Dunn v. Chubb Insurance Company of Canada,

• Jurisdiction: Ontario
• Judge: O'Connor, A.C.J.O., Lang and Watt, JJ.A.
• Neutral Citation: 2009 ONCA 538
• Citation: (2009), 266 O.A.C. 1 (CA),2009 ONCA 538,97 OR (3d) 701,75 CCLI (4th) 29,[2009] OJ No 2726 (QL),266 OAC 1,(2009), 266 OAC 1 (CA),97 O.R. (3d) 701,[2009] O.J. No 2726 (QL),266 O.A.C. 1
• Date: 22 June 2009
• Court: Court of Appeal (Ontario)

Dunn v. Chubb Ins. (2009), 266 O.A.C. 1 (CA)

MLB headnote and full text

Temp. Cite: [2010] O.A.C. TBEd. AU.015

Frank Andrew Dunn (applicant/appellant) v. Chubb Insurance Company of Canada, Chubb Atlantic Indemnity Ltd. Zurich Insurance Company, Liberty International Underwriters Canada, a Division of Liberty Mutual Insurance Company, ACE INA Insurance, ACE Bermuda Insurance Ltd., Continental Casualty Company, XL Insurance (Bermuda) Ltd., and American Home Assurance Company (respondents/respondents)

Douglas Beatty (applicant/appellant) v. Chubb Insurance Company of Canada, Chubb Atlantic Indemnity Ltd. Zurich Insurance Company, Liberty International Underwriters Canada, a Division of Liberty Mutual Insurance Company, ACE INA Insurance, and American Home Assurance Company (respondents/respondents)

(C50079; C50141; 2009 ONCA 538)

Indexed As: Dunn v. Chubb Insurance Co. of Canada et al.

Ontario Court of Appeal

O'Connor, A.C.J.O., Lang and Watt, JJ.A.

July 2, 2009.

Summary:

In 2004 and subsequent years, proceedings were brought against two insured, including civil cases and regulatory proceedings. All of the proceedings included allegations against the insured by reason of their conduct in 2001 (the 2001 conduct) and their conduct from 2003 to 2004 (the 2003 conduct). The insurers under a 2001 variant of a "claims made" policy accepted responsibility for the defence costs that related to the 2001 conduct, but denied responsibility to the extent that the costs related exclusively to the 2003 conduct. As a result, the insurers paid 50% of the insured's defence costs. The insured applied for a declaration that the insurers were responsible to pay either 90% or 100% of the defence costs.

The Ontario Superior Court, in a decision reported at [2009] O.T.C. Uned. 380, dismissed the application. The insured appealed. At the insured's request, the appeals were expedited.

The Ontario Court of Appeal held that the insurance policy, as it related to the allocation of defence costs, was ambiguous. Whereas the record provided little help in resolving the ambiguity and the parties asserted different facts in support of their position on the application of the doctrine of contra proferentem (most of which were not in evidence), the court allowed the appeal to the extent of ordering a new hearing on that issue. In order to narrow future proceedings, the court dealt with, and dismissed, the other grounds of appeal. The court made no order as to the costs of the appeal. However, if the insured were successful on the appeals, the court fixed their costs on a substantial indemnity basis at $35,000 and $15,000. If the insurers were successful, the court fixed their costs on a partial indemnity basis at $35,000. The costs award was to be inclusive of disbursements and G.S.T.

Contracts - Topic 7433

Interpretation - Ambiguity - Contra proferentem rule - The Ontario Court of Appeal referred to cases that have held that courts should give effect to clear and unambiguous language in an insurance policy, having regard to the contract as a whole - However, the terms of a policy, like all contractual terms, had to be examined in light of the surrounding circumstances, or what was sometimes called the "factual matrix", to determine the parties' intent and the scope of their understanding - Extrinsic or parol evidence could be admitted to assist in resolving an ambiguity - Where a policy was ambiguous, the court should adopt the interpretation that would give effect to the parties' reasonable expectations or intentions - Finally, if all other rules of construction were inadequate, the doctrine of contra proferentem might be applicable to resolve an ambiguity against the party who drafted the contract - Contra proferentem was a rule of last resort and only applied where all other rules of construction had failed - See paragraphs 32 to 36.

Damages - Topic 106

General principles - Evidence and proof - Onus of proof - In 2004 and subsequent years, proceedings were brought against two insured, including civil cases and regulatory proceedings - All of the proceedings included allegations against the insured by reason of their conduct in 2001 (the 2001 conduct) and their conduct from 2003 to 2004 (the 2003 conduct) - The insurers under a 2001 variant of a "claims made" policy accepted responsibility for the defence costs that related to the 2001 conduct, but denied responsibility to the extent that the costs related exclusively to the 2003 conduct - As a result, the insurers paid 50% of the insured's defence costs - The insured applied for a declaration that the insurers were responsible to pay either 90% or 100% of the defence costs for the hybrid proceedings - The insured did not call evidence to establish that the 2001 conduct consumed more than 50% of the costs - In dismissing the application, the application judge found that, absent evidence to the contrary, it was reasonable for the insurers to pay 50% of the defence costs in relation to the 2001 conduct covered under the 2001 policy - The insured appealed, asserting that the judge erred in failing to apply Hanis v. Teevan et al (Ont. C.A.) - The insured asserted that based on Hanis, the insurers had to pay any defence costs reasonably related to the defence of the 2001 covered claims, even if those costs also related to the defence of any 2003 uncovered claims - The Ontario Court of Appeal stated that the insured's assertion was consistent with Hanis - However, Hanis also held that the insurer was not obliged to pay costs related solely to the defence of uncovered claims - The current case appeared to be one where the defence costs could be separated into costs relating to the 2001 conduct and costs relating to the 2003 conduct, not one where the same costs were being incurred for both covered and uncovered claims - With respect to an assertion by the insured that the onus was on the insurers to establish which defence costs related to the covered claims and which related to the uncovered claims, there was no compelling reason to depart from the general rule that the party claiming damages bore the ultimate legal burden of proof on that issue, including proving the quantum of damages suffered - The application judge left it open to the insured to demonstrate that a greater percentage was appropriate and stated that his order could be amended accordingly - The approach taken was appropriate - See paragraphs 61 to 67.

Evidence - Topic 6752

Parole evidence rule - Interpretation of a legal act - Evidence of surrounding circumstances - Where document ambiguous - [See Contracts - Topic 7433 ].

Insurance - Topic 725.1

Insurers - Duties - Duty to defend - Costs of defence and other expenses - [See Damages - Topic 106 ].

Insurance - Topic 1852

The insurance contracts - Interpretation of contract - Intent of the parties - [See Contracts - Topic 7433 ].

Insurance - Topic 1861

The insurance contract - Interpretation of contract - Contra proferentem rule - Ambiguity construed against insurer - [See Contracts - Topic 7433 ].

Insurance - Topic 1863

The insurance contract - Interpretation of contract - Extrinsic aids - [See Contracts - Topic 7433 ].

Insurance - Topic 1864

The insurance contract - Interpretation of contract - By context - [See Contracts - Topic 7433 ].

Insurance - Topic 1865

The insurance contract - Interpretation of contract - Construction in case of ambiguity - Reasonable interpretation - In 2004 and subsequent years, proceedings were brought against two insured, including civil cases and regulatory proceedings - All of the proceedings included allegations against the insured by reason of their conduct in 2001 (the 2001 conduct) and their conduct from 2003 to 2004 (the 2003 conduct) - The insurers under a 2001 variant of a "claims made" policy accepted responsibility for the defence costs that related to the 2001 conduct, but denied responsibility to the extent that the costs related exclusively to the 2003 conduct - As a result, the insurers paid 50% of the insured's defence costs - The insured applied for a declaration that the insurers were responsible to pay either 90% or 100% of the defence costs for the hybrid proceedings - The application was refused - The insurers appealed, asserting that the application judge erred by not giving effect to the allocation provisions contained in endorsements 3 and 10 to the policy which provided for a specific allocation for defence costs in the case of claims that included both covered and uncovered matters - The Ontario Court of Appeal stated that the insurers' responsibility for the defence costs relating to the 2003 conduct turned on the interpretation of the endorsements - The meaning of endorsement 3 when read with the definition of "Loss" in the 2001 policy was ambiguous - It was impossible to resolve the ambiguity on the factual record before the court - There was virtually no evidence about the context or the factual matrix within which the policy or the endorsements were agreed to - There was little to assist in assessing the relative commercial practicality of the positions advocated by each party - The parties took differing positions as to whether the doctrine of contra proferentem was available to assist with the ambiguity's resolution - Significantly, the difference in the parties' positions resulted primarily from the different facts that they asserted respecting the negotiations and the terms of the insurance contract - There was no evidence about the negotiations leading to the endorsements, the definition of "Loss" or other relevant terms or any other information that would assist in determining whether the resulting contract was a policy of adhesion or a manuscript policy - The court ordered a new trial on the issue - See paragraphs 17 to 44.

Insurance - Topic 1869

The insurance contract - Interpretation of contract - Reasonable expectations principle - [See Contracts - Topic 7433 ].

Cases Noticed:

Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., [1980] 1 S.C.R. 888; 32 N.R. 488, refd to. [para. 32, footnote 6].

Eli Lilly & Co. et al. v. Novopharm Ltd. et al., [1998] 2 S.C.R. 129; 227 N.R. 201, refd to. [para. 33].

Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd., [1999] 3 S.C.R. 108; 245 N.R. 88; 127 B.C.A.C. 287; 207 W.A.C. 287, refd to. [para. 33].

Scalera v. Lloyd's of London, [2000] 1 S.C.R. 551; 253 N.R. 1; 135 B.C.A.C. 161; 221 W.A.C. 161; 2000 SCC 24, refd to. [para. 33].

Brissette v. Westbury Life Insurance Co., [1992] 3 S.C.R. 87; 142 N.R. 104; 58 O.A.C. 10, refd to. [para. 33].

Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada et al., [2006] 1 S.C.R. 744; 348 N.R. 307; 211 O.A.C. 363; 2006 SCC 21, refd to. [para. 33].

Hi-Tech Group Inc. v. Sears Canada Inc. (2001), 141 O.A.C. 56; 52 O.R.(3d) 97 (C.A.), refd to. [para. 34].

United Brotherhood and Carpenters and Joiners of America, Local 579 v. Bradco Construction Ltd., [1993] 2 S.C.R. 316; 153 N.R. 81; 106 Nfld. & P.E.I.R. 140; 334 A.P.R. 140, refd to. [para. 34].

Canadian Premier Holdings Ltd. et al. v. Winterthur Canada Financial Corp. et al. (2000), 132 O.A.C. 172 (C.A.), refd to. [para. 34].

SimEx Inc. v. IMAX Corp. et al. (2005), 206 O.A.C. 3 (C.A.), refd to. [para. 34].

Ventas Inc. et al. v. Sunrise Senior Living Real Estate Investment Trust et al. (2007), 222 O.A.C. 102; 85 O.R.(3d) 254 (C.A.), refd to. [para. 34, footnote 4].

Kentucky Fried Chicken Canada v. Scott's Food Services Inc. et al. (1998), 114 O.A.C. 357 (C.A.), refd to. [para. 34, footnote 4].

Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., [1993] 1 S.C.R. 252; 147 N.R. 44; 83 Man.R.(2d) 81; 36 W.A.C. 81, refd to. [para. 35].

Canadian National Railway Co. et al. v. Royal & Sun Alliance Insurance Co. of Canada et al., [2008] 3 S.C.R. 453; 381 N.R. 332; 243 O.A.C. 340; 2008 SCC 66, refd to. [para. 36].

Stevenson v. Reliance Petroleum Ltd., [1956] S.C.R. 936, refd to. [para. 36].

Lauren International Inc. v. Reichert et al. (2008), 237 O.A.C. 94 (C.A.), leave to appeal refused (2008), 391 N.R. 392; 256 O.A.C. 394 (S.C.C.), refd to. [para. 37, footnote 5].

Excel Cleaning Service v. Indemnity Insurance Co. of North America, [1954] S.C.R. 169, refd to. [para. 39, footnote 6].

Fletcher v. Manitoba Public Insurance Co., [1990] 3 S.C.R. 191; 116 N.R. 1; 71 Man.R.(2d) 81; 44 O.A.C. 81, refd to. [para. 39, footnote 6].

Canadian National Railway Co. et al. v. Royal & Sun Alliance Insurance Co. of Canada et al. (2004), 15 C.C.L.I.(4th) 1 (Ont. Sup. Ct.), revd. (2007), 222 O.A.C. 129; 85 O.R.(3d) 186 (C.A.), revd. [2008] 3 S.C.R. 453; 381 N.R. 332; 243 O.A.C. 340; 2008 SCC 66, refd to. [para. 39, footnote 6].

Hillis Oil and Sales Ltd. v. Wynn's Canada Ltd., [1986] 1 S.C.R. 57; 65 N.R. 23; 71 N.S.R.(2d) 353; 171 A.P.R. 353, refd to. [para. 40, footnote 7].

McClelland and Stewart Ltd. v. Mutual Life Assurance Co. of Canada, [1981] 2 S.C.R. 6; 37 N.R. 190, refd to. [para. 40, footnote 7].

Showmart Management Ltd. v. 853436 Ontario Ltd. (1998), 18 R.P.R.(3d) 128 (Ont. Gen. Div.), refd to. [para. 40, footnote 7].

Canadian Crude Separators Ltd. v. Jacobson (1998), 226 A.R. 171 (Q.B.), refd to. [para. 40, footnote 7].

Chubb Custom Insurance Co. v. Prudential Insurance Co. of America (2008), 948 A.2d 1285 (N.J.), refd to. [para. 40, footnote 8].

Six Flags Inc. v. Westchester Surplus Lines Insurance Co. (2009), 565 F.3d 948 (5th Cir.), refd to. [para. 40, footnote 8].

F.D.I.C. v. Insurance Co. of North America (1997), 105 F.3d 778 (1st Cir.), refd to. [para. 40, footnote 8].

Eagle Leasing Corp. v. Hartford Fire Insurance Co. (1976), 540 F.2d 1257 (5th Cir.), refd to. [para. 40, footnote 8].

Fountain Powerboat Industries Inc. v. Reliance Insurance Co. (2000), 119 F. Supp.2d 552 (E.D.N.C.), refd to. [para. 40, footnote 8].

Hanis v. Teevan - see Hanis v. University of Western Ontario et al.

Hanis v. University of Western Ontario et al. (2008), 241 O.A.C. 303; 92 O.R.(3d) 594; 2008 ONCA 678, appld. [para. 62].

E.M. v. Reed et al. (2003), 171 O.A.C. 145 (C.A.), refd to. [para. 69].

Boliden Ltd. v. Liberty Mutual Insurance Co., [2008] O.A.C. Uned. 297; 2008 ONCA 418, refd to. [para. 69].

Boucher et al. v. Public Accountants Council (Ont.) et al. (2004), 188 O.A.C. 201; 71 O.R.(3d) 291 (C.A.), refd to. [para. 70].

Counsel:

Thomas G. Heintzman, Q.C., and Junior Sirivar, for the appellant, Frank Andrew Dunn;

Bonnie A. Tough and Jennifer Lynch, for the appellant, Douglas Beatty;

Gary H. Luftspring and Sam R. Sasso, for the respondent, Chubb Insurance Company of Canada;

Richard H. Krempulec, Q.C., for the respondent, American Home Assurance Company.

These appeals were heard on June 22, 2009, before O'Connor, A.C.J.O., Lang and Watt, JJ.A., of the Ontario Court of Appeal. The following decision was delivered by the court on July 2, 2009.