COURT FILE NO.: CV-21-1066
DATE: 2023-12-22
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
William Ironmonger and Kathryn Ironmonger
Plaintiffs
– and –
FCT Insurance Company Ltd.
Defendant
David A. Morin, for the Plaintiffs
Adam Zasada, for the Defendant
HEARD: September 15, 2023
J. Speyer J.
A. Introduction
[1] The plaintiffs, William and Kathryn Ironmonger (“the Ironmongers”), bought a property from Phillip Morley and Angela Walsh in July 2019. After taking possession of the property, the Ironmongers discovered what they allege to be various deficiencies in the construction of the house and outbuildings.
[2] The Ironmongers had purchased a title insurance policy (the “Policy”) from the defendant, FCT Insurance Company Ltd. (“FCT”). The Ironmongers made an insurance claim arising from, inter alia, alleged incorrect statements made by the municipality during their purchase of the property. FCT denied coverage.
[3] Following FCT’s denial of coverage, the Ironmongers commenced an action against the sellers/builders, the municipality, and an engineer and his firm for damages in breach of contract and tort related to the construction, inspection, and sale of the house (CV 21-686, the “Tort Action”). Various third parties were added to that action.
[4] The Ironmongers then commenced a second action against FCT for insurance coverage for their damages (CV 21-1066, the “Title Insurance Action”). They claim that FCT breached the terms of the insurance contract and was negligent in the manner in which it handled their claim. FCT then claimed against the defendants and third parties to the Tort Action (with one exception) as third party defendants in the Title Insurance Action, advancing claims for contribution and indemnity, pursuant to ss. 2 and 3 of the Negligence Act, common law, the law of equity, and its right of subrogation under the policy of insurance, for any amounts for which FCT may be found to be responsible to the plaintiffs.
[5] FCT moves for Orders:
(1) pursuant to Rule 6.01 that the Tort Action and the Title Insurance Action and its third party claim be heard at the same time, or one immediately after the other, that the parties need serve only one affidavit of documents and that the documents disclosed and produced by them may be used in all of the actions, that the evidence in any of the related proceedings may be used on motions and at trial in any of the related proceedings, and related Orders designed to avoid duplication of effort by the parties; and,
(2) that the Plaintiffs obtain, and provide to FCT at no charge to FCT, a copy of the transcript(s) of the Examination for Discovery of the Plaintiffs that took place in February 2022.
[6] The Plaintiffs have brought a cross-motion for an Order, pursuant to Rule 21.01.1(b) of the Rules of Civil Procedure, that FCT’s third party claim be struck in its entirety for failure to disclose a reasonable cause of action. FCT opposes the plaintiffs’ cross-motion.
B. Issues
[7] There are two issues to be decided on this motion and cross-motion:
(1) Should FCT’s third party claim be struck for failure to disclose a reasonable cause of action?
(2) What Orders should be made to streamline this litigation, to avoid duplication and the risk of inconsistent findings?
C. Should FCT’s third party claim be struck for failure to disclose a reasonable cause of action?
[8] The plaintiffs move for an order pursuant to Rule 21.01(1)(b) of the Rules of Civil Procedure to strike out FCT’s third party claim in the Title Insurance Action. Rule 21.01 provides:
21.01(1) A party may move before a judge, . . .
(b) to strike out a pleading on the ground that it discloses no reasonable cause of action or defence,
and the judge may make an order or grant a judgment accordingly.
[9] The legal test for determining whether a claim should be struck pursuant to Rule 21.01(1)(b) is whether, assuming the facts pleaded to be true, it is plain and obvious that the claim discloses no reasonable cause of action, or put another way, that the claim has no reasonable prospect of success: Jayco Inc v. Canada (Revenue Agency), 2022 ONCA 277, at para 4. The law is clear that this motion must be determined on the pleadings.
[10] A motion to strike for failure to disclose a reasonable cause of action proceeds on the basis that the facts pleaded are true, unless they are manifestly incapable of being proven: R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] 3 SCR 45, at para. 22.
[11] The reasons that follow explain why I have concluded that it is plain and obvious that FCT’s third party claim discloses no reasonable cause of action.
(a) Rule 29.01 of the Rules of Civil Procedure
[12] In its factum, FCT submits that its right to bring the third party claim against the Tort Action defendants in the Title Insurance Action is grounded in the wording and intent of Rule 29.01 of the Rules of Civil Procedure. In summary, FCT argues that if it is found to owe coverage to the Ironmongers for some or all of their losses and damages, “the FCT Third Parties ‘may be liable’ to FCT for all or part of the Plaintiffs’ claims and the FCT Third Parties ‘should be bound by the determination of issues arising between’ the Plaintiffs and FCT under the meaning and intent of both Rule 29.01(a) and Rule 29.01(c)”.
[13] Rule 29.01(a) and (c) provide:
29.01 A defendant may commence a third party claim against any person who is not a party to the action and who,
(a) is or may be liable to the defendant for all or part of the plaintiff’s claim;
…, or
(c) should be bound by the determination of an issue arising between the plaintiff and the defendant.
[14] Rule 29.01 is a general joinder device by which a defendant may engraft on to the main action any "related claim" they may have against non-parties. The purpose of the rule is to promote efficiency, cost effectiveness, and to avoid multiplicity of proceedings: Freudmann-Cohen v. Tran (2004), 70 OR (3d) 667 (CA), at paras. 22-23.
[15] While a defendant does not need to have an independent cause of action against a third party in order to bring a third party claim, a third party claim, like any action, must have a substantive component -- it must assert a cause of action: Hengeveld v. Personal Insurance Co., 2019 ONCA 497, at para. 19; Ottawa Carleton Standard Corporation No. 838 v. Redevelopment Group, 2019 ONSC 7005 (Div. Ct.), at para. 18.
(b) Does Rule 29.01(a) authorize FCT’s third party claim?
[16] Rule 29.01(a) permits a defendant to commence a third party claim against any person not already a party to the action who "is or may be liable to the defendant for all or part of the plaintiff's claim".
[17] In its third-party claim, FCT pleads that it is entitled to recover against the Tort Defendants, if they are found to be liable to the Ironmongers, on the basis of: 1) the contribution and indemnity provisions of the Negligence Act (ss. 2 and 3); 2) contribution and indemnity under common law; 3) contribution and indemnity under the law of equity; and 4) contribution and indemnity under its right to subrogation under the policy of insurance. I will evaluate each of these claims in turn.
(i) FCT’s claim for contribution and indemnity pursuant to ss. 2 and 3 of the Negligence Act
[18] In its third-party claim, FCT claims against the Tort Defendants for “contribution and indemnity under sections 2 and 3 of the Negligence Act, R.S.O. 1990, c. N.1, as amended, for any amounts which FCT may be found to be responsible to the Plaintiffs”.
[19] Sections 2 and 3 of the Negligence Act do not exist in isolation. Together with ss. 1, and 4-7, these provisions establish a framework for the apportionment of damages as between tortfeasors. Section 1 provides:
- Where damages have been caused or contributed to by the fault or neglect of two or more persons, the court shall determine the degree in which each of such persons is at fault or negligent, and, where two or more persons are found at fault or negligent, they are jointly and severally liable to the person suffering loss or damage for such fault or negligence, but as between themselves, in the absence of any contract express or implied, each is liable to make contribution and indemnify each other in the degree in which they are respectively found to be at fault or negligent.
[20] As the Ontario Court of Appeal noted in Misko v. John Doe, 2007 ONCA 660, at para. 18, s. 1 of the Negligence Act provides a mechanism to allocate responsibility for the plaintiff’s damages: the court “shall determine the degree in which each of such persons are found at fault or negligent”.
[21] Section 2 of the Negligence Act flows from s. 1, and addresses recovery as between tortfeasors:
- A tortfeasor may recover contribution or indemnity from any other tortfeasor who is, or would if sued have been, liable in respect of the damage to any person suffering damage as a result of a tort by settling with the person suffering such damage, and thereafter commencing or continuing action against such other tortfeasor … [Emphasis added.]
[22] Even if the defendants to the Tort Action and FCT were tortfeasors who would be liable for damages sustained by the Ironmongers, FCT cannot avail itself of the recovery mechanism created by s. 2 of the Negligence Act because FCT has not settled with the Ironmongers.
[23] Similarly, section 3 of the Negligence Act does not assist FCT. Section 3 address a situation where a plaintiff is guilty of contributory negligence:
- In any action for damages that is founded upon the fault or negligence of the defendant if fault or negligence is found on the part of the plaintiff that contributed to the damages, the court shall apportion the damages in proportion to the degree of fault or negligence found against the parties respectively.
[24] Section 3 of the Negligence Act does not create a cause of action. Rather it enables the court to apportion damages in proportion to the degree of fault or negligence found against the defendant and plaintiff respectively.
[25] In Hengeveld, at para. 22, the Court of Appeal described the purpose of the contribution and indemnity provisions of the Negligence Act:
The contribution and indemnity provisions of the Negligence Act must be understood in light of the purpose they serve. As a general rule a wrongdoer who caused or contributed to a plaintiff's injury is liable to compensate that plaintiff in full, even if another wrongdoer caused or contributed to the plaintiff's injury … . The contribution and indemnity provisions allow a wrongdoer not solely at fault but at risk of being held liable for 100 per cent of the plaintiff's injury to recover indemnity from another wrongdoer to the extent of the latter's relative degree of fault. [Citations omitted.]
[26] Although a defendant does not need to have an independent cause of action against a third party in order to bring a third party claim, the sense in which a defendant bringing a third party claim for contribution and indemnity needs to have a cause of action against the third party is that the defendant must be exposed to the possibility of being jointly and severally liable with the third party for damages caused to the plaintiff: Hengeveld at paras. 19-22: Ottawa Carleton Standard Corporation No. 838 v. Redevelopment Group, 2019 ONSC 7005 (Div. Ct.), at paras. 17-18.
[27] This case is not about allocating responsibility for the Ironmongers’ damages as between the Tort Action defendants and FCT. Responsibility for any damages sustained by the Ironmongers will be determined in the Tort Action. The Ironmongers’ claim against FCT is based on the alleged wrongful denial of insurance coverage for their damages. That is not the same as claiming that FTC is responsible for their damages.
[28] FCT relies on a number of decisions where third-party claims by an insurer against an alleged tortfeasor for damages caused by that tortfeasor to an insured were permitted to proceed: Freudmann-Cohen v. Tran (2004), 70 O.R. (3d) 667 (C.A.); Chatham Motors Ltd. v. Fidelity and Casualty Insurance Co. of New York; Putnam, Third Party (1983) (ONSC); McFlow Capital Corp. v. Carter, 2010 ONSC 5792; and Gemeinhardt v Babic, 2016 ONSC 4707. FCT submits that while these were cases where the insured had failed to claim against a potential tort-feasor, those cases did not identify or rely on that fact to permit the third-party claim by the insurer to proceed. This reliance is misplaced, because it overlooks the decision of the Court of Appeal in Tuffnail v. Meekes, 2020 ONCA 340, at paras. 41-46, where the Court noted that in Freudmann-Cohen it was apparent that the subrogated claim was advanced as a cause of action that could have been available to the plaintiff and the third party’s negligence vis-à-vis the plaintiff was in issue. The insurer sought to add the third party on the basis of a claim by which the third party was or might be liable to the plaintiffs.
[29] In my view, the third-party claim in this case does not plead material facts which, if proven, would expose FCT to the possibility of being jointly and severally liable with the Tort Defendants for damages caused to the plaintiffs. FCT has not pleaded facts to support a conclusion that it caused or contributed to any damages sustained by the Ironmongers. FCT has also not pleaded that it has settled with the Ironmongers. Therefore, FTC’s third party claim against the defendants to the Tort Action based on ss. 2 and 3 of the Negligence Act has no reasonable prospect of success and does not disclose a reasonable cause of action.
(ii) FCT’s claim for contribution and indemnity pursuant to common law
[30] In its third-party claim, FCT claims against the Tort Defendants for “contribution and indemnity under common law… for any amounts which FCT may be found to be responsible to the Plaintiffs.”
[31] Under the common law, an insurer has a right, upon fully indemnifying the insured for losses caused by a third party, to bring an action against the third party in the insured’s name. When an insurer is entitled to bring such an action, it is said to be subrogated to the insured’s rights and is entitled to exercise those rights in the name of the insured: Tuffnail v. Meekes, 2020 ONCA 340 at para. 32.
[32] FCT has not pleaded that it has indemnified the Ironmongers for any losses suffered by the Ironmongers caused by the Tort Defendants. Therefore, FTC’s third party claim against the defendants to the Tort Action based on the common law relating to contribution and indemnity has no reasonable prospect of success and does not disclose a reasonable cause of action.
(iii) FCT’s claim for contribution and indemnity pursuant to the law of equity
[33] In its third-party claim, FCT claims against the Tort Defendants for “contribution and indemnity under … equity… for any amounts which FCT may be found to be responsible to the Plaintiffs.”
[34] In Imperial Tobacco, at para. 147, the Supreme Court of Canada explained the doctrine of equitable indemnity:
Equitable indemnity is a narrow doctrine, confined to situations of an express or implied understanding that a principal will indemnify its agent for acting on the directions given. As stated in Parmley v. Parmley, [1945] S.C.R. 635, claims of equitable indemnity “proceed upon the notion of a request which one person makes under circumstances from which the law implies that both parties understand that the person who acts upon the request is to be indemnified if he does so” (p. 648, quoting Bowen L.J. in Birmingham and District Land Co. v. London and North Western Railway Co. (1886), 34 Ch. D. 261, at p. 275).
[35] FCT has pleaded no facts that support a finding that the doctrine of equitable indemnity has any application in this case. FCT does not plead that the Tort Defendants ever agreed to indemnify FCT for anything that they asked FCT to do. Therefore, FTC’s third party claim against the defendants to the Tort Action based on contribution and indemnity pursuant to the law of equity has no reasonable prospect of success and does not disclose a reasonable cause of action
(iv) FCT’s claim for contribution and indemnity, pursuant to its right to subrogation under the policy of insurance.
[36] In its third-party claim, FCT claims against the Tort Defendants for “contribution and indemnity … pursuant to its right of subrogation, for any amounts which FCT may be found to be responsible to the Plaintiffs.”
[37] FCT has pleaded, in its third-party claim, that it has denied coverage for the Ironmongers’ claim. FCT has also pleaded that it relies on the terms of the insurance policy.
[38] FCT’s right of subrogation arises from its contract of insurance with the Ironmongers. That contract provides, in section 7(a), under the heading: “Transfer of Your Rights”:
When we settle your claim, we have all the rights you have against any person or property related to the claim. You must transfer these rights to us when we ask, and you must not do anything to affect these rights. You must let us use your name in enforcing these rights.
[39] Because FCT has not settled the Ironmongers’ claim, FCT cannot rely on its rights of subrogation under the contract of insurance because those rights have not vested: Douglas v. Stan Fergusson Fuels Ltd., 2018 ONCA 192 at para. 50; Tuffnail v. Meekes, 2020 ONCA 340, at para. 52. Therefore, FTC’s third-party claim against the defendants to the Tort Action for contribution and indemnity pursuant to its right to subrogation under the insurance policy has no reasonable prospect of success and does not disclose a reasonable cause of action.
(c) Does Rule 29.01(c) authorize FCT’s third party claim?
[40] Rule 29.01(c) permits a defendant to commence a third party claim against any person who is not a party to the action who should be bound by the determination of an issue arising between the plaintiff and the defendant.
[41] In its third party claim, FCT does not plead any facts that are in issue between the Ironmongers and FCT the determination of which should bind the third parties/defendants to the Tort Action. The third parties are strangers to the dispute between the Ironmongers and FCT.
[42] Rule 29.01(c) does not authorize FCT’s third party claim.
(d) FCT’s third party claim is not necessary to protect FCT’s interests
[43] A multiplicity of legal proceedings is to be avoided as far as possible: s. 138 of the Courts of Justice Act, R.S.O. 1990, c. C.43; Paterson v. Stewart Title Guaranty Company, 2020 ONSC 4609, per Boswell J. at para. 2.
[44] The effect of FCT’s third party claim is to contribute to a multiplicity of proceedings. The third-party claim is not necessary to ensure that all factual and legal issues that must be determined for the just resolution of the disputes between the parties will be appropriately resolved.
[45] FCT does not need to duplicate the plaintiff’s claims in the Tort Action to ensure that its subrogation rights are protected. This is not a case where the plaintiffs have failed to add a relevant defendant. FCT has provided no evidence that the plaintiffs are not pursing the tort claims diligently.
[46] FCT will not suffer prejudice if its third party claim is struck because other, more efficient, procedures exist to guard against the risk of inconsistent findings and overlapping or double recovery by the Ironmongers. The Ironmongers agree that FCT has a potential subrogated interest in whatever amounts they recover from the defendants in the Tort Action.
[47] The goals of streamlining this litigation and avoiding duplication and the risk of inconsistent findings can be achieved without complicating the litigation by permitting FCT’s third party claim to proceed. Rule 29.01 does not stand alone as the only procedural tool that may be employed to ensure that FCT’s potential subrogated claim against the defendants in the Tort Action can be properly adjudicated. In this case the Ironmongers and FCT agree that an Order should be made requiring the two actions brought by the Ironmongers to be heard one after the other and providing additional direction to avoid duplication and unnecessary steps.
D. What Orders should be made to streamline this litigation, to avoid duplication and the risk of inconsistent findings?
[48] FCT’s motion seeks an order that the Title Insurance Action and the Tort Action be heard at the same time, or one immediately following the other. The Ironmongers have consented to such an order. The specific terms of that order are addressed at the conclusion of this judgment.
E. Costs
[49] The parties agreed at the hearing of the motion that the successful party would be entitled to costs in the amount of $15,000. The plaintiffs have entirely succeeded on their cross-motion and there was no dispute between the parties as to the other procedural orders to be made. FCT is ordered to pay costs to the Ironmongers in the amount of $15,000, payable within 30 days.
F. Order
[50] It is ordered:
(1) that the Third Party Claim in Court File CV 21-1066-00A1, be struck;
(2) pursuant to Rule 6.01(1) of the Rules of Civil Procedure, that the action filed under Court File No.: CV-21-1066 (“the Title Insurance Action”) be heard at the same time as, or immediately after, the action filed under Court File No.: CV21-0686-0000/00A1 (the “Tort Action”) pursuant to Rule 6.01(1)(d) of the Rules of Civil Procedure as may be directed by the Trial Judge;
(3) pursuant to Rules 6.01(2) and 30.1.01(8) of the Rules of Civil Procedure, that:
(d) William Guy Ironmonger and Kathryn Carolann Cheryl Ironmonger (the “Plaintiffs”) need produce only one Affidavit of Documents and the documents disclosed and produced by the Plaintiffs may be used in both the Title Insurance Action and the Tort Action
(e) FCT Insurance Company Ltd. ( “FCT”), need produce only one Affidavit of Documents and the documents disclosed and produced by it may be used in both the Title Insurance Action and the Tort Action;
(f) The Defendants and Third Parties in the Tort Action, Phillip Morley and Angela Walsh, both personally and o/a Alliance Construction, The Corporation of the Town of South Bruce Peninsula, Brent Willis P.Eng. and GM Blueplan Engineering Limited, Greg Williamson, William Schaefer and West Ridge Home Inspection Services Inc., need each produce only one Affidavit of Documents and the documents disclosed and produced by them may be relied on in both the Title Insurance Action and the Tort Action;
(g) Examinations for Discovery of the Plaintiffs and Defendant in the Title Insurance Action will proceed separately but the transcripts and answers to undertakings from Examinations for Discovery in each action may be relied on in both the Tort Action and the Title Insurance Action;
(h) Evidence in the Title Insurance Action may be used on motions and at trial in the Tort Action and evidence obtained in the Tort Action may be used on motions and at trial in the Title Insurance Action;
(i) No parties’ substantive rights or defences outside of the express terms of this Order are affected by this Order; and
(j) Any party may seek further Order or direction regarding procedural issues and the use of evidence in the Title Insurance Action or in the Tort Action.
(4) This Order will be filed by the Court Registry staff in both the Title Insurance Action and the Tort Action.
(5) Costs in the amount of $15,000, inclusive of disbursements and HST are payable by FCT to the Ironmongers, within 30 days.
J. Speyer J.
Released: December 22, 2023
COURT FILE NO.: CV-21-1066
DATE: 2023-12-22
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
WILLIAM GUY IRONMONGER and KATHRYN
CAROLANN CHERYL IRONMONGER
-and-
FCT INSURANCE COMPANY LTD.
REASONS FOR JUDGMENT
Justice J. Speyer
Released: December 22, 2023