SUPREME COURT OF NOVA SCOTIA Citation: Blenus v. Dominion of Canada General Insurance Company, 2016 NSSC 162

Transcription

1 SUPREME COURT OF NOVA SCOTIA Citation: Blenus v. Dominion of Canada General Insurance Company, 2016 NSSC 162 Date: Docket: Hfx No Registry: Halifax Between: Donald Blenus v. Applicant The Dominion of Canada General Insurance Company/Compagnie d Assurance Générale Dominion du Canada Respondent LIBRARY HEADING Judge: The Honourable Justice Suzanne M. Hood Heard: April 13, 2016, in Halifax, Nova Scotia Written Decision: June 23, 2016 Subject: Summary: Issues: Result: Insurer s duty to defend. Donald Blenus seeks an order that The Dominion of Canada General Insurance Company defend him in a claim against him, appoint independent counsel and reimburse him for his costs and expenses incurred to date. Duty to defend. The insurer has a duty to defend. THIS INFORMATION SHEET DOES NOT FORM PART OF THE COURT'S DECISION. QUOTES MUST BE FROM THE DECISION, NOT THIS LIBRARY SHEET.

2 SUPREME COURT OF NOVA SCOTIA Citation: Blenus v. Dominion of Canada General Insurance Company, 2016 NSSC 162 Date: Docket: Hfx No Registry: Halifax Between: Donald Blenus v. Applicant The Dominion of Canada General Insurance Company/Compagnie d Assurance Générale Dominion du Canada Respondent Decision Judge: Heard: Counsel: The Honourable Justice Suzanne M. Hood April 13, 2016, in Halifax, Nova Scotia Philip M. Chapman, for the Applicant Nancy Murray, for the Respondent

3 Page 2 By the Court: Introduction [1] Donald Blenus seeks an order that The Dominion of Canada General Insurance Company defend him in a claim against him, appoint independent counsel and reimburse him for his costs and expenses incurred to date. Issue 1. Duty to defend Facts [2] Donald Blenus provided excavation and soil compaction services on land in Kings County in May A dwelling was subsequently built on the land in The house was sold in [3] The plaintiffs have commenced action against the previous owners who built the house in They say that in 2012 they started to notice signs of building settlement (Statement of Claim, para. 10). The defendants have added Mr. Blenus as a Third Party claiming contribution and indemnity if they are found to be liable.

4 Page 3 [4] The specific allegations in the plaintiffs Statement of Claim are that it became clear that unsuitable subsurface conditions existed beneath the foundation and slab area of the dwelling (para. 13 of Statement of Claim). The plaintiffs claim that as a result the dwelling is structurally unstable (para. 14). [5] They also say: 17. The Plaintiffs state that the Shermans built directly on top of the burnt down warehouse and/or did not take proper precaution to ensure that the subsurface conditions of the Property were acceptable prior to constructing the dwelling on the Property. 18. The Plaintiffs state that the Shermans knew, or ought to have known, that the footings were inadequate. 21. The Plaintiffs plead that the Shermans negligently or fraudulently misrepresented the condition of the Property on the PCDS and/or verbally at the tour of the Property, and that as a result of the misrepresentation(s) and breach(es) of contract, the Plaintiffs have suffered damages including, but not limited to the cost of repairing the Property and reconstructing the footings and foundation. 23. In the further alternative, the Plaintiffs state that the Shermans failure to disclose the structural defect, which the Shermans knew or ought to have known existed. The Plaintiffs state that the structural defect renders the premises unfit for habitation and/or dangerous. 24. In the further alternative, the Plaintiffs claim against Robert and/or Diane Sherman for negligent construction. [6] In the third party claim, the defendants say: 10. In the weeks prior to and at the time of the purchase of the property on July 9, 2003, the Third Party provided assurances to the Defendants that residential premises could safely and appropriately be constructed on the property.

5 Page On the basis of the Third Party s professional services and assurances the Defendants constructed residential premises on the property. They claim against the third party, Blenus, stating: 15. The Defendants repeat paragraphs 10 and 11, herein, and say that in the event that the Plaintiffs are successful in obtaining the relief claimed, or any portion of it, the Defendants are entitled to contribution and indemnity from the Third Party on the bases of: a. negligence; b. breach of contract; and c. misrepresentation. [7] Blenus was insured by The Dominion of Canada continuously from May 2, 2002 to May 7, 2004, and from March 11, 2005 to March 11, The policies contained a covenant to defend on an occurrence basis, i.e., that property damage must occur during the policy period. [8] There is no issue between the parties about the policy wording itself. Both cite the same policy provisions, that is the standard insuring agreement and the definitions of property damage and occurrence. [9] The Insuring Agreement is that: 5. Insuring Agreement: a. We will pay those sums that the insured becomes legally obligated to pay as compensatory damages because of property damage to which this insurance applies. This insurance applies only to

6 Page 5 property damage which occurs during the policy period. The property damage must be caused by an occurrence. [10] Property damage is defined as: c. Property damage that is loss of use of tangible property that is not physically injured shall be deemed to occur at the time of the occurrence that caused it. [11] Occurrence is defined as: 10. Occurrence means an accident, including continuous or repeated exposure to substantially the same general harmful conditions. [12] The parties, however, differ about how a trial judge could interpret these provisions in the context of the claim. [13] Donald Blenus denies liability and says The Dominion has a duty to defend him. As he put it, the question for his defence is: is Blenus liable for performing inadequate soil compaction? (quoting from his written submission at pg. 21). [14] The Dominion takes the position that the property damage did not occur during the policy period because the damage did not come to the plaintiffs attention until 2012 and that it continued thereafter. It says there was therefore no

7 occurrence of property damage within the policy periods when The Dominion insured Mr. Blenus. Page 6 [15] The issue of the duty to defend, in this case, is whether there is a mere possibility that the property damage occurred during the policy period. [16] The Dominion says it did not occur until it manifested itself in 2012 at which time it was not the insurer and the insurer at that time has the duty to defend. The Dominion distinguishes this situation from others in the caselaw because Blenus did not work on the house itself which is the subject of the action. [17] Donald Blenus says this situation is similar to situations where a defective part was installed which ultimately failed or where there was negligent installation which eventually led to damage. The Law [18] The parties do not disagree on the applicable law with respect to the duty to defend. They cited many of the same authorities. [19] In the leading authority: Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, Rothstein, J. writing for the court said at para. 19:

8 19 An insurer is required to defend a claim where the facts alleged in the pleadings, if proven to be true, would require the insurer to indemnify the insured for the claim (Nichols v. American Home Assurance Co., [1990] 1 S.C.R. 801 (S.C.C.), at pp ; Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49, [2001] 2 S.C.R. 699 (S.C.C.), at para. 28; Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21 [2006] 1 S.C.R. 744 (S.C.C.), at paras ). It is irrelevant whether the allegations in the pleadings can be proven in evidence. That is to say, the duty to defend is not dependent on the insured actually being liable and the insurer actually being required to indemnify. What is required is the mere possibility that a claim falls within the insurance policy. Where it is clear that the claim falls outside the policy, either because it does not come within the initial grant of coverage or is excluded by an exclusion clause, there will be no duty to defend (see Nichols, at p. 810; Monenco, at para. 29). Page 7 [20] The phrase mere possibility that a claim falls within the policy is the test for this court on the motion. It is the trial judge who will determine, based upon the evidence at trial, whether the property damage in fact occurred during the policy period. [21] In Nichols v. American Home Assurance Co., [1990] 1 S.C.R. 801, McLachlin, J. (as she then was), said at para. 21: 21 I conclude that considerations related to insurance law and practice, as well as the authorities, overwhelmingly support the view that the duty to defend should, unless the contract of insurance indicates otherwise, be confined to the defence of claims which may be argued to fall under the policy. That said, the widest latitude should be given to the allegations in the pleadings in determining whether they raise a claim within the policy. [22] McLachlin, J., referred to the allegations in the pleadings and the defence of claims. Subsequent authorities have also confirmed that it is the claims in the

9 Page 8 pleadings that must be considered. Careful attention must be paid to the wording of the claims. However, as McLachlin, J. said, the widest latitude should be given to the allegations to determine if a claim is raised that comes within the policy. In determining if there is a mere possibility of coverage, the focus is on the claim itself. As Rothstein, J. said in para. 20 of Progressive Homes: 20 In examining the pleadings to determine whether the claims fall within the scope of coverage, the parties to the insurance contract are not bound by the labels selected by the plaintiff (Non-Marine Underwriters, Lloyd s of London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551 (S.C.C.), at paras. 79 and 81). The use or absence of a particular term will not determine whether the duty to defend arises. What is determinative is the true nature or the substance of the claim (Scalera, at para. 79; Monenco, at para. 35; Nichols, at p. 810). [23] In Bacon v. McBride, [1984] B.C.J. No (B.C.S.C.), Wallace, J. said in para. 10: 10 The pleadings govern the duty to defend not the insurer s view of the validity or nature of the claim or of the possible outcome of the litigation. If the claim alleges a state of facts which, if proven, would fall within the coverage of the policy the insurer is obligated to defend the suit regardless of the truth or falsity of such allegations. If the allegations do not come within the policy coverage the insurer has no such obligation: see Couch on Insurance, 2 nd revised ed. (1982), vol. 14, p. 706, para. 51:149. In this respect the duty to defend may well be broader than the insurer s obligation to indemnify the insured for liability imposed by law. The insurer s obligation to defend arises when notice of the claim is received and continues as long as it is outstanding even though the insurer may consider the allegation to be groundless. [24] The court must determine the true nature of the claims from the pleadings. It is not appropriate to consider issues raised in the defence to the claims. In Hamel

10 Page 9 Construction Inc. v. Lombard Canada Ltd., 2005 NSCA 69, Chipman, J.A. referred to Neary v. Wawanesa Mutual Insurance Co., [2003] N.S.J. No. 198 (N.S.C.A.) and Kerr v. Law Profession Indemnity Co., (1994), 22 C.C.L.I. (2d) 28 (Ont. Gen. Div.) in concluding that it is the claim which is put forward which must be considered. [25] I have quoted above the portions of the plaintiffs claim and the third party claim. Since the defendant s claim contribution and indemnity if the plaintiffs are successful, in my view it is appropriate to consider both the claims made by the plaintiffs and the claims against Donald Blenus made by the defendants. [26] The plaintiffs claim in para. 13 and 14 that there were unsuitable subsurface conditions beneath the foundation and slab, which have made the dwelling structurally unstable. The defendants claim against Donald Blenus that they hired him to provide excavation and soil compaction services in relation to construction of residential premises (para. 5). The defendants also say Mr. Blenus provided assurances that residential premises could safely and appropriately be constructed (para. 10). [27] Both parties cite Meridian Construction Inc. v. Royal & SunAlliance Insurance Co. of Canada, 2011 NSSC 177 (affirmed 2012 NSCA 84). Mr. Blenus

11 Page 10 also cited Co-operators General Insurance Co. v. Wawanesa Mutual Insurance Co., 2014 NSSC 23. In both cases, the construction was completed before the problem occurred. [28] In Co-operators, a plumbing contractor installed an expansion tank for the hot water heating system. Seven years later the tank had fallen, struck a fuel line and caused a significant oil spill for which the remediation cost was $307,000. Wood, J. concluded there was a duty to defend where there are allegations of negligent installation. He said in para. 19: 19 There are a number of similarities between the allegations made in the Meridian Construction case and those found in the statement of claim against Wile Plumbing. Both involve allegations of negligent installation of plumbing systems with a sudden event causing damage after the expiry of the policy period. The working of the insuring agreement in the two policies is slightly different. I do not think these variations are material or affect the scope of the coverage. I am satisfied that in substance the two insuring agreements are the same. [29] In Meridian, they were alternate allegations: the first for negligent installation of the plumbing system and the second for negligent repair. The court concluded there was a possibility a trial judge could trial that the property damage occurred when the pipe was installed. In para. 44, Bryson, J.A. said in para. 26: Justice Hood rightly observed that the allegations in the Shannex action encompassed both the original installation of the pipe and repairs to it. Therefore,

12 the occurrence of property damage could have arisen from the original installation or the subsequent faulty repair. This means that there is a possibility of coverage under Clause 1(a)(i) as well as Clause 1(a)(ii) and the obligation to defend is triggered under either clause. Justice Hood did not err in so finding. Page 11 [30] Mr. Blenus says it is possible the settlement of the dwelling began immediately after it was constructed. He says this is no different from situations like those in the authorities he cited. [31] In Alie v. Bertrand et Frère Construction Co., [2002] O.J. No (C.A.), the court dealt with a situation where a concrete supplier used fly ash in its readymix concrete. It supplied that concrete for construction of a number of homes but was not involved in the actual construction of the homes. Problems began with the homes shortly after construction. The issue at trial and on appeal was whether there was property damage from an occurrence within the policy wording. The trial judge concluded there was and that decision was upheld on appeal. [32] The Court of Appeal said in its decision that it is up to the trial judge on the evidence of each case to determine when the property damage occurred. [33] The trial judge had considered four so-called trigger theories in his decision. The Court of Appeal said at para. 139: 139 The four trigger theories are misnamed as theories. Rather they are descriptive of the finding of the trial judge, on the evidence, of the point in time

13 when the relevant damage occurred. Consequently, there is no rule that a particular theory will always apply. Rather, the findings of fact will dictate the appropriate description of the trigger in any particular case. Page 12 [34] I am not the trial judge. It will be up to that judge to determine definitively when the damage occurred. The trial judge s findings of fact will dictate the appropriate description of the trigger in the particular case. My role is to determine if there is a mere possibility that damage occurred during the policy period when Donald Blenus was insured by The Dominion. [35] If it is possible that, when the evidence comes out at trial, the trial judge could conclude the damage occurred at the time the excavation and soil compaction was done in May 2003, then there is a duty for The Dominion to defend. [36] In Alie, the concrete supplier was not involved in the construction of the homes. Neither was Donald Blenus here. However, in Alie, there were problems with the home shortly after construction; that is unlike the situation here where settlement began to be noticed only in 2012, nine years after Donald Blenus did the excavation and soil compaction work. [37] In Meridian, the alternate claim was that the pipe was improperly installed at the time of construction the year before the problem occurred. In Co-operators, it

14 was alleged the expansion tank was improperly installed but it was seven years before it fell. Page 13 [38] Donald Blenus says the settlement problem which was first noticed in 2012 may have been a progressive problem, arising from the excavation and soil compaction in He refers to Versa Fittings & Manufacturing Inc. v. Berkeley Insurance Co., 2015 ONSC 1756, for this submission. In that case, Mew, J. said in para. 36: 36 A layperson would likely think that it would be easy to pinpoint when property damage occurred in the case of a flood caused by the failure of a valve. But such an approach is criticised by one of the parties as oversimplifying a complex series of allegations. The proponents of a more holistic approach to the duty to defend point to a growing body of jurisprudence which recognises that in may product liability cases property damage is progressive and the culminating (and often cataclysmic) event represents but the last stage of a process of deterioration. [39] In Parkhill Excavating Ltd. v. Royal & Sunalliance Insurance Co. of Canada, 2015 ONSC 6310, Healey, J. dealt with claims relating to residential septic systems. The allegations included that the filter medium supplied and installed was not the correct material (para. 12); and the calculations and designs did not conform to the features of the house to be built (para.12). The work was done in 2004.

15 Page 14 [40] The issue was whether the property damage occurred during the policy period. The insurer argued that the manifestation of the property damage must have occurred during the policy period (para. 44). The installation occurred during the policy period but the problems were identified in 2010, six years after the work was done. Healey, J. referred to Progressive Homes and concluded in para. 47: 47 These cases, however, run contrary to the ratio in Progressive Homes and Rothstein, J. s conclusion that an accident does not have to be a sudden event, but rather, that on a case-by-case basis, defective workmanship may itself constitute an accident. As faulty/defective workmanship is the occurrence that gave rise to this claim, it falls within the policy period. This court reached this same conclusion in California Kitchens & Bath Ltd. v. AXA Canada Inc., 2010 ONSC 6125, 97 C.L.R. 93d) 94 (Ont. S.C.J.), at para. 20. [41] In Canalta Construction Co. v. The Dominion of Canada General Insurance Co., 2013 ABQB 325, Ouellette, J. concluded Dominion had a duty to defend Canalta. The work was done between 2003 and 2005 during the time Canalta was insured by Dominion. The failures occurred after the policy period. The statement of claim alleged negligence in design and construction. Ouellette, J. said in para. 31: Arguably, the damage occurred when the actual design and construction occurred

16 Page 15 [42] In Selk Ventures Corp. v. Canadian Northern Shield Insurance Co., 2015 BCSC 964, McEwan, J. dealt with a claim against the manufacturer of roof trusses when a roof collapsed in He concluded the insurer at the time the trusses were manufactured (April 2005 to April 2006) had a duty to defend. He too referred to Progressive Homes in concluding there was a mere possibility that the alleged defects in the design and manufacture of the trusses occurred during the policy period. [43] This is another instance where the damage was not caused by a party involved in the actual construction of the building. [44] The Dominion referred to Thames Steel Construction Ltd. v. Northern Assurance Co., [1988] O.J. No (C.A.). In that case, material was supplied by the defendant in 1972, but the roof collapse did not occur until The court concluded in para. 3: 3 For the purposes of the appeal, we assume that the roof support components and roof joists supplied by the respondent were defective as alleged in the third-party proceedings. The material was supplied by the respondent in 1972, but the roof did not collapse until To come within the definition of occurrence the exposure of the goods must, in these circumstances, cause continuous or repeated damage or destruction. None of the claims in the Nova Scotia proceedings alleges such damage or destruction. As there was no continued or repeated damage or destruction, there was no occurrence, and hence the appellant is under no duty to indemnify the respondent.

17 Page 16 [45] The Dominion submitted this court should rely upon the discoverability principle or the manifestation principle in determining that the damage occurred after the policy period when Donald Blenus was insured by The Dominion. The Dominion also referred to Central & Eastern Trust Co. v. Rafuse, [1986] S.C.J. No. 52, and Nielsen v. Kamloops (City), [1984] S.C.J. No. 29. [46] Although the above authorities were not duty to defend cases, The Dominion relies upon them because both applied the discoverability rule. LeDain, J. said at para. 89 of the former: I am thus of the view that the judgment of the majority in Kamloops laid down a general rule that a cause of action arises for purposes of a limitation period when the material facts on which it is based have been discovered or ought to have been discovered by the plaintiff by the exercise of reasonable diligence However, the issue in both cases was whether the claims were statute-barred. [47] Several of the authorities cited were the trial (or appeal) decisions about when the property damage occurred, not about whether there was a duty to defend. These included Alie; Deodato v. Hartford Ins. Co., 363 A. 2d 361 (1976, Sup Ct. New Jersey); Cansulex Ltd. v. Reed Stenhouse Ltd., [1986] B.C.J. No (S.C.); and Pacific Rim Nutrition Ltd. v. Guardian Insurance Co. of Canada, [1998]

18 Page 17 B.C.J. No (C.A.). I do not find them helpful except Alie, which is helpful in that it referred to the four so-called trigger theories. [48] As I said above, it is not for me to determine when the property damage occurred. If, after considering the so-called trigger theories, the trial judge could conclude that the property damage occurred during the policy period, then there is a duty to defend. [49] In para. 329 of Alie at the trial court, Roy, J. summarized the four theories as follows: (a) The Exposure Theory: coverage is triggered by the first exposure to the conditions which causes bodily injury or property damage. (b) The Manifestation Theory: coverage is triggered or property damage is said to occur when the plaintiff first becomes aware of the property damage or the injury. (c) The Injury In Fact Theory: coverage is triggered when property damage or injury actually occurs, whether it was observable or not. (d) The Continuous or Triple Trigger Theory: the injury or property damage is said to occur from the time of the initial exposure to the time of the manifestation or discovery of the damage. [50] As applied to the circumstances in this case, the four theories are as follows: (a) The Exposure Theory

19 Page 18 There may be evidence at trial that there was exposure to a harmful condition, unsuitable subsurface conditions, from the time the excavation and soil compaction was done. (b) The Manifestation Theory The trial judge may conclude property damage occurred when the plaintiffs first noticed the settlement problem in Two authorities cited by The Dominion refer to the issue of manifestation or discoverability. These are Central Trust and Nielsen, to which I have referred above. (c) The Injury In Fact Theory Even though the damage may not be manifest, it must exist in fact. If there is evidence at trial that there was property damage during the policy period, there would be coverage even if the damage was not discovered until after the policy expired. (d) The Continuous or Triple Trigger Theory There may be evidence at trial that the property damage occurred from the time the excavation and soil compaction was done until the damage was discovered.

20 Page 19 [51] At trial, the trial judge must determine when the property damage occurred. If the trial judge could conclude the property damage occurred during the policy period, there is a mere possibility the claim falls within the policy. [52] The Dominion relies on the fact that Donald Blenus did nothing with respect to the construction of the dwelling itself. It therefore says there is not even a mere possibility that coverage exists. [53] In my view, this approach does not take into consideration the true nature of the claim. It does not recognize that a dwelling may have been built on negligently compacted soil which would or could eventually lead to settlement problems. This situation could, in my view, be found by the trial judge to be similar to the installation of a faulty part or faulty construction where the failure occurs years later. The process of settlement may have begun with improper soil compaction which inevitably led to settlement. [54] Under The Exposure Theory, The Injury In Fact Theory or The Continuous or Triple Trigger Theory, the trial judge could conclude property damage occurred during the policy period. Accordingly, I conclude there is a duty to defend. [55] Donald Blenus is entitled to be reimbursed for the costs and expenses he has incurred to date in the defence of the action against him.

21 Page 20 [56] In the Notice of Motion, Donald Blenus also asked for an order: B. Appointing independent counsel This issue was not specifically addressed in the parties written or oral submissions. If it is in issue and the parties cannot agree, I will accept written submissions within 30 days of this decision. Costs [57] Donald Blenus seeks his costs on the motion. He is entitled to his costs. If the parties cannot agree on costs, I will accept written submissions within 30 days of this decision. Hood, J.