COURT FILE NO.: CV-19-00632073-00CL

DATE: 2022-06-08

SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: Wiener Stadtische Versicherung AG Vienna Insurance Group, Plaintiff

AND:

Infrassure Ltd., Defendant

BEFORE: C. Gilmore, J.

COUNSEL: Robert B. Bell, Emily Y. Fan, and Shannon M. Gaudet Counsel for the Defendant/Moving Party

William McNamara and Morag McGreevey, Counsel for the Plaintiff/Responding Party

HEARD: May 27, 2022

ENDORSEMENT on motion to amend

INTRODUCTION

[1] This is the Defendant’s motion for leave to amend its Statement of Defence dated August 1, 2017, in accordance with the proposed Amended Statement of Defence.

[2] The Plaintiff does not oppose the amendments set out in paragraph 18 of the Defendant’s factum. They oppose the remaining amendments on the grounds that they relate to coverage issues not previously raised in the Statement of Defence and are admissions which do not meet the test for withdrawal under r. 51.05 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[3] For the reasons set out below, the Defendant’s motion is granted. The proposed amendments do not raise any new burden or arguments. Rather, they assist the Court in framing the issues and are not admissions.

FACTUAL BACKGROUND

[4] In the underlying litigation, the Plaintiff claims $10M pursuant to a retrocession agreement with the Defendant. The agreement was part of a “fronting” arrangement whereby the Plaintiff stood in for the Defendant as a direct reinsurer of Zurich Insurance Company Ltd. (“Zurich”). The Plaintiff and Defendant entered into a retrocession agreement effective May 4, 2010. These arrangements were part of a sophisticated commercial insurance program for the Vale companies’ global mining operations.

[5] In February 2011, Vale Canada Ltd. (“Vale”) sustained a loss involving a flash furnace at its Sudbury nickel mine. Vale submitted a claim for business interruption loss for $500M which was settled with Zurich for $140M in December 2014.

[6] The Defendant’s position in the litigation is that it advised Zurich and the Plaintiff that it did not agree with the settlement of Vale’s claim and that the settlement was not properly quantified. The Defendant claims that despite its objections, the Plaintiff paid Zurich and then demanded payment from the Defendant. The Defendant denies that the retrocession agreement required it to follow Zurich’s settlement of the Vale claim. When the Defendant refused to pay, the Plaintiff commenced this action on December 9, 2016.

[7] The Defendant delivered its Statement of Defence in August 2017, stating that it was not obliged to follow the Plaintiff’s/Zurich’s settlement, and that Vale had not proven entitlement to insurance proceeds above $70M. The Plaintiff delivered a reply in December 2017. Discoveries took place in 2020.

[8] The Defendants changed counsel and retained Lerners LLP in January 2022. This motion was served on February 11, 2022. The trial of this matter was originally scheduled to commence on December 6, 2021. However, due to the unfortunate passing of Justice Hainey, the trial has been deferred to 2023.

[9] The main amendment in dispute is found at paragraph 13 of the proposed Amended Statement of Defence as set out below:

13. Infrassure admits that in February 2011, Vale (Canada) Limited sustained a loss in Canada to a flash furnace, which loss included a business interruption claim against Zurich under the Original (Master) Policy Policies. Infrassure admits that the loss was covered under the Original (Master) Policy Policies responded to business interruption claims, subject to proof of coverage, application of exclusions and quantum.

[10] This amendment is expanded upon in paragraph 18 of the proposed Amended Statement of Defence where it sets out the specific Property and Perils Exclusions upon which the Defendant relies.

The Positions of the Parties

The Moving Party/Defendant

[11] The Defendant’s position is that the amendments do not raise new issues but simply clarify the insurance provisions relevant to the Defendant’s defence. Specifically, the Defendant submits that the proposed amendments particularize the specific sections of the Original Policies that the Defendant relies on and how those sections relate to Vale’s claim.

[12] The Defendant does not contest the coverage wording in the underlying Original Policies. However, the reinsurance contemplated applicable exclusions which are entirely separate from the coverage grant. The reinsurance obligation includes an obligation to follow the terms in the Original Policies in all respects which would naturally include any exclusions. The exclusions impact and reduce the amount of quantum of the business interruption claim and the reinsurance should therefore not have responded to those claims.

[13] The Defendant submits that the Plaintiff’s obligation was to follow the terms and conditions of the Master Policies and Local Policy in all respects. On examination, the Plaintiff’s witness admitted that the coverage provided by the reinsurance would be limited by the terms and conditions and exclusions found in the Original Policies. Taking the position that exclusions would not be considered in determining quantum is contrary to the reinsurance wording, the law and the admissions of the Plaintiff on discovery. The amendments sought by the Defendant are simply a statement of what the exclusions are. Had Zurich and the Plaintiff properly considered the relevant exclusions, the quantum would have been under $70M.

[14] Paragraph 18 of the proposed Amended Statement of Defence sets out the various exclusions and exceptions to those exclusions upon which the Defendant relies.

[15] The proposed amendments do not raise any new burden or arguments. Rather, the amendments assist the Court in framing the issues and should be granted as of right.

The Plaintiff

[16] The Plaintiff’s position is that the Defendant admitted in its Statement of Defence that the loss under the reinsurance dispute was covered by the Master Policy, subject to proof of quantum. It stood by that admission for five years through to discoveries and the scheduled trial in 2021. It now seeks to withdraw that admission and rely on various exclusions contained in the Original Policy.

[17] Further, the Defendant attended the Toronto settlement meeting and was on the Steering Group with respect to the settlement of the Claim. The Plaintiff was only advised of the settlement after the fact and was never a member of the Steering Group. In any event, the direct insurer (Zurich) had full authority under the policy to settle the claim and the Defendant knew this.

[18] The amendments sought by the Defendant are not factual but in the nature of a withdrawal of an admission. There is no presumptive right to withdraw such an admission. Permitting the admission to be withdrawn at this stage would be inherently prejudicial to the Plaintiff.

[19] Further, the effect of withdrawal of the admission eight years after the settlement is to create an additional burden on the Plaintiff to prove Vale’s claim under the Original Policy.

[20] The evidence provided by the Defendant on this motion is deficient. It consists solely of the affidavit of Lucy Sun, a junior associate at Lerners LLP, who admittedly has no knowledge of the dispute or of the litigation prior to January 2022. Further, Ms. Sun’s affidavit attached excerpts from Mr. Bachmann’s discovery evidence. This is contrary to r. 39.04(2) which prohibits the Defendant from using Mr. Bachmann’s discovery evidence on this motion. It is also of note that when the Defendant examined the Plaintiff’s witness, Dr. Aigner, there was no reference to refractory linings, pushing or mill production as per the amendments in paragraph 18 of the proposed Amended Statement of Defence. Surely the Defendant would have asked about this on discovery if it intended to show that the Plaintiff had to prove that the claim did not fall within those exclusions under the Master Policy.

[21] The motion should be dismissed on the grounds of insufficient evidence because there is no direct evidence from a representative of the Plaintiff with respect to the test under r. 51.05 for withdrawal of an admission. The only evidence properly before the Court are the pleadings, the policies, the reinsurance and retrocession agreements and Ms. Sun’s cross-examination. That evidence is therefore insufficient to grant the relief sought.

[22] Finally, there has been significant delay in this matter which is prejudicial to the Plaintiff. The loss occurred over 10 years ago, and this litigation is over six years old. There is no evidence that witnesses from Zurich and Vale, who may have relevant evidence about how the Master Policy should be interpreted, are still available. The Plaintiff did not take steps to preserve this evidence given the Defendant’s admissions.

[23] The Defendant has waited until the eve of trial to seek their amendments and withdraw crucial admissions. It is not accurate for the Defendant to state that the issues raised in paragraphs 13 and 18 of the proposed Amended Statement of Defence were made known during examinations for discovery or should have been known at the start of the litigation. As stated above, the exclusion issues were not put to the Plaintiff’s deponent on discovery and, as such, the Plaintiff could not have known that these were issues in the litigation.

Analysis and Ruling

Issue 1 – Can the Defendant Rely on the Exclusions in the Policy as a Defence to the Claim?

[24] It is this Court’s view that the Defendant can rely on the exclusions as a defence to the Plaintiff’s claim under the retrocession agreement. These issues go to the very heart of the quantum which the Court must consider at trial.

[25] The Defendant does not deny that the claim falls within the grant of coverage. Thereafter, the insurer must prove whether any exclusions apply which would bar or reduce coverage. Once proven, the insured may prove whether any exceptions to the exclusions apply. This shifting of the onus from the insured to the insurer and back to the insured is confirmed in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, at para. 52.

[26] I find that the Defendant has always maintained quantum was an issue. The amendments seek to simply expand on how the quantum is to be determined using the shifting of onus and analysis in Ledcor.

[27] It cannot be a logical conclusion that the phrase “subject to proof of quantum” in paragraph 13 of the original Statement of Defence only means the gross quantum without adjustment for exclusions and exceptions. I agree with the Defendant that all relevant terms, conditions and exclusions in the Policy, reinsurance and retrocession agreements must be considered by the Court in relation to both the Plaintiff’s claim and the Defendant’s defence. Doing otherwise would not be properly considering the issue of “quantum.”

[28] There are other portions of the original Statement of Defence that ground the amendments sought by the Defendant including the following:

a. That the Defendant advised the Plaintiff that it did not agree with the proposed settlement amount and that the settlement was not made reasonably or in accordance with proper business-like insurance practices;

b. The Defendant denied that Vale had established entitlement to business interruption insurance of $140M; and

c. The Defendant refers to the Plaintiff’s breach of the retrocession agreement which requires that the Plaintiff follow the terms and conditions of the Original Policy.

[29] I therefore find that the issue of Vale’s entitlement to $140M for the loss has been in dispute since the beginning of this litigation. The Defendant’s request to clarify how the quantum should have been calculated does not change the onus or landscape of this litigation.

Issue 2 – Does Rule 51 Apply?

[30] The alleged admission in this case is found in paragraph 13 of the original Statement of Defence as follows:

Infrassure admits that the loss was covered under the Original (Master) Policy, subject to proof of quantum.

[31] Rule 51 requires that a party make an unambiguous, deliberate concession to the other party. If no admission is withdrawn, the test in r. 26.01 applies.

[32] I do not find that such a deliberate concession or indeed any concession was made by the Defendant with respect to quantum. Their position from the beginning has been that they did not agree with the settlement and that the loss covered was subject to proof of quantum. Proof of quantum must include consideration of exclusions and exceptions or it cannot properly be “quantum.”

Issue 3 - Is the Evidentiary Record Sufficient?

[33] While normally a party could not rely on its own evidence on a motion such as this, I do not disallow reference to the transcript evidence in this case. The reliance here is not intended to permit the Defendant to shield itself from cross-examination or to deal with credibility, but merely to demonstrate to the Court that the issues raised in its proposed amendments related to the exclusion have been in issue since the outset of the litigation.

[34] Inclusion of the transcript portions in this case was not unreasonable and was used to refute the Plaintiff’s allegation that the Defendant stood by its alleged admissions throughout the discovery process and scheduled trial in 2021.

Issue 4 – Is There Prejudice to the Plaintiff in Allowing the Amendments?

[35] The Plaintiff submits that the amendments result in the Defendant imposing a new burden which is highly prejudicial given the delay in this matter.

[36] I do not find that the Plaintiff’s burden is any different with the proposed amendment. It has always been required to prove Vale’s loss and the quantum of the loss. Further, any delay in this matter cuts both ways or was unavoidable. There were disputes by the Plaintiff over the proper forum in which to litigate this claim. This resulted in the Plaintiff not taking steps for several years after the litigation was commenced. Discoveries were not held until 2020 as a result. The matter was then set for trial and that date vacated due to unforeseen circumstances outside of the control of either party.

[37] In summary, I find that the Plaintiff has not suffered any non-compensable prejudice as a result of the proposed amendments and the relief should be granted.

Orders

[38] Given all of the above, I make the following Orders:

a. The Defendant’s motion is granted.

b. Counsel have agreed that the successful party would receive all-inclusive costs of $7,000. As such the Plaintiff shall pay the Defendant costs of $7,000 forthwith.

C. GILMORE J.

Date: June 8, 2022