In the main action, the Plaintiff alleged that his mortgage agent and brokerage were negligent and liable negligent misrepresentation after the Plaintiff failed to close on the purchase of a property in Brantford, Ontario (the “Property”).  While the Plaintiff secured a suitable mortgage commitment from an institutional lender well in advance of the closing date, the mortgage proceeds were not advanced in time for the intended closing on June 28, 2018, or the extended closing date of July 13, 2018.  As a result, the Plaintiff sought to recover $11,000 in pecuniary damages for the forfeited deposits and associated fees following the failed purchase of the Property and $5,000 in aggravated damages.  The Plaintiff sued the mortgage agent and brokerage that assisted him with the transaction (the “Defendants”) for his financial losses.

The Defendants denied any liability in the main action and issued a Defendant’s Claim against our client (the “Third Party Brokerage”) alleging that one of its mortgage agents was solely responsible for assisting the Plaintiff with securing mortgage financing.  The Defendants asserted that any broker related failings were the responsibility of the Third Party Brokerage.

In turn, the Third Party Brokerage denied that they acted for the Plaintiff in connection with the proposed mortgage financing but, in fact, acted as the brokerage representing the lender.

The trial judge found there was no evidentiary basis for finding that the Defendants or the Third Party Brokerage were responsible for any act or omission that could be connected to the lender’s failure to finance the purchase in time for the original and extended closing dates.  Notably, the trial judge also found that the Plaintiff did not rely on the Third Party Brokerage or its mortgage agent in connection with the failed purchase or the lost deposits.

In the absence of sufficient proof to establish causation and a breach of the standard of care, the main action and the Defendants’ Claim were dismissed with costs to be determined.

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Nicole first joined the firm in 2011 as an articling student.  She has developed a specialized legal practice defending professionals in various legal and regulatory arenas.

As a Partner, Nicole continues her commitment to providing exceptional and creative legal services to FCL LLP clients in the areas of employment law, directors and officers liability, and professional liability law.

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Striking a Balance between Insurer and Insured

In the Estate of Donald Farb v Manulife, 2020 ONSC 3037, the Court balanced the interests of the insured and insurer in its interpretation of the statutory condition applicable to accident and sickness insurance.

The insured telephoned his insurer to renew his annual travel insurance as he had done in the prior four years. During the span of the 27-minute telephone interview, the insured answered a series of questions to determine his eligibility and premium. For the medical questions regarding prescribed medication and pre-existing health conditions, the insured answered “no”. Subsequently, the insured’s travel policy was issued. The confirmation of insurance including the medical questionnaire and insurance policy was emailed and mailed to the insured.

While in Florida, the insured became unexpectedly hospitalized and incurred significant expenses as a result. Thereafter, his claim for reimbursement was denied on the grounds of misrepresentation. The answers he provided to the medical questionnaire were incorrect, therefore the travel policy was voided ab initio.

After his passing, the insured’s estate brought an application to determine coverage. A central question before the Court was whether as part of the telephone application process, the insured was provided with a written copy of his application for his review.

The Court noted that though the written application was not provided during the telephone interview, the insured had been provided with a written copy and given ample opportunity to review its content and make any necessary corrections before the policy took effect. The evidence further illustrated that the insured had been repeatedly advised, verbally and in writing, that if any of his medical answers were incorrect, the policy would be rendered void.

The Court found in favour of the insurer. However, in doing so, the Court did reject the insurer’s argument that Statutory Condition 2 (Accident and Sickness Insurance) does not require an application to be made in writing. The Court stated that a telephone interview alone would be insufficient as it does not give the applicant the opportunity to review the written version and make the necessary changes thereby undermining the consumer protection objective of the Insurance Act. Thus, while a telephone application can be taken, it should always be followed up with a written copy and the insured must be provided the opportunity to review and amended, as needed.

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Consumer v. Business Protection – Public Policy Debates in the COVID-19 Era

The Government of Ontario has recently alluded to proposals of joining other jurisdictions that have enacted legislation that shields businesses against lawsuits related to COVID-19. While details are still underway, these novel measures will likely be subject to scrutiny for on the one hand, protecting businesses who were tasked with dealing with unchartered circumstances, and on the other hand, insulating businesses who should be held accountable for its negligence or poor practice during and beyond this pandemic.

Many provinces and states have implemented executive orders granting various grades of immunity to health care practitioners and facilities. In British Columbia for example, a Ministerial Order came into force in April, that precludes law suits or any damages therein arising out of infection or exposure to the pandemic while providing essential services. The only caveats to trigger these protections are: a) the business must have been complying with the provincial public health guidelines and, b) the business was not grossly negligent. Given the wide range of sectors that are qualified as “essential services”, this new policy is far-reaching. Similar legislation was passed in Oklahoma, Utah, North Carolina and Wyoming; and other states and provinces are projected to follow.

These policies have contentious implications on the community at large . Many fatalities over the last few months for instance, are attributed to negligence within the elder care regime, and can be connected to long term care homes. These facilities are already the subject of several class action law suits. Those in favour of these policies suggest that these measures are imperative for businesses to remain operable, qualify for insurance coverage, and sustain its practice. However, advocates against these immunities argue that such protections will only allow businesses to circumvent liability for poor business practices. The Government will be tasked with balancing these compelling narratives to create a regime that bolsters the economy while protecting its citizens.

As the debate between good public policy and sound economic decisions ensue, the next few weeks will be determinative in Ontario with respect to the precedent it seeks to set. The legal community awaits further guidance on the scope and breadth of such legislation to properly assess its implications on businesses and its consumers.

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With the unprecedented evolution of COVID-19, businesses are anticipating that Canada’s property and casualty insurance industry will begin introducing pandemic business interruption coverage. However, due to the grand size and scale of pandemic exposure, along with the distinctive characteristics of each pandemic, it would make it nearly impossible for the industry to offer blanket pandemic coverage to businesses at affordable rates.

Business interruption coverage is usually an add-on to an existing commercial policy of insurance, that covers continuing expenses or replaces lost profits, in the event that a business is forced to temporarily shut down or slow down.  There are three types of business interruption policies, and the coverage afforded by each vary:

1. Gross Earnings Policy: the policy will respond until property or damage is replaced or repaired and/or stock is replaced;
2. Profits from Policy: the policy will respond until a business resumes its normal, pre-interruption level, in accordance with the policy limits; and
3. Extra Expense Policy: the policy will respond during the period that extra expenses are required, as the business can remain operational, though being affected by loss and/or damage.

It is no surprise that most industries are facing financial deficits due to COVID-19 and the central question surrounding all is whether business interruption losses as a result of COVID-19, in any one of the aforementioned policies, would trigger insurance coverage for those losses.

On March 30, 2020, the Honourable Madam Justice Wilson released her decision  in MDS Inc. v. Factory Mutual Insurance Company (FM Global) 2020 ONSC 1924 (hereinafter “MDS”), which included an analysis of the definition of “physical damage” with respect to an all-risks property insurance policy. In this case, it was argued that the loss of use of a premise without any actual damages to the premise or a component of the premise should not qualify as physical damage under the policy as physical damage requires tangible damage.

This argument generally forms the basis for decisions to deny insurance coverage, as the interruption has led to what would be classified as a “loss of use” rather than “property damage.” However, this argument was rejected in MDS with the Court finding that loss of use could be considered property damage so as to trigger the business interruption coverage.    

Madam Justice Wilson emphasized that there is no definitive meaning of resulting physical damage in all-risks policies in Canada and there are conflicting lines with respect to the interpretation. Her Honour explicitly rejected the notion that physical tangible damage be apparent and instead adopted a broad interpretation, which would treat the loss of function or use of premises as physical damage. Accordingly, Madam Justice Wilson concluded that all-risks property insurance is meant to provide broad coverage and as such, said interpretation is in accordance with that principle. To simply interpret physical damage to be tangible would deprive policyholders of a vital aspect of coverage for which they contracted, which would undoubtedly be in direct contrast of the commercial purpose of all-risks coverage.

It is important to note that MDS did not deal with COVID-19.  However, this decision could be used to eliminate a significant hurdle that businesses would have had to overcome with respect to claiming business interruption losses arising from COVID-19 under traditional commercial policies.

Without a doubt, this landmark decision will have an impact on business interruption loss claims as they relate to COVID-19, as both businesses and insurance companies strive to assess coverage.

Should you require any assistance with coverage, investigation and defending of any such claims, please feel free to contact FCL LLP.

The post MDS Inc. v. Factory Mutual Insurance Company (FM GLOBAL) 2020 ONSC 1924, and COVID-19 Business Interruption Claims appeared first on FCL LLP.

In the Absence of Force Majeure Clauses, Frustration Pays Off

Last week we examined force majeure clauses within contracts that may relieve a party’s contractual obligations during unforeseen emergencies, often referred to as “Acts of God”. In this article, we will discuss what happens when a force majeure clause is not expressly provided in the contract.

Canadian courts have not implied a force majeure provision in the absence of one, despite the occurrence of a force majeure event. In such circumstances, the doctrine of frustration also known as the doctrine of discharge, may be relied upon to vacate a contract altogether. This equitable remedy accounts for unforeseen events which have irreparably altered the basis of the contract. The doctrine of frustration can be applied broadly to all types of contracts including commercial or employment disputes. The standard to prove frustration is higher than force majeure, and the implications are also different: a force majeure clause will freeze the contractual obligation as it relates to the unforeseen event, whereas, a finding of frustration will effectively end the contract.

Doctrine of Frustration

The Supreme Court of Canada in Naylor Group Inc. v Ellis-Don Construction Ltd., 2001 SCC 58, describes the appropriate use of frustration where: “a situation has arisen for which the parties made no provision in the contract and the performance of the contract becomes ‘a thing radically different from that which was undertaken by the contract.’”

To establish frustration, the relying party must prove that an unforeseen event has radically changed or interrupted the performance of the agreement, making it impossible, or impractical to execute the contract as originally intended. The new event must have been beyond the reasonable contemplation of the parties when they were contracting, and therefore it would be unjust to hold the parties to the agreement under these altered circumstances.

Considerations when applying the doctrine of frustration

• Is there a Force Majeure clause in the contract?
  The doctrine of frustration operates as a last resort, only to be utilized in the absence of a force majeure clause. In other words, parties cannot double dip to rely on both a force majeure clause and the doctrine of frustration, it must be one or the other.

• Was there a supervening event that occurred?
  The event must not have been foreseeable or within the contemplation of either party when the contract was executed. There may also be cases where the non-performance of an integral party to the contract, frustrates the entirety of the agreement.
• Did the event cause a radically different performance of the contract?
  The event must have rendered the performance of the contract substantially different than what the parties initially anticipated. Courts will consider events: that have rendered the performance of the contract impossible; where performance is possible but the purpose of the contract has been undermined; or, where the temporary impossibility has frustrated the contract itself. The courts have established a threshold of a minimum level of radical difference, for example, a task that has simply become more onerous or expensive since it was originally contemplated will not activate the doctrine of frustration.

Successfully establishing frustration terminates the contract from the date of the supervening event. Additionally, Ontario’s Frustrated Contracts Act, R.S.O. 1990, c. F.34 provides for other recourses such as the recovery of past benefits conferred after a contract has been frustrated. The doctrine of frustration is particularly topical in these days of uncertainty when clients are confronting situations that were beyond their contemplation when finalizing their contracts. At this time, it is incumbent on lawyers to be well versed in these contractual defences so damages are well mitigated.

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Liability insurance policies often impose on the insured, a duty to cooperate with the insurer in the investigation and defence of a claim. Fulfilling this duty is mutually advantageous: the insured benefits from the insurer’s investigation into the merits of the claim, while the insurer benefits from intel provided by the insured. However, the duty to cooperate acts as a condition precedent to the insured’s right to recover, absent which, they can forfeit their right to be indemnified. The Ontario Court of Appeal’s decision in Ruddle v. Gore Mutual speaks to this, and affirms that an insurer cannot rely on an insignificant breach of the duty to cooperate to avoid indemnifying the insured.

In this case, Ms. Bass, the insured, had an auto policy with Gore Insurance Company, which also covered her son, Mr. Stuart. When Mr. Stuart got into an accident, Ms. Bass submitted a claim using her temporary address and redirected Gore’s attention to Mr. Stuart to complete the investigation. In the interim, Gore requested that Ms. Bass advise of any changes in her address – which Ms. Bass did not do. As a result, Gore was unable to contact Ms. Bass or her son (who often travelled for work), when investigating the underlying claim. Eventually, Gore denied coverage alleging that Ms. Bass frustrated her duty to cooperate by failing to provide her accurate address, and by failing to obtain her son’s cooperation.

The lower court and Court of Appeal disagreed with the insurer. The courts were in consensus that the language of the statutory condition to cooperate was broad and imposed on an insured a general duty to cooperate in the defence of an action. It did not specifically require the insured to update their insurer regarding any change in address. The court also affirmed that in order to reach the threshold of this breach of duty, the violation must be substantial enough to effect the insurer’s assessment of the risks of litigation; no inconsequential or trifling breach of such obligation would serve to exonerate the insurer from its contractual liabilities under the policy.

Although the court here has overlooked minor indiscretions by the insured, policy holders should nonetheless comply with their obligation to cooperate with the insurers to avoid any adverse effects of breaching this duty.

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