COURT FILE NO.: CV-20-85128
DATE: 20211119
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
THEBERGE DEVELOPMENTS LIMITED
Applicant
– and –
AVIVA INSURANCE COMPANY OF CANADA INC.
Respondent
Colin Baxter and M. Alyssa Holland, counsel for the Applicant
Christopher R. Dunn, counsel for the Respondent
AND BETWEEN:
COURT FILE NO.: CV-20-85128
Andrew A. Evangelista and Be-Nazeer Damji, counsel for the Applicant
Colin Baxter and M. Alyssa Holland, counsel for the Respondent
NORTHBRIDGE GENERAL INSURANCE CORPORATION
Applicant
– and –
THEBERGE DEVELOPMENTS LIMITED
Respondent
HEARD: October 12, 2021
REASONS FOR DECISION
R. Smith J.
Overview
[1] Theberge Developments Limited (“Theberge”) has brought an application against Aviva Insurance Company of Canada (“Aviva”) seeking a declaration that Aviva owes it a duty to defend and to indemnify it for the claims made against it in the Class Action for damages for negligent misrepresentations made to the Class Members when purchasing a condominium unit. In the agreements of purchase and sale and in the disclosure documents, Theberge agreed and represented that the unit would include a heating system and, for some purchasers, a storage locker. Neither were provided by Theberge.
[2] Aviva opposes Theberge’s application. It submits that its Commercial General Liability insurance policy (“CGL”) provides coverage for third party bodily injury or property damage caused accidentally by an insured. It submits that its CGL policy does not provide coverage for intentional business decisions which result in an economic loss to third parties, where the insured has been unjustly enriched through its intentional behavior.
[3] Northbridge has also brought an application seeking a declaration that it does not have a duty to defend or indemnify Theberge under its insurance policy for damages in an action commenced under the Class Proceedings Act, 1992. S.O. 1992, CHAPTER 6 (“the Class Action”) by Sabrina Heyde on behalf of the Class Members. Northbridge General Insurance Corporation (“Northbridge”) issued a builder’s risk insurance policy to Theberge for the period when the condominium was being built.
[4] In its response to Northbridge’s application, Theberge seeks its dismissal and a declaration that Northbridge has a duty to defend and indemnify it for claims of damages for negligent misrepresentation, including its legal costs incurred to date in the Class Proceeding on a full indemnity basis.
[5] Theberge built a condominium and sold residential units to the Class Members. In the Class Action, the plaintiffs claimed damages against Theberge for failing to provide them with a forced air heating system for their units and for failing to provide a storage locker for some units. The Class Members claimed that Theberge had breached its contract with them by failing to provide a heating system and the storage lockers as agreed. They also alleged that Theberge had made negligent representations to them, both in the Declaration and in the Information Statement concerning the provision of a heating system and specifically in the Agreements of Purchase and Sale (“APS”) that it would provide storage lockers with the unit.
[6] The class members have settled their claim against Theberge. They claimed for damages:
a) For negligently misrepresenting that a storage locker was included with their condominium unit and for the loss of use of a storage locker when it was not provided;
b) For negligently misrepresenting that a forced air furnace was included with their condominium unit and for the loss of use of a forced air furnace; and
c) For breach of contract for failing to include a storage locker and for failing to provide a forced air furnace with each unit.
Issues
[7] The following issues must be decided:
Do the facts alleged in the pleadings trigger Aviva's contractual duty to defend Theberge under its CGL insurance policy in the Class Action?;
Does Aviva have a duty to indemnify Theberge for the value of the settlement, as well as its legal costs arising from these proceedings?;
Do the facts alleged in the pleadings trigger Northbridge’s contractual duty to defend Theberge under its builder’s risk policy in the Class Action?; and
Does Northbridge have a duty to indemnify Theberge for the value of the settlement, as well as its legal costs arising from these proceedings?
Facts
[8] The facts are largely uncontested and have largely been taken from the parties’ factums.
[9] From January 8, 2010 to February 15, 2016, Theberge was insured by Aviva under Prime Hardhat Policy number S1459142. This policy included a Commercial General Liability policy (the “CGL Policy”) which provided that the insurer would pay:
those sums that the insured becomes legally obligated to pay as “compensatory damages” because of “bodily injury or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any “action” seeking those “compensatory damages.” However, we will have no duty to defend the insured against any “action” seeking “compensatory damages” for “bodily injury” or “property damage” to which this insurance does not apply.
[10] On June 3, 2015, Sabrina Heyde (the “Plaintiff”) commenced a proceeding against Theberge under the Class Proceedings Act, 1992, in Court file no. 15-64526CP (the “Class Action”). The Plaintiff and the other class members are purchasers of condominium units at Alta Vista Ridge, a condominium and townhouse development in Ottawa built and marketed by Theberge. The claim relates to Theberge’s failure to provide a storage unit and a heating system as promised in precontractual representations and in the Agreement and Purchase of Sale signed by the Plaintiff and each member of the class.
[11] The Court certified the Class Action as a class proceeding on March 9, 2017, and approved a class defined as follows:
(a) All persons who were either, an original purchaser or who received a transfer or assignment of an original purchaser’s interest before closing who purchased a condominium unit or units from Theberge Developments at Alta Vista Ridge;
(b) All persons who received a Disclosure Statement containing the specification for a standard unit in Schedule “2” which included forced air heating/cooling; and
(c) Whose Agreement of Purchase and Sale does not include a paragraph fifteen (15) (inserted on about February 15, 2015) stating that “The purchaser acknowledges that the water heater and HVAC System in the dwelling may be a rental unit…”
[12] Heyde alleges, on behalf of all class member purchasers, that Theberge failed to comply with two terms of the APS:
The purchase price of the condominium, as set out in the APS, included a storage locker for some purchasers. Theberge failed to supply any storage lockers; and
The purchase price of the condominium, as set out in the APS, included a heating system for the unit. Rather than supplying the promised heating system, Theberge instead arranged for a rented heating system for each unit, where the rental fees had to be paid by the purchasers.
[13] The court certified the following as common issues:
Breach of contract;
Breach of sections 72 to 74 and 133(2) of the Condominium Act, 1998, S.O. 1998, c. 19; and
Negligent misrepresentation.
[14] The common issues certified for breach of contract and for the tort of negligent misrepresentation were almost identical and are as follows:
a) Is Theberge Developments liable for damages for breach of contract for failing to provide a forced air heating system with each unit in accordance with Schedule “2” of the Disclosure Statement and for failing to provide a storage locker to each subclass member? If so, does this claim survive closing?
b) Is the defendant, Theberge Development, liable for damage for the tort of negligent misrepresentation for failing to provide a forced air heating system for each class member’s condominium unit, as specified in the disclosure statement and for failing to provide a storage locker to each subclass member? If so, does this claim survive closing?
[15] With respect to the storage lockers, no storage lockers were provided to any purchaser. With respect to the forced air heating system, Theberge installed a rental heating system in Heyde’s unit that combined a hot water tank and heating unit. Heyde was required to pay a monthly rental fee of $85.00 for the combined hot water heater and heating system.
[16] On or about September 17, 2013, Heyde visited the Theberge Homes Design Centre for the purpose she believed of selecting upgrades and finishes for her unit. She was presented with several documents for signature.
[17] Heyde discovered that one of the documents presented for her signature on the above occasion contained the following terms:
I, Sabrina Heyde, the owner of Block 4 Unit 100-1757 Russell Road by signing below do confirm that I have been informed by Theberge Developments LTD and I accept that the below numbered fan coil and hot water tank will be rented from Reliance Home Comfort for which I accept a monthly rental fee for the equipment below.
Hot Water Heater: Envirosense Power Vent Product Code: 6G5076NVC-02 Fan Coil: Ecologix Air Handler Product Code: RE30.
[18] The plaintiffs issued a Fourth Fresh as Amended Statement of Claim (the “Statement of Claim”) approximately two years ago. The Statement of Claim made claims in negligent misrepresentation, breach of contract, unjust enrichment, breach of fiduciary duty and breaches of the Condominium Act. The Statement of Claim specifically claimed both “damages and/or restitution” arising from these various causes of action, and “property damages” arising from Theberge’s alleged negligent misrepresentations regarding both the provision of a storage unit and a heating system that was to be included with each condominium unit.
[19] Theberge sought insurance coverage from Aviva for the damages claimed in the Class Action from the outset. On June 29, 2015, Aviva wrote Theberge denying coverage and declining to defend the Class Action and wrote again on September 12, 2018. On June 28, 2019, counsel for Theberge wrote to Aviva providing a copy of the Fourth Fresh as Amended Statement of Claim. Aviva responded by letter dated July 18, 2019 stating that coverage was denied (the “2019 Denial Letter”).
[20] The 2019 Denial Letter set out four reasons for denying coverage. First, Aviva said the Statement of Claim did not contain allegations of “property damage”, and characterized the losses claimed as economic losses. Second, Aviva denied that the allegations in the Statement of Claim qualified as an “occurrence” as defined in the CGL Policy and characterized the allegations as being based on Theberge’s intentional conduct. Third, Aviva argued that, even if the lack of storage or lockers or a lack of a heating system could qualify as “property damage” as defined in the CGL Policy, these allegations were not covered because of exclusion 2(b), which excluded claims for breach of contract, on the basis that all the allegations against Theberge stem from the failure of Theberge to meet its contractual sale terms. Fourth, Aviva relied on the CGL Policy’s “your work” exclusion, which exclude coverage for Theberge’s faulty, defective or deficient work pursuant to clauses 2(g)(5) and (6) and 2(i) of the CGL.
[21] In paragraphs 23 through 30 of the Fourth Fresh As Amended Statement of Claim, Heyde alleged that she had suffered damages as a result of negligent misrepresentations in relation to the provision of a storage locker and a heating system, and the failure of Theberge to supply those items as part of the purchase price.
[22] The Heyde Class Action was settled by Theberge and the Representative Plaintiff under which Theberge agreed to pay the following amounts:
a) $100,000 all-inclusive for all issues related to the storage units, regardless of the number of units to be compensated;
b) $150,000 all-inclusive for all issues related to the forced air heating system regardless of the number of units to be compensated;
c) $125,000 all-inclusive for legal fees and taxes, including any amounts associated with implementing the settlement and the Notice of Settlement;
d) An honorarium in the amount of $5,000 all-inclusive to Heyde; and
e) The sum of $25,224.04 all-inclusive for disbursements.
[23] Theberge commenced the within application seeking insurance coverage from Aviva on December 1, 2020.
Additional Facts Related to Northbridge’s Application
[24] Many of the above facts related to Theberge v. Aviva, are similar and will not be repeated.
[25] Northbridge issued a builder’s risk policy, bearing policy number CBC 0651779 04 (the “Policy”) to its insured, Theberge Homes Limited. Northbridge’s coverage was effective for the following policy periods: November 8, 2012 to September 8, 2013; September 8, 2013 to October 8, 2013; October 8, 2013 to October 8, 2014; October 8, 2014 to November 30, 2014; and, November 30, 2014 to January 30, 2015.
[26] Heyde was an original purchaser of a residential condominium unit, which was part of the residential condo development known as Alta Vista Ridge. Heyde entered into an APS with Theberge Developments Limited on or about October 9, 2011.
[27] The allegations pertaining to negligent misrepresentations regarding the storage lockers are found at paragraphs 23 to 30 of the Statement of Claim. It is alleged that Theberge made careless and negligent statements to Heyde about a storage locker, which were inaccurate or misleading. The claim alleges that Theberge represented to Heyde that a storage locker was included in the price of the condo. The claim also stated that sales representatives of Theberge advised purchasers that a storage locker would be included and outlined in the square footage of the locker. In reliance of these negligent misrepresentations, the Plaintiff entered into an APS. The claim further stated that the Plaintiff had suffered property damage including the loss of use of a storage locker, and a loss of use of the storage locker for the remainder of her ownership of the condominium unit, which was intended to store her chattels.
[28] The Claim also stated that the loss of use of the real and tangible property was reasonably foreseeable and directly caused by Theberge’s inaccurate and negligent statements agreeing to provide a storage locker.
[29] The Policy included coverage for “Property Damage Liability” and provided that Northbridge would pay:
those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” arising out of the “insured project” described in the Declarations to which this insurance applies. We will have the right and duty to defend the insured against any “action” seeking those damages. However, we will have no duty to defend the insured against any “action” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply.
[30] As a result of the negligent misrepresentations, the Plaintiff claimed to have suffered from property damage including the loss of use of the storage locker, a heating system and the loss of use of other property in her condo unit, a diminution in value of the unit, compensation for all past rental fees paid towards the Hot Water & Fan Coil rental heating system, or damages in an amount equal to the cost of purchasing the Hot Water & Fan Coil heating system.
[31] The Plaintiff also alleged that Theberge was unjustly enriched and claimed punitive damages against Theberge for its highhanded, outrageous, oppressive behaviour because its conduct was planned and deliberate; the conduct was motivated by profit; and, to deter Theberge and like-minded developers.
[32] Heyde’s Interim Closing took place on or about October 24, 2014 and the condominium was registered on or about November 27, 2014. Heyde’s Final Closing took place on December 2, 2014.
Analysis
Applicable Legal Principles
[33] In Monenco Ltd. v. Commonwealth Insurance Co., [2001] SCC 49, at para. 28, the Supreme Court held that:
An insurer has a duty to defend if the allegations made against its insured in the Statement of Claim could potentially fall within the policy coverage. The defence obligation is determined by the pleadings and depends on the nature of the allegations and not on their validity.
[34] In Nichols v. American Home Assurance Co, SCC [1990] SCR 801 at paras 16-17, the Supreme Court held that:
It was not necessary to prove that the obligation to indemnify will in fact arise in order to trigger the duty to defend. The mere possibility that a claim within the policy may succeed suffices.
[35] The appropriate analysis when determining whether there is a duty to defend is to first consider whether the claim as pleaded falls within the insuring agreement. A court will find a duty to defend if the claim makes allegations which could possibly fall within coverage and are not otherwise excluded.
[36] In Progressive Homes Ltd. v. Lombard General Insurance, [2010] SCC 33, at para 20, the Supreme Court stated that:
When reviewing the pleadings, the Court was not tied to legal labels used by the Plaintiff. The true nature and substance of the allegations will govern.
[37] The onus of establishing that coverage is afforded under the Policy rests with the insured. Once it is determined that the claim is covered by the terms of the Policy, it must then be determined whether there are any restrictions or exclusions in the Policy that result in lack of coverage for the claim.
[38] The onus of establishing that a claim is excluded from coverage rests with the Insurer. The case law is well-established that exclusions are construed narrowly against the Insurer. Any ambiguities in policy wording will generally be interpreted in favour of the insured.
[39] In Non-Marine Underwriters Lloyds London v. Scalera, 2000 SCC 24, 2000 CarswellBC 885, at para. 50-52, the Supreme Court held that allegations in a statement of claim that are entirely derivative of uncovered allegations will not trigger a duty to defend.
Claim for Coverage
[40] In this case, the representative plaintiff’s statement of claim sought damages for breach of contract and based on negligent misrepresentations by Theberge. Theberge agrees that Aviva's CGL insurance policy and Northbridge’s builder’s risk policy do not cover breach of contract allegations.
[41] The question to be determined is: Whether the claim for property damages arising from negligent misrepresentations, including the loss of use of tangible property that was not physically injured, triggered a duty to defend the claims made in the Class Action?
[42] Theberge argued that the pleading in negligent misrepresentation is an alternative and independent claim that was “available” and therefore triggered a duty to defend and indemnify. Theberge argues that the purchasers lost the use of a storage locker and a heating system as a result of its negligent misrepresentations that these two items would be included with their condominium unit.
[43] Both Aviva and Northbridge submit that they do not have a duty to defend or indemnify Theberge under their insurance policies for the following reasons:
a) The damages claimed in the Class Action arose from an intentional business decision by Theberge regarding the condominium units that does not qualify as an “occurrence” because it was not the result of an accident. Theberge’s decision not to supply a storage locker and not to supply a heating system with the units was not the result of a fortuitous event or an accident, rather it was an intentional business decision;
b) The losses suffered by the purchasers were “pure economic” losses and not property damage;
c) It would be inappropriate and against general insurance principles to allow an insured to keep excess profits by obtaining indemnity for those profits from a liability insurer; and
d) If the allegations do fall within the policy, the loss is excluded by contractual liability for “your work”.
[44] As set out in Progressive Homes, the true nature and substance of the purchaser’s claim must be determined. In essence, the plaintiffs claimed that Theberge agreed in their APS to provide them with a heating system and a storage locker (for members of the subclass) and failed to provide these two items with their unit. Theberge intentionally decided not to supply a heating system with each unit and instead decided to supply a rented heating system which was attached to the rented hot water heater. Theberge decided to enter a lease agreement with Reliance for the heating system in each unit, which each purchaser had to assume. This was not an accident, rather, it was a deliberate business decision that saved it the cost of buying a heating system for each unit, Theberge transferred this cost to the purchasers who assumed the leases.
[45] The Disclosure Statement and specifications for the condominium units, stated that a forced air heating system would be included with each unit. These statements could be considered negligent misrepresentation, as defined in Queen v. Cognos Inc., 1993 CanLII 146 (SCC), [1993] 1 S.C.R. 87 (SCC). The four requirements are: a duty of care, an untrue, inaccurate or misleading representation; the defendant acted negligently in making the misrepresentation; and the purchasers relied on the negligent misrepresentation to their detriment.
[46] Theberge knew that a heating system was not included with each condominium unit because he signed a lease for the heating system with Reliance. Theberge also deliberately had each purchaser attend a meeting to sign an agreement to accept that a Fan Coil and hot water heater would be rented. The Fan Coil was the heating system. Theberge’s decision to install a heating system which was rented for a term of several years instead of providing a heating system with each unit, was an intentional business decision.
[47] The same is true for Theberge’s agreement to provide a storage locker for some of the Class Members. The provision of a storage locker was included as a term in the APS and Theberge intentionally decided not to provide the storage lockers. Theberge’s decision and conduct in this regard was deliberate and was not the result of an “accident”.
[48] In Scalera Supra, the Supreme Court Stated that when determining if there was a duty to defend, the court must determine if the legal allegations are properly pleaded; are any claims entirely derivative in nature; and do any of the non-derivative claims potentially trigger the insured’s duty to defend.
[49] At paragraphs 50-52 of Scalera, the Supreme Court stated as follows:
Determining whether or not a given claim could trigger indemnity is a three-step process. First, a court should determine which of the plaintiff's legal allegations are properly pleaded. In doing so, courts are not bound by the legal labels chosen by the plaintiff. A plaintiff cannot change an intentional tort into a negligent one simply by choice of words, or vice versa. Therefore, when ascertaining the scope of the duty to defend, a court must look beyond the choice of labels, and examine the substance of the allegations contained in the pleadings. This does not involve deciding whether the claims have any merit; all a court must do is decide, based on the pleadings, the true nature of the claims.
At the second stage, having determined what claims are properly pleaded, the court should determine if any claims are entirely derivative in nature. The duty to defend will not be triggered simply because a claim can be cast in terms of both negligence and intentional tort. If the alleged negligence is based on the same harm as the intentional tort, it will not allow the insured to avoid the exclusion clause for intentionally caused injuries.
Finally, at the third stage the court must decide whether any of the properly pleaded, non-derivative claims could potentially trigger the insurer's duty to defend. In this appeal, I conclude that the respondent has no duty to defend. The plaintiff has alleged three basic claims against the appellant: sexual battery, negligence, and breach of fiduciary duty.
[50] The facts in Scalera involved deciding whether the negligence claims were derivative of the claim of an intentional sexual assault. The court upheld the insurer’s denial of coverage and determined that the claims were derivative of an intentional tort.
[51] The representative plaintiff, in her factum, had initially sought to certify a common issue of fraudulent misrepresentation by Theberge. The proposed common issue of fraudulent misrepresentation was certified at the initial certification motion but was removed as a common issue on appeal by the Divisional Court because the representative plaintiff had not pleaded fraudulent misrepresentation in her statement of claim. There was no finding either at the certification motion or on appeal that Theberge’s misrepresentations about including a heating system and storage locker were not intentional.
[52] In Scalera, the Supreme Court stated as follows, where negligence claims and uncovered claims arise from the same actions:
Having construed the pleadings, there may be properly pleaded allegations of both intentional and non-intentional tort. When faced with this situation, a court construing an insurer's duty to defend must decide whether the harm allegedly inflicted by the negligent conduct is derivative of that caused by the intentional conduct. In this context, a claim for negligence will not be derivative if the underlying elements of the negligence and of the intentional tort are sufficiently disparate to render the two claims unrelated. If both the negligence and intentional tort claims arise from the same actions and cause the same harm, the negligence claim is derivative, and it will be subsumed into the intentional tort for the purposes of the exclusion clause analysis.
[53] Theberge’s conduct in deciding not to supply a storage locker or a heating system was intentional. The harm allegedly inflicted on the purchasers of units by negligently representing that the two items would be included with their unit is the derivative of the harm caused by Theberge’s intentional conduct. Both Theberge’s intentional actions and the negligent misrepresentations arise from the same actions and caused the same harm and as such, the negligence claim is subsumed in the intentional tort or in this case Theberge’s intentional breach of contract. As a result, Aviva has no duty to defend, as the claim of negligent misrepresentation is the same as and is entirely derivative of the claim of intentional breach of contract.
Was there an “Occurrence”
[54] Section 1(b) of Aviva's policy of insurance states that it applies to “bodily injury” and “property damage” only if there is an occurrence within the policy period. The applicable term reads as follows:
(1) The "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory"; and
(2) The "bodily injury" or "property damage" occurs during the policy period;
[55] Aviva’s Commercial General Liability policy is an “occurrence-based” policy. The Aviva Policy defines “occurrence” as follows:
"Occurrence" means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.
[56] The most oft-quoted definition of “accident” is that of Lord MacNaghten in Fenton v. J. Thorley Co. Ltd., a decision of the English House of Lords:
The expression “accident” is used in the popular and ordinary sense of the word as denoting an unlooked-for mishap or an untoward event which is not expected or designed.
[57] In Progressive Homes Ltd v Lombard General Insurance Co of Canada, 2010 SCC 33, 2010 CarswellBC 2501, at para. 47, the Supreme Court referred to the Fenton definition of an accident stating as follows:
Second, I cannot agree with Justice Ryan's conclusion that such an interpretation offends the assumption that insurance provides for fortuitous contingent risk. Fortuity is built into the definition of "accident" itself as the insured is required to show that the damage was "neither expected nor intended from the standpoint of the Insured". This definition is consistent with this Court's core understanding of "accident": "an unlooked-for mishap or an untoward event which is not expected or designed" (Gibbens, at para. 22; Martin v. American International Assurance Life Co., 2003 SCC 16, [2003] 1 S.C.R. 158 (S.C.C.), at para. 20; Straits Towing, at pp.315-16; originating in Fenton v. J. Thorley & Co., [1903] A.C. 443 (U.K. H.L.), at p. 448). When an event is unlooked for, unexpected or not intended by the insured, it is fortuitous. This is a requirement of coverage; therefore, it cannot be said that this offends any basic assumption of insurance law.
[58] The Ontario Court of appeal in Liberty Mutual Insurance Co. v. Hollinger, 2004 CarswellOnt 587, at para. 16, considered the term fortuitous in a similar manner stating as follows:
However, I agree with Liberty that this language must be read and interpreted in light of a general principle of insurance law that arises from the very nature and purpose of insurance, namely, that ordinarily only fortuitous or contingent losses are covered by a liability policy. Where an insured intends to cause the very harm that gives rise to the claim, the insured cannot look to a liability policy for indemnity.
[59] In this case, Theberge intended not to provide a storage locker or a heating system with each unit, which is the very harm which gives rise to the claim, and therefore cannot look to Aviva for indemnity.
[60] Theberge submits that because the claim of negligent misrepresentation was certified as a common issue, there was some possibility that such a claim could succeed and therefore, a duty to defend arose. However, this submission does not address the true nature of the pleading or whether the claim of negligent misrepresentation is derivative of the intentional business decisions made by Theberge.
[61] In Miersma v. Pembridge Insurance Company, 2005 CanLII 39891 (ON SC), at paras 10-11, the insureds sold a property to the plaintiff pursuant to an APS. The plaintiff alleged that negligent misrepresentations were made in both the disclosure statement and in the APS. The pleading alleged that the vendor represented that the septic system was constructed properly when the insured knew or ought to have known it was not, and stated that there was no hazardous condition on the property when he knew or ought to have known that the failure to properly decommission an underground storage tank left a hazardous condition on the lands.
[62] The insured in Miersma claimed based on a negligent misrepresentation and for breach of contract. The court concluded that the true nature of the claim was in negligence which was distinct from the breach of contract claim. The Court of Appeal upheld the application’s trial judge’s decision stating that the statement of claim alleged the tort of negligent misrepresentation as a separate and distinct claim from the breach of contract. Here, Theberge’s actions were intentional and caused the same harm as the alleged negligent misrepresentation.
[63] In BG Checo International Ltd. v. British Columbia Hydro and Power Authority, 1993 CanLII 145 (SCC), [1993] 1 SCR 12, at para. 30, The Supreme Court held that a pre contractual representation which becomes a contractual term can ground liability in negligent misrepresentation. This is not the situation before me, as Theberge’s intentional actions are identical to the alleged negligent misrepresentations.
[64] The negligent misrepresentations in Miersma concerned the construction of a septic system and the presence of an underground hazardous storage tank. Those were incorporated into an APS, but the true nature of the claim was based on the negligent misrepresentations. Here, the alleged misrepresentations are not about a hidden hazard affecting the condo units but rather, were based on Theberge’s agreement to provide a heating system and a storage locker as agreed in the APS. The true nature of Theberge’s action was that he intentionally did not provide items that he agreed and represented that he would provide, thereby breaching his contract and in making untrue or misleading representations about what would be included with the condominium unit.
[65] In Family and Children’s Services of Lanark, Leeds and Grenville v. Co-operators General Insurance Company, 2021 ONCA 159, at para. 61, the Court of Appeal stated as follows where some allegations trigger insurance coverage and others do not:
… some of which fall within coverage and some of which are not covered, there is a duty to defend absent clear exclusory language denying coverage for multiple independent concurrent causes or ‘mixed claims’…
[66] However, in this case the failure to deliver a heating system and a storage locker was not an accident that was not expected or intended by the insured. Theberge intended to deliver a rental heating system rather than to provide a heating system with each unit. He also intended not to supply the storage lockers he had agreed to provide in the APS.
[67] Both the negligent misrepresentation claim and the breach of contract claim result from the same decisions by Theberge to not provide a heating system or a storage locker with each unit, as agreed and caused the same harm. As stated in Scalera, in this situation the negligence claim is derivative of the intentional breach of contract.
[68] In Fridel Limited v. Intact Insurance co., 2018 ONSC 5923, the plaintiffs pleaded both negligent misrepresentation and breach of contract. The plaintiff sold a series of lots to a number of purchasers. The purchasers alleged that the plaintiff had misrepresented the size of the lots, as the frontage turned out to be smaller than represented. The purchasers claimed damages based on the misrepresentation and breach of contract based on the reduced size of their properties.
[69] The Fridel case considered the definition of “property damage” and whether the definition covered the loss of use in the absence of physical injury. The court decided that the purchasers had an equitable interest in the land and as a result of signing the agreements of purchase and sale and held that it was possible for them to maintain a loss of use claim because they had an equitable interest upon signing the APS.
[70] The Fridel decision does not address whether it met the definition of an “occurrence” or occurred as a result of an accident or if there was an independent negligent misrepresentation that was not derivative of the breach of contract. As a result, the Fridel decision is not of assistance.
[71] The Fridel decision also referred to Mason Homes Limited v Lombard General Insurance Company of Canada, 2016 ONSC 4846. In that case, a purchaser claimed that they purchased a property that was improperly graded and as a result, part of the property was rendered useless. The court held that this “loss of use” claim was not covered by insurance because the insured party acted intentionally in grading the land. The Mason Homes facts are similar to those here, as Theberge intentionally decided not to provide a heating system or storage lockers.
[72] In York Region Condominium Corporation No. 772 v. Lombard Canada Ltd., 2008 ONCA 272, at paras. 23-26, the Court of Appeal held that a negligent act could constitute an occurrence within the meaning of a CGL policy. However, in this case, Theberge intentionally decided not to provide a heating system or storage locker in order to increase the amount of profit he would receive on the sales. This was not an accident.
[73] In Chrysanthis v. Shah, 2013 CarswellOnt 3024, at paras. 27-28, the plaintiffs purchased a home that had previously been damaged by a fire which was the subject of an insurance claim by the vendor. This fact was not disclosed during the purchase transaction. Upon discovering the damages, the purchaser sued alleging intentional and negligent misrepresentation in respect of the undisclosed fire damage. The vendor sought insurance coverage under an occurrence based homeowner’s liability policy. The court held that regardless of the pleading of negligence, it was impossible for Shah not to have known that he had received insurance money for the fire and as such, any misstatement could only have been intentional. On the facts before me, Theberge intended not to provide a heating system or storage lockers and as such the “occurrence” was not an accident which would trigger a duty to defend and indemnify.
[74] Commercial General Liability policies provide coverage for third party bodily injury or property damage, including loss of use, caused accidentally by an insured. They do not provide coverage for intentional business decisions which result in economic loss to third parties, especially in this case where the insured was unjustly enriched as a result of its intentional breach of contract.
Disposition of Application by Theberge against Aviva
[75] For the above reasons, Theberge’s application for a declaration that Aviva has an obligation to defend and indemnify it on the underlying Class Action is dismissed.
Application by Northbridge
[76] The Northbridge insurance policy is a builder’s risk policy which is distinct from a CGL policy. However, the Northbridge policy also provides coverage and a duty to defend when the insured becomes legally obligated to pay damages for “bodily injury” or “property damage” arising out of the “insured project”.
[77] Northbridge’s insurance policy also defines an “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions”. In the Aviva reasons above, I found that Theberge’s decision not to provide storage lockers or a heating system was intentional and did not occur as a result of an accident. As a result, the Aviva reasons in this regard also apply to Northbridge’s policy. Theberge was only covered for damages if the occurrence was an accident. Theberge’s decision not to provide storage lockers or a heating system which required the purchasers to assume a rental agreement was an intentional business decision and not an accident.
[78] I find that Theberge’s claims are not statute barred as alleged by Northbridge, as the duty to defend is to be applied on a rolling basis based on the Court of Appeal’s decision in Reeb v. The Guarantee Company of North America, 2019 ONCA 862, at para. 8.
[79] For the same reasons as given in the Aviva application, I find that the claim in the Class Action based on negligent misrepresentation is completely derivative of the breach of contract claim and as a result, a duty to defend or indemnify by Northbridge does not arise.
Disposition of the Northbridge Application Against Theberge
[80] For the reasons given above Northbridge’s application is granted. A declaration is granted stating that Northbridge does not have a duty to defend or indemnify Theberge for the settlement or legal costs incurred in the underlying Class Action.
Costs
[81] Aviva and Northbridge may make submissions on costs within 15 days. Theberge shell have 15 days to respond and Aviva and Northbridge shall have 10 days to reply.
Released: November 19, 2021
COURT FILE NO.: CV-20-85128
DATE: 20211119
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
THEBERGE DEVELOPMENTS LIMITED
Applicant
– and –
AVIVA INSURANCE COMPANY OF CANADA INC.
Respondent
AND COURT FILE NO.: CV-21-86359
NORTHBRIDGE GENERAL INSURANCE CORPORATION
Applicant
– and –
THEBERGE DEVELOPMENTS LIMITED
Respondent
reasons for DECISION
R. Smith J.
Released: November 19, 2021