CITATION: Hills v. Suitor, 2022 ONSC 914
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: HILLS et al, Plaintiffs
AND:
SARAH SUITOR, Defendant
BEFORE: TRANQUILLI J.
COUNSEL: Adrienne Zaya, for the Plaintiffs/Responding Party
Matthew Marantz, for the Proposed Statutory Third Party Certas Home and Auto Insurance Company/Moving Party
Defendant Suitor not appearing
HEARD: January 18, 2022
ENDORSEMENT
1The court should always strive to see that issues between litigants are resolved on their merits whenever that can be done with fairness to the parties. This motion asks the court to consider whether it would be fair to allow an insurer to exercise its right to be added as a statutory third party to a tort action where default judgment has already been obtained against its insured.
2This action arises from a tragic motor vehicle collision on March 8, 2020 between a vehicle driven by William Hills and a vehicle driven by the defendant Sarah Suitor. Mr. Hills and his wife Rose Hills were fatally injured in the collision. Their estates and family bring this claim against Ms. Suitor for damages. She has not participated in the proceeding to date, although served.
3Certas Home and Auto Insurance Company insured the defendant Suitor under a motor vehicle liability policy. It denies liability to Ms. Suitor under the contract and brings this motion for an order adding it as a statutory third party pursuant to s. 258(14) of the Insurance Act, R.S.O. 1990, c. I.8, as amended. Certas submits this procedure is a statutory right and the court has a duty to make that order as requested.
4The plaintiffs oppose the motion. They claim Certas is too late to add itself as a statutory third party. Certas failed to take timely steps to add itself to the action and instead allowed default judgment to be entered against its insured. The plaintiffs have now commenced a separate application against Certas under s. 258(1) of the Insurance Act to have the default judgment satisfied in part by the insurance money payable under Ms. Suitor’s contract. The plaintiffs contend that any coverage issues as between Certas and the defendant are properly the subject of that proceeding and have no bearing on the tort action.
5At issue is whether the court has discretion to deny Certas its statutory right to add itself as a third party to this action, and, if so, whether the court can refuse the application because of insurer misconduct, waiver or prejudice: Marshall v. Anderson, 1936 CarswellOnt 4 (H.C.J.) at para 4.
6In the circumstances of this case, I find it is unnecessary for me to determine whether the court has discretion to deny an insurer’s application under s. 258(14).
7For the reasons that follow, the court finds that Certas has satisfied the conditions for being made a statutory third party. Assuming the court has discretion to refuse the insurer’s application due to waiver, misconduct or prejudice, I find that no such factors arise on this record that would justify dismissal of the insurer’s application on that basis. Fairness in these circumstances requires that the motion be allowed.
Background
8The plaintiffs commenced this action on November 13, 2020, seeking general damages of approximately $1.6 million and special damages of $300,000 from Ms. Suitor on behalf of the estates of William and Rose Hills as well their children, grandchildren, and great-grandchildren. The claim was personally served on Ms. Suitor on December 2, 2020. By letter of January 6, 2021, the plaintiffs advised Ms. Suitor that if she failed to enter a defence within the next 10 days, they would take steps to note her in default and obtain judgment without further notice. The defendant did not respond. The plaintiffs noted Ms. Suitor in default on February 16, 2021.
9The plaintiffs never formally or informally notified Ms. Suitor’s insurer of the claim. The defendant also does not appear to have notified Certas of the lawsuit. However, on April 19, 2021, a Certas claims advisor called plaintiff counsel about the tort action. Plaintiff counsel Sara Erskine deposed she told the claims advisor of the history and status of proceedings and that she told the adjuster the plaintiffs would be “promptly” moving for default judgment. The claims advisor explained Certas may be disputing coverage and that she was referring the matter to the Certas legal department. The adjuster asked plaintiff counsel for the statement of claim, the affidavit of service and the requisition noting its insured in default. Plaintiff counsel sent the requested items to Certas on or about April 23, 2021.
10Ms. Erskine was cross-examined on her affidavit in respect of this motion. She corrected one material aspect of her evidence after review of an audio recording of her conversation with the Certas adjuster. Ms. Erskine did tell the adjuster the insured was noted in default. However, she did not, in fact, tell the adjuster the plaintiffs would be “promptly” moving for default judgment. She concedes that she “mis-remembered” the conversation.
11In fact, the motion for default judgment was imminent at the time Certas called plaintiff counsel to ask about the status of the action. The motion for default judgment proceeded without formal or informal notice to Certas on May 11, 2021. By default judgment issued May 27, 2021, Justice Bondy awarded general damages totalling $676,000, special damages totalling $41,592.20 and costs of $29, 778.17. There is no indication from those materials that Justice Bondy was informed of Certas’ recent inquiries about the status of the action.
12Certas also happens to have been the motor vehicle insurer for William and Rose Hill. The policy provided uninsured/underinsured motorist coverage. On June 10, 2021, plaintiff counsel wrote to Certas to request the default judgment of $747,370.37 be satisfied under both the defendant and plaintiff insurance policies. In July 2021, Certas notified the plaintiffs it was denying a defence and indemnity to the defendant Suitor and advised the matter was being referred to counsel. In late July 2021, Certas counsel asked the plaintiffs not to take any steps that may prejudice Certas without notice. In September 2021, Certas asked for the plaintiffs’ consent to set aside the default judgment. The plaintiffs refused. The plaintiffs asserted that any coverage issues between Certas and its insured can be properly dealt with in the plaintiffs’ application for payment of the insurance money under s. 258(1) of the Insurance Act. Certas then brought this motion.
Analysis
13Section 258(1) of the Insurance Act remedies the situation where a plaintiff who obtained judgment against an insured defendant otherwise had no direct recourse against the defendant’s insurance company: Kapileshwar v Saruban, 2008 CanLII 58154 (ON SC) at para 9. Section 258(1) allows a plaintiff with a judgment against a person insured under a motor vehicle liability policy to have the insurance money payable under the contract applied in or towards satisfaction of the person’s judgment. The plaintiff may maintain an action against the insurer to have the insurance money so applied. The insurer may not raise any act or default of the insured in contravention of the policy as a defence to the claim under the statutory minimum of $200,000. However, the insurer may raise a coverage defence in response to any claim in excess of $200,000: ss. 258(4), (9), (11).
14Because the insurer can be held directly liable to the plaintiff for a judgment against its insured, statutory provisions are also included to enable the insurer to participate in the action and defend against the plaintiff’s claim to which it may become liable: Kapileshwar, supra at para 9. Otherwise, the plaintiff could have a free hand to prove whatever liability and damages it might wish without opposition while the insurer stood impotently by waiting to pay the bill: Bortuzzo v. Barna, 1986 CanLII 2748 (ON SC). As such, where an insurer denies liability under a motor vehicle policy, upon application to the court, it shall be made a third party to an action against an insured where it is or might be asserted that indemnity is provided under the contract [emphasis added]. The insurer has this statutory right whether or not the insured enters an appearance or defence in the action: s.258(14). Upon being made a third party, the insurer may contest liability or the amount of any claim, deliver pleadings, have production and discovery and examine and cross-examine witnesses at the trial to the same extent as if it were a defendant in the action: s. 258(15).
15The plaintiffs submit Certas improperly raised the coverage issues with its insured in support of this motion. Those coverage issues are not a proper consideration that justifies the insurer’s “intermeddling” in the tort action. Those issues are distinct from the tort claim and must be dealt with in a separate proceeding. That separate proceeding is the plaintiffs’ application against Certas for satisfaction of the default judgment.
16I do not accept that Certas improperly raised coverage issues in support of its motion. While the merits of the coverage dispute must be determined in a separate proceeding, the denial of coverage is nevertheless a precondition to the insurer’s ability to add itself as a third party to the tort action against its insured. Section 258(15) clearly states that the right arises “where an insurer denies liability under a contract.” This is the only express condition that Certas must satisfy under s. 258(14) to be added as a statutory third party. The fact of Certas’ denial of coverage to the insured was therefore properly before the court on this motion. This is not unjustified “intermeddling”; it is permitted by statute.
17The plaintiffs argue that Certas chose to delay its application to be made a third party and therefore must enter the proceedings in the state in which they are in at the time of the application: Goldman v Romano, 1974 CarswellOnt 958 at para 4. The plaintiffs submit that as they have already obtained a final judgment against the defendant, the insurer’s right to participate in the tort action has been foreclosed.
18There are two concerns with this position.
19First, I see no evidence that Certas “chose” to delay its application. Certas called plaintiffs’ counsel to find out about the status of the action, asked for the claim, the affidavit of service and the requisition for default. Certas advised plaintiffs’ counsel that coverage issues were under review. Certas was not told of the intention to seek default judgment. The plaintiffs submit that since Certas knew the defendant had been noted in default, it ought to have appreciated the plaintiffs would move promptly for default judgment. I do not agree. The record shows that Certas inquired of plaintiff counsel about the status of the action in April 2021 and told the plaintiffs of the possible coverage issues. Counsel did not tell Certas of their imminent intention to move for default judgment mere weeks later. The nature of Certas’ inquiry was such that plaintiff counsel either knew or ought to have known Certas was making a decision on how it would defend the action. In those circumstances and as a matter of fairness, the plaintiffs should not have proceeded to seek default judgment without advising the insurer. It is not clear when and by what means Certas first became aware of the tort action against its insured. However, accepting the argument the insurer could have been more diligent, I do not find that its conduct amounts to a waiver, misconduct or prejudice to the plaintiffs in these circumstances.
20Second, I also do not interpret s. 258 of the Insurance Act as confining the insurer to its insured’s rights in the same manner as a subrogated claim, as was suggested by the plaintiffs. The statutory provisions contemplate the statutory third party being able to participate whether or not the defendant has defended the action. The provisions allow the insurer to participate as though it was a defendant in the action.
21The plaintiffs claim they have been prejudiced by Certas’ delay through the significant time and expense to prepare for and attend the motion for default judgment. In my view, those steps amount to no more than inconvenience - not prejudice. In any event, it is an inconvenience or prejudice of their own design in failing to notify the insurer of its intentions when the insurer made a direct inquiry about the status of the action. The plaintiffs have known of the identity of the defendant’s insurer since shortly after the collision. The plaintiffs are also clearly aware of the insurer’s responsibility to respond to the claim to the minimum limits and that the plaintiffs could bring an action against the insurer for recovery of the judgment. It is baffling as to why the plaintiffs would not have involved the insurer of the claim when it was evident the defendant was not going to respond to the claim. The action is also not unduly delayed. It is not yet two years since this tragic loss. In contrast, the insurer is irredeemably prejudiced if not permitted to defend the merits of the action on liability and damages.
22I am left with the regrettable conclusion that the plaintiffs’ strategy was to secure judgment against the defendant without having the damages claims tested or challenged. With their unchallenged $747,370.37 default judgment in hand, they intend to pursue full recovery through an application under s. 258(1). This was the very mischief that sections 258(14) and (15) was intended to address. The court should always strive to see that issues between litigants are resolved on their merits whenever that can be done with fairness to the parties: Nobosoft Corporation v. No Borders, Inc., 2007 ONCA 444 at para. 7. Fairness in these circumstances requires the motion be granted.
23Certas has not moved to set aside the default judgment as part of the relief sought on this motion. Certas advised it would review the necessity of this step following the disposition of this motion. The plaintiffs submit Certas would not be successful. I will not determine this issue since it is not part of the relief sought on this motion. However, my findings on this motion may arguably be relevant to determining whether default judgment should be set aside
24The parties are encouraged to resolve costs of the motion. If costs are unresolved, the statutory third party shall deliver its written submissions within 14 days of the date of the release of these reasons. The plaintiffs shall deliver their written submissions within 7 days thereafter. No reply may be delivered without leave. Written submissions shall be no more than two pages, excluding a costs outline or any offers to settle.
K.A. Tranquilli
Justice K. Tranquilli
Date: February 8, 2022