DATE: 20221222
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
LALANI PROPERTIES INTERNATIONAL INC. and 2160943 ONTARIO LIMITED
Plaintiffs
– and –
INTACT INSURANCE COMPANY
Defendant
Ordered to be tried with:
Robert L. Love and Erin VanderVeer, for the Plaintiffs
Harvey Klein and Tina Le, for the Defendant, Intact Insurance Company
2160943 ONTARIO LIMITED
Plaintiff
– and –
INTACT INSURANCE COMPANY and D.M. EDWARDS INSURANCE GROUP LTD. and THE CG & B GROUP INC.
Defendants
Robert L. Love and Erin VanderVeer, for the Plaintiff
Harvey Klein and Tina Le, for the Defendant, Intact Insurance Company
Barry B. Papazian Q.C. and Michael Krygier-Baum, for the Defendants, D.M. Edwards Insurance Group Ltd. and The CG&B Group Ltd.
HEARD: April 11-14, April 19-22, April 25, 26, 28, 29
VELLA J.
AMENDED REASONS FOR JUDGMENT
[1] On April 16, 2010, a portion of the wall of a three-story commercial building in Toronto collapsed. Then, on January 3, 2011, the same building was burned down by an arsonist.
[2] The defendant insurer, Intact Insurance Company (“Intact”), denied coverage for both claims by the plaintiff insureds (“Lalani”) under its 2009-2010 Policy (“wall collapse claim”) and subsequent 2010-2011 Renewal Policy (“fire loss claim”).
[3] Lalani commenced two lawsuits and sues for declarations that the two separate incidents fell within the grants of coverage under Intact’s policies, and for resultant damages.
[4] Lalani also sues its brokers, D.M. Edwards Insurance Group Ltd. and its successor The CG&B Group Inc. (collectively, “CG&B”), for negligence in the event CG&B communicated consent to purported amendments by Intact to the Renewal Policy without authorization, or alternatively gave negligent advice when it encouraged Lalani to initial a Vacancy Permit endorsement which was part of the purported amendments relating to the fire loss claim (the “negligent broker claim”).
[5] The two actions were ordered to be tried concurrently.
[6] I will deal first with the wall collapse claim, and then the fire loss claim, and damages. I will then deal with the negligent broker claim.
ISSUES
[7] Under the wall collapse claim, the issues to be determined are:
(a) Was the wall collapse caused by a fortuitous event falling within the “all perils” coverage under Intact’s 2009-2010 Policy?
(b) If yes, was the wall collapse caused by an excluded peril under the Policy?
(c) If so, was the wall collapse caused by a concurrent covered peril?
(d) If a proximate cause of the wall collapse was a covered peril entitled to coverage under the Policy, what are the insured’s damages calculated under the relevant provisions?
[8] Under the fire loss claim, the issues to be determined are:
(a) Are Intact’s purported amendments to Lalani’s 2010-2011 Renewal Policy, following the fire loss, enforceable? That is, were the amendments consented to in writing by Lalani pursuant to s. 124 of the Insurance Act, R.S.O. 1990, c. I.8?
(b) Is Intact estopped from relying on the vacancy exclusion contained in the unamended Renewal Policy?
[9] Under the negligent broker claim the issues to be determined are:
(a) Did CG&B convey Lalani’s consent to the purported amendments to the Renewal Policy and, if so, did it act without authority?
(b) Did CG&B fall below the standard of care of an insurance broker when it advised Lalani to initial the Vacancy Permit endorsement in relation to Intact’s purported amendments of the Renewal Policy?
[10] In relation to damages:
a) Assuming the wall collapse was covered under the Policy, what are the damages?
b) Assuming the fire loss was covered under the Renewal Policy, what are the damages, and how is that damages assessment impacted by the wall collapse?
c) Assuming CG&B were negligent in relation to the purported amendments to the Renewal Policy, what damages were caused by that negligence?
[11] For the reasons that follow, Lalani has not proven that the wall collapse was caused by a fortuitous event. Accordingly, their claim against Intact with respect to Action CV-12-450891 is dismissed.
[12] For the reasons that follow, Lalani’s fire loss claim (Action CV-12-4700050) falls within the grant of coverage under the unamended Renewal Policy. The purported amendments to the Renewal Policy were not consented in writing by Lalani, as the insured, and hence are void by operation of s. 124 of the Insurance Act. Furthermore, Intact is estopped from relying on the vacancy exclusion contained in the (unamended) Renewal Policy by its representation. It knew at the time of renewal that the Building had been vacant for longer than 30 consecutive days, renewed the insurance policy with the vacancy exclusion notwithstanding that knowledge, and assessed a higher premium to reflect that risk.
[13] As a result of my findings regarding the fire loss claim, the claim against CG&B is dismissed.
ANALYSIS OF THE WALL COLLAPSE CLAIM
Background
[14] The property at issue was a heritage building located at 335 Yonge Street located at the southeast corner of Yonge St. and Gould St. (the “Building”). It was the former Empress Hotel and which later became the Edison Hotel. The portion of the Building’s wall that collapsed was built in 1899 and used a now forbidden clip bond system to bind the bricks. The rest of the Building was built in 1910 using a different brick binding system.
[15] On April 16, 2010, a portion of the wall of the Building, located on the north side of the building facing Gould St. and to the east of Yonge St., collapsed suddenly without any obvious external precipitating event. Only the first two stories of that brick wall collapsed, leaving the third story portion directly above still standing. However, the third story over the collapsed wall was demolished for safety reasons, leaving the brick walls to each side still standing.
[16] The collapsed portion of the wall was approximately a 12 feet high by 25 feet wide section of a double-wythe, load bearing clay brick wall. It collapsed on to the Gould St. sidewalk below.
[17] The collapsed wall was constructed primarily of brick and mortar. The collapsed portion had been held together by a double-wythe wall. A double-wythe brick wall is comprised of two rows of brick columns, one on top of the other (creating a double brick depth) vertically which were effectively tied together by clip bonds. These structures were referred to as pilasters. These clip bond units are clips that were affixed to the bricks diagonally every two feet or so on the interior of the wall so that they were not visible on the exterior façade of the brick wall. Their function was to provide support to the wall to prevent a collapse or other breach of the wall. Historically, they were used in brick buildings to enhance the aesthetics of the building. However, in 1915 the City of Toronto banned the use of clip bonds in the construction of future buildings. The ban is still in place today.
[18] Noori Lalani testified on behalf of Lalani. He is one of the co-owners of the Building and property, with his two brothers, Al Lalani Sr. and Zahir Lalani.
[19] Noori Lalani testified that he, together with his father, originally bought the building and rented the land upon which it was built in or around 1986. In 1996 Lalani bought the land. Throughout their ownership of the building, it was operated as a commercial tenanted property.
[20] Noori arranged the insurance for all of the properties, with the assistance of insurance brokers. He was also in charge of collecting the rents, the day-to-day operations and maintenance. The financial and other tasks were assumed by his brothers.
[21] Prior to the wall collapse, it was the common intention of the three brothers to continue operating the building as a commercial tenanted building. There was no challenge to this assertion.
[22] Lalani started using D.M. Edwards Insurance Group Ltd. as the broker in or around 1997/98. Noori always dealt with the late Sharon Mitchell. Ms. Mitchell died suddenly in April of 2020.
[23] Intact had been Lalani’s insurer since 1999. Every year, the insurance policy was renewed on substantially the same terms, subject to varying coverage limits. The renewal was always put through, after Noori’s approval, by Ms. Mitchell.
[24] During the course of the years, Intact sent its own inspectors to inspect the Building. This occurred on four times prior to the wall collapse as follows: August 18, 1999, August 2, 2002, May 13, 2003, and May 22, 2008.
[25] The inspectors had access to all parts of the Building, including the basement and the roof top. Lalani complied with all recommendations for maintenance and repair issues that came out from the inspections, including most recently the 12 recommendations made in Intact’s May 22, 2008 Risk Appraisal Report. There was no suggestion that this was not true.
[26] Noori testified that the Metropolis construction project started in or around April 1999. The Metropolis was located next door to the Building and involved a demolition of that building and a construction of a new large complex. It was a major construction project.
[27] In or around May 2009, another building was in the process of being demolished by Murray Construction (referred to as the “Murray Demolition”). This building was located on Gould St. across the street from the Building. The demolition started before the wall collapse and continued thereafter. By July 2009, the ground was excavated in preparation for the construction of a new building there.
[28] Noori’s evidence was not seriously challenged on these events, and I accept his evidence on these points.
Events Immediately Following the Wall Collapse
[29] At the time of the wall collapse, the City of Toronto immediately intervened given the resultant danger posed to the public. On April 16, 2010, the City of Toronto issued an Emergency Order requiring Lalani to hire a professional engineer to assess the structural stability of the Building and determine the remedial measures necessary to eliminate the danger. In response, Lalani hired the MMM Group (Paul Zucchi), Carvajal Structural Engineers Inc. and Goldsmith Borgal & Company Ltd. Architects (Chris Borgal).
[30] Lalani also hired The Fence People to erect an eight-foot fence around the entire building, with access restricted by two locked gates. Quantum Murray Demolition was hired to conduct the salvage and debris clean-up.
[31] Noori hired his nephew, Al Noori Jr., on behalf of Lalani to assume some of the additional demands including communications with the various engineers and the City. Lalani paid Al Jr. $10,000 a month in exchange for his full-time services.
[32] Intact assigned Mary Ranchod as its adjuster to respond to the property loss claim. She attended the site on April 19, 2010.
[33] On April 30, 2010, the City issued an Order to Remedy Unsafe Building and imposed several conditions on Lalani, including that the Building remain unoccupied and secured from unauthorized access. Lalani was also instructed by the City to contact its Heritage Services for guidance on remediation plans.
[34] Intact retained engineers, Giffin Koerth (Terrence Holder), to investigate for coverage purposes. As a result of receiving Giffin Koerth’s report dated June 7, 2010, Intact denied coverage by letter dated June 10, 2010. Intact relied on certain exclusions as the basis of its denial (including wear and tear, and deterioration) and provided a copy of the report to Lalani with its denial letter.
Was the Wall Collapse Fortuitous?
[35] As acknowledged by Lalani, the initial burden of proof is on the insured to establish that the damage or loss claimed fell within the initial grant of coverage in this all perils Policy. In other words, it must prove that a proximate cause of the wall collapse was a fortuitous event. If so, the onus then shifts to the insurer, to prove that the claim falls within one of its excluded perils. Thereafter, the onus reverts to the insured to establish that the claim falls within an exception to the excluded perils under the Policy (Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 S.C.R. 245, at paras. 26-29, and 51).
[36] Accordingly, I will first examine whether the wall collapse was a fortuitous event that falls within the initial grant of coverage. Inherent in this initial phase of the analysis is a determination of what the or a proximate cause of the wall collapse was.
[37] The initial grant of coverage provided in the Policy states that the insured perils are “all risks of direct physical loss of or damage to the insured” unless they are expressly excluded. The period of coverage was from June 17, 2009 to June 17, 2010 and extended to the property and business located at 335 Yonge St.
[38] There is no doubt that the wall collapse was a form of direct physical loss and/or damage to the insured.
[39] At trial, Lalani submitted that a proximate cause of the wall collapse was the shifting of ground and weakening of the Building structure over time by vibrations that were, in turn, caused by the two nearby construction projects referred to as the Metropolis project and the Murray demolition. Lalani submitted that the 1973-74 renovations to the Building were also a proximate cause. Both such proximate causes, if proven, are fortuitous and, at minimum, concurrent to the alleged excluded perils. Therefore under the plain reading of the material insurance policy coverage provisions, coverage would flow.
[40] Intact says that the wall collapse was the result of the general wear and tear of the brick-and-mortar wall clip bond system caused by a gradual recurrence of freezing and thawing of water that entered into the mortar through various access points such as the window sealants. This erosion of the mortar placed increased pressure on the clip bond system causing a gradual weakening of this portion of the wall to the point that a few clip bonds snapped creating a domino effect until the wall was no longer structurally supported causing the ultimate sudden collapse.
[41] Accordingly, says Intact, the collapse was the result of normal deterioration of this type of brick wall construction. As such, a proximate cause was not fortuitous or, in the alternative, was an excluded peril under the policy (see, University of Saskatchewan v. Fireman’s Fund Insurance Company of Canada (1997), 1997 CanLII 9789 (SK CA), 158 Sask. R. 223 (SKCA), at paras. 6-7). Intact denies that vibrations or any negligence during the 1973-74 renovations had anything to do with the wall collapse.
[42] Intact relies on the following exclusions under the 2009-2010 Policy, which were reflected in its denial letter of June 10, 2010:
EXCLUDED PERILS
This form does not insure against loss or damage caused directly or indirectly:
(c)(iii) – by the entrance of rain, sleet or snow through doors, windows, skylights or other similar wall or roof openings, unless through an aperture concurrently and directly caused by a peril not otherwise excluded in this form;
(e)(ii) – by changes in or extremes of temperature, heating or freezing;
(o) by settling, expansion, contraction, moving, shifting or cracking. This exclusion does not apply to loss or damage caused directly & concurrently by a peril not otherwise excluded in this form;
D) OTHER LOSSES EXCLUDED –
This form does not insure:
(a) (i) wear and tear;
(ii) rust or corrosion;
(iii) gradual deterioration, hidden or latent defect or any quality in property that causes it to damage or destroy itself.
This exclusion (a) does not apply to loss or damage caused directly by or a resultant peril not otherwise excluded by this form.
[43] It is implicit in an “all perils” policy that acts that are not expressly excluded from coverage must be fortuitous in order to fall within the initial grant of coverage. Therefore Lalani must first establish that the wall collapse would not have happened but for the occurrence of an unexpected intervening act such as “negligence, or adverse or unusual conditions without which the loss would not have occurred” (C.C.R. Fishing Ltd. v. British Reserve Insurance Co., 1990 CanLII 145 (SCC), [1990] 1 S.C.R. 814, at para. 26).
[44] Put another way, if upon looking at all of the events giving rise to the wall collapse, the loss would not have occurred without an act or event that was not expected to occur in the ordinary course of things, then it is considered to be a fortuitous loss (C.C.R. Fishing, at para. 33; Progressive Homes).
[45] In Corp. of Dawson Creek (City) v. Zurich Insurance Co., 2000 BCCA 158, 75 B.C.L.R. (3d) 131, at para. 18, citing C.C.R. Fishing at p. 120, the British Columbia Court of Appeal stated:
…in determining whether a loss falls within the policy, the cause of the loss should be determined by looking at all the events which gave rise to it and asking whether it is fortuitous in the sense that the accident would not have occurred “but for” or without an act or event which is fortuitous in the sense that it was not to be expected in the ordinary course of things.
[46] In C.C.R. Fishing, a case relied upon by both Lalani and Intact, the Supreme Court of Canada sets out a roadmap with respect to the determination of whether an incident is fortuitous within the context of insurance (albeit in that case with respect to an insurance policy that related to perils at sea). Justice McLachlin (as she then was) held on behalf of the court that the cause or causes of the loss must first be determined. The next step is to determine whether the loss was fortuitous in the sense that it would not have occurred but for an “accident or unforeseen event brought about by negligence or adverse or unusual conditions” (at p. 825). In conjunction with the latter step, if the cause or causes of the loss fall within an exclusion, then the loss will not be considered fortuitous.
[47] I will therefore determine what the likely cause(s) or causes of the wall collapse likely were, bearing in mind that the onus is on Lalani to establish what a proximate cause of the wall collapse was and whether it was, prima facie, fortuitous.
Paul Zucchi – Lalani’s Engineer Expert
[48] The evidence advanced by Lalani concerning the proximate cause came primarily from its own structural engineer, Paul Zucchi, who assessed the Building after the wall collapse pursuant to the City order. Mr. Zucchi was retained by Lalani Properties initially to survey the collapsed wall in order to determine whether the Building could be salvaged and, later, to respond to the causes identified by Giffin Koerth.
[49] Mr. Zucchi prepared a report dated June 15, 2010 reflecting his conclusion that the most feasible outcome for the Building was to demolish it. He was subsequently retained as a r. 53 litigation expert under the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, and prepared an expert report dated May 18, 2021, to respond to Giffin Koerth’s report dated June 7, 2010 which formed the basis of Intact’s denial of coverage.
[50] Mr. Zucchi attended at the site on the day of the wall collapse and from time to time thereafter. Accordingly, he testified as a fact witness and a participant expert with respect to his investigation of the wall collapse, and he was qualified as a r. 53.03 expert in the field of building and structural engineering, including potential causes of structural building failures.
[51] Mr. Zucchi testified that in his report of June 15, 2010, he expressed the opinion that the most “feasible” option was for the entire building to be demolished. He explained that by “feasible” he meant from the perspective of cost and timeliness. He formed the opinion based on his attendance at the Building site and his expertise that the Building was in a dangerous state, and to attempt to repair the wall would put people, and in particular workers, at a safety risk. He confirmed in his evidence that he stood by the opinion he formed at the time of his investigation. However, at that time, Mr. Zucchi had not formed any opinion as to what the proximate cause or causes of the wall collapse was, nor was he asked to.
[52] In his role as a r. 53 expert, Mr. Zucchi was tasked with assessing the merits of the various factors identified by Giffin Koerth as the causes of the wall collapse. He testified that each of the causal factors advanced by Giffin Koerth were without merit. He further testified that the key omission by Giffin Koerth was their failure to consider how external conditions, most notably vibrations from the two nearby construction projects, may have caused or contributed to the wall collapse.
[53] More specifically, Mr. Zucchi testified that Giffin Koerth failed to consider that vibrations from the nearby construction and demolition projects may have caused or contributed to the wall collapse by way of the impact of vibrations on the structure of the building and the impact of vibrations on moving the sediment under the Building that may have caused it to shift thereby weakening the wall in question.
[54] Mr. Zucchi specifically identified two such projects. The first was the construction of the Metropolis complex on Dundas St. at Yonge St. from approximately 2003 to 2008. The second was the Murray Demolition of a building across the road on Gould St. which was ongoing at the time of the wall collapse and included a significant excavation.
[55] However, the critical problem with Mr. Zucchi’s evidence is that he did not turn his mind to what the likely causes of the wall collapse were. More particularly, he did not consider whether the alleged vibrations likely caused or contributed to the wall collapse either during the course of his investigation, or in forming his opinion as a r. 53 expert. Rather, he opined that the vibrations may have caused or contributed to the wall collapse. This is not sufficient to discharge Lalani’s initial burden of proof.
[56] This weakness in his opinion was highlighted by the cross examination of Mr. Zucchi. Mr. Zucchi confirmed that his opinion as reflected in his expert report dated May 18, 2021 was framed as follows and reflected his current opinion:
Conclusion 7 of the Giffin Koerth report reads, “There were no strong winds and the weather forecast at the time of the wall failure.”
While we concur with the statement, it does not fully identify other external conditions to which the structure was exposed, which may have affected the walls of stability. Prior and subsequent to the failure, demolition crews were removing the structure located directly across Gould Street. Also, during a five-year period starting in 2003, construction on the adjacent 10 Dundas East, formerly known as Metropolis, was going to the east and south of the building. This structure’s deep foundations, which could have induced settlement of foundations below the property, and related ongoing construction activities, which could have induced significant construction vibrations, may have adversely affected the structure at 335 Yonge St.
Demolition, construction and heavy traffic invariably cause vibrations which are transmitted into the surrounding soils and can negatively impact adjacent structures and occupants. There may possibly have been a heavy vehicle travelling along Gould Street, potentially related to construction or demolition across the road at the time of the collapse… (emphasis added)
[57] Indeed, in his examination in chief, Mr. Zucchi also affirmed the use of phrases such as “may have” and “could have” in terms of the potential role of the vibrations in the wall collapse. Mr. Zucchi testified that “I did identify other conditions that – that should be considered as potential causes in the collapse” in the course of his scrutiny of the Giffin Koerth report and conclusions. He identified the two nearby construction projects as “causing vibrations that should be considered” and were not by Giffin Koerth. He testified that the other construction projects “would have been creating a fair amount of vibration in the area, which – which would have been felt by the building”.
[58] However, not once in his examination in chief did Mr. Zucchi give the opinion that vibrations coming from either or both of the identified construction projects likely or probably (or any phrase reflecting the balance of probabilities) caused or contributed to the wall collapse, or that they were likely of a sufficient duration and level to have caused this sudden collapse by successive failure of the clip bond system.
[59] It was only under cross examination, after again confirming his choice of words from the report (excerpted above) as being accurate and reflecting his opinion such as the “possibility” that sediment had been moved as a result of the nearby construction projects and that those nearby construction projects “may have adversely affected the structure” of the building, and “may have” contributed as external factors to the wall collapse, that Mr. Zucchi then volunteered that “I believe vibrations contributed to the collapse, and these vibrations were, these were significant vibrations.”
[60] This is the first time that Mr. Zucchi expressed an opinion with respect to the likelihood that the vibrations caused or contributed to the wall collapse. It was not clarified on re-examination and was not reflected in either his letter report or his expert report responding to Giffin Koerth’s report.
[61] Furthermore, this conclusion is not supported by any objective data as to the level and duration of the vibrations that were caused by the two construction projects and would have been necessary to trigger the wall collapse.
[62] More specifically, Mr. Zucchi did not provide any data relating to the level or duration of vibrations that may have been created by the two construction projects, including the level and/or duration of vibration that would be necessary to have likely caused the wall to collapse. Mr. Zucchi acknowledged that there is equipment that measures vibration levels for just this purpose in order to safeguard against any harm to nearby buildings and their occupants.
[63] Rather Mr. Zucchi gave a general analysis of vibrations and their potential impact on the structural integrity of walls. Mr. Zucchi testified that, “Vibrations, and depending on their intensity and duration, can cause damage to…structures and elements and finishes within...a building…if they are of long duration, they can serve to weaken materials”. However, again, Mr. Zucchi did not provide a factual basis in the evidence to support an analysis of whether the vibrations allegedly caused by the Metropolis project and/or the then ongoing Murray demolition project were of the requisite intensity or duration to have likely caused or contributed to the wall collapse.
[64] Mr. Zucchi admitted under cross examination that he had no data or information relating to the intensity or duration of the vibrations he attributed as the proximate cause of the wall collapse. To illustrate this point, Mr. Zucchi admitted that his view that large trucks would have been carrying heavy loads down Gould St. in front of the Building relating to the two construction projects causing further vibrations was “entirely speculative”. He did not provide any compelling analysis to justify how it was that the Metropolis construction project or the ongoing Murray Demolition caused vibrations that, in turn, caused or contributed to a weakening of the structure of the Building.
[65] Mr. Zucchi also admitted under cross examination that he was not aware of any breach of any bylaw that may have existed under the Building Code, O. Reg. 332/12 relating to vibration levels caused by either of the earlier Metropolis construction project, or the Murray Demolition, or any complaints being registered in relation to either of those projects in relation to any of the other neighbouring buildings.
[66] The limitations in Mr. Zucchi’s opinion are understandable given that in his initial investigation his task was to assess the feasible options on what to do with the Building for Lalani (in part in response to the City’s requirements), and then later to respond to the merits of the causal factors identified by Giffin Koerth.
[67] Mr. Zucchi’s evidence did not persuade me that a proximate cause of the wall collapse was unspecified vibrations allegedly emanating from the Metropolis construction project and/or the Murray Demolition or that a proximate cause fell within the initial grant of coverage as a fortuitous event.
Chris Borgal – Lalani’s Heritage Architect Expert
[68] Mr. Borgal also testified on behalf of Lalani. He was qualified as an expert in heritage architecture. Lalani hired Mr. Borgal in response to the City’s requirements and the stated intention to designate the Building as a heritage building, as well as to provide a heritage assessment of the Building. On July 27, 2010, the City Clerk issued a public notice of the City’s intention to designate the Building as a heritage building under Part IV of the Ontario Heritage Act, R.S.O. 1990, c. O.18. The Building was eventually designated as a heritage property on September 28, 2010. This development meant that Lalani’s initial plan to demolish the building and rebuild, as per Mr. Zucchi’s recommendation, was no longer certain.
[69] Mr. Borgal attended on site on April 23, 2010 and provided an initial assessment to Lalani. His initial impression was that there could have been more than one cause that led to the wall collapse, however, he expressed no opinion at that time as to any of the possible proximate causes of the wall collapse. Rather, his role was to provide an opinion as to whether the Building could be restored and preserved from the perspective of a heritage architect. His conclusion was that the Building could be preserved.
[70] Mr. Borgal wrote a report dated September 16, 2010 setting out his preliminary views to MMM and Mr. Zucchi. At the time of writing the report, Mr. Borgal confirmed that he did not know the cause or causes of the collapse. He explained that the damage seemed to be localized to the specific area of the collapse thus justifying his view that this building could be preserved and the wall re-built.
[71] Mr. Borgal explained that the function of clip bonds used in the construction of the collapsed wall is to enhance the ability of the bricks to hold the upper loads of the brick wall. If some of the clip bonds snap, then that weakens the structure putting more pressure on the remaining clip bonds. That weakening and resultant pressure can then cause more clip bonds to snap further weakening the brick wall system and so on until the remaining clip bonds can no longer support the brick wall causing the sudden collapse. With the progressive snapping of the clip bonds, the double thickness wythes, or pilasters, are unable to hold the wall up.
[72] He described the onset of the snapping process and bowing of the pilasters as very slow and unseen until the critical point was reached resulting in a very sudden and quick collapse.
[73] Mr. Borgal explained that the clip bond system was inherently weaker than the alternative running bond system that was used in the more recently constructed parts of the Building. He confirmed that the clip bond system was used at the time in order to enhance the aesthetics of the outer brick wall by inserting the clips on the interior of the wall, unseen by the public.
[74] Mr. Borgal testified that in 1915 the City banned the use of clip bonds as a structural support for brick walls. However, he observed that the clip bonds in this building had successfully supported the wall for 40 years up to the time of the wall collapse. This suggested to him that some external event must have intervened to precipitate the progressive snapping of the clip bonds that were located in the portion of the wall that collapsed.
[75] He also testified that he was aware, from his own experience, of other buildings that used the clip bond system and were still standing. Under cross examination, he also agreed that the clip bond system had been known to fail as well in Toronto and throughout North America.
[76] He identified at the time of writing his report the future need to determine the cause of the clip bond failure in order to determine options for preservation of this heritage building with a view to rebuilding the wall.
[77] At the time of writing his report, Mr. Borgal considered the possibility that the Murray Demolition could have caused the damage to the clip bonds and resulting wall collapse from vibrations. He testified that the wall collapse could have been caused by low level vibrations occurring over a long period of time. However, under cross examination, Mr. Borgal confirmed that he did not form an opinion as to any of the potential causes of the wall collapse.
Terrence Holder – Intact’s Engineer Expert
[78] Mr. Holder testified as Intact’s participant expert. He conducted the investigation into the wall collapse at the time of the collapse and provided the opinion that the likely causes of the wall collapse were multifold and were all excluded perils under the insurance policy, as set out in his report dated June 7, 2010. As stated, Intact based its denial on Mr. Holder’s opinion provided in the course of performing his investigation for coverage purposes.
[79] Mr. Holder was qualified as an expert in the field of forensic civil engineering. He has experience in masonry structural investigation including deterioration in concrete. He was also a fact witness and participant expert.
[80] In a nutshell, Mr. Holder’s opinion was that the wall collapse was likely caused by ongoing wear and tear or deterioration of the brick-and-mortar construction; namely, by water ingress into the cracks of the mortar over the years caused by a thawing and freezing cycle. In addition, he testified that the structural changes made to the building in the course of the 1974 to 1975 renovations was a contributory factor.
[81] Mr. Holder confirmed that he did not consider the possibility that vibrations from the two nearby construction projects, may have caused or contributed to the wall collapse at the time of his investigation. He noted that there was no wind or weather elements that could have caused or contributed to the wall collapse, however.
[82] Mr. Holder used photographs to illustrate some of his findings. He testified that he observed over the course of his five attendances at the building, including on the day of the wall collapse itself, visible indicators of structural deterioration in the brick-and-mortar work in around the Building. Some examples that he observed were evidence of repair to the mortar of the bricks, separation of the sealant between window frames and the masonry structure and pitted (small holes) bricks all of which are signs of pre-existing deterioration. He testified that deterioration in the form of cracks, spalled bricks and mortar joints, efflorescence, bowing and bulging of the pilasters on either side of the collapsed wall, and step shear cracks in the masonry parapet wall above the collapsed wall were contributing facts. He defined efflorescence as a white substance that appears on the bricks and is caused when the wall is diffusing moisture.
[83] The essence of Mr. Holder’s testimony was that as the result of water seeping into the bricks and mortar and through the broken sealant adhesive around the windows down into the bricks, the water would freeze and then thaw causing larger and larger cracks to occur over the course of years which weakens the structure. The weakening process reached a critical state causing the wall to collapse suddenly.
[84] Mr. Holder concluded that it was the ongoing deterioration of the Building caused by a cycle of freezing and thawing in the mortar that caused the masonry brick wall to collapse. He also found that structural changes that were conducted on the main floor level in the 1973/1974 renovations contributed to the collapse. He testified that the presence of signs affixed to the exterior of this part of the Building likely hid the ongoing wall movement until the collapse occurred.
[85] Under cross examination, Mr. Holder admitted that he did not know that there was a clip bond system in the area of the wall collapse. Accordingly his observation that there appeared to be no brick header ties (which was the system used in the newer part of the Building) which suggested no ties were in place was in error. Mr. Holder confirmed under cross examination that one of the possible causes of the wall collapse was the 1973/1974 renovations that resulted in structural changes on the main floor. However no evidence as to whether and, if so, how the renovations were negligent.
[86] Mr. Holder also conceded that one of the causes he identified, namely the installation of HVAC units on the roof, was not a likely cause of the wall collapse.
[87] Mr. Holder maintained his opinion that the likely causes of the wall collapse had to do with the structural changes that were conducted on the main floor in 1973/74 coupled with the ongoing deterioration caused the masonry brick wall to collapse, however. He did not accept that vibrations from the Metropolis project or the Murray Demolition was a likely cause.
Conclusion
[88] While Lalani raised vibrations caused by the Metropolis project and the Murray Demolition as a proximate cause of the wall collapse, in my view they have failed to prove this theory. Mr. Zucchi did not identify vibrations as a likely proximate cause until under cross examination. In his written opinion he only identified vibrations as a possible proximate cause and criticized Mr. Holder for not investigating it. In any event, Mr. Zucchi did not provide a substantive analysis justifying his theory. He did not provide any data regarding the level and/or duration of vibration that would be required to cause this wall to collapse suddenly. He did not know of any complaints or violations in relation to neighbouring buildings regarding the level and/or duration of vibrations from either of these projects, including from Lalani. His theory was entirely speculative. Mr. Borgal similarly did not provide an opinion as to the likely proximate cause of the wall collapse.
[89] While some weaknesses in Mr. Holder’s opinion were exposed, his conclusions were supported by his observations at the scene of the wall collapse. In his testimony he did not agree that vibrations were a proximate cause of the wall collapse.
[90] The evidence to the effect that the renovations likely contributed to the wall collapse also does not assist the insured. There was no evidence of negligence with respect to any aspect of the renovations and Lalani did not press this theory in its closing arguments. Mr. Zucchi did not opine that the renovations were a proximate cause of the wall collapse.
[91] The initial burden of proof is on Lalani to demonstrate that a proximate cause of the wall collapse falls within the initial grant of coverage. To do so, Lalani had to prove that a proximate cause was a fortuitous event, which in turn, required Lalani to establish what proximate cause it was relying on. Lalani maintained that it was vibrations from the nearby construction projects that caused, or were a proximate cause of, the wall collapse.
[92] The threshold on Lalani was low.
[93] However, I was not persuaded by Mr. Zucchi’s last-minute statement that a proximate cause of the wall collapse was likely the vibrations caused by the Metropolis project and/or the Murray Demolition. Mr. Zucchi’s opinion in this respect was unreliable, as it was not supported by any objective evidence, and he did not express this opinion in either of his reports.
[94] Similarly, Mr. Borgal’s evidence did not assist Lalani as he formed no opinion as to the proximate cause(s) of the wall collapse.
[95] Finally, Mr. Holder did not concede in cross examination that a proximate cause of the wall collapse was likely these vibrations.
[96] Lalani have not persuaded me on a balance of probabilities that a proximate cause of the wall collapse was a fortuitous event. While vibrations arising from the two nearby construction projects would have constituted a fortuitous event, I was not persuaded on the evidence that vibrations were, in fact, a proximate cause of the wall collapse. The evidence offered by Lalani was woefully inadequate for the reasons stated.
[97] Therefore, the claims with respect to coverage under the Policy relating to the wall collapse are dismissed.
[98] In the alternative, in the event that the wall collapse was a fortuitous event, I accept Mr. Holder’s opinion that the wall collapse was caused by an excluded peril; namely the spalling of mortar caused by the freeze and thaw cycle he described. As such, these events are captured by sections (c)(i) and (c)(ii) under Part B – Excluded Perils.
[99] In the event that Lalani did prove that a proximate cause of the wall collapse was the vibrations from the two nearby construction projects (and I do not make that finding), then the vibrations are not an excluded peril under the Policy. Under the aforementioned sections (c)(i) and (c)(ii) there is an exception to these exclusions; namely, these perils are excluded “unless concurrently and directly caused by a peril not otherwise excluded in this form”.
FIRE LOSS CLAIM
[100] The issues surrounding the fire loss claim and destruction of the Building on January 3, 2011, are entirely different from the wall collapse.
[101] There is no dispute that the fire was a fortuitous incident. It was not foreseeable, not caused by the insured, and not a natural result of wear and tear, deterioration or related processes, a latent defect or the inherent nature of the property. It was the work of an arsonist who was convicted of setting the fire and confessed to this crime in October 2012.
[102] The parties agree that the fire itself was a covered peril under the 2010-2011 Renewal Policy, subject to any other exclusions that might apply.
[103] The main issues are whether the purported amendments to the Renewal Policy are legally enforceable having regard to s. 124 of the Insurance Act, or alternatively whether or not Intact is estopped from relying on the vacancy exclusion contained in the Renewal Policy.
[104] Intact states that the vacancy exclusion was in effect, as evident from the face of the Renewal Policy. As the Building was vacant within the meaning of the Renewal Policy as at the date of the fire, there is no coverage. Intact further submits says that the Renewal Policy was amended to increase coverage with respect to what was, in effect, an uninsured vacant building, by adding a Vacancy Permit endorsement. Furthermore, Intact states that, in any event, Lalani consented to at least the Vacancy Permit in writing as evidenced by initials placed on that endorsement.
[105] While Lalani acknowledges that the unamended Renewal Policy contained a vacancy exclusion, it claims that Intact is estopped from relying on the vacancy exclusion clause due to its conduct and words. Furthermore, Lalani submits that it did not consent in writing to the purported amendments to the Renewal Policy, and therefore the purported amendments are void pursuant to s. 124 of the Insurance Act.
[106] I will first examine the s. 124 Insurance Act argument, and then the estoppel argument.
Did Lalani Consent to the Purported Amendments to the Renewal Policy?
[107] The purported amendments to the Renewal Policy at issue were added by Intact to the Renewal Policy for the period from November 2, 2010 to June 17, 2011 (part way through the Renewal Policy term). The Vacancy Permit , which was one of these amendments, stated that it modified the insurance provided under the Renewal Policy by granting an exception to the vacancy exclusion for the period from November 1, 2010 to January 4, 2010 (sic) and removing coverage for certain covered risks or perils including, notably, vandalism and malicious acts. The Vacancy Permit also placed certain conditions on Lalani in order to maintain this permit such as providing daily supervision and care of the Building while in its vacant state. The purported amendments to the Renewal Policy also included adding a Wreckage Value Endorsement greatly reducing the amount recoverable in the case of damage to the Building from the Replacement Cost calculated on the Actual Cash Value basis stipulated under the Renewal Policy and changed the form of insurance from all perils to a named perils policy (collectively, these changes are referred to as the “amended Renewal Policy”).
[108] Lalani denies that it provided its signed consent to the purported amendments to the Renewal Policy, including the Vacancy Permit allegedly affirming the vacancy exclusion reflected in the unamended Renewal Policy or otherwise changing the terms of the Renewal Policy.
[109] Lalani relies on s. 124 of the Insurance Act:
124(1) All the terms and conditions of the contract of insurance shall be set out in full in the policy or by writing securely attached to it when issued, and, unless so set out, no term of the contract or condition, stipulation, warranty or proviso modifying or impairing its effect is valid or admissible in evidence to the prejudice of the insured or beneficiary.
Exception
(2) Subsection (1) does not apply to an alteration or modification of the contract agreed upon in writing by the insurer and the insured after the issue of the policy.
The Sheraton Hotel Meeting
[110] A meeting was proposed to be held between the CG&B and Lalani.
[111] Noori Lalani and Mark Sampson (who was the only witness called by CG&B) each testified in detail about this meeting. Their evidence was largely consistent.
[112] This meeting occurred on December 10, 2010, in the Sheraton Hotel lobby. At this meeting were representatives of Lalani; namely, Noori, Al Lalani Sr., and later in the meeting, Al Lalani Jr., Ms. Mitchell (formerly of D.M. Edwards) and Mark Sampson attended on behalf of CG&B Insurance. D.M. Edwards had merged with CG&B and one of the purposes of this meeting was to introduce Lalani to CG&B and to be assured that Ms. Mitchell would continue to serve as Lalani’s broker at the new brokerage. The other purpose was to discuss the terms of the Vacancy Permit and other changes in coverage imposed by Intact as CG&B wanted to ensure that Lalani understood the conditions attached to the Vacancy Permit in particular.
[113] Intact was not informed of this meeting, did not request this meeting, and no one from Intact attended at this meeting.
[114] In preparation for this meeting, Ms. Mitchell sent Lalani an email dated November 10, 2010 advising of the merge between D.M. Edwards and CG&B Insurance. The email also asked Lalani to confirm that certain items, all of which were required by the Vacancy Permit in the amended Renewal Policy, were being attended to at the Building. She also asked for a copy of the Proof of Loss that Lalani filed with Intact.
[115] With that email, Ms. Mitchell sent Lalani the purported amendments, including the Vacancy Permit endorsement, Named Perils form, and the Wreckage Value endorsement, and advised that Intact was cancelling the Renewal Policy and had sent a cancellation notice providing 60 days’ notice.
[116] At the Sheraton Hotel meeting Ms. Mitchell and Mr. Sampson informed Lalani of the changes imposed by Intact to the Renewal Policy, and the need to find new replacement insurance. The particular focus of the discussion was the Vacancy Permit. Noori agreed that he told Ms. Mitchell and Mr. Sampson at this meeting that he would fulfil the conditions under the Vacancy Permit and understood it.
[117] At this meeting, the Broker presented the Vacancy Permit endorsement added by Intact to the amended Renewal Policy. Under Items 4 of that endorsement, entitled “Locked and Clean Premises Warranty”, Noori handwrote some notes essentially verifying that these conditions were being met.
[118] Much was made at trial about the significance of Noori having added his initials beside the last sentence of the Vacancy Permit endorsement. This sentence read “Except as otherwise provided in this endorsement all terms and conditions of the Policy remain unchanged.” Intact submits that these initials reflected Lalani’s consent to this amendment of the Renewal Policy and this is sufficient for purposes of s. 124 of the Insurance Act. Noori testified that this initialed document meant nothing more than Lalani’s acknowledgment that Intact had in fact unilaterally amended the Renewal Policy, and that his initials did not reflect Lalani’s consent to that amendment. Mr. Sampson testified that, based on his attendance at this meeting, it was also his understanding that Noori’s initials merely meant that Lalani understood the conditions and would abide by them – not that Lalani had consented to the imposition of these terms.
[119] Mr. Sampson testified that Intact had already unilaterally changed the Renewal Policy before this meeting, and the point of the meeting was, in part, to explain these changes.
[120] Furthermore, Mr. Sampson testified that Intact had decided to enforce the vacancy exclusion and that, as there was no coverage for the Building, Intact was adding covering through the Vacancy Permit. The reason why CG&B wanted Noori to initial the Vacancy Permit was for their internal records to show that Lalani understood what they had been told at this meeting. This latter point was confirmed in minutes of this meeting dated December 14, 2010 prepared by Ms. Mitchell.
[121] Neither of these witnesses were shaken on cross examination on this point.
[122] Following this meeting, Ms. Mitchell prepared minutes of the meeting dated December 14, 2010. It reiterated that the purpose of the meeting was to assure Lalani that the new merged Brokerage would look after its interests, and to, among other things, review the “current policy warranties and Vacancy Permit and had the insured initial that he understood the conditions and that those conditions were met”. A copy of the initialed Vacancy Permit endorsement was filed internally with CG&B and not provided to Intact. This fact supports the evidence of Noori and Mr. Sampson.
[123] Intact called Edmund Staines as its only fact witness on the insurance coverage issues at trial. Mr. Staines commenced employment with Intact in late May 2006 as a commercial lines underwriter in the Toronto Region. In August or September of 2010, he became the manager of commercial lines underwriting. In that capacity he became involved with the Lalani insurance affairs. Mr. Staines is now the vice president at another insurance company overseeing commercial insurance. He testified that he spent the bulk of his career in underwriting.
[124] Mr. Staines was extensively cross examined on the meaning of Noori’s initials on the Vacancy Permit endorsement and Intact’s position that it had the right to enforce the vacancy exclusion as at the date of renewal. Mr. Staines offered no evidence to support Intact’s position that it relied on the initialed Vacancy Permit as consent in writing
[125] First, Mr. Staines admitted that Intact made the unilateral decision to amend the Renewal Policy so as to add the Vacancy Permit. In his view, Intact did not require consent of Lalani because they were increasing coverage, not reducing it, given the vacant state of the building and the applicability of the vacancy exclusion.
[126] Second, Mr. Staines agreed that Intact did not request, nor receive, a copy of the initialed Vacancy Permit, again because Intact did not need it. Intact did not know of this document until through the course of this litigation.
[127] Third, he acknowledged that the coverage limit for the Building under the amended Renewal Policy (under the Wreckage Value endorsement) was still five million dollars, which was the replacement value under the unamended Renewal Policy but that he thought this was done in error on Intact’s part and the limit should have been reduced. In any event, this limit was not that relevant in his view because the wreckage value of the Building was far less in any event.
[128] Fourth, Mr. Staines acknowledged that the amended Renewal Policy resulted in other changes such as removing the coverage for vandalism and malicious acts, but that in his view they were commensurate with a vacant building.
[129] Mr. Staines agreed that the purported amendments to the Renewal Policy were all unilateral changes made by Intact, without first obtaining Lalani’s consent. He agreed that aside from the Vacancy Permit, the amendments resulted in a replacement of the Actual Cost Value to a much reduced wreckage value, various extensions of coverage were also removed even though they were separately paid for by Lalani and did not have to be changed as a result of the Building being vacant. Similarly changing the nature of the Renewal Policy from an all perils Broad form to a Named Perils form was not necessitated by the vacant nature of the Building but did narrow Lalani’s coverage. In other words, some of the changes to the Renewal Policy imposed by Intact were not a necessary consequence of a vacant building.
[130] Mr. Staines also confirmed that, with respect to all of the amendments it made to the Renewal Policy, effective November 2, 2010, it did not require Lalani’s consent to those changes, nor did Intact need anything from Lalani with respect to the Vacancy Permit it issued under the amended Renewal Policy.
[131] In the read-ins from the examination for discovery of the late Sharon Mitchell, Ms. Mitchell confirmed that the Building had been vacant for more than 30 days since the wall collapse, and that Intact unilaterally amended the Renewal Policy in the manner previously discussed. She assumed, at the time of the amended Renewal Policy, that Intact had the right to do this without consent of the insured, Lalani.
[132] Ms. Mitchell also confirmed at her examination for discovery that the significance of Noori’s initials at the bottom of the Vacancy Permit endorsement, from her perspective having been present at the meeting, was only to show that he understood the four conditions that were attached to that endorsement.
[133] Mr. Staines was in a difficult position because he was not at the Sheraton Hotel meeting and was not privy to the discussions or communications relating to the significance of Noori’s initials to the Vacancy Permit Endorsement.
[134] I favour the evidence of each of Noori and Mark Sampson over that of Mr. Staines on this issue, and find that Lalani did not, by virtue of initialing the Vacancy Permit, consent in writing to any of the purported amendments to the Renewal Policy.
[135] Intact’s attempt to rely on Noori’s initialed Vacancy Permit endorsement, presented to him by CG&B at the Sheraton Hotel meeting, but not required or requested by Intact, is a poor attempt to construct consent after the fact. Simply put, Intact took the position at the time of the amended Renewal Policy that it did not require Lalani’s consent and accordingly did not seek it. The evidence is consistent from all of the witnesses that Intact unilaterally made these changes to the Renewal Policy.
[136] Even if Noori’s initials on the Vacancy Permit were evidence of Lalani’s consent to amending the policy in this one respect in fact, and they are not, the amended Renewal Policy as a whole reflected a fundamental change to the property insurance and was not consented to in writing by Lalani, beyond what was stipulated in the Vacancy Permit. For example, the reduced Wreckage Value coverage is not apparent on the face of the Vacancy Permit Endorsement, nor is the purported change from a Broad form to a Named Perils form. Rather, the Vacancy Permit ends with a notation that “[e]xcept as otherwise provided in this endorsement all terms and conditions of the Policy remain unchanged” when in fact that was not true. Accordingly, even if the initialed Vacancy Permit was a consent in fact by Lalani to the limited coverage and conditions for coverage of the vacant Building effective November 1, 2010 to January 4, 2011, it was not an informed consent and therefore not a valid consent in law.
[137] Overall, I find that the amendments to the Renewal Policy were unilaterally imposed by Intact and were not agreed to in writing by the insured, Lalani. This includes the Vacancy Permit endorsement initialed by Noori. As such, the purported amendments to the Renewal Policy violate s. 124 of the Insurance Act and as a consequence are of no force or effect. This means that the malicious acts exclusion, wreckage endorsement, and Vacancy Permit endorsement cannot be relied upon by Intact, since those purported amendments are not valid at law.
[138] This leaves Lalani with the terms of the unamended Renewal Policy
Estoppel by Representation
[139] As stated, Lalani’s insurance policy with Intact was renewed for the period from June 17, 2010 to June 17, 2011. It was an all perils policy with the Commercial Edge coverage substantially the same in material respects to the coverage under the Policy. Of particular relevance, the Renewal Policy contained an exclusion relating to the Building being vacant, on the same terms as the prior Policy.
[140] The vacancy exclusion provision under the Renewal Policy stated:
A. EXCLUDED PROPERTY
This form does not insure loss of or damage to:
(b) property at locations which, to the knowledge of the Insured, are vacant, unoccupied or shut down for more than 30 consecutive days;
[141] The evidence on behalf of Lalani was that as at the date of renewal, June 17, 2010, the Building had already been vacant for more than 30 consecutive days as a result of the wall collapse, and that Intact was well aware of this. Notwithstanding that circumstance, the policy was renewed with the inclusion of the standard vacancy exclusion. Lalani understood that Intact did not intend to rely on that exclusion as that scenario would have meant that Lalani was effectively paying a premium for coverage for the Building that was already the subject of an excluded peril. This made no sense to Lalani, particularly given its longstanding relationship with Intact.
[142] Intact disagrees. Intact says that it had been in a holding pattern since the wall collapse to hear whether the Building was to be repaired or demolished. If demolished, then the insurance issue would have become moot. When it became clear to Intact that no decision from the City was forthcoming any time soon, it determined that the risk of insuring a damaged building was too great, and issued a notice of cancellation. However, in order to help out Lalani in the interim, it decided to extend limited coverage by way of the Vacancy Permit together with the other amendments to the Renewal Policy that were added as a consequence of the Building being vacant. It also relies on the fact that Noori initialed a copy of the Vacancy Permit at a meeting held with Lalani’s brokers, CG&B, as proof that Lalani knew that it was relying on the vacancy exclusion.
Legal Test
[143] In order to establish estoppel by representation, Lalani must prove the following elements:
(a) Intact made a positive representation to Lalani that it was insuring a vacant property at the time of renewal and therefore would not assert any vacancy exclusion;
(b) Intact made this representation with the intention that Lalani would act on it;
(c) Lalani acted on the representation, and it would be inequitable to allow Intact to either resile from the representation or act in a manner that is inconsistent with that representation. (see Trial Lawyers `v. Royal & Sun Alliance Insurance Company of Canada, 2021 SCC 47, 463 D.L.R. (4th) 477, at para. 15).
[144] Under the doctrine of estoppel by representation, a positive representation can be made by words or conduct (Fram Elgin Mills 90 Inc. v. Romandale Farms Limited, 2021 ONCA 201, 32 R.P.R. (6th) 1, at para. 134).
[145] However, the representation, be it by words or conduct, must have been a “clear and unequivocal” or “unambiguous” assurance that the vacancy exclusion would not be relied upon by Intact (Trial Lawyers, at para. 46).
[146] In Trial Lawyers, the Supreme Court of Canada, at para. 16, stated that in the insurance context, in order to establish estoppel, the insured must show that the insurer is estopped from changing its denial of coverage position based on its prior words or conduct. While the Supreme Court resolved that case on the principles of promissory estoppel (because that is the way it had been argued), it noted that the same result would have followed upon application of the principles of estoppel by representation under similar reasoning. Importantly, the Supreme Court held, at para. 17, that estoppel by representation “prevents a promisor from denying the truth of a prior representation”. Furthermore, at para. 15, the insured must have relied on the representation to its detriment.
[147] In Mah v. Wawanesa Mutual Insurance Co., 2013 ABCA 363, 561 A.R. 256, the Alberta Court of Appeal found that the insurer had actual knowledge of the fact that the insured’s house was vacant and therefore under an increased risk as a result of receiving a copy of the public health inspector’s report which had declared the home unfit for habitation. The fire insurance policy contained a condition imposing a positive obligation on the insured to report any change that was material to risk. The insurer denied coverage on the basis that the insured had not notified it of the vacant state of the house, and that in turn was material to the risk under the policy. The court of appeal held that as the insurer already had actual notice of this change, albeit from a different source than the insured, and continued insuring the vacant house, it could not rely on this policy statutory condition and held that there was coverage for this property.
[148] In this analysis, the decision of Reid v. Prince Edward Island Mutual Fire Insurance Co. (1968), 1968 CanLII 1382 (PE SCTD), 66 D.L.R. (2d) 727 (P.E.I. S.C.), is also instructive. In that case the insured’s barn burned down. The insurance policy had been extended for successive three-year periods by renewal. The insured premises was vacant which gave rise to the insured’s obligation to report the vacancy to the insurer. However, at the time of renewal, the agent of the insurer was aware of the vacancy and renewed the policy notwithstanding that knowledge. The court concluded at p. 2:
It is therefore obvious that the appellant [insurer] renewed the policy in the full knowledge of conditions then prevailing (and since unchanged) as to the occupancy or use of the premises. The renewal by the appellant was a representation on which the respondent was intended to rely and on which he did rely. In that reliance he acted to his own detriment by paying the renewal premium and considering the policy to remain in force. The doctrine of estoppel now precludes the appellant from asserting that the policy was not duly renewed on the basis of the existing occupancy and use.
[149] The following chronology of events surrounding the renewal and subsequent purported amendment of the Renewal Policy is instructive and based on largely uncontested evidence and the agreed statement of facts:
(a) The policy in place during the wall collapse, from June 19, 2009 to June 17, 2010 included a standard vacancy exclusion;
(b) On April 16, 2010 a portion of the Building’s wall collapsed;
(c) Tenants were vacated from the Building as a result of the wall collapse and never returned;
(d) On or about June 17, 2010, the Renewal Policy was issued and took effect for one year from June 17, 2010 to June 17, 2011;
(e) The Renewal Policy contained the same coverage and exclusions as the Policy, including the same vacancy exclusion.
(f) At the end of October, 2010, Intact became aware that the Building was being ordered to be shored up by the City, meaning that it was possible that the City would not issue a permit for demolition. Intact characterized this development as an enhanced insurance risk and notified Sharon Mitchell who was Lalani’s long time broker;
(g) In or around November 2, 2010, Intact issued a Commercial Edge Accel+ Endorsement to the Renewal Policy that purported to significantly change the coverage to Lalani’s detriment, for the balance of the Renewal Policy period ending June 17, 2017. That document included the addition of a Vacancy Permit endorsement for the period from November 1, 2010 to January 4, 2010 [sic] (the parties agree the end date was January 4, 2011) and a Wreckage Value endorsement;
(h) Notice of cancellation of the Renewal Policy was issued by Intact providing 60 days’ notice with the effective termination date of January 7, 2011.
(i) On December 10, 2010, the meeting at the Sheraton Hotel took place between representatives of Lalani and CG&B;
(j) At that meeting, the Vacancy Permit endorsement from the amended Renewal Policy was reviewed with Lalani and it was initialed by Noori Lalani;
(k) The fire occurred on January 3, 2011;
(l) The next meeting with the City to discuss the future of the Building had been scheduled for January 10, 2011, but it never occurred due to the fire.
[150] Intact did not call Seray Zurnacioglu as a witness. Ms. Zurnacioglu was the underwriter in charge of the Lalani file at the material times from before the wall collapse and beyond the date of the fire. Much of the direct communication between Intact and Lalani occurred between Intact’s underwriter, Ms. Zurnacioglu, and Lalani’s broker, the late Sharon Mitchell of CG&B.
[151] Instead, Mr. Staines provided evidence on behalf of Intact regarding this issue. Mr. Staines’ testimony, in his examination in chief, was that based on his review of the underwriting file, and his general knowledge of Intact’s procedures and practices, Intact did not waive reliance on the vacancy exclusion clause found in the Renewal Policy. Furthermore, he was not aware of an expression from Lalani’s broker that Lalani believed that the vacancy exclusion had been waived – at least nothing of that nature was documented in the file.
[152] According to Mr. Staines, the Building would not have been insured as at the date of the fire because it had already been vacant which he defined as being unoccupied for at least 30 consecutive days.
[153] Mr. Staines referred to an email chain between Seray Zurnacioglu and Sharon Mitchell, commencing October 14, 2010, and testified that based on that email chain Intact was only temporarily accommodating the risk with respect to the vacancy situation while Lalani determined, with the City, whether the Building would be demolished or repaired (this latter matter never resolved as the fire intervened). In that email chain, Ms. Zurnacioglu stated that if this issue was not resolved by January 1, 2011, then Intact would need to address the ongoing vacancy by means of a Vacancy Permit and restriction of certain coverages, and possibly moving this file to the special niche department. The latter would require a separate risk assessment and higher premiums if the risk was accepted.
[154] Intact’s understanding, according to Mr. Staines, was that up to this point in time, Lalani’s intention was to demolish the Building. Had the Building been demolished, then that would have been the end of the current dilemma regarding risk assessment, from Intact’s perspective.
[155] Later in October, however, Ms. Zurnacioglu was advised by Ms. Mitchell that the City was requiring Lalani to shore up the Building. According to Mr. Staines, this was Intact’s first notice that the Building was not going to be demolished any time soon, if at all. As a result of this development, Intact determined that it would have to get off risk entirely given the ongoing hazardous status of the vacant Building.
[156] Intact then amended the Renewal Policy through the issuance of various endorsements which were effective November 2, 2010 (save for the Vacancy Permit which was effective November 1, 2010). According to Mr. Staines, Intact believed it could do this unilaterally since under the Renewal Policy there was effectively no coverage for the Building in any event, pursuant to the vacancy exclusion. Therefore, it was in fact increasing coverage where none otherwise existed, obviating the need for written consent by Lalani.
[157] The material amendments were that the coverage to the Building was reduced to a wreckage value meaning the cost of the building materials only (and conditional on the insured rebuilding within 12 months of the loss or damage) and many of the extensions of coverage were removed (such as water damage, theft, and flood/quake/sewer extensions). It also contained the Vacancy Permit extending limited coverage to the Building, notwithstanding its vacant state, from November 1, 2010 to January 4, 2011, and added a malicious acts and vandalism exclusion.
[158] It will be recalled that the fire occurred on January 3, 2011.
[159] According to Mr. Staines, the Vacancy Permit was an accommodation to Lalani given the fact it was a long-time client and because of the knowledge that Lalani would have a very hard time trying to secure coverage elsewhere for the Building in its current (vacant and damaged) state. Intact’s own niche department ultimately declined to make any offer to insure this Building, despite Ms. Zurnacioglu’s efforts.
[160] At the same time, Intact issued a 60-day notice of cancellation of the amended Renewal Policy effective January 7, 2011. While there is a dispute as to whether or not the notice of cancellation (and prorated refund of the annual premium) was actually properly delivered to Lalani (the street address on the envelope had a typographical error), this is of no particular import to my analysis in light of the intervening fire.
[161] According to Noori, when Intact presented its Renewal Policy for June 17, 2010, it increased the property coverage limit for the Building from over four million dollars to five million dollars as the replacement cost and increased the premium from $5,100 to $8,070 a month
[162] At Ms. Mitchell’s suggestion, the limit of personal injury liability was increased to ten million dollars.
[163] Noori testified that during the course of the renewal discussions, no issues were ever raised by Intact, to his knowledge, regarding the vacant nature of the Building as it existed in the weeks leading up to, or as at, June 17, 2010.
[164] Ms. Mitchell then advised Noori on or about October 28, 2010 that Intact was going to replace the “replacement value” coverage of the building with a “wreckage value” endorsement. Also, Noori was informed by Ms. Mitchell that Intact intends to terminate the renewal policy in 60 days and will institute a Vacancy Permit.
[165] In an email dated October 29, 2010, Ms. Mitchell explained to Noori that the Renewal Policy was only intended to provide coverage for a tenant occupied building and that now that the Building is not occupied, Intact had reclassified the Building and its risk. Noori testified that this was the first time since the wall collapse that Intact raised a risk issue concerning the vacant state of the Building.
[166] Noori agreed that by email dated November 10, 2010, Ms. Mitchell advised Lalani that Intact had amended the Renewal Policy by switching it from a Broad form (all perils) to a Named Perils form of coverage. Noori’s understanding was that this meant that the only claims subject to coverage are those which are specified. Intact also has amended the Renewal Policy by, among other items, adding a wreckage value endorsement and a Vacancy Permit endorsement. Lalani also learned from Ms. Mitchell that Intact has provided 60 days’ notice of intention to terminate the Renewal Policy and provided a refund cheque for part of the premium and that same has been mailed to Lalani.
[167] Noori and Al Jr. testified that there was to have been a further meeting with the City on January 10, 2011, at which Lalani expected to receive the City’s directions regarding the Building. However, the fire intervened. Noori agreed under cross examination that Lalani had not authorized any shoring or other repairs from at least September 2010 to the date of the fire and that the Building therefore remained vacant and in a damaged condition.
[168] Under cross examination, Noori also admitted that he was aware of the vacancy exclusion in the Renewal Policy. However, because the property damage limit was maintained at five million dollars on a replacement cost basis, he didn’t appreciate the change in valuation. He confirmed that he told Ms. Mitchell that he wanted the liability coverage increased to ten million dollars because of the increased risk for personal injury caused by the Building in its vacant and damaged state.
[169] It was Noori’s view that as Lalani had paid the full premium for the full Renewal Policy year, therefore, Lalani still had the full Building coverage under the Renewal Policy. He also did not know that Intact could apparently unilaterally change terms of the Renewal Policy midterm and was frustrated to learn this from Ms. Mitchell. He believed that the Building continued to have full coverage under the terms of the Renewal Policy in the sum of $5,000,000.
[170] Noori was also aware from Ms. Mitchell that the Vacancy Permit meant that the vacant Building would still receive coverage so long as its conditions were fulfilled.
[171] Noori testified that the only alternative insurance option he was presented with by Ms. Mitchell was by Totten Group. However, he rejected the Totten Group offer to insure as it was too expensive. Totten Group offered to insure for six months, with five million dollars in coverage for the property, and a premium of $21,600 and a $50,000 deductible.
[172] In cross examination, Mr. Staines admitted that Intact knew at the time of the renewal on June 17, 2010 that the Building had been vacant within the meaning of the Renewal Policy. However, he resisted the suggestion that this meant that Lalani was paying a premium but receiving no coverage. He maintained that Lalani got the coverage they paid for.
[173] When confronted with his examination for discovery, however, Mr. Staines agreed that as the property was vacant for more than 30 consecutive days when Lalani paid its annual premium at the time of renewal, there was effectively no coverage for the Building until the Vacancy Permit was granted.
[174] Mr. Staines testified that as at the time of renewal Intact knew “it had been boarded up and that the – those retail and restaurant tenants were not operating, they were shut down, yes, Intact knew that. Was it unoccupied for more than 30 consecutive days, I – I’m under the impression that there were a number of different visitors, whether it be engineers and so forth that may have visited, may have occupied the premises for a day or two at a time to do some work or do some assessments, is my understanding.”
[175] However, Mr. Staines acknowledged that in the Agreed Statement of Facts, Intact agreed that the property had been “vacant” since the wall collapse on April, 16, 2010, at the time of the renewal of the policy. Even then, Mr. Staines tried to distinguish between “vacant” and being “unoccupied” for over 30 consecutive days. He also tried to distinguish this agreed fact by saying that the Building had been vacant but only by the “renting businesses”.
[176] After being confronted with his examination for discovery in which Mr. Staines deposed that Intact had known that the Building had been “vacant since April 16, 2010” to which he replied “yes”, the following exchange occurred:
Q: Okay. We’ll go through it again, Mr. Staines, because I want to make sure we’re clear on this. The question I asked is, “Okay. And you knew that the building had been vacant since April 16, 2010?
A.: Yes.” . –
Mr. Staines agreed and stated that was correct. Then Mr. Love continued:
Q: So, the building, at the time of renewal, had been vacant since April 16, 2010, within the meaning of the insurance policy?
A: Yes.
Q: Thank you. And that would mean then, sir, that at the time of the renewal on June 17th, 2010, if the vacancy clause was effective, there would be no property coverage, correct?
A: Correct.
[177] Frequently in cross examination Mr. Staines backtracked on his answer that the Building, as a vacant property, had no coverage from the date of renewal until the Vacancy Permit endorsement was issued. He speculated that it was possible that the Building had been occupied for short periods of time when, for example, an engineer showed up to assess the Building. This would then re-start the clock in terms of the 30 consecutive day vacancy period. However, Mr. Staines was not able to answer definitively as to how long a person would have to be physically in the Building, and for what purpose, in order to allegedly restart the 30 consecutive day vacancy period. Mr. Staines did not point to any document in which Intact made any such determination between the wall collapse and the fire. His answer was not only based on speculation but appears to be commercially unfeasible since it would allow an insured to thwart the vacancy exclusion by simply sending someone on to the unoccupied premises every 29 days.
[178] As well, Mr. Staines admitted that Intact’s underwriter, Ms. Zurnacioglu advised Ms. Mitchell that as of October 14, 2010, a Vacancy Permit was not required by Intact notwithstanding its knowledge of the Building’s vacant state. Rather, Ms. Mitchell was told that a Vacancy Permit would only be required in the future if no demolition of the Building occurred. While Mr. Staines disagreed with the correctness of Ms. Zurnacioglu’s advice, he did not suggest that Ms. Zurnacioglu had gone beyond the scope of her authority in making this representation to Ms. Mitchell and therefore Intact was bound by it.
[179] Furthermore, Mr. Staines agreed that in an October 28, 2010 email, Ms. Zurnacioglu told Ms. Mitchell, for the first time, that the vacancy exclusion was engaged, but that Intact would “hold coverage on the building over the weekend Oct 29 to Monday November 1st subject to the following…”. In other words, Ms. Mitchell was being told that Intact had unilaterally changed the terms of the Renewal Policy effective Friday October 29, 2010 at the time of the email which was 4:46 p.m.
[180] The logical inference of Ms. Zurnacioglu’s emails is that the Building was being treated as not vacant at any time between after the wall collapse until at least October 29, 2010. Put another way Intact was not relying on the vacancy exclusion that was included in the Renewal Policy.
[181] Mr. Staines also admitted that at the time of the Renewal Policy the Lalani’s premium increased by 35 per cent. This increase reflected Intact’s assessment of the risk posed by the Building in its damaged state, and as a “vacant and boarded up” property. There was also an increase in property coverage to five million dollars (from $4,651,263 in the Policy) and an increase in personal liability coverage to ten million dollars. He agreed that “the deal is that you pay the premium for the year and we’ll accept the risk for that year”.
[182] In the read-ins from his examination for discovery, Mr. Staines testified that at the time of renewal, Intact did not know whether the Building would be repaired or demolished, or how long either one of those would take.
[183] Mr. Staines also agreed that in Intact’s underwriting note dated October 14, 2010 by Ms. Zurnacioglu, she is confirming her advice to Lalani’s broker that in the event there is no demolition date by January 2011 “then we will need to treat this as a vacant building risk and address property terms, coverage, pricing” and “add Vacancy Permit or move to niche or off risk”. Mr. Staines agreed that this meant that Lalani’s broker was told that up to January 2011 Intact was not treating the Building as a vacant risk. Only if no resolution of the future of the damaged Building was not reached by January 1, 2011, would Intact need to “address” the situation in terms of “coverage, pricing, etc.” The inference is that Intact represented to Lalani that as at October 14, 2010 and through to at least January 1, 2011 it was not relying on the vacancy exclusion contained in the Renewal Policy. Mr. Staines qualified his answer by saying that this position was from an underwriting perspective, however, in my view what is important is that Intact communicated this position of non-reliance on the vacancy exclusion in words to Lalani via its broker.
[184] Mr. Staines agreed that if the Building was vacant for more than 30 consecutive days as at the date of renewal, then the vacancy exclusion would have applied to exclude coverage for the property as at the date of the renewal, notwithstanding the fact that Lalani paid the full premium in advance. If the property was vacant for more than 30 consecutive days as at the date of renewal, and I find that it was, then Lalani paid an increased premium for coverage for the Building which, according to Intact, did not exist. By charging a significant premium for a Building that was otherwise ostensibly uninsurable due to its vacant state, Intact intended Lalani to rely on its representation that it was not relying on the vacancy exclusion and by paying that premium, Lalani relied on that representation to its detriment.
[185] Mr. Staines testified in a fairly earnest manner. However, the cross examination exposed an individual who was trying to justify his former employer’s position albeit unconvincingly. He was also disadvantaged by the fact that he did not have firsthand knowledge of many of the events leading up to the Renewal Policy or the purported amendments. Overall I did not find his evidence concerning the explanations offered justifying Intact’s determination to unilaterally amend the Renewal Policy as being a favour to Lalani, or his explanations regarding whether the Building was “vacant” as at the date of renewal, compelling.
[186] On the other hand, Noori was a careful witness and testified in a relatively straight forward manner. Furthermore, Mark Sampson’s evidence, Al Jr.’s evidence, the documentary evidence and Mr. Staines’ and Ms. Mitchell’s read-ins support Noori’s testimony over Mr. Staines’ version of events.
[187] Where their evidence differs materially, I favour Noori’s evidence over Mr. Staines’ evidence.
[188] I am satisfied that Intact, by its conduct of entering into the Renewal Policy with the knowledge that the Building continued to be vacant since the wall collapse more than 30 consecutive days prior, having factored into its increased premium assessment the risk posed by the Building being vacant, and then accepting the premium as an annual payment, represented to Lalani that it was not enforcing the vacancy exclusion contained in the Renewal Policy.
[189] If this was not the case, then it was incumbent upon Intact as at the presentation of the Renewal Policy to have added a Vacancy Permit endorsement at the time of renewal, at minimum. This way Lalani would have had an opportunity to have made an informed decision at the time of renewal as to whether to accept Intact’s proposal or start looking for another insurer. Intact claims that Lalani would have had no other choice given the difficulties inherent in securing property coverage for a damaged vacant Building but to accept its “accommodation”. However, Intact took away Lalani’s choice. Instead what happened was that Lalani was presented with a fait accompli much later down the road when faced with the notice of cancellation.
[190] Accordingly, I find that Intact made a representation, initially by conduct and affirmed later by its representative, Ms. Zurnacioglu, to the effect that it was not relying on the vacancy exclusion contained in the Renewal Policy at the time of renewal, and that it intended Lalani to act on that representation when it accepted the increased annual premium.
[191] By charging and accepting a larger premium from Lalani with the knowledge that the Building met the definition of “vacant” within the Renewal Policy, Intact intended Lalani to rely on its representation that Intact was extending full coverage under the Renewal Policy for the Building, and that it was therefore not relying on the vacancy exclusion.
[192] The issue then becomes whether it would be inequitable or unfair to allow Intact to resile from this representation.
[193] The parties agree that the vacancy exclusion wording under the Renewal Policy means that there was no coverage for the Building for loss or damage arising after the property had been vacant for more than 30 consecutive days. Furthermore, under the Renewal Policy (and the policy before that) Intact was entitled to terminate the policy on five day’s written notice if personally delivered.
[194] Intact submits that it was “accommodating” Lalani, in light of the fact that it would have great difficulty finding replacement insurance for the Building, initially by not enforcing the vacancy exclusion during the initial period after the wall collapse, and then by providing 60 days’ notice of cancellation, rather than five days.
[195] In my view, it would be unfair and inequitable to allow Intact to resile from its representation. Intact accepted the increased premium with knowledge of the state of the “vacant, unoccupied or shut down” Building and the enhanced risk posed as at the date of renewal. Rather, Intact appears to have decided at the end of October that it no longer wanted to insure that risk, in light of the ongoing uncertainty regarding whether the Building would be demolished or restored. The fact that it knew that the City designated the Building as a heritage site ought to have alerted Intact to the likelihood that it would not be demolished. Indeed, Mr. Staines admitted that when Intact received the information from Ms. Mitchell that the Building was to be shored, it was Intact’s inference that this meant that the Building would be left standing, vacant, for an undetermined length of time.
[196] Correspondingly, Lalani relied to its detriment on this representation by paying the increased premium and not seeking any alternative insurance until after Ms. Mitchell advised Intact terminating the Renewal Policy.
[197] Intact should have advised Lalani, before accepting the premium, that it was relying on the vacancy exclusion, but that it would accommodate Lalani by issuing a Vacancy Permit. It did not.
[198] Intact’s remedy in this situation was to issue a notice of cancellation in light of its reassessment of the risk in terms of material change of circumstances under the Renewal Policy. Intact did issue a notice of cancellation but provided 60 days’ notice rather than the minimum period of five days allowed by the Renewal Policy. It did this with its eyes wide open to the circumstances.
[199] Intact tried to reduce its risk by unilaterally imposing an amended Renewal Policy. That amended Renewal Policy not only added a Vacancy Permit endorsement but fundamentally changed the nature of the policy to the detriment of Lalani.
[200] For these reasons, Intact is estopped from relying on the vacancy exclusion contained in the Renewal Policy to exclude coverage for the fire loss. Lalani has established that the fire loss falls within the initial grant of coverage, and Intact has not proven that the loss is otherwise an excluded peril under the Renewal Policy.
Damages under the fire loss claim
[201] Three headings of damages are sought: the out-of-pocket expenses, the valuation of the lost Building, and business interruption losses. The amounts claimed are detailed in Lalani’s Notice of Amounts and Particulars of Special Damages. In addition, Lalani seeks a rate of prejudgment interest that is higher than stipulated under the Courts of Justice Act, R.S.O. 1990, c. C.43.
Out of Pocket Expenses
[202] Lalani claims a total of $1,058,028.25 as out-of-pocket expenses. Intact accepts the out-of-pocket expenses with the exception of the consulting fees charged by Al Lalani Jr. and the accounting fees claimed by Lalani. This is reflected in the Agreed Statement of Facts .
[203] Al Lalani Jr. provided the main evidence on behalf of Lalani with respect to the out-of-pocket expenses. With respect to the disputed expenses, Al Jr. testified that he was paid $10,000 per month, commencing with the approximate date of the wall collapse. His role changed after the fire from a consultant to a project manager. He had no documentation to support this figure, nor could he provide a basis upon which this salary was determined. Noori corroborated the figure paid to Al Jr. as a project management fee.
[204] I am satisfied that the project management fee of $10,000 per month was paid for the services rendered by Al Jr. to Lalani in relation to the fire loss. However, Al Jr.’s description of the work he did on behalf of Lalani in responding to the fire loss was lacking, and the evidence does not satisfy me that Al Jr. was required to put in the same amount of work as had been clearly necessary after the wall collapse and prior to the fire.
[205] Without any meaningful description of what work Al Jr. did in the period after the fire loss, I am left speculating. Accordingly I am not persuaded that Lalani has proven that Al Jr.’s monthly rate for the period following the fire loss was reasonable. I reject this claim as not having been proven.
[206] Lalani also claims that it incurred accounting fees of at least $20,000 for compiling all expenses related to the wall collapse and fire which was divided equally between the two. This would leave a claim of $10,000 regarding accounting fees. Again, Lalani relied on Al Jr.’s testimony. It produced no invoices or evidence from the accountants. Al Jr.’s evidence was very general as exposed by the cross examination.
[207] I am not satisfied on the evidence that Lalani has proven the amount it paid to accountants to respond to the fire loss claim. Accordingly, I award no damages for this out-of-pocket expense.
[208] The remaining sums claimed as out-of-pocket expenses by Lalani relating to the fire loss is not contested. Those sums total $928,028.25 as reflected in Schedule B to Lalani’s written closing submissions and reflected in the Agreed Statement of Facts.
[209] In relation to the out of pocket expenses relating to the wall collapse, had I found that event to be an insured peril, I would have awarded $350,206.72. Intact did not dispute the out of pockets relating to the out of pocket expenses concerning the wall collapse except for Al Jr.’s monthly fees and the accounting charges. I would have accepted Al Jr.’s monthly fees for this period of time as reasonable and justified. He did provide evidence of the type of work he did and that this was more than a full-time job for the period following the wall collapse and up to the date of the fire. No evidence was offered to challenge the appropriateness of the monthly fee. When Al Jr.’s monthly rate was fixed, Lalani did not know whether its claims would be approved. Not long after the wall collapsed, that claim was denied and yet Lalani continued to pay this amount to Al Jr. There is no suggestion that some type of project management fees is not otherwise recoverable under the Policy.
[210] In addition, Al Jr. left his employment position with his father to take up this role, which he saw as a family obligation.
[211] However, again, the accounting fees were not proven, and I would have declined those.
Building Loss
[212] Lalani seeks damages in the range of $4,420,633.31 and $4,861,913.31 for loss of the Building as a result of the fire.
[213] As the parties agree, the actual cash value (“ACV”) is the appropriate valuation to apply to the property loss caused by the fire under the Renewal Policy.
[214] The Renewal Policy set out the following provisions for recovery and calculation of damages resulting from the fire:
- BASIS OF VALUATION
The value of the insured property shall be determined as follows:
(f) all other insured property under this form and for which no more specific conditions have been set out: the actual cash value at the time and place of loss or damage, but not exceeding what it would then cost to repair or replace with material of like kind and quality.
Actual Cash Value: Various factors shall be considered in the determination of actual cash value. The factors to be considered shall include, but not be limited to, replacement cost less any depreciation and market value. In determining depreciation, consideration shall be given to the condition of the property immediately before the damage, the resale value, the normal life expectancy of the property and obsolescence.
[215] Intact’s position is that the ACV of the Building in its pre-fire damaged state, when reasonable depreciation from the value of the loss is deducted (Carter v. Intact Insurance Company, 2016 ONCA 917, 133 O.R. (3d) 721, at para. 20) is reflected in a Commercial Building Valuation Report dated May 28, 2008, which valued the ACV at $1,627,942. However, while the Agreed Statement of Facts states, at para. 14, that ING Insurance Company of Canada (Intact’s predecessor) made this estimate, the Valuation Report itself was not admitted for the truth of any opinion expressed.
[216] The Broker submits that the value of the Building in its pre-fire damaged state is nil and therefore the fire did not actually cause any damage as it was worthless.
[217] Neither defendant called any expert evidence in relation to this issue, or any of the damage claims.
[218] Intact and CG&B say, simply, that the method applied by Lalani’s expert, Gus Dal Colle, to calculate the valuation of the Building was not in accordance with the ACV as defined by the Renewal Policy. They submit that Mr. Dal Colle simply adopted a market valuation approach for the improved property, deducted the land value, and the remainder was the market value of the Building (which Lalani says is the best valuation process for the ACV). They say that Mr. Dal Colle used an unconventional method that does not properly reflect the depreciated value of the Building in its damaged state.
[219] Lalani submits that the ACV of the Building prior to the fire loss was six million dollars, but for the wall collapse. Furthermore, the ACV of the Building on the day before the wall collapse was also this amount. Essentially, Lalani submits that I should deduct what the cost of repairing the Building would have been from the market value of the Building as determined by its expert, Gus Dal Colle, on the assumption that Lalani would have repaired the Building by his valuation date of January 2, 2011, had the fire not intervened.
[220] Lalani submits that the ACV is commensurate with the market value of the Building established by Mr. Dal Colle.
[221] Mr. Dal Colle was qualified as an expert in retrospective commercial appraisal.
[222] Mr. Dal Colle used two approaches to determine the market value of the improved property (meaning, the land with the Building). The first was a direct comparison approach in which he reviewed the sale of nine “comparable” properties in the vicinity of the Building. The second approach was an income approach in which he compared the monthly rent roll for Lalani’s five tenants (prior to the wall collapse) and compared it with nine “comparables” on Yonge St. The two approaches resulted in a similar market value.
[223] Mr. Dal Colle stated that he considered various market factors relevant to the Building including the prime location in downtown Toronto, the fact it was a corner lot, its designation as a heritage site, and the relatively small size of the property.
[224] He then concluded that the highest and best use of the property was its existing commercial tenanted building.
[225] Under the direct comparison approach, Mr. Dal Colle appraised the market value of the improved property (the Building and land), assuming the north wall was intact and as of January 2, 2011, by examining properties he concluded were comparable to the Lalani property. He took the above grade square footage price of the comparable properties of $550-$570 and used the midpoint of $560 per square foot for the Building. He multiplied the square footage of the Building (above grade) which was 21,516 square feet by $560 to reach a value of $12,000,000.00 for the land and Building.
[226] Under the income approach, Mr. Dal Colle took the gross rents that Lalani was receiving from its five commercial tenants based on Lalani’s rent roll as of April 2010, which amounted to $1,742,016. He then considered the rental rates from nine comparable commercial establishments in close proximity to the Building on Yonge Street and stabilized Lalani’s rental income downward to approximately $1,200,000 as reflecting what he considered to be market rents in this area. Mr. Dal Colle then deducted from that figure the expenses incurred by Lalani and arrived at a net operating income of $798,636. He determined that a reasonable rate of return on investment, or the capitalization rate, was 6.25 per cent (reflecting the midpoint of the range of 6.0 – 6.5%). He then divided the net operating income by the capitalization rate to arrive at a value of the property of $12,800.000 under the income approach.
[227] Mr. Dal Colle then took the midpoint between the two market valuations and arrived at his opinion that the retrospective market value of the improved property (reflecting an occupancy ready Building) as of January 2, 2011 was $12,400,000.
[228] In order to arrive at the value of the Building alone, Mr. Dal Colle undertook a valuation of the land without the Building. He reviewed six vacant properties that, in his view, were comparable to the Lalani land. He concluded that the market value of the land was between $34,000,000 and $38,000,000 per acre. He again chose the midpoint of $36,000,000. He multiplied the resulting per square foot acre price by the number of acres owned by Lalani (0.18 acres) to arrive at a retrospective estimated market value of $6,400,000 for the land alone.
[229] Mr. Dal Colle then deducted the land value of $6,400,000 from the improved property value of $12,400,000 for a market value of $6,000,000 with respect to the Building (in a repaired and occupancy ready state).
[230] Mr. Dal Colle, however, did not consider all of the factors listed in the Renewal Policy’s definition of ACV such as whether the Building had depreciated in value. In fact he did not consider the definition of the ACV at all consistent with his instructions to engage on a market valuation.
[231] These scenarios are hypotheticals insofar as, as of the day before the fire, the Building was unoccupied due to the wall collapse, and was severely damaged due to the wall collapse. Mr. Dal Colle admitted on cross examination that buildings in the state of disrepair as the Building was prior to the fire, do not sell and do not even get listed for sale. Implicit in this answer is that Lalani would have had to pay for the repair of the wall in order to have the improved property valued in the manner testified to by Mr. Dal Colle.
[232] In order to account for the damaged state of the Building, Mr. Dal Colle testified that the cost of repairs to return the Building to an occupancy ready state would have to be deducted from the market valuation of the Building.
[233] Based on the evidence of Al Jr., Lalani would have incurred between $1,138,086.69 to $1,579,366.69 based on the evidence of Al Jr. If these sums are deducted, then the value of the Building, based on Mr. Dal Colle’s retrospective appraisal as of January 2, 2011, is between $4,420,633.31 to $4,861,913.31.
[234] Mr. Dal Colle admitted that his task was not a usual one. Normally, he values the building and property as one, and assumes an occupancy ready building. However, he testified that the methodology he chose was reliable for the particular challenges posed in this case.
[235] There was no responding expert to provide evidence concerning whether Mr. Dal Colle’s assumptions, methodology and opinion was reliable and reasonable.
[236] Furthermore, no expert evidence was tendered by either Intact or CG&B to provide an alternative opinion with respect to assessing the retrospective ACV of the Building as of January 2, 2011 (or any time after the wall collapse).
[237] Mr. Dal Colle and Lalani were in a difficult situation because no final decision had been made by the City concerning whether the Building would have to be preserved and restored as a heritage building or alternatively could be demolished. Therefore, Lalani had not obtained final tenders with respect to the repair of the collapsed wall and related costs. However, where it is not possible to establish with “mathematical accuracy” the damages sustained, the wrongdoer is not thereby relieved of the obligation to pay damages (Penvidic Contracting Co. v. International Nickle Co. of Canada Ltd., 1975 CanLII 6 (SCC), [1976] 1 S.C.R. 267, at p. 279). In such a case, the trier of fact must estimate the damages based on the available evidence and “do the best it can” (Penvidic, at p. 280).
[238] The jurisprudence supports the position that there is no single or right way to calculate the ACV under an insurance policy. However, the market value approach has been accepted by courts in determining the ACV of properties under insurance policies when the property does not have any special value to the owner (Joe Zimmerman Ltd. v. Phoenix Assurance Co., [1972] I.L.R. 1-502 (B.C.S.C.), at p. 458; L.J.M. Enterprises Ltd. v. Gerling Global Insurance Co. (1987), 1987 CanLII 2457 (BC SC), 18 B.C.L.R. (2d) 350 (S.C.), at para. 13).
[239] In Joe Zimmerman, the insured building was destroyed by a fire. The issue was the appropriate method of valuation for the destroyed building under the ACV insurance provision. The insured submitted that the replacement cost less depreciation was the appropriate method. The insurer submitted that the market value of the premises at the date of the fire was fairest. The court, at para. 7, noted that neither method of valuation was conclusive. The court determined, at para. 16, that where the property had no special value to the owner, the best way to calculate the ACV is the market approach.
[240] In Carter, the insured building was substantially destroyed by a fire. The insured chose to demolish and rebuild. The insured sought the replacement cost under the insurance policy. However, the insured decided to replace the multi-use building with a condominium building. The court found that the condominium building did not qualify for replacement cost because it was not a “new property of like kind and quality” as required under the policy. Thus the insured was only entitled to the ACV of the damaged building.
[241] However, in Carter, what was at the heart of the appeal was the fact that the insured had bought a replacement cost extension that amended the basis of valuation from the ACV.
[242] At paras. 20-25 of Carter, the Court of Appeal explained the difference between the ACV and replacement cost coverage. Notably, at para. 20, the court stated, in part,
Under actual cash value coverage, property is insured to the extent of its actual cash value. This coverage recognizes that the insurer is entitled to deduct reasonable depreciation from the value of the loss.
[243] However, in Carter, there is no discussion of the “special value” consideration. The court does not undertake an assessment of the actual cash value as it had been determined by an arbitrator.
[244] The real criticism from Intact is that Mr. Dal Colle did not deduct an amount for depreciation of the Building. However, Intact chose not to call any expert evidence concerning the depreciated value of the Building after the wall collapse.
[245] Accordingly, I am left with accepting some, all or none of Mr. Dal Colle’s opinion.
[246] I do not interpret Carter as meaning that the only way to calculate the value of a building under the ACV is by employing the market value approach and then deducting depreciation. That case did not have to determine the ACV as it had already been determined by an arbitrator.
[247] The definition of the ACV in the Renewal Policy is not exhaustive and does not require any one approach in terms of its calculation.
[248] Mr. Dal Colle essentially adjusted the market value of the Building to account for its damaged state by indicating that the cost of repair should be deducted from his appraisal. This is consistent with the assumption that, but for the fire, the Building would likely have had to have been repaired and restored given its heritage designation (and consistent with Mr. Borgal’s expert opinion that the Building could indeed be repaired and restored). Mr. Dal Colle assumed that, in light of the existence of long-term leases and tenants, the Building would have been tenanted but for the fire. He also found that the market value of the Building in 2010, before the wall collapse, would not have changed as of January 2, 2011 but for the wall collapse.
[249] In my view, Mr. Dal Colle’s assessment of the market value of the Building under the Renewal Policy was credible and supported in the evidence. I also find that his market value approach was the correct one to use with respect to the ACV of the Building in the unique circumstances of this case. This Building had no “special value” to Lalani. It was a revenue generating asset. The weakness in Lalani’s submission is with respect to the projected cost of repair of the collapsed wall.
[250] Al Jr.’s estimate of the repair was comprised of various sources, including documents filed in evidence.
[251] Al Jr. projected the cost of the repairs needed to restore the collapsed wall and make the Building occupancy ready was between $1,138,086.69 and $1,579,366.69 and that the repairs would take approximately 5.5 months to complete. This is comprised of shoring of walls, restoration of the Building to an occupancy ready state, equipment rental, engineering fees, heritage architect fees, fencing, a City street closure permit, security, and a building permit. The reason for the range is that Lalani reduced the shoring expense and the restoration expense.
[252] The shoring of the north and west walls was $741,280 based on a tender received from Clifford Restoration. However, Al Jr. reduced that sum to $300,000 based on his consultation with experts on the assumption that the City would agree not to require the west wall to be shored.
[253] Al Jr.’s estimate of the restoration of the north façade was $580,500. This, in turn, was informed by Mr. Borgal and the tenders received, and was comprised as follows:
a) Stitching: $92,000;
b) Additional ties: $106,000;
c) Restoration of the north façade: $382,500. This estimate was about half of the actual quote provided by Clifford Restoration which was in fact $765,000. Al Jr. relied on Mr. Borgal’s advice that the amount quoted was a premium and ought to be reduced by half;
d) Equipment Rental: $42,691 secured from a quote from Clifford Restoration provided in a cover letter for their tender above referenced estimating two months of repair time, and a monthly rental of $18,890;
e) Engineers’ fees: $29,025 approximating about five per cent of the restoration architect’s fees based on the industry standard;
f) Heritage Architect Fees: $79,306.80 being about six per cent of the shoring and restoration project;
g) Fencing: $18,489.63: obtained from a quote received from The Fence People;
h) Street Closure Permit: $29,856.06 based on the previous street occupation permits Lalani received in the wake of the wall collapse, pro-rated for an anticipated 5.5 month repair period;
i) Security: $45,000 based on the amount paid for security prior to the fire;
j) Building Permit: $13,217.80 which was one per cent of the cost of the projected restoration and shoring costs;
k) Construction Insurance: unknown
[254] In examining the evidentiary basis for the above amounts, it is clear that some of the amounts are somewhat imprecise. However, these amounts are reasonable with the exception of the shoring and the restoration of the north façade. Al Jr.’s expectation that the City would not require both walls to be shored up is speculative. The initial indication was that both walls would have to be shored and Clifford Restoration’s tender reflects that projection. Furthermore, the best evidence regarding estimated cost of restoring the north façade is from Clifford Restoration, not Mr. Borgal’s view that Lalani could likely do better elsewhere. Accordingly, I am fixing the cost of the shoring at $741,280 based on Clifford Restoration’s tender, and $765,000 with respect to restoration of the north façade based on Clifford Restoration’s estimate.
[255] Overall, I found Mr. Dal Colle to be credible and that he employed methodologies that were consistent with retrospective commercial appraisals. I accept Mr. Dal Colle’s use of the market value approach as a reasonable method for determining the ACV of the Building, in an occupancy ready state, as of January 2, 2011, notwithstanding that this approach was unusual given the unusual circumstances of this case. I further accept Mr. Dal Colle’s opinion that the cost of repairs and restoration should be deducted from his market value of the Building. Therefore, damages are assessed for the fire loss claim in relation to the Building in the sum of $4,038,133.31 arrived at $6,000,000 minus $1,961,866.69 as the ACV of the Building as of the day before the fire.
[256] Had I found that the wall collapse was a covered peril under the 2009-2010 Policy, then the costs of shoring, repair and restoration as above referenced in the sum of $1,961,866.69 would instead have been the loss sustained as a result and recoverable under the Policy.
Business Interruption Loss
[257] Mr. Brad Ebel was Lalani’s expert for purposes of providing opinion evidence on the calculation of business interruption losses. He was qualified in the field of forensic accounting. No responding expert evidence was called by either of the defendants.
[258] Mr. Ebel calculated the “turnover” under the business interruption clause as the lost rental income. He used the 2009 financial year end in calculating the rental losses for both the wall collapse and the fire loss. He defended using the 2009 financial year end for both losses by relying on the “adjustment clause” contained within the insurance policies. He said that based on his experience in dealing with many of these types of insurance claims, the industry standard is to use the 2009 year end in this case when dealing with two consecutive insured perils. Furthermore he used a twelve-month indemnity period, consistent with the two policies.
[259] The adjustment clause, under the Definitions: - Section B – Business Interruption section of the Policy (the same wording is reflected in the Renewal Policy) reads as follows:
The following paragraph applies to the Definitions of annual “turnover”, rate of gross profit” and standard “turnover”:
To which such adjustments shall be made as may be necessary to provide for the trend of the business and for variations in or special circumstances affecting the business either before or after the loss, destruction or damage by a peril insured against or which would have affected the business had the loss, destruction or damage by a peril insured against not occurred, so that the figures thus adjusted shall represent as nearly as may be reasonably practicable the results which but for the loss destruction or damage by a peril insured against would have been obtained during the relative period after the loss, destruction or damage by a peril insured against. (emphasis added)
[260] The indemnity clause reads:
“Indemnity Period” means the period beginning with the occurrence of a peril insured against and ending nor later than twelve (12) months thereafter during which the results of the business shall be affected in consequence of the loss, destruction or damage by a peril insured against… (emphasis added)
[261] Mr. Ebel first determined the gross rent based on Lalani’s rental rolls derived from the 2009 financial year end. He then deducted the savings realized by not having the premises occupied by tenants.
[262] The monthly business interruption loss with respect to the fire loss claim calculated using the 2009 year end was $134,673 per month. He was instructed to assume a twelve-month indemnity period. The total business interruption loss was therefore $1,616,073.
[263] He admitted that he was not provided with an estimate of the length of time it would take to repair the wall, so this was not factored into his calculations.
[264] On cross examination, Mr. Ebel conceded that if the fire was a “special circumstance” affecting indemnity and the court finds that the wall collapse claims ends as at the date of the fire, then the wall collapse claim would end as at January 2011, the date of the fire, being 8.5 months rather than 12 months. However, Mr. Ebel emphasized that under the adjustment clause, one adjusts for the industry trend which justifies using the 2009 year end for purposes of calculating the business interruption loss arising from the fire.
[265] Mr. Ebel also agreed that if the wall collapse was an uninsured event, then he would have deducted the months that the wall repair would have taken from the 12 month indemnity period and commenced that loss at the date that occupancy by the tenants would have been taken place.
[266] On the whole I accept Mr. Ebel’s evidence. No responding expert evidence was called by either defendant. However, he did not take into account the length of time it would have taken for the Building to be occupancy ready post wall collapse. This is because he was not given that estimate and was instructed to assume a twelve month indemnity period.
[267] Based on the indemnity provision, above quoted, there must be a causal relationship between the insured peril and the business interruption loss. The period of repair was caused by the wall collapse which I have found to be an uninsured peril. Therefore, I will deduct the period that would likely have been required to make the Building occupancy ready for the tenants. I accept that the 2009 financial year end figures is the appropriate basis of this calculation based on Mr. Ebel’s opinion that the wall collapse is a “special circumstance” and his reliance on the “trend of the business” under the adjustment clause as appears in both policies.
[268] I agree with Intact that the best evidence before me as to the estimated length for repair of the wall and making the Building occupancy ready is 5.5 months calculated from the meeting with the City that was to have occurred on January 10, 2011, but for the fire, consistent with Al Jr.’s testimony.
[269] I am assessing damages under business interruption at 6.5 months times $134,673 for a total $875,374.50.
[270] Lalani submitted that HST should be added to this figure, because it would have to pay HST in addition to the rent received. However, Mr. Ebel did not add HST to his assessment of the business interruption loss. I am not satisfied that HST should be added in addition to the business interruption loss I have assessed.
[271] If I had determined that the wall collapse was an insured peril, then I would have assessed damages for the wall collapse using Mr. Ebel’s figures but for 8.5 months from April 2010 to January 2011, and then for a further twelve months in relation to the fire loss. This is because I would have treated the fire loss as a “special circumstance” under the adjustment clause. I accept Mr. Ebel’s evidence that the 2009 financial year end rent rolls was the appropriate rent value to use to assess the business interruption losses for both the wall collapse and fire loss under this scenario as that year best reflected the business trend of the Lalani enterprise at this Building.
[272] I do not accept CG&B’s argument that there is no recovery at all because the fire loss did not cause the business interruption, but rather the wall collapse did. CG&B provided no evidence to challenge Mr. Ebel’s opinion, and no jurisprudence in support of its position.
BROKER’S NEGLIGENCE CLAIM
[273] The negligence claim against CG&B centered around the fire loss claim only. Lalani raised two grounds of negligence. First, if the amendments to the Renewal Policy were consented to by CG&B on behalf of Lalani, that consent was given without Lalani’s authority. In the alternative, if Noori’s initials on the Vacancy Permit Endorsement constitute valid written consent under the Insurance Act, CG&B was negligent in not properly advising Lalani as to its options when Intact purported to unilaterally amend the Renewal Policy.
[274] In light of my finding that Lalani did not consent to the purported amendments to the Renewal Policy, the claim against CG&B is dismissed.
[275] However, had I found CG&B negligent, then my reasons would have been as follows.
Insurance Broker Standard of Care
[276] In order to establish negligence against an insurance broker, the insured must prove that the broker owed it a duty of care, breached the standard of care, and that the breach caused the insured to incur damages. Those damages must also be proven (2049390 Ontario Inc. v. Leung, 2020 ONCA 164, 99 C.C.L.I. (5th) 165).
[277] In addition, the insured must prove that it relied on the insurance broker to its detriment, and that the reliance was reasonable in the circumstances (Kalkinis (Litigation Guardian of) v. Allstate Insurance Co. of Canada (1998), 1998 CanLII 6879 (ON CA), 41 O.R. (3d) 528 (C.A.)).
[278] The Supreme Court of Canada in Fletcher v. Manitoba Public Insurance Corp., 1990 CanLII 59 (SCC), [1990] 3 S.C.R. 191, at para. 61, commenting on the duty of care of an insurance broker, stated that “it is entirely appropriate to hold private insurance agents and brokers to a stringent duty to provide both information and advice to their customers” and “[i]t is both reasonable and appropriate to impose upon them a duty not only to convey information but also to provide counsel and advice”.
Did CG&B convey consent on behalf of Lalani to Intact?
[279] There is no evidence that supports the contention that CG&B conveyed consent on behalf of Lalani to the purported amendments, including the Vacancy Permit Endorsement.
[280] The evidence of all the parties supports the position that the initialed Vacancy Permit Endorsement was never communicated or transmitted by CG&B to Intact. Intact only discovered its existence after this litigation ws commenced.
[281] Furthermore, the evidence does not support the contention that CG&B ever communicated in writing consent by Lalani to the purported amendments to the Renewal Policy. Indeed, the evidence of Mr. Staines, it will be recalled, was that Intact did not require Lalani’s consent to the purported amendments in any event.
[282] Therefore, I would have dismissed this ground of alleged negligence against CG&B in any event.
Did CG&B fail to properly represent and advise Lalani when it presented the Vacancy Permit Endorsement and the other Amendments to the Renewal Policy?
[283] Stephen White was qualified as an expert in brokering property and commercial general liability policies in Ontario. He testified on behalf of Lalani.
[284] No responding expert was called by CG&B.
[285] Mr. White has extensive experience as a registered insurance broker before setting up his own insurance consulting firm. He has handled larger broker clients, including those with large commercial tenanted buildings in Ontario and across Canada. For a period he was senior vice president and director of Sedgwick Global Canada where he acted as an insurance broker for commercial property insurance for tenanted buildings. In his role as a consultant, he has dealt with coverage analysis, alternate risk financing, loss litigation management, and searching for and reviewing Property and casualty insurance. He has also taught various courses for insurance brokers with the Registration of Insurance Brokers of Ontario (RIBO).
[286] Mr. White used the standards set out by RIBO setting out the standards of care applicable to registered brokers in Ontario.
[287] CG&B is an insurance brokerage firm. The late Ms. Mitchell and Mr. Sampson were registered brokers at the material time.
[288] Mr. White explained that an insurance broker plays a dual role. The broker assists the client with finding the insurance that best suits its needs and at the best price. When the broker approaches an insurer and receives proposed terms for insurance coverage, the broker is representing the insurance company in presenting those terms to the client. Mr. Sampson agreed that one of the roles of an insurance broker is to provide candid advice about coverage to the insured client.
[289] Mr. White further explained that a broker is expected to serve the interests of their insured client at all times as the broker is the professional being relied upon by the client. In this respect, the broker must provide their client with complete advice on how to deal with denial of a claim.
[290] In Mr. White’s opinion, Ms. Mitchell fell below the standard of care of a reasonable broker when she simply accepted Intact’s purported amendments to the Renewal Policy and presented them to Lalani as a fait accompli. Under these circumstances, Ms. Mitchell should have pushed back which Ms. Zurnacioglu told her in and around October 27, 2010 and October 28, 2010 (via emails) that there was no coverage for the building due to its vacant state, and that in order to accommodate Lalani, Intact would provide a time limited Vacancy Permit Endorsement, add a wreckage value endorsement, remove certain property coverages and add a $5,000 deductible, while at the same time advising that Intact was terminating the Renewal Policy on 60 days’ notice.
[291] In the email dated October 14, 2010, Ms. Zurnacioglu noted the following:
Advised broker that if progress in regards to demolition date is not reached by Jan 2011 then we will need to treat this as a vacant building risk and address property terms, coverage, pricing, ded. and Vacancy Permit to move to niche or get off risk, we will have to review.
[292] This demonstrates that Intact had been providing coverage for the Building and not relying on the vacancy exclusion until it issued the Vacancy Permit, as previously reviewed and this was communicated to Ms. Mitchell.
[293] Mr. White further testified a reasonable broker ought to have known that s. 124 of the Insurance Act required that an insurer obtain consent in writing from the insured for any changes to an existing insurance policy.
[294] While a reasonable broker is not expected to give advice with respect to the law, in these circumstances Ms. Mitchell should have known that insurers cannot unilaterally impose changes to an existing insurance policy without the written consent of the insured and told Lalani this.
[295] There is no evidence to suggest that Ms. Mitchell was alert to s. 124 of the Insurance Act or that she informed Lalani about this statutory requirement.
[296] To the contrary, in the read-ins from Ms. Mitchell’s examination for discovery, she testified that she never thought about whether Intact was allowed to change the policy. When she wrote to Noori Lalani by email dated October 29, 2010, she informed Noori of the purported amendments and she assumed Intact was allowed to make those changes unilaterally.
[297] Mr. Sampson did not suggest that he turned his mind to whether or not Intact could make unilateral changes to the Renewal Policy without Lalani’s written consent either.
[298] However, there is evidence that Lalani, through Al Jr., had provided the purported amendments to its lawyers. I have no evidence from Lalani’s lawyers as to what advice, if any, they provided to Lalani. However, in my view, this does not alter Ms. Mitchell’s duty and standard of care as a registered broker. Therefore, CG&B submits that whether or not the broker advised Lalani of this statutory requirement is not relevant, since Lalani likely received legal advice from its lawyers.
[299] CG&B seeks an adverse inference against Lalani for not calling its lawyer to testify (the lawyer in question is a member of Lalani’s litigation counsel law firm).
[300] I am not prepared to draw an adverse inference for Lalani’s failure to call their lawyer (a member of the litigation counsel’s law firm) as a witness. To call Mr. Shaban as a witness would have required Lalani to waive solicitor-client privilege. The court will rarely draw an adverse inference where solicitor-client privilege is at stake (Sidney Lederman, Alan Bryant & Michelle Fuerst, Sopinka, Lederman & Bryant: The Law of Evidence in Canada, 5th ed. (Canada: LexisNexis Canada, 2018), at §6.471; Goldstein v. Walsh, 2018 ONSC 2978, at para. 157).
[301] There is no evidence before the court as to what advice, if any, Lalani received from Mr. Shaban about the purported endorsements.
[302] I accept Noori’s evidence that he asked Ms. Mitchell at the Sheraton Hotel meeting whether he should initial the Vacancy Permit and that her response was that it was okay. Mr. Sampson did not dispute Noori’s evidence on this point., Ms. Mitchell gave this advice without the lawyers for Lalani present at the meeting. Regardless of what advice Lalani may have received from its lawyers, Noori testified that he relied on Ms. Mitchell’s advice at the Sheraton Hotel meeting that it was okay to initial the Vacancy Permit Endorsement. Ms. Mitchell was aware that Lalani had lawyers, and yet she presented the Vacancy Permit Endorsement for Noori’s initials without Lalani’s lawyers’ being present at the meeting. There is no suggestion that Lalani was advised in advance of this meeting that CG&B would be asking it to initial the Vacancy Permit Endorsement. It was reasonable, given Noori’s long time relationship with Ms. Mitchell as Lalani’s trusted broker to rely on Ms. Mitchell’s advice at the meeting to go ahead and initial the Vacancy Permit Endorsement.
[303] Mr. White further opined that a reasonable broker is required to understand the business and circumstances of its client. If the client is facing particular challenges, the broker must determine the insurance implications arising from those challenges and provide such options for coverage to best meet those challenges as may exist.
[304] Ms. Mitchell was well aware of the challenges presented to Lalani as a result of the wall collapse and Intact’s concerns about maintaining coverage. She was also aware of the Building’s damaged and vacant state which existed as at the date of the Renewal Policy. However, she did not question Intact when it unilaterally changed the existing coverage under the Renewal Policy. She tried to obtain alternate coverage but the only quote she obtained (from Totten Group) did not satisfy Lalani. By the time of the Sheraton Hotel meeting, as noted by Mr. Sampson, Lalani only had about three weeks, accounting for the holiday period, to obtain replacement insurance
[305] Mr. White’s conclusion was that a reasonable broker, in the position of Ms. Mitchell in 2010, should have provided an explanation to Noori before advising him to initial the Vacancy Permit Endorsement that one option was to refuse to accept the purported amendments and maintain full coverage under the (unamended) Renewal Policy until the effective date of the cancellation notice Intact issued. At the minimum, Ms. Mitchell ought to have alerted Lalani to this issue and recommended it seek legal advice. In failing to have done so, Ms. Mitchell fell below the standard of care of a reasonable broker in the circumstances of this case.
[306] In Mr. White’s opinion, Ms. Mitchell also fell below the standard of care when she did not challenge Intact’s assertion that they could effectively unilaterally change the terms of the Renewal Policy. She failed to represent the interests of Lalani when she accepted Intact’s advice that it could unilaterally fundamentally change the terms of the Renewal Policy, and this was below the standard of care.
[307] Had Ms. Mitchell or Mr. Sampson provided this advice to Lalani, and Lalani accepted this advice, then the unamended Renewal Policy would have been in force as at the date of the fire and coverage for the Building loss would have flowed.
[308] Based on Noori’s evidence and his reliance on Ms. Mitchell for advice in relation to insurance matters, including following her advice at the Sheraton Hotel meeting, I find that Lalani would have likely rejected the purported amendments.
[309] With respect to these latter two opinions, Mr. White was not shaken in cross examination. His opinions were supported in the evidence and were not challenged by any responding expert witnesses.
[310] Overall, I found Mr. White to be a careful witness who provided an unbiased opinion.
[311] I accept Mr. White’s opinion that Ms. Mitchell, acting on behalf of CG&B fell below the standard of care as a reasonable insurance broker when she failed to challenge Intact’s assertion that it would unilaterally change the terms of the Renewal Policy to the detriment of Lalani. In the alternative, Ms. Mitchell fell below the standard of care when she recommended that Noori initial the Vacancy Permit Endorsement at the Sheraton Hotel meeting without advising him of Lalani’s options in light of s. 124 of the Insurance Act.
[312] I also find that Lalani relied on Ms. Mitchell’s advice to initial the Vacancy Permit Endorsement and her duty to represent its interests throughout her representation of Lalani when she was dealing with Intact with respect to Intact’s assertions that it was changing the terms of Renewal Policy to its detriment. Lalani’s reliance on Ms. Mitchell was reasonable given the longstanding relationship it had with Ms. Mitchell and Ms. Mitchell’s professional status as a registered insurance broker.
[313] As a result of Ms. Mitchell’s breach of her standard of care owed to Lalani as her client, Lalani lost the coverage that was provided under the unamended Renewal Policy in reference to the fire loss claim. Those damages have been proven and quantified under the Damages section of these Reasons.
Was Lalani required to submit a proof of loss re wall collapse and re fire loss?
[314] There was some suggestion that as Lalani did not submit a proof of loss with respect to the wall collapse therefore, under s. 6 of the Statutory Conditions in the 2009-2010 Policy, Lalani was disentitled to coverage in any event.
[315] While I need not rule on this, in light of my finding of no coverage for other reasons, in the event that I found the wall collapse incident to have been covered, I would have dismissed this argument on the basis that coverage was denied two months after the event thereby eliminating the need to file a Proof of Loss (Stewart v. Lanark Mutual Insurance Co. (1988), 29 C.C.L.I. (Ont. District Ct.), at para. 29). Furthermore, Lalani immediately reported the wall collapse incident to Intact. There is no suggestion that Intact was prejudiced in any way. Therefore, I would have granted relief from forfeiture under s. 129 of the Insurance Act, had that been necessary.
[316] With respect to the fire loss, Lalani filed a Proof of Loss dated July 16, 2019. On the other hand, Intact did not deny coverage until it delivered its statement of defence in or around March 5, 2013. Again, no prejudice has been demonstrated by Intact with respect to the timeliness of the Proof of Loss. Accordingly, I am prepared to grant relief from forfeiture under s. 129 of the Insurance Act in the circumstances of this matter.
Is Lalani Entitled to a higher rate of prejudgment interest?
[317] Lalani seeks prejudgment interest at 12 per cent, which is higher than is provided for under s. 127 of the Courts of Justice Act. This is the rate of interest it agreed to pay on a $3,000,000 mortgage it took out less than two weeks after the fire in order to cover expenses it had to carry pending determination of this matter.
[318] However, the mortgage was secured from Lalani’s own directors at this rate. As pointed out by Intact, there is no independent evidence that Lalani could not have secured a loan at a lesser rate.
[319] Lalani relies on MDS Inc. v. Factory Mutual Insurance Company, 2020 ONSC 1924, 5 B.L.R. (6th) 1, rev’d on other grounds, 2021 ONCA 594, 465 D.L.R. (4th) 294, for the proposition that in appropriate cases a trial judge will exercise their discretion under s. 130 of the Courts of Justice Act to award a higher rate of interest than prescribed by s. 127 of that Act and commensurate with the insured’s actual cost of borrowing.
[320] I am not satisfied that Lalani could not have secured the requisite loan for a lower rate of interest. Furthermore, the carrying expenses, according to Lalani, was “nearly” one million dollars, and not the three-million-dollar mortgage it secured. I am not satisfied that a heightened rate of prejudgment interest is warranted in this matter.
[321] Accordingly, I decline to exercise my discretion to award prejudgment interest at a rate that is greater than prescribed by s. 127 of the Courts of Justice Act.
[322] Lalani shall have prejudgment interest calculated in accordance with ss. 128(1) and 127 of the Courts of Justice Act.
CONCLUSION AND JUDGMENT
[323] The Wall Claim action is dismissed.
[324] Judgment is granted in favour of the Plaintiffs against Intact with respect to the Fire Loss Claim as follows:
a) A declaration shall also issue that the Renewal Policy otherwise known as Commercial Edge Accel+ Policy ACCEL 501087786 is binding and enforceable against Intact;
b) Damages in the sum of $5,841,536.06;
c) Prejudgment interest calculated under s. 127 and 128 of the Courts of Justice Act;
d) Postjudgment interest;
e) Costs to be determined.
COSTS
[325] The Plaintiffs and CG&B in the Fire Loss Claim will provide their respective cost outlines and submissions within three weeks from the release of these Reasons. The Defendant, Intact, will then provide its cost outline and responding submissions within three weeks from that date.If necessary, reply submissions will be delivered within one week thereafter.
[326] The Defendant in the Wall Collapse Claim will provide its cost outline and submissions within three weeks from the release of these Reasons. The Plaintiff will then provide its cost outline and responding submissions within three weeks thereafter. Again, if necessary, reply submissions will be delivered within one week thereafter.
[327] The submissions and responding submissions are not to exceed 10 double spaced pages each. The reply submissions shall not exceed 2 double spaced pages.
Justice S. Vella
Date: December 22, 2022
DATE: 20221222
ONTARIO
SUPERIOR COURT OF JUSTICE
LALANI PROPERTIES INTERNATIONAL INC. and 2160943 ONTARIO LIMITED
Plaintiffs
– and –
INTACT INSURANCE COMPANY
Defendant
Ordered to be tried with:
2160943 ONTARIO LIMITED
Plaintiff
– and –
INTACT INSURANCE COMPANY and D.M. EDWARDS INSURANCE GROUP LTD. and THE CG & B GROUP INC.
Defendants
AMENDED REASONS FOR JUDGMENT
VELLA J.
Released: December 22, 2022