COURT FILE NO.: CV-11-426589 DATE: 20230802

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: INDERJIT K. AULAKH Plaintiff – and – ECONOMICAL MUTUAL INSURANCE COMPANY Defendant

Counsel: Kris Borg-Olivier and Ryan Shah, Lawyers for the Plaintiff Mark Sheeley and Viktor Nikolov, Lawyers for the Defendant

HEARD: APRIL 3, 4, 5 and 6, 2023

G. DOW, J.

Reasons for Decision

[1] The plaintiff seeks damages from the defendant arising from an application for a mutual homeowners insurance policy. The application was dated October 14, 2010. The defendant began a process of demutualization following an effort to organize sufficient mutual policyholders (as voters at the company’s annual meeting) which required court proceedings, legislation and special policy holder meetings extending to the end of 2021. As a result, mutual policyholders received a payment of $497,519.15 which is the quantum of damages sought by the plaintiff.

Background

[2] Except where noted, the facts summarized below are not in dispute. The plaintiff, Inderjit Aulakh is the mother of Iqubal Aulakh, a now 45 year old self-employed businessman with interests in real estate development. He is married to a dentist. They have two children, now ages 10 and 13. When they married in 2005, with the assistance of other relatives in the construction business, Iqubal Aulakh built a custom designed residence in Surrey, British Columbia. As part of his Sikh culture and tradition, parents live with one of their children and the house was built with two master bedrooms on the upper level, one for Iqubal and his spouse, and the other for his mother and father. A third bedroom was on the upper floor, for (expected) children. The main floor contained the usual living, dining, kitchen and other areas while the downstairs, in a generally open concept, contained among other facilities, a guest bedroom, a second kitchen and a bathroom.

[3] Photos of the house taken to support the October, 2010 Application for Homeowners Insurance (marked as Exhibit 1) depict a lot sloping down to the rear such that the residence has a door level with the ground directly out from the basement to the rear yard.

[4] While Inderjit Aulakh is the registered owner, it is clear her son was the driving force of the events giving rise to this action. He became acquainted with two Economical Mutual Insurance Company (“Economical”) executives in Western Canada, Yvon Aubin and James Setch in 2008 and 2009. Those individuals informed him of their employer’s plan to expand the number of mutual policyholders and it having possible additional value.

[5] As a mutual insurance company created in 1871, Economical’s business model retained earnings or assets that, by 2010, amounted to $1.2 billion. The mutual policyholders elected the company’s Board of Directors. As stated in Economical Insurance Co. v. Andrus, 2011 ONSC 2184, at paragraph 18 “The mutual policyholders are persons who insure their homes through The Economical by way of a special type of insurance policy. Mutual policyholders have the right to vote at policyholder meetings. The mutual policyholders elect the directors. However, the mutual policyholders cannot sell or otherwise transfer their mutual policy and it ceases when their insurance terminates. Given the legal structure of a mutual, their role as members is tied to their role as insureds, and hence a time limited one”.

[6] As a result, Iqubal Aulakh, on behalf of his mother, applied for a mutual home insurance policy with Economical. He did so through a local insurance broker, Shaw Sabey & Associates Ltd. and dealt with a broker, Sandra Sobarzo, who deposed in an affidavit sworn on March 4, 2011 (as part of related litigation) being “unfamiliar with mutual policies” (at paragraph 3).

[7] The application for home insurance was filled out on a standardized Centre for Study of Insurance Operation (CSIO) form (at Exhibit 2 and a clearer version contained in Exhibit 4). The form detailed the parameters of the property and structure and provided an estimated premium of $3,147.00 per year. A noteworthy aspect of the application was the premium was to be fixed for three years and was approximately double what the plaintiff had been paying for home insurance with another property and casualty insurer. This gives rise to an inference that the plaintiff’s application was influenced by the potential value in being an Economical Mutual policyholder.

[8] On the second page of the Application, under “Rating Information”, the number “2” is entered beside “Occupancy # of Families”. Further, the entire form is filled out with information typed in the various boxes except where signed and dated by the parties and in the “Additional Liability Exposure Information” section where in the line “# ADDITONAL FAMILIES” there is a handwritten “X” under the “Yes” column and “2 family” to the right of that entry.

[9] In addition to the application form, other materials such as the home evaluation known as an ezITV form (Exhibit 17), a credit card payment authorization (Exhibit 3) and exterior photographs of the residence were required and submitted.

[10] There was no dispute at trial that issuance of the mutual homeowner’s insurance policy was a two step process. The first was a preliminary acceptance or binder. This occurred on October 15, 2010, effective October 18 (Exhibit 4). The second was a decision whether to issue a mutual policy as opposed to the alternative standard policy which does not include the voting rights or potential access to the company’s assets. On November 24, 2010, a Confirmation of Insurance (Exhibit 8) without a policy number was issued.

[11] On November 12, 2010, a notice was placed in The Globe & Mail by VC & Co. Advisory Limited seeking to enlist Economical Mutual policyholders of which there was less than 1000 (Economical Insurance Co. v. Andrus, supra, at paragraph 25). Their intention was to replace the Board of Directors with others who would seek to access the company’s capital. This notice was seen by Iqubal Aulakh who made contact with its executive vice-president. It was also noticed by the management of the Economical who, within days, issued an Initial Notice to its Employees and Mutual Policyholders (Exhibit 38) dissociating itself from this effort and urging its Mutual Policyholders not to co-operate. Further notices were issued in the weeks following which include the statement the Board was “taking every action to prevent it” (Exhibit 38 – Update 2). This included placing a moratorium on issuing new mutual policies.

[12] Evidence at trial was that standard policy applications submitted were processed electronically but review and assessment for Mutual policies was done manually at Economical’s Waterloo, Ontario Head Office. Issuance of a mutual policy needed to be at the highest end for quality (known as select or super select) or, stated from the insurer’s viewpoint, the lowest risk. In this regard, two family dwellings did not achieve the higher level required to be considered for a mutual policy. In May, 2010 a document created by Economical reduced the criteria to writing (Exhibit 25).

[13] The evidence indicated the Aulakh application was forwarded to Head Office by a Senior Underwriter, Doris Coulson on November 12, 2010 (Exhibit 28).

[14] As a result, it appears the application material, as submitted, did not entitle the plaintiff to a mutual homeowner’s policy. However, an email chain on December 9, 2010 indicated additional effort and review was made. The Head Office Product and Pricing Manager, Henry Hamm (no longer with the company and present whereabouts unknown) asked Doris Coulson, about the nature of the “multi-family occupancy” and financing (Exhibit 32). The response stated that the “broker has just confirmed that the house has a basement suite that is rented out to a third party (not a family member)” and financing was through a line of credit.

[15] A handwritten note dated December 16, 2010 stated James Setch “confirmed rental unit in building. Therefore, not eligible” (Exhibit 34).

[16] By the end of December, 2010, the plaintiff had signed on to the VC & Co. efforts and a court application was launched on behalf of 105 mutual policyholders. The application required a threshold number of 100 mutual policyholders. Economical challenged six of those policyholders of which the plaintiff was one. That led to a hearing and the decision in Economical Mutual Co. v. Andrus, supra cited above.

[17] On January 6, 2012, Mr. Hamm forwarded an email including a statement “This is a tricky situation given everything else and possible litigation so want to understand if there should be reconsideration before we contact the broker and policyholder” (Exhibit 35). The response from the Senior Vice-President, Operations was “We should decline the application for a mutual as we had made that decision some time ago and it is consistent with our underwriting practices”.

[18] On January 11, 2011 an undated registered letter signed by James Setch was delivered to the plaintiff advising her the defendant “was unable to approve your policy application based on our underwriting standards for Mutual policies. We will be issuing a standard policy with Economical Mutual Insurance” (Exhibit 13).

[19] The plaintiff’s Statement of Claim was issued May 16, 2011.

Analysis

[20] The plaintiff submits that the defendant had a contractual obligation to exercise its discretion to issue a mutual policy honestly and breached that obligation. It relies on the viva voce evidence of Inderjit and Iqubal Aulakh that no “basement suite” existed in the home nor was it rented to any third party. Further, the documentary evidence of that information in the defendant’s head office file was fabricated as part of the defendant’s response to take “every action to prevent” VC & Co.’s effort to oust the existing Board of Directors and seek demutualization of the defendant.

[21] At the outset of the trial, without my prompting, the parties provided a signed agreement regarding their Joint Book of Documents being compliant with the Court of Appeal direction in Bruno v. Dacosta, 2020 ONCA 602, at paragraph 53. Such a request would have been part of my initial trial management steps when presented with the Joint Book of Documents. It should be noted that each party also produced its own additional documents. For the plaintiff, this included the affidavit of Sandra Sobarzo sworn March 4, 2011 (Exhibit 14). For the defendant, it included the head office emails and handwritten note marked as Exhibits 32 to 36.

[22] The plaintiff called Sandra Sobarzo as a witness. Her evidence was that she could not recall her dealings with the plaintiff or her son or the contents of her affidavit. However, she appreciated the importance of an oath and that the contents of her affidavit were thus truthful when made. On that basis, the plaintiff sought her affidavit be admitted for the truth of its contents. The defendant objected. For reasons given at trial, I ruled the affidavit be admitted for the truth of its contents.

[23] Those contents included that:

a) she was directed by James Setch to initially contact the plaintiff (or her son) about obtaining an Economical Mutual homeowners insurance policy (at paragraph 2);

b) she noted the “2 family” was basic information given to her by Iquabal Aulakh and “the basement had a rentable suite which was equipped with its own kitchen and bathroom” without any awareness of its impact and eligibility for a mutual homeowners insurance policy (at paragraph 8);

c) “no one from Economical contacted me in December, 2010 to inquire about whether the Aulakh Residence’s basement was rented out (to a third party or otherwise” (at paragraph 9).

[24] Later in the trial, the defendant’s employee, Randy Buhrow, Team Leader Broker Enquiry, testified about the manual review and Head Office file of the plaintiff’s application for a mutual policy. Counsel for the defendant, with the required notice having been provided under Section 35 of the Ontario Evidence Act, R.S.O. 1990 c. E. 23 tendered the emails and handwritten notes as business records to be marked as Exhibits. The plaintiff objected. For reasons given at trial, I ruled the documents admissible and they were marked as Exhibits 32 to 36.

[25] Based on a variety of submissions, plaintiff’s counsel urged me to infer from the evidence tendered that the defendant exercised its contractual discretion dishonestly, contrary to the law, as set out by the Supreme Court of Canada in Bhasin v. Hrynew, 2014 SCC 71 and reviewed in CM Callow Inc. v. Zollinger, 2020 SCC 45. This included:

a) the defendant’s stated intention to “take every action” to defeat the efforts of VC & Co.’s attempt to replace the existing Board of Directors;

b) the lack of any evidence to confirm the basement suite rental to a third party existed or had ever occurred at the Aulakh residence;

c) the Aulakh’s inclusion in a group of 105 enlisted by VC & Co. made them a target to be excluded by the defendant;

d) Sandra Sobarzo’s affidavit evidence, given it was sworn within months of the events to be addressed, including not having been contacted by any representative by Economical in December, 2010 should be preferred over the business records, despite the business records appearing to have been made contemporaneously, and Ms. Sobarzo’s inability to recall any details; and

e) Sandra Sobarzo being impartial to the result as opposed to employees of Economical whose very employment was potentially at risk during November, 2010 to January, 2011.

[26] With respect, I do not agree with that submission for the following reasons. While Sandra Sobarzo’s affidavit was sworn by her to be true, it was also done months after the events and without any reference to her having reviewed the Shaw Sabey & Associates Limited file. It is noteworthy that Sandra Sobarzo left her employment with Shaw Sabey & Associates in April, 2011. She did not know who prepared her affidavit. She confirmed dealing with an average 10 clients per working day. She was not the only broker or employee at Shaw Sabey & Associates and others could respond to inquiries in her absence. Most importantly, the evidence she gave, believing it to be true, included her belief “that the basement had a rentable suite which was equipped with its own kitchen and bathroom” (at paragraph 7 of her affidavit). This calls into question the veracity of the evidence of Inderjit and Iqubal Aulakh.

[27] There is clearly incompatible evidence regarding the state of the Aulakh residence. For the plaintiff to succeed, the evidence of one of the parties must be discounted. The defendant tendered evidence as to what was required to qualify for a mutual level policy. The application material submitted to the defendant by the plaintiff did not qualify for same. While the Head Office emails and handwritten note were not verified by their authors or through other evidence in this trial, I am satisfied given their existence as business records and having been made contemporaneously to the events in question, that they reflect the follow-up initiated and information given to the persons that made those records and determined that the Aulakh application did not meet what was required to issue a mutual level policy.

[28] As a result, no breach of the contractual duty of honest dealings occurred between the parties.

Conclusion

[29] The plaintiff’s action is dismissed.

Costs

[30] I requested each party to forward to me their claim for costs if successful. The plaintiff’s Bill of Costs dated April 14, 2023 sought costs of $69,450 for partial indemnity fees, inclusive of HST rising to $92,599 for substantial indemnity fees, again inclusive of HST plus disbursements of $3,896.

[31] In contrast, the defendant’s Costs Outline, also dated April 14, 2023 sets out a total of $144,737.50 for partial indemnity fees, plus HST ($18,815.88) rising to $242,298.05 for “claimed fees” plus disbursements totalling $3,604.62.

[32] I urge the parties to agree on costs. I do so with the reminder of the overarching “objective is to fix an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding, rather than an amount fixed by the actual costs incurred by the successful litigant” (Boucher et al v. Public Accountants Council for the Province of Ontario et al, [2004] O.J. No. 2634 at paragraph 26).

[33] If the parties cannot agree, the party seeking its costs shall serve on opposing counsel and forward to my assistant at the email address through which these reasons were received not more than five double spaced type written pages in a readable font it’s submissions attaching any Offers to Settle or other material being relied upon separately. It shall be received on or before September 1, 2023.

[34] The responding counsel shall have until September 29, 2023 to respond, identically limited as to form and content.

Mr. Justice G. Dow

Released: August 2, 2023