CITATION: Aviva Insurance Company of Canada v. Parrsboro Metal Fabricators Ltd., 2016 ONSC 8084 COURT FILE NO.: CV DATE: ONTARIO

Transcription

1 CITATION: Aviva Insurance Company of Canada v. Parrsboro Metal Fabricators Ltd., 2016 ONSC 8084 COURT FILE NO.: CV DATE: ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: AVIVA INSURANCE COMPANY OF CANADA and Applicant PARRSBORO METAL FABRICATORS LTD. Respondent Josiah T. MacQuarrie, for the Applicant No one appearing and QUEENIE TEICHMAN Shanti Barclay, for the Intervenor Intervenor MR. JUSTICE P.J. CAVANAGH Nature of Application HEARD: November 25, 2016 REASONS FOR DECISION [1] The Applicants Aviva Insurance Company of Canada ( Aviva and Commercial Union Assurance Co. of Canada ( Commercial Union bring this application for declaratory relief in relation to a Commercial Union commercial general liability insurance policy bearing policy number (the Policy.

2 Page: 2 [2] The declaratory relief relates to coverage obligations of the Applicants to their former insured Parrsboro Metal Fabricators Ltd. ( Parrsboro in response to an action commenced against Parrsboro in the Ontario Superior Court of Justice bearing Court File No. CV (the Underlying Action. Parties [3] Aviva and Commercial Union are companies that were licensed at the relevant times to underwrite insurance in Canada. Aviva s predecessor company, Commercial Union, provided liability insurance to Parrsboro for three years, from 1994 to The coverage was not renewed after the policy term. [4] Parrsboro is a company incorporated in Nova Scotia and was in the business of manufacturing oil tanks. Parrsboro had been out of business for many years by the time that the Underlying Action was commenced. Parrsboro has not filed a statement of defence in the Underlying Action. [5] Although duly served, Parrsboro has not appeared in this application and it was not represented at the hearing of this application. [6] Teichman commenced the Underlying Action against Parrsboro and others by a Statement of Claim issued April 2, 2014 seeking damages resulting from a fuel oil leak caused by fuel escaping through a perforation hole in a fuel oil tank owned by Teichman. Teichman alleges that Parrsboro manufactured the fuel oil tank in [7] Under section 132 of the Insurance Act, in the event that a judgment against Parrsboro is unsatisfied, Teichman may recover by action against Parrsboro s insurer the amount of the judgment, subject to the same equities as the insurer would have if the judgment had been satisfied. [8] On consent of the Applicants, Teichman has been granted intervenor status on this application. Questions to be decided and decision [9] The two questions raised on this application are: a. Given the allegations in the Statement of Claim and the language of the Policy, is it possible that Aviva will be required to indemnify Parrsboro for its liability to Teichman in the Underlying Action? b. If the answer to the first question is yes, is Aviva entitled to a declaration that it has no duty to defend or indemnify Parrsboro due to Parrsboro s failure to cooperate with Aviva s investigation and defence of the Underlying Action? If the answer to the first question is yes and the answer to the second question is no, the application must be dismissed.

3 Page: 3 [10] For the following reasons, I have concluded that the answer to the first question is no. Therefore, I have concluded that the Applicants are entitled to declaratory relief that (i the Policy does not respond to the allegations made against Parrsboro in the Underlying Action, (ii Aviva has no duty to indemnify Parrsboro with respect to the allegations made against Parrsboro in the Underlying Action, and (iii Aviva has no duty to defend Parrsboro with respect to such allegations. [11] Because of my decision with respect to the first question, I have not found it necessary to answer the second question. Legal Principles in Relation to Duty to Defend [12] This application is, in substance, one to determine whether Aviva has a duty to defend Parrsboro in the Underlying Action. If Aviva has such a duty, whether it also has a duty to indemnify Parrsboro for any liability to Teichman in the Underlying Action will be decided based upon the evidence and findings in the Underlying Action. [13] Whether an insurer s duty to defend has been triggered depends upon the allegations made in the pleadings against the insured. If the pleadings allege facts which, if true, would require the insurer to indemnify the insured for the claim, then the insurer is obliged to provide a defence. The allegations in the pleading are to be given the widest possible latitude in determining whether they raise a claim within the policy. It is not necessary to prove that the obligation to indemnify will in fact arise in order to trigger the duty to defend. The mere possibility of a claim falling within the policy may succeed will suffice. If there is ambiguity in the contract of insurance, it must be resolved in favour of the insured: Nichols v. American Home Assurance Co., [1990] 1 S.C.R. 801 at paras. 14, 16, 17, 18, and 21. [14] A party claiming coverage pursuant to an insurance policy has the onus of demonstrating that the loss falls within the coverage afforded by the policy, without considering exclusions to coverage. Once this is done, the onus is on the insurer to prove that an exclusion applies. Where the insurance policy is unambiguous, a court should give effect to the chosen language, reading the contract as a whole: Canadian National Railway v. Royal & SunAlliance Insurance Co. of Canada, 2008 CarswellOnt 6808 (S.C.C. at paras Allegations in Statement of Claim in the Underlying Action [15] Teichman commenced the Underlying Action against Parrsboro and against Bryan Fuels Limited and Bryan s Fuel Propane Inc. ( Bryan s Fuel by a Statement of Claim issued on April 2, [16] Teichman s Statement of Claim contains, among others, the following statements: 6. This action arises out of a fuel oil leak, which occurred at the property on or about April 3, The leak was caused by fuel oil escaping through a perforation hole in the fuel oil tank.

4 Page: 4 7. On or around October 2, 2007 Bryan s Fuel inspected the fuel oil tank and completed the TSSA Fuel Oil Distributor Inspections, Aboveground Tanks-Outside Report (dated, , the TSSA Fuel Oil Distributor Inspections, Appliance- Comprehensive Report (dated, and Bryan s Fuel, Furnace Cleaning Checklist (dated On April 3, 2012, a technician from Bryan s Fuel attended the property at approximately 8:18 am for the purpose of filling the fuel oil tank. Bryan s Fuel filled the fuel oil tank with approximately 311 litres of fuel oil that morning. 10. On the same day, a representative from Bryan s Fuel attended the property again, this time, in response to a no heat complaint. 11. On the same day, approximately 300 litres of oil leaked from the fuel oil tank and spread throughout the plaintiff s basement, under the concrete flooring and into the soil and ground water. 12. The plaintiff pleads that the defendant, Parrsboro Metal Fabricators Ltd. is responsible for the oil leak because it negligently designed, constructed and/or delivered the fuel oil tank. 13. The plaintiff states that she contracted with the defendant, Parrsboro Metal Fabricators Ltd. to either impliedly or expressly, provide products and services fit for their intended purpose. 14. The particulars of negligence as against the Defendant, Parrsboro Metal Fabricators Ltd. are they; a manufactured, supplied, imported and distributed a fuel oil tank when it knew or ought to have known it was made using insufficient materials; b Used materials and in particular, sheet metal, which did not meet ULC (Underwriters Laboratories of Canada specifications are industry standards; c Failed to test the materials for quality control and standard specifications; d Failed to test the fuel oil tank to ensure it was safe, of merchantable quality and fit for its purpose;

5 Page: 5 e Failed to inspect the fuel oil tank for deficiencies; f Failed to warn consumers, including the plaintiff that holes could develop in the fuel oil tank in less than twenty years; g Failed to take reasonable care in the manufacture, design and distribution of the fuel oil tank; h Failed to ensure the fuel oil tank was sold with proper installation, inspection and maintenance instructions; and i Failed to properly train, supervise and/or monitor its employees and/or the quality of their work. 16. The particulars of negligence as against the defendant, Bryan s Fuel are it: i Failed to advise the plaintiff of the corrosion and paint deterioration on the exterior of the tank and the need for further testing; j Failed to perform a water finding test to check condensation and bacteria build up in the tank when they knew or ought to have known such a test was required; 18. Further, the plaintiff relied on Bryan s Fuel s expertise; specifically, that Bryan s Fuel would have notified her on either October 2, 2007, December 29, 2011, August 25, 2011 and/or April 3, 2012 that the tank should never have been certified or filled with oil. Bryan s Fuel has been in the fuel oil business for over 50 years and had a history of servicing the plaintiff s heating system and as such was intimately familiar with the fuel oil tank. 20. The plaintiff states that the defendants, held themselves out as experts in fuel oil tank systems and are responsible for all losses suffered by the plaintiff as a result of the loss, which occurred on or about April 3, 2012 due to their negligence and breach of contract. 21. As a result of the fuel oil tank leak, the plaintiff suffered damages to their real and personal property including but not limited to; [list of expenses in sub-paragraphs 21(a to (j].

6 Page: The property was a source of rental income for the plaintiff which she lost during the time the property was being repaired. [17] There is no claim in the Statement of Claim for damages to compensate Teichman for expenses to repair or replace the fuel tank itself. The claim is for damages that Teichman suffered to her real and personal property as a result of the fuel oil tank leak, including rebuilding the interior of the home and landscaping outside the home. Insurance Policy Issued by Commercial Union [18] Commercial Union is Aviva s predecessor company. [19] Aviva tendered evidence that, given the length of time that had passed between notice of the action and the time Aviva was on risk, it was difficult for Aviva to piece together the details of the insurance coverage Commercial Union provided to Parrsboro in the 1990s. Much of the underwriting information has been lost or destroyed. From the limited available records, including actuarial codes from its archival system, Aviva accepts that Commercial Union issued various liability insurance policies to Parrsboro. This included the Policy. [20] Aviva s first notice of the Underlying Action came after Teichman demanded production of the Policy in the fall of [21] A lengthy search was undertaken by Aviva to determine what policies of insurance were issued by Commercial Union to Parrsboro. The details of this search are contained in the affidavit of Beth Olave which was delivered on behalf of Aviva in support of its application. [22] Aviva was unable to locate an actual copy of the Policy, but it provided evidence through the affidavit of Ms. Olave that the Policy would have been written on Commercial Union s form L76, as this form was the commercial liability wording used by Commercial Union at that time. [23] I accept the evidence tendered on behalf of the Applicants and find that: a. Commercial Union provided liability insurance to Parrsboro for three years, from 1994 to b. Coverage was not renewed after the policy term. c. The Policy was issued for the renewal terms of and again for , and the inception date of the Policy was likely before the term. d. The Policy had the wording in Commercial Union s form L76. [24] The L76 policy form contained the following insuring agreement: Insuring Agreement

7 Page: 7 The insurer will pay those sums that the Insured becomes legally liable to pay as compensatory damages because of bodily injury or property damage to which this insurance applies. No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under SUPPLEMENTARY PAYMENTS-COVERAGES A, B, C, D, E AND F. The insurance applies only to bodily injury or property damage which occurs during the Policy Period. The bodily injury or property damage must be caused by an occurrence. The occurrence must take place in the coverage territory. The insurer will have the right and duty to defend any action seeking those compensatory damages, but: 1. The amount the insurer will pay for compensatory damages is limited as described in SECTION III-LIMITS OF INSURANCE; 2. The insurer may investigate and settle any claim or action at the Insurer s discretion; and 3. The insurer s right and duty to defend ends when the Insurer has used up the applicable limit of insurance in the payment of judgements or settlements under Coverages A, B, C, D, E, F or medical expenses under Coverage C. [25] Under the L76 policy form, the terms occurrence and property damage were defined as follows: Occurrence means an accident, including continuous or repeated exposure to substantially the same general harmful conditions. Property Damage means: Position of Aviva a. Physical injury to tangible property, including all resulting loss of use of that property; or b. Loss of use of tangible property that is not physically injured. [26] Aviva submits that the Policy is clear and unambiguous, and only provides coverage if property damage occurs during the policy period. Aviva submits that it is not sufficient for a party seeking coverage to claim that the negligent act that caused property damage occurred during the term of a policy. It must be shown that the property damage suffered as a result of the negligent act occurred during the policy period.

8 Page: 8 [27] Aviva relies upon the decision of the Ontario Court of Appeal in Thames Steel Construction Ltd. v. Northern Assurance Co. (1988, CarswellOnt 731; [1988] O.J. No In that case, there was a claim for compensation for goods damaged when the roof of a warehouse collapsed. The Court of Appeal assumed, for purposes of the appeal, that the roof support components and roof joists were defective, as alleged in the pleadings. The Court of Appeal held that to come within the definition of occurrence the exposure of the goods must, in the circumstances, cause continuous or repeated damage or destruction. None of the claims alleged such damages or destruction. Therefore, the Court of Appeal held that there was no occurrence and that the insurer is under no duty to indemnify the insured. Because there was clearly no obligation to indemnify, the Court of Appeal held that there is no duty to defend the action against the insured. [28] Aviva also relies upon the decision of the Court of Appeal in Alie v. Bertrand & Frere Construction Co., [2002] O.J. No (C.A. where the Court of Appeal wrote, at paragraph 42, that [t]he policies are triggered to respond to the claim only where there is an occurrence resulting in property damage suffered during the policy period, no matter the timing of the precipitating cause or event. [29] Aviva submits that, giving the allegations in the Statement of Claim their widest latitude, there is no possibility that Aviva will be required to indemnify Parrsboro for liability to Teichman in the Underlying Action because there is no allegation in the Statement of Claim of property damage which occurred during the policy period. Position of Teichman [30] Teichman submits that, looking at the allegations in the Statement of Claim and the wording of the Policy, the damage to the fuel oil tank and the occurrence took place in 1995 when the fuel oil tank was manufactured for use. Teichman submits that the pleadings against Bryan s Fuel that the oil tank corroded and was not in a fit and proper condition when it was inspected are enough to give rise to a possibility of coverage under the Policy. Teichman submits that, accordingly, there is a duty to defend under the Policy. [31] Teichman refers to so-called trigger theories which have been applied by courts to determine when there was property damage caused by an occurrence for the purpose of determining whether there is coverage under comprehensive general liability insurance policies. These theories have been described as the exposure theory, the manifestation theory, the injury-in-fact theory, and the continuous trigger theory. Teichman submits that the escape of oil from the fuel oil tank which manifested on April 3, 2012 is not the date of the property damage or occurrence, within the meanings of those terms in the Policy, and that the manifestation theory in a manufacturing/product liability context has been rejected by courts in Ontario and in Canada generally. [32] Teichman relies upon a decision of the Saskatchewan Court of Appeal in University of Saskatchewan v. Fireman s Fund Insurance Company of Canada, [1997] CarswellSask 681 (Sask. C.A.. In that case, the university constructed a building with an exterior cladding that matched older, pre-existing buildings on campus. The façade was attached to the concrete walls

9 Page: 9 of the building using galvanized steel pins. It was ultimately determined that stainless steel pins should have been used. The Court of Appeal rejected the manifestation theory, and held that the date of property damage was not the date when fallen bricks were discovered in 1985, and denied coverage because the manifestation of the damage occurred within the policy period, but not the exposure. [33] Teichman also relies upon the decision of the Ontario Court of Appeal in Alie. In that case, concrete used in house foundations was defective, resulting in gradual deterioration of the concrete which eventually made the foundations unsafe, thereby causing damage to the houses. The Court of Appeal affirmed the decision of the trial judge who had held that all policies in effect from the beginning to the end of the deterioration process must respond to the loss. [34] Teichman, relying upon these authorities, submits that the damage to the fuel oil tank occurred in 1995 when the sheet metal which allegedly did not meet required specifications was used to construct the fuel oil tank. Teichman submits that April 3, 2012, when the oil spill occurred, is the date of manifestation of the property damage, but not the date of the occurrence of property damage within the meanings of those terms in the Policy. Teichman submits that, applying the exposure theory, there is a possibility that property damage occurred in 1995 when the fuel oil tank was manufactured by Parrsboro and, therefore, Aviva has a duty to defend under the Policy. Analysis [35] In Teichman s Statement of Claim in the Underlying Action, there are no allegations that there was a slow leak by which fuel oil leaked from the tank and damaged Teichman s home and land continuously over a period of time. To the contrary, the Statement of Claim clearly alleges that the fuel oil leak occurred on a particular day, or about April 3, [36] Teichman relies upon the exposure theory to support her submission that there is a possibility that property damage occurred in 1995, when the fuel oil tank was manufactured by Parrsboro. In support of this submission, as noted, Teichman relies upon the decision of the Saskatchewan Court of Appeal in University of Saskatchewan and the decision of the Ontario Court of Appeal in Alie. [37] In the University of Saskatchewan case, the trial judge decided that the root of the damage was moisture contacting and corroding galvanized steel pins that had been used to affix stone panels to concrete slabs that were anchored to the exterior of the concrete block walls of the building to give the building an attractive finish. The corrosion of the galvanized steel pins caused the stone panels that were part of the exterior cladding of the building to fracture, resulting in additional damage as time went by, with the possibility of pieces breaking off and falling away. The specification of galvanized steel pins instead of stainless steel pins was held to be a design error by the architect. [38] There was no question in the University of Saskatchewan case that the architect s design error resulted in corrosion of the galvanized steel pins and cracking of the stone panels. It was

10 Page: 10 common ground that the event which gave rise to the obligation to indemnify under the terms of the policy was the occurrence of loss or damage to the insured building. [39] The trial judge decided that the loss occurred upon the discovery of the first fallen stone, which was within the policy period. The Saskatchewan Court of Appeal disagreed, rejected the trial judge s application of the manifestation theory, and allowed the appeal because, unless the manifestation theory applied, the damage occurred before the date of commencement of coverage under the applicable insurance policy. [40] In my view, the University of Saskatchewan decision does not assist me to decide the question of whether there is a possibility of coverage under the Policy in this case. The decision of the Saskatchewan Court of Appeal in that case was that the manifestation theory should not be applied to determine when the property damage occurred. In this case, neither Teichman nor Aviva submits that the manifestation theory should be applied. [41] In addition, in the University of Saskatchewan case, it was accepted by the parties, and by the Court of Appeal, that the property that was damaged as a result of the design error was the building, and the trial judge had found that the process of damage to the building began long before the insurer came on the risk and at that point the consequences, culminating in the falling of the stone panels, became inevitable. This is a very different factual context than the facts in the case at bar (based upon allegations in the Statement of Claim where there is no claim made in relation to damage to the fuel oil tank itself. The fuel oil tank, as alleged in the Statement of Claim, was manufactured using insufficient materials resulting in a fuel oil leak caused by fuel oil escaping through a perforation hole in the fuel oil tank. The property that was allegedly damaged (damage that was allegedly caused by the negligence of Parrsboro is the land and the interior of the house on Teichman s property, not the fuel oil tank. This damage, as alleged in the Statement of Claim, occurred on or about April 3, [42] In my view, the decision of the Court of Appeal in Alie also does not support Teichman s position that there is a possibility of insurance coverage under the Policy based upon the allegations in the Statement of Claim. [43] In Alie, the trial judge concluded that the damage to the affected houses went beyond the defective ready mix concrete itself that was supplied by the insured. There was damage to the foundations and, in turn, to the structural integrity of the homes. The Court of Appeal held that there is no basis to interfere with the trial judge s finding that there was property damage within the meaning of the comprehensive general liability policies. [44] In Alie, the Court of Appeal considered the four trigger theories and wrote at paragraph 94: Although the four formulations are referred to as theories, we do not endorse that nomenclature as it may imply an arbitrary or conceptual basis rather than an evidentiary basis for triggering coverage under a policy. As will be evident, the trigger theories are, in effect, four ways of interpreting the often-complex evidence of how and when the damage occurred, then labelling the approach.

11 Page: 11 Upon close analysis, each theory is effectively an application of the injury in fact theory where the court determines, on the evidence, at what point or continuum of points in the process, the property damage in fact occurred. And at paragraph 141: If the injury in fact is found to have occurred at the date of exposure to the hazard, at the date of manifestation of the damage, or on a continuous and progressive basis, one might refer to the application of the exposure, manifestation or continuous trigger theories as descriptive of the timing of the damage as it actually occurred. However, the most straightforward and accurate nomenclature in each case is injury in fact. The Court of Appeal held, at paragraph 140, that the policy language in the comprehensive general liability policies in issue will trigger coverage, from the timing point of view, when damage is suffered within the policy period. The Court of Appeal held that, as a result, the injury in fact theory is the one that corresponds with that language. [45] Again, in order to determine whether there is a possibility of insurance coverage for damage to property, it is necessary to identify the property that is the subject of an allegation of property damage. In Alie, the Court of Appeal made it clear, at paragraph 138 of its decision, that the damage that was covered by the policies was not the damage to the concrete itself, but damage to the houses in which the concrete was placed: The court s analysis in Allstate is correct and also applies to this case, because here, the gradual deterioration of the concrete itself is not the damage that is covered by the policies. What is covered is the ongoing process of deterioration caused by the moisture s effect on the defective concrete which, together with the initial defect caused by the inclusion of the fly ash, eventually made the foundations unsafe, thereby causing the damage to the houses. It is the process of ongoing deterioration culminating the need for total replacement which is covered by the policies. As a result, all policies in effect from the beginning to the end of that process must respond to the loss. In Alie, the houses were subject to ongoing damage because of the placement in them of defective concrete that was progressively deteriorating. [46] In contrast, in this case, there are no allegations in the Statement of Claim that there was physical injury to any of Teichman s tangible property that occurred during the period of coverage under the Policy, or allegations of loss of use of tangible property that is not physically injured that occurred during the period of coverage. There is no claim that Parrsboro is liable for damage to the fuel oil tank itself. The only allegations in the Statement of Claim of physical injury to Teichman s tangible property are that such injury resulted from a fuel oil leak which occurred on a particular day, on or about April 3, This is long after the cessation of coverage under the Policy.

12 Page: 12 [47] In my view, giving the allegations in the Statement of Claim their widest latitude, there are no allegations of acts or omissions falling within the coverage afforded by the Policy. Therefore, I conclude that there is no possibility of a duty on the part of Aviva to indemnify Parrsboro for liability to Teichman in the Underlying Action in relation to property damage that occurred during the period of insurance coverage under the Policy. [48] Given my conclusion that there is no possibility of a duty to indemnify under the Policy, it necessarily follows that the duty to defend does not arise: R.W. Hope Ltd. v. Dominion of Canada General Insurance Co., 2011 CarswellOnt 4440 (C.A., at para. 20. Whether Aviva entitled to a declaration that there is no coverage under the Policy on the ground that Parrsboro breached its obligation to cooperate [49] Aviva has also made application for a declaration that it has no duty to defend or indemnify Parrsboro under the Policy on the ground that Parrsboro failed to cooperate with Aviva s investigation and defence of the Underlying Action. [50] Given my conclusion that the Policy does not respond to the claims made against Parrsboro in the Underlying Action, I do not find it necessary to decide whether Parrsboro materially breached the terms of the Policy by not reporting the loss to the insurer or by failing to cooperate with the defence of the action. Decision [51] For these reasons, I grant the Applicants application and make an order: a. Declaring that the Policy does not respond to the claims made against Parrsboro in the Underlying Action; b. Declaring that Aviva has no duty to indemnify Parrsboro with respect to the claims made against it in the Underlying Action; and c. Declaring that Aviva has no duty to defend Parrsboro with respect to the claims made against it in the Underlying Action. [52] The parties agreed that the successful party on this application should be entitled to costs on a partial indemnity scale fixed in the amount of $5,000 inclusive of disbursements and HST and I so order. Released: January 3, 2017 Mr. Justice P.J. Cavanagh

13 CITATION: Aviva Insurance Company of Canada v. Parrsboro Metal Fabricators Ltd., 2016 ONSC 8084 COURT FILE NO.: CV DATE: ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: AVIVA INSURANCE COMPANY OF CANADA Applicant and PARRSBORO METAL FABRICATORS LTD. Respondent and QUEENIE TEICHMAN Intervenor REASONS FOR JUDGMENT Mr. Justice P.J. Cavanagh Released: January 3, 2017