Court File and Parties

Court File No.: CV-18-00078843-0000 Date: 2022-04-01

SUPERIOR COURT OF JUSTICE - ONTARIO

Re: 1923731 ONTARIO LTD. v. CO-OPERATORS GENERAL INSURANCE COMPANY

Before: Associate Justice A. Kaufman

Counsel: Al Burton, for the Plaintiff Eric M. Appotive, for the Defendant

Heard: December 14, 2021

REASONS FOR DECISION

[1] The defendant, Co-operators General Insurance Company (“Co-operators”), brings this motion for partial summary judgment and for security for costs.

[2] Co-operators insured the plaintiff’s commercial plaza. On January 2, 2018, the plaza was damaged in a fire. Because the parties could not agree on the value of the damages caused by the fire, Co-operators triggered the appraisal procedure under the Insurance Act (the “Act”). Each party appointed an appraiser, and the parties’ nominees appointed William L. Neville as umpire. On July 25, 2019, the parties’ appraisers and the umpire unanimously determined that the plaza’s replacement cost value was $1,316,456 and its actual cost value was $1,070,000, inclusive of advances Co-operators had already paid.

[3] In this action, the plaintiff claims, inter alia, for damage to the plaintiff’s property in an amount to be determined at trial.

[4] The first issue on this motion is whether the plaintiff can maintain an action for damages to the plaza when these damages have already been determined by appraisal under the Insurance Act. The second issue in this motion is whether the Court should order the plaintiff to post security for costs.

ISSUE 1 – Should the plaintiff’s claim for damages to the plaza be dismissed?

The statutory framework

[5] The policy of insurance issued to the plaintiff included a statutory condition that deals with the appraisal process prescribed by s. 128 of the Act. Statutory Condition 11 provides for an appraisal under the Insurance Act in the event of a disagreement as to the amount of loss. An appraisal can only be triggered after a demand is made and a proof of loss is delivered. Statutory Condition 11 reads as follows:

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 therefor is made in writing and until after proof of loss has been delivered.

[6] The procedure to determine the amount of a loss is found in s. 128 of the Act. The insured and the insurer appoint appraisers, and the appraisers appoint an umpire. If the appraisers cannot agree on the matters in dispute, they submit their differences to the umpire for determination. Section 128 of the Act provides:

128(1) This section applies to a contract containing a condition, statutory or otherwise, providing for an appraisal to determine specified matters in the event of a disagreement between the insured and insurer.

(2) The insured and the insurer shall each appoint an appraiser, and the two appraisers so appointed shall appoint an umpire.

(3) The appraisers shall determine the matters in disagreement and, if they fail to agree, they shall submit their differences to the umpire, and the finding of any two determines the matters.

[7] The appraisal process has been described as a collaborative one. Appraisers and the umpire arrive at a binding decision based on their knowledge and expertise. Northbridge General Insurance Corp. v Ashcroft Homes-Capital Hall Inc., 2021 ONSC 1684, at para 23. The purpose of an appraisal is to provide an easy, expeditious and cost-effective means for the settlement of claims under insurance policies. Madhani v Wawanesa Mutual Insurance Company, 2018 ONSC 4282 (Div. Ct.), at para 46. To fulfil that purpose and to facilitate a collaborative process, appraisers must attempt, in good faith, to reach a compromise with their fellow appraisers. Desjardins General Insurance Group v Campbell, 2022 ONCA 128, at para 36. While appraisals provide the parties with a valuation of the loss, they do not determine their legal rights. Ibid., at para 40.

The appraisal process in this case

[8] After the fire, the plaintiff submitted multiple proofs of loss to the defendant, in increasing amounts. The plaintiff’s latest proof of loss, dated April 5, 2019, valued the fire-related loss in the amount of $5,705,500. The defendant considered that amount to be excessive, as it estimated the actual cash value of the fire-related damages at $687,426.01, and the plaza’s replacement cost at $787,320. Because of the wide gap between the parties’ estimates, the defendant triggered the appraisal process.

[9] The plaintiff appointed George Milnes, an experienced insurance claims evaluator, as its appraiser and the defendant appointed Randy Corsini. Mr. William Neville accepted Mr. Milnes’ request to act as umpire.

The damage from ruptured pipes and fire suppression activities was considered.

[10] In an affidavit filed in this motion, the umpire listed the issues considered in the appraisal. They were: (a) damage caused directly by the fire, (b) water damage of two forms caused either by (i) fire suppression activity and/or (ii) ruptured water lines in some of the units, and (c) damage caused by mould propagation. The umpire’s evidence as to the issues considered at the appraisal hearing is supported by the index to the appraisers’ briefs, which included engineering reports, costs estimates and witness statements.

a) Fire suppression activity

[11] The parties had differing estimates on the amount of water the fire department used to suppress the fire. According to Mr. Milnes, the municipality did not measure water from the fire hydrants and the fire trucks did not retain the meter reports from the trucks.

[12] The appraisers and the umpire drafted a joint request for information addressed to the municipality’s deputy fire chief. The appraisers met with him on May 14, 2019, and obtained his evidence about the volume of water discharged from a fire hydrant and a fire truck’s tanker. The deputy chief’s evidence was that approximately 5,438 gallons of water had been used.

[13] According to Mr. Neville, the appraisers agreed that this figure would be rounded to 5,500 gallons and that the assessment of damages would be based on this number. Mr. Milne, however, states that the plaintiff estimated that 40,000 gallons of water had been used to suppress the fire. He states that he disagreed with the 5,500 figure but considered that the decision was binding because the majority agreed with it. In an e-mail dated July 18, 2019, addressed to the Messrs. Neville and Corsini, Mr. Milnes confirms that the plaintiff’s representative and its engineer “understood that the 5,500 gallon issue determined for fire suppression [was] a dead issue” and would no longer be raised.

b) Damage caused by burst pipes

[14] On the day of the fire, Mr. Murano, the plaintiff’s representative, was advised by the fire marshal that pipes in two of the plaza’s units had ruptured, causing a flood. A representative of Co-operators allegedly instructed Mr. Murano not to enter the property as it would affect the plaintiff’s coverage. The water valve was eventually shut-off approximately three and a half days later. One of the issues in the appraisal was the amount of the loss caused by the water that poured from these ruptured pipes.

[15] The appraisers and two engineers attended at the site and inspected the burst pipes. The Napanee Utilities invoiced the plaintiff for 177 gallons of water, but the plaintiff alleged this represented only a small fraction of the water loss. At the appraisal hearing, two engineers presented their views and answered questions on this issue.

The appraisal hearing and its outcome

[16] The hearing was held on July 24, 2019, and lasted nearly 9 hours. Three lay witnesses presented evidence, followed by the two engineers. The next day, the umpire and the appraisers spent approximately four and a half hours completing the appraisal process and came to a unanimous determination. They assessed the plaza’s actual cash value at $1,070,000 and its replacement cost value at $1,316,465.

[17] The defendant paid the actual cash value amount in full. The defendant is only obligated to pay the difference between the actual cash value and the replacement cost value if the plaintiff carries out repairs and provides invoices. To date, the plaintiff has only provided invoices totaling $35,199.71 in respect of repairs to the plaza.

[18] On June 18, 2021, the plaza was sold under power of sale by the mortgagee.

The action

[19] This action was commenced on December 28, 2018, while the appraisal process was ongoing.

[20] In the claim, the plaintiff claims damages relating to a foregone hotel venture and/or residential development venture, and punitive damages for breaches of the insurer’s contractual duty of good faith.

[21] The plaintiff alleges that the defendant was negligent in assessing and adjusting its claim. It alleges that, before the fire, it had contracted for the building of a hotel on the property and was negotiating a deal for the construction of a subdivision on or near the property. The plaintiff alleges that the construction of the hotel and the subdivision were delayed because of the defendant’s negligent actions, and ultimately did not proceed.

[22] In addition, and for the purposes of this motion, the plaintiff claims for damages to the property. At paragraph 1 c) of the claim, the plaintiff claims “damages, in the amount of $2,000,000 for damage to the plaintiff’s property which would not have occurred but for the negligence of the Co-operators, improperly adjusting by the Co-operators of the Plaintiff’s claim, and/or failure of the Co-operators (or its agents) to properly maintain and secure the Property in the aftermath of the fire”.

[23] Furthermore, at paragraph 15 d) of the claim, the plaintiff claims damages “to the property (in an amount to be determined before trial) which occurred post-fire due to the Co-operators (and/or its agents) not taking sufficient steps to ensure the Property was heated, secured and/or ensuring the excess water was promptly removed; or in the alternative, taking an extended period arranging for heating at the property. This damage includes, but is not limited to, burst pipes which arise from insufficient heating”.

Applicable principles on a motion for partial summary judgment

[24] A motion for partial summary judgment is reserved for an issue or issues that may be readily bifurcated from those in the main action, and that may be dealt with expeditiously and in a cost-effective manner. Butera v Chown Cairns LLP, 2017 ONCA 783, 137 O.R. (3d) 561, at para 34. Such motions should not be entertained where it is possible “that the trial judge will develop a fuller appreciation of the relationships and the transactional context than the motions judge”, which could risk “inconsistent findings and substantive injustice”. Baywood Homes Partnership et al. v Haditaghi et al., 2014 ONCA 450, at para 37.

[25] Moreover, partial summary judgment should only be granted in the clearest cases, and only if doing so does not give rise to any of the associated risks—delay, expense, inefficiency, and inconsistent findings. Fullerton v Comella, 2021 ONSC 2110, at para 66.

Disposition

[26] The plaintiff argues that it is not re-litigating, in this action, the quantification of the loss which was determined by appraisal. In the alternative, it argues that the valuation should be set-aside on the ground of fraud and, relying on Rule 1.04, that the Court should consider these arguments in this proceeding as opposed to a judicial review application. I am not persuaded by these submissions.

The appraisal award is final and binding

[27] Statutory Condition 11 provides that, in the event of this agreement, the amount of the plaintiff’s loss “shall be determined by appraisal as provided under the Insurance Act”. Where the parties’ appraisers are unable to resolve their disagreements, the umpire becomes the ultimate decision maker, and the award becomes a final and binding determination as to the value of the loss. Desjardins General Insurance Group v Campbell, 2022 ONCA 128, at para 37; Le Treport Wedding & Convention Centre Ltd. v Co-operators General Insurance Company, 2020 ONCA 487 at para 61; Seed v ING Halifax Insurance, [2005] O.J. No. 4870, at para 23; Truscott v Co-Operators General Insurance, 2022 ONSC 829 at para 62; and Birmingham Business Centre Inc. v Intact Insurance Company, 2018 ONSC 6174 (Ont. Div. Ct.) at para 5. Here, the parties’ appraisers and the umpire unanimously determined the value of the plaintiff’s loss. That determined amount is final and binding on the parties.

[28] This Court recently reached the same conclusion in Truscott v. Co-Operators General Insurance, 2022 ONSC 829 (“Truscott”). In that case, the insured triggered the appraisal process under the Insurance Act in relation to a fire loss at its property. The insurer paid the appraisal awards in full. As here, the plaintiff commenced an action against the defendant before the appraisal award was rendered, claiming that the defendant’s conduct in the appraisal process constituted an abuse of power and that it had acted in bad faith.

[29] The Court dismissed the plaintiff’s claims in so far as they challenged the appraisal awards. Justice A.J. Goodman concluded that, “an umpire’s decision regarding a sworn and final Proof of Loss is final and binding” and that the only route through which a party may challenge an umpire’s decision is through judicial review. Truscott v Co-Operators General Insurance, 2022 ONSC 829, at para 68.

[30] The plaintiff contends that the action is focused on the defendant’s behaviour during the appraisal process and its adjustment of its claim. It argues that the valuation did not quantify the full scope of the plaintiff’s damages, and that the defendant’s actions caused damages in addition to the value determined in the appraisal. I do not accept this submission.

[31] In response to requests for clarification about this action’s scope, counsel for the plaintiff advised that the plaintiff was advancing a claim for water damage to the property, and that “the scope of work ordered by the umpire does not cover water damage for two burst pipes […] that discharged over 317,096 gallons of water […] over 3 and a half days.”.

[32] The plaintiff is incorrect in stating that the appraisal award did not cover the water damage caused by the two burst pipes. The plaintiff’s own appraiser confirmed in an email dated July 18, 2019, that the emphasis of the appraisal hearing would be on the amount of water that escaped from the plumbing system over 3 ½ days. Moreover, the plaintiff conceded through its appraiser that the “5,500 gallon issue determined for fire suppression [was] a dead issue”.

[33] In this action, the plaintiff pleads that the Co-operators were negligent in their investigation, and that its agents and employees delayed the repairs. Even if that were true, the purpose of the appraisal process was to quantify the plaintiff’s loss from the fire. The umpire, with the concurrence of the parties’ two appraisers, determined that the actual cash value was $1,070,000. The record is clear that, in arriving at this figure, the appraisers and the umpire considered the state of the plaza after 3 ½ days of flooding.

[34] The plaintiff claim, in so far as it relates to damages claim for damage to the property, does not raise a genuine issue requiring a trial. The appraisal award is final and binding and the plaintiff, who was represented by counsel throughout, never challenged it through judicial review.

The plaintiff was required to commence an application for judicial review

[35] In the alternative, the plaintiff argues that there are grounds for setting aside the appraisal award, such as fraud, collusion, bias, or disqualification by way of interest or lack of partiality. For example, it says that the defendant fabricated an invoice that purported to be from a contractor retained to repair the plaza’s piping and water meter. It bases this allegation on the fact that the invoice was dated January 23, 2019, but was not disclosed until May 29, 2019. In addition, the invoice refers to two-inch copper piping and water meters that did not exist.

[36] The plaintiff also argues that the defendant’s appraiser’s submissions to the umpire were knowingly false as they concern the amount of water that infiltrated the plaza as a result of burst pipes and fire suppression efforts. The plaintiff alleges that the umpire’s decision is based on false information.

[37] The plaintiff is correct that appraisal awards may be set aside on these grounds, but the appropriate procedure to challenge appraisal awards is an application for judicial review. Truscott, supra, at para 52. As this Court held in Trentmar Holdings Ltd. v. Williams, [1984] O.J. No. 356 at para 15., “if the plaintiffs wish to allege wrongdoing on behalf of the appraisers, they should do so in the form of a judicial review of the Appraisal”. In DK Manufacturing Group Ltd. v Co-operators General Insurance Co., 2016 ONSC 3983 at para 45., this Court held that the case law was clear, that an Umpire’s ruling constitutes a final determination of the issue and is binding on all parties. If a party wishes to dispute the ruling of an Umpire, that party must bring an application for judicial review to the Divisional Court.

[38] Finally, the plaintiff argues that the defendant’s motion should be dismissed because it was brought too late. The plaintiff relies on Nelson v The Dominion of Canada General Insurance Company, 2021 ONSC 4805 (“Nelson”), which held that a Court may avoid sending back a matter to judicial review in appropriate circumstances. The plaintiff also relies on Rule 1.04 which holds that the Rules “shall be liberally construed to secure the just, most expeditious and least expensive determination of every civil proceeding on its merits”.

[39] In my view, Nelson is distinguishable. In that case, a dispute arose about whether the appraisal award ought to be reduced by certain payments the insurer made prior to the appraisal. The plaintiff brought a motion for summary judgment and the defendant brought a cross-motion to strike certain paragraphs in the statement of claim and reply. After these motions were determined, the insurance company brought a second motion under Rule 21 to require the plaintiff to either state that she was not challenging the appraisal award, or alternatively, stay the action pending judicial review of the appraisal award.

[40] The Court dismissed the second motion because it ought to have been apparent to the insurer that the plaintiff was challenging “aspects” of the appraisal. The defendant was aware of the jurisdictional issues, as evidenced by its the statement of defence, but did not raise them when the first motions were argued. Moreover, the plaintiff in Nelson was an elderly woman who lost her sister and her home in the fire and needed to get back into her home as soon as possible. On these facts, Justice Steele held that it would be highly prejudicial to stay the plaintiff’s action pending judicial review, and found that the defendant unduly delayed the motion.

[41] Here, after being served with the amended statement of claim, counsel for the defendant asked the plaintiff’s counsel for clarification about the relief sought in the action. On January 18, 2021, counsel for the defendant asked for confirmation that “this litigation does not include any claim being made for the scope of the damages decided in the appraisal process”. Counsel for the defendant was of the view that the plaintiff’s documentary productions “appeared to be in support of an effort to reargue the scope of damages caused by the fire”.

[42] Counsel for the defendant raised this issue again on January 26, 2021, February 15, 2021, and February 25, 2021. On April 19, 2021, counsel for the defendant finally provided the response described at paragraph 31 of these reasons.

[43] On May 14, 2021, the defendant advised that it intended to bring a motion, prior to examinations for discovery, to address the water damage issue. It was reasonable for the defendant to seek clarifications about the action’s scope, and the motion was brought promptly after receiving the plaintiff’s response.

ISSUE 2 – Should the plaintiff be required to post security for costs?

[44] Rule 56.01(d) provides that the Court may make such order for security for costs as is just where it appears that the plaintiff is a corporation and there is good reason to believe that the plaintiff has insufficient assets in Ontario to pay the defendant’s costs.

[45] A defendant bears the initial onus to establish that one of the six enumerated grounds under the rule exists. Rule 56.01 does not create a prima facie right to security for costs, but rather triggers an enquiry into whether it would be just to make such an order. Zeitoun v Economical Insurance Group, [2008] O.J. No. 1771, 91 O.R. (3d) 131, 53 C.P.C. (6th) 308 (Div. Ct.) at para 44, affirmed 2009 ONCA 415, [2009] O.J. No. 2003, 96 O.R. (3d) 639, 73 C.P.C. (6th) 8 (C.A.).

[46] If one of the six enumerated grounds under Rule 56.01 exists, the onus shifts to the plaintiff to satisfy the court that an order for security for costs would be unjust. Kymbo International Inc. v Teskey, [2004] O.J. No. 4126 at para 4.

[47] An order for security for costs is highly discretionary. The Court can take a number of factors into account, including the merits of the claim, the plaintiff’s financial circumstances and the possibility that such an order may prevent a bona fide claim from proceeding. The Court must balance the defendant’s interest in being protected from the risk of not being able to collect an order for costs if one is made, and the plaintiff’s interest in not unfairly preventing its action from proceeding.

There are good reasons to believe the plaintiff cannot pay a costs award

[48] I am satisfied that the defendant has met its initial onus, and conclude that there are good reasons to believe that the plaintiff corporation has insufficient assets to pay a costs award.

[49] The defendant paid the plaintiff over $1,100,000, pursuant to the appraisal award. The plaintiff only carried out $35,199.71 in repairs and the rest of the funds have not been accounted for. On June 18, 2021, the plaintiff’s plaza was sold under power of sale by the mortgagee. The plaintiff no longer owns this property. It is reasonable to infer from the fact that the plaintiff’s plaza was sold under power of sale, that the plaintiff did not have sufficient funds to redeem the mortgage.

[50] The plaintiff has not established that its assets are sufficient and readily exigible. JoBro Film Finance Ltd. v National Bank of Canada, 2020 ONSC 975, at para 9. The plaintiff argues that it has access to $467,000 to pay an adverse costs award. This is made up of $201,800 worth of restaurant equipment and a promissory note in the amount of $200,000. The plaintiff submits that the equipment is worth $267,000 but the equipment and associated values at paragraph 74 of Mr. Murano’s affidavit only total $201,800. This evidence is unconvincing.

[51] With respect to the restaurant equipment, the plaintiff provides no proof of ownership and no independent appraisal. There is no evidence as to whether this equipment is affixed to a property. I am not satisfied, based on the evidence presented, that the restaurant equipment is readily exigible and can easily be transformed to cash to generate the funds required to meet a costs order.

[52] The plaintiff also relies on a promissory note from Serruya Consulting Ltd., dated February 8, 2021. In exchange for the principal sum of $50,000, Serruya Consulting Ltd. promised to pay the plaintiff a total of $200,000. The maturity date is 30 months from the effective date of the promissory note’s purchase price.

[53] This evidence falls short of establishing that the plaintiff could pay a costs order. There is no information provided as to Serruya Consulting Ltd.’s creditworthiness, or evidence of any personal guarantees. The high rate of return on this investment (300% over 30 months) strongly suggests that Serruya Consulting Ltd. was unable to obtain financing from a commercial lender at lower rates. It is reasonable to infer that the high yield on this promissory note indicates that the plaintiff’s investment carries a high risk of non-repayment.

[54] Based on the foregoing, the Court is satisfied that an order for security for costs can be made.

Amount of security

[55] The defendant has incurred approximately $100,000 in legal fees and disbursements (including HST) to date, for the following services: initial investigations and development of the file, correspondence and other communications, pleadings, documentary production and production issues, attendance at five case conferences, title investigations, municipal enquiries, and substantial document review. A portion of these fees appears to relate to this motion (communications with W. Neville).

[56] The defendant estimates that it will incur a further $247,300 in fees and $71,755 in disbursements for the remaining steps of this action, including trial.

[57] The security for costs amount should be in an amount that is just in the circumstances. The defendant’s draft bill of costs is reasonable and proportional to the amounts claimed. It is difficult to assess the merits of the plaintiff’s remaining claims, or the defendant’s defences, at this stage of the litigation.

[58] I conclude that justice would best be served by the posting of security by cash or a letter of credit or bond in stages. Pursuant to Rule 56.04, I order that the plaintiff pay into Court:

a) $30,000 within 30 days from this order; b) $20,000 at least 15 days before the first day of discoveries; c) $40,000 no later than 30 days after the pre-trial conference.

Costs of this motion

[59] The parties submitted costs outlines. If successful, the defendant sought costs of $34,952.26, while the plaintiff sought costs of $21,506.

[60] Pursuant to section 131 of the Courts of Justice Act, “the costs of and incidental to a proceeding or a step in a proceeding are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid”. In addition, Rule 57.01 of the Rules of Civil Procedure, lists a broad range of factors the court may consider when exercising its discretion to award costs pursuant to section 131 of the Courts of Justice Act. Cost awards must not be a simple mechanical or mathematical calculation focused on time spent multiplied by hourly rates, or a tabulation of disbursements actually incurred. Rather, they are subject to “overriding principle of reasonableness”, as applied to the factual matrix of the case. Moon and Coldmatic Refrigeration of Canada Ltd. v Leveltek Processing LLC (2005), 75 O.R. (3d) 638 (C.A.), and Anderson v St Jude Medical Inc. (2006), 264 D.L.R. (4th) 557 (Ont.Div.Ct).

[61] Here, the defendant was entirely successful. The motion was of medium complexity and both parties claim that the issues were of critical importance to them. Neither party acted unreasonably. The defendant’s counsel’s rates are reasonable, and senior counsel properly delegated tasks to junior counsel.

[62] The overall goal is to award costs in an amount that is fair and reasonable. Having regard to the Rule 57.01 factors, and the overriding principle of reasonableness, the Court awards the defendants costs of this motion, fixed in the all-inclusive amount of $20,000.

Conclusion

[63] For the foregoing reasons, the Court orders that:

1. The defendant’s motion for partial summary judgment and for security for costs is allowed.
2. The second sentence of paragraph 1(c) and paragraph 15(d) of the amended statement of claim are hereby struck.
3. The plaintiff shall pay the following amounts into court, by cash, bond, or letter of credit: a. $30,000 within 30 days from this order; b. $20,000 at least 15 days before the first day of discoveries; c. $40,000 no later than 30 days after the pre-trial.
4. The defendant shall have its costs of the motion, fixed at $20,000 all-inclusive.

Alexandre Kaufman Associate Justice A. Kaufman

DATE: April 1, 2022