






Citation:


Bell Pole Company v. Commonwealth 
          Insurance Company



Date:  20030103







2003 BCCA 7


Docket:  CA027142








COURT OF APPEAL FOR
BRITISH COLUMBIA








BETWEEN:








BELL POLE COMPANY








APPELLANT

(RESPONDENT BY CROSS APPEAL)

(PLAINTIFF)








AND:








COMMONWEALTH INSURANCE COMPANY

AMERICAN HOME INSURANCE COMPANY

GERLING GLOBAL GENERAL INSURANCE COMPANY

THE SOVEREIGN GENERAL INSURANCE COMPANY

ROYAL INSURANCE COMPANY OF
CANADA










RESPONDENTS

(APPELLANTS BY CROSS APPEAL)

(DEFENDANT)








AND:








AON REED STENHOUSE INC.








RESPONDENT

(DEFENDANT)














Before:


The 
          Honourable Madam Justice Southin







The 
          Honourable Madam Justice Rowles







The 
          Honourable Madam Justice Ryan












J. 
          E. Gouge, Q.C. and

J. 
          Christian


Counsel for the Appellant

(Respondent by Cross Appeal)




D. 
          B. Kirkham, Q.C. and

G. 
          J. Tucker


Counsel for the Respondents

(Appellants by Cross Appeal)




B. 
          T. Gibson, Q.C.


Counsel for the Respondent,

Aon Reed Stenhouse Inc.




Place and Date of Hearing:


Vancouver, British Columbia




1st, 2nd and 3rd October, 
          2002




Place 
          and Date of Judgment:


Vancouver, British Columbia




3rd 
          January, 2003












Written Reasons by:

The 
    Honourable Madam Justice Southin



Concurred in by:

The Honourable Madam Justice Rowles

The Honourable Madam Justice Ryan






Reasons for Judgment of the Honourable Madam Justice 
    Southin:





[1]


In this appeal and cross appeal from 
    the judgment of the Honourable Mr. Justice Pitfield pronounced 7th April, 
    2000, awarding to the appellant, the plaintiff below, judgment in the sum 
    of $443,668.34 ("by-law coverage" of $250,000 and $193,668.34 in 
    respect of "extra expense"), the principal issue is whether the 
    appellant, who gave to its insurers, here respondents, five of the defendants 
    below, a Statement of Values for "by-laws" of $250,000.00, by the 
    operation of what was at the relevant time, 1st May, 1995 (date of the loss), 
    the
Insurance 
    Act
, R.S.B.C. 1979, c. 200, s. 14 (now R.S.B.C. 1996, c. 226, 
    s. 12), is entitled to a further $585,474.19 on the by-law provision.

In other words, it seeks to substitute for the 
    sum of $250,000.00, the sum of $835,474.49.


[2]


The respondent insurers, by their cross 
    appeal, say that the appellant, knowing full well that its "by-law" 
    risk was far in excess of $250,000.00, was not entitled, having misled the 
    insurers, to the $250,000.00.


[3]


What each side says on the "extra 
    expense" issue, I shall set out hereafter.


[4]


The sixth defendant below, here also 
    a respondent, was the insurance broker who arranged the policy in issue.

As against it, the appellant alleged breach of its duty to take reasonable 
    care in and about the appellant's business.

The learned trial judge dismissed that part of the action and the appellant 
    seeks to overturn that result.


[5]


Underlying the s. 14 issue is the proper 
    application of the parol evidence rule.

By my reckoning, the trial of this action took 
    some 30 days, many of which were consumed with oral evidence and argument 
    thereon as to what the contracting parties intended by the words of the policy.


[6]


This case does not require a disquisition 
    on the rule.

It is sufficient to say 
    that, as I understand the judgment of Iacobucci J. in
Eli 
    Lilly & Co. v. Novopharm Ltd.
, [1998] 2 S.C.R. 129, the rule, 
    whatever may have been its state of health before that judgment, is now alive 
    and well.

This case falls to be determined 
    on the words of the policy.


[7]


A principal, if not the only, business 
    of the appellant is the treating of poles with preservatives.

It carries on business at many locations.

We are concerned here with its plant at Carseland, Alberta, and more 
    particularly with a structure known as the "full-length treatment tank" 
    which was destroyed by fire on 1st May, 1995.

The parties are agreed that the cost of replacing that structure as 
    and where it stood, if such were feasible, was $464,525.51.

The insurers have paid that sum.


[8]


But replacement on that site was not 
    feasible for two reasons:

first, the 
    ground beneath and around the tank having become degraded from the preservative 
    solutions used for many years, the authorities in Alberta would have required, 
    before reconstruction, remediation of the site - apparently an expensive proposition 
    - and, secondly, the structure of the tank not being to modern standards for 
    the prevention of soil degradation, the authorities would have required, if 
    not immediately then very soon, an up-to-date system which would not cause 
    spillage of chemicals.



[9]


The appellant decided, therefore, to 
    construct a treatment tank of modern design with attendant works at a different 
    site at a cost of some $4 million.

The learned trial judge found, in paragraph 175 
    of his reasons for judgment, that the cost of the new tank itself, that is 
    to say "replacement cost" within the meaning of the policy, was 
    slightly over $1.3 million.

Nothing 
    said to us raises any doubt in my mind as to the soundness of that finding.

It is the difference between that sum and the 
    amount already paid by the insurers which the appellant claims.


[10]


By the insurance policy, known as the 
    "Master 10" policy, why I do not know, the insurers agreed thus:

ALEXANDER & ALEXANDER

REED STENHOUSE LIMITED



POLICY NUMBER:

RSL107902/4

(Replacing policy # RSL107902/3 
    and

Cover Note # 0107902)

DECLARATIONS

IN CONSIDERATION OF THE PREMIUM CHARGED, THE INSURERS NAMED IN THE LIST 
    OF SUBSCRIBING INSURERS FORMING A PART HEREOF, HEREINAFTER CALLED THE INSURER(S), 
    DO HEREBY SEVERALLY AND NOT JOINTLY AGREE, EACH FOR THE LIMIT OR SUM INSURED 
    (OR PERCENTAGE OF THE TOTAL LIMIT OR SUM INSURED UNDER THIS POLICY) SET AGAINST 
    ITS NAME IN THE LIST OF SUBSCRIBING INSURERS, TO INDEMNIFY THE INSURED FOR 
    LOSS AS HEREINAFTER SET FORTH, SUBJECT TO THE LIMITS OF LIABILITY CITED HEREIN 
    AND FURTHER SUBJECT TO ALL CONDITIONS, TERMS AND LIMITATIONS OF THIS POLICY 
    AS ARE PRESENTLY CONTAINED HEREIN OR WHICH MAY BE ENDORSED HEREON.




NAMED 
          INSURED:


BELL 
          POLE CO. LTD. AND/OR DAVIS POLE INC.




ADDRESS 
          OF INSURED:


P.O. Box 339

Lumby
, B.C.

V0E 
          2G0




PERIOD 
          OF INSURANCE:


...




PREMIUM 
          PAYABLE:


FULL 
          TERM:

$ 136,497.





* * *

POLICY SECTION A

GENERAL 
    CONDITIONS

These 
    conditions apply to all sections of this policy unless specifically otherwise 
    stated.

* * *

4.

LIMIT OF LIABILITY

The 
    Insurers' liability for the cumulative total of adjusted net claims resulting 
    from any one loss, casualty, disaster or occurrence (including all costs, 
    fees, charges and expenses) shall not exceed $7,000,000.

* 
    * *

5.

...

REPORTING 
    AND PREMIUM
ADJUSTMENT

Solely
for the purpose of premium calculation and adjustment the Insured 
    agrees to file with ALEXANDER & ALEXANDER the following:

(a)

with
respect 
    to all property
- as of policy expiration, a revised Statement of Values 
    declaring 100% of the total value of all property intended to be insured by 
    this policy during its term (or portion thereof).

The policy rate shall be applied to 50% of the 
    difference between the values declared at policy inception and expiration 
    and any resulting additional (or return) premium shall be paid by (or refunded 
    to) the Insured.

* * *

6.

CO-INSURANCE (STATED AMOUNT)

Notice 
    is hereby accepted that the Statement of Values filed with Insurers represents 
    at least 90% of the value of the interests insured herein.

As this is the basis of the premium charged for this policy and on 
    the understand­ing that these values shall not be reduced during the policy 
    term without prior approval by the Insurers, it is agreed that the Insured 
    shall maintain insurance by, or concurrent in form, range and wording with 
    this policy on the interests hereby insured, so that the limit of liability 
    on the said interests shall be not less than the limit of liability cited 
    in clause 4 herein and that, failing to do so, the Insured shall be a co-insurer 
    to the extent of an amount sufficient to make the limit equal to the aforestated 
    limit and, in that capacity, shall bear its proportion of any loss that may 
    occur.

[In paragraph 82 of his reasons for judgment, the learned trial judge 
    remarked, "Counsel for all parties agreed in submissions before me that 
    the co-insurance portion of the clause is incomprehensible and likely unenforceable 
    as a result."]

POLICY 
    SECTION B1

LOSS 
    OF PROPERTY

1.

INSURED PROPERTY

This 
    section of this policy insures all property of every kind and description, 
    except as excluded below.

2.

EXCLUDED PROPERTY

This 
    section of this policy does not insure:

(a)

land
and/or water;

* * *

3.

INSURED PERILS

This 
    policy section insures against All Risks of direct physical loss of or damage 
    to the Insured Property except as specifically excluded herein.

* * *

6.

VALUATION

For 
    the purposes of settling losses, the value of the Insured Property is agreed 
    as follows:

* * *

(e)

All Other Property

"REPLACEMENT 
    COST"

Replacement 
    cost shall mean the cost of repairing, replacing or reconstructing (whichever 
    is the least) the property on the same site using new materials of similar 
    kind and quality without deduction for depreciation but is subject to the 
    following:

(i)

until
the property is 
    actually repaired, replaced or reconstructed, the maximum amount recoverable 
    shall be the actual cash value of the lost or damaged property;

(ii)

the
Insured shall exercise 
    due diligence and dispatch in effecting repair, replacement or reconstruction;

(iii)

replacement need not be effected on the same site, 
    nor be of same or similar style, construction or occupancy PROVIDED that the 
    Insurers shall not be liable under this clause for that portion of the increased 
    replacement cost that is directly attributable to the inclusion of this provision.

If 
    there is in force any law, by-law, regulation or ordinance restricting or 
    prohibiting repair, replacement or reinstatement of property, at the Insured's 
    request this policy shall also pay for:

(A)

the
loss of any undamaged 
    portion of insured property due to the necessary demolition or removal thereof; 
    plus

(B)

the
increased cost to 
    repair, replace or reinstate the insured property.

However, the Insurers' maximum additional liability 
    for this item shall be based on the cost of repairing, replacing or reinstating 
    the property on the same site, with property of like size, function and style 
    to the minimum standards required by law, having due regard to changes required 
    by any law, by-law, regulation or ordinance,

(provided 
    that the liability of the Insurers shall be limited to the amount of insurance 
    which would have existed in the absence of provisions (A) and (B) unless and 
    until the damaged or destroyed property is actually repaired, replaced, constructed 
    or reconstructed and unless this is executed with due diligence and dispatch).

* * *

STANDARD 
    CONDITIONS

If 
    any of these clauses conflict with any other conditions provided elsewhere 
    in this policy, the terms more favourable to the interest of the Insured shall 
    apply.

* * *

3.

MISREPRESENTATION

When 
    applying for insurance hereunder, if the Insured has intentionally given, 
    to the prejudice of the Insurers, a false description of the property to be 
    insured, or has fraudulently misrepresented or fraudulently omitted to communicate 
    any circumstances that are material to be made known to the Insurers in order 
    to enable them to judge the risk to be undertaken, this contract is void as 
    to any property in relation to which the misrepresentation or omission is 
    material.

* * *

13.

TERMINATION

This 
    policy may be terminated:

* * *

(b)

by
the Insurers giving 
    to the Insured thirty days' notice of termination (either by registered mail 
    or personally delivered or served). ... If this contract is terminated by 
    the Insurers:

(i)

any
premium actually 
    paid by the Insured that is excess over the pro rata premium earned for the 
    expired term shall be immediately refunded, but in no event shall such pro 
    rata earned premium be deemed to be less than any minimum retained premium 
    specified in this policy.

* * *

28.

POLLUTION AND CONTAMINATION 
    EXCLUSIONS

This 
    policy does not insure any loss or damage resulting from the discharge, seepage 
    or spill of any contaminant or pollutant; however, this exclusion shall not 
    apply to:

(a)

loss
of or damage to 
    insured property caused by a peril not otherwise excluded occurring directly 
    as a result of such discharge, seepage or spill;

(b)

loss of or damage to insured property caused 
    by such discharge, seepage or spill if resulting directly from a peril not 
    otherwise excluded occurring to insured property.

This 
    policy does not insure any costs, fines, penalties or expenses:

(
i
)

imposed on the Insured,

(ii)

incurred
by the Insured, 
    or

(iii)

sustained
by the Insured

at
the order of any Government Agency, Government Authority or Court 
    in connection with any kind or description of environmental impairment, including 
    seepage or pollution or contamination from any cause.


[11]


There are two points to be noted:

1.

This policy does not expressly 
    require the insured to warrant the correctness, or at least its belief in 
    the correctness, of the Statement of Values or any part thereof, whether that 
    in existence at the time the policy comes into effect or that which is submitted 
    at policy expiration pursuant to clause 5(a).

2.

It does not limit recovery 
    to the value ascribed to an item of property listed in the Statement of Values 
    in effect at the time of loss.

Indeed, 
    property acquired after the beginning of the policy period is insured.

Thus, this insured could have built itself during 
    the policy period, works worth millions of dollars and, if those works were 
    destroyed within the policy period, the insurers would have had to pay the 
    loss, being entitled to set-off against the loss the proper premium.


[12]


When this policy came into effect on 
    1st January, 1995, the extant Statement of Values, as I understand the evidence, 
    was that dated 9th March, 1994, delivered during the period of the immediately 
    preceding policy.


[13]


At the time of the loss, the most recent 
    Statement of Values was that of 14th March, 1995.

I set out part of it so that the reader may see its structure:

BELL 
    POLE CO. LIMITED

JANUARY 
    1995

Based 
    on Insurance Appraisal

Worksheet 
    (May 1990 Valuation);

4% 
    Increase in January 1992 on

Buildings/Equipment









Replacement Cost




Carsland, B.C.


Construction


Equipment
















Office


$
313,825
.


$   91,605.




General Plant





259,220.




Millwright Store


31,934.


5,476.




Oil Pump House


749.


3,328.




Propane Shed


640.


2,600.




Storage Shed


1,456.







Wire Shed


2,808.


1,092.




Peeler


34,285.


231,038.




Shavings Bin





29,640.




Boiler House


38,736.


111,037.




Butt Tank





244,774.




CCA Plant


440,266.


558,873.




Fixation Chamber





292,004.




Full Length





457,138.




Pentachoropheno


6,987.







Tank Farm





317,669.







$
871,686
.


$2,605,494.








Logs & Poles


$ 1,000,000.




Profits


7,325,000.





There then followed 
    statements of value for the property of the appellant at Haney and Lumby, 
    British Columbia, and then this:




Logs & Poles


$   500,000.




Bylaws


250,000.




Extra Expense


200,000.





There then followed a series of descriptions for property at other 
    locations in British Columbia.


[14]


The "Total Insured Values" 
    was given as $22,249,484.


[15]


It is curious that the Statement of 
    Values which is on the letterhead of the respondent broker not only misspells 
    Carseland but also puts it in British Columbia.

Nothing turns on this.


[16]


In their amended statement of defence 
    bearing date the 7th January, 2000, which suffers the defect of prolixity, 
    the insurers pleaded,
inter alia
:

34.

The policy of insurance issued by the Defendants 
    to the Plaintiff, for the period January 1, 1995 to January 1, 1996 contains 
    certain provisions (quoted at paragraphs 4 and 5 of the Statement of Claim) 
    providing for replacement cost coverage and further providing that if there 
    is in force any law, bylaw, regulation or ordinance restricting or prohibiting 
    repair, replacement or reinstate­ment of property, the insurers will pay the 
    increased costs of complying with such legal requirements.

In the insurance industry this is referred to 
    as "bylaw coverage".

35.

The Plaintiff, for several years, engaged Alexander 
    & Alexander (formerly known as Reed Stenhouse Ltd.) as its insurance broker.

Alexander & Alexander ("A&A") drafted a standard 
    property policy, referred to as the "Master Ten" policy, which A&A 
    utilized on behalf of its clients (that is, the insureds) generally.

A&A required the insurers with whom it dealt to subscribe to the 
    Master Ten wording proffered by A&A.

36.

The policy issued to the Plaintiff, for both 
    the 1995 and prior years, was the Master Ten policy.

37.

A&A were aware that insurers would generally 
    require a sublimit of liability with respect to "bylaw coverage".

For the purposes of Master Ten wording, A&A negotiated with the 
    insurers that there would be no sublimit with respect to bylaw coverage, on 
    the condition that the individual insured, through its broker, would estimate 
    the approximate exposure under the "bylaw coverage" in the event 
    of a loss under the policy and declare such value in a Statement of Values 
    ("SOV").

The SOV would identify the maximum anticipated 
    claim for bylaw coverage which could arise from any one loss.

A premium would be paid on the value so declared.

38.

This process was followed in the Plaintiff's 
    case.

In particular:

a)

the
Plaintiff represented 
    to the insurers, in a Questionnaire, that it was aware of the exposure under 
    the bylaw coverage; and

b)

in
a SOV submitted by the Plaintiff to the 
    insurers, the Plaintiff specifically represented that the exposure under the 
    bylaws coverage was $250,000.

39.

These representations were made for the purpose 
    of obtaining a policy which did not contain a sublimit for bylaw coverage.

40.

The insurers relied on the Plaintiff's representations 
    in the SOV and Questionnaire and agreed to the Master Ten policy proffered 
    by A&A.

The policy omitted any 
    sublimit with respect to bylaws coverage.

41.

The standard conditions attached to the policy 
    include standard condition 3 which provides:

"When 
    applying for insurance hereunder, if the insured has intentionally given, 
    to the prejudice of the insurers, a false description of the property to be 
    insured ... this contract is void as to any property in relation to which 
    the misrepresentation or omission is material."


42.

If in fact the "New Treatment Facility", 
    or any substantial portion of it, was required by law as a result of the fire, 
    such as to fall within the bylaw coverage of the policy, such exposure is 
    something which was known, or ought to have been known, to the insured, at 
    the time of the application for the policy, that is, as of January 1, 1995.

43.

At the time of the application, the insured represented 
    that the potential loss which could be claimed against the insurers pursuant 
    to the bylaw coverage would be $250,000.00.

In its Statement of Claim, the Plaintiff claims 
    some $5,000,000 under the bylaw coverage.

If in fact there is $5,000,000 of loss falling 
    within the bylaw coverage, then the Plaintiff is in breach of statutory condition 
    3 and the contract of insurance is void in relation to the bylaw coverage 
    claim.

43(a).

Alternatively, the Plaintiff 
    sought bylaw coverage up to a maximum amount of $250,000 and the policy provides 
    bylaw coverage only to that extent.

44.

In answer to the entire Statement of Claim, the 
    Defendants say that it was not within the reasonable expectation of the parties, 
    at the time the contract of insurance was concluded, that a $5,000,000 modernization 
    would be covered by the policy.


[17]


To these pleas, the appellant replied:

5.

In reply to the allegations in paras 34-44 of 
    the Insurers' Defence:

a.

The Plaintiff expressly denies the representation 
    alleged by the Insurers.

b.

If, as the Plaintiff denies, it represented to the Insurers that 
    the additional cost of replacement to comply with regulatory requirements 
    in effect at the time of the fire would be $250,000, such an estimate was 
    not a "description of the property to be insured", but rather an 
    estimate of a cost to be incurred in an unforeseeable future event.


[18]


The principal officer of the appellant 
    who dealt with the matter of insurance coverage was Mr. Ken Stewart.


[19]


As to the accuracy or otherwise of 
    the item in the Statement of Values, "Bylaws $250,000", the learned 
    judge said:

[38]

On examination for discovery Stewart testified 
    that he continued to hold the view, even after the fire, that the estimate 
    of by-law exposure in the statement of values was a fair reflection of the 
    real exposure.

In fact, his or the 
    company's honest belief in that regard was pleaded in a reply to the insurers' 
    statement of defence.

The assertion 
    of the belief is not credible.

Bell,
and Stewart 
    in particular, had large amounts of information pointing to a much larger 
    by-law exposure.

[39]

When Aon was joined as a defendant in the proceeding, 
    Stewart's posture changed.

Only then 
    did Stewart begin to focus on available limits, separate policies and a professed 
    willingness on Bell's part to pay for more coverage
were
it available.

The earlier reply was amended to delete the 
    claim with respect to Bell's honest belief.


[20]


The learned judge made this significant 
    finding:

[50]

The attribution of the amount of $250,000 to by-laws 
    was not inadvertent or unintentional.

At 
    the same time, my previous findings that Bell knew and believed it could limit 
    coverage by deliberately stating an amount that did not represent value and 
    that Bell intended the amount of $250,000 to be a limit on by-law
coverage,
mean that Bell did not act with fraudulent intent.


[21]


In other words, the learned judge found 
    that the appellant intended a sub-limit of $250,000 and, having so intended, 
    that is the limit of cover.


[22]


It is common ground that, by these 
    passages, the learned judge held it to be a term of the contract of insurance 
    that by-law coverage was limited to $250,000.00.


[23]


The appellant submits that this cannot 
    be right because there was no agreement on the part of the insurers to such 
    a term.

The insurers did not, as I 
    understood their factum and oral argument, confront this proposition directly.

What they say in paragraph 59 of their factum is this:

The 
    Insurers' position on the appeal and cross-appeal, in summary, is as follows:

a)

Bell Pole's position that the SOVs must be ignored altogether has 
    no merit.

The policy must be construed 
    with reference to the SOVs as a vehicle by which the insured can restrict 
    coverage.

b)

The only question is whether Bell Pole was entitled to use the SOVs 
    to
effect
partial coverage for bylaws without disclosing 
    that fact to the Insurers.

c)

If Bell Pole was not entitled to use the SOVs to
effect
partial coverage without disclosure to the Insurers, 
    then the Insurers' cross-appeal on the misrepresentation issue must be allowed 
    and the bylaw coverage declared void on the basis that there was an intentional 
    false description of the property to be insured.

d)

If Bell Pole was entitled to effect partial coverage without disclosure 
    to the Insurers, then the Insurers' cross-appeal on the misrepresentation 
    issue must be dismissed, but Bell Pole's appeal on the sub-limit issue must 
    also be dismissed, as the filing of the SOV had the effect of creating a $250,000 
    sub-limit for bylaws.


[24]


It was common ground that in the Statement 
    of Values, the item "Logs & Poles $500,000." had been agreed 
    to be a sub-limit.

If either side had 
    denied that that sub-limit existed, the remedy of the other was rectification 
    of the instrument.

Equity has no difficulty, 
    subject to any statutory constraint, in mending an instrument, albeit it cannot 
    mend a bargain.

See
Can-Dive Services Ltd. v. Pacific Coast Energy Corp
(2000), 74 
    B.C.L.R. (3d) 30 (B.C.C.A.).


[25]


On this point, Mr. Gouge is right.

The appellant could not create a "sub-limit", sub-limits 
    being contractual terms, in the absence of some provision in the contract 
    permitting it to do so.

A contracting party may not create a term
in pectore
.



[26]


There being no such term, s. 14 does 
    not come into play.


[27]


But does it therefore follow that, 
    in the circumstances of this case, the appellant is entitled to point to the 
    combined effect of General Condition 4 and clause 6 of Policy Section B1 and 
    say that the insurers must pay the full replacement cost?


[28]


What we have here is an insured which, 
    knowing full well:

i)

that
the premium on its policy was fixed on an
ad valorem
basis;

ii)

that the cost of replacement of an item of insured property, the full-length 
    treatment tank, if it were destroyed by a peril insured against, because of 
    regulatory requirements, would far exceed the cost of replacement as is, where 
    is,

put in the Statement of Values, without informing the insurers, and 
    in order to keep down its premium, a grossly inadequate "value" 
    for "by-laws", and now comes, the tank having been lost, claiming 
    a right to invoke the replacement cost provision to its full extent.


[29]


To put it another way, the appellant 
    is saying to the insurers, "It is true that we only paid a premium for 
    $250,000 of insurance although we knew the risk far exceeded that, but you 
    must pay the $1.3 million because you did not put into the policy any express 
    provision requiring us to tell the truth in the Statement of Values."


[30]


The word which best describes this 
    approach of the appellant is a word with no precise equivalent in English 
    - the Yiddish word "chutzpah".


[31]


Many authorities were cited to us in 
    argument but none, in my opinion, is directly in point.

Having confidence that Mr. Gouge and Mr. Kirkham 
    will have left no stone unturned in the search for authority, I conclude this 
    is a case of first impression to be addressed upon first principles.



[32]


It has been said that it is a principle 
    of universal application to all types of insurance contracts that such contracts 
    are based on the utmost good faith of both parties.

See
Halsbury's 
    Laws of England
, 4th ed., vol.25,
para
. 349.


[33]


It is unnecessary in the case at bar 
    to examine the exact limits of that proposition or what the remedy for a breach 
    of that duty may be in any given case.


[34]


So far as this case is concerned, it 
    is my opinion that the act of the appellant in deliberately understating the 
    "by-law" risk was a breach of its duty of good faith to the insurers.

But it does not follow that the breach should disentitle the appellant 
    to recover anything under the by-law coverage.

The insurers took the appellant's money, they are better off than if 
    the appellant had paid a premium for by-law coverage of $1,000,000.00 and 
    it ill-becomes them to resist paying the $250,000.00.


[35]


In coming to this conclusion, I have 
    in mind also what I consider a fundamental principle of the common law - one 
    is only entitled to that which one has paid for.

The common law has never looked kindly upon 
    windfalls.


[36]


A word must be said about the insurers' 
    plea of Standard Condition 3.


[37]


As to this, the learned judge began:

[46]
I
will assume, without deciding, that the attribution 
    of an amount to by-laws in the statement of values can be considered a "description 
    of property" and that the effect of the statement of values as it pertained 
    to by-law coverage was prejudicial to the insurers.

[47]
The
insurers do not allege that Bell was fraudulent 
    in attributing the amount of $250,000 to by-laws in the statement of values.

Nor do they allege that by stating that amount in respect of by-laws, 
    Bell has fraudulently misrepresented or fraudulently omitted to communicate 
    any material circumstance to the insurers.

[48]
The
insurers say that the standard condition does 
    not require fraudulent intent where descriptions of property are involved.

They say the phrase "intentionally given ... a false description 
    of the property to be insured" should be construed to apply when an insured 
    states a value in respect of property with knowledge of its inaccuracy regardless 
    of the purpose for doing so.


[38]


In my opinion, the attribution of an 
    amount to "by-laws" in a statement of values cannot be considered 
    a "description of property".

Furthermore, the clause begins, "When applying 
    for insurance hereunder" and those words are inapt to the statement of 
    values system of this policy and its predecessor policies.


[39]


On the question then of the $250,000.00 
    award for by-law risk, I would dismiss both the appeal and the cross-appeal, 
    albeit for reasons slightly different from those of the learned trial judge.


[40]


The "extra expense" issue 
    arises on these provisions of the policy:

POLICY 
    SECTION B3

BUSINESS 
    INTERRUPTION

EXTRA 
    EXPENSE

1.

INSURING AGREEMENT

If 
    any property (of the Insured or of others) be lost, damaged or destroyed during 
    the term of this policy by a peril not excluded in the policy section insuring 
    the class of property sustaining the damage, this policy is extended to cover 
    necessary Extra Expense incurred by the Insured in order to continue as nearly 
    as practicable the normal conduct of the Insured's business following the 
    occurrence of such loss or damage.

* 
    * *

2.

DEFINITION

(a)

"Extra Expense" - The term "Extra 
    Expense" shall mean the amount by which the cost incurred during the 
    period of indemnity for the purpose of continuing the Insured's operations 
    in order to meet production and/or service commitments or projections, exceeds 
    the cost that would normally have been incurred to conduct the operations 
    during the same period had no loss occurred.

In no event shall the Insurers be liable under 
    this policy section for loss of income, nor for extra expense in excess of 
    that necessary to continue as nearly as practicable the normal conduct of 
    the Insured's business, nor for the cost of repairing or replacing any of 
    the described property that has been damaged or destroyed by the perils insured 
    against, except cost in excess of the normal cost of such repairs or replacements 
    necessarily incurred for the purpose of reducing the total amount of extra 
    expense; liability for such excess cost, however, shall not exceed the amount 
    by which the total extra expense otherwise payable under this policy is reduced.

The Insurers shall also be liable for extra expense incurred in obtaining 
    property for temporary use during the period of restoration necessarily required 
    for the conduct of the Insured's business; any salvage value of such property 
    remaining after resumption of normal operations shall be taken into consideration 
    in the adjustment of loss hereunder.

The 
    term shall also include expenses reasonably incurred by the Insured to transport 
    employees from the location of the damaged property and return thereto to 
    resume operations after restoration thereof.

(b)

"Normal" shall mean the condition which 
    would have existed had no loss occurred.

3.

RESUMPTION OF OPERATIONS

As 
    soon as practicable after any loss, the Insured shall resume complete or partial 
    business operations and, insofar as practicable, reduce or dispense with such 
    extra expenses as are being incurred.

* * *

6.

ADDITIONAL CONDITION

In 
    the event that loss recoverable under this policy section is increased due 
    to the operation of any law(s) and/or ordinance(s) regulating the demolition, 
    replacement, repair, reconstruction or use of the property, the Insurers shall 
    be liable for such increase in loss, but only to the extent of conformity 
    with the minimum standards of such laws or ordinances as are in force at the 
    time of demolition, replacement, repair or reconstruction.


[41]


As the learned judge put the issues:

[185]
The
insurers have paid Bell the sum of $757,682.57 
    on account of this claim.

The sum represents 
    the agreed amount of extra expense for the period from the date of the fire 
    to November 30, 1995.

Bell claims indemnity to July 1996 when the 
    pressure facility became operational.

[186]  The 
    insurers claim that the maximum term of extra expense recovery is 12 months 
    as stipulated in clause 1 of Section B3 of the Master 10 policy.

Bell says the term may be increased beyond 12 
    months where the increase results from the operation of any law regulating 
    replacement or reconstruction.


[42]


The learned judge, as I read his reasons 
    for judgment, did not accept either proposition.

He did note an alternative argument of the insurers 
    thus:

[196]  The 
    insurers say as an alternative that the upgrade committee concluded that one 
    possible form of replacement was an above ground pressure facility on the 
    site of the old full-length tank with a completion date of December 1995.

They say that should be the maximum term for 
    extra expense coverage as a result.

[197]
The
alternative ignored the fact that replacement 
    would have been delayed by the requirement to remediate the site of the old 
    full-length tank before any new construction could proceed.

There was no evidence of the time that would 
    be required to remediate had that course been chosen.


[43]


He then concluded:

[198]
The
policy section specified that Bell's obligation 
    in relation to extra expense coverage was to proceed as soon as practicable 
    to curtail such expenses.

On all of 
    the evidence I conclude that the reasonable period in which that could have 
    been done, had Bell not chosen to build the sophisticated state of the art 
    kind of facility it did, would have extended beyond November 30,1995 to February 
    29, 1996.

Bell is entitled to additional 
    extra expense compensation of $193,668.34. My award in that regard reflects 
    the parties' agreement with respect to the monthly amount of extra expense.


[44]


In this Court, the appellant does not 
    assert, as it did below, extra expense to July 1996.

It is content to rest on the award made by the 
    learned judge below.


[45]


The insurers' position is set out in 
    its factum thus:

Issue 2 - Did the trial judge 
    err in awarding extra expense for January and February 29, 1996
?


51.

The parties agree that the Insurers have already 
    indemnified Bell Pole for extra expense for the time necessary to construct 
    a direct replacement of the full length tank.

52.

Thus, if the Insurers' cross-appeal on standard 
    condition 3 is allowed, so that the policy provides no bylaw coverage, judgment 
    on Bell Pole's extra expense (in the amount of $193,688.64) must also be set 
    aside.

If there is no bylaw coverage 
    under the policy, there can be no entitlement to extra expense for the extra 
    construction time to meet bylaw requirements.

53.

If the cross appeal of the Insurers is dismissed, 
    the period of indemnity for extra expense should end at December 31, 1995.

The judge's award for January and February 1996 (in the amount of $126,842.11) 
    should be set aside.

That is because 
    the trial judge erred in including in the period of indemnity the time that 
    would have been necessary to remediate the site of the full length tank had 
    reconstruction proceeded there.

54.

There are two exclusions under the policy which 
    apply.

Each exclusion independently 
    means there is no coverage for the cost of soil remediation and, necessarily, 
    for extra expense during resulting additional construction time.

55.

The policy contains
a pollution
exclusion, being standard condition 28:

[The 
    insurers then quoted standard condition 28,
supra
, 
    para. 10.]

56.

The Insurers argued at trial that all of the 
    costs of upgrades to be incurred to meet environmental requirements were excluded 
    under this provision.

The trial judge 
    considered that argument at paras. 177 to 180 of his Reasons and rejected 
    it.

In doing so the trial judge made 
    it clear that, had Bell Pole chosen to rebuild at the original location, the 
    cost of site remediation would have been excluded:

Moreover, 
    none of the costs incurred by Bell and claimed from the insurers under the 
    policy pertained to contamination or impairment that had been caused by the 
    operation of the full-length tank.

The exclusion 
    would have applied, as an example, to the cost of remediating the old location 
    had reconstruction occurred there
.

(
emphasis
added)

[AB 9, 1793-4]

57.

The exclusion would have applied because the 
    contamination at the site all pre-existed the fire.

58.

The trial judge overlooked his own interpretation 
    of the pollution exclusion when he made his finding on extra expense.

If the pollution exclusion precludes any recovery for cost of soil 
    remediation (as the trial judge correctly held) it must also exclude any extra 
    expense that Bell Pole would have incurred during the time it took to accomplish 
    the soil remediation.

59.

Had the learned judge directed his mind to the 
    pollution exclusion when he considered the extra expense claim he could not 
    have allowed Bell Pole an extra two months indemnity, for January and February, 
    1996.

The award for those months must 
    be set aside.

60.

Further, there is a separate exclusion which 
    also applies and is in itself sufficient to bar recovery of the extra expense 
    claimed.

61.

The policy provides no coverage for loss or damage 
    to land.

Clause 2(a) provides:

Excluded 
    property

This 
    section of the policy does not insure

(a)

land
and/or water;

62.

The pre-fire contamination that Bell Pole would 
    have had to remediate was damage to land and thus excluded from coverage.

63.

If either exclusion applies, the trial judge's 
    award of extra expense, for January and February 1996, in the amount of $126,842.11, 
    must be set aside.

This would limit 
    recoverable extra expense to December, in the amount of $66,836.23.

Obviously this amount can be upheld only if the Insurers' cross appeal 
    on misrepresentation fails.


[46]


To this, the appellant replies thus:

46.

At paragraphs 53-63 of the Insurers' cross-appeal 
    factum, they argue that the extra expense incurred in January-February, 1996 
    is not recoverable because it was caused by the delay necessary to remediate 
    the soil surround­ing the old full-length treatment tank.

The flaw in the Insurers' argument is soil was not remediated, and 
    so cannot have extended the time required for construction of the new treatment 
    facility.

Bell Pole was not required 
    to remediate the soil, and has not done so.

We refer to paragraphs 135 and 196-197 of the 
    reasons of the learned trial Judge: Appeal Book, Vol 9, pages 1780, 1798-1799.

Construc­tion cannot have been delayed by something which was not done, 
    and was not required to be done.

47.

There was no agreement among counsel as to the 
    length of time which would have been necessary to construct a replacement 
    facility in conform­ity with current regulatory requirements.

Such an agreement could not be made because 
    there was no agreement as to the design constraints imposed by Alberta Environment 
    under the
Environmental Protection & 
    Enhancement Act
and by the Alberta Labour under the
Building Code
and the
Fire Code
.

Much of the evidence at trial was devoted to 
    the identification of those design constraints.

The learned trial Judge was obliged to consider all of that evidence 
    and form a conclusion as to what design elements Bell Pole was required to 
    include to conform to regulatory requirements and how long it ought to have 
    taken to con­struct a replacement facility in conformity with those requirements....

48.

At paragraph 198 of his reasons for judgment, 
    the learned trial Judge found as a fact that, by proceeding with all proper 
    diligence, Bell Pole could not have completed the replacement facility before 
    February 29, 1996:

Appeal Book, Vol 
    9, page 1799.

That finding had nothing 
    to do with soil remediation - it was, as the learned trial Judge said, a conclusion 
    on all of the evidence.

As the learned 
    trial Judge noted at paragraph 197 of his reasons, the time required to remediate 
    the soil played no part in his consideration of the issue.

The Insurers have not shown the conclusion of 
    the learned trial Judge to be clearly wrong.

49.

At paragraph 58 of the Insurers' cross-appeal 
    factum, they argue that the duration of the extra expense coverage is limited 
    by the pollution exclusion.

Those provisions 
    are found at Appeal Book, Vol 1, pages 170, 182.

The learned trial Judge rejected that argument 
    at paragraphs 178-179 of his reasons for judgment: Appeal Book, Vol 9,
pages
1793-1794.

The learned trial Judge 
    found as a fact that no loss or damage in this case was caused by the discharge, 
    seepage or spill of any pollutant.

The Insurers do not challenge that finding of 
    fact on this appeal.

In view of that 
    finding of fact, the pollution exclusion (by its terms) cannot apply.

The extra expense coverage requires only that:

As 
    soon as practicable after any loss, the Insured shall resume complete or partial 
    business
operations ...

The 
    only limit on the period of indemnity applicable in the case at bar is that 
    the time required to recommence normal operations, which the learned trial 
    Judge found to be the end of February, 1996:

reasons, paragraph 198, Appeal Book, Vol 9, page 1799.


[47]


In my opinion, the insurers' argument 
    on standard condition 28 is off the mark.



[48]


The loss or damage here did not result 
    from the spill of any contaminant or pollutant.

It resulted from the fire and, indeed, fire, 
    as a peril not otherwise excluded, is itself an exception from the exclusion.


[49]


By the extra expense provisions the 
    insurer is to reimburse the insured for those expenses which are incurred 
    "in order to continue as nearly as practicable the normal conduct of 
    the Insured's business" such as the cost to an insured of obtaining stock 
    in trade from another manufacturer in order to fulfil orders already on the 
    insured's books.



[50]


For its part, the obligation of the 
    insured is this:

3.

RESUMPTION OF OPERATIONS

As 
    soon as practicable after any loss, the Insured shall resume complete or partial 
    business operations and, insofar as practicable, reduce or dispense with such 
    extra expenses as are being incurred.


[51]


On the evidence here, it was not "practicable" 
    for the appellant to resume treating poles, and therefore supplying his customers, 
    until a new full-length treatment tank was constructed.


[52]


The learned judge found that such a 
    tank could have been constructed by 29th February, 1996, had the appellant 
    not chosen to build the sophisticated state of the art facility which it did 
    build.


[53]


Nothing said to us during argument 
    persuaded me that the learned judge erred in so holding.



[54]


I would therefore dismiss the insurers' 
    cross appeal on this point.


[55]


I now turn to the appellant's appeal 
    against the dismissal of its claim against its broker.


[56]


As against the insurers, the appellant 
    pleaded:

17.

In the alternative, if the Plaintiff's entitlement 
    to recovery under the Policy with respect to its losses flowing from the destruction, 
    by fire, of the Full-Length Facility at the Carseland Plant is limited by 
    amounts stated in the document entitled "Statement of Values, Bell Pole 
    Co. Limited, January 1995", which limitation is not admitted but is specifically 
    denied, the Plaintiff says that its inability to fully recover those losses 
    was caused or contributed to by the negligence, or breach of contract, or 
    both, of the insurance agency Reed Stenhouse and/or its predecessors.

* * *

24.

At all material times, Reed Stenhouse and Bell 
    Pole were parties to a contract of agency (the "Agency Agreement") 
    in which Bell Pole was principal and Reed Stenhouse served agent.

Bell Pole engaged Reed Stenhouse to act as its 
    agent for the purpose of securing insurance coverage over Bell Pole's Carseland 
    Plant, in consideration of which Bell Pole purchased that insurance coverage 
    from the Defendant Insurers such that Reed Stenhouse earned commissions on 
    the insurance policies, including the Policy, placed in that regard.

25.

Under the terms of the Agency Agreement, Reed 
    Stenhouse expressly, or in the alternative impliedly, agreed to:

(a)

develop
an understanding 
    of Bell Pole's business and operations at the Carseland Plant;

(b)

assess
the foreseeable, 
    insurable risks to Bell Pole's Carseland Plant;

(c)

identify
the coverage 
    available in the marketplace to insure against those risks, and the cost of 
    that coverage;

(d)

advise
and inform Bell 
    Pole concerning the nature, scope, limitations and cost of the various forms 
    of insurance coverage available in the marketplace to insure against the foreseeable, 
    insurable risks to Bell Pole's Carseland Plant;

(e)

complete
correctly, 
    fully and competently, all forms and documents associated with the insurance 
    coverage ultimately obtained for Bell Pole's Carseland Plant;

(f)

advise and inform Bell Pole concerning the nature, 
    scope, limitations, oblitations [sic] and cost of the insurance coverage over 
    Bell Pole's Carseland Plant actually conferred by the Policy; and

(g)

ensure
that insurance 
    coverage consistent with Bell Pole's needs and requirements was put in place, 
    either under the Policy or otherwise.

26.

In breach of the terms, express or implied, of 
    the Agency Agreement, Reed Stenhouse:

(a)

failed
to inform itself 
    adequately about Bell Pole's business and operations at the Carseland Plant 
    in order to:

(
i
)

assess the foreseeable, insurable risks to the 
    Carseland Plant;

(ii)

advise
and inform Bell 
    Pole with respect to those foreseeable, insurable risks; and

(iii)

secure, under the Policy or otherwise, coverage 
    for the Carseland Plant that was in conformity with Bell Pole's insurance 
    needs and requirements;

(b)

failed to advise and inform Bell Pole in a full 
    and adequate manner of the nature, scope, limitations, obligations and costs 
    generally of the insurance coverage available, and actually placed, with respect 
    to Bell Pole's Carseland Plant, both under the Policy and otherwise;

(c)

failed to advise and inform Bell Pole in a full 
    and adequate manner of the information requirements associated with the "Statement 
    of Values" forms completed in connection with insurance coverage over 
    Bell Pole's Carseland Plant, both under the Policy and otherwise;

(d)

failed to advise and inform Bell Pole in a full 
    and adequate manner of the information requirements associated with the "Questionnaire 
    (for Master 10)" forms completed in connection with insurance coverage 
    over Bell Pole's Carseland Plant, both under the Policy and otherwise;

(e)

completed or participated in the completion of 
    "Statement of Values" forms incorrectly in connection with insurance 
    coverage over Bell Pole's Carseland Plant, both under the Policy and otherwise, 
    without any, or in the alternative without adequate, prior consultation with 
    Bell Pole;

(f)

completed or participated in the completion of 
    "Questionnaire (for Master 10)" forms incorrectly in connection 
    with insurance coverage over Bell Pole's Carseland Plant, both under the Policy 
    and otherwise, without any, or in the alternative without adequate, prior 
    consultation with Bell Pole;

(g)

failed to advise and inform Bell Pole in a full 
    and adequate manner of the limiting effect of the manner of completion of 
    the "Statement of Values" and "Questionnaire (for Master 10)" 
    forms upon the coverage over Bell Pole's Carseland Plant available under the 
    Policy; and

(h)

arranged
on Bell Pole's 
    behalf for the placement, by the Defendant Insurers, of insurance coverage 
    for Bell Pole over its Carseland Plant that by,
inter alia
, failing to confer full indemnity for all losses associated 
    with the destruction by fire of the Full Length Facility, did not conform 
    with Bell Pole's insurance needs and requirements.

27.

By reason of the breaches, by Reed Stenhouse, 
    of its obligations under the Agency Agreement, the Plaintiff has suffered, 
    and continues to suffer, damages, loss and expense.


[57]


It pleaded an essentially similar claim 
    in tort.


[58]


Before us, the appellant focussed its 
    case on the questionnaire referred to in subparagraph 26(d) to (g):

[The 
    respondent Aon] breached its duty of care to Bell Pole by failing to advise 
    Bell Pole of the opportunity to receive $1 million of by-laws coverage, at 
    no cost, by answering "no" to question #6 on the questionnaire and 
    omitting any reference to by-laws on the statement of values.


[59]


The questionnaire was a document which 
    the respondent completed each year on behalf of the insured for one of the 
    insurers, the Commonwealth Insurance Company, which was on the risk for 45%.



[60]


The question and the answer was this:

11.

Question #6 on the questionnaire is material 
    to this case.

It reads:

By-laws:

Do the values submitted include additional costs?

(If no or not known, a sub-limit will be imposed).


[61]


There was some evidence that if the 
    question had been answered "no" the sub-limit, as far as Commonwealth 
    Insurance Company was concerned, would have been $1,000,000.00.


[62]


On this footing, the appellant says 
    the respondent
Aon
ought to pay as damages 45% of 
    the loss which it has been unable to recover from the insurers.


[63]


This point was either not put to the 
    learned judge below or put to him in a way that he thought did not require 
    an answer.



[64]


What the learned judge said about the 
    claim against the broker was this:

[181]  Bell's 
    claim against Aon is based, in part, on the allegation that Aon negligently 
    facilitated the supply of an intentionally false description of property to 
    Commonwealth through a questionnaire to which Aon responded on behalf of Bell 
    without having consulted with Bell about an answer given in relation to by-law 
    exposure.

I have rejected the so-called 
    misrepresentation defence.

Bell's claim 
    against Aon, to the extent it is based on Aon's role in a misrepresentation, 
    therefore cannot succeed.

[182]
Bell
also claims against Aon on the basis that 
    Aon was negligent in not consulting with Bell about the adequacy of by-law 
    coverage in the period from the fall of 1985 when the limit was increased 
    to $250,000 to the fire in 1995.

Bell 
    says that if it had known that more by-law coverage was
available,
it would have obtained and paid for it so as not 
    to be affected by a sub-limit of $250,000.

[183]
I
have found as fact that Bell wanted to limit 
    its by-law coverage to $250,000 and intended that result when it completed 
    the statement of values in each year from 1985 through 1995.

In so finding, I have rejected Stewart's evidence 
    and, consequentially, Bell's alternative claim against Aon.

No act of Aon, negligent or otherwise, caused any loss to the extent 
    Bell was under-insured in relation to its by-law exposure.

[184]

Bell's
action against Aon is dismissed.


[65]


The respondent broker did not cause 
    or contribute to the appellant's loss.

The 
    fundamental cause of that loss is the appellant's deliberate decision to keep 
    down its premiums by not giving a true assessment of its by-law exposure on 
    its statements of value.

The appellant 
    was taking a chance and it is in no position to complain that the respondent 
    broker did not somehow or other
rescue
it from its 
    course of conduct.


[66]


I would therefore dismiss the appeal 
    as against the respondent Aon Reed Stenhouse Inc.


[67]


To sum up, therefore, I would dismiss 
    both appeals and the cross-appeal with costs upon each proceeding to the successful 
    party.







THE HONOURABLE MADAM JUSTICE SOUTHIN





I AGREE:
THE HONOURABLE MADAM JUSTICE ROWLES







I AGREE:
THE HONOURABLE MADAM JUSTICE RYAN






