



COURT OF APPEAL FOR ONTARIO

CITATION: Hercules Moulded Products Inc. v. Foster, 2017 ONCA
    445

DATE: 20170601

DOCKET: C62582

Strathy C.J.O., Gillese and Pardu JJ.A.

BETWEEN

Hercules Moulded Products Inc.

Plaintiff (Appellant)

and

Robert J. Foster, Stewart Title Guaranty Company,
    Barat Farlam Millson and estate of Arthur Barat

Defendants (Respondents)

Michael Carlson, for the appellant

Cynthia Kuehl, for the respondents

Heard: April 19, 2017

On appeal from the order of Justice Lederman of the Superior
    Court of Justice, dated July 14, 2016, with reasons reported at 2015 ONSC 4967,
    58 C.C.L.I. (5th) 283.

REASONS FOR DECISION

[1]

Hercules Moulded Products Inc. (Hercules) appeals from summary
    judgment granted in favour of Stewart Title Guaranty Company (Stewart). The
    motion judge held that Stewart was under no obligation to indemnify Hercules
    for certain losses said to have arisen from problems with two adjacent properties
    in Windsor, Ontario. Hercules had obtained title insurance from Stewart with a
    Commercial Lender Endorsement to protect its security, which was a mortgage
    granted by the owner of the Windsor properties to secure money lent to it by
    Hercules.

[2]

At the time the money was advanced under the mortgage, there was a
    large and incomplete excavation for a proposed condominium development on one
    property and a multi-story office building on the other.

[3]

The mortgage transaction closed in February 2006 and the title
    insurance policy (the Policy) was issued the same month.

[4]

Before Herculess mortgage transaction closed in February 2006,
    Hercules was notified of an application brought by the City of Windsor (the
    City) in the Superior Court of Justice for an order allowing the City to fill
    in the excavation on one of the Windsor properties because the condition of the
    property violated the Citys Dirty Yard Bylaw.  Following a hearing in March
    2006, the court issued an order, dated March 22, 2006, allowing the City to
    fill in the excavation because it amounted to a nuisance. The City did so and
    added the cost, over $500,000, to the tax bill for the property.

[5]

The
    mortgage went into default in or around 2007 and Hercules began sale
    proceedings in 2009. In July 2010, Hercules entered into an agreement of
    purchase and sale with Farhi Holdings (Farhi). One week before closing, Farhi
    sent a requisition letter indicating that Hercules had not complied with 13
    development agreements with the City of Windsor that were registered on title
    and complained of an encroachment extending from one property onto the other. 
    Farhi refused to close as no satisfactory response was made to these
    requisitions.

[6]

Hercules made claims against Stewart related to:


1.

The cost of filling in the
  excavation, added to the tax bill for the property;


2.

The development
  agreements registered against the title; and


3.

The encroachment.

[7]

The motion judge rejected all the claims on many different grounds. The
    appellant submits that the motion judge erred in rejecting each of these
    claims.
A.

The motion judges decision
(1)

The Excavation
[8]

Dealing first with the cost of filling in the excavation, the motion
    judge characterized the March 22, 2006 court order as a work order,
    consistent with the position taken by Hercules on the motion. The language of
    the Commercial Lender Endorsement required that the work order be outstanding
    as of the Policy date for there to be coverage. The motion judge held that because
    the work order was not outstanding on the date of the Policy, there was no
    coverage.
[9]

After rejecting other arguments that the claim was also covered
    under other parts of the Policy related to fire safety regulations and zoning, the
    motion judge concluded that the claim was also excluded by s. 3(b) of the Policy
    which provided that there was no coverage for matters,
not known to the Company [Stewart], not
    registered in the public records at the date of the Policy, but known to the
    insured claimant and not disclosed in writing to the Company by the Insured
    Claimant prior to the date the insured claimant became an insured under this
    policy.
[10]

The motion judge also concluded that the Policy
    excluded coverage for taxes not shown as existing as of the policy date, and
    that the costs of filling the excavation, added to the tax bill for the
    property after the date of the Policy, were therefore excluded.
[11]

Schedule B of the Policy stipulated the
    following exclusion from coverage,
This policy does not insure against loss or damage (and the
    Company will not pay costs, legal fees, or expenses) which arise by reason of:
1. Taxes, assessments, levies or betterment charges, which are
    not shown as existing liens by the public records.
[12]

The motion judge held that Stewart had been
    prejudiced by Herculess failure to disclose the court application before the
    mortgage transaction closed. Stewarts evidence was that it would have excluded
    this matter from coverage, had it been advised of the application.
[13]

Section 5 of the Policy required timely
    disclosure by the insured of problems, failing which Stewart could deny
    coverage if it had been prejudiced:
a proof or loss or damage signed and sworn to by the insured
    claimant shall be furnished to the Company within 90 days after the insured
    claimant shall ascertain the facts giving rise to the loss or damage  lf the
    Company is prejudiced by the failure of the insured claimant to provide the
    required proof of loss or damage, the Companys obligations to the insured
    under the policy shall terminate
Hercules waited some five years before it advised
    Stewart of the bylaw infraction and the court application by the City.
(2)

The Development
Agreements
and the Encroachment
[14]

The motion judge also rejected the claims for
    coverage related to the development agreements and the encroachments on the
    ground that these matters had no impact on the value of the property. Actual
    loss was required to sustain a claim under the language of the Policy. Farhi
    refused to close the sale for $1.9 million in September 2010, but it purchased
    the property in 2012 for $2.3 million, expressly accepting the development
    agreements and the encroachment.  The motion judge noted, at para. 50 of his
    reasons:
Under condition 7 (iii) of the Policy, the
    liability of Stewart Title is not to exceed the least of certain amounts
    including the difference between the value of the uninsured estate or interest
    as insured and the value of the insured estate or interest subject to the
    defect, lien or encumbrance insured against the policy. Thus, loss is measured
    by the difference in value of the real estate without the defect and the value
    with the defect, such that any diminution in value constitutes damages. In a
    case of a commercial lender policy, the measure of damages is the difference
    between the market value of the mortgage without any defect on title and the
    market value of the mortgage with the title imperfection. (See
National
    Titles Inc. Co. v. Safeco Title Ins. Co
., 661 So. (2d)
    1234 (Fla. Dist. Ct. App., 1995) at p. 1236).
There being no evidence of any loss,
    the motion judge concluded that there was no viable claim against Stewart.
[15]

The motion judge went on to conclude that Farhi
    refused to close the sale because it was concerned about the flight of tenants
    from the office building, not because of the development agreements or the
    encroachment. In any event, he held that the development agreements only
    restricted the use of the property and did not go to title.
[16]

The motion judge stated that coverage was
    excluded under the Policy because Hercules had assumed or agreed to the
    development agreements.
[17]

Section 3 of the Policy excluded coverage for [d]efects,
    liens, encumbrances, adverse claims or other matters: (a) created, suffered,
    assumed or agreed to by the insured claimant.
[18]

The motion judge held that there was no evidence
    of any actual encroachment and, therefore, Farhi had no basis to refuse to
    close the transaction because of the encroachments. He held that an unjustified
    refusal to close the transaction did not make title unmarketable, which was a
    prerequisite to coverage.
[19]

The motion judge held that the absence of any
    loss, as defined by the Policy was also fatal to the claims related to the
    encroachment.
[20]

He held that Herculess failure to notify
    Stewart of the problems at the time of Farhis requisition letter caused actual
    prejudice to Stewart as it had been denied an opportunity to remedy the problem.
[21]

Hercules did not give Stewart notice of a
    potential claim until December 2010.  It appears that the same lawyer had acted
    for the borrower and Hercules.
B.

standard of review
[22]

To the extent this appeal involves the
    interpretation of a standard form contract, with no factual basis specific to
    the parties to assist in its interpretation, its interpretation has
    precedential value and the standard of review is correctness:
Ledcor
    Construction Ltd. v. Northbridge Indemnity Insurance Co.
,
    2016 SCC 37, [2016] 2 S.C.R. 23 at para. 46.
[23]

On the other hand, in the application of his
    interpretation to the particular facts before him, the motion judges findings
    of fact are entitled to deference:
Ledcor
at para. 36;
Housen v.
    Nikolaisen
, 2002 SCC 33, [2002] 2 S.C.R. 235 at para. 10.
C.

Analysis
[24]

Interpretation of the policy here, a standard
    form contract, may have unforeseeable consequences that go beyond the interests
    of the parties to this appeal:
Ledcor Construction Ltd. v.
    Northbridge Indemnity Insurance Co.
, 2016 SCC 37, [2016]
    2 S.C.R. 23, at paras. 39-40. For this reason, we do not find it necessary to
    consider all the grounds given by the motion judge for dismissing Herculess
    claim.
[25]

It suffices to say that the decision of the
    motion judge can be affirmed on two bases. First, in relation to the costs of
    filling the excavation that were added to the tax bill for the property,
    coverage was excluded under s. 3(b) of the Policy as it was a matter,
not known to the Company [Stewart], not
    registered in the public records at the date of the Policy, but known to the
    insured claimant and not disclosed in writing to the Company by the Insured
    Claimant prior to the date the insured claimant became an insured under this
    policy.
[26]

To be specific, the application by the City was
    a matter

1.

Not known to Stewart on
  the date of the Policy;


2.

Not registered in the
  public records that a normal title search would disclose;
[1]


3.

Known to Hercules
  before the mortgage transaction closed; and


4.

Not disclosed to
  Stewart.

[27]

We need not consider whether the court order was
    a work order within the meaning of the Policy or whether the addition of the
    cost of filling the excavation to the tax bill changed the character of the
    cost of compliance into a tax bill not covered by the Policy.
[28]

Second, the motion judges conclusions that the
    development agreements and the encroachment did not cause any loss or damage were
    findings open to him on the evidence. This was a sufficient basis to conclude
    that Stewart was not obliged to indemnify Hercules. We need not explore further
    whether the motion judge was correct in his other findings and interpretations
    of the Policy, for example, that the development agreements did not go to
    title, that Hercules had assumed the development agreements, that the
    requisition letter from Farhi did not substantiate the existence of the
    encroachment and that there was no coverage for an alleged encroachment.
[29]

The motion judges finding that Herculess
    failure to give notice to Stewart caused actual prejudice to Stewart was also
    well supported by the evidence.
[30]

As a cautionary note, we observe that
    residential title insurance policies may be quite different from commercial
    lender title insurance policies. The scope of coverage and exclusions may not
    be the same and jurisprudence applicable to one does not necessarily translate
    to the other.
D.

Disposition
[31]

For these reasons, the appeal is dismissed, with
    costs to the respondent fixed at $16,000 inclusive of taxes and disbursements.
G.R. Strathy
    C.J.O.
E.E.
    Gillese J.A.
G. Pardu J.A.

[1]

There was reference to a
completed
work order in
    documentation provided by the City, but there no evidence this related to the
    same matter as the court order.
