COURT FILE NO.: C-22-10276

DATE: 2022-12-21

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

William A. Salewski and Carole A. Gauthier-Salewski

Applicants

– and –

Aviva Insurance Company of Canada and Nickel City Insurance Brokers Inc.

Respondents

Cody Dolgay, for the Applicant

(Responding Party)

Clarence Lui and Benji Stern, for the Respondent (Moving Party) Aviva Insurance Company of Canada

Alanna Brogan, for the Respondent Nickel City Insurance Brokers Inc.

HEARD: July 27, 2022

DECISION ON MOTION

Cullin, J.

Overview

[1] This motion, brought by the respondent, Aviva Insurance Company of Canada (“Aviva”), seeks to convert this application to an action, subject to specified terms. The applicants oppose the motion. The respondent, Nickel City Insurance Brokers (“Nickel City”), takes no position on the motion.

Factual Background

[2] On March 8, 2021, the applicants’ home, located at 1073 Red Deer Lake Road South in Sudbury (the “Property”), was destroyed by a fire.

[3] At the time of the fire, the Property and its contents were protected by a homeowners’ insurance policy (the “Policy”) issued by Aviva. It was a multi-peril policy in which fire was a specified peril. The Policy was first issued on September 17, 2018, was renewed in 2019 and 2020, and at the time of the fire was to provide coverage until September 17, 2021. The Policy was placed on the Property by the applicants’ insurance broker, Nickel City.

[4] The applicants formally submitted a claim on the Policy by submitting proofs of loss to Aviva which were sworn on July 12, 2021 and August 23, 2021. On August 24, 2021, Aviva advised the applicants that it was requiring them to undergo an Examination Under Oath with respect to their claim. That examination was conducted on October 4, 2021.

[5] On November 4, 2021, Aviva issued a denial letter to the applicants. That letter not only denied the applicants’ claim, but also voided the Policy effective September 17, 2018. Aviva alleged that the applicants had misrepresented their recent claims history at the time of their application for insurance in 2018; they alleged that the information was material to the proper assessment of their risk; and that the misrepresentation constituted a breach of a Statutory Condition of the Policy.

[6] The applicants requested that Aviva reconsider its position. This request was denied on January 5, 2022. The applicants subsequently commenced this application on January 24, 2022, seeking the following relief:

a. A declaration that the Policy was in full force and effect on March 8, 2021;

b. A declaration that the Property, its contents, additional living expenses and other expenses were insured and payable by Aviva pursuant to the Policy;

c. A declaration that the applicants are entitled to insurance coverage and indemnification pursuant to the Policy in the amount of $1,402,076.57 as a result of the fire;

d. A declaration that the applicants are entitled to relief from forfeiture of the Policy;

e. A declaration that the applicants are entitled to an award of punitive, aggravated and/or exemplary damages in the amount of $1,000,000;

f. A declaration that Nickel City is vicariously liable for the negligence of its employee in brokering the Policy on behalf of the applicants; and

g. A declaration that the applicants are entitled to an award of damages against Nickel City in the amount of $1,402,076.57.

Positions of the Parties

The Applicants

[7] The applicants submit that the issues raised in the notice of application are not complex, are predominantly questions of law, and are best decided on an application. They argue that Aviva’s motion is premature, and that any decision about whether to refer issues for trial are best left to the application judge, who will have the benefit of the full record. It is their position that the evidentiary record on the motion fails to demonstrate what underlying material facts are in dispute, or how an action is a superior vehicle to test the applicants’ evidence and credibility.

[8] The applicants submit that converting the application to an action at this time would cause the litigation to become more complex and would widen the scope of issues. They note that a decision granting relief against Aviva may eliminate the need for Nickel City’s participation in the proceeding. Permitting the application to proceed would provide an expedient determination of the narrow coverage issue raised, whereas requiring it to proceed as an action would severely prejudice the applicants.

The Respondent Aviva

[9] Aviva submits that this matter is not one which can appropriately proceed by application. It argues that there are complex issues and disputes regarding material facts which require advance documentary and oral discoveries, as well as viva voce evidence and expert evidence at trial; it submits that an action is the more appropriate process in the circumstances.

[10] Aviva argues that the desire for expediency is not a justification for the use of an application. It submits that the same result can be achieved through an expedited timetable in an action. It further submits that proceeding by application may result in a multiplicity of proceedings and increased costs for the parties in the event that all or part of the matter is referred for trial by the hearing judge.

The Law

Commencement of Applications

[11] Pursuant to r. 14.02 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, every proceeding is required to be commenced by an action, unless a statute or the Rules provide otherwise.

[12] Rule 14.05(3) delineates several circumstances in which a proceeding may be commenced by application, including:

(d) the determination of rights that depend on the interpretation of a deed, will, contract or other instrument, or on the interpretation of a statute, order in council, regulation or municipal by-law or resolution;

(h) in respect of any matter where it is unlikely that there will be any material facts in dispute requiring a trial.

Converting Applications to Actions - Jurisdiction

[13] Pursuant to r. 38.10:

38.10 (1) On the hearing of an application the presiding judge may,

(a) grant the relief sought or dismiss or adjourn the application, in whole or in part and with or without terms; or

(b) order that the whole application or any issue proceed to trial and give such directions as are just.

(2) Where a trial of the whole application is directed, the proceeding shall thereafter be treated as an action, subject to the directions in the order directing the trial.

(3) Where a trial of an issue in the application is directed, the order directing the trial may provide that the proceeding be treated as an action in respect of the issue to be tried, subject to any directions in the order, and shall provide that the application be adjourned to be disposed of by the trial judge.

[14] In University Health Network v. Made in Japan Japanese Restaurants Ltd., 2003 CanLII 46976 (Ont S.C.), Pitt J. found that the court’s jurisdiction to issue directions regarding the hearing of an application was not limited to the hearing judge. He noted at paras. 7-8 and 10:

[7] …University Health Network argues that on the face of it, the rule requires that the determination as to whether or not the application or any issue should proceed to trial shall be made on the hearing of the application, and not on the pre-hearing motion. 2887215 Canada Inc. (c.o.b. Access Telecom Technologies) v. AT&T Canada Corp., [2000] O.J. No. 5002 (S.C.J.) and Sutherland v. Birks, [2001] O.J. No. 443 (S.C.J., Comm. Ct.) are cited in support of that contention.

[8] I am not satisfied that either of those cases went as far as counsel contends. In both cases, the judges seem to have been concerned about not having enough information to decide the issues, and in 2887215 Canada Inc. (c.o.b. Access Telecom Technologies) v. AT&T Canada Corp. Spence J. said that no other rule was relied upon in support of the motion. Needless to say in the case at bar, Made In Japan and Vanelli's also rely on section 106 of the Courts of Justice Act, which gives the court the power to stay proceedings when it is just and proper, rule 6.01(1) which gives the court the power to consolidate, to stay, and to grant other such relief, and section 138 of the Courts of Justice Act which requires the court to avoid multiplicity of proceedings.

[10] In any event, rule 1.04, which provides that the rules are to be construed liberally to secure the just, most expeditious and least expensive resolution of a proceeding would support an interpretation of rule 38.10 that protects the parties against the requirement that they always wait until they are at the judgment seat, to know whether their issue will be adjudicated…

[15] The court in Renegade Capital Corp. v. Hees International Bancorp Inc. (1990), 1990 CanLII 6953 (ON SC), 73 OR (2d) 311 (H.J.C)made a similar finding. In deciding to stay the application and direct the trial of an action, Gray J. also noted the court’s authority in r. 37.13, which provides:

37.13 (1) On the hearing of a motion, the presiding judge or officer may grant the relief sought or dismiss or adjourn the motion, in whole or in part and with or without terms, and may,

(a) where the proceeding is an action, order that it be placed forthwith, or within a specified time, on a list of cases requiring speedy trial; or

(b) where the proceeding is an application, order that it be heard at such time and place as are just.

(2) A judge who hears a motion may,

(a) in proper case, order that the motion be converted into a motion for judgment; or

(b) order the trial of an issue, with such directions as are just, and adjourn the motion to be disposed of by the trial judge.

(3) Where on a motion a judge directs the trial of an issue, subrules 38.10 (2) and (3) (issue treated as action) apply with necessary modifications.

Converting Applications to Actions - Considerations

[16] In Fort William Indian Band v. Canada (2005), 2005 CanLII 28533 (ON SC), 76 O.R. (3d) 228 ( S.C.), at para. 5, Smith J. identified the following general principles to be considered in determining whether to convert an application into an action:

[5]…

(1) whether there are material facts in dispute;

(2) the presence of complex issues requiring expert evidence and/or a weighing of the evidence;

(3) whether there is a need for the exchange of pleadings and for discoveries; and

(4) the importance and impact of the application and of the relief sought.

[17] Smith J. went on at paras. 28-31 to make the following observations:

[28] As a general principle, it is well established that an application should be used when there is no matter in dispute and when the issues to be determined do not go beyond the interpretation of a document. (Marten Falls First Nation v. Ontario, 1994 CanLII 7555 (ON SC), [1994] O.J. No. 1643, 31 C.P.C. (3d) 149 (Gen. Div.); Burlington (City) v. Clairton (Village) (1979), 1979 CanLII 2059 (ON CA), 24 O.R. (2d) 586, 99 D.L.R. (3d) 170 (C.A.); [page234] Acumen Investments Ltd. v. Williams (Re) (1985), 1985 CanLII 2068 (ON SC), 53 O.R. (2d) 247, 6 C.P.C. (2d) 21 (H.C.J.)).

[29] An application proceeding will not be converted into an action unless there is a good reason to do so, such as when the judge who will hear the matter cannot make a proper determination of the issues on the application record.

[30] When issues of credibility are involved or when viva voce evidence is required, a matter should proceed as an action (Gordon Glaves Holdings Ltd. v. Care Corp. of Canada Ltd. (2000), 2000 CanLII 29058 (ON CA), 48 O.R. (3d) 737, [2000] O.J. No. 1989 (C.A.); Cunningham v. Front of Yonge (Township) (2004), 73 O.R. (3d) 721, [2004] O.J. No. 4104 (C.A.)).

[31] When a factual dispute simpliciter is involved, this by itself is not sufficient to convert an application into an action. The fact(s) in dispute must be material to the issues before the court. (Niagara Air Bus Inc. v. Camerman (1989), 1989 CanLII 4161 (ON SC), 69 O.R. (2d) 717, [1989] O.J. No. 1425 (H.C.J.); BPCO Inc. v. Imperial Oil Ltd., [1993] O.J. No. 420, 17 C.P.C. (3d) 130 (Gen. Div.)).

[18] The existence of disputed material facts does not, in and of itself, lead to the conclusion that an application is an inappropriate process. As noted by Spies, J. in Rare Charitable Research Reserve v. Chaplin, 2006 CanLII 50901 (Ont. S.C.), at para. 15:

The cases relied upon by the Respondents to support their position that the application should be converted to an action because there are material facts in dispute do not apply to this case. As the Applicants are prima facie entitled to proceed by way of application, the existence of disputed material facts would not necessarily preclude a summary hearing. Furthermore, as Mr. Peroff submits, through cross-examination the Applicants will be able to challenge the evidence set out in the affidavits filed by the Respondents and the cross-examinations may reduce or eliminate contradictory evidence making it possible for the judge hearing the application to decide the application. [Footnotes omitted.]

[19] Likewise, Spies J. noted at para. 28 of Rare Charitable Research Reserve, that the likelihood of viva voce evidence is also not necessarily fatal to an application:

I have grave doubts about the ability of the court to decide this matter entirely by way of application. Counsel for the Applicants conceded that it is likely that there will be a need for some viva voce evidence. The fact that some viva voce evidence is likely required is not fatal however, as that can be done in the context of an application. The applications judge could consider a mix of affidavit and viva voce evidence to determine credibility issues. There is more flexibility in the procedure for an application to stage issues for determination. Even if certain issues of fact need to be tried, the court can direct the trial of those discrete issues and the order in which those issue should be determined, without converting the entire application to an action.

[20] While the presence of expert evidence may speak to the complexity of the issues before the court, it is important to note that expert evidence is admissible in an application. This is particularly the case in insurance contract disputes where expert evidence may assist the court in interpreting technical language or other specific terms of the contract: Halifax Insurance Co. of Canada v. Innopex Ltd. (2004), 2004 CanLII 33465 (ON CA), 72 OR (3d) 522 (C.A.), at para. 37.

[21] Where an applicant seeks relief grounded in allegations of a respondent’s bad faith conduct, procedural fairness and substantive justice often requires the full evidentiary record that is only available in an action: Allied Systems (Canada) Company, 2012 ONSC 3142, at para 21).

Analysis

[22] In Toronto (City of) v. Canadian National Railway Co., (1993), 22 C.P.C. (3d) 336 (Ont. Gen. Div.) at p. 342, MacPherson J. noted:

...the rules provide for different types of litigation depending on the nature of the issues that need to be resolved. The application process is as much a ‘day in court’ as the trial process. The relevant question is not: how complex is this litigation? Rather the relevant question is: what is the nature of this litigation?

[23] If the court is to understand the nature of this litigation, it must consider the totality of the issues which it is being asked to determine, and the impact of the proposed approaches to those issues on the parties and on the court.

[24] Aviva submits that there are multiple issues requiring a trial with viva voce evidence for which there are: (a) material facts in dispute; (b) issues of credibility; and (c) complex issues requiring expert evidence. These issues include:

a. Whether the applicants’ misrepresentation to Aviva was material;

b. Whether the applicants are entitled to relief from forfeiture;

c. Whether Aviva is estopped from disputing coverage and quantum of the claim;

d. Whether Aviva breached its duty of good faith, thereby entitling the applicants to punitive damages; and,

e. Whether Nickel City’s employee was negligent and whether they are vicariously liable for such negligence.

[25] The applicants argue that the issues of misrepresentation, forfeiture, and estoppel are amenable to the application process, and that resolving them early in the litigation could save time and expense for the parties. They acknowledge that the issues of negligence involving Nickel City and of punitive damages involving Aviva will require a trial. They propose to stay the application against Nickel City and to defer the issues of bad faith and punitive damages involving Aviva until after the determination of the coverage issues.

[26] If the litigation before the court were simply between the applicants and Aviva, it would be easier to accept the applicants’ proposed staging of the litigation. In my view, the issues of forfeiture and estoppel could likely proceed by application. If Aviva were the only respondent, it is possible that the issue of misrepresentation could proceed by application however, this would require a fulsome review of the record by the judge hearing the application. The issues of quantum of the claim, bad faith, and damages could then be referred for trial.

[27] The difficulty in this case is the intersection of the claims against Aviva with the claims against Nickel City. The applicants’ claim against Nickel City, as pleaded in the notice of application, is based in negligence. While that claim will only be required to proceed if the applicants are unsuccessful in establishing coverage as against Aviva, if it does proceed, the nature of the claim is such that it must proceed to trial as an action.

[28] In choosing to proceed by application, the applicants are effectively asking the court to bifurcate their claim against Aviva from their claim against Nickel City, to bifurcate their liability claims from their damages claims, and to bifurcate their policy claim against Aviva from their punitive damages claim. If the applicants were to proceed by action, pursuant to r. 6.1.01 they would not be permitted to bifurcate their proceeding in this way without the consent of all parties : Duggan v. Durham Region Non-Profit Housing Corporation, 2020 ONCA 788, 454 DLR (4th) 496. While r. 6.1.01 also applies to applications, the court retains discretion, pursuant to r. 38.10, to bifurcate issues without the consent of all parties.

[29] Stated plainly, in proceeding by application, the applicants are attempting to do through the back door what they cannot do through the front. That is, to impose a bifurcation of issues without the consent of all involved parties.

[30] I appreciate that the intention of the applicants is to narrow issues and to confirm necessary parties at the outset of the litigation. I also appreciate that proceeding in this manner reduces the risk to the applicants of pursuing litigation against unnecessary parties. It may have the effect of shortening the litigation and reducing the parties’ costs; conversely, if the court determines that a trial is necessary, it would be a fruitless exercise that would lengthen the litigation and increase the parties’ costs.

[31] The application procedure is not designed or intended to act as a process for vetting parties and issues in matters which should be proceeding by way of action. In matters such as this, involving multiple parties and in which the majority of issues will require a trial, the only appropriate procedure is an action, where parties and issues can be vetted using, among other things, r. 20 motions and r. 50.13 conferences. If a party unreasonably refuses to consent to procedures which would streamline the litigation, there are attendant costs consequences.

[32] If the court were to proceed as proposed by the applicants, by staying the application as it pertains to Nickel City pending the outcome of the coverage issues involving Aviva, this would impact Nickel City’s participation in a stage of the litigation in which factual findings will be made affecting its interests. This is particularly concerning with respect to the issue of misrepresentation, where the issue is not merely the materiality of the alleged misrepresentation, but also what information, if any, was misrepresented and the role of Nickel City’s employee in obtaining information from the applicants and disclosing it to Aviva. It is difficult to imagine how this issue can be determined without Nickel City’s participation as to do otherwise invites the risk of inconsistent factual findings in future proceedings.

[33] Viewed in its totality, the litigation before me is clearly an action and must proceed as such. I therefore grant Aviva’s motion to convert this application to an action.

Costs

[34] The court’s authority to award costs is set out in s. 131 (1) of the Courts of Justice Act, R.S.O. 1990, s.C.43, which provides:

Subject to the provisions of an Act or Rules of Court, the costs of and incidental to a proceeding or a step in a proceeding are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid.

[35] The factors to be applied by the court in exercising its discretion under s. 131 of the Courts of Justice Act are enumerated in r. 57.01 of the Rules of Civil Procedure.

[36] As a general rule, costs are awarded having regard to the principle of indemnity noted in r. 57.01(1)(0.a); that is, they are payable to the successful party by the unsuccessful party. There are, however, situations and cases where this rule may not apply.

[37] Both the applicants and Aviva have submitted costs outlines for the court’s consideration.

[38] Although they have been unsuccessful in this motion, I am mindful of the fact that the steps taken by the applicants to date have been motivated by a desire to achieve an expeditious, cost-effective resolution of their dispute with the respondents. One of the allegations levied by them against Aviva is that Aviva has failed to act in good faith by delaying the timely resolution of their claim. It remains to be seen whether that allegation will be substantiated by the evidence.

[39] In my view, the issue of costs is best determined by the trial judge, who will have the benefit of a fulsome view of the litigation and its outcome, as well as the conduct of the parties in advancing or delaying the proceedings. The costs of this motion will therefore be reserved to the trial judge.

Disposition

[40] For the reasons given, I hereby make the following orders:

1. This application shall be and is hereby converted to an action, on the following terms:

a. The applicants shall be the plaintiffs in the action;

b. The respondents shall be the defendants in the action;

c. The plaintiffs shall deliver a statement of claim on or before January 31, 2023;

d. The defendants shall deliver a statement of defence, and any crossclaims or counterclaims, within (30) days after the plaintiffs deliver their statement of claim;

e. In the event that the parties are unable to agree upon a timetable for the conduct of the action, it shall be as follows:

1. The parties will exchange affidavits of documents within 60 days after pleadings are closed;

2. The parties will attend examinations for discovery within 90 days after affidavits of documents are exchanged; and,

3. The action will be set down for trial within 60 days after examinations for discovery are completed.

4. The costs of this motion are reserved to the trial judge.

The Honourable Madam Justice K.E. Cullin

Released: December 21, 2022

COURT FILE NO.: C-22-10276

DATE: 2022-12-21

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

William A. Salewski and Carole A. Gauthier-Salewski

Applicants

– and –

Aviva Insurance Company of Canada and Nickel City Insurance Brokers Inc.

Respondents

DECISION ON MOTION

Cullin J.

Released: December 21, 2022