] The appraisal process is intended to a facilitate a quick resolution of a dispute about the value of the property insured, the value of the salvage, or the quantification of the damage to the property, but it is not intended to be an arbitration or an alternative dispute resolution method that will resolve all the issues between the parties; all other non-valuation issues are outside the province of the appraisers and umpire to resolve.[^12]

Footnotes:

[^7]: Birmingham Business Centre Inc. v. Intact Insurance Co., 2018 ONSC 6174 at para. 5. (Div. Ct.).

[^8]: Viljo Pyhtila Sand & Gravel Inc. v. Gerling Global General Insurance Co., [1996] O.J. No. 2904 at para. 12 (Gen. Div.); Margeson v. Guardian Fire and Life Assurance Co. (1898) 31 N.S.R. 35.

[^9]: S.H.W. Investment Inc. v. Lloyd's Underwriters, 2018 ONSC 5697 at para 24; 56 King Inc. v. Aviva Canada Inc. 2016 ONSC 7139 at paras. 26-27, affd. 2017 ONCA 408, leave to appeal to the S.C.C. refd. [2017] S.C.C.A. No. 298; Winnipeg Regional Health Authority v. Temple Insurance Co. Inc., 2011 MBQB 92 at paras. 16-21.

[^10]: S.H.W. Investment Inc. v. Lloyd's Underwriters, 2018 ONSC 5697 at para. 5; Seed v. ING Halifax Insurance (2005), 2005 41991 (ON SCDC), 78 O.R. (3d) 481 at para. 23 (Div. Ct.).

[^11]: Saskatchewan Government Insurance v. Nipawin (Town), 1998 12414 (SK CA), [1998] S.J. 883 (Sask. C.A.); Pankiw v. Saskatchewan Government Insurance, [1986] S.J. No. 334 (Sask. Q.B.); M & P Enterprises v. London & Lancashire Guarantee & Accident Co. of Canada, [1965] M.J. No. 65 (Man. Q.B.)

[^12]: Campbell v. Desjardins General Insurance Group, 2020 ONSC 6630 at para. 74; Madhani v. Wawanesa Mutual Insurance Company 2018 ONSC 4282 at para. 20 (Div. Ct.); Agro’s Food Inc. v. Economical Mutual Insurance Co. 2015 ONSC 1169 at para. 56; Saskatchewan Government Insurance v. Nipawin (Town), 1998 12414 (SK CA), [1998] S.J. 883 ( Sask. C.A.); Shinkaruk Enterprises v. Commonwealth Insurance Co., (1990), 1990 7738 (SK CA), 85 Sask. R. 54 (Sask. C.A.); Pfeil v. Simcoe & Erie General Insurance Company (1986), 1986 2922 (SK CA), 45 Sask. R. 241 (Sask. C.A.); Re Krofchick and Provincial Insurance Co. Ltd. (1978) 1978 1304 (ON SC), 21 O.R. (2d) 805 (Ont. Div. Ct.).

[34] Courts afford substantial deference to an appraisal under the Insurance Act, and courts are reluctant to interfere with the appraisal process unless there is proof of bias, misconduct, or the appraisers or umpire will exceed or have exceeded their jurisdiction, for example, by purporting to act as an arbitrator.[^39] Whether the court will intervene on judicial review depends on the facts of the particular case, but, generally speaking, the case law reveals that courts show considerable deference and are reluctant to intervene and that the standards of procedural fairness are modest for the appraisal process, a scheme that does not require a formal hearing; visualize:

• In Gorieu v. Simonot,[^40] an appraisal award was set aside where the umpire proceeded in the absence of an appraiser who had not been given notice of the time of the appraisal.

• In Rilkoff v. Portage La Prairie Mutual Insurance Co.,[^41] the court refused to appoint an umpire when the difference between the parties was about how much of the mold damage was caused by a pre-existing condition of the property or caused by water damage from a severe storm.

• In Peace Hills General Insurance Company v. Doolaege, the court held that in the circumstances of the case, the duty of fairness included the right of a party to know of and respond to representation made to the umpire by the other party to the appraisal.[^42]

• In Seed v. ING Halifax Insurance,[^43] the Divisional Court held that there was no denial of natural justice when the umpire refused an adjournment.[^44]

• In Agro’s Food Inc. v. Economical Mutual Insurance Co.,[^45] the court refused an insurer’s request for the appraisal process where two windstorms damaged buildings and property and interrupted the insured’s agricultural business where the cause and scope of the loss and coverage issues were involved and not simply the valuation of the loss and where it would be unfair to permit an inquiry that has no right to counsel and no right to cross-examine.

• In Madhani v. Wawanesa Mutual Insurance Company,[^46] the Divisional Court held that the appraisal decision had to be in writing, but there did not have to be written reasons for decision.

• In New Dawn Enterprises Ltd. v. Northbridge General Insurance,[^47] an umpire’s appraisal decision was set aside because there was a breach of procedural fairness and a reasonable apprehension of bias when the umpire contacted consultants working for the insurer for additional information and clarifications without sharing the information with the insured’s appraiser and without providing an opportunity to respond before releasing the appraisal decision.

Footnotes:

[^39]: Campbell v. Desjardins General Insurance Group, 2020 ONSC 6630 at para. 74; Birmingham Business Centre Inc. v. Intact Insurance Co., 2018 ONSC 6174 at para. 5. (Div. Ct.); Madhani v. Wawanesa Mutual Insurance Company 2018 ONSC 4282 at para. 15 (Div. Ct.); Seed v. Ing Halifax Insurance, (2005), 2005 41991 (ON SCDC), 78 O.R. (3d) 481 at para. 23 (Div. Ct.); Shinkaruk Enterprises Ltd. v. Commonwealth Insurance Co. 1990 7738 (SK CA), [1990] S.J. 317 (Sask. C.A.); Barrett and Elite Insurance Co. (1987), 1987 4160 (ON CA), 59 O.R. (2d) 186 (C.A.), leave to appeal to S.C.C. refused.

[^40]: [1986] S.J. No. 108 (C.A.).

[^41]: 2005 SKQB 54.

[^42]: 2005 ABQB 217

[^43]: (2005), 2005 41991 (ON SCDC), 78 O.R. (3d) 481 (Div. Ct.)

[^44]: See also Senator Real Estate Holdings Lid. v. Intact Insurance Co.., 2021 ONSC 200 (Div. Ct.)

[^45]: 2015 ONSC 1169.

[^46]: 2018 ONSC 4282 (Div. Ct.)

[^47]: New Dawn Enterprises Ltd. v. Northbridge General Insurance, 2020 NSSC 150.

[10] I also agree with Mr. Cook that the following comments made by Justice Lofchik are helpful, taken from paragraphs 22 through 25 of His Honour’s decision in 56 King Inc. v. Aviva Canada Inc., [2016] O.J. No. 5942, affirmed by the Court of Appeal for Ontario.

[22] These decisions fly in the face of the mandatory wording of Statutory Condition 11 and s. 148 of the Insurance Act that the matter of value of property insured, property saved, and the amount of loss shall be determined by appraisal as provided in the Insurance Act.

[23] A determination of the disputed value of loss is mandated in an appraisal mechanism under the Insurance Act. S. 148, Statutory Condition 11 of the Insurance Act provides that in the event of a disagreement as to the value of the property insured, that issue shall be determined by appraisal. The very terms of s. 148, Statutory Condition 11, evidence is a legislative intent that the determination of the disputed value of the loss must be resolved by appraisal before there can be any recovery on the contract. This necessarily implies a continued availability of the appraisal process despite the commencement of any action. The same section provides that all disputed questions of value are to be determined by appraisal independently of all other questions arising under the insurance contract.

The mechanism of appraisal and dispute resolution under s. 148 and s. 128 of the Insurance Act is an efficient and cost-saving measure available to the parties to effectively resolve their dispute.

Greer v. Co-Operators General Insurance Co. [1999] O.J. No. 3118, per Shaughnessy J. at paras. 8 and 10.

[24] In Seed v. ING Halifax Insurance, 2002 79669 (ON SC), [2002] O.J. No. 1976 (S.C.J.), Wright J. held at paras. 8 and 9:

[8] By Statutory Condition No. 11 of s. 148 of the Insurance Act and s. 128 of the Insurance Act, the legislature has removed from the court the assessment of damages arising under these polices of insurance and has left damages to be determined by the longstanding procedure of “appraisal”.

[9] This process is mandatory. No action for recovery under the policy may be taken until the issues in dispute as to damages are settled by the process of appraisal. The intention of Statutory 11 is unambiguous and cannot be unilaterally waived either by the insurer or the insured in the event of a disagreement. The statutory condition to which both parties agree is clear. There must be an appraisal before there can be any recovery under the policy.

[25] Counsel for the plaintiff argues that the use of the word “may” in subsection (c) of subsection (5) of s. 128 suggests that a judge of the Superior Court of Justice has the discretion to appoint an appraiser or umpire in a situation where one party fails to appoint an appraiser ((a)), the appraisers fail to agree on an umpire ((b)) or an umpire refuses to act ((c)). I find this argument to be without merit considering the use of the word “shall” in s. 148 of the Act and in subsections (2), (3), and (4) of s. 128.

V. The Law as Applied to our Facts

[11] I share the concerns of Ms. Assuras about whether the appraisal process in this case is really a cost-effective manner of resolving anything and, moreover, whether it is really worthwhile given all of the other issues that will have to proceed to some adjudication in court. I also agree with Ms. Assuras that the two spreadsheets that she prepared and filed reveal that there are not many items in dispute between the insured and the insurer in terms of the value of the loss attributed to that item. I agree further with Ms. Assuras that the real dispute about the bathroom remediation cost concerns the scope of the work, and the appraisal process more than likely cannot assist in that regard. Finally, I agree with Ms. Assuras that the appraisal process will not assist at all with the alleged losses that were sustained by the Kutlarovskis after the initial event that gave rise to their insurance claim.

[12] Nevertheless, however, as submitted by Mr. Cook, the appraisal must be ordered by this Court because of the compulsory wording of Statutory Condition 11. It is set out below and can be found at page 98 of Aviva’s Motion Record.

11. In the event of disagreement as to the value of the property insured, the property saved or the amount of the loss, those questions shall be determined by appraisal as provided under The Insurance Act before there can be any recovery under this contract whether the right to recover on the contract is disputed or not, and independently of all other questions. There shall be no right to an appraisal until a specific demand therefore is made in writing and until after proof of loss has been delivered.

[13] It is conceded by the Kutlarovskis that the preconditions at the tail-end of the said Statutory Condition have been met: (i) Aviva has made a specific demand, in writing, for an appraisal, and (ii) proof of loss has been delivered.

[14] Thus, the only way for this Court to deny the relief being sought by Aviva would be to conclude that there is no “disagreement as to the value of the property insured, the property saved or the amount of the loss”. Nothing in the decision of Justice Perell, relied upon by the Kutlarovskis, gives this Court any wider ambit to circumvent the appraisal process, even if it wanted to.

[15] In her usual candour, in oral submissions at Court, Ms. Assuras was forced to acknowledge that there is a “limited disagreement” here about the amount of the loss (her words), as shown in the two spreadsheets that she kindly prepared and filed, and given that acknowledgement, which is inescapable, this Court’s hands are tied.

[16] The extent of the disagreement is irrelevant. The utility of the appraisal process to resolve the disagreement is irrelevant. The existence of other issues that are beyond the jurisdiction of the appraisers and the umpire is irrelevant.

[17] It seems an inflexible result. It is. But that is what the policy says, and the policy governs. I have been given no jurisprudential or statutory authority to determine otherwise. If such existed, Ms. Assuras would have found it.

VI. Conclusion

[18] Consequently, the motion by Aviva must be granted.

[19] I encourage the Kutlarovskis to actively participate in the appraisal process so that it moves swiftly and does indeed resolve what it can resolve. Something is better than nothing.

(“Original signed by”)

C.J. Conlan J.

Date: October 14, 2021