CANADIAN CASES on the LAW of INSURANCE Fifth Series/Cinqui`Eme S´Erie Recueil De Jurisprudence En Droit Des Assurances

CANADIAN CASES ON THE LAW OF INSURANCE Fifth Series/Cinqui`eme s´erie Recueil de jurisprudence en droit des assurances

VOLUME 18 (Cited 18 C.C.L.I. (5th))

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CARSWELL, A DIVISION OF THOMSON REUTERS CANADA LIMITED One Corporate Plaza Customer Relations 2075 Kennedy Road Toronto 1-416-609-3800 Toronto, Ontario Elsewhere in Canada/U.S. 1-800-387-5164 M1T 3V4 Fax 1-416-298-5082 www.carswell.com Contact www.carswell.com/contact Onex v. American Home Assurance 171

[Indexed as: Onex Corp. v. American Home Assurance Co.] Onex Corporation, Gerald W. Schwartz, Christopher A. Govan, Mark Hilson and Nigel Wright, Plaintiffs/Defendants by Counterclaim (Respondents/Cross-Appellants) and American Home Assurance Company, Brit Syndicates Ltd. (Lloyd’s Syndicate 2987), Heritage Managing Agency Limited (Lloyd’s Syndicate 3245), XL Insurance Company Limited, Liberty Mutual Insurance Company, Lloyd’s Underwriters Syndicates No. 2623, 0623, 0033 and AIG Europe (UK) Limited, and Houston Casualty Company, Defendants/Plaintiff by Counterclaim American Home (Respondents/Appellant/Respondent on Cross-Appeal) Ontario Court of Appeal Docket: CA C54076, C54123, C55034 2013 ONCA 117 D. O’Connor A.C.J.O., Janet Simmons, M. Rosenberg JJ.A. Heard: June 2, 2012 Judgment: February 25, 2013 Civil practice and procedure –––– Summary judgment — Availability of summary judgment — Miscellaneous –––– Respondent company was sued in state of Georgia, resulting from bankruptcy proceedings — Action settled for $9.25 million, with company incurring approximately $35 million in defence costs — Company brought action against appellant insurer, when insurer refused to reimburse company for their costs — Company claimed that they were to be reimbursed both under standard and excess policies — Both parties moved for summary judgment — On motion, it was found that company was not entitled to coverage under excess policy, as they had given notice under standard policy — Standard policy did not exclude type of defence that company needed, and insurer was required to pay $15 million under this policy — Insurer appealed from findings of liability by motion judge — Company cross-appealed — Appeal allowed — Cross-appeal dismissed — Letter from insurance broker set out proper particulars to exclude coverage to company under standard policy — Insurer was allowed to amend pleadings, to take into account circumstances of changed policy limits — Claim was not excluded due to it being brought by litigation trust in Georgia — This litigation trust was not considered to be Georgia company that was excluded under policy — Motion judge correctly interpreted exclusion policy, but insurer’s interpretation was also reasonable — Factual issues could not be resolved at this stage — Reasonable expectations of parties had to be determined at trial level — Trial court would have to determine whether in- 172 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th) surer was entitled to set-off — Matter was to be returned to Superior Court, with possibility of parties renewing motions for summary judgment. Insurance –––– Principles of interpretation and construction — Exclusion of risk clauses –––– Respondent company was sued in state of Georgia, resulting from bankruptcy proceedings — Action settled for $9.25 million, with company incurring approximately $35 million in defence costs — Company brought action against appellant insurer, when insurer refused to reimburse company for their costs — Company claimed that they were to be reimbursed both under standard and excess policies — Both parties moved for summary judgment — On motion, it was found that company was not entitled to coverage under excess policy, as they had given notice under standard policy — Standard policy did not exclude type of defence that company needed, and insurer was required to pay $15 million under this policy — Insurer appealed from findings of liability by motion judge — Company cross-appealed — Appeal allowed — Cross-appeal dismissed — Letter from insurance broker set out proper particulars to exclude coverage to company under standard policy — Insurer was allowed to amend pleadings, to take into account circumstances of changed policy limits — Claim was not excluded due to it being brought by litigation trust in Georgia — This litigation trust was not considered to be Georgia company that was excluded under policy — Motion judge correctly interpreted exclusion policy, but insurer’s interpretation was also reasonable — Factual issues could not be resolved at this stage — Reasonable expectations of parties had to be determined at trial level — Trial court would have to determine whether insurer was entitled to set-off — Matter was to be returned to Superior Court, with possibility of parties renewing motions for summary judgment. Insurance –––– Contract of indemnity — Primary and excess coverage — Determination of liability –––– Respondent company was sued in state of Geor- gia, resulting from bankruptcy proceedings — Action settled for $9.25 million, with company incurring approximately $35 million in defence costs — Com- pany brought action against appellant insurer, when insurer refused to reimburse company for their costs — Company claimed that they were to be reimbursed both under standard and excess policies — Both parties moved for summary judgment — On motion, it was found that company was not entitled to coverage under excess policy, as they had given notice under standard policy — Standard policy did not exclude type of defence that company needed, and insurer was required to pay $15 million under this policy — Insurer appealed from findings of liability by motion judge — Company cross-appealed — Appeal allowed — Cross-appeal dismissed — Letter from insurance broker set out proper particulars to exclude coverage to company under standard policy — Insurer was allowed to amend pleadings, to take into account circumstances of changed policy limits — Claim was not excluded due to it being brought by litigation trust in Georgia — This litigation trust was not considered to be Georgia company that Onex v. American Home Assurance 173 was excluded under policy — Motion judge correctly interpreted exclusion policy, but insurer’s interpretation was also reasonable — Factual issues could not be resolved at this stage — Reasonable expectations of parties had to be determined at trial level — Trial court would have to determine whether insurer was entitled to set-off — Matter was to be returned to Superior Court, with possibility of parties renewing motions for summary judgment. Insurance –––– Actions on policies — Commencement of proceedings — Obligations of insurer — To defend — General principles –––– Respondent company was sued in state of Georgia, resulting from bankruptcy proceedings — Action settled for $9.25 million, with company incurring approximately $35 million in defence costs — Company brought action against appellant insurer, when insurer refused to reimburse company for their costs — Company claimed that they were to be reimbursed both under standard and excess policies — Both parties moved for summary judgment — On motion, it was found that company was not entitled to coverage under excess policy, as they had given notice under standard policy — Standard policy did not exclude type of defence that company needed, and insurer was required to pay $15 million under this policy — Insurer appealed from findings of liability by motion judge — Company cross-appealed — Appeal allowed — Cross-appeal dismissed — Let- ter from insurance broker set out proper particulars to exclude coverage to company under standard policy — Insurer was allowed to amend pleadings, to take into account circumstances of changed policy limits — Claim was not excluded due to it being brought by litigation trust in Georgia — This litigation trust was not considered to be Georgia company that was excluded under policy — Mo- tion judge correctly interpreted exclusion policy, but insurer’s interpretation was also reasonable — Factual issues could not be resolved at this stage — Reasona- ble expectations of parties had to be determined at trial level — Trial court would have to determine whether insurer was entitled to set-off — Matter was to be returned to Superior Court, with possibility of parties renewing motions for summary judgment. Insurance –––– Actions on policies — Practice and procedure — Summary judgment –––– Respondent company was sued in state of Georgia, resulting from bankruptcy proceedings — Action settled for $9.25 million, with company incurring approximately $35 million in defence costs — Company brought action against appellant insurer, when insurer refused to reimburse company for their costs — Company claimed that they were to be reimbursed both under standard and excess policies — Both parties moved for summary judgment — On motion, it was found that company was not entitled to coverage under excess policy, as they had given notice under standard policy — Standard policy did not exclude type of defence that company needed, and insurer was required to pay $15 million under this policy — Insurer appealed from findings of liability by motion judge — Company cross-appealed — Appeal allowed — Cross-ap- 174 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th) peal dismissed — Letter from insurance broker set out proper particulars to exclude coverage to company under standard policy — Insurer was allowed to amend pleadings, to take into account circumstances of changed policy limits — Claim was not excluded due to it being brought by litigation trust in Georgia — This litigation trust was not considered to be Georgia company that was excluded under policy — Motion judge correctly interpreted exclusion policy, but insurer’s interpretation was also reasonable — Factual issues could not be resolved at this stage — Reasonable expectations of parties had to be determined at trial level — Trial court would have to determine whether insurer was entitled to set-off — Matter was to be returned to Superior Court, with possibility of parties renewing motions for summary judgment. Insurance –––– Principles applicable to specific types of insurance — Direc- tors’ and officers’ liability insurance –––– Respondent company was sued in state of Georgia, resulting from bankruptcy proceedings — Action settled for $9.25 million, with company incurring approximately $35 million in defence costs — Company brought action against appellant insurer, when insurer refused to reimburse company for their costs — Company claimed that they were to be reimbursed both under standard and excess policies — Both parties moved for summary judgment — On motion, it was found that company was not entitled to coverage under excess policy, as they had given notice under standard policy — Standard policy did not exclude type of defence that company needed, and insurer was required to pay $15 million under this policy — Insurer appealed from findings of liability by motion judge — Company cross-appealed — Appeal allowed — Cross-appeal dismissed — Letter from insurance broker set out proper particulars to exclude coverage to company under standard policy — Insurer was allowed to amend pleadings, to take into account circumstances of changed policy limits — Claim was not excluded due to it being brought by litigation trust in Georgia — This litigation trust was not considered to be Georgia company that was excluded under policy — Motion judge correctly interpreted exclusion policy, but insurer’s interpretation was also reasonable — Factual issues could not be resolved at this stage — Reasonable expectations of parties had to be determined at trial level — Trial court would have to determine whether insurer was entitled to set-off — Matter was to be returned to Superior Court, with possibility of parties renewing motions for summary judgment. Cases considered by D. O’Connor A.C.J.O., Janet Simmons J.A.: Brissette v. Westbury Life Insurance Co. (1992), [1992] I.L.R. 1-2888, 47 E.T.R. 109, 13 C.C.L.I. (2d) 1, 142 N.R. 104, 58 O.A.C. 10, (sub nom. Brissette Estate v. Westbury Life Insurance Co.) [1992] 3 S.C.R. 87, 1992 Carswell- Ont 999, 1992 CarswellOnt 544, 96 D.L.R. (4th) 609, EYB 1992-67552, [1992] S.C.J. No. 86 (S.C.C.) — referred to Combined Air Mechanical Services Inc. v. Flesch (2011), 13 R.P.R. (5th) 167, 14 C.P.C. (7th) 242, 2011 ONCA 764, 2011 CarswellOnt 13515, 10 C.L.R. Onex v. American Home Assurance 175

(4th) 17, 344 D.L.R. (4th) 193, 108 O.R. (3d) 1, 286 O.A.C. 3, 97 C.C.E.L. (3d) 25, 93 B.L.R. (4th) 1, [2011] O.J. No. 5431 (Ont. C.A.) — followed Continental Ins. Co. v. Superior Court of Los Angeles County (1995), 37 Cal. App. 4th 69 (U.S. Cal. Ct. App. 2 Dist.) — considered Dumbrell v. Regional Group of Cos. (2007), 55 C.C.E.L. (3d) 155, 220 O.A.C. 64, 85 O.R. (3d) 616, 2007 CarswellOnt 407, 25 B.L.R. (4th) 171, 279 D.L.R. (4th) 201, 2007 ONCA 59, [2007] O.J. No. 298 (Ont. C.A.) — considered Dunn v. Chubb Insurance Co. of Canada (2009), 266 O.A.C. 1, 2009 ONCA 538, 2009 CarswellOnt 3715, 75 C.C.L.I. (4th) 29, 97 O.R. (3d) 701, [2009] O.J. No. 2726 (Ont. C.A.) — referred to Gibbens v. Co-operators Life Insurance Co. (2009), (sub nom. Co-operators Life Insurance Co. v. Gibbens) [2009] 3 S.C.R. 605, 2009 CarswellBC 3402, 2009 CarswellBC 3403, 2009 SCC 59, 278 B.C.A.C. 283, 471 W.A.C. 283, 79 C.C.L.I. (4th) 1, [2010] 1 W.W.R. 575, 99 B.C.L.R. (4th) 1, (sub nom. Co-operators Life Insurance Co. v. Gibbens) [2010] I.L.R. I-4928, (sub nom. Co-operators Life Insurance Company v. Gibbens) 2009 C.E.B. & P.G.R. 8370, 313 D.L.R. (4th) 513, 396 N.R. 165 (S.C.C.) — referred to Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada (2006), 80 O.R. (3d) 557 (note), 348 N.R. 307, 211 O.A.C. 363, 2006 CarswellOnt 3265, 2006 CarswellOnt 3266, 2006 SCC 21, 36 C.C.L.I. (4th) 161, 267 D.L.R. (4th) 1, [2006] I.L.R. I-4512, [2006] 1 S.C.R. 744, [2006] R.R.A. 523, [2006] S.C.J. No. 21 (S.C.C.) — referred to Kentucky Fried Chicken Canada v. Scott’s Food Services Inc. (1998), 1998 CarswellOnt 4170, 41 B.L.R. (2d) 42, 114 O.A.C. 357, [1998] O.J. No. 4368 (Ont. C.A.) — considered Lombard Canada Ltd. v. Zurich Insurance Co. (2010), 2010 CarswellOnt 2387, 2010 ONCA 292, 101 O.R. (3d) 371, 268 O.A.C. 317, 83 C.C.L.I. (4th) 163, 93 M.V.R. (5th) 188, [2010] I.L.R. I-4980, [2010] O.J. No. 1645 (Ont. C.A.) — considered McCullough v. Fidelity & Deposit Co. (1993), 2 F.3d 110 (U.S. C.A. 5th Cir.) — considered Non-Marine Underwriters, Lloyd’s London v. Scalera (2000), [2000] 1 S.C.R. 551, (sub nom. Scalera v. Lloyd’s of London) 135 B.C.A.C. 161, (sub nom. Scalera v. Lloyd’s of London) 221 W.A.C. 161, 2000 CarswellBC 885, 2000 CarswellBC 886, 2000 SCC 24, 50 C.C.L.T. (2d) 1, [2000] 5 W.W.R. 465, 75 B.C.L.R. (3d) 1, 18 C.C.L.I. (3d) 1, 185 D.L.R. (4th) 1, [2000] I.L.R. I- 3810, (sub nom. Scalera v. Lloyd’s of London) 253 N.R. 1, [2000] S.C.J. No. 26 (S.C.C.) — referred to Oesterling v. First Mercury Syndicate (1997), 117 F.3d 115 (U.S. C.A. 3rd Cir.) — considered Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada (2010), [2010] 2 S.C.R. 245, (sub nom. Progressive Homes Ltd. v. Lombard General 176 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

Insurance Co.) [2010] I.L.R. I-5051, 406 N.R. 182, 92 C.L.R. (3d) 1, [2010] 10 W.W.R. 573, 2010 SCC 33, 2010 CarswellBC 2501, 2010 CarswellBC 2502, 89 C.C.L.I. (4th) 161, 73 B.L.R. (4th) 163, 9 B.C.L.R. (5th) 1, 323 D.L.R. (4th) 513, 293 B.C.A.C. 1, 496 W.A.C. 1, [2010] S.C.J. No. 33 (S.C.C.) — considered Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co. (1993), [1993] 2 W.W.R. 433, (sub nom. Simcoe & Erie General Insurance Co. v. Reid Crowther & Partners Ltd.) [1993] I.L.R. 1-2914, 13 C.C.L.I. (2d) 161, 83 Man. R. (2d) 81, 36 W.A.C. 81, 6 C.L.R. (2d) 161, [1993] 1 S.C.R. 252, 147 N.R. 44, 99 D.L.R. (4th) 741, 1993 CarswellMan 96, 1993 CarswellMan 343, [1993] 1 S.C.R. 10, [1993] S.C.J. No. 10, EYB 1993-80057 (S.C.C.) — referred to Statutes considered: Courts of Justice Act, R.S.O. 1990, c. C.43 s. 134(1) — considered Rules considered: Rules of Civil Procedure, R.R.O. 1990, Reg. 194 R. 20.04(2.1) [en. O. Reg. 438/08] — considered

APPEAL by insurer from judgment reported at, Onex Corp. v. American Home Assurance Co. (2011), [2011] I.L.R. I-5166, 98 C.C.L.I. (4th) 228, 2011 ONSC 1142, 2011 CarswellOnt 5875 (Ont. S.C.J.), requriring insurer to pay defence costs of respondent company; CROSS-APPEAL by company from dismissal of motion for indemnification from other policies of insurer.

Geoffrey D.E. Adair, Q.C., Alexa Sulzenko, for Respondents / Cross-Appellants Glenn A. Smith, Rory Gillis, Marcus B. Snowden, for Appellant / Respondent on Cross-appeal, American Home Assurance Company Alan L. W. D’Silva, Mark E. Walli, Ellen M. Snow, for Respondents, Brit Syn- dicates Ltd. (Lloyd’s Syndicate 2987), Heritage Managing Agency Limited (Lloyd’s Syndicate 3245), XL Insurance Company Limited

D. O’Connor A.C.J.O., Janet Simmons J.A.: A. Overview 1 The main issues before this court concern whether Onex Corporation is entitled to reimbursement for defence and settlement costs (“defence costs”) under various directors’ and officers’ (“D&O”) liability insurance policies. 2 In 2005, Onex, four of its directors and officers — Gerald W. Schwartz, Christopher A. Govan, Mark Hilson and Nigel Wright (the Onex v. American Home Assurance O’Connor A.C.J.O., Simmons J.A. 177

“personal defendants”) — and others were sued in the state of Georgia by the Trustee of the Magnatrax Litigation Trust (the “Georgia Action”). 3 The Georgia Action arose out of bankruptcy proceedings involving Magnatrax Corporation under Chapter 11 of the United States Bank- ruptcy Code. Magnatrax was a former subsidiary of Onex. The Magna- trax Litigation Trust was established during the Chapter 11 proceedings to pursue claims on behalf of the unsecured creditors of Magnatrax and its subsidiaries. 4 In the Georgia Action, the Trustee of the Magnatrax Litigation Trust alleged that Onex and the personal defendants used their control of Magnatrax to enrich themselves at the expense of Magnatrax and ultimately caused Magnatrax and its subsidiaries to become insolvent. 5 The Georgia Action eventually settled for US$9.25 million. In the course of defending the Georgia Action on behalf of itself and the personal defendants, Onex incurred close to US$35 million. 6 Like many corporations, Onex regularly purchased D&O liability insurance and excess D&O liability insurance to protect both its own directors and officers, and also the directors and officers of its subsidiaries, from claims arising from their actions while acting in their capacity as directors and officers. 7 In 2008, Onex and the personal defendants commenced this action (the “Onex Action”) against American Home Assurance Company1 and various excess insurers (“Excess Insurers”). Onex and the personal defendants claimed they were entitled to reimbursement for defence costs incurred in the Georgia Action under a US$15 million 2004-2005 Ameri- can Home D&O policy (the “Onex 2004-2005 Policy”) and under various excess D&O policies purchased for the 2004-2005 policy year (the “2004-2005 Excess Policies”).2 8 In the alternative, Onex and the personal defendants claimed they were entitled to reimbursement under a US$15 million 2002-2003 Amer- ican Home D&O policy (the “Onex 2002-2003 Policy”).

1Now known as Chartis Insurance Company of Canada. 2As will be further discussed below, the personal defendants’ claim for defence costs was based on the Executive Liability section of the applicable D&O policies. Onex’s coverage under the applicable D&O policies was limited to reimbursement for defence costs that it incurred on behalf of the personal defendants. 178 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

9 While serving as directors and officers of Onex, the personal defendants, Wright and Hilson, were also directors and officers of Magnatrax. In the Georgia Action, it was alleged that the personal defendants, Schwartz and Govan, acted as de facto directors and officers of Magnatrax. 10 Before Onex and the personal defendants commenced the Onex Ac- tion, American Home paid out US$15 million — the full limit of liability — under a D&O policy issued to Magnatrax (the “Magnatrax Run- Off Policy”) to defray the Georgia Action defence costs of the personal defendants and two other directors and officers of Magnatrax. 11 The Magnatrax Run-Off Policy was issued on May 12, 2003 — on the eve of Magnatrax’s insolvency. It was issued in anticipation of Magnatrax ceasing to be an Onex subsidiary and therefore ceasing to be covered under the Onex 2002-2003 Policy.3 12 In defending the Onex Action, American Home and the Excess Insur- ers claimed that Onex learned about the possibility of the Georgia Action in August 2003 and gave notice to American Home of that possibility (the “notice of circumstances”) in compliance with clause 7(c) of the Onex 2002-2003 Policy, as well as clause 7(c) of the Magnatrax Run-Off Policy. Accordingly, under clause 4(d) of the Onex 2004-2005 Policy, if Onex was entitled to any coverage for defence costs in connection with the Georgia Action under its American Home D&O policies, it could only be under the Onex 2002-2003 Policy and not under the Onex 2004- 2005 Policy or the 2004-2005 Excess Policies.

3It is not clear from the record when Magnatrax in fact ceased to be an Onex subsidiary. The motion judge stated that Magnatrax ceased to be an Onex subsidiary on November 17, 2003, which was the date the U.S. Bankruptcy Court approved the Magnatrax Plan of Reorganization. In their appeal facta, the parties suggest different dates for when Magnatrax ceased to be an Onex subsidiary. Onex and the Excess Insurers indicate that Magnatrax ceased to be an Onex subsidiary when it emerged from Chapter 11 protection on January 20, 2004, whereas American Home indicates that Magnatrax ceased to be an Onex subsidiary when it declared bankruptcy, which was May 12, 2003. We need not resolve this issue because Endorsement #14 of the Onex 2002-2003 Policy provides that the definition of subsidiary shall not include Magnatrax Corporation as of May 12, 2003, which is the date that Endorsement #14 became effective and is the inception date of the Magnatrax Run-Off Policy. Onex v. American Home Assurance O’Connor A.C.J.O., Simmons J.A. 179

13 Further, American Home relied on Endorsement #14 of the Onex 2002-2003 Policy, which was added effective on the date the Magnatrax Run-Off Policy was issued. American Home denied coverage under the Onex 2002-2003 Policy based on its position that Endorsement #14 of that policy excludes any Magnatrax-related claims from coverage. 14 On competing motions for summary judgment, Pattillo J. accepted American Home’s argument that Onex gave notice of circumstances under clause 7(c) of the Onex 2002-2003 Policy. Therefore, under clause 4(d) of the Onex 2004-2005 Policy, Onex and the personal defendants were not entitled to reimbursement for defence costs in connection with the Georgia Action. It followed that the Excess Insurers, who had agreed to follow the form of the Onex 2004-2005 Policy, were also excluded from liability under the 2004-2005 Excess Policies for any loss in respect of the Georgia Action. The motion judge accordingly dismissed Onex’s action against the Excess Insurers in reasons dated June 30, 2011 and reported at 2011 ONSC 1142, 98 C.C.L.I. (4th) 228 (Ont. S.C.J.) (the “reported reasons”). 15 However, in his reported reasons, the motion judge rejected American Home’s argument that Endorsement #14 of the Onex 2002-2003 Policy excluded Onex’s claim for reimbursement of defence costs in connection with the Georgia Action. He concluded that Endorsement #14 does not exclude “any claim by a third party against Onex’s directors and officers in their capacity as such for their wrongful acts in relation to Magnatrax.” 16 The motion judge therefore ordered American Home to pay Onex US$15 million on behalf of the personal defendants for defence costs in connection with the Georgia Action under the Onex 2002-2003 Policy. 17 Following the original summary judgment motions, American Home moved to amend its pleadings to further particularize its claim for legal or equitable set-off of amounts that it paid under the Magnatrax Run-Off Policy against amounts owing under the Onex 2002-2003 Policy. Ameri- can Home also moved for summary judgment on its amended counterclaim. In unreported reasons dated January 20, 2012 (the “unreported reasons”), the motion judge permitted American Home to amend its pleadings, but went on to dismiss the motion for summary judgment on the claim as amended. 18 American Home appeals from the motion judge’s judgments requiring that it pay US$15 million to Onex and the personal defendants under the Onex 2002-2003 Policy and dismissing its claim for set-off. 180 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

19 Onex and the personal defendants cross-appeal from that part of the motion judge’s judgment dismissing their action for indemnification under the Onex 2004-2005 Policy and the 2004-2005 Excess Policies. They also cross-appeal from the motion judge’s judgment granting American Home leave to amend its pleadings to plead set-off (collec- tively, the “Onex cross-appeal”). 20 For the reasons that follow, we would allow American Home’s appeal, set aside the decision of the motion judge and return the matter to the Superior Court. In addition, we would dismiss the Onex cross-appeal.

B. Facts (i) Onex and Magnatrax 21 Onex is an Ontario corporation that regularly acquires operating busi- nesses with a view to creating value and subsequently either retaining them or disposing of them. 22 To the knowledge of its D&O insurers, Onex’s directors and officers often serve in a dual capacity as directors and officers of its subsidiaries while they remain directors and officers of Onex. 23 Onex incorporated Magnatrax in Delaware in 1999. Between May 1999 and March 2000, Magnatrax and/or its subsidiaries purchased several U.S. and Canadian manufacturing companies. Three of these transactions were the subject matter of the allegations against Onex and the personal defendants in the Georgia Action.

(ii) Aon Reed Stenhouse 24 Aon Reed Stenhouse is an insurance broker who acted as agent and broker for both Onex and Magnatrax in obtaining and negotiating the various policies of insurance at issue.

(iii) Onex’s D&O Coverage 25 As we have said, Onex regularly purchased D&O liability insurance to protect both its own directors and officers and also the directors and officers of its subsidiaries from claims arising from their actions while acting in their capacity as directors and officers. These policies were generally “claims made and reported policies”, meaning they provide coverage for claims first made against an insured party during the policy period and reported to the insurer within a time frame defined in the policy. Onex v. American Home Assurance O’Connor A.C.J.O., Simmons J.A. 181

26 The specific language of all relevant policy provisions referred to in these reasons is set out in the Appendix.

(iv) Onex 2002-2003 Policy 27 In 2002, American Home, which is a member of the American Inter- national Group (“AIG”), issued the Onex 2002-2003 Policy. The policy covered the period from November 29, 2002 to November 29, 2003 and had a US$15 million limit of liability. 28 Among other things, the Onex 2002-2003 Policy provided “Executive Liability Insurance” and “Organization Insurance”. Put briefly, “Execu- tive Liability Insurance” coverage requires an insurer to pay defence costs incurred by directors and officers of a corporation arising from a proceeding against them based on their wrongful conduct as directors and officers of the corporation. “Organization Insurance” entitles a corporation to be reimbursed by the insurer for defence costs it pays on behalf of its directors and officers for such proceedings. 29 More specifically, the Onex 2002-2003 Policy’s Executive Liability Insurance coverage provision provides that American Home would pay the “Loss” of any “Insured Person” arising from a “Claim” made against the “Insured Person” for any “Wrongful Act” of the “Insured Person”. The Organization Insurance coverage provision provides that American Home would pay the “Organization” for such loss only to the extent that the Organization has indemnified such “Insured Person”. 30 In the definition section of the Onex 2002-2003 Policy, “Loss” is defined to include “Defence Costs”. “Insured Person” is defined to include any Executive of Onex or its subsidiaries. “Executive” is defined to include directors and officers, and de facto directors and officers, of a corporation, which would include Onex and its subsidiaries. 31 The definitions of “Claim” and “Wrongful Act” are important for the purposes of this appeal. The relevant portions of these definitions read as follows: “Claim” means: (1) a written demand for monetary, non-monetary or injunctive relief; (2) a civil ... proceeding for monetary, non-monetary or injunctive relief which is commenced by: (i) service of a Writ of Summons, Statement of Claim or similar originating legal document; ... 182 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

..... “Wrongful Act” means: (1) any actual or alleged breach of duty, neglect, error, misstatement, misleading statement, omission or act ...: (i) with respect to any Executive of an Organization, by such Executive in his or her capacity as such or any matter claimed against such Executive solely by reason of his or her status as such; ..... 32 Clause 7(c) of the Onex 2002-2003 Policy permits an Insured to give written notice to the Insurer “of any circumstance which may reasonably be expected to give rise to a Claim” to enable the insured to obtain coverage for a Claim during the policy period even though the Claim is not advanced until after the expiry of the policy period. 33 Endorsement #10 of the Onex 2002-2003 Policy excludes coverage under the policy for “Loss in connection with any Claim made against any Insured in any bankruptcy proceeding by or against an Organization, when such Claim is brought by the examiner, trustee, receiver, creditors’ committee, trust, liquidator or rehabilitator (or any assignee thereof) of such Organization.” 34 In addition to the Onex 2002-2003 Policy, Onex also obtained US$45 million in excess “follow form” D&O insurance for the 2002-2003 coverage period from various excess insurers other than those involved in these proceedings. Onex renewed its D&O policies in each policy year between 2002 and 2005. The level of excess coverage increased over this time frame.

(v) The Magnatrax Run-Off Policy and Changes to the Onex 2002- 2003 Policy 35 In January 2003, Onex contemplated selling Magnatrax to a third party. The proposed sale would have ended Magnatrax’s status as an Onex subsidiary. This, in turn, would have removed Magnatrax and its executives from coverage under the Onex 2002-2003 Policy. 36 In the face of this possibility, Aon on Onex’s behalf, requested a quote from American Home for a “run-off” D&O policy. The proposed run-off policy would protect Magnatrax and its executives for a period of six years against claims commenced after Magnatrax ceased to be an Onex subsidiary (and therefore ceased to be protected under Onex’s Onex v. American Home Assurance O’Connor A.C.J.O., Simmons J.A. 183

D&O policies), but which claims related to the executives’ conduct or status before Magnatrax ceased to be an Onex subsidiary. 37 As noted by the motion judge, American Home’s quote proposed a number of endorsements to the run-off policy, including #13 — Non- Pyramiding of Limits; and #14 — Absolute Onex Corporation Exclu- sion — Carve-out for co-defendant with Onex Corporation. Underneath the listed exclusions, the following appeared: NOTE: Endorsements to be added to Onex Corporation Policy 1. Absolute Exclusion from Magnatrax Corporation; 2. Non-Pyramiding of Limits. 38 The motion judge found that Aon had concerns about American Home’s quote. However, the contemplated sale of Magnatrax was abandoned before the concerns were fully resolved. 39 On May 11, 2003, Aon was advised by the Magnatrax board of directors that Magnatrax was intending to file for bankruptcy protection. Aon asked American Home to bind coverage for a run-off D&O policy for Magnatrax on an urgent basis. On May 12, 2003, American Home issued a Temporary and Conditional Binder of Insurance (“Binder”) that described the coverages and endorsements to be included in the US$15 million Magnatrax Run-Off Policy. 40 As noted by the motion judge, 13 endorsements were listed in the Binder. In particular, Endorsements #12 and #13 were: “12. Non- pyramiding of Limits (To Be Manuscripted) and 13. Absolute Onex Cor- poration Exclusion — Carve-put (sic) for co-defendant with Onex Cor- poration (To Be Manuscripted)”. “To Be Manuscripted” means that the wording of these endorsements had not yet been finalized. 41 The Binder also indicated that two endorsements were to be added to the Onex 2002-2003 Policy. The following language appeared under the listed exclusions: NOTE: Endorsements to be added to Onex Corporation Policy 1. Non-pyramiding of Limits (To Be Manuscripted) 2. Absolute Exclusion from Magnatrax Corporation (To Be Manuscripted) 42 Although the Binder indicated that two endorsements were to be manuscripted for the Magnatrax Run-Off Policy and two endorsements were to be manuscripted and added to the Onex 2002-2003 Policy, ultimately Endorsements #16 and #4 were added to the Magnatrax Run-Off Policy and only one endorsement was added to the Onex 2002-2003 Pol- 184 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

icy, namely, Endorsement #14. All of these endorsements are significant for the purposes of this appeal. 43 Endorsement #16 of the Magnatrax Run-Off Policy deals with coordi- nating the limits of liability between the Magnatrax Run-Off Policy and other American Home or AIG policies. The relevant portions of Endorse- ment #16 read as follows: ENDORSEMENT #16 ..... COORDINATION OF AIG LIMITS In consideration of the premium charged, it is hereby understood and agreed that, with respect to any Claim under this policy for which coverage is provided by one or more other policies issued by the In- surer or any other member of the American International Group (AIG), ... the Limit of Liability provided by virtue of this policy shall be reduced by the limit of liability provided by said other AIG policy. 44 Endorsement #4 of the Magnatrax Run-Off Policy is important because it provides coverage for Onex Executives in certain circumstances: ENDORSEMENT #4 ..... DEFINITION OF ORGANIZATION AMENDED TO INCLUDE ENTITY (CO-DEFENDANT ONLY) In consideration of the premium charged, it is hereby understood and agreed that the term “Organization” is amended to include the following entity, subject to the terms, conditions and limitations of this endorsement and this policy. ENTITY Onex Corporation Coverage as is afforded under this policy with respect to a Claim made against Onex Corporation or any Insured Persons thereof shall only apply if: (1) such Claim relates to a Wrongful Act committed by an Insured (other than Onex Corporation or an Insured Person thereof); and (2) an Insured (other than Onex Corporation or an In- sured Person thereof) is and remains a defendant in the Claim along with Onex Corporation or any Insured Person thereof. In all events coverage as is afforded under this policy with respect to a Claim made against Onex Corporation or any Insured Person Onex v. American Home Assurance O’Connor A.C.J.O., Simmons J.A. 185

thereof shall only apply to Wrongful Acts committed or allegedly committed prior to May 12, 2003. 45 Neither Onex nor Magnatrax obtained excess insurance for the Magnatrax Run-Off Policy.

(vi) Endorsement #14 to the Onex 2002-2003 Policy 46 Endorsement #14 is central to the issues on appeal. It was added to the Onex 2002-2003 Policy as part of finalizing the terms of the Magna- trax Run-Off Policy. It is a “Specific Entity/Subsidiary Exclusion”, which excludes continuing coverage under the policy for certain Magna- trax-related losses: ENDORSEMENT #14 SPECIFIC ENTITY/SUBSIDIARY EXCLUSION (Claims brought by or made against) In consideration of the premium charged, it is hereby understood and agreed that the Insurer shall not be liable for any Loss alleging, arising out of, based upon or attributable to or in connection with any Claim brought by or made against the Entity listed below and/or any Insureds thereof. 1. MAGNATRAX Corporation (including any subsidiary or affiliate thereof) It is further understood and agreed that the Definition of Subsidiary shall not include MAGNATRAX Corporation. Further, the Insurer shall not be liable to make any payment for Loss in connection with any Claim made against an Insured alleging, arising out of, based upon or attributable to any breach of duty, act, error or omission of MAGNATRAX Corporation, or any director, officer, member of the board of managers or employee thereof.

(vii) Magnatrax’s Chapter 11 Bankruptcy Proceedings 47 Magnatrax sought Chapter 11 bankruptcy protection on May 12, 2003. A Creditors’ Committee was formed on May 22, 2003. The Credi- tors’ Committee selected the law firm of Foley & Lardner to act as its counsel. 48 On August 19, 2003, the Creditors’ Committee reached an agreement with Magnatrax and its subsidiaries on a plan of reorganization. The Magnatrax Plan of Reorganization was subsequently confirmed by the U.S. Bankruptcy Court on November 17, 2003. Magnatrax emerged from 186 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

Chapter 11 protection on January 20, 2004. After that date, Onex no longer had any ownership interest in Magnatrax.

(viii) Notice of Circumstances — The Foley Letter 49 On August 1, 2003, Foley and Lardner, counsel for the Magnatrax Creditors’ Committee, wrote a letter to counsel for Magnatrax asserting that the Creditors’ Committee believed that Magnatrax had various claims against Onex and its affiliates, and the officers and directors of Onex and Magnatrax. 50 As described in the Foley Letter, the purported claims were against “those parties involved in the May 1999, September 1999, and March 2000 transactions, as well as the credit facilities and related agreements supporting those transactions”. The letter refers to numerous claims, including breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unjust enrichment, preference claims “and possibly other claims yet to be identified”. 51 The Foley Letter requested confirmation that Magnatrax would prose- cute all of these claims or, in the alternative, sought confirmation that the Committee could pursue the claims on Magnatrax’s behalf. 52 After receiving the Foley Letter, counsel for Magnatrax forwarded it to Aon on August 7, 2003 and inquired about what notice should be sent to Magnatrax’s insurers. 53 On November 28, 2003, the day before the Onex 2002-2003 Policy was to expire, Aon faxed the Foley Letter to American Home. In doing so, Aon referenced both the Onex 2002-2003 Policy and the Magnatrax Run-Off Policy and stated that the Foley Letter “contains information on a situation which could in future give rise to a claim under [those] polic[ies]”.

(ix) Onex’s 2004-2005 D&O Coverage 54 Onex renewed its US$15 million D&O coverage with American Home in 2003-2004 and in 2004-2005. As it had done in other years, Onex also obtained excess “follow form” D&O coverage for 2004-2005. 55 The coverage provisions under the Onex 2004-2005 Policy are the same as the coverage provisions under the Onex 2002-2003 Policy. Onex v. American Home Assurance O’Connor A.C.J.O., Simmons J.A. 187

56 Clause 4(d) of the Onex 2004-2005 Policy is significant to this appeal. It creates an exclusion from coverage where a Claim is covered under a prior policy: 4. EXCLUSIONS The Insurer shall not be liable to make any payment for Loss in connection with any Claim made against an Insured: ..... (d) alleging, arising out of, based upon or attributable to the facts alleged, or to the same or related Wrongful Acts alleged or contained in any Claim which has been reported, or in any circumstances of which notice has been given, under any policy of which this policy is a renewal or replacement or which it may succeed in time; .....

(x) Removal of the Specific Entity/Subsidiary Exclusion Endorsement 57 The policy wording for the Onex 2004-2005 Policy was not sent to Aon for review until May 10, 2005. After receiving the policy language, Aon requested that American Home delete the endorsement containing the Specific Entity/Subsidiary Exclusion, which was Endorsement #14 in the Onex 2002-2003 Policy and Endorsement #13 in the Onex 2003- 2004 Policy, and replace it with a Prior Acts Exclusion to provide coverage under the Onex 2004-2005 Policy for wrongful acts committed by Magnatrax directors and officers during the period May 12, 2003 to Jan- uary 20, 2004 when Magnatrax and its subsidiaries were in Chapter 11 protection. 58 The Onex 2004-2005 Policy was later re-issued with the Prior Acts Exclusion replacing the Specific Entity Exclusion. The Prior Acts Exclu- sion appears in the 2004-2005 Policy as Endorsement #13, which states in part: PRIOR ACTS EXCLUSION FOR LISTED ENTITIES ..... In consideration of the premium charged, it is hereby understood and agreed that the term Subsidiary is amended to include the entity(ies) listed below, but only for Wrongful Acts committed by such entity(ies) and/or any Insureds thereof which occurred subsequent to such entity’s respective acquisition/creation date listed below and prior to the time the Named Entity no longer maintains Management Control of such entity(ies), respectively, either directly, or indirectly 188 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

through one or more other Subsidiaries. Loss arising from the same or related Wrongful Act shall be deemed to arise from the first such same or related Wrongful Act. ENTITIES ACQUISITION/CREATION DATE Magnatrax Corporation May 12, 2003 [...] 59 Significantly, the Excess Insurers never agreed to this change in the policy provisions.

(xi) The Georgia Action 60 On May 10, 2005, the Trustee of the Magnatrax Litigation Trust commenced the Georgia Action. 61 The Magnatrax Litigation Trust was established under s. 4.21 of the Magnatrax Plan of Reorganization, which was approved by the U.S. Bankruptcy Court, to pursue causes of action on behalf of the Litigation Trust beneficiaries, who are defined as unsecured creditors of Magnatrax. 62 Of the 19 counts asserted in the Georgia Action, four are asserted against the personal defendants, as well as against two directors of Magnatrax: i) breach of fiduciary duty; ii) aiding and abetting breach of fiduciary duty; iii) civil conspiracy; and iv) unjust enrichment. These four counts were also asserted against Onex and various Onex-related companies. The remaining 15 counts in the Georgia Action are pleaded only against Onex and Onex affiliates. 63 The breach of fiduciary duty count alleges that Onex was the de facto board and alter ego of Magnatrax and its subsidiaries. The count further alleges that the defendants exploited their positions as directors and officers of Magnatrax, as de facto directors and officers of Magnatrax, or as the alter ego to the board of Magnatrax, to further their own benefit and in breach of their duties owed to the “Debtors” (“Debtors” refers to Magnatrax and Magnatrax-related companies). 64 The aiding and abetting breach of fiduciary duty count alleges that each of the defendants knowingly induced, participated in and substan- tially assisted the other defendants’ breaches of fiduciary duty owed to the Debtors. 65 The civil conspiracy count alleges that the defendants wilfully con- spired to embark on a scheme to divert value from the Debtors to them- Onex v. American Home Assurance O’Connor A.C.J.O., Simmons J.A. 189

selves; to fraudulently transfer assets and value from the Debtors to the benefit of themselves; and to breach fiduciary duties. 66 The unjust enrichment count alleges that the defendants used their “complete domination and control of the Debtors” to receive a “benefit from their management of the Debtors, and this benefit inured to the det- riment of both the Debtors and the Debtors’ creditors.”

(xii) Notice of the Georgia Action to American Home and the Coverage Provided by American Home 67 On July 4, 2005, Aon sent on Onex’s behalf a copy of the complaint in the Georgia Action to American Home as notice of a Claim under the Onex 2004-2005 Policy. 68 On September 15, 2005, American Home denied coverage under that policy because the allegations in the Georgia Action pre-dated May 12, 2003. According to American Home, the Prior Acts Exclusion in En- dorsement #13 of the Onex 2004-2005 Policy limited coverage to Wrongful Acts committed after May 12, 2003. 69 American Home also contended that the Claim is excluded because the allegations relate to the personal defendants’ actions in a capacity other than as an Executive of Onex and subsidiaries of Onex. Finally, American Home raised the possibility that coverage was not available because the allegations in the Georgia Action involved intentional acts that are excluded from coverage by clauses 4(a) and (c) of the Onex 2004-2005 Policy. 70 Initially, American Home also denied coverage under the Magnatrax Run-Off Policy. However, on August 28, 2006, American Home’s counsel indicated that coverage would be available for the personal defendants under that policy based on Endorsement #4. In counsel’s view, this co-defendant endorsement afforded coverage with respect to a Claim against Onex Executives provided an Insured under the policy remained as a co-defendant in the Claim along with Onex or an Insured Person of Onex. 71 As we have said, Onex and the personal defendants were jointly represented by counsel throughout the Georgia Action and incurred defence costs totalling approximately US$35 million and settlement costs of over US$9 million. American Home paid out US$15 million — the limit of liability under the Magnatrax Run-Off Policy — to reimburse the personal defendants and two other Magnatrax directors and officers for their defence costs. Of this US$15 million, US$13,881,991.90 was paid to re- 190 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

imburse the personal defendants and the remaining US$1,118,008.10 was paid to reimburse the two other Magnatrax directors and officers. As noted, Onex and Magnatrax did not obtain excess insurance for the Magnatrax Run-Off Policy.

(xiii) The Onex Action Against American Home and the Excess Insurers 72 Onex and the personal defendants commenced this action in 2008 against American Home and the various Excess Insurers seeking coverage under the Onex 2004-2005 Policy and under the 2004-2005 Excess Policies. In the alternative, the plaintiffs sought coverage under the Onex 2002-2003 Policy. American Home and the Excess Insurers defended and also counterclaimed for declarations that they had no obligation to provide coverage. 73 Onex and the personal defendants, American Home and the Excess Insurers brought competing motions for summary judgment.4

C. Motion Judge’s Reasons 74 In his reported reasons dated June 30, 2011, the motion judge held as follows: • The Foley Letter constituted notice of circumstances under clause 7(c) of the Onex 2002-2003 Policy with respect to the Georgia Action. • Clause 4(d) of the Onex 2004-2005 Policy operates to exclude American Home from having to pay any defence costs in connection with the Georgia Action under the Onex 2004-2005 Policy. The follow-form 2004-2005 Excess Policies also excluded the Ex- cess Insurers from any liability in respect of the Georgia Action. • Endorsement #14 of the Onex 2002-2003 Policy does not exclude coverage for any claim by a third party against Onex’s directors

4The motion judge was advised by the parties that as a result of the settlement of the Georgia Action, the total amount of Onex and the personal defendants’ claim in the action would not impact the third and fifth excess layers of D&O coverage insured by excess D&O policies issued by the defendants Liberty Mutual Insur- ance Company and Houston Casualty Company for the 2004-2005 period. The parties agreed that the action should be dismissed against these defendants on consent. Onex v. American Home Assurance O’Connor A.C.J.O., Simmons J.A. 191

and officers in their capacity as such for their wrongful acts in relation to Magnatrax, and thus, under the Onex 2002-2003 Pol- icy, American Home is required to indemnify Onex and the personal defendants for defence costs incurred in in relation to the Georgia Action. 75 In reaching these conclusions, the motion judge found, at para. 97, that the terms of the D&O policies in issue are clear and unambiguous and that evidence of intention adduced by the various parties was inadmissible. 76 After receiving the motion judge’s decision, American Home brought a motion to amend its counterclaim to have the monies owing under the Onex 2002-2003 Policy set-off against the US$13,881,991.90 already paid to the personal defendants under the Magnatrax Run-Off Policy. American Home also moved for summary judgment on the set-off issue. 77 The motion judge granted American Home leave to amend. However, on the motion for summary judgment, he dismissed American Home’s counterclaim. In his unreported reasons dated January 20, 2012, he found that Endorsement #16 of the Magnatrax Run-Off Policy does not reduce the limit of liability of the Magnatrax Run-Off Policy, and thus American Home was not entitled to repayment of amounts previously paid to the personal defendants under the Magnatrax Run-Off Policy. Given his conclusion that American Home was not entitled to repayment, he did not consider American Home’s claim for set-off.

D. Issues The Appeal by American Home 78 American Home raises two issues on the appeal: (1) Did the motion judge err in concluding that Endorsement #14 of the Onex 2002-2003 Policy does not exclude coverage for defence costs of the personal defendants in connection with the Georgia Action? (2) Did the motion judge err in concluding that Endorsement #16 of the Magnatrax Run-Off Policy does not entitle American Home to set-off amounts owing under the Onex 2002-2003 Policy against payments made under the Magnatrax Run-Off Policy? 79 It is worth noting that American Home accepts that, but for Endorse- ment #14, it would be liable to pay the personal defendants the amounts claimed under the Onex 2002-2003 Policy. Thus, American Home ac- 192 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

cepts that the coverage provisions in that policy include the payment of defence costs of the personal defendants arising from the Georgia Action.

The Onex Cross-Appeal 80 On the cross-appeal, two issues need to be considered: (1) Did the motion judge err in concluding that the Foley Letter complied with the requirements of clause 7(c) of the Onex 2002-2003 Policy? (2) Did the motion judge err in granting American Home leave to amend its Amended Amended Statement of Defence and Counterclaim? 81 We will deal with the Onex cross-appeal first.

E. The Onex Cross-Appeal (1) The Foley Letter and clause 7(c) of the Onex 2002-2003 Policy 82 On its cross-appeal, Onex argues that the motion judge erred in concluding that the Onex 2004-2005 Policy and the 2004-2005 Excess Poli- cies did not provide coverage because Onex had previously given notice of the circumstances that gave rise to the Georgia Action pursuant to the Onex 2002-2003 Policy.5 83 The Onex 2002-2003 Policy and the Onex 2004-2005 Policy are claims made and reported policies. Losses resulting from a Claim are eligible for coverage under a policy if the Claim is made and reported during the policy period. 84 Clause 7(c) of the Onex 2002-2003 Policy provides that the period of coverage can be extended beyond the Policy Period if an insured party provides notice during the Policy Period of circumstances that may lead to a future Claim. Clause 7(c) states in relevant part: If during the Policy Period ... an Organization or an Insured shall become aware of any circumstances which may reasonably be expected to give rise to a Claim being made against an Insured and shall give written notice to the Insurer of the circumstances, the Wrongful Act allegations anticipated and the reasons for anticipating such a Claim, with full particulars as to dates, persons and entities

5The Onex 2004-2005 Policy does not contain the exclusion found in Endorse- ment #14 in the Onex 2002-2003 Policy. Onex v. American Home Assurance O’Connor A.C.J.O., Simmons J.A. 193

involved, then a Claim which is subsequently made against such In- sured and reported to the Insurer alleging, arising out of, based upon or attributable to such circumstances or alleging any Wrongful Act which is the same as or related to any Wrongful Act alleged or contained in such circumstances, shall be considered made at the time such notice of such circumstances was given. 85 Clause 7(c) dovetails with clause 4(d) of the standard exclusions in American Home’s D&O policies, including the Onex 2004-2005 Policy. Clause 4(d) excludes from coverage under the present policy Loss from any Claim arising out of Wrongful Acts of which notice has been given under a previous policy. 86 The cross-appeal turns on whether Onex provided American Home with notice of circumstances during the policy period for the Onex 2002- 2003 Policy that complied with clause 7(c) of that policy. If it did, then coverage under the Onex 2004-2005 Policy is excluded pursuant to clause 4(d) and, consequently, coverage under the excess insurance follow-form policies would also be excluded. 87 As we have said at paras. 49-53, on August 1, 2003, Foley and Lardner, counsel for the Magnatrax Creditors’ Committee, wrote a letter to counsel for Magnatrax asserting that Magnatrax had claims against Onex, the directors and officers of Onex, and the directors and officers of Magnatrax. These claims were said to arise from “the May 1999, Sep- tember 1999, and March 2000 transactions, as well as the credit facilities and related agreements supporting those transactions.” The letter refers to numerous claims, including breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unjust enrichment, “and possibly other claims yet to be identified”. 88 On November 28, 2003, the day before the Onex 2002-2003 Policy was to expire, Aon faxed the Foley Letter to American Home. In doing so, Aon referred to both the Onex 2002-2003 Policy and the Magnatrax Run-Off Policy and stated that the Foley Letter “contains information on a situation which could in future give rise to a claim under [those] polic[ies]”. 89 Onex argues that the Foley Letter does not satisfy the specificity requirements of clause 7(c) of the Onex 2002-2003 Policy in that it does not set out full particulars as to dates, persons and entities involved. Onex contends that the letter did not describe the nature of the commercial transactions or Onex’s role in them, did not specify any wrongful act 194 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

that might be alleged, nor did it set out the names of the directors and officers who were involved in the transactions. 90 The motion judge rejected these same arguments. In his reported reasons, he indicated that he was in agreement with U.S. cases holding that, in determining whether a notice by an insured to an insurer is sufficient, an objective test should be applied having regard to the wording of the policy. He held, at para. 136: “The test is whether the insured objectively complied with the notice provision in the Policy”, citing Continental Ins. Co. v. Superior Court of Los Angeles County, 37 Cal. App. 4th 69 (U.S. Cal. Ct. App. 2 Dist. 1995) and McCullough v. Fidelity & Deposit Co., 2 F.3d 110 (U.S. C.A. 5th Cir. 1993). 91 We see no reason to interfere with the motion judge’s finding that the Foley Letter contains sufficient particulars to meet the requirements of clause 7(c). We agree with the motion judge’s conclusion, at para. 150, that “it sets out the specific transactions and agreement involved, the dates of the transactions, the claims which are alleged to exist and the entities and individuals involved.” What is important here is that Onex, through Aon, provided American Home with the specifics of the threatened litigation as those specifics were provided to it. It was not necessary for the insured to speculate about the names of the individual directors or officers who might be named in the threatened litigation. As found by the motion judge, when viewed objectively as a whole, the Fo- ley Letter contains sufficient particulars of the dates, persons and entities involved to comply with clause 7(c) of the Onex 2002-2003 Policy. 92 We share the motion judge’s view that the claims being advanced in the Georgia Action are “the same as or related to” the claims asserted in the Foley Letter. The Foley Letter referred to claims arising out of transactions in May 1999, September 1999 and March 2000. The Georgia Ac- tion is based on corporate acquisitions by Magnatrax of American Build- ings Company in May 1999, Republic Builders Products in August 1999, and Jannock Limited in March 2000. 93 Further, the claims asserted in the Georgia Action against the personal defendants are breach of fiduciary duty, aiding and abetting breach of fiduciary duty, civil conspiracy and unjust enrichment. The Foley Let- ter sets out a number of claims, including breach of fiduciary duty, aiding and abetting breach of fiduciary duty and unjust enrichment. Thus, the Foley Letter alleges the same or related claims against Onex and the personal defendants as were alleged in the Georgia Action. Onex v. American Home Assurance O’Connor A.C.J.O., Simmons J.A. 195

94 We therefore agree with the motion judge that the Foley Letter meets the requirement of clause 7(c) of the Onex 2002-2003 Policy such that the Georgia Action constitutes a Claim made during the Policy Period of the Onex 2002-2003 Policy. 95 As a result of clause 4(d) of the Onex 2004-2005 Policy, coverage is excluded under that policy. Coverage is also excluded under the 2004- 2005 Excess Policies.

(2) Leave to Amend American Home’s Pleadings 96 Onex cross-appeals the motion judge’s order granting American Home leave to amend its Amended Amended Statement of Defence and Counterclaim and to further particularize its claim for legal or equitable set-off. Onex submits that the motion judge erred in failing to find that the set-off issue raised by American Home was res judicata. On appeal, Onex advances the same arguments that were made to the motion judge on the issue of res judicata. Onex also submits, as it did on the motion, that permitting the amendment would result in non-compensable prejudice because American Home was effectively allowed to bolster arguments that had already been considered and rejected by the motion judge. 97 The motion judge dealt with these arguments at para. 30 of his unreported January 20, 2012 reasons: In my view, res judicata does not apply to American Home’s proposed amendments. Cause of action estoppel is not applicable. Nor, in my view, is issue estoppel. The issues of whether the limits of the Magnatrax Policy were reduced by the limits of the 2002-2003 D&O Policy and whether American Home was entitled to a refund of amounts paid under the Magnatrax Policy were not decided by me. The former issue was pleaded but not argued. The latter issue is a corollary which arises only on a determination of the first issue. The Action, and specifically the counterclaim has not been concluded. 98 We see no reason to interfere with the motion judge’s exercise of discretion permitting American Home to amend its pleadings. The motion judge had not yet decided whether the limits of the Magnatrax Run-Off Policy were reduced by the Onex 2002-2003 Policy, nor the corollary issue of whether American Home was entitled to a refund of amounts paid under the Magnatrax Run-Off Policy. We fail to see how Onex was prejudiced by the permitted amendments. 99 For the foregoing reasons, we would dismiss the Onex cross-appeal. 196 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

F. American Home’s Appeal (1) Legal Principles 100 The issues raised by American Home relate to the proper interpretation of certain endorsements in the Onex 2002-2003 Policy and the Magnatrax Run-Off Policy. American Home does not argue that the motion judge erred in setting out the legal principles for interpreting the terms of an insurance policy. However, we include a summary of these principles because they inform our analysis of the issues raised by Amer- ican Home’s appeal. 101 The Supreme Court of Canada has canvassed the principles of insurance policy interpretation on several occasions: see Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 S.C.R. 245 (S.C.C.), at paras. 21-24; Gibbens v. Co-operators Life Insurance Co., 2009 SCC 59, [2009] 3 S.C.R. 605 (S.C.C.), at paras. 20- 28; Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Can- ada, 2006 SCC 21, [2006] 1 S.C.R. 744 (S.C.C.), at paras. 27-30; Non- Marine Underwriters, Lloyd’s London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551 (S.C.C.), at paras. 67-71; and Brissette v. Westbury Life Insurance Co., [1992] 3 S.C.R. 87 (S.C.C.), at pp. 92-93. 102 The primary interpretative principle is that when language of the policy is unambiguous, the court should give effect to the clear language, reading the contract as a whole: Scalera, at para. 71. The terms of the policy must be examined “in light of the surrounding circumstances, in order to determine the intent of the parties and the scope of their understanding”: Jesuit Fathers, at para. 27. 103 In Kentucky Fried Chicken Canada v. Scott’s Food Services Inc. (1998), 114 O.A.C. 357 (Ont. C.A.), at para. 25, this court referred to the need to examine the language of a contract in light of the surrounding circumstances: “While the task of interpretation must begin with the words of the document and their ordinary meaning, the general context that gave birth to the document or its ‘factual matrix’ will also provide the court with useful assistance.” In cases of insurance contracts, the evidence of the factual matrix may be of more assistance when the contract is an individually negotiated contract rather than a standard form contract resulting from a routine purchase of an insurance policy. 104 Be that as it may, before reaching a finding that a contractual provision is ambiguous, the court must assess the words of a contract in light of the factual matrix in which the agreement was written. As Doherty Onex v. American Home Assurance O’Connor A.C.J.O., Simmons J.A. 197

J.A. stated in Dumbrell v. Regional Group of Cos., 2007 ONCA 59, 85 O.R. (3d) 616 (Ont. C.A.), at para. 54: A consideration of the context in which the written agreement was made is an integral part of the interpretative process and is not something that is resorted to only where the words viewed in isolation suggest some ambiguity. To find ambiguity, one must come to certain conclusions as to the meaning of the words used. A conclusion as to the meaning of words used in a written contract can only be properly reached if the contract is considered in the context in which it was made: see McCamus, The Law of Contracts (Toronto: Irwin Law, 2005) at 710-11. 105 It is important to distinguish what is meant by the factual matrix from extrinsic evidence that is admissible to resolve an ambiguity. The factual matrix is gleaned from the context of the transaction. Doherty J.A. explained in Dumbrell, at para. 55, that the factual matrix “clearly extends to the genesis of the agreement, its purpose, and the commercial context in which the agreement was made”. 106 Where the language of an insurance policy is found to be ambiguous, the court will rely on general rules of contract construction. As explained in Progressive Homes, at para. 23: For example, courts should prefer interpretations that are consistent with the reasonable expectations of the parties (Gibbens, at para. 26; Scalera, at para. 71; Consolidated-Bathurst, at p. 901 [Consolidated- Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., [1980] 1 S.C.R. 888]), so long as such an interpretation can be supported by the text of the policy. Courts should avoid interpretations that would give rise to an unrealistic result or that would not have been in the contemplation of the parties at the time the policy was concluded (Scalera, at para. 71; Consolidated-Bathurst, at p. 901). Courts should also strive to ensure that similar insurance policies are construed consistently (Gibbens, at para. 27). These rules of construction are applied to resolve ambiguity. They do not operate to create ambiguity where there is none in the first place. 107 In Lombard Canada Ltd. v. Zurich Insurance Co., 2010 ONCA 292, 101 O.R. (3d) 371 (Ont. C.A.), at para. 33, this court held that, where there is ambiguity in the sense that a phrase is capable of bearing two equally reasonable interpretations, the court may consider extrinsic evidence and the applicability of the contra proferentem rule. 108 However, the admission of extrinsic evidence does not mean that the parties’ subjective views of what was intended by the agreement will be 198 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

used to resolve the ambiguity. On the contrary, the court should adopt the interpretation that gives effect to the reasonable expectations or intentions of the parties: Scalera, at para. 71; Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., [1993] 1 S.C.R. 252 (S.C.C.), at p. 269; Dunn v. Chubb Insurance Co. of Canada, 2009 ONCA 538, 266 O.A.C. 1 (Ont. C.A.), at para. 35. 109 We turn now to the arguments with respect to the interpretation of Endorsement #14 of the Onex 2002-2003 Policy.

(2) Endorsement #14 of the Onex 2002-2003 Policy 110 American Home argues that the motion judge erred in finding that Endorsement #14 of the Onex 2002-2003 Policy does not exclude coverage for the personal defendants’ claims for defence costs arising from the Georgia Action. According to American Home, under the plain meaning of Endorsement #14, the personal defendants’ losses in the form of defence costs fall into each of the following three exclusions in Endorse- ment #14: (i) the Georgia Action is a Claim made against Magnatrax or its Executives; (ii) the Georgia Action is a Claim brought by Magnatrax; and (iii) the Georgia Action is a Claim based on an act or omission of Magnatrax Executives. 111 Before turning to the specific arguments, it is important to note that Endorsement #14 to the Onex 2002-2003 Policy is one part of an individually negotiated set of insurance arrangements between Onex, American Home and Magnatrax. Those arrangements resulted from a number of discussions and email exchanges. Those arrangements also included the issuance of the Magnatrax Run-Off Policy. The origin of those arrangements goes back to the discussions between the parties in January 2003 when Onex was contemplating a sale of Magnatrax. The parties added Endorsement #14 to the Onex 2002-2003 Policy as a result of a negotiated set of contractual arrangements. 112 Next, it is worth noting that the positions of both parties in approach- ing the interpretation dispute are commercially reasonable. Onex says that it is reasonable that Onex Executives would have wanted to maintain coverage under the more extensive Onex tower of insurance policies in the face of Magnatrax’s Chapter 11 filing and the heightened litigation risk associated with that filing. American Home, on the other hand, says Onex v. American Home Assurance O’Connor A.C.J.O., Simmons J.A. 199

it would be reasonable for it to provide no more than one of its policy limits to respond to any “Claim” related to Magnatrax. Both of these positions are commercially reasonable when viewed from the parties’ own perspective. Hence, the difficulty. 113 We first explain why we would not give effect to American Home’s argument based on the second exclusion identified by American Home in Endorsement #14 of the Onex 2002-2003 Policy.

(a) The Georgia Action is a Claim Brought By Magnatrax 114 American Home argues that the Loss arising from the Georgia Action is excluded by Endorsement #14 of the Onex 2002-2003 Policy because the Loss arises out of or in connection with a Claim brought by Magna- trax. We repeat for convenience the language of the first paragraph of Endorsement #14 that relates to this argument: [T]he Insurer shall not be liable for any Loss... arising out of ... or in connection with any Claim brought by ... [Magnatrax]” ... [Emphasis added.]. 115 The question then becomes whether the Georgia Action, which was brought by the Magnatrax Litigation Trust as plaintiff, and which asserts only causes of action assigned to it under the Magnatrax Plan of Reor- ganization, is a Claim brought by Magnatrax. If so, the Loss arising therefrom is excluded by Endorsement #14. 116 The motion judge set out the facts relevant to this argument at paras. 175-77 of his reported reasons. American Home does not dispute the motion judge’s summary of the facts. 117 As we said above, the Georgia Action was brought by the Trustee of the Magnatrax Litigation Trust. The Magnatrax Litigation Trust was established pursuant to s. 4.21 of the Magnatrax Plan of Reorganization, which was approved by the U.S. Bankruptcy Court in the Chapter 11 proceedings. It is clear, however, from both the Foley Letter and the complaint in the Georgia Action that the claims being advanced are claims which, up until their assignment to the Litigation Trust, belonged entirely to Magnatrax and its subsidiaries. 118 The Foley Letter requested immediate confirmation from Magnatrax and its subsidiaries in bankruptcy that it would pursue the claims identified against the entities and the individuals named, failing which it requested confirmation that the Creditors’ Committee could pursue the claims of Magnatrax on their behalf. 200 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

119 American Home argues that the motion judge erred in concluding that the Georgia Action was not brought by Magnatrax so as to come within the second exclusion in Endorsement #14 of the Onex 2002-2003 Policy. The Georgia Action is a derivative action instituted by the Litigation Trust and alleges causes of action originally belonging to Magnatrax. American Home correctly points out that if the Georgia Action had been brought by Magnatrax, it would be clear that Endorsement #14 would have excluded coverage. 120 American Home also points out that prior to the issuance of Endorse- ment #14, the exclusion in Endorsement #10 of the Onex 2002-2003 Pol- icy, which amends clause 4(i) in that Policy, would have excluded coverage for proceedings — including derivative actions — commenced by a trustee established in bankruptcy proceedings of Magnatrax for the benefit of its creditors. 121 The exclusion in clause 4(i) of the Onex 2002-2003 Policy is a standard “Insured versus Insured” exclusion (see the Appendix for the text of clause 4(i)). This exclusion is designed to protect the insurer from having to provide coverage in relation to a legal proceeding by one insured party against another insured party. The “Insured versus Insured” exclusion is designed to prevent collusive proceedings whereby “an insured company might seek to force its insurer to pay for the poor business decisions of its officers or managers”: Oesterling v. First Mercury Syndicate, 117 F.3d 115 (U.S. C.A. 3rd Cir. 1997). 122 Paragraph 3 of clause 4(i) provides that the Insured versus Insured exclusion “shall not apply to”: (3) in any bankruptcy proceeding by or against an Organization, any Claim brought by the examiner, trustee, receiver, receiver manager, liquidator or rehabilitator (or any assignee thereof) of such Organiza- tion, if any; 123 Endorsement #10 deleted subparagraph 3 of clause 4(i). Thus, the “Insured versus Insured” exclusion would apply to exclude coverage for a Claim brought in bankruptcy proceedings by a trustee of an Organiza- tion as defined in the Onex 2002-2003 Policy. 124 However, the effect of Endorsement #10 was removed insofar as Magnatrax was concerned after the parties agreed upon Endorsement #14. Endorsement #14 provides that Magnatrax is no longer a Subsidiary of Onex. “Organization” is defined to mean each “Subsidiary”. 125 American Home argues that there is no evidence that the parties intended that the amendments to the Onex 2002-2003 Policy resulting from Onex v. American Home Assurance O’Connor A.C.J.O., Simmons J.A. 201

the inclusion of Endorsement #14 should operate to expose it to a form of coverage previously excluded — liability for derivative legal proceedings brought against Onex by a creditors’ litigation trust. 126 The motion judge rejected these arguments. We agree with his conclusion and his reasons, at paras. 178-80 of his reported reasons: Notwithstanding that the claims which are asserted against [the personal defendants] in the [Georgia Action] are derivative claims which initially belonged to Magnatrax and its subsidiaries, in my view, they are not brought by Magnatrax. The exclusion in the first paragraph of Endorsement #14 of the [Onex 2002-2003 Policy] is clear. It applies to “any Claim brought by...” Magnatrax or any subsidiary or affiliate thereof. While [the Georgia Action] asserts claims which originally belonged to Magnatrax and its subsidiaries, it is brought by the Trustee on behalf of the Magnatrax Litigation Trust and not Magnatrax. As noted earlier, exclusions are to be interpreted narrowly. In the absence of more expansive wording in Endorsement #14 to exclude derivative claims, the words: “any Claim brought by or made against [Magnatrax, its subsidiaries and affiliates]” restrict the application of the exclusion to claims brought by Magnatrax, its subsidiaries and affiliates. As [the Georgia Action] is not such a Claim, Endorsement #14 does not exclude it from coverage. Nor, in my view, can American Home rely on Endorsement #10 of the [Onex 2002-2003 Policy] which excludes claims against any In- sured where the claim is brought in any bankruptcy proceeding by or against an Organization when the claim is brought by, among others, the creditors’ committee or trust. Endorsement #14 removed Magna- trax as a subsidiary thereby excluding it from the definition of Or- ganization under the [Onex 2002-2003 Policy]. 127 To those reasons, we would add that the circumstances surrounding the adoption of Endorsement #14 support the motion judge’s interpretation of the words in that clause. The reason for the negotiations that resulted in Endorsement #14, as well as Endorsements #4 and #16 to the Magnatrax Run-Off Policy, was the impending bankruptcy of Magna- trax. Although these three endorsements were not, in fact, issued until sometime after the Chapter 11 proceedings involving Magnatrax had commenced, the endorsements were dated May 12, 2003 so as to coincide with the beginning of the Chapter 11 proceedings. 128 Endorsement #14 had the effect of removing the bankruptcy exclusion in Endorsement #10 as it applied to Magnatrax. It is significant, we 202 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

suggest, that the language in Endorsement #14 excludes coverage for Loss arising from a Claim brought by Magnatrax (the insolvent entity) but does not, as Endorsement #10 had, exclude Loss arising from a Claim brought by a trustee, a creditors’ committee, or a trust. We do not think that this omission, viewed objectively and reasonably, should be treated as an oversight, particularly when it is considered that Endorse- ment #14 was drafted in the circumstances of Magnatrax declaring bankruptcy. Rather, given the experience and sophistication of the parties, we conclude, as the motion judge did, that the parties intended the exclusion in Endorsement #14 to apply only to Loss arising from a Claim brought by Magnatrax. Had the parties intended that the exclusion was to apply to Loss arising from a Claim brought by assignees, trustees, or other representatives asserting Magnatrax’s claims, they would have specifically said so. 129 We now consider together the remaining two exclusions identified by American Home.

(b) The Georgia Action is a Claim Made Against Magnatrax or its Executives / The Georgia Action is Claim Based on an Act or Omission of Magnatrax Executives 130 American Home argues that the defence costs claimed by the personal defendants are excluded from coverage by two additional exclusions in Endorsement #14 of the Onex 2002-2003 Policy: the remaining language in the first paragraph of Endorsement #14 and the second sen- tence of the second paragraph of Endorsement #14. We repeat the relevant language for convenience: In consideration of the premium charged, it is hereby understood and agreed that the Insurer shall not be liable for any Loss alleging, arising out of, based upon or attributable to or in connection with any Claim brought by or made against [Magnatrax Corporation] and/or any [Executive] thereof...... Further, the Insurer shall not be liable to make any payment for Loss in connection with any Claim made against an Insured alleging, arising out of, based upon or attributable to any breach of duty, act, error or omission of MAGNATRAX Corporation, or any director, officer, member of the board of managers or employee thereof. [Emphasis added.] Onex v. American Home Assurance O’Connor A.C.J.O., Simmons J.A. 203

131 The motion judge did not accept American Home’s arguments based on either the first or second paragraphs of Endorsement #14. He concluded, at para. 169 of his reported reasons, that although Endorsement #14 of the Onex 2002-2003 Policy is an exclusion provision, it does not operate as an “absolute” exclusion in respect of all claims against Onex’s directors and officers relating to Magnatrax. He concluded that the language of Endorsement #14 was unambiguous and thus only open to the interpretation he adopted. 132 We have considered the language of Endorsement #14 of the Onex 2002-2003 Policy in the context of the surrounding circumstances or the factual matrix. In our view, the language viewed in that context is ambiguous. It is open to two reasonable interpretations: the one urged by American Home and the one adopted by the motion judge. 133 Because there is ambiguity, it becomes necessary to turn to extrinsic evidence to assist with the interpretative exercise. Before turning to the use of extrinsic evidence, we will set out why we consider both of the competing interpretations to be reasonable. 134 We start with the motion judge’s interpretation. 135 In the motion judge’s view, Endorsement #14 excludes coverage for claims against the personal defendants acting in their capacity as Magna- trax Executives, but it does not exclude from coverage claims against the personal defendants acting in their capacity as Onex Executives. The motion judge drew the distinction between the capacity in which the personal defendants were acting at para. 105 of his reported reasons: Further, based on a review of the entire Complaint in the [Georgia] Action and in particular the allegations against [the personal defendants], it is my view that the claims against the [personal defendants] are asserted against them in their capacity both as directors and officers of Onex and as directors (or de facto directors...) and officers of Magnatrax. The overarching theme of the Complaint [i.e., the Georgia Action] is that Onex, as directed by the [personal defendants] in their capacity as Onex directors and officers, engineered the demise of Magnatrax and its subsidiaries for their collective benefit. [Emphasis added.] 136 The motion judge went on, at paras. 173-74, to interpret the exclu- sionary effect of Endorsement #14 as follows: Accordingly, when read in its entirety, Endorsement #14 operates to remove Magnatrax (and any subsidiary or affiliate) from coverage under the [Onex 2002-2003 Policy] and exclude any claim against 204 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

Onex directors and officers by or against Magnatrax or arising out of, based upon or attributable to any act on the part of Magnatrax or its directors and officers. What Endorsement #14 does not exclude, in my view, is any claim by a third party against Onex’s directors and officers in their capacity as such for their wrongful acts in relation to Magnatrax. Based on the above interpretation of Endorsement #14, it is my view that the [Georgia] Action is not excluded from coverage under the [Onex 2002-2003 Policy]. As has been previously discussed, the [Georgia] Action asserts claims against the [personal defendants] in their capacity as directors and/or officers of Onex relating to Magna- trax. The claims are not based upon or attributable to any act on the part of Magnatrax or its directors and officers. 137 The motion judge elaborated on his understanding of the term “Claim” in the Magnatrax Run-Off Policy and the Onex 2002-2003 Pol- icy at paras. 54-55 of his unreported January 20, 2012 reasons: The term “Claim” is broadly defined in both the Magnatrax [Run- Off] Policy and the [Onex 2002-2003 Policy] to include, among other things, a written demand for monetary, non-monetary or injunctive relief as well as [a] civil proceeding for monetary, non-monetary or injunctive relief commenced by statement of claim. It is intended to define a triggering event in respect of coverage under the Policies. In my view, however, based on the wording of the Policies as a whole, the definition of Claim is broad enough to also encompass multiple individual claims within an action or proceeding as well. It is not restricted to mean solely an action or proceeding. To define Claim as being limited to a legal action or proceeding makes no sense having regard to the wording of the Policies. The Policies refer to and deal with actions or proceedings which assert multiple claims where some of the claims are covered and some are not. They also provide for claims against insured in actions where there are co-defendants who are not covered. It is the covered claims within an action or proceeding that are covered rather than the entire action. 138 These reasons indicate that the motion judge was satisfied that the Georgia Action advanced claims against the personal defendants both in their capacities as Executives of Magnatrax and in their capacities as Ex- ecutives of Onex. American Home does not challenge this finding on appeal. 139 It is also apparent that the motion judge was satisfied that while the term “Claim” as it is defined in the Onex 2002-2003 Policy refers to a Onex v. American Home Assurance O’Connor A.C.J.O., Simmons J.A. 205

civil proceeding, the term need not necessarily encompass the entirety of the civil proceeding. According to the motion judge, when the wording of the policies is looked at as a whole: “the definition of Claim is broad enough to also encompass multiple individual claims within an action or proceeding as well. It is not restricted to mean solely an action or proceeding”: unreported reasons, at para. 54. 140 We think that the motion judge’s view is tenable to the following extent. We agree that when the wording of the policies is looked at as a whole, it is reasonable to interpret the term “Claim” in Endorsement #14 as not necessarily referring to the entirety of a proceeding. The phrase in the first paragraph of Endorsement #14 — “any Claim ... made against [Magnatrax or its Executives]” — can be taken as referring to the Geor- gia Action as advanced against Magnatrax or its Executives, and not as referring to the Georgia Action as advanced against Onex or its Execu- tives acting in their capacity as such. 141 The following wording of the policies supports this view. Under the terms of the Executive Liability coverage in the Onex 2002-2003 Policy, American Home was responsible to pay the Loss of an Onex Executive arising from a Claim made against the Executive for any “Wrongful Act” of the Executive. 142 “Wrongful Act” is defined as meaning: (1) any actual or alleged breach of duty, neglect, error, misstatement, misleading statement, omission or act... (i) with respect to any Executive of an Organization, by such Executive in his or her capacity as such or any matter claimed against such Executive solely by reason of his or her status as such; 143 It is apparent from this definition that the capacity in which an Execu- tive is acting when committing a Wrongful Act is a crucial feature of coverage. It is only when acting in his or her capacity as an Executive of the covered Organization that the Executive is covered. 144 When the Magnatrax Run-Off Policy was issued and Magnatrax and Magnatrax Executives were removed from coverage under the Onex 2002-2003 Policy, it would be reasonable to interpret these policies as providing that Magnatrax Executives would no longer be covered under the Onex 2002-2003 Policy for a Claim brought against them in their capacity as Magnatrax Executives, but that Onex Executives would continue to be covered under the Onex 2002-2003 Policy for Wrongful Acts committed by them in their capacity as Onex Executives. In other words, 206 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

it is reasonable to interpret the term “Claim” in Endorsement #14 as referring to a proceeding against a particular Insured acting in the capacity that attracts coverage. Considered in this light, the wording of the first paragraph of Endorsement #14 — “the Insurer shall not be liable for any Loss... arising out of... any Claim... made against [Magnatrax or its Exec- utives]” — could reasonably mean a Claim to the extent that it is advanced against Magnatrax or its Executives in their capacity as such. 145 On this interpretation of the phrase “any Claim”, the exclusion in the second paragraph of Endorsement #14 could reasonably be interpreted as not excluding all of the defence costs of the Georgia Action from coverage. If a proceeding (in this case a civil action) includes causes of action against an Insured acting in more than one capacity, it would be necessary to separate the claims based upon the capacities in which the Insured is being sued and to then determine whether or not the Insured is covered or excluded under the provisions of the policy. 146 In this case, the motion judge found, at para. 105 of his reported reasons, that “[t]he overarching theme of the Complaint [i.e., the Georgia Action] is that Onex, as directed by the [personal defendants] in their capacity as Onex directors and officers, engineered the demise of Magnatrax and its subsidiaries for their collective benefit.” At para. 174 of his reported reasons, he held that at least some of the claims were advanced against the personal defendants “in their capacity as directors and/or officers of Onex” and are not “based upon or attributable to any act on the part of Magnatrax or its directors and officers.” 147 At least with respect to the unjust enrichment claim, we agree with the motion judge’s characterization. This claim is not “alleging, arising out of, based upon or attributable to any breach of duty, act, error or omission of Magnatrax [or any Magnatrax Executive]”. On this view, it would be reasonable to interpret the second paragraph of Endorsement #14 of the Onex 2002-2003 Policy as not excluding the cost of defending the unjust enrichment aspect of the Georgia Action. 148 Having said that, we are not prepared to find that the motion judge’s interpretation of Endorsement #14 of the Onex 2002-2003 Policy is the only reasonably available interpretation. We find that American Home’s suggested interpretations of the first paragraph of Endorsement #14 and of the second paragraph of Endorsement #14 are also reasonable ones. 149 In advancing the argument based on the exclusion in the first paragraph of Endorsement #14, American Home’s fundamental position is Onex v. American Home Assurance O’Connor A.C.J.O., Simmons J.A. 207

that the word “Claim” in this clause should be read as it is defined in the Onex 2002-2003 Policy. The definition of “Claim” states: “Claim” means: ..... 2) a civil, criminal, administrative, regulatory or arbitration proceeding for monetary, non-monetary or injunctive relief which is commenced by: (i) service of a Writ of Summons, Statement of Claim or similar originating legal document; (ii) return of a summons, information, indictment or similar document (in the case of a criminal proceeding); or (iii) receipt or filing of a notice of charges; 150 Based on the definition of the term “Claim” as a civil proceeding, American Home contends that the first paragraph of Endorsement #14 clearly excludes the personal defendants’ defence costs from coverage for two main reasons. 151 First, the personal defendants’ defence costs constitute Loss arising out of, attributable to or in connection with “a civil proceeding”, namely, the Georgia Action. Second, the Georgia Action is a civil proceeding against Magnatrax Executives, who were named as individual defendants in the Georgia Action. Thus, on a plain reading of the first paragraph of Endorsement #14, the personal defendants’ Loss in the form of defence costs arising from the Georgia Action is excluded from coverage. 152 Similarly, American Home’s argument based on the second paragraph of Endorsement #14 is that this language operates to exclude coverage for Loss in connection with any civil proceeding against Onex Ex- ecutives alleging, arising out of, based upon or attributable to the conduct of Magnatrax Executives. The Georgia Action includes allegations of wrongful acts committed by directors and officers of both Magnatrax and Onex. Thus, the argument goes, the Georgia Action is a “Claim” — that is, a civil proceeding — arising out of acts by Magnatrax Executives. That being the case, the defence costs associated with the Georgia Action are excluded from coverage by the above-quoted language from the second paragraph of Endorsement #14. 153 On American Home’s interpretation, there is no basis in the language of Endorsement #14 or elsewhere in the policy language for assigning a different meaning to the term “Claim” than is provided by the definition in the policy. American Home argues that giving a different meaning to the term “Claim” as it appears in Endorsement #14 would deviate from the meaning of the term most commonly used in the D&O insurance industry. 208 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

154 We agree with American Home to the extent that we conclude that it is reasonable to interpret the term “Claim” in Endorsement #14 in the way the term is defined in the Onex 2002-2003 Policy, namely, as a civil proceeding. On one reading of the first paragraph of Endorsement #14, the Georgia Action constitutes a civil proceeding brought against Magna- trax Executives, and the Insurer is not liable for “any Loss” in connection with this Claim. 155 We agree that it is also reasonable to interpret the second paragraph of Endorsement #14 as excluding coverage for the claimed defence costs because these costs arise from a Claim that is based on acts or omissions of Magnatrax Executives. Each of the four counts in the Georgia Action against the individual defendants name both the personal defendants who served as Onex Executives (i.e., Schwartz, Govan, Wright and Hilson), as well as two individual defendants who only served as Magnatrax Ex- ecutives (i.e., Richard T. Ammerman and Raymond C. Blackmon Jr.). The language of the second paragraph of Endorsement #14 can be read to exclude from coverage the costs of defending the Georgia Action because these costs constitute Loss in connection with a Claim alleging, arising out of, based upon or attributable to the conduct of Magnatrax Executives (i.e., Wright, Hilson, Ammerman and Blackmon). 156 In assessing the reasonableness of the competing interpretations of the term “Claim” in Endorsement #14, it is necessary to consider if each interpretation is consistent with the use of that term elsewhere in the Onex 2002-2003 Policy. We have reviewed the language of the policy, and in particular have examined Endorsements #5 and #9. American Home contended that the language of these endorsements supports its interpretation of Endorsement #14. We conclude that the way the term “Claim” is used elsewhere in the policy does not assist in determining which interpretation of the use of that term in Endorsement #14 is the correct one. There are reasonable arguments pointing in both directions. 157 We have also considered the factual matrix in this case, which is set out above in paras. 25-48 above. As we see it, plausible arguments can be made on both sides as to the reasonableness of either interpretation in view of the surrounding circumstances, the provisions of the Magnatrax Run-Off Policy and when viewed objectively, what the parties to the negotiations would have been trying to accomplish. 158 In reaching the conclusion that Endorsement #14 is ambiguous, we have specifically considered Endorsements #16 and #4 to the Magnatrax Run-Off Policy (see paras. 43 and 44 above). In our view, these endorse- Onex v. American Home Assurance O’Connor A.C.J.O., Simmons J.A. 209

ments can be interpreted to sit comfortably with American Home’s interpretation of Endorsement #14 in the Onex 2002-2003 Policy. 159 Using the plain meaning of the definitions provided in the policies, under American Home’s interpretation of Endorsement #14 in the Onex 2002-2003 Policy and Endorsement #16 in the Magnatrax Run-Off Pol- icy, coverage is not simultaneously available under the two policies. 160 According to American Home, Endorsement #4 of the Magnatrax Run-Off Policy would afford coverage with respect to any civil proceeding against Onex or Onex Executives provided that the civil proceeding relates to a Wrongful Act committed by Magnatrax or a Magnatrax Ex- ecutive if either Magnatrax or a Magnatrax Executive remains as a defendant in the civil proceeding. 161 That said, we do not think that the compatibility of Endorsements #16 and #4 of the Magnatrax Run-Off Policy with American Home’s interpretation of Endorsement #14 in the Onex 2002-2003 Policy is determinative of the interpretation exercise. 162 As a starting point, American Home’s interpretation of these paragraphs in Endorsement #14 of the Onex 2002-2003 Policy leaves a potential gap in coverage for Onex Executives. On American Home’s interpretation, Onex Executives would be covered by the Magnatrax Run-Off Policy for their Wrongful Acts in relation to Magnatrax provided they were sued along with Magnatrax or a Magnatrax Executive. However, they would not be afforded coverage under either policy if they were sued on their own in their capacity as Onex Executives for the same Wrongful Acts. 163 Further, Endorsement #16 also can be read in a manner that is consistent with the motion judge’s interpretation of Endorsement #14 to the Onex 2002-2003 Policy. If “Claim” as it appears in Endorsement #14 to the Onex 2002-2003 Policy is interpreted as meaning the Georgia Action as advanced against Magnatrax or its Executives, and not as referring to the Georgia Action as advanced against Onex or its Executives acting in their capacity as such, the coverage afforded to Magnatrax Executives under the Magnatrax Run-Off Policy would not trigger Endorsement #16 to the Magnatrax Run-off Policy. Similarly, aspects of the Georgia Ac- tion advanced against Onex Executives that do not attract coverage under Endorsement #4 of the Magnatrax Run-Off Policy would not trigger En- dorsement #16 of the Magnatrax Run-Off Policy. Viewed in this way, Endorsement #16 of the Magnatrax Run-Off Policy does not make the 210 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

motion judge’s interpretation of Endorsement #14 of the Onex 2002- 2003 Policy unreasonable. 164 Endorsement #4 of the Magnatrax Run-Off Policy may sit less comfortably with the motion judge’s interpretation of Endorsement #14 of the Onex 2002-2003 Policy. Arguably, the motion judge’s interpretation avoids the potential for a gap in coverage if a civil proceeding involving Magnatrax named only Onex and Onex Executives as defendants and did not name as defendants Magnatrax or any individuals who served as Magnatrax Executives. That said, it is not entirely clear what effect such an interpretation would have on the coordination of liability limits under Endorsement #16 of the Magnatrax Run-Off Policy. 165 In our view, however, the difficulty in reconciling the two endorsements from the Magnatrax Run-Off Policy with the motion judge’s interpretation of Endorsement #14 of the Onex 2002-2003 Policy does not determine the interpretative exercise. We have concluded that the ambiguity, as discussed above in these reasons, remains. The factual matrix in this case does not resolve which interpretation of Endorsement #14 of the Onex 2002-2003 Policy reflects the parties’ reasonable expectations or intentions in putting in place the Magnatrax Run-Off Policy and amend- ing the Onex 2002-2003 Policy by adding Endorsement #14. 166 Each party advanced an interpretation of Endorsement #14 reflecting their reasonable expectation of coverage. Viewed objectively, either interpretation of Endorsement #14 would produce a commercially sensible result. 167 In summary, we are of the view that the wording of Endorsement #14 in the Onex 2002-2003 Policy is susceptible of more than one meaning and is therefore ambiguous. Accordingly, we do not agree with the motion judge’s conclusion at para. 169 of his reported reasons that the wording of Endorsement #14 is clear and unambiguous. 168 Where an ambiguity is first identified on appeal, it must be asked if the appellate court is in a position to resolve the ambiguity de novo. Sec- tion 134(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43, empowers this court to make any order that the motion judge could have made. The parties brought competing motions to decide the personal defendants’ action by way of summary judgment. The evidentiary record from the motions was filed electronically in this court with leave. 169 The governing test for assessing if it is appropriate to exercise the powers conferred by rule 20.01(2.1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, on a motion for summary judgment is the full Onex v. American Home Assurance O’Connor A.C.J.O., Simmons J.A. 211

appreciation test from Combined Air Mechanical Services Inc. v. Flesch, 2011 ONCA 764, 108 O.R. (3d) 1 (Ont. C.A.). This court described the test as follows, at para. 50: “can the full appreciation of the evidence and issues that is required to make dispositive findings be achieved by way of summary judgment, or can this full appreciation only be achieved by way of a trial?” 170 We have examined the record carefully. Regrettably, we find that we are not in a position to decide the factual issues that need to be determined in order to resolve the interpretative dispute. Having found that Endorsement #14 was unambiguous, the motion judge did not make findings of fact with respect to the issues we consider relevant to the resolution of the interpretation exercise. 171 In arguing the appeal, the parties each took the position that the interpretation they urged on the court was unambiguous. That being the case, they paid little attention to the issues that we now find must be determined — what were the reasonable expectations or intentions of the parties in adopting Endorsement #14 of the Onex 2002-2003 Policy? 172 Given the disposition we would make of this appeal, we will not express an opinion on the body of evidence that may be relevant to determining that issue. Suffice it to say that there is evidence of discussions and correspondence that took place in January 2003 and again at the time of the issuance of the Magnatrax Run-Off Policy and the issuance of En- dorsement #14. 173 We note that it will be open to the Superior Court to decide, if need be, whether Endorsement #16 of the Magnatrax Run-Off Policy entitles American Home to set-off amounts that may be found owing under the Onex 2002-2003 Policy against payments made under the Magnatrax Run-Off Policy.

G. Disposition 174 In the result, we would dismiss the Onex cross-appeal. We would allow American Home’s appeal, set aside the order of the motion judge, and return the matter to the Superior Court. We leave it open to the parties to decide whether to renew motions for summary judgment or to proceed by way of a trial of the issues that we have identified in these reasons. 212 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

175 The parties may make brief written submissions on costs within a period of 30 days from the release of these reasons.

M. Rosenberg J.A.:

I agree. Appeal allowed; cross-appeal dismissed.

Appendix

1. Onex 2002-2003 Policy Coverage A: EXECUTIVE LIABILITY INSURANCE This policy shall pay the Loss of any Insured Person arising from a Claim (including, but not limited to, an Employment Practices Claim, an Oppressive Conduct Claim, a Canadian pollution Claim and a Statutory Claim) made against such Insured Person for any Wrongful Act of such Insured Person, except when and to the extent that an Organization has indemnified such Insured Person. Coverage A shall not apply to Loss arising from a Claim made against an Outside En- tity Executive...... 2. DEFINITIONS ..... (c) “Claim” means: (1) a written demand for monetary, non-monetary or injunctive relief, (2) a civil, criminal, administrative, regulatory or arbitration proceeding for monetary, non-monetary or injunctive relief which is commenced by: (i) service of a Writ of Summons, Statement of Claim or similar originating legal document; (ii) return of a summons, information, indictment or similar document (in the case of a criminal proceeding); or (iii) receipt or filing of a notice of charges; or (3) a civil, criminal, administrative or regulatory investigation of an Insured Person: (i) once such Insured Person is identified in writing by such investigating authority as a person against whom a proceeding described in Definition (c)(2) may be commenced; or Onex v. American Home Assurance M. Rosenberg J.A. 213

(ii) in the case of an investigation by any PSC or similar foreign securities authority, after the service of a sub- poena upon such Insured Person. The term “Claim” shall include any Securities Claim, Employment Practices Claim, Oppressive Conduct Claim, Canadian Pollution Claim and Statutory Claim...... (h) “Defence Costs” means reasonable and necessary fees, costs and expenses consented to by the Insurer (including premiums for any appeal bond, attachment bond or similar bond arising out of a covered judgment, but without any obligation to apply for or furnish any such bond) resulting solely from the investigation, adjustment, defence and/or appeal of a Claim against an Insured, but excluding any compensation of any Insured Person or any Employee of an Organization...... (l) “Executive” means any: (1) past, present and future duty elected or appointed director, officer, trustee or governor of a corporation, management committee member of a joint venture and member of the management board of a limited liability company (or equivalent position), including a de facto director, officer, trustee, gover- nor, management committee member or member of the management board of such entities; (2) past, present and future person in a duty elected or appointed position in an entity organized and operated in a Foreign Ju- risdiction that is equivalent to an executive position listed in Definition (l)(1); or (3) past, present and future General Counsel and Risk Manager (or equivalent position) of the Named Entity...... (p) “Insured” means any: (1) Insured Person; or (2) Organization, but only with respect to a Securities Claim, an Oppressive Conduct Claim or a Canadian Pollution Claim. (q) “Insured Person” means any: (1) Executive of an Organization; (2) Employee of an Organization; or (3) Outside Entity Executive. 214 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

(r) “Loss” means damages (including aggravated damages), settlements, judgments (including pre/post-judgment Interest on a covered judgment), Defence Costs and Crisis Loss; however, “Loss” (other than Defence Costs) shall not include: (1) civil or criminal fines or penalties; (2) taxes; (3) punitive or exemplary damages; (4) multiplied portion of multiplied damages; (5) any amounts for which an Insured is not financially liable or which are without legal recourse to an Insured; and (6) matters which may be deemed uninsurable under the provincial or state law pursuant to which this policy shall be construed...... (w) “Organization” means: (1) the Named Entity; ..... (dd) “Subsidiary” means: (1) any for-profit entity that is not formed as a partnership of which the Named Entity has Management Control (“Controlled Entity”) on or before the inception of the Policy Period either directly or indirectly through one or more other Controlled En- tities and (2) a not-for-profit organization as defined in Section 149.1(b) of the Income Tax Act, R.S.C., 1985 (5th Supp.) sponsored exclusively by the Named Entity. (ee) “Wrongful Act” means: (1) any actual or alleged breach of duty, neglect, error, misstatement, misleading statement, omission or act or any actual or alleged Employment Practices Violation: (i) with respect to any Executive of an Organization, by such Executive in his or her capacity as such or any matter claimed against such Executive solely by reason of his or her status as such; (ii) with respect to any Employee of an Organization, by such Employee in his or her capacity as such, but solely in regard to any: (a) Securities Claim; or (b) other Claim so long as such other Claim is also made and continuously maintained against an Executive of an Organization; or (iii) with respect to any Outside Entity Executive, by such Outside Entity Executive in his or her capacity as such or any matter claimed against such Outside Entity Ex- ecutive solely by reason of his or her status as such; or (2) with respect to an Organization, any actual or alleged breach of duty, neglect, error, misstatement, mis-leading statement, Onex v. American Home Assurance M. Rosenberg J.A. 215

omission or act by such Organization, but solely in regard to: (a) any Securities Claim or Oppressive Conduct Claim; or (b) a Canadian Pollution Claim so long as such Canadian Pollu- tion Claim is also made and continuously maintained against an Executive of an Organization...... 4. EXCLUSIONS The Insurer shall not be liable to make any payment for Loss in connection with any Claim made against an Insured: (i) which is brought by or on behalf of an Organization or any Insured Person, other than an Employee of an Organization; or which is brought by any security holder or member of an Organization, whether directly or derivatively, unless such security holder’s or member’s Claim is instigated and continued totally independent of, and totally without the solicitation of, or assistance of, or active participation of, or intervention of, any Executive of an Organization or any Organization, provided, however, this exclusion shall not apply to: (1) any Claim brought by an Insured Person in the form of a cross-claim or third-party claim for contribution or indemnity which is part of, and results directly from, a Claim that is covered by this policy; (2) any Employment Practices Claim brought by an In- sured Person, other than an Insured Person who is or was a member of the Board of Directors (or equivalent governing body) of an Organization; (3) in any bankruptcy proceeding by or against an Organi- zation, any Claim brought by the examiner, trustee, receiver, receiver manager, liquidator or rehabilitator (or any assignee thereof) of such Organization, if any; (4) any Claim brought by any past Executive of an Or- ganization who has not served as a duty elected or appointed director, officer, trustee, governor, management committee member, member of the management board, General Counsel or Risk Manager (or equivalent position) of or consultant for an Organiza- tion for at least four (4) years prior to such Claim being first made against any person; or (5) any Claim brought by an Executive of an Organiza- tion formed and operating in a Foreign Jurisdiction against such Organization or any Executive thereof, 216 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

provided that such Claim is brought and maintained outside Canada, the United States, or any other common law country (including any territories thereof); ..... 7. NOTICE/CLAIM REPORTING PROVISIONS Notice hereunder shall be given in writing to American Home Assur- ance Company, 145 Wellington Street West, Toronto, Ontario M5J 1H8: Attention Claims Department. If mailed, the date of mailing shall constitute the date that such notice was given and proof of mailing shall be sufficient proof of notice...... (c) If during the Policy Period or during the Discovery Period (if applicable) an Organization or an Insured shall become aware of any circumstances which may reasonably be expected to give rise to a Claim being made against an Insured and shall give written notice to the Insurer of the circumstances, the Wrongful Act allegations anticipated and the reasons for anticipating such a Claim, with full particulars as to dates, persons and entities involved, then a Claim which is subsequently made against such Insured and reported to the Insurer alleging, arising out of, based upon or attributable to such circumstances or alleging any Wrongful Act which is the same as or related to any Wrongful Act alleged or contained in such circumstances, shall be considered made at the time such notice of such circumstances was given. ENDORSEMENT #5 ..... “NO LIABILITY” PROVISION DELETED AND SECURITIES CLAIM RETENTION APPLIES TO ALL LOSS In consideration of the premium charged, it is hereby understood and agreed that the policy is hereby amended as follows: (1) The Definition of and all provisions referring to “No Liabil- ity” are hereby deleted in their entirety. (2) Clause 6 RETENTION CLAUSE is deleted in its entirety and replaced by the following: 6. RETENTION CLAUSE For each Claim, the Insurer shall only be liable for the amount of Loss arising from a Claim which is in excess of the applicable Retention amounts Onex v. American Home Assurance M. Rosenberg J.A. 217

stated in Items 4(a) through 4(e) of the Declara- tions, such Retention amounts to be borne by an Organization and/or the Insured Person and remain uninsured, with regard to all Loss other than Non-Indemnifiable Loss. The Retention amount specified in: (i) Item 4(a) applies to Loss that arises out of a Securities Claim; (ii) Item 4(b) applies to Loss that arises out of an Employment Practices Claim; and (iii) Item 4(c) applies to Loss that arises out of Oppressive Conduct Claim; (iv) Item 4(d) applies to Loss that arises out of a Canadian Pollution Claim; and (v) Item 4(e) applies to Loss that arises out of any Claim other than a Claim listed in Clause 6(i) through 6(iv) above. A single Retention amount shall apply to Loss arising from all Claims alleging the same Wrong- ful Act or related Wrongful Acts. In the event a Claim triggers more than one of the Retention amounts stated in Items 4(a) through 4(e) of the Declarations, then, as to that Claim, the highest of such Retention amounts shall be deemed the Retention amount applicable to Loss (to which a Retention is applicable pursuant to the terms of this policy) arising from such Claim. No Retention amount is applicable to Crisis Loss or Non-Indemnifiable Loss...... ENDORSEMENT #9 ..... PREDETERMINED ALLOCATION FOR DEFENCE COSTS OTHER THAN SECURITIES CLAIM OR EMPLOYMENT PRACTICES CLAIM In consideration of the premium charged, it is hereby understood and agreed that Clause 8 is hereby amended by adding the following at the end thereof: 218 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

If a covered Claim other than a Securities Claim(s) or Employment Practices Claim(s) results in Loss which is both covered under the terms and conditions of this policy and uncovered by the terms and conditions of this policy (other than as a result of an exception of the Definition of Loss, the Definition of Defence Costs or the terms, conditions and limitations of this Clause 8), because such Claim includes both covered and uncovered matters or covered or uncovered parties, then the Insurer, the Insureds and the Company agree to allocate De- fence Costs incurred in connection with such Claim, as follows: Eighty percent (80%) shall be deemed to be Loss incurred by the Insureds; however, the Insurer shall only be liable to pay such Loss of the Insureds subject to the policy’s application retention amount, limits of liability, and expressed exceptions to the definition of Loss and the other provisions of this Clause 8 and the definition of De- fence Costs; and the remainder shall be deemed to be the obligation of the Organization and the Insureds and not insured under this policy. (“Preset Allocation of Defence Costs”) Provided that in all events the Preset Allocation of Defence Costs described above shall not apply to or create any presumption with respect to the allocation of any damages, judgments or settlement in regard to any Claim...... ENDORSEMENT #10 BANKRUPTCY TRUSTEE, RECEIVER, LIQUIDATOR OR REHABILITATOR EXCLUSION In consideration of the premium charged, it is hereby understood and agreed that the Insurer shall not be liable to make any payment for Loss in connection with any Claim made against any Insured in any bankruptcy proceeding by or against an Organization, when such Claim is brought by the examiner, trustee, receiver, creditors’ committee, trust, liquidator or rehabilitator (or any assignee thereof) of such Organization. It is further understood and agreed that the policy is modified as follows: 1. Clause 4. EXCLUSIONS, Exclusion (i) is hereby amended by deleting subparagraph (3) in its entirety. Onex v. American Home Assurance M. Rosenberg J.A. 219

..... ENDORSEMENT #14 SPECIFIC ENTITY/SUBSIDIARY EXCLUSION (Claims brought by or made against) In consideration of the premium charged, it is hereby understood and agreed that the Insurer shall not be liable for any Loss alleging, arising out of, based upon or attributable to or in connection with any Claim brought by or made against the Entity listed below and/or any Insureds thereof. 1. MAGNATRAX Corporation (Including any subsidiary or affiliate thereof) It is further understood and agreed that the Definition of Subsidiary shall not include MAGNATRAX Corporation. Further, the Insurer shall not be liable to make any payment for Loss in connection with any Claim made against an Insured alleging, arising out of, based upon or attributable to any breach of duty, act, error or omission of MAGNATRAX Corporation, or any director, officer, member of the board of managers or employee thereof. 2. Magnatrax Run-Off Policy ENDORSEMENT #4 ..... DEFINITION OF ORGANIZATION AMENDED TO INCLUDE ENTITY (CO-DEFENDANT ONLY) In consideration of the premium charged, it is hereby understood and agreed that the term “Organization” is amended to include the following entity, subject to the terms, conditions and limitations of this endorsement and this policy. ENTITY Onex Corporation Coverage as is afforded under this policy with respect to a Claim made against Onex Corporation or any Insured Persons thereof shall only apply if: (1) such Claim relates to a Wrongful Act committed by an Insured (other than Onex Corporation or an Insured Person thereof); and (2) an Insured (other than Onex Corporation or an In- sured Person thereof) is and remains a defendant in the Claim along with Onex Corporation or any Insured Person thereof. In all events coverage as is afforded under this policy with respect to a Claim made against Onex Corporation or any Insured Person 220 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

thereof shall only apply to Wrongful Acts committed or allegedly committed prior to May 12, 2003...... ENDORSEMENT #11 ..... COVERAGES B(i) DELETED ALLOCATION ENDORSEMENT ..... DEFENCE COSTS) is deleted in its entirety and replaced with the following: 8. DEFENCE COSTS, SETTLEMENTS, JUDGMENTS (INCLUD- ING THE ADVANCEMENT OF DEFENCE COSTS) (a) Under Coverage A, B and C of this policy, except as hereinafter stated, the Insurer shall advance, excess of any applicable retention amount, covered Defense Costs no later than ninety (90) days after the receipt by the Insurer of such defense bills. Such advance payments by the Insurer shall be repaid to the Insurer by each and every Insured Person or Or- ganization, severally according to their respective interests, in the event and to the extent that any such Insured Person or Organization shall not be entitled under this policy to payment of such Loss...... (f) In connection with any Claim, other than a Claim that is or includes a Securities Claim, with respect to: (i) Defense Costs jointly incurred by, (ii) any joint settlement entered into by, or (iii) any judgment of joint and several liability against any Organization and any Insured Person, there shall be a fair and equitable allocation as between any such Organization and any such Insured Person, taking into account the relative legal and financial exposures and the relative benefits obtained by any such Insured Person and any such Organization, without any presumption that the coverage afforded to the Insured Person shall in any way reduce the allocation to the Organiza- tion which shall not be insured for such allocation. In the event that a determination as to the amount of Defense Costs to be advanced under the policy cannot be agreed to, then the Insurer shall advance Defense Costs excess of any applicable retention amount which the Insurer states to be fair and equitable until a different amount shall be agreed upon or deter- Onex v. American Home Assurance M. Rosenberg J.A. 221

mined pursuant to the provisions of this policy and applicable law...... ENDORSEMENT #16 ..... COORDINATION OF AIG LIMITS In consideration of the premium charged, it is hereby understood and agreed that, with respect to any Claim under this policy for which coverage is provided by one or more other policies issued by the In- surer or any other member of the American International Group (AIG), (or would be provided but for the exhaustion of the limit of liability, the applicability of the retention/deductible amount or coin- surance amount, or the failure of the Insured to submit a notice of a Claim), the Limit of Liability provided by virtue of this policy shall be reduced by the limit of liability provided by said other AIG policy. Notwithstanding the above, in the event such other AIG policy contains a provision which is similar in intent to the foregoing paragraph, then the foregoing paragraph will not apply, but instead: (1) the Insurer shall not be liable under this policy for a greater proportion of the Loss than the applicable Limit of Liability under this policy bears to the total limit of liability of all such policies, and (2) the maximum amount payable under all such policies shall not exceed the limit of liability of the policy that has the highest available limit of liability. Nothing contained in this endorsement shall be construed to increase the limit of liability of this policy. 3. Onex 2004-2005 Policy 4. EXCLUSIONS The Insurer shall not be liable to make any payment for Loss in connection with any Claim made against an Insured: ..... (d) alleging, arising out of, based upon or attributable to the facts alleged, or to the same or related Wrongful Acts alleged or contained in any Claim which has been reported, or in any circumstances of which notice has been given, under any policy of which this policy is a renewal or replacement or which it may succeed in time; 222 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

..... ENDORSEMENT #13 ..... PRIOR ACTS EXCLUSION FOR LISTED ENTITIES In consideration of the premium charged, it is hereby understood and agreed that the term Subsidiary is amended to include the entity(ies) listed below, but only for Wrongful Acts committed by such entity(ies) and/or any Insureds thereof which occurred subsequent to such entity’s respective acquisition/creation date listed below and prior to the time the Named Entity no longer maintains Management Control of such entity(ies), respectively, either directly or indirectly through one or more other Subsidiaries. Loss arising from the same or related Wrongful Act shall be deemed to arise from the first such same or related Wrongful Act. ENTITY(IES) ACQUISITION/CREATION DATE 1. MAGNATRAX Corpo- May 12, 2003 ration [...] For the purpose of the applicability of the coverage provided by this endorsement, the entities listed above and the Organization will be conclusively deemed to have indemnified the Insureds of [...] each respective entity to the extent that such entity or the Organization is permitted or required to indemnify such Insureds pursuant to law or contract or the charter, bylaws, operating agreement or similar documents of an Organization. The entity and the Organization hereby agree to indemnify the Insureds to the fullest extent permitted by law, including the making in good faith of any required application for court approval. Awalt v. Blanchard 223

[Indexed as: Awalt v. Blanchard] Linda Awalt, Appellant v. Chris Blanchard, Respondent Nova Scotia Court of Appeal Docket: C.A. 371547 2013 NSCA 11 Saunders, Farrar, Bryson JJ.A. Heard: October 15, 2012 Judgment: January 25, 2013 Torts –––– Negligence — Causation — General principles –––– Plaintiff motorist was injured in accident, when defendant tortfeasor reversed his truck into motorist’s car — Motorist brought action against tortfeasor, and liability was admitted — Motorist claimed that she experienced ongoing shoulder pain, which led to surgery some 5 years post-accident — Trial judge did not accept that surgery was caused by accident and capped general damages at mandated $2,500 for “minor injury” — Motorist also received $5,000 for loss of income and $2,978 for special damages — Motorist claimed that judge did not properly apply law of causation — Motorist claimed that there were insufficient reasons for decision and to declare injury “minor” — Motorist finally claimed that judge erred in assessing medical evidence and in assessing damages for loss of services — Motorist appealed from trial decision, on all of above grounds — Ap- peal dismissed — Judge properly reviewed evidence to show that injury was likely caused by several work injuries sustained by motorist — Judge found that evidence of physician as to injury was weakened, by fact that physician did not know about motorist’s workplace injuries — There was no immediate pain felt by motorist, that would have indicated type of traumatic injury claimed. Remedies –––– Damages — Damages in tort — Personal injury — Princi- ples relating to non-pecuniary loss — Upper limits of recovery –––– Plaintiff motorist was injured in accident, when defendant tortfeasor reversed his truck into motorist’s car — Motorist brought action against tortfeasor, and liability was admitted — Motorist claimed that she experienced ongoing shoulder pain, which led to surgery some 5 years post-accident — Trial judge did not accept that surgery was caused by accident and capped general damages at mandated $2,500 for “minor injury” — Motorist also received $5,000 for loss of income and $2,978 for special damages — Motorist claimed that judge did not properly apply law of causation — Motorist claimed that there were insufficient reasons for decision and to declare injury “minor” — Motorist finally claimed that judge erred in assessing medical evidence and in assessing damages for loss of services — Motorist appealed from trial decision, on all of above grounds — Ap- 224 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th) peal dismissed — Judge could properly analyze injury as minor, as he established that shoulder injury was not caused by accident — Motorist’s own physician characterized injury as mild to moderate whiplash, which fell within parameters of minor injury legislation — There was no error either in law or fact to be challenged. Civil practice and procedure –––– Trials — Conduct of trial — Powers and duties of trial judge — Giving reasons for judgment –––– Plaintiff motorist was injured in accident, when defendant tortfeasor reversed his truck into motorist’s car — Motorist brought action against tortfeasor, and liability was admitted — Motorist claimed that she experienced ongoing shoulder pain, which led to surgery some 5 years post-accident — Trial judge did not accept that surgery was caused by accident and capped general damages at mandated $2,500 for “minor injury” — Motorist also received $5,000 for loss of income and $2,978 for special damages — Motorist claimed that judge did not properly apply law of causation — Motorist claimed that there were insufficient reasons for decision and to declare injury “minor” — Motorist finally claimed that judge erred in assessing medical evidence and in assessing damages for loss of services — Motorist appealed from trial decision, on all of above grounds — Appeal dismissed — Judge’s reasons were sufficient to deal with issues, and judge was not required to deal with every piece of evidence. Civil practice and procedure –––– Costs — Costs of appeals — General principles –––– Plaintiff motorist was injured in accident, when defendant tortfeasor reversed his truck into motorist’s car — Motorist brought action against tortfeasor, and liability was admitted — Motorist claimed that she experienced ongoing shoulder pain, which led to surgery some 5 years post-accident — Trial judge did not accept that surgery was caused by accident and capped general damages at mandated $2,500 for “minor injury” — Motorist also received $5,000 for loss of income and $2,978 for special damages — Motorist claimed that judge did not properly apply law of causation — Motorist claimed that there were insufficient reasons for decision and to declare injury “minor” — Motorist finally claimed that judge erred in assessing medical evidence and in assessing damages for loss of services — Motorist appealed from trial decision, on all of above grounds — Appeal dismissed — Tortfeasor requested $9,100 in costs based on trial costs, while motorist requested that costs be limited to $4,000 — Motorist’s figure was found to be more reflective of trial costs, and this was amount that she was required to pay for costs of appeal. Cases considered by Bryson J.A.: C. (R.) v. McDougall (2008), [2008] 11 W.W.R. 414, 83 B.C.L.R. (4th) 1, (sub nom. F.H. v. McDougall) [2008] 3 S.C.R. 41, 2008 CarswellBC 2041, 2008 CarswellBC 2042, 2008 SCC 53, 60 C.C.L.T. (3d) 1, (sub nom. H. (F.) v. McDougall) 297 D.L.R. (4th) 193, 61 C.P.C. (6th) 1, 61 C.R. (6th) 1, (sub nom. F.H. v. McDougall) 380 N.R. 82, (sub nom. F.H. v. McDougall) 439 Awalt v. Blanchard 225

W.A.C. 74, (sub nom. F.H. v. McDougall) 260 B.C.A.C. 74, [2008] S.C.J. No. 54, [2008] A.C.S. No. 54 (S.C.C.) — considered Clements (Litigation Guardian of) v. Clements (2012), [2012] 7 W.W.R. 217, 2012 SCC 32, 2012 CarswellBC 1863, 2012 CarswellBC 1864, 31 B.C.L.R. (5th) 1, 29 M.V.R. (6th) 1, 93 C.C.L.T. (3d) 1, 346 D.L.R. (4th) 577, (sub nom. Clements v. Clements) 431 N.R. 198, [2012] S.C.J. No. 32 (S.C.C.) — referred to Cojocaru (Guardian ad litem of) v. British Columbia Women’s Hospital & Health Center (2011), 2011 CarswellBC 886, 2011 BCCA 192, 81 C.C.L.T. (3d) 183, (sub nom. Cojocaru v. British Columbia Women’s Hospital & Health Center) 303 B.C.A.C. 278, (sub nom. Cojocaru v. British Columbia Women’s Hospital & Health Center) 512 W.A.C. 278, 44 Admin. L.R. (5th) 231, 17 B.C.L.R. (5th) 253, [2011] 7 W.W.R. 82 (B.C. C.A.) — referred to Farrell v. Casavant (2009), 2009 CarswellNS 417, 2009 NSSC 233, 281 N.S.R. (2d) 283, 893 A.P.R. 283 (N.S. S.C.) — followed Fullowka v. Royal Oak Ventures Inc. (2010), (sub nom. Fullowka v. Pinkerton’s of Canada Ltd.) [2010] 1 S.C.R. 132, [2010] 4 W.W.R. 35, (sub nom. Fullowka v. Pinkerton’s of Canada Ltd.) 398 N.R. 20, (sub nom. Fullowka v. Pinkerton’s of Canada Ltd.) 479 W.A.C. 1, (sub nom. Fullowka v. Pinkerton’s of Canada Ltd.) 474 A.R. 1, 80 C.C.E.L. (3d) 1, 315 D.L.R. (4th) 577, 2010 SCC 5, 2010 CarswellNWT 9, 2010 CarswellNWT 10, 71 C.C.L.T. (3d) 1, [2010] S.C.J. No. 5, [2010] A.C.S. No. 5 (S.C.C.) — referred to Geophysical Service Inc. v. Sable Mary Seismic Inc. (2012), 2012 NSCA 33, 2012 CarswellNS 211, 998 A.P.R. 201, 315 N.S.R. (2d) 201 (N.S. C.A.) — considered Gillis v. MacKeigan (2010), 92 C.C.L.I. (4th) 176, 945 A.P.R. 149, 298 N.S.R. (2d) 149, [2011] I.L.R. I-5086, 2010 CarswellNS 788, 2010 NSCA 101 (N.S. C.A.) — considered Hanke v. Resurfice Corp. (2007), 69 Alta. L.R. (4th) 1, 404 A.R. 333, 394 W.A.C. 333, 2007 CarswellAlta 130, 2007 CarswellAlta 131, 2007 SCC 7, [2007] 4 W.W.R. 1, 45 C.C.L.T. (3d) 1, 278 D.L.R. (4th) 643, [2007] R.R.A. 1, 357 N.R. 175, [2007] 1 S.C.R. 333, [2007] S.C.J. No. 7 (S.C.C.) — referred to Housen v. Nikolaisen (2002), 10 C.C.L.T. (3d) 157, 211 D.L.R. (4th) 577, 286 N.R. 1, [2002] 7 W.W.R. 1, 2002 CarswellSask 178, 2002 CarswellSask 179, 2002 SCC 33, 30 M.P.L.R. (3d) 1, 219 Sask. R. 1, 272 W.A.C. 1, [2002] 2 S.C.R. 235, [2002] S.C.J. No. 31, REJB 2002-29758 (S.C.C.) — referred to Leddicote v. Nova Scotia (Attorney General) (2002), 203 N.S.R. (2d) 271, 635 A.P.R. 271, 28 M.V.R. (4th) 189, 2002 NSCA 47, 2002 CarswellNS 135, [2002] N.S.J. No. 160 (N.S. C.A.) — considered 226 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

M. (L.M.) v. Nova Scotia (Attorney General) (2011), 2011 NSCA 48, 2011 Car- swellNS 332, 957 A.P.R. 243, 303 N.S.R. (2d) 243 (N.S. C.A.) — referred to MacDonald v. Holland’s Carriers Ltd. (2012), 316 N.S.R. (2d) 280, 2012 NSCA 47, 2012 CarswellNS 310, 31 M.V.R. (6th) 46 (N.S. C.A.) — referred to MacIntyre v. Cape Breton District Health Authority (2011), 2011 NSCA 3, 2011 CarswellNS 21, 327 D.L.R. (4th) 623, 298 N.S.R. (2d) 223, 945 A.P.R. 223 (N.S. C.A.) — referred to Morash v. Purdy (2011), 2011 NSCA 123, 2011 CarswellNS 895 (N.S. C.A.) — referred to Naylor Group Inc. v. Ellis-Don Construction Ltd. (2001), 2001 SCC 58, 2001 CarswellOnt 3340, 2001 CarswellOnt 3341, 204 D.L.R. (4th) 513, 17 B.L.R. (3d) 161, 10 C.L.R. (3d) 1, 55 O.R. (3d) 312 (headnote only), 277 N.R. 1, [2001] 2 S.C.R. 943, 153 O.A.C. 341, [2001] S.C.J. No. 56, REJB 2001- 25835 (S.C.C.) — referred to Pedherney v. Jensen (2011), 2011 ABCA 9, 2011 CarswellAlta 12, 499 A.R. 216, 514 W.A.C. 216 (Alta. C.A.) — referred to R. v. M. (R.E.) (2008), [2008] 11 W.W.R. 383, 83 B.C.L.R. (4th) 44, [2008] 3 S.C.R. 3, 2008 CarswellBC 2037, 2008 CarswellBC 2038, 2008 SCC 51, 235 C.C.C. (3d) 290, 60 C.R. (6th) 1, 297 D.L.R. (4th) 577, 380 N.R. 47, 439 W.A.C. 40, 260 B.C.A.C. 40, [2008] S.C.J. No. 52 (S.C.C.) — referred to R. v. Walker (2008), [2008] 6 W.W.R. 1, 2008 SCC 34, 2008 CarswellSask 347, 2008 CarswellSask 348, 375 N.R. 228, 57 C.R. (6th) 212, [2008] 2 S.C.R. 245, 310 Sask. R. 305, 423 W.A.C. 305, 294 D.L.R. (4th) 106, 231 C.C.C. (3d) 289, [2008] S.C.J. No. 34 (S.C.C.) — referred to R. (S.) v. Nova Scotia (Minister of Community Services) (2012), 20 R.F.L. (7th) 1, 2012 NSCA 46, 2012 CarswellNS 337, 317 N.S.R. (2d) 73, 1003 A.P.R. 73 (N.S. C.A.) — considered Randall (Litigation Guardian of) v. Lakeridge Health Oshawa (2010), (sub nom. Randall v. Lakeridge Health Oshawa) 270 O.A.C. 371, 75 C.C.L.T. (3d) 165, 2010 CarswellOnt 5482, 2010 ONCA 537, [2010] O.J. No. 3227 (Ont. C.A.) — referred to Van de Perre v. Edwards (2001), 2001 SCC 60, 19 R.F.L. (5th) 396, [2001] 11 W.W.R. 1, 204 D.L.R. (4th) 257, (sub nom. P. (K.V.) v. E. (T.)) 275 N.R. 52, (sub nom. K.V.P. v. T.E.) 156 B.C.A.C. 161, (sub nom. K.V.P. v. T.E.) 255 W.A.C. 161, 94 B.C.L.R. (3d) 199, 2001 CarswellBC 1999, 2001 Car- swellBC 2000, [2001] 2 S.C.R. 1014, [2001] S.C.J. No. 60, REJB 2001- 25876 (S.C.C.) — referred to Woelk v. Halvorson (1980), [1980] 2 S.C.R. 430, [1981] 1 W.W.R. 289, 1980 CarswellAlta 317, 14 C.C.L.T. 181, 24 A.R. 620, 114 D.L.R. (3d) 385, 33 Awalt v. Blanchard Bryson J.A. 227

N.R. 232, 1980 CarswellAlta 277, [1980] S.C.J. No. 82 (S.C.C.) — referred to Statutes considered: Insurance Act, R.S.N.S. 1989, c. 231 s. 113B [en. 2003 (2nd Sess.), c. 1, s. 12] — considered s. 113B(1) [en. 2003 (2nd Sess.), c. 1, s. 12] — considered s. 113B(1)(a) “minor injury” [en. 2003 (2nd Sess.), c. 1, s. 12] — considered s. 113B(1)(b) “serious impairment” [en. 2003 (2nd Sess.), c. 1, s. 12] — considered s. 113B(4) [en. 2003 (2nd Sess.), c. 1, s. 12] — considered s. 113B(8) [en. 2003 (2nd Sess.), c. 1, s. 12] — considered Regulations considered: Insurance Act, R.S.N.S. 1989, c. 231 Automobile Insurance Tort Recovery Limitation Regulations, N.S. Reg. 182/2003 s. 2(1)(c) “non-monetary loss” — considered s. 2(1)(e) “regular employment” — considered s. 2(1)(f) “resolves” — considered s. 2(1)(g) “substantial interference” — considered s. 2(1)(h) “usual daily activities” — considered s. 3 — considered s. 5 — considered

APPEAL by plaintiff motorist from judgment reported at Awalt v. Blanchard (2011), 2011 NSSC 111 (N.S. S.C.), awarding damages to motorist against defendant tortfeasor.

Glenn E. Jones, for Appellant Michelle Kelly, Peter LeCain, for Respondent

Bryson J.A.: Introduction: 1 Linda Awalt was injured on September 20, 2004, when Chris Blanchard reversed his half ton truck into her car. The accident occurred at low speed. Ms. Awalt’s car sustained $1,914 in damages. Ms. Awalt immediately experienced headache and nausea. Liability was admitted. Following a seven-day trial, Justice Kevin Coady awarded Ms. Awalt $10,478 comprising $2,500 general damages, $5,000 for loss of income, and special damages of $2,978 (2011 NSSC 111 (N.S. S.C.)). Ms. Awalt appeals, alleging that the trial judge erred: 228 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

1. in applying the law of causation when determining that the accident did not cause her shoulder injury; 2. in interpreting s. 113(b) of the Insurance Act, R.S.N.S. 1989, c. 231, having regard to: (a) the absence of sufficient reasons for the decision; (b) the determination that she suffered a “minor injury”; 3. in assessing the medical evidence; and 4. in assessing damages for loss of valuable services. 2 Ms. Awalt is not pursuing the other grounds of appeal set forth in her notice of appeal.

Background: 3 Following the accident, Ms. Awalt attended her local healthcare centre. She was diagnosed with mild whiplash and tenderness was noted on the left side of her neck and shoulder. She was prescribed Ibuprofen. Shortly thereafter, she attended upon her family physician who recom- mended physiotherapy. She returned to work approximately one week after the accident. 4 In May 2006, Ms. Awalt’s family physician referred her to pain management specialist, Dr. Alexander Finlayson, because she was experienc- ing left shoulder pain. Dr. Finlayson examined Ms. Awalt and ordered a CT Scan of her left shoulder. The scan did not disclose a tear but did reveal the joint in a degenerative condition. Dr. Finlayson referred Ms. Awalt to Dr. Douglas Legay, an orthopaedic surgeon. In March 2007, Dr. Legay arranged a further CT Scan with dye but concluded there was no evidence of a rotator cuff tear. Ms. Awalt continued to experience left shoulder pain in her work. In his March 9, 2007 report, Dr. Legay diagnosed “...A/C joint inflammation with persistent rotator cuff tendonitis...”. In June, 2008, Dr. Legay reviewed Ms. Awalt again. He reviewed an MRI which was “... possibly showing a possible articular surface tear”. 5 On January 5, 2009, Ms. Awalt underwent surgery. The inner aspect of the subscapularis was found to be torn and was repaired by Dr. Legay. He also shaved one centimetre off her clavicle. Ms. Awalt says that her subscapularis was torn in the 2004 accident. 6 The trial judge did not accept that Ms. Awalt’s 2009 shoulder surgery resulted from the 2004 accident. He decided that Ms. Awalt sustained a Awalt v. Blanchard Bryson J.A. 229

“minor” whiplash-type injury which capped her general damages at $2,500.

Causation and Medical Evidence: 7 Although Ms. Awalt treats the assessment of the medical evidence as a discrete ground of appeal, it logically belongs to the first ground of appeal regarding causation. This is apparent from Ms. Awalt’s submission in her factum where she says: ...These errors (regarding the medical evidence) were significant in that a proper understanding and consideration of this evidence was critical to the determination of whether or not shoulder problems were caused or contributed to by the motor vehicle accident. Accordingly, grounds 1 and 3 will be considered together. 8 Ms. Awalt argues that the trial judge does not explicitly state the causation test he applied in coming to his result, “we do not know if the correct legal principles were applied”. Ms. Awalt complains that the trial judge did not compare the views of the experts or indicate why he preferred one to another. Ms. Awalt “speculates” that the trial judge preferred the opinion of Dr. Stanish but does “not actually state that in the decision”. This evolves into a complaint that the reasons relating to causation, “...are insufficient to allow for public accountability to explain to [Ms. Awalt] why [she] lost and to allow for meaningful appellate review.” 9 The trial judge’s identification of the test for causation is reviewed on a correctness standard. However, his application of that test to a given set of facts is reviewed on a palpable and overriding standard (MacIntyre v. Cape Breton District Health Authority, 2011 NSCA 3 (N.S. C.A.), at ¶ 63; MacDonald v. Holland’s Carriers Ltd., 2012 NSCA 47 (N.S. C.A.), at ¶ 14). 10 The Supreme Court has reaffirmed the “but for” test as the standard test for causation subject to a “material contribution” test in special circumstances (Hanke v. Resurfice Corp., 2007 SCC 7 (S.C.C.) and Fullowka v. Royal Oak Ventures Inc., 2010 SCC 5 (S.C.C.), and more recently: Clements (Litigation Guardian of) v. Clements, 2012 SCC 32 (S.C.C.)). 11 It is important to note that Ms. Awalt is a personal care worker whose work has been physically demanding. On occasion she suffered work- related injuries. This played a role in the trial judge’s assessment of the evidence and the issue of causation. 230 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

12 In considering the question of causation, the judge carefully reviewed Ms. Awalt’s work history, the medical records, the medical testimony and opinions offered. He heard from Ms. Awalt’s family physician, as well as Dr. Legay, and two additional orthopaedic surgeons, Dr. Ross Leighton, and Dr. William Stanish. He concluded: [69] I have concluded that Ms. Awalt’s initial medical contacts did not disclose symptoms that are consistent with a rotator cuff injury. The only consistent theme is whiplash. I find as a fact that the tear and fraying in Ms. Awalt’s left shoulder were caused by a series of injuries incurred at work over a number of years. I also find as a fact that degenerative changes developed before and after the 2004 accident. The plaintiff has not proven on a balance of probabilities that she suffered anything other than a whiplash injury as a result of the 2004 accident. 13 There is no obligation on a trial judge to review each and every piece of evidence and compare it with other pieces of evidence. There is no obligation to review all the evidence. There is no obligation to state in detail why some evidence is preferred to others, provided it is clear the trial judge was aware of the evidence and his conclusions can be understood from the reasons that he provides (Van de Perre v. Edwards, 2001 SCC 60 (S.C.C.), at ¶ 15; Housen v. Nikolaisen, 2002 SCC 33 (S.C.C.), at ¶ 72). 14 Regarding uncertainty about which “causation test” the trial judge applied — the submissions of Ms. Awalt’s trial counsel said nothing about the “material contribution” test. He simply argued: ... you either ignore Dr. Stanish, or ignore all the other witnesses .... It’s an either/or ... 15 Ms. Awalt did not plead or argue “material contribution” before Jus- tice Coady. But in light of his findings on causation, it does not matter. 16 The trial judge ascribed no causal connection between the accident and the rotator cuff injury (see ¶ 69 of the trial decision quoted above). There was no need for the trial judge to determine to what extent the accident contributed to Ms. Awalt’s shoulder. He found that it contributed nothing to that problem. 17 The trial judge was plainly focussed on causation when he assessed the medical evidence. For example, after reviewing Dr. Legay’s first re- Awalt v. Blanchard Bryson J.A. 231

port of March 7, 2007, some two and a half years after the accident, the trial judge observed: [46] There is nothing in this report that links Ms. Awalt’s condition to the 2004 accident. Dr. Legay obviously assumes that link but does not establish a medical link between the two. And again, after reviewing Dr. Legay’s second report: [48] This report left me with the clear impression that Dr. Legay accepted that Ms. Awalt’s injuries, including the left shoulder, were caused by the 2004 accident. However, I could not find an opinion to support this causation in relation to the shoulder. Dr. Legay does attribute her whiplash symptoms to the accident but nothing more. 18 The trial judge concludes: [53] These reports are silent on the causative link between the shoulder tear and the 2004 motor vehicle accident. Subsequent postop reports are similar. The trial judge understood that Dr. Legay thought it was “more probable than not that the car accident is the cause (of the injury to the rotator cuff)”. On the other hand, Dr. Legay acknowledged that heavy lifting, pushing, pulling and reaching could cause partial tears less commonly in the subscapular region. He agreed that lifting a water jug or catching a falling resident could cause such a tear. He conceded that he was not aware of any workplace injury suffered by Ms. Awalt, despite there being evidence of that before the Court. This weakened Dr. Legay’s evidence on causation (Decision, ¶ 55). 19 Similarly, when reviewing the evidence of Dr. Leighton, the trial judge observed: [58] ...I do not conclude that his evidence establishes the causal link between the shoulder injuries and the 2004 accident. I was left with the distinct impression that Dr. Leighton felt that the accident was the only known factor that could [a]ffect her shoulder. That view did not address long term degeneration caused by the demands of her employment. ... 20 As for Dr. Finlayson, the trial judge said: [60] ...The entirety of Dr. Finlayson’s evidence did nothing to establish the causative link between the shoulder injury and the 2004 accident. 21 But Ms. Awalt insists that the trial judge misunderstood the medical evidence, resulting in palpable and overriding errors meriting appellate intervention. 232 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

22 In her factum, Ms. Awalt faults the trial judge’s understanding of the evidence in several respects. She lists a series of opinions that Dr. Legay expressed, all of which culminated in his opinion concerning the link between the accident and the rotator cuff injury. Nothing in the trial judge’s decision indicates that he did not appreciate this evidence. Indeed it is obvious that he understood what Dr. Legay’s conclusion was. He did not accept it, in part, because Dr. Legay did not know the other possible causes of injury, including all of Ms. Awalt’s work-related injuries (De- cision, ¶ 55). 23 Ms. Awalt argues that less deference should be accorded the trial judge’s assessment of the testimony of Dr. Legay because he misunderstood this evidence. She cites this exchange with the trial judge: THE COURT: Yeah, I didn’t — I don’t think you were here when Dr. Legay testified. MR. MASON: I wasn’t, no. THE COURT: No. MR. MASON: Yeah. THE COURT: And that was almost impossible to understand. MR. MASON: Okay. His report speaks for itself. THE COURT: Well, I know, and — MR. MASON: Yeah. Yeah. THE COURT: — I’ve spent about — MR. MASON: Yeah. THE COURT: — five hours on his report since then, and I told him that. MR. MASON: Yeah. THE COURT: Because you know, the way — he just wasn’t — it just — he might as well have been speaking Spanish. 24 With respect, this submission is not compelling because Justice Coady did not misunderstand Dr. Legay’s written report and as the judge observed “...he [Dr. Legay] assured me that everything he said was in his written report...”. Justice Coady spent “about five hours” on Dr. Legay’s report. Ms. Awalt’s counsel acknowledged that Dr. Legay’s report “speaks for itself”. Dr. Legay told Justice Coady the same thing. 25 Ms. Awalt then suggests that Dr. Legay actually disagreed with counsel’s assertion during cross-examination regarding whether pain would Awalt v. Blanchard Bryson J.A. 233

be immediately noticed with a rotator cuff injury. She says the trial judge misunderstood this. Ms. Awalt submits: His Lordship makes no mention of Dr. Legay’s disagreement with counsel’s assertion that someone would notice immediate pain with a rotator cuff injury ... This is very important evidence as it is in direct contrast with Dr. Stanish’s evidence that there would be significant, immediate symptomology from the shoulder injury and goes to the heart of the issue of the presentation of the appellant following the accident. 26 Ms. Awalt provides no reference in the evidence for these assertions. But during cross-examination, Dr. Legay concedes: Q. Or it would be a significant trauma that causes an immediate kind of rip? A. Correct. Like a — traumatic. Q. And if it was significant trauma, you would expect it would be quite painful immediately? A. Yes. [Appeal Book, p. 868] This evidence was confirmed in questioning by the Court (p. 869): THE COURT: Now Dr., when Ms. Kelly said with significant trauma, pain would be very — you’d experience pain very quickly, what do you mean by “quickly”? Like immediate? THE WITNESS: If it was a — yeah, if you had a traumatic injury to a tendon, you’ll feel pain very quickly. I mean, it can get worse as the time — like with any injury, the first 24-48 hours there can be swelling and pain, but you’ll feel pain immediately, sure. Yeah. [Ibid., p. 869] In other words, if Ms. Awalt sustained a rotator cuff tear at the time of the accident, she would have experienced immediate pain in her shoulder. That was not her testimony nor diagnosis at that time. The foregoing discloses no material misapprehension of the evidence by the trial judge. To the contrary, the evidence would be inconsistent with a sudden tear at the time of the accident. 27 Next, Ms. Awalt points to an alleged misunderstanding by Dr. Stanish of the mechanism of injury. Dr. Stanish is said to have understood that Ms. Awalt’s tendon was not frayed or delaminated. Although the supraspinatus showed signs of delineation, the subscapularis did not. 234 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

28 In response to this submission, Mr. Blanchard quotes from the cross- examination of Dr. Stanish: Q. Got you. So if the Subscapularis, Doctor LeGay was doing the surgery he didn’t see much in the way of fraying in the Subscapularis that would suggest that the injury to the Sub- scapularis was not degenerative, correct? A. No, that’s not true at all. Q. No. I thought you said, Doctor that you would normally see fraying, that would indicate degenerative changes in the shoulder? A. In the Supraspinatus and in fact the Subscapularis is different because it inserts in a certain fashion, different than a Supras- pinatus. So when Dr. LeGay is there and he sees liftoff that’s the weakest link in the chain. So that in fact is very much a consequence of a degenerative phe- nomenon in a 41 year old. [Appeal Book, p. 1054] This evidence does not support any alleged misunderstanding by Dr. Stanish. 29 Then Ms. Awalt complains the trial judge did not fully appreciate Dr. Leighton’s evidence. She says that the trial judge failed to mention that Dr. Leighton opined that shoulder injuries present more “globally” and that often the pain is more “distracting”. But this does nothing to advance the causation argument. Even if the trial judge did ignore this evidence — and his review of it does not indicate that he did — it was not material, because it is not evidence of causation. 30 Finally, Ms. Awalt asserts that there were important points in Dr. Stanish’s evidence that the trial judge did not consider which “...all tended to weaken Dr. Stanish’s opinion that the shoulder problem in the appellant’s case was not accident related”. But Mr. Blanchard did not have to prove anything. The fact that Dr. Stanish made reasonable con- cessions and acknowledgements in cross-examination clearly did not affect his opinion about causation. Moreover, impairing Dr. Stanish’s evidence does not advance the appellant’s case. It is Ms. Awalt who carried the burden of proof, not Mr. Blanchard. 31 The obligation to establish causation on a balance of probabilities lies with the plaintiff (Clements, ¶ 8). Nevertheless, the defendant called Dr. William Stanish. It was his opinion that Ms. Awalt’s shoulder injuries could not be linked to the accident: “I do not see any compelling evi- Awalt v. Blanchard Bryson J.A. 235

dence that suggests the accident in 2004 caused or exacerbated an injury to her left rotator cuff.” Dr. Stanish testified among other things, that a rotator cuff injury would be immediately apparent from pain and would require significant pain management. The judge was entitled to prefer Dr. Stanish’s opinion. Weighing and choosing between competing expert opinions is the business of trial judges (Pedherney v. Jensen, 2011 ABCA 9 (Alta. C.A.), ¶ 19). 32 It is apparent from his decision that the trial judge considered the medical evidence and was not satisfied that it established causation. It is obvious that he preferred the opinion of Dr. Stanish to that of Dr. Legay. There was more than adequate evidentiary foundation for the trial judge’s conclusions. He need not consider every piece of evidence which tends to a different conclusion (Housen, ¶ 72). It is not for this Court to re-try the case. 33 As Justice Cromwell said in his dissenting reasons in Leddicote v. Nova Scotia (Attorney General), 2002 NSCA 47 (N.S. C.A.), at ¶ 111: [111] ...Of course, not every failure to mention relevant evidence in a trial judge’s reasons justifies appellate intervention. However, as pointed out by LaForest, J. in Schwartz v. Canada, [1996] 1 S.C.R. 254 at 280-81, it is accepted that a clear omission of evidence by a trier of fact is the kind of error that will justify a reconsideration of the evidence by an appellate court where the omission “...gives rise to the reasoned belief that the trial judge must have forgotten, ignored or misconceived the evidence in a way that affected his conclusion.”: Van de Perre v. Edwards, [2001] 2 S.C.R. 1014 at ¶15. The trial judge’s review of the evidence does not suggest that he ignored relevant evidence, nor does it prompt a “reasoned belief” that he forgot, ignored or misconceived the evidence so as to affect his conclusion. 34 Justice Coady did not fail to deal with a “...cogent and uncontradicted defence argument on the issue of causation...”, nor did he ignore uncontradicted evidence of negligence as in the cases cited by Ms. Awalt (Cojocaru (Guardian ad litem of) v. British Columbia Women’s Hospital & Health Center, 2011 BCCA 192 (B.C. C.A.), ¶ 115; Randall (Litigation Guardian of) v. Lakeridge Health Oshawa, 2010 ONCA 537 (Ont. C.A.)). 35 The trial judge did not misapply causation or misapprehend material evidence nor did he fail to appreciate material evidence not mentioned in his decision. I would dismiss grounds 1 and 3 of the appeal. 236 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

Whether the Judge erred in misinterpreting and applying s. 113(b) of the Insurance Act: 36 Section 113(B) of the Insurance Act limits general damages for a “minor injury”. In Farrell v. Casavant, 2009 NSSC 233 (N.S. S.C.), As- sociate Chief Justice Deborah K. Smith summarized the relevant legislation and regulations that would also apply here: [161] On November 1st, 2003 the Automobile Insurance Reform Act came into force in Nova Scotia. This Act amended the Insurance Act, R.S.N.S. 1989, c.231 and, in particular, repealed sections 112 and 113 of the said Act and substituted therefore, inter alia, section 113B, the relevant portions of which are as follows: 113B (1) In this Section, (a) “minor injury” means a personal injury that (i) does not result in a permanent serious disfigurement, (ii) does not result in a permanent serious impairment of an important bodily function caused by a continuing injury which is physical in nature, and (iii) resolves within twelve months following the accident; (b) “serious impairment” means an impairment that causes substantial interference with a person’s ability to perform their usual daily activities or their regular employment ... (4) Notwithstanding any enactment or any rule of law, but subject to subsection (6), the owner, operator or occupants of an automobile, any person present at the incident and any person who is or may be vicariously liable with respect to any of them, are only liable in an action in the Province for damages for any award for pain and suffering or any other non-monetary loss from bodily injury or death arising directly or indirectly from the use or operation of the automobile for a minor injury to the amount prescribed in the regulations. ... (8) Where no motion is made under subsection (6), the judge shall determine for the purpose of this Section Awalt v. Blanchard Bryson J.A. 237

whether, as a result of the use or operation of the automobile, the injured person has suffered a minor injury. [162] The Automobile Insurance Tort Recovery Limitation Regula- tions expand greatly on the legislation itself and provide, inter alia: Definitions for purposes of Section 113B of Insurance Act 2 (1) For the purposes of Section 113B of the Insurance Act and these regulations, ... (c) “non-monetary loss” means any loss for which compensation would be payable, but for the Insur- ance Act, that is not an award for (i) lost past or future income, (ii) diminution or loss of earning capacity, and (iii) past or future expenses incurred or that may be incurred as a result of an incident, and for greater certainty excludes valuable services such as housekeeping services; ... (e) “regular employment” means the essential elements of the activities required by the person’s pre-accident employment; (f) “resolves” means (i) does not cause or ceases to cause a serious impairment of an important bodily function which results from a continuing injury of a physical nature to produce substantial interference with the person’s ability to perform their usual daily activities or their regular employment, or (ii) causes a serious impairment which results from a continuing injury of a physical nature to produce substantial interference with a person’s ability to perform their usual daily activities or their regular employment where the person has not sought and complied with all reasonable treatment recommendations of a medical practitioner 238 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

trained and experienced in the assessment and treatment of the personal injury. (g) “substantial interference” means, with respect to a person’s ability to perform their regular employment, that the person is unable to perform, after reasonable accommodation by the person or the person’s employer for the personal injury and reasonable efforts by the injured person to adjust to the accommodation, the essential elements of the activities required by the person’s pre-accident employment; (h) “usual daily activities” means the essential elements of the activities that are necessary for the person’s provision of their own care and are important to people who are similarly situated considering, among other things, the injured person’s age. ... Total amount recoverable for non-monetary losses 3. For the purpose of subsection 113B (4) of the Insur- ance Act, the total amount recoverable as damages for non-monetary losses of a plaintiff for all minor injuries suffered by the plaintiff as a result of an incident must not exceed $2,500. ... Onus to prove injury not minor injury 5. On a determination of whether an injury is a minor injury under subsection 113B (6) or (8) of the Act, the onus is on the injured party to prove, based upon the evidence of one or more medical practitioners trained and experienced in the assessment and treatment of the personal injury, that the injury is not a minor injury. [163] As a result of this legislation, an individual who suffers a mi- nor injury (as defined by the Act and the Regulations) in a motor vehicle accident is limited to an award of general damages for pain and suffering or any other non-monetary loss of $2,500.00. This “cap” is for all minor injuries suffered by the Plaintiff (s. 3 of the Regulations.) 37 Here, Ms. Awalt complains that the trial judge did not provide sufficient reasons for finding that she sustained a minor whiplash injury and, Awalt v. Blanchard Bryson J.A. 239

secondly, that he erred in doing so, because he did not perform a Farrell- type analysis of the evidence. 38 The need and rationale for reasons has been variously described. In C. (R.) v. McDougall, 2008 SCC 53 (S.C.C.), ¶ 98, the Supreme Court listed four explanations for the duty to give reasons. In Geophysical Service Inc. v. Sable Mary Seismic Inc., 2012 NSCA 33 (N.S. C.A.) (¶ 74) and R. (S.) v. Nova Scotia (Minister of Community Services), 2012 NSCA 46 (N.S. C.A.) (¶ 17) this Court lists five and eight explanations respectively. But the absence or paucity of reasons is not a free standing ground of appeal (R. v. Walker, 2008 SCC 34 (S.C.C.), ¶ 20; F.H., ¶ 99). Rea- sons must be assessed in the context of the active issues at trial. Do the reasons fail to disclose an intelligible basis for the result; do they allow meaningful appellate review? (R. v. M. (R.E.), 2008 SCC 51 (S.C.C.), ¶ 53.) 39 Ms. Awalt urges that the trial judge’s decision cannot be meaning- fully reviewed. The trial judge said: [72] I have interpreted these provisions in the same way Associate Chief Justice Smith interpreted and applied them in Farrell v. Casa- vant, 2009 NSSC 233. My conclusion is that the injuries caused by the accident are minor and that Ms. Awalt’s damages are capped at $2,500. 40 She cites this Court’s endorsement of Farrell in Gillis v. MacKeigan, 2010 NSCA 101 (N.S. C.A.) and refers us to ¶ 23 of Gillis: [23] Associate Chief Justice Smith in Farrell v. Casavant, 2009 NSSC 233 sets out a useful approach to be taken in determining whether an injury is to be excluded from the definition of a minor injury. At ¶167 she sets out the questions which informs the analysis: 1. Did the Plaintiff suffer a “personal injury”? 2. If so, did the personal injury result in a permanent serious disfigurement? 3. Did the personal injury result in permanent serious impairment of an important bodily function caused by a continuing injury which is physical in nature? 4. Did the personal injury resolve within twelve months following the accident? 41 But the question is not whether Justice Coady provided a detailed Farrell-type analysis, but whether he applied that law. It is apparent from his own endorsement of Farrell that he did. 240 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

42 Ms. Awalt’s concern about the trial judge’s s. 113B analysis would have some merit and could enjoy success had he not already carefully reviewed the medical evidence and drawn his conclusions about causation and Ms. Awalt’s soft tissue injury. 43 Justice Coady’s consideration of this issue must be assessed in light of his whole decision. He had already decided that Ms. Awalt’s torn rotator cuff was not caused by the accident. He was left with a diagnosis of a soft tissue injury: [70] Ms. Awalt attended at Dr. Langley’s office within days of the 2004 accident. She testified that the diagnosis at that time was soft tissue injuries, mild to moderate severity. Dr. Langley testified that on September 22, 2004 Ms. Awalt had a sore and stiff neck. She then diagnosed a mild to moderate whiplash. That diagnosis has not been displaced by any of the other medical evidence. Dr. Leighton, in 2006 assessed a whiplash type injury involving her neck and some left shoulder discomfort. 44 Having decided that the rotator cuff injury was not caused by the accident, the evidence was limited to a soft tissue whiplash injury described as “mild to moderate” by Ms. Awalt’s own physician (letter of February 13, 2005 to plaintiff’s counsel). 45 Looking at the Farrell criteria, 1. There was an admitted personal injury. 2. There was no issue about a permanent personal disfigurement. 3. There was no evidence of “... a permanent serious impairment of an important bodily function caused by a continuing injury which is physical in nature”. Ms. Awalt returned to work about a week after the accident. However one characterizes Ms. Awalt’s difficulties thereafter, they do not bring her within this definition. 4. In view of the extended definition of resolution of a personal injury in the Regulations of the Act (see ¶ 162 of Farrell), it is clear that the trial judge did not think that Ms. Awalt was “seriously impaired” in either her usual daily activities or her regular employment. The evidence sustains his conclusion. 46 While it can be disappointing for counsel when a judge does not address all his arguments, that does not automatically become “inadequacy of reasons”. The evidence supports the trial judge’s conclusion, even though that conclusion could have been more articulate. But he committed no error of law or fact in arriving at his conclusion. Awalt v. Blanchard Bryson J.A. 241

Loss of Valuable Services: 47 Loss of valuable services can only be recovered if direct economic loss can be proved: [50] The question becomes to what extent, if at all, have the injuries impaired the claimant’s ability to fulfill homemaking duties in the future? Thus, in order to sustain a claim for lost housekeeping services one must offer evidence capable of persuading the trier of fact that the claimant has suffered a direct economic loss, in that his or her ability or capacity to perform pre-accident duties and functions around the home has been impaired. Only upon proper proof that this capital asset, that is the person’s physical capacity to perform such functions, has been diminished will damages be awarded to compen- sate for such impairment. For an excellent and comprehensive analysis of this subject see the paper presented by W. Augustus Richard- son to the Nova Scotia CLE Society in January, 2001. [Leddicote, ¶ 50] 48 It is not necessary that expenditure be incurred, provided there is an impairment of one’s physical capacity to perform pre-accident services and functions. 49 Ms. Awalt sought $30,000.00 for loss of valuable services. Such a sum warrants a sound evidentiary foundation. The trial judge was unper- suaded. Certainly the evidence was very modest. 50 The trial judge referred to Ms. Awalt’s evidence that since the accident “...She has had to rely on family and friends to carry out the heavy aspects of her household duties”. He then cited appropriate legal authority echoing Leddicote’s admonition that economic loss must be proved. He concluded: [79] Given that authority, I cannot conclude that the shoulder injury was a limiting factor in performing Ms. Awalt’s household functions. The evidence does not establish that the whiplash injury resulted in a loss of valuable services. 51 One can agree with Ms. Awalt that the shoulder injury should be irrelevant in light of the judge’s causation determination. But in fairness to the trial judge, counsel’s questions to Ms. Awalt at trial regarding her level of function, did not distinguish between her shoulder and whiplash injuries. Perhaps this was not possible. But at the end of the day, Ms. Awalt said she only needed help with cleaning the Jacuzzi and washing windows — jobs her son and husband helped with. 242 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

52 The trial judge does make a clear finding that Ms. Awalt’s whiplash injury did not result in a loss of valuable services. 53 Assessment of damages is the province of the trial judge. Courts of appeal do not interfere unless a wrong principle of law is applied or there is a palpable and overriding error (Woelk v. Halvorson, [1980] 2 S.C.R. 430 (S.C.C.); Naylor Group Inc. v. Ellis-Don Construction Ltd., 2001 SCC 58 (S.C.C.), ¶ 80; M. (L.M.) v. Nova Scotia (Attorney General), 2011 NSCA 48 (N.S. C.A.), ¶ 37; Morash v. Purdy, 2011 NSCA 123 (N.S. C.A.), ¶ 13). 54 In this case Justice Coady was not persuaded that Ms. Awalt’s post accident housekeeping was impaired to the degree that she sustained an economic loss. That was Justice Coady’s call to make. There was evidence on which he could make it. I would dismiss this ground of appeal.

Conclusion: 55 Apparently as a result of an offer to settle, the respondent was entitled to costs following trial. The parties agreed on costs in the amount of damages awarded — $10,478 — so nothing would be payable by either party to the other following trial. 56 On appeal, the respondent requested costs of approximately $9,100, arguing that this was a more appropriate estimate of 40 percent of what trial costs should have been. The appellant simply seeks $4,000, repre- senting about 40 percent of the agreed trial costs. I agree that $4,000 is a proper sum. 57 The appeal should be dismissed with costs of $4,000, inclusive of disbursements payable by the appellant to the respondent. Appeal dismissed; costs awarded to tortfeasor. Performance Factory Inc. v. Atlantic Insurance Co. 243

[Indexed as: Performance Factory Inc. v. Atlantic Insurance Co.] Performance Factory Inc., Appellant and Atlantic Insurance Company Limited, Respondent Newfoundland and Labrador Court of Appeal Docket: 12/06 2013 NLCA 11 J.D. Green C.J.N.L., B.G. Welsh, L.D. Barry JJ.A. Heard: September 10, 2012 Judgment: February 5, 2013 Insurance –––– Extent of risk (exclusions) — Fire insurance — Fraud or negligence of insured — Arson — Miscellaneous –––– Fire destroyed premises of appellant company — Principal of company made insurance claim to respondent insurer — Insurance claim was denied as insurer believed that fire was set by principal or associate — Company brought action to recover under insurance policy — Action was dismissed, as trial judge found on balance of probabilities that fire was started by arson — Company appealed from finding of trial judge — Appeal allowed — Key evidence was in form of statements made to police, which were admissible in civil trial although inadmissible in criminal trial — Trial judge did not properly consider this evidence, given denials of principal and associate — Inculpatory statements were improperly obtained by police, as set out in criminal trial — Expert evidence did not support theory of how fire was started, and was not properly considered by trial judge — Appeal was allowed and matter was referred back to lower court for new trial — Evi- dentiary issues could not be determined by appeal court. Evidence –––– Confessions — Use at trial — Miscellaneous –––– Fire destroyed premises of appellant company — Principal of company made insurance claim to respondent insurer — Insurance claim was denied as insurer believed that fire was set by principal or associate — Company brought action to recover under insurance policy — Action was dismissed, as trial judge found on balance of probabilities that fire was started by arson — Company appealed from finding of trial judge — Appeal allowed — Key evidence was in form of statements made to police, which were admissible in civil trial although inadmissible in criminal trial — Trial judge did not properly consider this evidence, given denials of principal and associate — Inculpatory statements were improperly obtained by police, as set out in criminal trial — Expert evidence did not support theory of how fire was started, and was not properly considered by trial judge — 244 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

Appeal was allowed and matter was referred back to lower court for new trial — Evidentiary issues could not be determined by appeal court. Civil practice and procedure –––– Costs — Particular orders as to costs — Costs on solicitor and client basis — Grounds for awarding — General principles –––– Fire destroyed premises of appellant company — Principal of company made insurance claim to respondent insurer — Insurance claim was denied as insurer believed that fire was set by principal or associate — Company brought action to recover under insurance policy — Action was dismissed, as trial judge found on balance of probabilities that fire was started by arson — Company appealed from finding of trial judge — Appeal allowed — Costs were to be awarded on standard basis, not on solicitor-client basis — This was true as insurer had grounds for allegation of fraud, and did not act irresponsibly or maliciously. The appellant corporation’s premises were destroyed in a fire. The corporation, through its principal, made a claim to the respondent insurer seeking indemnity for the damage. The insurer denied the claim, based on their belief that the fire had been caused by the principal or his associate. The corporation brought an action against the insurer to recover their losses. The action was dismissed, as the trial judge agreed with the insurer’s position on a balance of probabilities. The corporation appealed. Held: The appeal was allowed. Per Welsh J.A. (Green C.J.N.L. concurring) The trial judge did not properly consider key evidence in the form of statements made to the police by the principal and his associate. Inculpatory evidence had been found to be improperly obtained, leaving exculpatory statements that were not properly dealt with by the trial judge. As well, expert evidence that would have served to disprove the theory of the insurer was not properly considered. On the whole of the evidence, the conclusion that arson had taken place was not made out on a balance of probabilities. A new trial was needed to determine the evidentiary issues. Per Barry J.A. (dissenting) The trial judge properly considered the statements, which were unlikely to have been falsified given the circumstances. The scientific evidence and other relevant evidence was considered, and the findings of fact made were accorded deference. There was no palpable and overriding error that would allow an appeal.

Cases considered by B.G. Welsh J.A.: Bay Bulls Sea Products Ltd. v. Insurance Corp. of Newfoundland Ltd. (2006), 260 Nfld. & P.E.I.R. 173, 786 A.P.R. 173, 2006 NLCA 56, 2006 Car- swellNfld 277, 41 C.C.L.I. (4th) 163, (sub nom. Cornhill Insurance plc “D” Performance Factory Inc. v. Atlantic Insurance Co. 245

v. Bay Bulls Sea Products Limited) [2007] I.L.R. I-4565, [2006] N.J. No. 279 (N.L. C.A.) — considered C. (R.) v. McDougall (2008), [2008] 11 W.W.R. 414, 83 B.C.L.R. (4th) 1, (sub nom. F.H. v. McDougall) [2008] 3 S.C.R. 41, 2008 CarswellBC 2041, 2008 CarswellBC 2042, 2008 SCC 53, 60 C.C.L.T. (3d) 1, (sub nom. H. (F.) v. McDougall) 297 D.L.R. (4th) 193, 61 C.P.C. (6th) 1, 61 C.R. (6th) 1, (sub nom. F.H. v. McDougall) 380 N.R. 82, (sub nom. F.H. v. McDougall) 439 W.A.C. 74, (sub nom. F.H. v. McDougall) 260 B.C.A.C. 74, [2008] S.C.J. No. 54, [2008] A.C.S. No. 54 (S.C.C.) — considered Courtney v. Cleary (2010), 299 Nfld. & P.E.I.R. 85, 322 D.L.R. (4th) 10, 926 A.P.R. 85, 2010 CarswellNfld 219, 2010 NLCA 46 (N.L. C.A.) — referred to Parkway Enterprises Ltd. v. Zurich Insurance Co. (1999), (sub nom. Sweeney v. Zurich Insurance Co.) [2000] I.L.R. I-3752, 1999 CarswellNfld 153, (sub nom. Sweeney v. Zurich Insurance Co.) 175 Nfld. & P.E.I.R. 281, (sub nom. Sweeney v. Zurich Insurance Co.) 537 A.P.R. 281, 23 C.C.L.I. (3d) 163, [1999] N.J. No. 185 (Nfld. C.A.) — considered Parkway Enterprises Ltd. v. Zurich Insurance Co. (2000), (sub nom. Sweeney v. Zurich Insurance Co.) 256 N.R. 200 (note), 2000 CarswellNfld 156, 2000 CarswellNfld 157, (sub nom. Sweeney v. Zurich Insurance Co.) 194 Nfld. & P.E.I.R. 180 (note), (sub nom. Sweeney v. Zurich Insurance Co.) 584 A.P.R. 180 (note), [1999] S.C.C.A. No. 440 (S.C.C.) — referred to

Cases considered by L.D. Barry J.A. (dissenting): C. (R.) v. McDougall (2008), [2008] 11 W.W.R. 414, 83 B.C.L.R. (4th) 1, (sub nom. F.H. v. McDougall) [2008] 3 S.C.R. 41, 2008 CarswellBC 2041, 2008 CarswellBC 2042, 2008 SCC 53, 60 C.C.L.T. (3d) 1, (sub nom. H. (F.) v. McDougall) 297 D.L.R. (4th) 193, 61 C.P.C. (6th) 1, 61 C.R. (6th) 1, (sub nom. F.H. v. McDougall) 380 N.R. 82, (sub nom. F.H. v. McDougall) 439 W.A.C. 74, (sub nom. F.H. v. McDougall) 260 B.C.A.C. 74, [2008] S.C.J. No. 54, [2008] A.C.S. No. 54 (S.C.C.) — considered Canada (Director of Investigation & Research) v. Southam Inc. (1997), 50 Ad- min. L.R. (2d) 199, 144 D.L.R. (4th) 1, 71 C.P.R. (3d) 417, [1997] 1 S.C.R. 748, 209 N.R. 20, 1997 CarswellNat 368, 1997 CarswellNat 369, [1996] S.C.J. No. 116 (S.C.C.) — referred to Courtney v. Cleary (2010), 299 Nfld. & P.E.I.R. 85, 322 D.L.R. (4th) 10, 926 A.P.R. 85, 2010 CarswellNfld 219, 2010 NLCA 46 (N.L. C.A.) — followed Gallant v. Brake-Patten (2012), 2012 NLCA 23, 2012 CarswellNfld 135, 996 A.P.R. 77, 321 Nfld. & P.E.I.R. 77, 95 C.C.L.T. (3d) 46 (N.L. C.A.) — considered Hamilton v. Open Window Bakery Ltd. (2003), 2004 SCC 9, 316 N.R. 265, 235 D.L.R. (4th) 193, [2003] S.C.J. No. 72, 2003 CarswellOnt 5591, 2003 Cars- wellOnt 5592, 2004 C.L.L.C. 210-025, 184 O.A.C. 209, [2004] 1 S.C.R. 246 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

303, 70 O.R. (3d) 255 (note), REJB 2004-54076, 40 B.L.R. (3d) 1 (S.C.C.) — considered Housen v. Nikolaisen (2002), 10 C.C.L.T. (3d) 157, 211 D.L.R. (4th) 577, 286 N.R. 1, [2002] 7 W.W.R. 1, 2002 CarswellSask 178, 2002 CarswellSask 179, 2002 SCC 33, 30 M.P.L.R. (3d) 1, 219 Sask. R. 1, 272 W.A.C. 1, [2002] 2 S.C.R. 235, [2002] S.C.J. No. 31, REJB 2002-29758 (S.C.C.) — considered L. (H.) v. Canada (Attorney General) (2005), 2005 SCC 25, 2005 CarswellSask 268, 2005 CarswellSask 273, 333 N.R. 1, 8 C.P.C. (6th) 199, 24 Admin. L.R. (4th) 1, 262 Sask. R. 1, 347 W.A.C. 1, [2005] 8 W.W.R. 1, 29 C.C.L.T. (3d) 1, 251 D.L.R. (4th) 604, [2005] 1 S.C.R. 401, REJB 2005-89538, [2005] S.C.J. No. 24, EYB 2005-89538 (S.C.C.) — considered Parkway Enterprises Ltd. v. Zurich Insurance Co. (1999), (sub nom. Sweeney v. Zurich Insurance Co.) [2000] I.L.R. I-3752, 1999 CarswellNfld 153, (sub nom. Sweeney v. Zurich Insurance Co.) 175 Nfld. & P.E.I.R. 281, (sub nom. Sweeney v. Zurich Insurance Co.) 537 A.P.R. 281, 23 C.C.L.I. (3d) 163, [1999] N.J. No. 185 (Nfld. C.A.) — considered R. v. Hann (2002), 2002 CarswellNfld 172, 214 Nfld. & P.E.I.R. 286, 642 A.P.R. 286, [2002] N.J. No. 177 (Nfld. T.D.) — considered R. v. M. (R.E.) (2008), [2008] 11 W.W.R. 383, 83 B.C.L.R. (4th) 44, [2008] 3 S.C.R. 3, 2008 CarswellBC 2037, 2008 CarswellBC 2038, 2008 SCC 51, 235 C.C.C. (3d) 290, 60 C.R. (6th) 1, 297 D.L.R. (4th) 577, 380 N.R. 47, 439 W.A.C. 40, 260 B.C.A.C. 40, [2008] S.C.J. No. 52 (S.C.C.) — considered R. v. Morin (1992), 1992 CarswellAlta 472, 16 C.R. (4th) 291, [1992] 3 S.C.R. 286, 142 N.R. 141, 76 C.C.C. (3d) 193, 131 A.R. 81, 25 W.A.C. 81, 41 M.V.R. (2d) 161, 1992 CarswellAlta 276, EYB 1992-66875, [1992] S.C.J. No. 7 (S.C.C.) — considered

APPEAL by corporation from judgment reported at, Performance Factory Inc. v. Atlantic Insurance Co. (2010), 295 Nfld. & P.E.I.R. 193, 911 A.P.R. 193, [2010] I.L.R. I-4956, 82 C.C.L.I. (4th) 187, 2010 NLTD 40, 2010 CarswellNfld 64 (N.L. T.D.), finding corporation liable for fraud against respondent insurer.

James Hughes Q.C., Rosellen Sullivan, for Appellant John F. Dawson, John Taylor-Hood, for Respondent

B.G. Welsh J.A.:

1 The trial judge determined that a fire, which destroyed the building where Performance Factory Inc. carried on business, was set deliberately by Michael Hann, a principal of the company, and his father, Wesley Hann. As a result, recovery under the insurance policy with Atlantic In- Performance Factory Inc. v. Atlantic Insurance Co. B.G. Welsh J.A. 247

surance Company Limited was denied. At issue in the appeal is whether the trial judge erred in the analysis he applied to the evidence in determining that the fire was caused by arson. A detailed summary of the factual background is contained in the dissenting reasons of Barry J.A. 2 As discussed below, whether the trial judge erred in his approach to assessing the evidence in this case involves a consideration of whether he erred in principle. This question engages a standard of review of correctness (Courtney v. Cleary, 2010 NLCA 46, 299 Nfld. & P.E.I.R. 85 (N.L. C.A.), at paragraph 15). 3 The beginning point of the analysis is the standard of proof to be applied by the judge. In C. (R.) v. McDougall, 2008 SCC 53, [2008] 3 S.C.R. 41 (S.C.C.), Rothstein J., for the Court, explained: [49] In the result, I would reaffirm that in civil cases there is only one standard of proof and that is proof on a balance of probabilities. In all civil cases, the trial judge must scrutinize the relevant evidence with care to determine whether it is more likely than not that an alleged event occurred. 4 In the case of an allegation of arson, the burden of proof is on the party making that allegation (Parkway Enterprises Ltd. v. Zurich Insurance Co. (1999), 175 Nfld. & P.E.I.R. 281 (Nfld. C.A.), leave to appeal refused (2000), 194 Nfld. & P.E.I.R. 180 (note) (S.C.C.)). Ac- cordingly, in this case, Atlantic Insurance was required to establish on a balance of probabilities that arson was the cause of the fire. I note that the standard of proof of “high probability” in order to establish arson in a civil proceeding, which was applied in Zurich, is, as a result of McDou- gall, no longer the law. In Zurich, the majority, referring to the “higher probability” of proof required in an arson case, concluded: [43] ... Accordingly, an insurer may not logically be considered to have passed the threshold or starting gate in mounting a defence of arson if it cannot demonstrate on the whole of the evidence that reasonably probable fortuitous or accidental causes are eliminated This must surely be considered the sine qua non to an arson defence. 5 In light of the law as stated in McDougall, the requirement that other causes must be “eliminated” in order to establish arson no longer applies. However, the fact that other causes may not be eliminated on the basis of the evidence before the Court will be a relevant, and potentially important, consideration in assessing the balance of probabilities in an arson case. 248 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

6 In the result, it is not necessary for Atlantic Insurance to demonstrate “that reasonably probable fortuitous or accidental causes are eliminated”. Rather the question is whether, on the whole of the evidence, Atlantic Insurance has established that it is more likely than not that arson was the cause of the fire. The fact that other reasonably probable causes are not eliminated is a relevant consideration in assessing whether arson has been established on a balance of probabilities. 7 In discussing the evidence, the trial judge focused on the statements given by Michael and Wesley Hann to a police officer during the investigation of the fire. The statements, which were sought for the purpose of a criminal investigation, were ruled inadmissible as being involuntary in the criminal proceedings. However, as properly noted by the trial judge, the statements were admissible in the civil proceedings, their weight and relevance to be considered in the context of the whole of the evidence. 8 The statements given by Michael and Wesley Hann, if they were in fact made, provide evidence that the fire was started by them using gasoline and a lighter. Wesley’s statement, which was written by the police officer, states that Wesley declined to write the statement himself because he said that, while he could write, he was not good at it. The statement says, “I hove a half gallon or gallon of gas over the floor and we lighted it.” Other questions and answers follow in which Wesley says the gasoline was lit by means of a lighter. The same police officer wrote the statement given by Michael Hann, though there is no indication, as with Wesley, that Michael was given the option to write his own statement. Michael’s statement contains the same essential information as Wesley’s; that is, that they “put some [gas] on the floor maybe a half a gallon or a gallon and lit it”. 9 At the trial, both Wesley and Michael Hann denied that they had made the statements as written by the police officer. The trial judge identified indicia which supported the conclusion that the statements, in fact, described how the fire started. In the circumstances, it was incumbent on the trial judge to weigh this evidence in the context of the whole of the remaining evidence to determine if in fact the statements were made and, if so, whether their contents met the standard of proof necessary to establish that the Hanns had set the fire. However, the analysis conducted by the trial judge failed to accomplish this. 10 Having found that the Hanns gave statements to a police officer, the next step would be to assess the truthfulness of the statements in light of the Hanns’ denials. This could only be done in the context of the whole Performance Factory Inc. v. Atlantic Insurance Co. B.G. Welsh J.A. 249

of the evidence. However, the trial judge failed in this exercise because he determined the truthfulness of the statements independently from and before considering other relevant evidence. 11 Important evidence that would support the Hanns’ testimony at trial was the evidence given by experts. None of the experts, including the expert proffered by Atlantic Insurance, agreed that the fire could have been started as outlined in the written statements. All were of the view that there would have been “flash back” from ignition of the gasoline which would have caused injury to the person lighting the gasoline with a lighter. In considering this evidence, the trial judge stated (2010 NLTD 40, 295 Nfld. & P.E.I.R. 193 (N.L. T.D.)): [63] Contradicting the method of ignition as outlined in the statements, [Performance Factory] argues that if gas was lit using a ciga- rette lighter, then Mr. Hann would have been burnt by a “flash” from the gasoline vapors. As no injury was reported, the method of ignition described could not have occurred and thus undermines the possible “truth” of the statements. From the opinion evidence by the fire investigators and experts, it appears that a flash from the ignition of open gasoline poured on the floor would be expected, if lit by a ciga- rette lighter. While this gives some weight to [Performance Fac- tory’s] argument, I am not convinced that we know exactly how much gas was used by the Hanns to start the fire (1/2 gallon or gallon), nor how it was disbursed on the floor, nor do we have detail or any description of how the lighter may have been used to ignite the gas, nor how long Wesley Hann waited before igniting the gas. On the evidence available, I can not find, with any certainty, that a flash from ignition should have occurred in this instance and the general opinion evidence to expect a flash burn, does not seriously undermine the truth of the statement. (Emphasis added.) 12 A difficulty with this analysis is that the trial judge clearly proceeded on the assumption that, in the absence of “certainty”, the evidence of the experts would be insufficient to contradict the Hanns’ written statements. Taking this approach, he failed to consider the proper question which is whether, on the whole of the evidence, it was more likely than not that the cause of the fire was arson. Factors to be considered included: the evidence of the experts to the effect that the cause of the fire, its point of origin and the ignition source could not be determined; that there was evidence suggesting that the fire resulted from an electrical malfunction; the experts’ opinions that the fire could not have been started as alleged in the statements without injury; the Hanns’ testimony; their statements 250 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

to the police officer; evidence of motive, on the one hand, the poor condition of the building, but no evidence of financial difficulties with the business; and evidence that additional insurance coverage had been obtained, but this was at the suggestion of the insurance agent to cover a larger inventory. 13 By failing to adopt the proper analytical approach in assessing the evidence, the trial judge erred in two ways. First, he erred in concluding that, in order to take account of the experts’ evidence that a “flash burn” would have occurred, it had to be established with certainty. Second, he failed to take into account the experts’ evidence, which was clearly relevant and important, in assessing the truthfulness of the statements and the evidence as a whole to ascertain whether Atlantic Insurance had established arson on a balance of probabilities. This constituted error in principle. In the circumstances, the trial judge’s decision must be set aside. 14 Accordingly, I would allow the appeal and set aside the decision of the trial judge. A new trial is required because the evidentiary issues cannot be determined by means of this appeal. 15 With respect to costs, relying on Bay Bulls Sea Products Ltd. v. Insurance Corp. of Newfoundland Ltd., 2006 NLCA 56, 260 Nfld. & P.E.I.R. 173 (N.L. C.A.), Performance Factory requested costs on a solicitor and client basis. In my view, this is not an appropriate situation in which to order costs on that basis. In Bay Bulls, Cameron J.A., for the majority, reviewed the question of costs in an arson case. Among others, she referred to the following relevant decisions: [169] ... In Hamilton v. Open Window Bakery Ltd., [2004] 1 S.C.R. 303, Arbour J. said at para. 26: In Young v. Young, [1993] 4 S.C.R. 3, at p. 134, McLach- lin J. (as she then was) for a majority of the Court held that solicitor-and-client costs ‘are generally awarded only where there has been reprehensible, scandalous or outrageous conduct on the part of one of the parties’. An unsuccessful attempt to prove fraud or dishonesty on a balance of probabilities does not lead inexorably to the conclusion that the unsuccessful party should be held liable for solicitor-and-client costs, since not all such at- tempts will be correctly considered to amount to ‘reprehensible, scandalous or outrageous conduct’. However, allegations of fraud and dishonesty are serious and potentially very damaging to those accused of deception. When, as here, a party makes such allegations unsuccess- Performance Factory Inc. v. Atlantic Insurance Co. L.D. Barry J.A. 251

fully at trial and with access to information sufficient to conclude that the other party was merely negligent and neither dishonest nor fraudulent (as Wilkin J. found), costs on a solicitor-and-client scale are appropriate: see, generally, M.M. Orkin, The Law of Costs (2nd ed. (loose-leaf)), at para. 219. 16 In the case now before this Court, given the statements which the police had, Atlantic Insurance had grounds on which to allege arson. This is not a case in which the insurer acted reprehensibly or irresponsibly. Ap- plying the approach adopted in Hamilton v. Open Window Bakery Ltd. [2003 CarswellOnt 5591 (S.C.C.)], solicitor and client costs are not war- ranted in this case. Rather, the circumstances are such that Performance Factory should receive its costs on a party and party basis in this Court and in the Court below.

Summary and Disposition 17 In summary, I would allow the appeal, set aside the decision of the trial judge, and order a new trial. Performance Factory shall have its costs on a party and party basis in this Court and in the Court below.

J.D. Green C.J.N.L.:

I Concur with the Reasons

L.D. Barry J.A. (dissenting):

18 The trial judge accepted a defence of arson and dismissed a claim for payment under an insurance policy following destruction of the appellant’s building by fire. In arriving at this result, the trial judge relied upon two documents, one signed and with pages initialed by the principal shareholder of the appellant, Michael Hann, and the other signed and initialed by his father, Wesley Hann. In the two documents, written by an interviewing police officer and dated October 25, 2000, the two Hanns purportedly confess to having intentionally burnt the appellant’s building. But at trial they alleged the documents were fabricated by the interviewing officer and do not accurately reflect what they said. The appellant submits the trial judge erred in giving any weight to the statements. 252 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

Background Facts 19 The appellant operated a recreational vehicle dealership. In the late evening of October 19 or the early morning of October 20, 2000, a fire started in its building at New-Wes-Valley. The fire was first detected by a passerby who saw flames coming through the roof near an electrical mast at approximately 1:00 a.m. on October 20th. Michael Hann and his father testified they had been working at the building doing general cleanup until 11:15 or 11:30 p.m. on October 19th and only became aware of the fire around 1:00 a.m. on the 20th when advised by the individual who had spotted it. 20 The respondent denied payment under the policy on the same day the Hanns signed the confession documents. 21 Michael Hann said he signed the statement written by the police officer without reading it. The document stated that he and his father had decided to burn the old building, which had sagging floors and other de- fects, to get money to build a new one on the same site, and that his father had started the fire by throwing gasoline into a corner of the building and using a lighter to ignite this. 22 The statement signed by Wesley Hann was to the same effect. Like Michael, he also denied saying what was set out in the document. Wesley testified he is unable to read or write except to sign his name. He says the interviewing police officer did not read the statement back to him and that he signed it because the officer said he “would be sent down the river” if he refused. 23 The interviewing police officer said Michael Hann confessed at 3:36 p.m. on the 25th after the officer lied and told him the police knew what had happened. This was after the officer had interviewed Wesley Hann at 2:56 and Wesley had denied any knowledge of the cause of the fire. The officer said Wesley in a second interview commencing at 4:17 confessed after being told of Michael’s statement. The officer denied fabricating the documents and said each had been read back to the two men before they signed and affixed their initials. 24 Wesley Hann was acquitted at a criminal trial for arson after the trial judge concluded his confession did not meet the required test of voluntariness. 25 Fire investigators could not determine the cause or point of origin of the fire. They were unable to rule out that it may have had an electrical origin. Performance Factory Inc. v. Atlantic Insurance Co. L.D. Barry J.A. 253

26 Michael Hann’s wife, Tracy, the secretary-treasurer of the appellant, had arranged an increase of $250,000 in the insurance coverage on contents from $350,000 to $600,000 on the day of the fire at the recommendation of their fire insurance agent who pointed to their increased inventory. 27 Scientific experts called at the trial all agreed that the fire could not have been ignited in the manner stated in the confession documents since this would have resulted in a flashback burning of Wesley Hann. The appellant argues this shows the statements do not set out what really must have occurred and supports its submission that the two statements must have been fabricated. The appellant also challenges the credibility of the interviewing officer by pointing to inconsistencies in his testimony regarding the time sequence in which the confessions were made. 28 The time sequence for the October 25th statements was set out in the findings of the judge presiding at the criminal trial of Wesley Hann, R. v. Hann (2002), 214 Nfld. & P.E.I.R. 286 (Nfld. T.D.), as follows: • 2:53-3:20 p.m. Exculpatory witness statement of Wesley Hann. • 3:36-4:04 p.m. Inculpatory statement of Michael Hann. • 4:17-4:43 Inculpatory statement of Wesley Hann. 29 The interviewing officer admitted he had obtained Michael Hann’s confession by lying to Michael about knowing all about how the fire started. The judge at the criminal trial found that the interviewing officer’s testimony of having instructed other police officers at 4:04 p.m. to arrest Wesley Hann conflicted with the other police officers’ testimony that they had arrested Wesley Hann before this, at 3:35 p.m. At that time, from the testimony of the interviewing officer, he had not even begun to write the statement of Michael Hann, which was begun at 3:36 p.m. and finished at 4:04 p.m. The criminal trial judge concluded this created “a real problem in relation to time-lines”. 30 The criminal trial judge also found that it was “virtually impossible” for the interviewing officer to have had time to go through the rights to counsel, a primary caution, a secondary caution and an explanation of these legal requirements with Wesley Hann in the time the officer testified this had occurred. 31 At the civil trial the interviewing officer gave as an explanation of the time-lines problem the fact that he had requested the other officers to arrest Wesley Hann before the interview with Michael had been completed. The interviewing officer said he had given these instructions after 254 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

Michael had “indicated” he was confessing before the officer began writing. 32 The appellant points out that how Michael “indicated” this was not recorded on the statement nor was the officer’s preliminary comment to Michael that the officer knew how the fire had started. Before the civil trial, the interviewing officer’s position was that he had written down everything said in the interview. 33 The appellant submits that this contradictory testimony of the interviewing officer establishes the trial judge erred in the present case when he stated the interviewing officer’s testimony had not been shaken on cross-examination.

The Trial Decision 34 At the civil trial, the trial judge provisionally entered the two statements, saying that he would determine their reliability after hearing all the evidence. 35 The trial judge rejected the allegations of the respondent that the appellant was in financial difficulty and that the motive for setting the fire was to escape from an impending insolvency. The trial judge found no reliable basis for these allegations and noted they were not supported by the appellant’s financial records. 36 On the question of whether the reliability of the confession documents was completely undermined by the scientific evidence of flashback, the trial judge rejected the testimony of the last expert retained by the respondent just before the civil trial, who provided an opinion that Wesley Hann had ignited the fire by a “time delay” incendiary device. The judge noted there was no physical evidence to support this theory and found the expert lacked objectivity and impartiality. But the judge found that any question raised by the scientific evidence regarding the implausibility of ignition by a lighter was not enough to seriously undermine the reliability of the statements. He said he arrived at this conclusion because of the lack of information regarding: • the amount of gas used (1/2 gallon or a gallon); • the method of dispersal; • how the lighter was used; or • how long Wesley Hann waited before igniting the gas. 37 The trial judge found that the appellant’s allegation of fabrication by the police was based upon nothing but “conjecture” and the denials by Performance Factory Inc. v. Atlantic Insurance Co. L.D. Barry J.A. 255

the Hanns. He noted the weakness and implausibility of Michael Hann’s explanation that he signed without reading. The judge also rejected Wes- ley Hann’s explanation of initialing because of the threat of being “sent down the river,” finding it unconvincing that Wesley, who had been a fisherman most of his life, would suddenly be intimidated into signing a confession in the manner described. 38 The trial judge found that both Michael and Wesley would have been aware that the purpose of signing and initialing the documents was to confirm the contents. He found an “air of authenticity” to the confessions after comparing the “text and use of language” in the documents with the Hann’s “text and use of expression and language” during their viva voce evidence at trial and in their previous exculpatory statements. The trial judge also noted that if the confessions were fabricated one would expect the police officer to have outlined in the statement a motive consistent with the investigation to that date, which suggested the appellant was in financial trouble, instead of the motive outlined in the statement (the age and poor condition of the building). 39 The trial judge did not deal in his written decision with the appellant’s submissions about the questionable time-line given by the police officer regarding the commencement of the statements. He had noted in the course of the trial that while the time-line was “squeaky” the police officer’s testimony on timing could be supported. 40 The appellant submits the trial judge erred in finding that the appellant offered nothing beyond conjecture and the denials of the Hanns to support the conclusion that the confessions were falsified by the police officer. The appellant argues this ignores the scientific evidence regarding the impossibility without flashback burns of ignition by a lighter as described in the statements. 41 The appellant also submits the trial judge erred in finding the police officer’s evidence was not shaken on cross-examination when one considers the inconsistent approach he set out regarding the timing of the confessions.

The Standard of Review 42 The parties agree that the appropriate standards of review are as set out in Courtney v. Cleary, 2010 NLCA 46, 299 Nfld. & P.E.I.R. 85 (N.L. C.A.). But they differ on whether the alleged errors involve questions of 256 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th) fact or law. In Cleary, Cameron J.A. stated for the Court, at paragraph 15: [15] The standards of review applied by this Court were discussed inRing v. Canada et al., 2010 NLCA 20, at para. 6: The standard of review applied by an appellate court depends upon the nature of the matter being reviewed. A pure question of law is reviewed on a standard of correctness and an appellate court is free to replace the opinion of the trial judge with its own. Findings of fact, on the other hand, cannot be reversed unless the trial judge has made a palpable and overriding error. A determination of whether a legal standard was met involves the application of a legal standard to a set of facts which is a question of mixed fact and law. A question of mixed fact and law is subject to a standard of palpable and overriding error unless it is clear that the trial judge made some extricable error in principle with respect to the characterization of the standard or its application, in which case the error may amount to an error in law and the applicable standard is correctness. These principles are well established: Housen v. Nikolaisen, [2002] 2 S.C.R. 235. Findings of credibility are part of the fact finding process and are subject to the same standard of review, as are inferences drawn from the facts. If inferences drawn by the trial judge are reasonable, an appellate court should not intervene just because other inferences could also have been reasonably drawn: H.L. v. Canada (Attorney General), 2005 SCC 25, [2005] 1 S.C.R. 401at para. 74. In H.L. v. Canada, paras. 55-56, Fish J. said: “Palpable and overriding error” is at once an elegant and expressive description of the entrenched and generally applicable standard of appellate review of the findings of fact at trial. But it should not be thought to displace alternative formulations of the governing standard. In Housen, for example, the majority ... and the minority ... agreed that inferences of fact at trial may be set aside on appeal if they are “clearly wrong”. Both expressions encapsulate the same principle: an appellate court will not interfere with the trial judge’s findings of fact unless it can plainly identify the imputed error, and that error is shown to have affected the result. Performance Factory Inc. v. Atlantic Insurance Co. L.D. Barry J.A. 257

In my respectful view, the test is met as well where the trial judge’s findings of fact can properly be characterized as “unreasonable” or “unsupported by the evidence”. 43 The parties agree that the trial judge in the present case did adopt the correct legal principle, namely, that in all civil cases the trial judge must scrutinize all the relevant evidence with care to determine whether it is more likely than not that an alleged event occurred: see the recent statement of this in C. (R.) v. McDougall, 2008 SCC 53, [2008] 3 S.C.R. 41 (S.C.C.), at para. 49. But the appellant submits that a question of law arises regarding whether the trial judge, by ignoring certain relevant evidence (the scientific evidence and challenges to the interviewing officer’s credibility), violated this principle and that, therefore, the proper standard of review in the present case is correctness. 44 The respondent submits that whether the trial judge’s findings of fact and credibility are supported by the evidence is a question of fact or mixed law and fact and the standard of review is palpable and overriding error.

Issues 45 Two issues arise: (i) Did the finding that the Hanns confessed to starting the fire involve a question of fact reviewable only for palpable and overriding error or a question of law or mixed fact and law reviewable on the basis of correctness? (ii) Was the finding that the Hanns had truthfully confessed to starting the fire a palpable and overriding error or incorrect (whichever applied) in the circumstances.

The Law and Analysis 46 On the general burden of proof, the parties agree that there is only one civil standard of proof at common law and that is proof on a balance of probabilities, as confirmed by C. (R.) v. McDougall. In the present case the trial judge correctly concluded that, having raised the defence of arson, the respondent had the onus of proving on a balance of probabilities that Michael Hann and Wesley Hann had intentionally started the fire that destroyed the appellant’s property. 47 The trial judge also correctly held that admissions by parties in civil actions are not subject to a voluntariness test before their entry into evidence but are properly entered as admissions against interest with the 258 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

trier of fact determining the weight to be attached to them in the context of considering all the relevant evidence. 48 The appellant, relying upon Parkway Enterprises Ltd. v. Zurich Insurance Co. (1999), 175 Nfld. & P.E.I.R. 281 (Nfld. C.A.), at para. 40, argues that in the absence of direct evidence of the fire being deliberately set by the Hanns, the insurer has to eliminate, on the whole of the evidence, all other reasonably possible causes. The appellant submits the trial judge put too much emphasis on the suggestion that the statements were falsified. 49 This submission ignores the fact that if the statements are true they provide strong direct evidence of the cause of the fire. The trial judge made no error in emphasizing the importance of the confessions and the direct evidence there set out of how the fire started. If the trial judge properly considered all the relevant evidence and did not err in concluding that the Hanns had made the confessions, the statements have great weight. The respondent insurer no longer has to rely upon circumstantial evidence and opinion evidence to meet its onus of proof. Instead the respondent can point to this direct evidence of two eyewitnesses to tip the balance of probabilities in its favour, despite the inconclusive evidence regarding the point of origin of the fire, the manner of ignition and the fact that possible causes other than arson could not be ruled out. 50 In assessing the validity of the statements, the trial judge properly considered that Michael and Wesley Hann had initialed and signed them and made no error in finding that they knew this amounted to confirmation of the contents since they had previously signed other legal documents for this purpose. 51 The trial judge also was entitled to consider the explanations provided by the Hanns for signing and to assess their credibility in light of these explanations. The trial judge properly noted that it was improbable the police officer would have falsified the statements and then offered them for review and reading to the party whose signature and initials were required, hoping not to be detected in his alleged scheme to obtain false confessions. 52 The appellant’s case before this Court rests upon its submissions that, first, the trial judge ignored significant scientific evidence regarding flashback in assessing the reliability of the Hanns’ statements and, second, that, in assessing the officer’s credibility regarding what the Hanns had said, the trial judge ignored questionable responses of the interview- Performance Factory Inc. v. Atlantic Insurance Co. L.D. Barry J.A. 259

ing officer on cross-examination regarding the time-line of the Hanns’ confessions. 53 The Supreme Court in R. v. Morin, [1992] 3 S.C.R. 286 (S.C.C.), accepted that a failure to consider all relevant evidence may amount to an error of law. At paragraph 21, Sopinka J. for the Court noted, however, that a trial judge has no obligation to record all or any specific part of the process of deliberation on the facts: A trial judge must consider all of the evidence in relation to the ulti- mate issue, but unless the reasons demonstrate that this was not done the failure to record the fact of it having been done is not a proper basis for concluding that there was an error in law in this respect. 54 The majority in Housen v. Nikolaisen [2002 CarswellSask 178 (S.C.C.)], at paragraphs 27 and 28, explained how a failure to consider certain evidence can lead to an error of pure law for purposes of determining the applicable standard of review: [27] Once it has been determined that a matter being reviewed involves the application of a legal standard to a set of facts, and is thus a question of mixed fact and law, then the appropriate standard of review must be determined and applied. Given the different standards of review applicable to questions of law and questions of fact, it is often difficult to determine what the applicable standard of review is. In Southam,1 at para. 39, this Court illustrated how an error on a question of mixed fact and law can amount to a pure error of law subject to the correctness standard: ... if a decision-maker says that the correct test requires him or her to consider A, B, C, and D, but in fact the decision-maker considers only A, B, and C, then the outcome is as if he or she had applied a law that required consideration of only A, B, and C. If the correct test requires him or her to consider D as well, then the decision- maker has in effect applied the wrong law, and so has made an error of law. Therefore, what appears to be a question of mixed fact and law, upon further reflection, can actually be an error of pure law. [28] However, where the error does not amount to an error of law, a higher standard is mandated. Where the trier of fact has considered all the evidence that the law requires him or her to consider and still comes to the wrong conclusion, then this amounts to an error of

1[1997] 1 S.C.R. 748. 260 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

mixed law and fact and is subject to a more stringent standard of review ... 55 I do not accept the appellant’s submission that errors of law arise from the trial judge’s reasons in the present case. It is a rule of law that all relevant evidence should be considered in determining the issues arising. But determining whether this rule has been violated involves the application of the rule to the facts of the case. And whether the trial judge erred in the process of application is a question of mixed law and fact subject to review on the basis of palpable and overriding error unless the trial judge clearly made some extricable error in principle with respect to the characterization of the rule or its application. See Cleary. 56 I have been shown no such extricable error in principle here. As noted above, the trial judge adopted the proper principle from McDougall. The appellant’s submission alleges an error in its application. This is not a case, such as described in Canada (Director of Investigation & Research) v. Southam Inc. [1997 CarswellNat 368 (S.C.C.)] and Housen, where the trial judge in effect applied the wrong law by failing to consider all the evidence the law requires be considered. The trial judge expressly considered the scientific evidence. The appellant’s complaint is that he did not accord it sufficient weight. That is a finding of fact and entitled to deference. An appeal court may substitute its own view of the evidence and draw its own inferences of fact only “where the trial judge is shown to have committed a palpable and overriding error or made findings of fact that are clearly wrong, unreasonable or unsupported by the evidence.” See L. (H.) v. Canada (Attorney General) [2005 Carswell- Sask 268 (S.C.C.)], at para. 4 [Emphasis in original.] 57 The trial judge was responsive to the case’s live issues and the parties’ key arguments. See C. (R.) v. McDougall, at para. 95. He justified the final result by reasonable findings of fact and credibility which were supported by the evidence. He compared the credibility of the interviewing officer and that of the Hanns. He did not expressly refer in his reasons to the time-line problems raised on cross-examination of the officer regarding when Michael Hann confessed and when Wesley Hann was arrested. But a failure to make an explicit finding on such a subordinate element does not amount to palpable and overriding error. In R. v. M. (R.E.), 2008 SCC 51, [2008] 3 S.C.R. 3 (S.C.C.), at para. 20, the Su- preme Court of Canada confirmed that trial judges need not detail their findings on each piece of evidence or controverted fact, “so long as the findings linking the evidence to the verdict can be logically discerned.” Performance Factory Inc. v. Atlantic Insurance Co. L.D. Barry J.A. 261

See further on the sufficiency of reasons Gallant v. Brake-Patten, 2012 NLCA 23, 321 Nfld. & P.E.I.R. 77 (N.L. C.A.) and the authorities there discussed. In the course of cross-examination the trial judge in the present case had made clear that he believed the time-line presented by the interviewing officer was possible although tight (“squeaky” in the trial judge’s words: see, vol. 1, p. 180, of the civil trial transcript). He made clear his conclusion that the improbable testimony of the Hanns regarding why they signed the statements outweighed any problems in the interviewing officer’s testimony and satisfied him of the credibility of the police officer on a balance of probabilities. 58 The trial judge acknowledged that the scientific evidence regarding probable flashback gave some weight to the appellant’s argument that the contents of the statements were not true (which in turn gave some support to the Hanns’ allegations that they had not stated what the interviewing officer had written). But the trial judge concluded he had insufficient evidence to establish that a flashback from ignition should have occurred in the circumstances and, that, therefore, the general opinion evidence to expect a flash burn did not seriously undermine the reliability of the statements. In effect, the trial judge concluded the Hanns’ signatures on the statements confirmed they had confessed as set out in the documents and any questions raised by the stated method of ignition were not sufficient to significantly undermine the effect of these signed confessions. I do not find any palpable and overriding error in this finding and, in accordance with Cleary and H.L., I defer to the trial judge on his assessment of credibility.

Summary and Disposition 59 In summary: (i) Underlying the appellant’s submissions are findings of fact and credibility by the trial judge regarding which this Court must show deference and intervene only on finding palpable and overriding error. This Court should not overturn a decision merely because it believes a trial judge has failed to record all or a specific part of the process of deliberation on the facts. (ii) The trial judge made no palpable and overriding error in concluding the scientific evidence regarding flashback did not significantly undermine the reliability of the confession statements nor in concluding that the interviewing officer was credible and the Hanns were not. 262 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

(iii) I would dismiss the appeal with party and party costs to the respondent. Appeal allowed. Minister of National Revenue v. RBC Life Insurance Co. 263

[Indexed as: Minister of National Revenue v. RBC Life Insurance Co.] Minister of National Revenue, Appellant and RBC Life Insurance Company, BMO Life Assurance Company, Industrial Alliance Pacific Insurance and Financial Services Inc., and Industrielle Alliance Assurance et Services Financiers Inc., Respondents Federal Court of Appeal Docket: A-447-11 2013 FCA 50 Johanne Trudel, David Stratas, Wyman W. Webb JJ.A. Heard: February 12, 2012 Judgment: February 21, 2013 Tax –––– Income tax — Administration and enforcement — Audits — Re- quirement to provide documents or information –––– Insurers refused to provide identifying information of holders of plan with certain tax advantages and Minister obtained ex parte authorizations under s. 231.2(3) of Income Tax Act requiring insurers to provide requested information — On insurers’ application for review under s. 231.2(6) of Act, authorizations were cancelled for Minister’s non-disclosure of relevant evidence and failure to establish that authorizations were made to verify compliance with Act — Minister appealed — Appeal dismissed — Task of reviewing judge under s. 231.2(6) of Act was not limited to verification that two preconditions, that unnamed taxpayers were ascertainable and that authorization’s purposes was to verify their compliance with Act, were met — Plain wording of s. 232.1(6) of Act showed that reviewing judge was free to go beyond two statutory preconditions and exercise discretion regarding whether authorizations should be left in place — Sections 231.2(3) and (6) of Act expressed dual purpose of empowering Minister’s enforcement and investigation while ensuring fair and proper treatment of its targets, and judicial oversight necessarily pervaded process — Breach of obligation to make full and frank disclosure of information relevant to exercise of discretion on ex parte application was abuse of process falling within Federal Court’s inherent power to redress — Reviewing judge had power to cancel authorizations granted on ground that Minister had not made full and frank disclosure on ex parte application — Reviewing judge had basis for finding that non-disclosed matters, including internal determination that plans likely complied with letter of Act, were relevant to determination whether authorizations should have been granted — While reviewing judge could have found that two statutory preconditions were 264 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

met, there was no palpable and overriding error in her conclusion that valid audit purpose was subservient to goal of chilling insurers’ business concerning these plans — On evidence, each factual finding reached was open to reviewing judge and her discretion was exercised in lawful manner within scope of s. 231.2(6) of Act. Civil practice and procedure –––– Judgments and orders — Ex parte orders — Setting aside — General principles –––– Insurers refused to provide identifying information of holders of plan with certain tax advantages and Min- ister obtained ex parte authorizations under s. 231.2(3) of Income Tax Act requiring insurers to provide requested information — On insurers’ application for review under s. 231.2(6) of Act, authorizations were cancelled for Minister’s non-disclosure of relevant evidence and failure to establish that authorizations were made to verify compliance with Act — Minister appealed — Appeal dismissed — Task of reviewing judge under s. 231.2(6) of Act was not limited to verification that two preconditions, that unnamed taxpayers were ascertainable and that authorization’s purposes was to verify their compliance with Act, were met — Plain wording of s. 232.1(6) of Act showed that reviewing judge was free to go beyond two statutory preconditions and exercise discretion regarding whether authorizations should be left in place — Sections 231.2(3) and (6) of Act expressed dual purpose of empowering Minister’s enforcement and investigation while ensuring fair and proper treatment of its targets, and judicial oversight necessarily pervaded process — Breach of obligation to make full and frank disclosure of information relevant to exercise of discretion on ex parte application was abuse of process falling within Federal Court’s inherent power to redress — Reviewing judge had power to cancel authorizations granted on ground that Minister had not made full and frank disclosure on ex parte application — Reviewing judge had basis for finding that non-disclosed matters, including internal determination that plans likely complied with letter of Act, were relevant to determination whether authorizations should have been granted — While reviewing judge could have found that two statutory preconditions were met, there was no palpable and overriding error in her conclusion that valid audit purpose was subservient to goal of chilling insurers’ business concerning these plans — On evidence, each factual finding reached was open to reviewing judge and her discretion was exercised in lawful manner within scope of s. 231.2(6) of Act. Civil practice and procedure –––– Judgments and orders — Ex parte orders — Evidence on application for –––– Insurers refused to provide identifying information of holders of plan with certain tax advantages and Minister obtained ex parte authorizations under s. 231.2(3) of Income Tax Act requiring insurers to provide requested information — On insurers’ application for review under s. 231.2(6) of Act, authorizations were cancelled for Minister’s non-disclosure of relevant evidence and failure to establish that authorizations were Minister of National Revenue v. RBC Life Insurance Co. 265 made to verify compliance with Act — Minister appealed — Appeal dismissed — Task of reviewing judge under s. 231.2(6) of Act was not limited to verification that two preconditions, that unnamed taxpayers were ascertainable and that authorization’s purposes was to verify their compliance with Act, were met — Plain wording of s. 232.1(6) of Act showed that reviewing judge was free to go beyond two statutory preconditions and exercise discretion regarding whether authorizations should be left in place — Sections 231.2(3) and (6) of Act expressed dual purpose of empowering Minister’s enforcement and investigation while ensuring fair and proper treatment of its targets, and judicial oversight necessarily pervaded process — Breach of obligation to make full and frank disclosure of information relevant to exercise of discretion on ex parte application was abuse of process falling within Federal Court’s inherent power to redress — Reviewing judge had power to cancel authorizations granted on ground that Minister had not made full and frank disclosure on ex parte application — Reviewing judge had basis for finding that non-disclosed matters, including internal determination that plans likely complied with letter of Act, were relevant to determination whether authorizations should have been granted — While reviewing judge could have found that two statutory preconditions were met, there was no palpable and overriding error in her conclusion that valid audit purpose was subservient to goal of chilling insurers’ business concerning these plans — On evidence, each factual finding reached was open to reviewing judge and her discretion was exercised in lawful manner within scope of s. 231.2(6) of Act. Cases considered by David Stratas J.A.: Canada (Human Rights Commission) v. Canadian Liberty Net (1998), 157 D.L.R. (4th) 385, 1998 CarswellNat 388, 224 N.R. 241, 31 C.H.R.R. D/433, 22 C.P.C. (4th) 1, 50 C.R.R. (2d) 189, [1998] 1 S.C.R. 626, 147 F.T.R. 305 (note), 1998 CarswellNat 387, 6 Admin. L.R. (3d) 1, [1998] S.C.J. No. 31 (S.C.C.) — referred to Crevier v. Quebec (Attorney General) (1981), [1981] 2 S.C.R. 220, 127 D.L.R. (3d) 1, 38 N.R. 541, 1981 CarswellQue 109, 1981 CarswellQue 109F, [1981] S.C.J. No. 80 (S.C.C.) — referred to Hershkovitz v. Tyco Safety Products Canada Ltd. (2010), 2010 CarswellNat 3691, 2010 CAF 190, 405 N.R. 185, 2010 FCA 190, 2010 CarswellNat 2405, 89 C.P.R. (4th) 101 (F.C.A.) — referred to Housen v. Nikolaisen (2002), 10 C.C.L.T. (3d) 157, 211 D.L.R. (4th) 577, 286 N.R. 1, [2002] 7 W.W.R. 1, 2002 CarswellSask 178, 2002 CarswellSask 179, 2002 SCC 33, 30 M.P.L.R. (3d) 1, 219 Sask. R. 1, 272 W.A.C. 1, [2002] 2 S.C.R. 235, [2002] S.C.J. No. 31, REJB 2002-29758 (S.C.C.) — considered Indian Manufacturing Ltd. v. Lo (1997), 215 N.R. 76, 131 F.T.R. 319 (note), 75 C.P.R. (3d) 338, 1997 CarswellNat 1310 (Fed. C.A.) — referred to 266 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

MacMillan Bloedel Ltd. v. Simpson (1995), [1995] 4 S.C.R. 725, [1996] 2 W.W.R. 1, 14 B.C.L.R. (3d) 122, 44 C.R. (4th) 277, 130 D.L.R. (4th) 385, 103 C.C.C. (3d) 225, 191 N.R. 260, 33 C.R.R. (2d) 123, 68 B.C.A.C. 161, 112 W.A.C. 161, 1995 CarswellBC 974, 1995 CarswellBC 1153, [1995] S.C.J. No. 101, EYB 1995-67075 (S.C.C.) — referred to May & Baker (Canada) Ltd. v. “Oak” (The) (1978), [1979] 1 F.C. 401, 1978 CarswellNat 94, 1978 CarswellNat 94F, 89 D.L.R. (3d) 692, 22 N.R. 214 (Fed. C.A.) — referred to Minister of National Revenue v. Lordco Parts Ltd. (2013), 2013 CarswellNat 323, 2013 FCA 49 (F.C.A.) — referred to Minister of National Revenue v. National Foundation for Christian Leadership (2004), 2005 D.T.C. 5034, 2004 CF 1753, 2004 CarswellNat 5747, 2004 FC 1753, 2004 CarswellNat 4686, [2005] 1 C.T.C. 185, 264 F.T.R. 36, [2004] F.C.J. No. 2139 (F.C.) — referred to Minister of National Revenue v. National Foundation for Christian Leadership (2005), [2005] 3 C.T.C. 274, 2005 D.T.C. 5389, 2005 FCA 246, 2005 Car- swellNat 1755, 339 N.R. 275, [2005] F.C.J. No. 1115 (F.C.A.) — referred to Minister of National Revenue v. Sand Exploration Ltd. (1995), 1995 Car- swellNat 393, (sub nom. M.R.N. v. Sand Exploration Ltd.) 1995 CarswellNat 696, 95 D.T.C. 5358, [1995] 2 C.T.C. 140, (sub nom. M.R.N. v. Sand Exploration Ltd.) [1995] 3 F.C. 44, 96 F.T.R. 113, [1995] F.C.J. No. 780 (Fed. T.D.) — considered Minister of National Revenue v. Welton Parent Inc. (2006), 2006 D.T.C. 6093 (Eng.), 50 C.C.P.B. 201, [2006] 2 C.T.C. 177, 2006 FC 67, 2006 Car- swellNat 151, 2006 CF 67, 2006 CarswellNat 4992, 286 F.T.R. 161 (Eng.), [2006] F.C.J. No. 117 (F.C.) — referred to Ministre du Revenu national c. Derakhshani (2009), (sub nom. M.N.R. v. Der- akhshani) 2010 D.T.C. 5043 (Eng.), 2009 CAF 190, 2009 CarswellNat 1815, (sub nom. M.N.R. v. Derakhshani) 2009 D.T.C. 5121 (Fr.), (sub nom. Minister of National Revenue v. Derakhshani) 400 N.R. 311, 2009 FCA 190, 2009 CarswellNat 5076 (F.C.A.) — considered South Yukon Forest Corp. v. R. (2012), 2012 CarswellNat 1674, 2012 FCA 165, 2012 CAF 165, 2012 CarswellNat 3024, (sub nom. South Yukon Forest Corp. v. Canada) 431 N.R. 286 (F.C.A.) — referred to Statutes considered: Canadian Charter of Rights and Freedoms, Part I of the Constitution Act, 1982, being Schedule B to the Canada Act 1982 (U.K.), 1982, c. 11 s. 8 — considered Constitution Act, 1867, (U.K.), 30 & 31 Vict., c. 3, reprinted R.S.C. 1985, App. II, No. 5 s. 101 — referred to Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) Generally — referred to Minister of National Revenue v. RBC Life Insurance Co. David Stratas J.A. 267

s. 231.1(3)(b) — considered s. 231.2(3) — considered s. 231.2(3)(a) — considered s. 231.2(3)(b) — considered s. 231.2(5) — considered s. 231.2(6) — considered s. 231.7 [en. 2001, c. 17, s. 183] — considered

APPEAL by Minister from judgment reported at Minister of National Revenue v. RBC Life Insurance Co. (2011), 2011 CarswellNat 4557, 2011 FC 1249, [2011] F.C.J. No. 1537, 2011 CF 1249, 2011 CarswellNat 5357, 2011 D.T.C. 5172 (Eng.), [2012] 2 C.T.C. 1, 5 C.C.L.I. (5th) 25, 399 F.T.R. 47 (Eng.) (F.C.), cancelling authorizations that required insurers to provide requested information about plan holders.

Henry Gluch, Samantha Hurst, Christopher Bartlett, for Appellant Mahmud Jamal, Hemant Tilak, Pooja Samtani, David Mollica, for Respondent

David Stratas J.A.:

1 The Minister appeals from a judgment dated November 1, 2011 of the Federal Court (per Justice Tremblay-Lamer): 2011 FC 1249 (F.C.). 2 The Federal Court cancelled four authorizations previously obtained by the Minister under subsection 231.2(3) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.). The authorizations required RBC Life Insurance Company, Industrial Alliance Pacific Insurance and Financial Services Inc., Industrielle Alliance Assurance et Services Financiers Inc., and BMO Life Assurance Company (the “respondents”) to produce information and documents relating to certain of their customers. These customers had purchased a particular insurance product known as the “10-8 plan.” 3 For the reasons that follow, I would dismiss the appeal with costs to the respondents. 4 The respondents brought a cross-appeal seeking a declaration that subsection 231.2(3) of the Act is of no force or effect because it unjustifi- ably infringes section 8 of the Canadian Charter of Rights and Free- doms. They brought this cross-appeal in case their defence to the main appeal was unsuccessful. As their defence to the main appeal has been successful, I would dismiss the cross-appeal on account of mootness, but with costs to the respondents. 268 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

A. The legislative scheme 5 In pursuit of verifying compliance with the Act, occasionally the Minister requires third parties, such as employers or here, insurers, to provide information about unnamed taxpayers. The Act sets out the following procedures for the Minister to compel these third parties to produce the information: (1) The Minister can obtain, ex parte, an authorization from a judge requiring the third party to provide information about unnamed taxpayers: subsection 231.2(3) of the Act. At this initial ex parte stage, the Minister must satisfy the judge that two preconditions are met: the unnamed taxpayers are ascertainable and the authorization’s purpose is to verify the unnamed taxpayers’ compliance with the Act. (2) Upon becoming aware of the authorization, the third party can apply to have it reviewed. The reviewing judge may cancel, confirm, or vary the authorization: subsection 231.2(6) of the Act. If the authorization has not been cancelled, the Minister may enforce the authorization through a compliance order: section 231.7 of the Act. 6 The text of these provisions is as follows: 231.2. (3) On ex parte application by the Minister, a judge may, subject to such conditions as the judge considers appropriate, authorize the Minister to impose on a third party a requirement under subsection 231.2(1) relating to an unnamed person or more than one unnamed person (in this section referred to as the “group”) where the judge is satisfied by information on oath that (a) the person or group is ascertainable; and (b) the requirement is made to verify compliance by the person or persons in the group with any duty or obligation under this Act...... (5) Where an authorization is granted under subsection 231.2(3), a third party on whom a notice is served under subsection 231.2(1) may, within 15 days after the service of the notice, apply to the judge who granted the authorization or, where the judge is unable to act, to another judge of the same court for a review of the authorization. (6) On hearing an application under subsection 231.2(5), a judge may cancel the authorization previously granted if the judge is not then satisfied that the conditions in paragraphs 231.2(3)(a) and 231.2(3)(b) have been met and the judge may confirm or vary the Minister of National Revenue v. RBC Life Insurance Co. David Stratas J.A. 269

authorization if the judge is satisfied that those conditions have been met. 231.7. (1) On summary application by the Minister, a judge may, notwithstanding subsection 238(2), order a person to provide any access, assistance, information or document sought by the Minister under section 231.1 or 231.2 if the judge is satisfied that (a) the person was required under section 231.1 or 231.2 to provide the access, assistance, information or document and did not do so; and (b) in the case of information or a document, the information or document is not protected from disclosure by solicitor-client privilege (within the meaning of subsection 232(1)). (2) An application under subsection (1) must not be heard before the end of five clear days from the day the notice of application is served on the person against whom the order is sought. (3) A judge making an order under subsection (1) may impose any conditions in respect of the order that the judge considers appropriate. (4) If a person fails or refuses to comply with an order, a judge may find the person in contempt of court and the person is subject to the processes and punishments of the court to which the judge is appointed. (5) An order by a judge under subsection (1) may be appealed to a court having appellate jurisdiction over decisions of the court to which the judge is appointed. An appeal does not suspend the execu- tion of the order unless it is so ordered by a judge of the court to which the appeal is made. 231.2. (3) Sur requête ex parte du ministre, un juge peut, aux conditions qu’il estime indiquées, autoriser le ministre a` exiger d’un tiers la fourniture de renseignements ou production de documents prévue au paragraphe (1) concernant une personne non désignée nommé- ment ou plus d’une personne non désignée nommément — appelée « groupe » au présent article — , s’il est convaincu, sur dénonciation sous serment, de ce qui suit: a) cette personne ou ce groupe est identifiable; b) la fourniture ou la production est exigée pour vérifier si cette personne ou les personnes de ce groupe ont respecté quelque devoir ou obligation prévu par la présente loi; [...] 270 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

(5) Le tiers a` qui un avis est signifié ou envoyé conformément au paragraphe (1) peut, dans les 15 jours suivant la date de signification ou d’envoi, demander au juge qui a accordé l’autorisation prévue au paragraphe (3) ou, en cas d’incapacité de ce juge, a` un autre juge du même tribunal de réviser l’autorisation. (6) A` l’audition de la requête prévue au paragraphe (5), le juge peut annuler l’autorisation accordée antérieurement s’il n’est pas convaincu de l’existence des conditions prévues aux alinéas (3)a) et b). Il peut la confirmer ou la modifier s’il est convaincu de leur existence. 231.7. (1) Sur demande sommaire du minister, un judge peut, malgré le paragraphe 238(2), ordonner a` une personne de fournier l’accès, l’aide, les renseignements ou les documents que le minister cherche a` obtenir en vertu des articles 231.1 ou 231.2 s’il est convaincu de ce que suit: a) la personne n’a pas fourni l’accès, l’aide, les renseignements ou les documents bien qu’elle en soit tenue par les articles 231.1 ou 231.2; b) s’agissant de renseignements ou de documents, le privilèges des communications entre client et avocat, au sens du paragraphe 232(1), ne peut etreˆ invoqué a` leur egard.´ (2) La demande n’est entendue qu’une fois ecoul´´ es cinq jours francs après signification d’un avis de la demande a` la personne a` l’égard de laquelle l’ordonnance est demandée. (3) Le juge peut imposer, a` l’égard de l’ordonnance, les conditions qu’il estime indiquées. (4) Quiconque refuse ou fait défaut de se conformer a` une ordonnance peut etreˆ reconnu coupable d’outrage au tribunal; il est alors sujet aux procédures et sanctions du tribunal l’ayant ainsi reconnu coupable. (5) L’ordonnance visée au paragraphe (1) est susceptible d’appel devant le tribunal ayant compétence pour entendre les appels des déci- sions du tribunal ayant rendu l’ordonnance. Toutefois, l’appel n’a pas pour effet des suspendre l’exécution de l’ordonnance, sauf ordonnance contraire d’un juge du tribunal saisi de l’appel.

B. The basic facts and the Federal Court’s decision 7 On an ex parte basis, the Federal Court issued the authorizations. The respondents applied to have them reviewed. The Federal Court cancelled the authorizations. It invoked two bases for its decision. Minister of National Revenue v. RBC Life Insurance Co. David Stratas J.A. 271

8 First, the Federal Court found that the Minister had not disclosed a significant amount of relevant evidence on the ex parte applications. Therefore, “the Court was not in a position to appreciate the full context in which the Minister brought the ex parte applications”: Reasons, paragraph 14. In particular, the Federal Court identified four categories of material facts that were not disclosed to the Court on the ex parte applications: • The Department of Finance’s refusal to amend the Act to address outdated provisions; • Information contained in an advance income tax ruling request, information that was relevant to determining whether there was compliance with the Act; • The Canada Revenue Agency’s decision to “send a message to the industry” by refusing to answer the advance income ruling request and to take measures to chill the 10-8 plan business, in part by undertaking an “audit blitz”; and • The Canada Revenue Agency’s GAAR Committee had determined that the 10-8 plans likely complied with the letter of the Act, if not the spirit. 9 Second, the Federal Court found the Minister failed to establish one of the two preconditions, namely that the authorizations were made to verify compliance with the Act: paragraph 231.1(3)(b) of the Act. While the Federal Court accepted that the Minister had a valid audit purpose, on the evidence this was “extraneous to her primary goal, which was to chill [the respondents’] 10-8 plan business,” a business that on policy grounds the Minister disliked. The Minister’s “true purpose was to achieve through audits what the Department of Finance refused to do” by enact- ing that policy “through legislative amendment.” Further, on the evidence the Federal Court was “not satisfied that the requirements [were] actually necessary for the Minister to verify compliance with the Act.” See Reasons, at paragraphs 58-60. 10 The Minister appeals to this Court.

C. The standard of review on appeal 11 The parties are agreed that the normal, two-fold appellate standard of review applies: • The Federal Court’s findings on questions of law must be correct. 272 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

• Unless an extricable question of law is present, its findings on questions of mixed law and fact, including exercises of fact-based discretion, can only be set aside on the basis of palpable and overriding error. (Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235 (S.C.C.) at paragraphs 8 and 36.) 12 Palpable and overriding error is a “highly deferential standard of review.” A palpable error is one that is “obvious.” An overriding error is one that “goes to the very core of the outcome of the case.” See South Yukon Forest Corp. v. R., 2012 FCA 165 (F.C.A.) at paragraph 46. For example, a complete lack of evidence to support a factual finding key to the outcome of the case qualifies as a palpable and overriding error: Hershkovitz v. Tyco Safety Products Canada Ltd., 2010 FCA 190 (F.C.A.) at paragraph 39.

D. Analysis 13 The Minister’s submissions, described below, raise three questions for our consideration: (1) What is the jurisdiction of the Federal Court on an ex parte application under subsection 231.2(3) and on a review under 231.2(6)? (2) Did the Minister make full and frank disclosure of relevant information on the ex parte application in this case? (3) Did the Minister’s valid audit purpose save the authorizations?

(1) What is the jurisdiction of the Federal Court on an ex parte application under subsection 231.2(3) and on a review under 231.2(6)? 14 In oral submissions before us, the Minister submitted that a judge can refuse to grant an authorization under subsection 231.2(3), even where the two preconditions in paragraphs 231.2(3)(a) and (b) are met. In short, the authorizing judge has discretion. 15 However, the Minister submitted that a reviewing judge under subsection 231.2(6) does not have discretion. Instead, the reviewing judge is only to verify whether the two preconditions in paragraphs 231.2(3)(a) and (b) are met. Therefore, if the preconditions are met — i.e., the unnamed taxpayers are ascertainable and the authorization’s purpose is to verify the unnamed taxpayers’ compliance with the Act — the reviewing judge can do nothing more. The authorization must be upheld. Minister of National Revenue v. RBC Life Insurance Co. David Stratas J.A. 273

16 On the Minister’s view of subsection 231.2(6), the reviewing judge cannot set aside an authorization on the ground that the Minister did not make full and frank disclosure of relevant information on the ex parte application under subsection 231.2(3). The Federal Court judge did exactly that. Therefore, according to the Minister, the Federal Court judge erred. 17 I disagree with the Minister’s interpretation of subsection 231.2(6). Under that subsection, the reviewing judge’s task is not as limited as the Minister suggests. 18 Both subsections 231.2(3) and 231.2(6) provide that the judge “may” do something. Yet, in the face of the use of the word “may” in both subsections, curiously the Minister admits the existence of discretion in one subsection, but not in the other. 19 The plain wording of subsection 231.2(6) shows that the reviewing judge is free to go beyond the two statutory preconditions and exercise a discretion regarding whether the authorization should be left in place. In the words of the subsection, a judge “may...vary” the authorization even where “the judge is satisfied that [the two preconditions] have been met.” Importantly, the subsection uses the word, “may,” rather than “shall.” 20 This makes sense. If, as the Minister concedes, the judge can exercise discretion on an ex parte application under subsection 231.2(3), why wouldn’t the judge have an equally broad discretion on a review under subsection 231.2(6)? Express wording — not present here — would be required to cut down the nature of the review under subsection 231.2(6). 21 The purposes underlying subsections 231.2(3) and 231.2(6) also suggest the Minister’s interpretation is incorrect. Before us, the Minister observed that these subsections rest within the enforcement and investigation part of the Act, a part aimed at empowering the Minister to verify taxpayer compliance with the Act, and detect breaches. However, in response to a question posed by this Court, the Minister conceded that the enforcement and investigation part of the Act also aims to ensure the fair and proper treatment of persons subjected to the Minister’s investigative powers. 22 Together, subsections 231.2(3) and 231.2(6) express this dual purpose. Subsection 231.2(3) empowers the Minister to obtain authorizations in certain circumstances. But judicial oversight pervades the process, both at the initial ex parte stage, and later if there is a review under 274 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

subsection 231.2(6). Judicial oversight is necessary because authorizations can intrude on third parties’ privacy interests: Intrusion into the privacy of individuals is always a sensitive matter, especially when third parties, who themselves may have valid reasons for not wanting to disclose, are required to provide the information. Undoubtedly this is the reason Parliament saw fit to require the Minister to obtain Court authorization for such intrusion upon satis- fying the Court of the matters specified in subsection 231.2(3). (Minister of National Revenue v. Sand Exploration Ltd. (1995), 95 D.T.C. 5358 (Fed. T.D.) at page 5362, per Rothstein J. (as he then was).) 23 This Court has found that authorizations under subsection 231.2(3) can only be granted where the two statutory preconditions are met and where, in the Court’s discretion, the granting of the authorizations is war- ranted in the circumstances. The element of discretion is vital. As No¨el J.A. has explained: [T]he existence of judicial discretion is essential to the constitutional validity of this type of provision, which is comparable to a seizure even when used in a regulatory (or even non-criminal) context. It is this discretion, conferred upon an independent judge, which protects individuals from the damaging use of this kind of power and brings it into line with the requirements of section 8 of the Canadian Charter of Rights and Freedoms. (Ministre du Revenu national c. Derakhshani, 2009 FCA 190 (F.C.A.) at paragraph 19.) 24 The Minister says that Derakhshani is irrelevant to the issue of whether the reviewing judge has discretion under subsection 231.2(6). She says that it concerns ex parte applications under subsection 231.2(3), not reviews under subsection 231.2(6). 25 I disagree. In Derakhshani, this Court examined subsection 231.2(3) in the context of subsection 231.2(6) and, as can be seen in the above passage, spoke in broad terms. The observations in Derakhshani were integral to its decision, not mere obiter. Further, the review under subsection 231.2(6) cannot be divorced from what it is reviewing, the authorization under subsection 231.2(3). To the extent that Derakhshani focused only upon subsection 231.2(3) — which I do not accept — it has a clear import for subsection 231.2(6). 26 In seeking an authorization under subsection 231.2(3), the Minister cannot leave “a judge...in the dark” on facts relevant to the exercise of discretion, even if those facts are harmful to the Minister’s case: Derakh- Minister of National Revenue v. RBC Life Insurance Co. David Stratas J.A. 275

shani, supra at paragraph 29; Minister of National Revenue v. Welton Parent Inc., 2006 FC 67 (F.C.) at paragraphs 153-155 and 172. The Min- ister has a “high standard of good faith” to make “full disclosure” so as to “fully justify” an ex parte order under subsection 231.1(3): Minister of National Revenue v. National Foundation for Christian Leadership, 2004 FC 1753 (F.C.), aff’d 2005 FCA 246 (F.C.A.) at paragraphs 15-16. See also Canada Revenue Agency, Acquiring Information from Taxpayers, Registrants and Third Parties (issued June 2010). 27 To the extent possible, the reviewing judge under subsection 231.2(6) is the same judge who issued the authorization under subsection 231.2(3): see subsection 231.2(5). If, on review, it were a simple matter of ensuring that the two statutory preconditions are met, any judge would be satisfactory. But under this statutory scheme, the original authorizing judge conducts the review, a judge who knows the original information submitted in support of the exercise of discretion in favour of granting the authorization. This also suggests that the review under subsection 231.2(6) must include a discretionary element and is not limited just to verifying that the two statutory preconditions are met. 28 Were this not so, a startling implication arises. Under the Minister’s interpretation, the Minister could withhold important information from the authorizing judge under subsection 231.2(3) — information that would have caused the authorizing judge to exercise the discretion to deny authorization — but on a review under subsection 231.2(6), that same judge must uphold the authorization if he or she finds the two statutory preconditions to be met. The judge — despite knowing of the non- disclosure of important information that would have caused her to deny authorization — is nothing more than a cipher, powerless to act, forced to leave the ill-gotten authorization in place. 29 Of course, more extreme facts — not present here — can be supposed. On the Minister’s interpretation, the authorizing judge could be induced to grant an authorization on the basis of bald lies but, on review, if the statutory preconditions are met, that same judge, having discovered she was deceived, can do nothing about it. 30 The Minister submits that any relevant non-disclosure or misinformation on an ex parte application under subsection 231.2(3) can always be addressed by the reviewing judge because instances of non-disclosure or misinformation will always relate to one or both of the two preconditions for an authorization under subsection 231.2(3). I disagree. Information can be relevant to the discretion under subsection 231.2(3), not only to 276 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

the two statutory preconditions. For example, the evidence adduced by the Minister may suggest that the two statutory preconditions are met, but, through non-disclosure or misinformation, the Minister could cast relevant taxpayers in a worse light than they deserve. Or the Minister could misinform the judge about the inconvenience and cost to persons who will be subject to the authorization. In both instances, the non-disclosure or misinformation could unfairly affect the judge’s discretion. 31 The Minister’s submission also raises issues of a more fundamental nature. A breach of the obligation to make full and frank disclosure of information relevant to the Court’s exercise of discretion on an ex parte application, such as that contemplated under subsection 231.2(3), can hobble the Court’s ability to act properly and judicially, and can result in the making of orders that should not have been made. It is an abuse of process. 32 In effect, the Minister says that subsections 231.2(3) and 231.2(6) constitute a complete code, ousting the Court’s ability to redress such an abuse of process. I disagree. 33 The Federal Courts have a power, independent of statute, to redress abuses of process, such as the failure to make full and frank disclosure of relevant information on an ex parte application: Indian Manufacturing Ltd. v. Lo (1997), 75 C.P.R. (3d) 338 (Fed. C.A.) at page 342; May & Baker (Canada) Ltd. v. “Oak” (The) (1978), [1979] 1 F.C. 401 (Fed. C.A.) at page 405. 34 These authorities speak of the Federal Courts’ power as being “inherent.” At one time, these authorities were perhaps open to question on the basis that the Federal Courts, as statutory courts, do not have inherent powers. However, this is no longer the case. 35 The Supreme Court has confirmed the existence of “plenary powers” in the Federal Courts, analogous to the inherent powers of provincial superior courts: Canada (Human Rights Commission) v. Canadian Liberty Net, [1998] 1 S.C.R. 626 (S.C.C.) at paragraphs 35 to 38 (a case arising in another context, but stating a principle of universal application). These plenary powers are especially live in situations where the Court is exercising its “superintending power over the Minister’s actions in adminis- tering and enforcing the Act”: Derakhshani, supra at paragraphs 10-11. 36 In my view, the Federal Courts’ power to investigate, detect and, if necessary, redress abuses of its own processes is a plenary power that exists outside of any statutory grant, an “immanent attribute” part of its “essential character” as a court, just like the provincial superior courts Minister of National Revenue v. RBC Life Insurance Co. David Stratas J.A. 277

with inherent jurisdiction: see MacMillan Bloedel Ltd. v. Simpson, [1995] 4 S.C.R. 725 (S.C.C.) at paragraph 30. The Federal Courts’ power to control the integrity of its own processes is part of its core function, essential for the due administration of justice, the preservation of the rule of law and the maintenance of a proper balance of power among the legislative, executive and judicial branches of government. Without that power, any court — even a court under section 101 of the Constitution Act, 1867 — is emasculated, and is not really a court at all. See MacMil- lan Bloedel, supra at paragraphs 30-38, citing with approval K. Mason, “The Inherent Jurisdiction of the Court” (1983), 57 A.L.J. 449 at page 449 and I.H. Jacobs, “The Inherent Jurisdiction of the Court” (1970), 23 C.L.P. 23; and see also Crevier v. Quebec (Attorney General), [1981] 2 S.C.R. 220 (S.C.C.). 37 From the foregoing, it follows that I cannot accept the Minister’s contention that subsections 231.2(3) and 231.2(6) constitute a complete code ousting the power of the Court to investigate, detect and, if necessary, redress abuses of its own processes. 38 I conclude that when the Federal Court was engaged in its review under subsection 231.2(6) in this case, it had the power to cancel the authorizations it granted on the ground that, in its view, the Minister had not made full and frank disclosure to it on the ex parte application under subsection 231.2(3).

(2) Did the Minister make full and frank disclosure of relevant information on the ex parte application in this case? 39 The Minister answers this in the affirmative. In particular, the Min- ister challenges the Federal Court’s assessment that the undisclosed information, summarized in paragraph 8, above, was relevant to its discretion to grant the authorizations under subsection 231.2(3). 40 I am satisfied that the Federal Court had a basis for finding that the factual matters in paragraph 8, above, were relevant to the discretion whether the authorizations should have been granted under subsection 231.2(3) in these circumstances. The Federal Court’s finding of relevance in this case was a finding of mixed fact and law suffused by factual appreciation, and no legal principle is extricable. Accordingly, on the basis of Housen, supra, it is incumbent on the Minister to demonstrate palpable and overriding error. The Minister has not done so. 41 In addition, the existence of each of the factual matters described in paragraph 8, above, was supported by some evidence in the record, and 278 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

sometimes plenty of evidence in the record: see the references in the respondent’s memorandum, footnotes 38 to 101, 165, 167 and 169, each of which the Court has verified for accuracy.

(3) Did a valid audit purpose save the authorizations? 42 The Minister submits that the Federal Court erred in law by overlook- ing that that there was evidence upon which the authorizations could have been granted. It stresses there was a legitimate assessment purpose supporting the authorizations. According to the Minister, as a matter of statutory interpretation, as long as an audit purpose supported the issuance of the authorizations, they should have been upheld. 43 The Federal Court did find that a valid audit purpose existed, but it found it to be a secondary or subservient purpose to the primary purpose of chilling the respondent’s business concerning the 10-8 plans. Based on evidence before it, the Federal Court found that the Minister’s “primary goal” was to chill this business — a purpose that was not “sufficiently tied to her valid audit purpose” — and the Federal Court was “not satisfied that the requirements [were] actually necessary for the Minister to verify compliance with the Act”: Reasons, at paragraphs 58-60. 44 These were findings of mixed fact and law suffused by facts, findings that can be set aside only by palpable and overriding error. Absent palpable and overriding error, it is not for this Court to re-weigh the evidence and find that a valid audit purpose was the real purpose. 45 I do agree with the Minister that there was some evidence upon which the Federal Court could have found the two statutory preconditions to be present. There was some evidence upon which it could have exercised its discretion in favour of confirming the authorizations on review. But the Federal Court saw the facts differently and made findings supported by evidence. Absent palpable and overriding error, its findings and its exercise of discretion must stand. 46 Even if the Minister had a valid audit purpose, it was still open to the Federal Court, on review, to cancel the authorizations because of the Minister’s non-disclosure of relevant information. Based on the statutory interpretation above, in its discretion, this it could do. And it did so, finding material non-disclosure of relevant information on the part of the Minister. In its view, the culpability of the Minister was significant: the non-disclosure was “undoubtedly material” and “could certainly have affected the outcome of the ex parte applications”: Reasons, at paragraphs 39-40 and 44-45. Minister of National Revenue v. RBC Life Insurance Co. Webb J.A. 279

47 The Federal Court recognized that cancellation of authorizations under subsection 231.2(6) is sometimes necessary to deprive the Minister of an “advantage improperly obtained.” It recognized that sometimes the Court must exercise its discretion in order to create a deterrent effect and bring home to the Minister the “duty of disclosure...and the consequence[s] if [the Minister] fail[s] in that duty”: Reasons, at paragraphs 29-30. 48 In making these findings and observations, the Federal Court neither erred in principle, nor committed any palpable and overriding error. On the evidence, each factual finding was open to the Federal Court and it exercised its discretion in a lawful manner within the scope of subsection 231.2(6).

E. The related appeal 49 This appeal was heard on the same day as the appeal in Minister of National Revenue v. Lordco Parts Ltd. [2013 CarswellNat 323 (F.C.A.)], file no. A-106-12. I would direct the Registry to deliver a copy of our reasons in Lordco to the parties to this appeal, concurrently with the release of these reasons.

F. Disposition of this appeal 50 Accordingly, I would dismiss both the appeal and the cross-appeal. The respondents advanced the cross-appeal only in case their defence to the appeal failed. Their defence has succeeded. Accordingly, in my view, the respondents have been wholly successful and I would grant them their costs of both the appeal and the cross-appeal.

Johanne Trudel J.A.:

I agree

Wyman W. Webb J.A.:

I agree Appeal dismissed. 280 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

[Indexed as: Halter v. Standard Life Assurance Co. of Canada] Robert Halter, Plaintiff and Standard Life Assurance Company of Canada, Defendant Alberta Court of Queen’s Bench Docket: Edmonton 0603-03492 2013 ABQB 99 J.D. Rooke A.C.J.Q.B. Heard: June 4, 2012 Judgment: February 12, 2013 Insurance –––– Actions on policies — Practice and procedure — Limitation of actions –––– Insured employee was paid long-term disability benefits under policy until September 2001 — Insurer advised in writing that benefits would terminate in December and they did — Insured pursued appeal over following year but it was not allowed — Insured consulted lawyer but did not commence action until March 2006 — Trial of issue was held to determine if action was statute barred — Question answered in affirmative — Action was barred by one- year limitation period under s. 590(1) of Insurance Act — Period began to run from date on which notice of denial of coverage became effective — Notice provided in October 2001 was clear and unequivocal — Notice was not vitiated by reference in it to right of appeal — Insured knew or ought to have known that his claim was denied effective December 2001 — Concept of rolling limitation period did not arise, as there were no payments after that date and there was no further evidence of disability. Cases considered by J.D. Rooke A.C.J.Q.B.: Balzer v. Sun Life Assurance Co. of Canada (2003), 227 D.L.R. (4th) 693, 15 B.C.L.R. (4th) 6, [2003] 8 W.W.R. 1, 50 C.C.L.I. (3d) 29, 2003 BCCA 306, 2003 CarswellBC 1220, 183 B.C.A.C. 115, 301 W.A.C. 115, [2003] I.L.R. I- 4193, [2003] B.C.J. No. 1170 (B.C. C.A.) — considered Bowes v. Edmonton (City) (2003), [2003] 8 W.W.R. 142, 2003 CarswellAlta 788, 2003 ABQB 492, 16 Alta. L.R. (4th) 172, 333 A.R. 332 (Alta. Q.B.) — referred to Bowes v. Edmonton (City) (2005), 2005 CarswellAlta 1057, 13 M.P.L.R. (4th) 104, 386 A.R. 1, 49 Alta. L.R. (4th) 50, [2006] 4 W.W.R. 112, 2005 ABQB 502, [2005] A.J. No. 941 (Alta. Q.B.) — referred to Bowes v. Edmonton (City) (2007), 2007 CarswellAlta 1851, 2007 ABCA 347, 42 M.P.L.R. (4th) 192, 425 A.R. 123, 54 C.C.L.T. (3d) 189, [2008] 5 Halter v. Standard Life Assurance Co. of Canada 281

W.W.R. 70, 86 Alta. L.R. (4th) 47, 418 W.A.C. 123, [2007] A.J. No. 1500 (Alta. C.A.) — referred to Cathcart v. Sun Life of Canada (2002), 8 Alta. L.R. (4th) 292, [2003] 2 W.W.R. 186, 2002 ABQB 827, 2002 CarswellAlta 1194, 42 C.C.L.I. (3d) 48, [2002] A.J. No. 1164 (Alta. Q.B.) — considered Esau v. Co-operators Life Insurance Co. (2004), [2005] I.L.R. I-4363, 2004 BCSC 1347, 2004 CarswellBC 2443, 16 C.C.L.I. (4th) 271, [2004] B.C.J. No. 2195 (B.C. S.C.) — considered Esau v. Co-operators Life Insurance Co. (2006), 38 C.C.L.I. (4th) 5, 55 B.C.L.R. (4th) 11, 229 B.C.A.C. 1, 379 W.A.C. 1, 2006 CarswellBC 1235, 2006 BCCA 249, [2006] I.L.R. I-4513 (B.C. C.A.) — referred to Falk v. Manufacturers Life Insurance Co. (2008), 2008 CarswellBC 268, 60 C.C.L.I. (4th) 77, 80 B.C.L.R. (4th) 347, 2008 C.E.B. & P.G.R. 8283, 2008 BCSC 173 (B.C. S.C.) — considered Goorbarry v. Bank of Nova Scotia (2011), 2011 ONCA 793, 2011 CarswellOnt 15062, 286 O.A.C. 282, 109 O.R. (3d) 92, 345 D.L.R. (4th) 624 (Ont. C.A.) — considered Gumpp v. Co-operators Life Insurance Co./Co-operators Cie D’Assurance-Vie (2004), 2004 BCCA 217, 2004 CarswellBC 805, [2004] 7 W.W.R. 627, [2004] I.L.R. I-4301, 13 C.C.L.I. (4th) 221, 200 B.C.A.C. 38, 239 D.L.R. (4th) 638, 27 B.C.L.R. (4th) 1 (B.C. C.A.) — referred to Holme Estate v. UNUM Life Insurance Co. of America (2000), 2000 BCCA 627, 145 B.C.A.C. 232, 237 W.A.C. 232, 26 C.C.L.I. (3d) 187, 2000 CarswellBC 2301, (sub nom. Raphael v. UNUM Life Insurance Co. of America) 194 D.L.R. (4th) 139, 83 B.C.L.R. (3d) 108, [2001] I.L.R. I-3938, [2000] B.C.J. No. 2327 (B.C. C.A.) — referred to Jones Estate v. CUMIS Life Insurance Co. (2003), 2003 MBQB 5, 2003 Car- swellMan 8, 171 Man. R. (2d) 123, 45 C.C.L.I. (3d) 82 (Man. Q.B.) — referred to Pekarek v. Manufacturers Life Insurance Co. (2006), 37 C.C.L.I. (4th) 190, 55 B.C.L.R. (4th) 1, 227 B.C.A.C. 75, 374 W.A.C. 75, 2006 CarswellBC 1236, 2006 BCCA 250, [2006] I.L.R. I-4514 (B.C. C.A.) — referred to Ravndahl v. Saskatchewan (2009), 301 D.L.R. (4th) 513, 65 C.P.C. (6th) 1, 383 N.R. 247, [2009] 2 W.W.R. 385, 2009 CarswellSask 49, 2009 CarswellSask 50, 2009 SCC 7, 444 W.A.C. 305, 320 Sask. R. 305, 183 C.R.R. (2d) 1, [2009] 1 S.C.R. 181, [2009] S.C.J. No. 7 (S.C.C.) — considered Sander v. Sun Life Assurance Co. of Canada (2011), 14 B.C.L.R. (5th) 17, [2011] 4 W.W.R. 636, 298 B.C.A.C. 138, 505 W.A.C. 138, 2011 BCCA 3, 2011 CarswellBC 2, 2011 C.E.B. & P.G.R. 8420, [2011] I.L.R. I-5093, 92 C.C.L.I. (4th) 1, [2011] B.C.J. No. 5 (B.C. C.A.) — distinguished White v. Manufacturers Life Insurance Co. (2011), 2011 BCSC 1615, 2011 Car- swellBC 3222, [2011] I.L.R. I-5222, 2012 C.E.B. & P.G.R. 8463 (B.C. S.C.) — referred to 282 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

Wilson’s Truck Lines Ltd. v. Pilot Insurance Co. (1996), 1996 CarswellOnt 4282, 38 C.C.L.I. (2d) 159, [1997] I.L.R. I-3402, 31 O.R. (3d) 127, 22 M.V.R. (3d) 216, 140 D.L.R. (4th) 530, 24 M.V.R. (3d) 216, 94 O.A.C. 321 (Ont. C.A.) — considered Statutes considered: Insurance Act, R.S.A. 2000, c. I-3 Generally — referred to s. 590 — considered s. 590(1) — considered Insurance Act, R.S.O. 1990, c. I.8 Generally — referred to Limitations Act, R.S.A. 2000, c. L-12 Generally — referred to s. 3 — considered s. 3(1) — considered

TRIAL of issue whether claim for disability benefits was statute barred.

Robert A. Joly, for Plaintiff Lorena K. Harris, for Defendant

J.D. Rooke A.C.J.Q.B.: I. Introduction 1 This matter came before me to be heard as a “trial of an issue” by way of a “Special Chambers Application” pursuant to the Order of Jus- tice Burrows dated February 29, 2012. The question at issue is whether the Plaintiff’s claim for long term disability benefits under an employment disability contract is statute barred by limitation provisions under the Insurance Act, RSA 2000, c. I-3 or the Limitations Act, RSA 2000, c. L-12, and whether the doctrine of estoppel applies against the Defendant in denying continued coverage. 2 After the oral hearing on June 4, 2012, pursuant to the request of the Plaintiff, further submissions were filed by the Plaintiff on September 18, 2012 and the Defendant on October 12, 2012.

II. Facts 3 The facts are set out in a detailed Agreed Statement of Facts (“ASF”) (Exhibit 1), a copy of which (without internal attachments) is attached as Appendix “A” to this Memorandum. Halter v. Standard Life Assurance Co. of Canada J.D. Rooke A.C.J.Q.B. 283

4 To summarize the material in the Briefs (including the material filed after the hearing on June 4, 2012), I find that the Plaintiff applied for weekly indemnity disability benefits on June 15, 2000 and was paid those benefits pursuant to the terms of the Policy effective June 3, 2000 for a 15-week period ending September 15, 2000. His eligibility for long term disability (“LTD”) benefits was still under consideration during this time. Initially the LTD benefits were denied, but on May 7, 2001 the Defendant approved the LTD effective September 16, 2000 to August 31, 20011. On October 4, 2001, the Defendant wrote to the Plaintiff advising that his LTD benefits would terminate on December 1, 2001, as they did. 5 In its communication with the Plaintiff on October 4, 2001, the De- fendant indicated that the Plaintiff was at liberty to appeal that result and to provide new information and if, on that new information, the appeal was allowed, benefits might be reinstated. The Plaintiff did provide further information on at least four occasions (September 10, 2002, Novem- ber 15, 2002, January 6, 2003 and through his agent, Mr. Iafolla, on May 29, 2004), but the appeal was never allowed. 6 Between May 2002 and April 2003 the Plaintiff consulted on the disability insurance issue with a reputable Edmonton law firm, but did not enter into a retainer contract with them for this coverage. Subsequently, in May 2003 the Plaintiff hired a non-lawyer “advocate” regarding the appeal (and other matters). 7 On March 2, 2006 the Plaintiff consulted with his current Counsel and on March 15, 2006 a Statement of Claim was issued.

III. Issues 8 The issues as set out by the Order of Justice Burrows of February 29, 2012, are as follows: (a) Is the Plaintiff’s claim in the within action statute barred by virtue of one or both of (i) Section 590(1) of the Insurance Act, R.S.A. 2000, c.1-3, or (ii) Section 3(1) of the Limitations Act, R.S.A. 2000, c.L-12?

1The ASF does not address the period from September 1 - December 1, 2001 but presumably there was a continuation of benefits during that period? 284 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

(b) If the Plaintiff’s claim is statute barred, is it barred completely, or does each periodic payment of long term disability benefits create a separate cause of action, thus creating a rolling limitation period? (c) Do the doctrines of waiver or estoppel apply?

IV. Summary of Decision 9 For the reasons that follow, I find that the Plaintiff’s claim in the within action is statute barred by both s.590(1) of the Insurance Act and s.3(1) of the Limitations Act, the former being a limitation of one year and the latter being a limitation of two years, such that the former (Insur- ance Act limitation) makes the limitation period in the latter redundant. 10 I further find that the Plaintiff’s claim is completely statute barred in the circumstances and that neither the terms of the contract nor the relevant statute, create a rolling limitation. 11 The Plaintiff’s Counsel in his argument abandoned the waiver argument, but maintained the estoppel argument. On the facts as proven before me, I do not find that the Defendant is estopped from denying coverage.

V. Analysis A. Limitations 12 There is no limitation provision in the long term disability insurance policy, and accordingly the statutory limitation applies. I find that s.590 of the Insurance Act applies with a one year limitation period, which runs from the date on which the notice of denial of coverage became effective. 13 I find that the Defendant’s notice of October 4, 2001, had this effect, denying the Plaintiff’s further entitlement on and after December 1, 2001. 14 This limitation date begins to run from the date of the “clear and unequivocal” communication: Falk v. Manufacturers Life Insurance Co., 2008 BCSC 173 (B.C. S.C.) (Humphries J.), at para. 21. I find that the Defendant’s notice of October 4, 2001 was clear and unequivocal communication denying the Plaintiff’s further entitlement to benefits. 15 The insurer is not required to advise the claimant that there is a limitation period or that it is relying upon same: Esau v. Co-operators Life Insurance Co., 2004 BCSC 1347 (B.C. S.C.), at para. 14, upheld 2006 Halter v. Standard Life Assurance Co. of Canada J.D. Rooke A.C.J.Q.B. 285

BCCA 249 (B.C. C.A.), at para. 42; and Pekarek v. Manufacturers Life Insurance Co., 2006 BCCA 250 (B.C. C.A.), at para. 24. 16 The insurer’s decision to terminate coverage, to use the language of the Defendant (Defendant’s Written Submissions filed May 25, 2012, at para. 20), “does not become unclear or equivocal by virtue of the fact that it references the claimant’s ability to ‘appeal’ the insurer’s decision, or that an insurer advises the claimant that it will consider new information”: Esau, at para. 36, and Falk, at para. 35, referencing Esau. The reason for this conclusion from Esau makes it clear that the insurer has the duty to consider new evidence, but, doing so does not undermine a clear notice of denial of benefits. For the same result see Gumpp v. Co- operators Life Insurance Co./Co-operators Cie D’Assurance-Vie, 2004 BCCA 217 (B.C. C.A.). 17 While redundant in light of my findings, s.3 of the Limitations Act also applies with a two-year limitation. Even if this two-year limitation applies, the time had expired when the action was commenced. 18 On the facts here there was clear notice to the Plaintiff on October 4, 2001 of termination effective December 1, 2001, which started the clock running. Moreover, he had legal advice by which he knew, or should have known, that there was a clear termination subject only to appeal and that all he was pursuing during the period in time was the appeal. 19 The discoverability provisions of s.3(1) are impacted by the same finding, namely that the Plaintiff clearly knew or ought to have known, by the wording of the notice and his consultations with a lawyer, that the claim had been denied effective December 1, 2001: Bowes v. Edmonton (City), 2003 ABQB 492 (Veit J.), at para. 107; 2005 ABQB 502 (Clack- son J.), at para. 220, affirmed 2007 ABCA 347 (Alta. C.A.), at para.207- 208; Jones Estate v. CUMIS Life Insurance Co., 2003 MBQB 5 (Man. Q.B.), at para. 29.

B. Rolling Limitation 20 The Plaintiff argued that because the claim for disability benefits leads to benefits that are payable periodically, a rolling limitation period could arise at the end of each payment period. While the concept of a rolling limitation period has been recognized in the caselaw, the availability of this principle depends on the facts of the case, and whether there is a renewing cause of action based on the wording of the contract or the statutory limitation provision. 286 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

21 In the case before me, the Plaintiff first received 15 weeks of payments under the weekly indemnity policy that was part of his employment benefits. He then received LTD benefits from September 16, 2000 - November 30, 2001. The Defendant consistently denied coverage beyond December 1, 2001. While the payments were made periodically - initially on a weekly, and then monthly basis - this does not by itself result in a “rolling limitation”, certainly not after November 30, 2001, when the last periodic payment ended. 22 The Plaintiff here cannot point to ongoing payments as support for a rolling limitation; to the contrary, the ongoing payments were consistently denied after December 1, 2001. As was stated in Ravndahl v. Sas- katchewan, 2009 SCC 7, [2009] 1 S.C.R. 181 (S.C.C.), at para. 22, “[t]he renewing cause of action argument cannot succeed as it assumes that the benefits which were terminated would have otherwise been paid”. 23 The decision in Wilson’s Truck Lines Ltd. v. Pilot Insurance Co. [1996 CarswellOnt 4282 (Ont. C.A.)], 1996 CanLII 1012 dealt with a claim for accident benefits arising under a no-fault motor vehicle policy. There was a one-year limitation period under the Insurance Act (On- tario). The question in that case centred on when the cause of action arose. The insurance contract provided that the insurer will pay within 30 days of receiving proof of claim, and within each 30 day period while the insurer remains liable to pay. The insurer’s file showed that, by April 14, 1982, the insurer had told the claimant that he did not qualify. While the insurer was willing to receive material with respect to the income loss and medical condition of the insured, there was no indication from the claimant that he was misled by the insurer’s requests for further information, into believing that the limitation period had been extended. 24 Goorbarry v. Bank of Nova Scotia, 2011 ONCA 793 (Ont. C.A.) (CanLII) involved a claim for disability benefits and the question arose whether there was a rolling limitation. The insurance contract provided for a “covered event” which was undefined, but which the Court interpreted as when a claimant first qualifies and when that claimant is no longer disabled. On this basis, notwithstanding that this was a disability claim for monthly benefits, on the specific provisions in this contract, the covered event did not occur every month, and therefor the rolling limitation concept did not apply. 25 In his submission that a rolling limitation should be found, the Plain- tiff relied on cases that are distinguishable from the case at hand. Cathcart v. Sun Life of Canada, [2002] A.J. No. 1164 (Alta. Q.B.) was Halter v. Standard Life Assurance Co. of Canada J.D. Rooke A.C.J.Q.B. 287

an Alberta decision which dealt with an application for summary dismissal, and as such the Court was dealing with the issue of whether the De- fendant met the threshold for summary dismissal. The Cathcart case should not be read as settling the issue of rolling limitation periods for all cases. Rather, the question of whether a rolling limitation arises depends on the wording in the limitation provision, whether found in the wording of the insurance contract or in the relevant legislation. 26 The Plaintiff argued that the Sander v. Sun Life Assurance Co. of Canada, [2011] B.C.J. No. 5 (B.C. C.A.) decision supports his argument that a rolling limitation period applies in this case. However, as argued by the Defendant in their Supplemental Written Submission at para. 11, I find that “Sander is distinguishable from this case on the basis that the insurance policy in issue in Sander includes wording that permits the application of a rolling limitation period.” I further find that “the specific wording of the limitation provision is determinative of the issue of whether a rolling limitation applies” (Defendant’s Supplement Written Submission, para. 15.) 27 In the case at hand, the insurance contract provides: 9.1 Insuring Agreement Upon the participant becoming totally disabled due to illness or accidental injury, the insurer undertakes to pay the participant the monthly income specified herein for each month or part of a month (one thirtieth of the monthly income for each day) during which the disability lasts, subject to the terms and conditions hereinafter specified. ... 9.3.3 Termination of Income Monthly income payments cease at the earliest of the following dates: ... 2. The date on which the participant ceases to be disabled. ... 9. The date on which the participant fails to provide any evidence of disability required by the insurer. (Emphasis added) I find that, as in Goorbarry, the rolling limitation concept does not arise because the wording of the insurance contract here makes it clear that the covered event arose when the Plaintiff became totally disabled and ended 288 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

when he ceased to be disabled - the latter a singular event - in this case: December 1, 2001. The benefits were terminated effective December 1, 2001, and there was no further proof of a disability. The Plaintiff’s cause of action arose on that date. 28 Even if there was a “rolling limitation”, that ends when there is no longer proof of a disability: Gumpp v. Co-operators Life Insurance Co./Co-operators Cie D’Assurance-Vie, 2004 BCCA 217 (B.C. C.A.), at para. 21, referencing Balzer v. Sun Life Assurance Co. of Canada, 2003 BCCA 306 (B.C. C.A.), at para. 19, which in turn references the case of Holme Estate v. UNUM Life Insurance Co. of America, 2000 BCCA 627 (B.C. C.A.), at para. 36. In the Balzer case, the Court, at para. 39, stated: I have no difficulty with the proposition that the claim of Ms. Balzer is continuing, that her cause of action accrues monthly, and that the risk insured against was the continuance of a total disability. But that coverage could terminate at any time for want of continuing proof of total disability. I find that is the situation here, namely that total disability did cease and there was no new intervening claim that brought it forward to revive or “roll” the limitation period. The Plaintiff’s benefits terminated on De- cember 1, 2001, with no further recurrence. 29 The wording of s.590 of the Insurance Act is: 590(1) Subject to subsection (2), an action or proceeding against an insurer for the recovery of insurance money must not be commenced after one year from the furnishing of the evidence required by section 587, or after 6 years from the happening of the event on which the insurance money becomes payable, whichever period first expires. (2) If a declaration has been made under section 593, an action or proceeding referred to in subsection (1) must not be commenced after one year from the date of the declaration. Nothing in this wording could be interpreted as creating a rolling limitation on its own. 30 Thus, I find that the Plaintiff’s claim is barred in its entirety by the wording in the provisions of s.590 of the Insurance Act. 31 The wording of s. 3(1) of the Limitation Act is: 3(1) Subject to section 11, if a claimant does not seek a remedial order within Halter v. Standard Life Assurance Co. of Canada J.D. Rooke A.C.J.Q.B. 289

(a) 2 years after the date on which the claimant first knew, or in the circumstances ought to have known, (i) that the injury for which the claimant seeks a remedial order had occurred, (ii) that the injury was attributable to conduct of the defendant, and (iii) that the injury, assuming liability on the part of the defendant, warrants bringing a proceeding, or (b) 10 years after the claim arose, whichever period expires first, the defendant, on pleading this Act as a defence, is entitled to immunity from liability in respect of the claim. Nothing in this wording could be interpreted on its own as creating a rolling limitation. 32 Thus, I find that the Plaintiff’s claim is barred in its entirety by the wording in the provisions of s. 3(1) of the Limitation Act.

C. Estoppel 33 As Counsel for the Defendant argued, “the onus is on the Plaintiff to establish that the insurer said by word or conduct, that it would not rely on the limitation period”: Falk; Esau, and White v. Manufacturers Life Insurance Co., 2011 BCSC 1615 (B.C. S.C.), at para. 79. There is no such evidence here, and I find that the claim is not supported.

VI. Conclusions 34 In conclusion, I find that the Plaintiff’s claim in the within action is statute barred by virtue of s. 590(1) of the Insurance Act, which is a 1 year limitation period ending December 1, 2002, on the facts before me, long (3+ years) before the action was commenced. Even under the longer limitation period in Section 3(1) of the Limitations Act, the action was statute barred as of December 1, 2003. There is no rolling limitation period and as such that I find that the claim is barred completely. 35 On the facts before me I find there was no estoppel visited upon the Defendant. 36 Costs against the Plaintiff follow as the parties may agree, or as may be assessed. Order accordingly. 290 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

Appendix A — (without internal attachments)

COURT FILE NUMBER 0603 03492 COURT QUEEN’S BENCH OF AL- BERTA JUDICIAL CENTRE EDMONTON PLAINTIFF ROBERT HALTER DEFENDANT THE STANDARD LIFE ASSUR- ANCE COMPANY OF CANADA DOCUMENT AGREED STATEMENT OF FACTS ADDRESS FOR SERVICE Lorena K, Harris AND CONTACT INFORMATION OF PARTY Fraser Milner Casgrain LLP FILING THIS DOCUMENT 2900 Manulife Place 10180 -101 Street Edmonton, Alberta T5J 3VS Phone: 780.423.7315 Facsimile: 780.423.7276 File No.: 134575-17/LKH OTHER PARTIES Robert A. Joly Barrister and Solicitor Counsel for the Applicant #4, 20 McLeod Avenue Spruce Grove, AB T7X 3Y1 Phone: 780.962.4447 Facsimile: 780.962.3638 File No. 26345 RAJ The parties to this action agree for the purposes of this trial of an issue as defined by the Order of Mr. Justice Burrows dated February 29, 2012, that the facts hereinafter set forth are true and the documents appended hereto are true copies of the original documents and may be accepted as evidence without proof of or production of the original thereof. Save where stated to have been agreed to by the parties, the documents admitted into evidence hereby shall not be taken to have proved the truth of the Halter v. Standard Life Assurance Co. of Canada J.D. Rooke A.C.J.Q.B. 291 facts or statements contained herein. Nothing in this agreement shall limit or restrict the evidence which may be called by any of the parties to the action at trial. 1. On July 2, 1997, Robert Halter (“Halter”) began employment with Zender Ford in Spruce Grove (“Zender”) as a Service Technician. As an employee of Zender, he became eligible for group insurance pursuant to a contract of insurance between Zender and The Stan- dard Life Assurance Company (“Standard Life”). The material portions of the Policy in force at the material time are attached at TAB 1. 2. Halter’s employment with Zender was terminated effective May 26, 2000 [TAB 2]. Halter retained the law firm of McLennan Ross in September 2000 to provide him with advice with respect to a wrongful dismissal, against Zender. On Halter’s instructions, Mc- Lennan Ross caused a Statement of Claim to be filed against Zender for wrongful dismissal. Halter also proceeded with a complaint to the Alberta Human Rights Commission, which investi- gated the complaint and concluded their investigation by way of a recommendation that Halter receive payment of $5,000 damages plus prescription costs for four months. [TAB 3] 3. On June 15, 2000, Halter applied for disability benefits with Stan- dard Life alleging that as of May 15, 2000, he suffered from in- somnia, fatigue and general achiness and allegedly that these symptoms prevented him from working. [TAB 4]. 4. On October 20, 2000, Halter’s claim for short term disability benefits was approved by Standard Life, effective June 3, 2000, for a 15 week period. Eligibility for long term benefits was still under consideration. [TAB 5] 5. Standard Life denied Halter’s application for long-term disability benefits by way of letter dated February 15, 2001. [TAB 6] 6. On March 25, 2001, Halter wrote to Standard Life requesting that his file be reopened and attaching letters from Dr. Skeith and Dr. Potgieter in support of his request. [TAB 7] 7. On May 7, 2001, Standard Life wrote to Halter approving his application for long term disability benefits effective September 16, 2000 to August 31,2001. [TAB 8] 8. On October 4, 2001, Standard Life wrote to Halter advising that his benefits would be terminated on December 1, 2001. [TAB 9] 292 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

9. On September 10, 2002, Halter wrote to the “Director, Appeals and Reconsideration, Standard Life” asking for a reconsideration of Standard Life’s termination of his long-term disability benefits. [TAB 10] 10. On November 15, 2002, Halter again wrote to Standard Life providing additional information. [TAB 11] 11. On November 18, 2002, Standard Life wrote to Halter confirming their termination of benefits as of October 1, 2001. [TAB 12] 12. On November 27, 2002, Standard Life wrote to Halter confirming their termination of benefits as of October 1, 2001. [TAB 13] 13. On January 6, 2003, Halter wrote to Standard Life providing additional information. [TAB 14] 14. On January 30, 2003, Standard Life wrote to Halter confirming their termination of benefits. [TAB 15] 15. Halter consulted with McLennan Ross about Standard Life’s denial of his application for long-term disability benefits. Attached at TAB 16 are a series of notes and letters written by the lawyers at McLennan Ross relating to Halter’s wrongful dismissal claim and claim for disability benefits written between May, 2002 and April, 2003. [TAB 16] 16. In approximately May 2003, Halter retained Al Iafolla, an “advocate”, to act for him in relation to his long term disability claim and in relation to his appeal of the denial of CPP disability benefits. [TAB 16] 17. On May 29, 2004, Iafolla wrote to Standard Life advising of the CPP decision and asking for reconsideration of the decision to deny long-term disability benefits. [TAB 17] 18. On June 8, 2004, Standard Life wrote to Mr. Iafolla confirming that the Halter file had been sent to their consultant for further review. [TAB 18] 19. On June 28, 2004, Standard Life wrote to Iafolla confirming their termination of Halter’s disability benefits was being upheld. [TAB 19] 20. On March 2, 2006, Halter consulted for the first time with and retained his current counsel, Robert A. Joly, to pursue a claim on his behalf for long term disability benefits against Standard Life. Halter v. Standard Life Assurance Co. of Canada J.D. Rooke A.C.J.Q.B. 293

21. On March 15, 2006, Halter issued a Statement of Claim against Standard Life, seeking, inter alia, damages and a declaration that Halter has been totally disabled since May 15, 2000. 22. A Statement of Defence was filed on behalf of Standard Life on July 6, 2006. Discoveries of both parties proceeded between De- cember 2006 and December 2011 and pursuant to an Order of Jus- tice Burrows dated February 29, 2012, the parties were directed to proceed to trial of issue on questions as outlined in that Order. ROBERT A. JOLY Per: Robert A. Joly, Solicitor for the Plaintiff Robert Halter FRASER MILNER CASGRAIN LLP Per: Defendant of Lorena K. Harris, Solicitor for the The Standard Life Assurance Company Canada 294 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

[Indexed as: Lutter v. Smithson] Jeremy Lutter, Plaintiff and Dallas Parker Smithson, Vonnie Zimmerman, Glen Mazu, Tralee Mazu, Leslie Duane Collins, in his capacity as the Executor of the Estate of Howard Allan Collins, Deceased and Vernon Taxi Inc., Defendants and Insurance Corporation of British Columbia, Glen Mazu, Tralee Mazu, Leslie Duane Collins, in his capacity as the Executor of the Estate of Howard Allan Collins, Deceased and Vernon Tax Inc. and Dallas Parker Smithson, Third Parties British Columbia Supreme Court [In Chambers] Docket: Victoria 08-5320 2013 BCSC 119 M.D. Macaulay J. Heard: January 10, 2013 Judgment: January 28, 2013 Public law –––– Liquor control — Offences — Principles of liability — Lia- bility in tort of person serving liquor –––– Social hosts — Defendants GM and TM allowed 19-year-old daughter to host “BYOB” party on their property — One of guests, DS, who was minor, became intoxicated — After DS left party he was involved in motor vehicle accident that killed taxi driver and injured plaintiff taxi passenger — Passenger brought action against GM and TM for damages arising from breach of duty as social hosts — GM and TM brought motion for summary judgment to dismiss all claims against them — Motion dismissed — Novel issue of liability arising out of consumption of alcohol by mi- nor guest at party hosted on GM’s and TM’s property would best be addressed at trial — Other than costs associated with full trial GM and TM would not suffer any prejudice if motion were dismissed — Although it was uncontradicted that GM and TM did not serve alcohol to any guests, and that they knew DS was intoxicated, issue existed whether or not TM should have expected DS to drive — This issue required cross-examination of witnesses who were at party — If TM knew DS was intoxicated, foreseeability gap could arguably be filled — Issue also existed whether GM and TM had positive duty act given that some guests were minors and were drinking alcohol on their property. Torts –––– Negligence — Duty and standard of care — Intoxication –––– So- cial hosts — Defendants GM and TM allowed 19-year-old daughter to host “BYOB” party on their property — One of guests, DS, who was minor, became intoxicated — After DS left party he was involved in motor vehicle accident that Lutter v. Smithson 295 killed taxi driver and injured plaintiff taxi passenger — Passenger brought action against GM and TM for damages arising from breach of duty as social hosts — GM and TM brought motion for summary judgment to dismiss all claims against them — Motion dismissed — Novel issue of liability arising out of consumption of alcohol by minor guest at party hosted on GM’s and TM’s property would best be addressed at trial — Other than costs associated with full trial GM and TM would not suffer any prejudice if motion were dismissed — Although it was uncontradicted that GM and TM did not serve alcohol to any guests, and that they knew DS was intoxicated, issue existed whether or not TM should have expected DS to drive — This issue required cross-examination of witnesses who were at party — If TM knew DS was intoxicated, foreseeability gap could arguably be filled — Issue also existed whether GM and TM had positive duty act given that some guests were minors and were drinking alcohol on their property. Cases considered by M.D. Macaulay J.: Anns v. Merton London Borough Council (1977), (sub nom. Anns v. London Borough of Merton) [1977] 2 All E.R. 492, [1978] A.C. 728, [1977] 2 W.L.R. 1024, 121 S.J. 377, [1977] UKHL 4 (U.K. H.L.) — followed Childs v. Desormeaux (2006), 30 M.V.R. (5th) 1, 80 O.R. (3d) 558 (note), 210 O.A.C. 315, 2006 CarswellOnt 2710, 2006 CarswellOnt 2711, 2006 SCC 18, 347 N.R. 328, 266 D.L.R. (4th) 257, 39 C.C.L.T. (3d) 163, [2006] 1 S.C.R. 643, [2006] R.R.A. 245, [2006] S.C.J. No. 18 (S.C.C.) — followed Sidhu (Litigation Guardian of) v. Hiebert (2011), 2011 CarswellBC 2779, 2011 BCSC 1364 (B.C. S.C. [In Chambers]) — considered Statutes considered: Liquor Control and Licensing Act, R.S.B.C. 1996, c. 267 Generally — referred to s. 33(1)(c) — considered Negligence Act, R.S.B.C. 1996, c. 333 s. 1 — referred to Rules considered: Supreme Court Civil Rules, B.C. Reg. 168/2009 R. 9-7(2) — considered R. 9-7(3) — considered

MOTION by defendants GM and TM for summary judgment to dismiss all claims arising from their alleged breach of duty as social hosts.

A. Wrona, for Plaintiff S.M. Katalinic, for Defendant, Vonnie Zimmerman and Third Party, Insurance Corporation of British Columbia 296 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

L.P.S. Folick, for Third Parties, Glen Mazu and Tralee Mazu

M.D. Macaulay J.:

1 In April 2008, Glen Mazu and Tralee Mazu permitted their daughter, Brianne, to host a Bring Your Own Bottle (“BYOB”) party on their property to celebrate her 19th birthday. Unfortunately, one of the invited 1 guests, then 18 /2 year old Dallas Parker Smithson, became very drunk; eventually left the property; drove away in a vehicle; and shortly after- wards, was involved in a collision with a taxi, in which the plaintiff, Jer- emy Lutter, was a passenger. 2 Lutter claims damages against Smithson and others for his alleged injuries and losses. The defendant, Vonnie Zimmerman, was the owner of the vehicle that Smithson was driving at the time of the accident. The claims against the Mazus are for breaches of alleged duties owed, as “social hosts”, including permitting Smithson, a minor, to consume alcohol on their property contrary to the Liquor Control and Licensing Act, R.S.B.C. 1996, c. 267 (the “LCLA”). The matter is currently scheduled for a 20 day trial commencing in late February 2013. 3 In a related proceeding (the “Collins action”), arising out of the death of the taxi driver, Howard Allan Collins, Zimmerman and the Insurance Corporation of British Columbia (“ICBC”) also joined the Mazus as third parties. Neither the Collins estate nor any plaintiff in the Collins action took a position on the Mazu applications described below. Counsel did not provide me with any of the pleadings or orders in the Collins action. I assume that there is an order in place that both matters be heard at the same time and further, that counsel in the Collins action can agree as to the terms of any order that should flow from these reasons in that action. They will have liberty to speak to the matter if they cannot agree. 4 The Mazus seek summary judgment dismissing all claims against them. Lutter, Zimmerman and ICBC say that the matters are not suitable for disposition under Supreme Court Civil Rule 9-7(2) (the “summary judgment rule”) and, in the alternative, that the evidence demonstrates that the Mazus, as social hosts, owed a duty of care to users of the road which they breached. 5 The Mazus are understandably motivated to bring their application in the expectation that a successful outcome will obviate the need for them to participate in the upcoming potentially lengthy trial. They say that putting them to a full trial would amount to a travesty of justice in the cir- Lutter v. Smithson M.D. Macaulay J. 297

cumstances. Although they filed their application on October 31, 2012, it was not heard until January 10, 2013, barely within the 42 day before trial requirement set by Rule 9-7(3). Given the nature of the application, it should not have been left to such a late stage before proceeding with the hearing. 6 The application respondents say that the issues raised are intercon- nected with other issues that must proceed to regular trial and, in any event, the matter is inappropriate for a just determination on affidavit evidence under the summary judgment rule. For the reasons that follow, I accept the application respondents’ submissions and dismiss the Mazus’ summary judgment application. 7 The allegation against the Mazus is that, as social hosts, they owed a duty of care to users of the road that they breached. The alleged breaches, as set out in the amended pleadings of Zimmerman and ICBC, are: a) in permitting the Defendant Dallas Smithson (“Smithson”) to consume alcoholic beverages on their property located at 7015 Highway 6, in Vernon, British Columbia (the “Prem- ises”) when he was not legally of age to do so; b) in failing to maintain proper or any control over the amount of alcohol consumed on the Premises, particularly given that many of the individuals on the Premises, including Smithson, were minors; c) in failing to use reasonable, proper or any care to control the consumption of alcohol on the Premises particularly given that many of the individuals on the Premises, including Smithson, were minors; d) in serving alcoholic beverages in a reckless, careless and improper manner or without regard to the safety of Smithson, the Plaintiff or others, particularly given that many of the individuals on the Premises, including Smithson, were minors; e) in failing to take away the keys of the vehicles which were located on the Premises so as to ensure the individuals on the Premises, including Smithson, could not enter into and drive a motor vehicle when their judgment was impaired by the consumption of alcohol, particularly given that many of the individuals on the Premises, including Smithson, were minors; f) in allowing and/or permitting Smithson to enter into and drive a motor vehicle when they knew or ought to have known 298 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

that his judgment was impaired by the consumption of alcohol; g) in failing to take reasonable steps to arrange a safe ride home for Smithson when they knew or ought to have known that his judgment was impaired by the consumption of alcohol 8 Lutter, in an amended statement of claim, adds the following allegations respecting the Mazus: (c) they continued to serve alcoholic beverages to the Defendant, “Smithson” even though he was clearly visibly intoxicated; (d) even though the Defendant, “Smithson” was clearly intoxicated they took no or inadequate steps to get his car keys or offer him an alternate way home; (e) they had the last clear chance to prevent the Defendant, “Smithson” from operating his motor vehicle when he was visibly intoxicated and where it would reasonably be assumed that he would constitute a danger to other users of the highway in his intoxicated state. 9 The available evidence includes the affidavits of Tralee Mazu, Glen Mazu, Brianne Jespersen (their daughter), Brett Jespersen (Brianne’s husband and boyfriend at the material time), Sara Wallis (guest), Caitlee Lewis (guest), Dallas Smithson (guest and defendant driver). All of this evidence is properly admissible on the merits of the summary trial application. 10 As well, extracts from the examination for discovery of Smithson are in evidence, along with various documents attached as exhibits to the affidavit of a lawyer acting for Zimmerman and ICBC. Most of the latter is inadmissible on the merits, although I have relied on it to determine whether the case is appropriate for disposition under the summary judgment rule. In that regard, I have reviewed the following: 1. Certificate of Qualified Technician showing Smithson had blood alcohol readings of 150 and 140 milligrams of alcohol in one hun- dred millilitres of blood taken at 4:15 a.m. and 4:38 a.m., after the accident; 2. Hospital emergency record for Smithson after the accident; 3. Brianne’s statement to the police dated April 20, 2008; 4. Police Occurrence Report dated April 20, 2008; 5. Police Occurrence Report dated April 24, 2008; Lutter v. Smithson M.D. Macaulay J. 299

6. RCMP Toxicology Report dated June 23, 2008, re Smithson showing blood alcohol concentration at the time of driving in the range of 165-189 mg%; 7. Extracts from the examination for discovery of Tralee Mazu; and 8. Expert report regarding Smithson’s alcohol consumption regarding, among other things, probable minimum alcohol consumption, given the known blood alcohol concentration levels. Admissions obtained on examination for discovery are admissible on a trial of the merits but it is very doubtful that the remainder of the documents listed immediately above would be. In my view, their content opens a door to potential cross-examination at trial on issues relevant to determining the existence of the alleged social host duty and breach. 11 The application respondents complain, in part, that not all the guests at the party provided affidavits but I do not accept that contention. The evidence does not reveal the exact number who attended the party, although it certainly extends well beyond those who provided affidavits. Brianne had permission to invite 30 to 40 guests and several are identified in the evidence who have not provided evidence. All parties had ample opportunity to obtain affidavits from whomever they wished. If the evidence was otherwise sufficient, the absence of further evidence from guests at the party would not be an adequate reason to find it unjust to decide the issues. 12 The application respondents also say that the court should be cautious in deciding a discrete issue in the litigation as I am asked to do here. This is particularly so because there are allegations of negligence against multiple parties, including against Lutter. 13 If Lutter is partially at fault, any defendant(s) against whom he ultimately succeeds will only be liable in proportion to the degree to which each person is at fault (Negligence Act, R.S.B.C. 1996, c. 333, s. 1). De- pending on the circumstances at the end of trial, the court may even have to consider the degree to which the fault of a non-party caused damage. 14 This raises the spectre that a finding now that the Mazus are not liable may embarrass the trial judge if she or he is required to assess individual fault. Of course, the problem is exacerbated if I were to conclude on this application that the Mazus owe a duty of care which they breached. The additional evidence before the trial judge might well support a different conclusion. 300 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

15 As a more general proposition, I am satisfied that the novel question of liability arising out of the consumption of alcohol by a minor at a party hosted on a defendant’s property as raised in this case is best addressed after a full trial. That approach ensures the most complete record possible. In reaching that conclusion, I take into account the additional costs to the Mazus associated with the trial process but there is otherwise no prejudice. In Sidhu (Litigation Guardian of) v. Hiebert, 2011 BCSC 1364 (B.C. S.C. [In Chambers]), the summary judgment application judge reached a similar conclusion. 16 In Sidhu, the plaintiffs were passengers in a vehicle involved in a collision with a vehicle that Hiebert was driving. The plaintiff alleged that Hiebert got drunk at a party that the co-defendant, Rattan, hosted. The plaintiffs alleged fault against Rattan under a theory of social liability. 17 Rattan applied for summary judgment to have all claims against him dismissed. He relied, as the Mazus do here, on the Supreme Court of Canada decision in Childs v. Desormeaux, 2006 SCC 18 (S.C.C.), to demonstrate that a social host owed no duty to monitor a guest’s alcohol intake while at his house or to take any steps to protect other users of the highways when the guest decided to drive away from his house. 18 Justice Johnston concluded in Sidhu that the findings of fact necessary to determine whether Rattan owed a duty of care should not be made on affidavits (para. 41). In particular, he observed that evidence relevant to foreseeability was identified in a statement made by a witness to the police, although no affidavit was available from the witness. Simi- larly, as I noted above, there is evidence before me not admissible at trial that demonstrates potential avenues for cross-examination. 19 The Mazus contend that Sidhu is distinguishable because the conflict in the evidence concerned whether Rattan should have known that Hie- bert was intoxicated. Counsel submits there is no such conflict in the present case partially because, on the uncontradicted evidence, the Mazus did not supply liquor to any of the guests at the party and because Mrs. Mazu admits that Smithson was intoxicated. Mrs. Mazu deposes, however, that she had no reason to expect him to drive. Counsel contends, as a result, that there are no material disputes on the evidence. 20 The application respondents say that Mrs. Mazu’s assertion that she had no reason to expect Smithson to drive must be assessed in the context of all the trial evidence, including cross-examination of individuals who were present during the party. Having reviewed Childs, I agree. Lutter v. Smithson M.D. Macaulay J. 301

21 Childs is a very important decision relating to social host liability. In determining the sufficiency of the affidavit material here and whether it is just to decide the issues on summary judgment, a review of the principles that emerge from the case assists. 22 In Childs, the defendant homeowners hosted a party, during the course of which they served a small quantity of alcohol to adult guests. For the most part, the event was “BYOB”. The defendants knew that one of the guests, Desormeaux, was known to be a heavy drinker. As Desormeaux walked to his car to leave, one of the hosts inquired if he was okay to drive. Desormeaux responded affirmatively and drove away. The accident ensued. 23 Childs was the first time the Supreme Court considered whether social, as opposed to commercial, hosts who invite guests to an event where alcohol is served owe a duty of care to third parties who may be injured by intoxicated guests (para. 8). 24 The court did not accept that the existence of a duty on the part of commercial hosts could be extended, by analogy, to the hosts of a private party (para. 23). Accordingly, the court went on to apply the first stage of the Anns test (Anns v. Merton London Borough Council (1977), [1978] A.C. 728 (U.K. H.L.)), and concluded, for two reasons, that the necessary proximity had not been established (para. 26): First, the injury to Ms. Childs was not reasonably foreseeable on the facts found by the trial judge. Second, even if foreseeability were established, no duty would arise because the wrong alleged is a failure to act or nonfeasance in circumstances where there was no positive duty to act. [Emphasis added.] 25 Of potential significance here, the trial judge in Childs never found that the hosts knew, or ought to have known, that the guest who was about to drive was too drunk to do so. For that reason, foreseeability, and accordingly proximity, were not established. Although there was evidence that Desormeaux had a high blood alcohol rating, evidence that the hosts knew of his intoxication was absent (para. 28). 26 At first blush, Mrs. Mazu’s admission that she knew Smithson was drunk before he left the party appears to fill the foreseeability gap that the Supreme Court first identified in Childs. That appears to strengthen the application respondents’ contention that foreseeability may be established here. 302 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

27 As to the second point made in Childs respecting the lack of a positive duty to act, the hosts and guests were all adults. The court identified the lack of paternal relationship between host and guest, coupled with the autonomy of the guest, as factors that militated against imposing a positive duty to act on the hosts (see paras. 42-45). 28 In the present case, the application respondents point out that s. 33(1)(c) of the LCLA forbids a host permitting a minor to consume liquor “in or at a place under his or her control.” At the material time, the uncontradicted evidence is that Smithson was 18 years old and, accordingly, a minor. I agree with the respondents that this may militate in favour of imposing a positive duty. The evidence also reveals that other minors were present at the party, although it may be that most were also close to the age of majority. 29 To adopt some of the language in Childs, found at para. 45, these distinctions raise the question whether an adult host is actively impli- cated in the creation or enhancement of the risk if she permits an under- age person on her property to consume alcohol to the point of intoxication, perhaps extreme intoxication. As in Sidhu, that important question is, in my view, better left to be determined upon the fullest record available after a regular trial. Accordingly, it would be unjust to decide the issue on a summary judgment application. 30 There is, in my view, a significant risk of injustice in attempting to determine the answers to the essential questions that the Mazus raise in this case on a summary trial. I dismiss the application. It is accordingly not necessary for me to review the detailed evidence filed on behalf of the Mazus, including the basis for Mrs. Mazu’s belief that Smithson would not drive and her reasons for not taking additional steps to reduce the risk that he might do so. 31 The application respondents should have approached this application differently and sought a separate determination whether it was appropriate for determination under the summary judgment rule. I decline to order any costs in their favour. Motion dismissed. Elaiathamby v. Sivarajah 303

[Indexed as: Elaiathamby v. Sivarajah] Elaiathamby v. Sivarajah et al. Ontario Superior Court of Justice Docket: 08-CV-346661, 09-CV-373238 2013 ONSC 819 Master Joan M. Haberman Heard: January 22, 2013 Judgment: February 6, 2013 Civil practice and procedure –––– Discovery — Medical examination — When available — Discretion of court –––– Plaintiff motorist commenced action in tort in 2008, for damages arising from motor vehicle accident — Insurer of tortfeasor in this action added itself as statutory third party, to advance allegations of contributory negligence against motorist — Motorist commenced separate action in 2009 against own insurer, for breach of contract and damages for mental anguish in their handling of motorist’s claim — Actions were ordered to be tried together in 2012 — Motorist took position that interests of both insurers were aligned — Motorist claimed that as he had been given medical examination by tort insurer in subject action, he should not have to be examined again by own insurer — Motorist moved to have completed examination set as medical examination in other action — Third party insurer moved for medical examination of motorist — Motorist’s motion dismissed — Insurer’s motion granted — Interests of two insurers were aligned only in sense that they were defending actions against motorist — Insurers would look to place any responsibility for damages at each other’s feet — Motorist was reliant on human rights code, and was seeking to prove that damages had been exacerbated by conduct of own insurer — This was issue that would divide insurers — Insurers needed to present own evidence to establish respective positions — Any examination sought by motorist’s own insurer would rightly be first examination for that action, in area that insurer wished to examine — Motorist’s own insurer had not directly requested examination previously, as they felt there was no evidence that could be disproven — Any adversity between defendants was not necessary condition for authorizing multiple medical examinations — Caselaw cited by motorist was outdated and did not apply to current civil rules. Civil practice and procedure –––– Costs — Costs of particular proceedings — Interlocutory proceedings — Motions and applications –––– Plaintiff motorist commenced action in tort in 2008, for damages arising from motor vehicle accident — Insurer of tortfeasor in this action added itself as statutory third party, to advance allegations of contributory negligence against motorist — Mo- 304 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th) torist commenced separate action in 2009 against own insurer, for breach of contract and damages for mental anguish in their handling of motorist’s claim — Actions were ordered to be tried together in 2012 — Motorist took position that interests of both insurers were aligned — Motorist claimed that as he had been given medical examination by tort insurer in subject action, he should not have to be examined again by own insurer — Motorist moved to have completed examination set as medical examination in other action — Third party insurer moved for medical examination of motorist — Motorist’s motion dismissed — Insurer’s motion granted — Costs were payable immediately, as argument of motorist’s counsel was not novel but had been dealt with in caselaw — Tort insurer was to received $2,180 in costs, while motorist’s insurer was to receive $3,000. Insurance –––– Actions on policies — Practice and procedure — Discov- ery — Medical examination –––– Plaintiff motorist commenced action in tort in 2008, for damages arising from motor vehicle accident — Insurer of tortfeasor in this action added itself as statutory third party, to advance allegations of contributory negligence against motorist — Motorist commenced separate action in 2009 against own insurer, for breach of contract and damages for mental anguish in their handling of motorist’s claim — Actions were ordered to be tried together in 2012 — Motorist took position that interests of both insurers were aligned — Motorist claimed that as he had been given medical examination by tort insurer in subject action, he should not have to be examined again by own insurer — Motorist moved to have completed examination set as medical examination in other action — Third party insurer moved for medical examination of motorist — Motorist’s motion dismissed — Insurer’s motion granted — Inter- ests of two insurers were aligned only in sense that they were defending actions against motorist — Insurers would look to place any responsibility for damages at each other’s feet — Motorist was reliant on human rights code, and was seeking to prove that damages had been exacerbated by conduct of own insurer — This was issue that would divide insurers — Insurers needed to present own evidence to establish respective positions — Any examination sought by motorist’s own insurer would rightly be first examination for that action, in area that insurer wished to examine — Motorist’s own insurer had not directly requested examination previously, as they felt there was no evidence that could be disproven — Any adversity between defendants was not necessary condition for authorizing multiple medical examinations — Caselaw cited by motorist was outdated and did not apply to current civil rules. Cases considered by Master Joan M. Haberman: Laforest v. De Vouge (2004), 2004 CarswellOnt 3498, 6 C.P.C. (6th) 132, [2004] O.J. No. 3570 (Ont. Master) — considered Menzies v. McLeod (1915), 34 O.L.R. 572, 1915 CarswellOnt 223, 25 D.L.R. 777, [1915] O.J. No. 128 (Ont. S.C.) — considered Elaiathamby v. Sivarajah Master Joan M. Haberman 305

Moore v. Bertuzzi (2012), 2012 CarswellOnt 11371, 2012 ONSC 5008 (Ont. S.C.J.) — considered Statutes considered: Courts of Justice Act, R.S.O. 1990, c. C.43 s. 105(4) — referred to Human Rights Code, R.S.O. 1990, c. H.19 Generally — referred to Insurance Act, R.S.O. 1990, c. I.8 Generally — referred to Rules considered: Rules of Civil Procedure, R.R.O. 1990, Reg. 194 Generally — referred to

MOTION by plaintiff motorist to have defence medical examination from action against third party insurer serve as defence medical examination in separate action against defendant insurer; MOTION by third party insurer for defence medical examination.

C. Nassar, for Statutory Third Party, Intact M. Katzman, for Plaintiff M. Baxter, for Defendant, State Farm

Master Joan M. Haberman:

1 On January 22, 2013 I heard two motions in these related actions and disposed of them as follows: • the third party’s motion for a defence medical examination with a psychiatrist (brought in the 2008 action) was granted; and • the plaintiff’s motion in the 2009 action, seeking a declaration that the above examination in the 08 action would also serve as a defence medical examination for the defendant in this action was dismissed. My Reasons for both follow.

The 2008 action: Tort action by the plaintiff in which Intact has added itself as a statutory third party 2 The plaintiff commenced this action by statement of claim issued on January 8, 2008. The claim is relatively straightforward and there is no dispute that the plaintiff put both his physical and mental health in issue in the pleading. 306 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

3 By order dated March 24, 2009, Intact, the defendant’s insurer, had itself added as a statutory third party. Shortly thereafter, they delivered a statement of defence in which they denied that the plaintiff sustained the injuries as alleged and claiming that he caused or contributed to his injuries by failing to wear a seat belt or to properly adjust his head rest. Intact also denied that the plaintiff met the statutory threshold and they claimed that any damages he may be awarded for his non-pecuniary losses should be reduced by the statutory monetary deductibles prescribed by the provision of the Insurance Act. 4 The thrust of this action, from the plaintiff’s perspective, is that the defendant, Intact’s insured, is responsible for the accident and, hence, for paying any damages flowing from it. In view of the relationship between Intact and its insured, by adding itself as a third party to the action, Intact retains its ability to challenge coverage afforded to the defendant, while also effectively defending against the plaintiff’s claim. Intact’s interest at this time is therefore to minimize the nature and extent of the plaintiff’s injuries and to assert that he is personally responsible for his injuries as a result of contributory negligence. 5 The evidence filed by Intact suggests that the plaintiff has been assessed by at least two psychologists, a psychiatrist and a physiatrist and a number of the reports prepared by these experts indicate that the plaintiff suffers from psychological impairments. Intact appended a report prepared by Dr. Kanagaratnam, a psychologist, dated May 26, 2011, which discusses some of the plaintiff’s challenges. 6 Intact has already had a first defence medical examination. The plaintiff was seen previously by an orthopaedic surgeon on their behalf. As a result, the current request is for a second defence medical examination pursuant to s. 105(4) of the Courts of Justice Act. 7 In the normal course, there can be no doubt that Intact would be entitled to conduct this defence medical examination in view of the expert evidence tendered by the plaintiff thus far, a position with which the plaintiff agrees. They state in their factum: I (Mr. Wilson, plaintiff’s counsel) can advise this Honourable Court that the plaintiff is agreeable to attending at the Defence Medical As- sessment with Dr. Jeffrey Wyndowe as per Intact’s request, however the plaintiff has concerns that State Farm will see this as an opportunity to obtain a further Defence psychiatric examination to corrobo- rate the opinions of Dr. Wyndowe arising from the assessment requested herein. Elaiathamby v. Sivarajah Master Joan M. Haberman 307

8 Thus, although the plaintiff has agreed to attend this defence medical examination as requested, he is only prepared to do so in the event that State Farm is precluded from seeking a further psychiatric examination. 9 During submissions, plaintiff’s counsel softened their position some- what, to indicate that if the situation changed and new information in this area came to light in the context of a new plaintiff’s report, he would consider a request for a psychiatric examination by State Farm at that time, which could be dealt with by the court if required. 10 In this scenario, however, instead of being entitled, as of right, to have this examination conducted as a “first” defence medical examination as a result of the injuries pleaded, the onus would be on State Farm to prove their entitled to the examination as though it were a subsequent examination. In effect, the plaintiff seeks to have the psychiatric examination requested by Intact treated as a first defence medical examination for State Farm. 11 As a result of the plaintiff having taken this position, this motion was put over, at the plaintiff’s request, from October 10, 2012 when it was first before me. The purpose of the adjournment was to give the plaintiff time to bring its own motion in the related action in order to ensure that any order made in this file would bind State Farm. Although State Farm was served with the materials that were before me for the October hearing date, as they are not a party to that action, their view was that I could not make an order biding them at that time. In that regard, they were correct.

The 2009 action: action against State Farm for tort and breach of contract damages 12 Though this action also involves allegations of negligence, the focus is very different from the 2008 action. This action is about the relationship of the plaintiff with State Farm, his own insurer, and what he considers to be their improper assessment of his entitlement to accident benefits under his policy of insurance. It is also about what he views as the exacerbation of his physical and mental health issues triggered by the accident by State farm’s approach to this matter. 13 Here, the plaintiff claims are based on the assertion that that he was entitled to payment of accident benefits from the time of the accident, but that State Farm refused to make any payments, instead claiming that the accident was part of a fraudulent scheme. 308 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

14 The plaintiff claims punitive damages of $1 million. He alleges that his rights under the Human Rights Code were infringed and he seeks damages for mental anguish as a result of the humiliation and hurt feel- ings he experienced due to the position that State Farm has taken. 15 The plaintiff claims further that State Farm’s approach has caused him significant additional anxiety, stress, tension and an exacerbation of his disability. 16 There is no claim for accident benefits, per se. Instead, the claim fo- cuses on State Farm’s failure to pay these benefits and how their position adversely affected the plaintiff’s health and increased the health challenges caused by the accident.

The plaintiff’s position and whether it is factually supportable 17 An order for trial together of these two actions was made in April 2012. I note that it is reflected only in the case history for the 2008 action as the motion was brought in that action only. It is this order that appears to be the root of the plaintiff’s concerns, as all of the evidence with respect to both actions will be available to the trier of fact. The plaintiff suggests that, absent the order they seek, the two defendants will effectively “gang up on them”, and meet each plaintiff report with two of their own. 18 The foundation for the plaintiff’s position is their assertion that the two insurers have identical interests. This position was softened some- what in argument. Mr. Katzman conceded that their interests were not identical, but he pressed the point that those interests were not adverse to one another. 19 This position, however, conflicts with the evidence filed by the plaintiff on this motion. In his affidavit of October 4, 2012, submitted in the 2008 action, Mr. Wilson takes a strong stance and states as follows: In respect of both actions, the interests of the third party in the 2008 action, Intact Insurance Company (“Intact”), are completely aligned with the interests of the defendant in the 2009 action State Farm Mu- tual Automobile Insurance Company (“State Farm”). 20 In the affidavit he submitted in the plaintiff’s motion in the 2009 action, he has elevated this assertion, stating that: The basis for the position taken by the plaintiff is that the interests of Intact in the 2008 action are perfectly aligned with the interests of State Farm in the 2009 action. In other words, there is a complete Elaiathamby v. Sivarajah Master Joan M. Haberman 309

absence of any adversity in the interests between the two parties in the context of the two actions. 21 This statement leaves no room for doubt as regards the plaintiff’s position on this motion. Mr. Wilson did not simply submit that there was an identity of interest between the two insurers — he was prepared to put his position in a sworn affidavit. 22 There are actually two statements in the Wilson affidavits and each must be examined separately. Neither can simply be accepted by the court at face value, notwithstanding the fact that Mr. Wilson chose to include them in his sworn evidence. 23 Wilson first says that the interests of the two insurers are completely and perfectly aligned. In so far as each insurer takes issue with the plaintiff’s assertion that he sustained injuries in an accident, it can be said that the interests of the two insurers are certainly aligned, but within a limited context. To the extent that each insurer wishes the court to find that this plaintiff did not sustain injuries from this event, their interests coincide. As a result, they are both adverse in interest to the plaintiff, so they have that in common. 24 That, however, does not mean that their interests are perfectly or completely aligned or that they are adverse in interest vis a vis one another. In order to ascertain if that is the case, one need go no further than the pleadings and the state of the record (see J.W. Morden and P.M. Perell, The Law of Civil Procedure in Ontario, (Toronto: NexisLexis, 2010)). 25 It is the plaintiff’s own pleadings that brings the adversity between the parties into clear focus and pits these two parties against one another. By asserting that State Farm’s actions have caused him to suffer additional anxiety, stress and tension, and by claiming that their actions have exacerbated his disability, the plaintiff set the foundation for finger pointing between the two insurers. This approach has put Intact in the position of having to seek medical opinions that will assist them in thrusting a larger share of the blame, and hence damages payable, over to State Farm. They will, no doubt, ask their experts to assess the extent to which the plaintiff’s issues with State Farm are partly or largely responsible for his current mental and physical state. 26 Thus, while trying to establish that the plaintiff suffered no injuries or that the injuries flowing from the accident were minimal, Intact’s position at trial will be that, to the extent that the plaintiff suffered any damages, these should by viewed as having been entirely or largely caused by State Farm’s handling of their file. Conversely, State Farm will en- 310 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

deavour to have the trier of fact find that any damages suffered by the plaintiff were caused wholly by the injuries he sustained in the accident. 27 This situation is compounded by the plaintiff’s reliance on the Human Rights Code and his claim for punitive damages in the State Farm action. The trial judge or jury will ultimately have to determine if the plaintiff’s current state is wholly, largely or marginally the result of the accident. The trier of fact will also have to consider how State Farm’s handling of the plaintiff’s accident benefits claim post-accident may have impacted on that state. In other words, if the plaintiff did sustain injuries in the accident that have left him with physical and psychological problems, how much of those problems are attributable to the alleged exacerbation of his symptoms which he claims were caused by State Farm? This is an issue that divides the two insurers and each should have the opportunity to marshal his own medical evidence to support their distinct position. 28 In Menzies v. McLeod, [1915] O.J. No. 128 (Ont. S.C.), Chencellor Boyd stated: “Adverse interest” is a flexible term, meaning pecuniary interest, or any other substantial interest in the subject matter of the litigation. 29 In that each insurer will surely want the trier of fact to find the other primarily responsible for the status quo, I conclude that the two insurers are “adverse in interest”. They each have a very separate and distinct interest to promote in terms of the cause of the plaintiff’s current physical and mental status, each likely to point the finger at the other as being the more causally connected to things as they now stand. The fact that they are each challenging the nature and existence of the plaintiff’s injuries is only a part of the story — their relationship to one another cannot be ignored. As there will be a global assessment of damages at the end of the day, they will each want an opportunity to brief their own experts as to their theory of the case and where they want the expert to focus attention. 30 The plaintiff submits that because the insurers have aligned interest, they should effectively share medical experts. Mr. Wilson accuses State Farm of sitting in the weeds, waiting for Intact to conduct its defence medical examinations before it commits to a position. 31 In the affidavit supporting the plaintiff’s position, Mr. Wilson goes on to say that he viewed State Farm’s advice that their counsel had no in- Elaiathamby v. Sivarajah Master Joan M. Haberman 311

structions to conduct a defence medical examination at this time as particularly problematic. He continued as follows: I can advice this Honourable Court that my practice has been virtually exclusively limited to motor vehicle accident litigation since 1994. I can further advise this Honourable Court that there is a ten- dency in this type of litigation for insurers to attempt to have the plaintiff submit to a multitude of defence medical examination, not because the same are necessary for the purposes of permitting the defendant to meet the case at trial, but rather to factually disadvan- tage the plaintiff at trial. 32 I am well aware of Mr. Wilson’s views in this regard as I have seen it expressed in the context of other motions, via affidavits submitted by his assistant, a wholly inappropriate candidate for qualification as an expert in this field. I find it equally inappropriate for counsel to put himself forward as an export witness in an area of the law, as Mr Wilson has done here, and convert what should be the subject of submissions into sworn evidence. 33 The court needs no expert assistance regarding the development of the law in the area of defence medical examinations or the use of medical evidence in trials of this kind. My own involvement with this area of the law goes back to 1982, and personal injury work of one sort or another featured in my practice for many years. I have been on the Bench for more than 14 years and I can state unequivocally that at least 50% of this court’s civil work stems from motor-vehicle accident related injuries. None of us on the Bench doing civil work is a stranger to this area of the law and, in view of my background, I can take judicial notice of the changes that have occurred in this area over the course of the last 30 years.. 34 As a result, I, too, have observations in this area and they are mark- edly different from those of Mr. Wilson. What I have noticed is an increase in specialization among medical practitioners over time. By way of example, while orthopaedic medicine is a specialty, orthopaedic surgeons are more and more inclined to sub-specialize — some deal primarily with backs, other with knees, some with only hands or feet. 35 Further, technological and medical advancements have led to new di- agnostic techniques, equipment and therapies. As a result, plaintiffs with soft tissue issues may be seen for consultation, treatment or for medical- legal opinions by orthopaedic surgeons, neurologists, physiatrists, psychologists, psychiatrists and neuropsychologists. Then, there is always 312 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

the family doctor and a dentist or ophthalmologist may be involved in some cases. Plaintiffs may be sent to some of these experts by their family doctors for treatment, but may also be sent for medical-legal opinions to different doctors practicing in the same areas at those already treating them. 36 As a result, a defendant may face a situation where, legally, he is entitled as of right to only one defence medical examination if a plaintiff puts his physical or mental health in issue, but, though facing a barrage of plaintiff’s expert reports, he must to go to court, where he bears the onus of establishing his entitlement to each further defence medical examination. 37 Thus, while defendants may now be seeking a multitude of medical examinations as Mr. Wilson states, my observations suggest that this tends to occur in situations where the plaintiff has already provided a multitude of reports from a wide variety of medical experts. This is the result of the current state of medicine and of the law, which allows for each party to each put together his own case, which includes his own expert evidence. 38 As a result, I do not find Mr. Wilson’s observations in this regard compelling or, for that matter, correct, particularly on these facts. This is not a case where a plaintiff is a passenger with injuries caused by a collision between two vehicles and the insurer of each wants a full set of defence medical examinations. It is also a case where a plaintiff is involved in a multi-vehicle collision and facing multiple insurers. There is no basis here for an argument to be made that the two insurers have identical interests. 39 The end product of the plaintiff’s approach is that he wants an order that, while allowing Intact to have their psychiatric defence medical examination, declares that such examination serves as the psychiatric examination for both parties. As a result, any examination sought by State Farm down the road would not be a first defence medical examination, to which they would be entitled as of right. Instead, if State Farm decides later on that it needs its own reports at trial, it would be up to them to move before the court and they would bear the onus on such motion. 40 The fact that Mr. Wilson takes this potion now is of interest, as he imposed no such condition when agreeing to Intact’s request for an orthopaedic defence medical examination. In his supporting affidavit, Mr. Wilson claims that he did not appreciate the interests of the two insurers were aligned when he agreed to this. Elaiathamby v. Sivarajah Master Joan M. Haberman 313

41 Mr. Wilson concludes by stating he believes what he proposes is fair.

The position of the two insurers in the two actions 42 Intact simply wants to conduct a defence psychiatric examination. It has clearly made its case for doing so, as the plaintiff concedes. As a result, they have made no submissions as to whether their examination should also stand as the examination on behalf of State Farm. 43 State Farm has filed a responding motion record, containing the affidavit of Andrew Harapa, an associate with the firm handling the file for them. Mr. Harapa was quite candid in discussing why State Farm has yet to request a medical examination. He states that the plaintiff has yet to produce supporting evidence for their claim that State Farm’s denial of benefits caused the plaintiff additional anxiety, stress and tension, or that this exacerbated his disability. There, is therefore, no provable claim they feel they must refute at this time and no need for them to seek a defence medical examination. 44 Mr. Harapa goes on to say that if and when such evidence is pro- duced, then State Farm will likely want the opportunity to conduct a defence medical examination of its own, likely of a psychiatric nature. However, if the plaintiff is willing to undertake now that he will not proceed with a psychiatric or other assessment dealing with his emotional health vis a vis State Farm, they are prepared to consider the plaintiff’s proposed condition. 45 If no such undertaking is provided, Mr. Harapa states that he believes this request is premature as the plaintiff is yet to show his hand regarding the evidence he has in this action. No such undertaking was provided by the plaintiff. Presumably, if he plans to continue with this action against State Farm, further medical evidence to support the assertions pleaded regarding damages will have to be obtained.

The Law and conclusions 46 Although it is my view that Intact and State Farm are, indeed, adverse in interest, such that the plaintiff has no evidentiary leg to support his legal thesis, in view of how the plaintiff presented this case, I believe that it would beneficial to put his complete argument to rest at this time. 47 The plaintiff bases his case on what he says is the requirement that only parties adverse in interests are entitled to separate defence examinations. They take this from a series of cases which state that every defendant, adverse in interest and separately represented, is entitled to his or 314 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

her own defence medical examination unless multiple examinations would cause the plaintiff unnecessary inconvenience or embarrassment. 48 There is no suggestion in this case, and certainly no evidence has been filed to allow the plaintiff to develop an argument that he fits within the proviso clause at the end (unnecessary inconvenience or embarrassment) so we are left with the basic principle as articulated by the cases. 49 The plaintiff has filed a series of cases where this line is simply tossed in, as obiter. In no case which he filed was the court required to grapple with whether the parties were adverse in interest or, indeed, whether they had to be. 50 Instead, where the courts have actually looked at this factor, they ap- pear to have reached a different conclusion. 51 Beaudoin J. (Master, as he then was) dealt with the issue of two sets of defence medical emanations being sought by two different insurers in Laforest v. De Vouge, [2004] O.J. No. 3570 (Ont. Master). That case also involved a plaintiff who had sustained injuries in a motor vehicle accident. There, the tort claim had already been settled and the defence psychiatric examination was sought by the insurer in the accident benefits claim. 52 Before the tort action was settled, defence medical examinations were sought and obtained by the defence insurer in that action. Among them was a psychiatric assessment. There was no agreement that these would serve as the examinations for all defendants. 53 In that the tort action had already been settled in that case, it is difficult to see how the tortfeasor and the accident benefits insurer could be said to be adverse in interest at the time that the insurer made this request. In view of the settlement of the tort action, the tortfeasor’s insurer were no longer going to be involved in the trial so any adversity of interest that may have existed was now gone. 54 Despite that Beaudoin J stated that each defendant was entitled to their own medical examination so the fact that the insurer of the tortfeasor had obtained a set was no impediment to the accident benefit insurer doing the same. 55 More recently, Perell J. dealt with this issue head on in Moore v. Ber- tuzzi, 2012 CarswellOnt 11371 (Ont. S.C.J.), where he stated: In my opinion, where multiple defendants seek a medical examination, adversity between the defendants in a sufficient but not a necessary condition for authorizing a second medical examination. The Elaiathamby v. Sivarajah Master Joan M. Haberman 315

fundamental measure is not adversity but fairness or due process, and adversity between co-defendants may justify that each defendant have its own defence medial but there be other circumstances where fairness requires multiple and independent defence medicals. The critical issue is whether a second medical examination is required to ensure fairness in the adversarial process regardless of the adversarial orientation between the codefendants. 56 This passage lays to rest any suggestion that only defendants who are adverse in interests are entitled to independent defence medical examinations. 57 The plaintiff tried to rely on a decision from a Manitoba court and an Ontario case from 1978. Our Rules have been revamped repeatedly since that time and counsel was not able to show me the legislative provisions that were in force at the time that case was decided, nor did he have the applicable Manitoba provisions on hand. It was therefore not possible to consider the application of those cases. 58 I therefore find that: 1) it is not necessary for these two defendants to be adverse in interest in order for each to be entitled to their own defence medical examinations; 2) the critical consideration when assessing whether a party should be entitled to defence medical examinations beyond a ‘first’ examination is fairness; 3) in any event, these two defendants in two separate actions, each dealing with different issues, though aligned in their common interests vis a vis the plaintiff, are adverse in interest vis a vis one another; 4) There are no cases which conclude the defendants are required to share defence medical examinations in this factual scenario; 5) The legislature has not seen fit to deviate from the regime it has put in place for defence medical examinations in this province; 6) there is nothing about the facts of this case which would justify the court intervening to make new law as suggested by the plaintiff in this case. Fairness does not dictate doing anything other than what the law provides for in these circumstances; and 7) there is no evidence that this plaintiff would suffer actual hardship here, only a perception by counsel that the current regime is generally unfair to plaintiffs. That is something, which if correct, 316 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

would be more properly dealt with by the legislature than this court.

Costs 59 Costs generally follow the event and are ordered payable within 30 days. Plaintiff’s counsel sought an exception this general rule on the basis of the novelty of the argument. 60 A novel argument, in my view, is one based on facts that can be proven and unsettled law. That was not the case here. The plaintiff’s case turned factually on counsel’s repeated assertion that these defendants were not adverse interest and in that regard, he was clearly not correct. It was also based on the legal submission that they had to be adverse in interest to be entitled to separate defence medical examinations. That, too, was not correct. This is not a novel case, in my view, simply an ill- founded one. 61 I therefore order costs as follows: 1. To Intact: $2180, payable within 30 days; 2. To State Farm, $3000, payable within 30 days. Plaintiff’s motion dismissed; third party’s motion granted. Godina v. Tripemco Burlington Insurance Group Ltd. 317

[Indexed as: Godina v. Tripemco Burlington Insurance Group Ltd.] James Godina, Plaintiff and Tripemco Burlington Insurance Group Limited and Leila Mitchell, Defendants Ontario Superior Court of Justice Docket: 07-28760 2013 ONSC 979 Robert B. Reid J. Heard: September 12-13, 18-19, 2012 Judgment: February 12, 2013* Civil practice and procedure –––– Limitation of actions — Actions in tort — Statutory limitation periods — When statute commences to run — General principles –––– Plaintiff was client of defendant insurance broker — Client was covered for standard $400 per week amount for income replacement benefit, through his policy — Client did not purchase optional coverage that would have allowed him to receive $600 per week, given his income — Client was seriously injured in motor vehicle accident — Client claimed that he was not properly advised about optional coverage, and that if he had been so advised he would have purchased this coverage — Client brought action against insurance broker for negligence, seeking added amounts that he would have been entitled to under optional coverage — Action dismissed — Claim was statute-barred, as it was issued more than two years from when client found out about benefits available to him from insurer’s correspondence. Civil practice and procedure –––– Judgments and orders — Interest on judgments — General principles –––– Plaintiff was client of defendant insurance broker — Client was covered for standard $400 per week amount for income replacement benefit, through his policy — Client did not purchase optional coverage that would have allowed him to receive $600 per week, given his income — Client was seriously injured in motor vehicle accident — Client claimed that he was not properly advised about optional coverage, and that if he had been so advised he would have purchased this coverage — Client brought action against insurance broker for negligence, seeking added amounts that he would have been entitled to under optional coverage — Action dismissed —

*Additional reasons at Godina v. Tripemco Burlington Insurance Group Ltd. (2013), 2013 CarswellOnt 3344, 2013 ONSC 1787, 18 C.C.L.I. (5th) 333 (Ont. S.C.J.). 318 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

Had damages been awarded, prejudgment interest rate would have been standard, rather than increased — This was true as action was not against insurer and did not engage applicable insurance law. Insurance –––– Agents, brokers and adjusters — Insurance brokers — Lia- bility to insured — Miscellaneous –––– Plaintiff was client of defendant insurance broker — Client was covered for standard $400 per week amount for income replacement benefit, through his policy — Client did not purchase optional coverage that would have allowed him to receive $600 per week, given his income — Client was seriously injured in motor vehicle accident — Client claimed that he was not properly advised about optional coverage, and that if he had been so advised he would have purchased this coverage — Client brought action against insurance broker for negligence, seeking added amounts that he would have been entitled to under optional coverage — Action dismissed — Duty of care was present between broker and client, given relationship and fact that client relied on advice — Standard of care was not breached by broker, as their evidence that they followed standard procedure in explaining coverage was accepted — Client called no expert evidence to refute broker’s position — There was no continuing obligation to inform client of optional coverage through renewal letters — There was no statutory duty on brokers as there was on insurers through applicable law — Client was not likely to have purchased optional coverage, as he had always purchased minimum available coverage from broker and kept broker notified of changes that would reduce premiums. Insurance –––– Agents, brokers and adjusters — Insurance brokers — Lia- bility to insured — General principles –––– Plaintiff was client of defendant insurance broker — Client was covered for standard $400 per week amount for income replacement benefit, through his policy — Client did not purchase optional coverage that would have allowed him to receive $600 per week, given his income — Client was seriously injured in motor vehicle accident — Client claimed that he was not properly advised about optional coverage, and that if he had been so advised he would have purchased this coverage — Client brought action against insurance broker for negligence, seeking added amounts that he would have been entitled to under optional coverage — Action dismissed — Duty of care was present between broker and client, given relationship and fact that client relied on advice — Standard of care was not breached by broker, as their evidence that they followed standard procedure in explaining coverage was accepted — Client called no expert evidence to refute broker’s position — There was no continuing obligation to inform client of optional coverage through renewal letters — There was no statutory duty on brokers as there was on insurers through applicable law — Client was not likely to have purchased optional coverage, as he had always purchased minimum available coverage from broker and kept broker notified of changes that would reduce premiums. Godina v. Tripemco Burlington Insurance Group Ltd. 319

Cases considered by Robert B. Reid J.: Aristorenas v. Comcare Health Services (2006), 2006 CarswellOnt 6155, 216 O.A.C. 161, 274 D.L.R. (4th) 304, 83 O.R. (3d) 282, 42 C.C.L.T. (3d) 220, [2006] O.J. No. 4039 (Ont. C.A.) — considered Athey v. Leonati (1996), [1997] 1 W.W.R. 97, 140 D.L.R. (4th) 235, 81 B.C.A.C. 243, 132 W.A.C. 243, 203 N.R. 36, [1996] 3 S.C.R. 458, 31 C.C.L.T. (2d) 113, 1996 CarswellBC 2295, 1996 CarswellBC 2296, [1996] S.C.J. No. 102 (S.C.C.) — considered Fletcher v. Manitoba Public Insurance Corp. (1990), 1990 CarswellOnt 1009, (sub nom. Fletcher v. Manitoba Public Insurance Co.) [1990] I.L.R. 1-2672, 1990 CarswellOnt 56, 5 C.C.L.T. (2d) 1, (sub nom. Fletcher v. Manitoba Public Insurance Co.) 75 O.R. (2d) 373 (note), (sub nom. Fletcher c. Manitoba Public Insurance Co.) [1990] R.R.A. 1053 (headnote only), (sub nom. Fletcher v. Manitoba Public Insurance Co.) 74 D.L.R. (4th) 636, [1990] 3 S.C.R. 191, (sub nom. Fletcher v. Manitoba Public Insurance Co.) 116 N.R. 1, (sub nom. Fletcher v. Manitoba Public Insurance Co.) 44 O.A.C. 81, 1 C.C.L.I. (2d) 1, 71 Man. R. (2d) 81, 30 M.V.R. (2d) 260, EYB 1990-67585, [1990] S.C.J. No. 121 (S.C.C.) — considered Hunt v. Brandie (1995), 25 O.R. (3d) 315, 18 M.V.R. (3d) 309, 1995 Carswell- Ont 1406, [1995] O.J. No. 2344 (Ont. Gen. Div.) — referred to Kalkinis (Litigation Guardian of) v. Allstate Insurance Co. of Canada (1998), (sub nom. Kalkinis v. Allstate Insurance Co. of Canada) 117 O.A.C. 193, 41 O.R. (3d) 528, 1998 CarswellOnt 4255, [1998] O.J. No. 4466 (Ont. C.A.) — referred to Krawchuk v. Scherbak (2011), 82 C.C.L.T. (3d) 179, 5 R.P.R. (5th) 173, 332 D.L.R. (4th) 310, 4 C.L.R. (4th) 1, 106 O.R. (3d) 598, 2011 CarswellOnt 3015, 2011 ONCA 352, 279 O.A.C. 109, [2011] O.J. No. 2064 (Ont. C.A.) — considered Nicholas v. McCarthy T´etrault (2008), 2008 CarswellOnt 6320, [2008] O.J. No. 4258 (Ont. S.C.J.) — referred to Nicholas v. McCarthy T´etrault (2009), 2009 ONCA 692, 2009 CarswellOnt 5701, (sub nom. Nicholas v. McCarthy Tetrault) 254 O.A.C. 197, [2009] O.J. No. 4061 (Ont. C.A.) — referred to Pritchard v. Rideau Insurance Service Ltd. (1999), 1999 CarswellOnt 2242, 14 C.C.L.I. (3d) 165, [1999] I.L.R. I-3715, [1999] O.J. No. 2731 (Ont. S.C.J.) — referred to Sorokin v. Wawanesa Mutual Insurance Co. (2008), 2008 CarswellOnt 3123, 66 C.C.L.I. (4th) 150, 92 O.R. (3d) 314 (Ont. S.C.J.) — considered Zefferino v. Meloche Monnex Insurance Co. (2012), 2012 CarswellOnt 490, 2012 ONSC 154, 6 C.C.L.I. (5th) 210 (Ont. S.C.J.) — considered 320 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

Statutes considered: Courts of Justice Act, R.S.O. 1990, c. C.43 Generally — referred to s. 127 — considered s. 128 — considered Insurance Act, R.S.O. 1990, c. I.8 Generally — referred to s. 1 “insurer” — referred to Limitations Act, 2002, S.O. 2002, c. 24, Sched. B Generally — referred to s. 5(1) — considered Regulations considered: Insurance Act, R.S.O. 1990, c. I.8 Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, O. Reg. 403/96 Generally — referred to s. 27 — considered s. 46 — considered

ACTION by plaintiff client against defendant insurance broker, for damages from alleged failure to properly advise him of available income replacement benefits.

L. Ferro, S. Oostdyk, for Plaintiff E. Bowker, for Defendants

Robert B. Reid J.:

1 The plaintiff sued the defendant Tripemco for its failure to properly advise him about the purchase of optional income replacement benefits. 2 The plaintiff did not proceed against the defendant Leila Mitchell.

Background Facts: 3 Tripemco carries on business as an insurance broker and is licensed to do so under the Insurance Act1. Its employees must be licensed by the Registered Insurance Brokers of Ontario (“RIBO”), the self-regulatory body for insurance brokers in Ontario.

1R.S.O. 1990, c I.8, as amended Godina v. Tripemco Burlington Insurance Group Ltd. Robert B. Reid J. 321

4 From 1999 through 2004, Mr. Godina dealt with Tripemco for his motor vehicle insurance needs. 5 Under the Statutory Accident Benefits Schedule2 (“SABS”) to the In- surance Act, the standard minimum amount of income replacement benefits was $400 per week. Optional coverage was available at levels of $600, $800 and $1000 per week. Benefits at those optional levels would be payable if the optional coverage was purchased and the insured earned sufficient income to qualify. 6 Mr. Godina did not purchase optional income replacement benefit coverage. 7 On December 11, 2004, Mr. Godina was involved in a serious motor vehicle accident, leaving him permanently disabled. 8 At the time of the accident, Mr. Godina earned income that would have entitled him to optional benefits at $600 per week if that coverage had been purchased. 9 This action was commenced on January 5, 2007. 10 The parties have agreed on damages, being $83,000 up to the date of trial, $146,208 from the date of trial to age 65 and $35,736 after age 65 for a total damage claim of $264,944.

Issues and Conclusion: 11 There are four pivotal issues to be determined in this case: 1. Did Tripemco owe Mr. Godina a duty of care in its relationship with him as an insurance broker? 2. If so, did Tripemco fall below the requisite standard of care in failing to make a proper offer of optional income replacement benefits to Mr. Godina? 3. Is it necessary for Mr. Godina to prove that he would have bought the optional income replacement benefits if properly offered?

2O.Reg. 403/96, as amended 322 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

4. Is the claim statute-barred under the provisions of the Limitations Act, 20023? 12 A subsidiary issue is the rate at which interest is to be applied to any damages awarded: either the SABS interest rate or interest pursuant to the Courts of Justice Act4. 13 For the reasons that follow, I have concluded that Mr. Godina’s claim must be dismissed.

Did Tripemco Owe Mr. Godina a Duty of Care? 14 The presence of a duty of care is an essential first step in establishing what amounts to professional negligence. 15 As I indicated in Zefferino v. Meloche Monnex Insurance Co.,5 there has been a clear recognition that a duty of care can be owed by insurance agents who are in the business of providing insurance information and advice to customers. 16 The Supreme Court of Canada determined in Fletcher v. Manitoba Public Insurance Corp.6 that the sale of automobile insurance is a business in the course of which information is routinely provided to prospec- tive customers with the expectation that they will rely on it and they do in fact reasonably rely on it. As such, the court found that the providers of such information owe a duty of care to their customers if: “(i) such customers rely on the information, (ii) their reliance is reasonable, and (iii) [the provider] knew or ought to have known that they would rely on the information.” 17 In this case, Mr. Godina and his wife contacted representatives of Tripemco over the course of several years to place and modify coverage on several vehicles. I have no reason to doubt their reasonable reliance on the advice received from Tripemco from time to time. 18 As result, I find that Tripemco did owe Mr. Godina a duty of care.

3S.O. 2002, c. 24 4R.S.O. 1990, c. C.43 52012 ONSC 154 (Ont. S.C.J.) para. 21 6[1990] 3 S.C.R. 191 (S.C.C.) at para. 45 Godina v. Tripemco Burlington Insurance Group Ltd. Robert B. Reid J. 323

Did Tripemco Breach the Standard of Care? 19 Mr. Godina alleged in the statement of claim that Tripemco was negligent in failing to assess his risk, failing to advise him as to adequate coverage and failing to advise him of his exposure in the event of loss. 20 Specifically, the plaintiff asserts that at the last policy renewal in June 2004 prior to the December 2004 accident, the defendant should have requested information about the plaintiff’s financial circumstances and income so as to make a proper assessment of his needs. Presumably the defendant should also have questioned the plaintiff on whether alternative income replacement coverage was available from another source such as the plaintiff’s employer. Once the needs of the plaintiff were known, there should have been a specific recommendation and price quote for the optional benefit coverage. 21 Instead, Tripemco sent a form letter in April 2004 relating to the policy renewal. The letter indicated that the renewal document was prepared based on previously established coverage and limits. As well, it recom- mended a review of the policy by the plaintiff and suggested two specific changes. The first was to increase the plaintiff’s liability limit to $2 million and to increase his accident benefits coverage “to suit [his] individual needs.” Those recommendations were said to be in order to assist him protect his financial interests. 22 In addition to the policy renewal, there was contact between the plaintiff and the defendant in August 2004 when the plaintiff requested coverage on a different vehicle. No change to the previous coverage was made and that contact was another occasion when, according to the plaintiff, the defendant fell short of its obligation to offer optional income replacement benefit coverage. 23 The plaintiff has the onus of establishing a breach of the requisite standard of care. 24 The plaintiff called no expert evidence on that subject, but relied on the statutory requirement in the SABS to the effect that: “every insurer shall offer the following optional benefits: [...] optional income replacement benefit [...]7 ” [emphasis added]. 25 Mr. Godina argued that there is a strict duty of care arising from this statutory requirement and thus no need for expert evidence about the standard of care.

7see note 2, s. 27 324 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

26 Tripemco disagreed and asserted that expert evidence is crucial, and that the plaintiff’s failure to call such evidence is fatal to his case. 27 The representatives of the defendant who dealt with the plaintiff testified that throughout their involvement, they followed their invariable practice of explaining the optional benefits and asking whether the basic benefits would be sufficient in the event of injury. They accepted the plaintiff’s decision to decline coverage without giving him a premium quote for optional benefits. 28 Leila Mitchell, who had most of the dealings with the plaintiff on behalf of the defendant, confirmed that when she took over the file and whenever a new risk such as a change of vehicle was added to the policy, she reviewed with the plaintiff the available coverage, including optional accident benefits coverage. 29 Tripemco called an expert who testified that in his view, the conduct of the defendant’s representatives met the standard of care for insurance brokers in Ontario. His opinion was not contradicted. His evidence was to the effect that Tripemco acted in accordance with the standard of care expected of insurance brokers by advising the plaintiff of the existence of optional benefits, explaining what the optional benefits were and asking whether the minimum coverage would be sufficient in the event the client was unable to work. 30 According to the defendant’s expert, once the client has declined coverage after a broker has explained the coverage and inquired about whether the minimum amount would be adequate in the event of an accident and subsequent disability, there is no continuing obligation to make further recommendations or to quote the additional premium. His opinion was based on the R.I.B.O. code of conduct, standard industry practice and his view of the common law. He also testified that in his view, the renewal letter of April 2004 did not demonstrate any breach of the required standard of care. 31 In the case of Krawchuk v. Scherbak8, the Ontario Court of Appeal dealt with the issue of real estate agent negligence and the necessity of having expert evidence on the issue of standard of care. Justice Epstein observed that external indicators of reasonable conduct such as custom, industry practice and statutory or regulatory standard may inform the standard of care. However, she stated that where a debate arises as to

82011 ONCA 352 (Ont. C.A.) at para. 125 Godina v. Tripemco Burlington Insurance Group Ltd. Robert B. Reid J. 325

how a reasonable agent should have conducted himself, expert evidence is generally necessary. She further observed that in general, it is inappropriate for a trial court to determine the standard of care in a professional negligence case in the absence of expert evidence.9 32 There are cases where a defendant has so clearly fallen below any standard that might be required of him that expert evidence is not required. In some cases, a layperson without assistance may draw inferences about the applicable standard of care. This is not such a case. 33 As to the plaintiff’s argument that s. 27 of the SABS imposes a strict statutory duty, I note that the statutory duty is specifically on insurers. Tripemco is an insurance broker and does not fall within the definition of “insurer” found in the Insurance Act. It is not reasonable that a standard of care should be imposed on an insurance broker based solely on a statutory duty applicable to insurers without specific authority for doing so. 34 I am satisfied that the defendant fulfilled its duty to inform the plaintiff about the availability and advisability of optional coverage through its explanation of the available minimum coverage, the calculation of how benefits are paid and its inquiry about whether the plaintiff’s current coverage would be adequate. 35 In all the circumstances, including in particular the expert evidence as to the applicable standard of care, I find that the plaintiff has not satisfied his onus to establish that the defendant’s conduct breached the applicable standard of care on a balance of probabilities.

Has the Plaintiff Proved his Entitlement to Damages? 36 Based on the foregoing, I have not accepted the plaintiff’s position that he has proved a breach of the applicable standard of care and therefore the plaintiff’s entitlement to damages is not critical to the outcome of the case. However, even if I had found in favour of the plaintiff on that subject, I would have concluded that the plaintiff has failed to prove his damages. 37 Counsel for Mr. Godina submits that it is unnecessary for the plaintiff to prove that he would have purchased optional benefit coverage in order to succeed in the claim for damages. It is enough that, had the plaintiff been properly advised, he could have purchased the coverage. The plaintiff argues the application of the “loss of chance” doctrine.

9Krawchuk, at para. 130 326 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

38 For its part, the defendant submits that the loss of chance doctrine is not applicable and that the normal “but for” test for establishing entitlement to damages in a negligence claim applies. According to the defendant’s submission, the plaintiff must demonstrate that the negligence of Tripemco was the proximate cause of his loss. 39 Although the plaintiff cited the Supreme Court of Canada in support of his submission that the loss of chance doctrine is available, in fact the court did not either approve or disapprove the doctrine.10 40 The Ontario Court of Appeal considered the issue of causation in Aristorenas v. Comcare Health Services.11 In it, the majority confirmed that the “but for” test is the standard for establishing causation in most negligence cases. Quoting from Athey v. Leonati,12 the court noted that: Causation is established where the plaintiff proves to the civil standard on a balance of probabilities that the defendants caused or contributed to the injury. The general, but not conclusive, test for causation is the “but for” test, which requires the plaintiff to show that the injury would not have occurred but for the negligence of the defendant. 41 The loss of chance doctrine typically has been considered in medical malpractice cases, and in Aristorenas13 the court stated as follows: One cannot help but have sympathy for the plight of the plaintiff. She suffered grievous injuries and proved serious acts of negligence on the part of professionals in providing what should have been basic routine wound care. But, on the current state of the law she did not make out causation. If the law were otherwise and if it were sufficient to show merely loss of a chance, or to treat an increase in risk as equivalent to a material contribution, then the plaintiff might have succeeded. However, those propositions have not been adopted in this country. It is not sufficient to prove that adequate diagnosis and treatment would have afforded the chance of avoiding the unfavourable outcome unless that chance surpasses the threshold of “more likely than not”.

10Athey v. Leonati, [1996] 3 S.C.R. 458 (S.C.C.) at para. 38 11(2006), 83 O.R. (3d) 282 (Ont. C.A.) at para. 50 12See note 10 13note 11 at paras. 78 and 80 Godina v. Tripemco Burlington Insurance Group Ltd. Robert B. Reid J. 327

42 The case law to which I have been referred indicates a consistent application of the “but for” test to establish damages for brokers’ negligence.14 43 I am persuaded that to succeed in his damage claim, Mr. Godina must prove on a balance of probabilities that he would have purchased the optional benefit coverage to the level of $600 per week but for the alleged failure of Tripemco to offer it. 44 The evidence does not support a finding in the plaintiff’s favour. 45 Mr. Godina gave evidence that, had he been made aware of the optional benefit coverage and that its cost was a mere $93 per year in additional premiums, he would have purchased that coverage. That evidence is obviously after-the-fact of his motor vehicle accident and subsequent disability and is entirely self-serving. 46 In contrast to Mr. Godina’s testimony in examination in chief, there are several indications in his relationship with Tripemco that are more consistent with a likelihood that the optional benefit coverage would not have been purchased: 1. When the relationship between the parties began in 1999, the plaintiff only wanted to buy the minimum coverage legally necessary to get his car on the road; 2. Despite receiving recommendations from Tripemco at the time of policy renewal or changes of vehicle that $2 million in liability coverage be purchased, Mr. Godina always opted for $1 million coverage; 3. Collision coverage, which is not required by law, was always declined; 4. Mr. Godina contacted Tripemco promptly whenever changes occurred that might reduce his annual premium, such as a reduction in the distance of travel to work; 5. Mr. Godina advised Tripemco that he was acquiring a vehicle in fall 2003. He then drove without insurance, despite follow-up tele- phone calls from Tripemco as to insuring the new vehicle, and

14see, for example: Pritchard v. Rideau Insurance Service Ltd., [1999] O.J. No. 2731 (Ont. S.C.J.); Hunt v. Brandie, [1995] O.J. No. 2344 (Ont. Gen. Div.); and Kalkinis (Litigation Guardian of) v. Allstate Insurance Co. of Canada, [1998] O.J. No. 4466 (Ont. C.A.) 328 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

despite his indication to the defendant’s representative that he would not need insurance because he was not yet driving the vehicle. Following a contact with the police in June 2004 while operating the vehicle, Mr. Godina requested insurance through the defendant in August 2004. 6. The plaintiff received correspondence from the defendant in May 2003 and April 2004 recommending an increase to his accident benefits coverage to “suit his individual needs.” He did not respond, even if only to explore the meaning of the suggestion. 47 From his history as noted above, it appears that Mr. Godina was attempting to minimize the amount of insurance premiums. Although in evidence, he suggested that the additional premium cost of $93 per year for the optional benefit coverage was minimal and affordable, that additional premium represented an increase of about 13% over the basic premium paid. This would not have been an insignificant increase. 48 In all the circumstances, the plaintiff has not satisfied his onus to prove that he would have purchased optional benefits if offered.

Was the Claim Timely? 49 The defendant pleads that the claim was issued outside the applicable two-year limitation period under the Limitations Act, 2002. 50 Tripemco relies on the evidence from the plaintiff at trial to the effect that, within one or two weeks of the motor vehicle accident on December 11, 2004, the plaintiff learned that he had less insurance coverage for income replacement than that to which he was entitled. 51 Initially in his cross examination, the plaintiff was unsure of when he came to that knowledge. He was referred to his examination for discovery which took place in January 2009. In the examination for discovery he was asked the following questions and gave the following answers: 230. Q. Do you remember when you learned that you were as you put it getting half of what you were supposed to get? A. Do I remember when that appeared? 231. Q. Yes? A. Shortly after my accident when my lawyer brought it up to me, yes. 232. Q. So within a month or two of your accident? A. Within a week or two. Godina v. Tripemco Burlington Insurance Group Ltd. Robert B. Reid J. 329

After the questions from the examination for discovery were put to him, the plaintiff was asked whether he therefore knew of the problem with the level of benefit coverage within one or two weeks of the accident and he confirmed that he did. 52 In response, counsel for the plaintiff submits that for several weeks after the accident, the plaintiff was a hospital in-patient. Medical records indicate that the plaintiff had surgery on December 15, 2004, following which he had various complications. The plaintiff’s wife testified at trial that he was not doing well in the weeks and months of his hospitalization following the accident and she felt he was not capable of making decisions. 53 Counsel for the plaintiff submits that it was not until sometime after January 17, 2005 that the plaintiff received correspondence from the insurer identifying his entitlement to the income replacement benefits at the weekly rate of $400. Further, it was not until counsel received a letter from the plaintiff’s employer on January 25, 2005 that the plaintiff knew he did not have disability benefits through his workplace. 54 The question for decision is: on what day was the claim discovered? Discoverability is defined in sub-section 5(1) of the Limitations Act 2002 as follows: A claim is discovered on the earlier of, (a) the day on which the person with the claim first knew, (i) that the injury, loss or damage had occurred, (ii) that the injury, loss or damage was caused by or contributed to by an act or omission, (iii) that the act or omission was that of the person against whom the claim is made, and (iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and (b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a). 55 On a summary judgment motion as to a limitations defense, Justice Perell of this court held that a limitation period commences when the plaintiff discovers the underlying material facts or, alternatively, when 330 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

the plaintiff ought to have discovered those facts by the exercise of reasonable diligence.15 He added that, The circumstance that a potential claimant may not appreciate the legal significance of the facts does not postpone the commencement of the limitation period if he or she knows or ought to know the existence of the material facts, which is to say the constitute [sic] elements of his or her cause of action.16 56 The material facts applicable to this case are that the plaintiff knew, apparently on the basis of advice from his lawyer, that he had less income replacement benefit coverage than he was entitled to. Based on his evidence, that information was known to the plaintiff by December 25, 2004 at the latest, and must have related to the income replacement benefits under the SABS, since information about the availability of a disability policy through the plaintiff’s employer was not provided until January 25, 2005. Only the defendant could have been responsible for the lack of adequate coverage. 57 There is no medical evidence to suggest that Mr. Godina was medi- cally disabled to the extent that he could not appreciate the potential claim against Tripemco. 58 As a result, I find that the statement of claim was served after the expiry of the two-year limitation period.

Applicable Rate of Interest: 59 Although the parties agreed on details of the main damage calculation, they did not agree on the rate of interest applicable to the date of judgment. 60 The defendant argues that the normal presumptive prejudgment interest rate is applicable, calculated pursuant to sections 127 and 128 of the Courts of Justice Act. That would result in an award of interest in the amount of $13,248 based on a simple interest calculation of 4%. 61 The plaintiff submits that interest should be calculated at the higher rate set out in the SABS since this is not a commercial contract case and the interest provisions of the SABS were designed to be remedial, as a matter of consumer protection.

15Nicholas v. McCarthy T´etrault, [2008] O.J. No. 4258 (Ont. S.C.J.) at para. 26; affirmed 2009 ONCA 692 (Ont. C.A.) 16Nicholas, at para. 27. Godina v. Tripemco Burlington Insurance Group Ltd. Robert B. Reid J. 331

62 Section 46 of the SABS provides that if payment of a benefit under the Regulation is overdue, the insurer shall pay interest on the overdue amount calculated daily at the rate of 2% per month, compounded monthly. In this case, interest to the date of trial would be $162,654. Presumably, this option is available to me because in clause 128(4)(g) of the Courts of Justice Act, interest is not to be awarded at the court rate if it is payable by right other than under that section. 63 The plaintiff referred to Sorokin v. Wawanesa Mutual Insurance Co. [2008 CarswellOnt 3123 (Ont. S.C.J.)]17 in which Justice Boswell of this court held that the interest provisions of the SABS are compensatory in nature and not punitive. In that case, the plaintiff sued the defendants to enforce an arbitration award. The award included an interest component on overdue payments. Final payment was not made by the defendants for over a year following the arbitration award and the court found that additional compensatory interest at the SABS rate was appropriate. 64 In this case, the claim is not against an insurer. The defendant is an insurance broker. This is not a situation where benefit payments under SABS were overdue. Rather, the plaintiff sued the defendants for damages arising out of professional negligence with the measure of damages being the amount that would otherwise have been payable by the insurer for optional income replacement benefits. 65 The purpose of the interest rate set out in the SABS, which is significantly above the prevailing court rate of interest, is compensatory to insured persons for the time value of money and is also designed to en- courage insurers to pay accident benefits promptly.18 Those purposes are not engaged in this case. 66 If I had found in favour of the plaintiff on the issue of negligence, I would have awarded prejudgment interest at the court rate in the amount of $13,248.

Costs: 67 If the parties are unable to resolve the issue of costs consensually, I am prepared to receive written submissions according to the following timetable: the defendant is to provide to the plaintiff its bill of costs together with brief written submissions within two weeks of this date. The

17Sorokin v. Wawanesa Mutual Insurance Co., 2008 CanLII 26265 at para. 27 18Sorokin at para. 22 332 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th) plaintiff is to deliver his response to the defendant within a further week. The submissions by both parties and any reply submissions by the defendant are then to be filed with the court by no later than March 12, 2013. Action dismissed. Godina v. Tripemco Burlington Insurance Group Ltd. 333

[Indexed as: Godina v. Tripemco Burlington Insurance Group Ltd.] James Godina, Plaintiff and Tripemco Burlington Insurance Group Limited and Leila Mitchell, Defendants Ontario Superior Court of Justice Docket: 07-28760 2013 ONSC 1787 Robert B. Reid J. Heard: September 12-13, 18-19, 2012 Judgment: March 25, 2013 Insurance –––– Agents, brokers and adjusters — Insurance brokers — Mis- cellaneous –––– Costs — Plaintiff was client of defendant insurance broker — Client was covered for $400 per week for income replacement benefits — Client did not purchase optional coverage that would have allowed him to receive $600 per week — Client was seriously injured in motor vehicle accident — Client claimed that he was not properly advised about optional coverage, and that if he had been so advised he would have purchased this coverage — Client brought unsuccessful action against insurance broker for negligence, seeking added amounts that he would have been entitled to under optional coverage — Hearing on costs was held — Client was ordered to pay costs of $69,193 to insurance broker, inclusive of taxes and disbursements — Insurance broker was successful — Issues were not novel — Client could not be relieved of normal costs consequences because of relative financial means of parties or because of societal value that encouraged litigation — If client accepted insurance broker’s offers to settle, he would have achieved superior result than what he achieved at trial. Statutes considered: Courts of Justice Act, R.S.O. 1990, c. C.43 Generally — referred to s. 131(1) — considered Insurance Act, R.S.O. 1990, c. I.8 Generally — referred to Limitations Act, 2002, S.O. 2002, c. 24, Sched. B Generally — referred to Rules considered: Rules of Civil Procedure, R.R.O. 1990, Reg. 194 R. 49 — considered R. 49.10(1) — considered 334 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

R. 57.01 — considered R. 57.01(1) — considered R. 57.01(1)(i) — considered R. 57.01(1)(0.a) [en. O. Reg. 42/05] — considered Regulations considered: Insurance Act, R.S.O. 1990, c. I.8 Statutory Accident Benefits Schedule — Accidents on or after November 1, 1996, O. Reg. 403/96 Generally — referred to

ADDITIONAL REASONS to judgment reported at Godina v. Tripemco Burlington Insurance Group Ltd. (2013), 2013 ONSC 979, 2013 CarswellOnt 1529, 18 C.C.L.I. (5th) 317 (Ont. S.C.J.), respecting costs.

L. Ferro, S. Oostdyk, for Plaintiff E. Bowker, for Defendants

Robert B. Reid J.:

1 The plaintiff sued the defendant Tripemco for its failure to properly advise him about the purchase of optional income replacement benefits in a motor vehicle insurance policy. 2 Tripemco is a licensed insurance broker and Mr. Godina was one of its customers 3 Mr. Godina did not purchase optional income replacement benefit coverage available under the Statutory Accident Benefits Schedule1 (“SABS”) to the Insurance Act. 4 On December 11, 2004, Mr. Godina was involved in a serious motor vehicle accident, leaving him permanently disabled and wishing he had more than the basic $400.00 per week income replacement benefits. He would have qualified for $600.00 per week coverage based on his income at the date of the accident, if he had opted to purchase it. 5 There were four pivotal issues to be determined in the case: 1. Did Tripemco owe Mr. Godina a duty of care in its relationship with him as an insurance broker?

1O.Reg. 403/96, as amended Godina v. Tripemco Burlington Insurance Group Ltd. Robert B. Reid J. 335

2. If so, did Tripemco fall below the requisite standard of care in failing to make a proper offer of optional income replacement benefits to Mr. Godina? 3. Was it necessary for Mr. Godina to prove that he would have bought the optional income replacement benefits if properly offered? 4. Was the claim statute-barred under the provisions of the Limita- tions Act, 20022? 6 A subsidiary issue was the rate at which interest is to be applied to any damages awarded: either the SABS interest rate or interest pursuant to the Courts of Justice Act3. 7 In my decision dated February 12, 2013, I reviewed the issues. There was never a doubt about the presence of a duty of care, and so the evidence and argument was focussed on the last three issues and the interest rate question. I found in favour of the defendant on each of those dis- puted matters. 8 The defendant seeks costs against the plaintiff on a partial indemnity basis up to the date of an offer to settle and thereafter on a substantial indemnity basis. 9 The plaintiff acknowledges his responsibility for costs but submits that the amount should be reduced based on the fact that the claim represented a novel point of law. As well, the plaintiff suggests that his responsibility for costs should be reduced as an access to justice issue given that his own resources, while not outlined in detail, are presumably much less significant than those of the defendant. The plaintiff also submits that the hours claimed by the defendant are unreasonably high. 10 There is no dispute that my discretion as to costs is found in section 131(1) of the Courts of Justice Act, and that I should exercise that discretion in accordance with the general principles set out in rule 57.01 of the Rules of Civil Procedure4. 11 I have reviewed and take no issue with the hourly rates used by counsel for the defendant in calculating its Bill of Costs, and accept that the

2S.O. 2002, c. 24 3R.S.O. 1990, c. C.43 4R.R.O. 1990, Reg. 194, as amended 336 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

partial indemnity rate is properly claimed that 60% of the substantial indemnity rate. 12 The original claim was for significantly higher damages than were ultimately agreed at trial and contained additional causes of action beyond negligence including wrongful infliction of mental distress and bad faith as well as a claim for punitive and exemplary damages. Those claims were abandoned at trial. 13 The defendant submits that it had to bring a motion in March 2008 to compel production of an affidavit of documents. I note that a costs award was made in its favour on the motion. As well, the matter was removed from the trial list in 2010 based on the intention of the plaintiff to add a new defendant, although ultimately no change to the parties was made. The matter was dismissed for delay by the Registrar in 2011 and eventually restored to the trial list on consent. As a result, the defendant’s position is that the plaintiff unnecessarily lengthened the proceedings and further that there was a failure to admit a number of facts that should have been admitted prior to trial. For his part, the plaintiff notes that the issue at trial was quite narrow, the damages were agreed and that there was an agreed statement of facts which shortened the necessary trial time. 14 In reviewing those factors as to responsibility for shortening or delay- ing the trial process, I do not consider the evidence so significant in favour of one party or the other that I should depart from a typical costs award in favour of the defendants. 15 The plaintiff submits that the issues involved were novel and that the court should consider novelty to be another matter “relevant to the question of costs” described in rule 57.01i. In my view, the issues were not particularly novel. The limitations defence was prosaic. The requirement of the plaintiff to prove damages in a negligence case is standard. In a professional negligence claim, the requirement for proof that the defendant fell below a required standard of care is a normal prerequisite for success. The fact that the plaintiff unsuccessfully attempted to short-cir- cuit those standard terms of a negligence action or ignore the significance of the limitations issue should not relieve him of normal cost consequences. 16 As to access to justice, I acknowledge that it is important for mem- bers of society to have reasonable access to the court system for the resolution of civil disputes. The potential of an adverse costs award may have a chilling effect on a person’s ability to litigate through to the end of the Godina v. Tripemco Burlington Insurance Group Ltd. Robert B. Reid J. 337

trial. Conversely, the costs shifting provisions contained in the rules, particularly when supported by a rule 49, offer play a very specific role in limiting unreasonable or frivolous litigation and encouraging settlement. Rule 57.01(1)(0.a) acknowledges that one of the factors to be considered by the court in exercising its discretion is the amount of costs that unsuccessful party could reasonably expect to pay. There is no provision that suggests to a plaintiff that he or she will be relieved of the normal cost consequences of unsuccessful litigation based on the relative financial means of the parties or because of a societal value that encourages litigation. Here, the plaintiff went forward to trial with a case that had obvious legal and factual difficulties that made success unlikely. I consider that the amount that the plaintiff could reasonably be expected to pay is not out of keeping with the claim contained in defendant’s Bill of Costs. 17 As to offers to settle, the provisions of rule 49 combine with the provisions of rule 57(1) to allow the court to award costs to a successful defendant on a partial indemnity basis up to the date of an offer and on a substantial indemnity basis thereafter where the action is dismissed. This is consistent with the provisions of rule 49.10(1) where a plaintiff obtains a judgment more favourable than the terms of an offer to settle made by it. 18 The defendant made a formal offer dated June 4, 2009 to settle the proceedings by way of a dismissal without costs. In its letter dated No- vember 18, 2010, the defendant offered $35,000, all-inclusive to settle. In e-mail messages dated August 30 and August 31, 2012, counsel for the defendant again offered to dismiss the action without costs. Finally, the defendant made a rule 49 offer dated September 4, 2012 for $20,000 damages and interest plus $10,000 costs. The two rule 49 offers were said to remain open until 1 minute following the commencement of trial. Arguably, the later offers resulted in a withdrawal of the earlier ones although all of them represented a superior result to that achieved by the plaintiff at trial. 19 As a result, the defendant will have a costs order based on a partial indemnity scale up to November 18, 2010 and thereafter on a substantial indemnity scale. 20 Finally, I note that in relation to preparation for and attendance at trial, counsel for the defendant has claimed over 120 hours time and over 100 hours of time by a law student. The total trial preparation, attendance at trial and costs submissions results in a substantial indemnity amount of $45,055.35. I acknowledge that the trial presentation was indicative of 338 CANADIAN CASES ON THE LAW OF INSURANCE 18 C.C.L.I. (5th)

careful and thorough preparation. However, as an exercise of my discretion, I consider a more appropriate total for that portion of the costs claim to be $37,500, a reduction of $7,555.35. 21 Therefore, and for the reasons set out above, there will be a costs order in favour of the defendant to be paid by the plaintiff in the claimed amount of $77,780.74, inclusive of GST, HST and disbursements less an adjustment as noted above which including HST totals $8,587.54 for a net amount payable of $69,193.32. Order accordingly.