



COURT OF APPEAL FOR ONTARIO

CITATION: Intact Insurance Company v. Kisel, 2015 ONCA 205

DATE: 20150326

DOCKET: C59338 and C59339

Laskin, Simmons and Watt JJ.A.

BETWEEN

Intact Insurance Company

Defendant (Appellant)

and

Yaroslava Kisel

Plaintiff (Respondent)

AND BETWEEN

Intact Insurance Company

Defendant (Appellant)

and

Rade Bijelic

Plaintiff (Respondent)

John A. Campion and Thomas Hanrahan, for the appellant

Alon Rooz, for the respondents

Heard: February 3, 2015

On appeal from the order of Justice Paul M. Perell of the
    Superior Court of Justice, dated August 18, 2014.

Laskin
    J.A.:

[1]

Intact Insurance appeals the refusal of the motion judge to set aside a
    noting of default and a default judgment of approximately $68,000 obtained
    against it by the respondents, Rade Bijelic and Yaroslava Kisel. I would allow
    the appeal. It is not in the interests of justice to maintain either the noting
    of default or the default judgment.

A.

Background

(i)

The underlying dispute

[2]

Bijelic and Kisel sued Intact, their own insurer, for its alleged
    failure to comply with a hold harmless agreement signed by the parties
    following a dispute over the payment of statutory accident benefits.

[3]

Bijelic and Kisel, both elderly, were injured in a car accident in
    December 2009. Each applied for statutory accident benefits from Intact, and
    most of those benefits were paid. Intact, however, claimed that two of their health
    service providers  Osler Rehabilitation Centre and Assessment Direct  had
    submitted invoices for excessive amounts. Intact maintained that the number and
    frequency of visits by Bijelic and Kisel to these service providers could not be
    justified.

[4]

Intact settled its dispute with Bijelic and Kisel in two stages: first
    by a partial settlement on February 5, 2013, and then by a full settlement on
    February 11, 2013. Under the partial settlement, Intact agreed to settle all
    accident benefit claims save for outstanding accounts of approximately $60,000
    and $67,000, submitted to Intact by the two service providers on behalf of
    Bijelic and Kisel, respectively.

[5]

Under the full settlement, Bijelic and Kisel agreed to release Intact
    from any further claims, and Intact agreed to hold harmless and indemnify both
    Bijelic and Kisel from any claims brought by the two service providers for the outstanding
    accounts. The wording of the hold harmless agreements, which is handwritten, is
    central to this appeal. The agreement for Kisel states:

OFFER TO SETTLE ANY OTHER TERMS (specify)

Intact agrees to hold Yaroslava Kisel harmless and indemnify
    her from any claims brought by Assessment Direct from Osler Rehabilitation
    Centre, only in relation to the exceptions listed in the partial release,
    signed February 5, 2013.

The applicant agrees to cooperate fully with Intact and attend
    an examination under oath forthwith if a claim is commenced as against Ms.
    Kisel.

The agreement for Bijelic is similar.

(ii)

The litigation

[6]

Both Osler Rehabilitation and Assessment Direct sent demand letters to Bijelic
    and Kisel for payment of their outstanding accounts. On receipt of the demand
    letters, Bijelic and Kisel asked Intact to act under the hold harmless
    agreements. Intact took the position that the hold harmless agreements had not
    been triggered because neither Osler Rehabilitation nor Assessment Direct had
    started an action for payment of its outstanding accounts.

[7]

Nonetheless, though neither service provider had sued, Bijelic and Kisel
    started these actions  which have led to this appeal  alleging Intact had
    breached the hold harmless agreements. Their counsel advised Intact that he
    expected strict compliance with the rules of practice for delivering a
    statement of defence.

[8]

Intact delivered a notice of intent to defend in each action, but did
    not deliver statements of defence. In this court, Mr. Campion for Intact
    candidly acknowledged that his client ought to have done so. When Intact did
    not deliver a defence, each plaintiff moved promptly to obtain a default
    judgment, in one case, and a noting of default, in the other. The relevant
    dates are as follows:

(a) Kisel action

·

May 13, 2013: Kisel serves statement of claim

·

May 30: Intact serves notice of intent to defend

·

June 12: statement of defence due

·

June 20: Kisel notes Intact in default and obtains default
    judgment for $67,717, plus costs

(b) Bijelic action

·

August 7, 2013: Bijelic serves statement of claim

·

August 27: statement of defence due

·

September 10: Bijelic notes Intact in default. Bijelic attempts
    to obtain default judgment, but the registrar refuses to sign the order

·

September 18: Intact serves notice of intent to defend

(iii)

The motion judges ruling

[9]

Intact moved to set aside the default judgment and noting of default.
    The motion judge heard both motions together, and gave thorough reasons for dismissing
    the motions. He referred to a number of cases setting out the factors a judge
    must consider when determining whether to set aside a default judgment. As I
    will discuss below, the test for setting aside a default judgment and the test
    for setting aside a noting of default differ. Given my conclusion, however,
    that the motion judge ought to have set aside both defaults, his failure to
    distinguish between the two makes no appreciable difference to the result in
    this case.

[10]

In
    dismissing Intacts motions, the motion judge accepted that Intact had moved
    promptly; that it had at least an arguable defence; and that setting aside the
    defaults would not adversely affect the overall integrity of the administration
    of justice. Nonetheless, he refused to set aside the defaults for two reasons.
    First, he did not accept that Intact had a reasonable excuse or explanation for
    its default. In his words, Intacts explanation for its default has more
    impudence than excuse. Second, in his view Bijelic and Kisel would be far more
    prejudiced by granting Intact an indulgence than would Intact be prejudiced by a
    refusal to set aside the defaults. The motion judge therefore concluded that it
    would not be just to relieve Intact of the consequences of its defaults.

[11]

The
    motion judge also ordered that Bijelic could move, without notice, for a
    default judgment against Intact. From the motion record, it appears that he did
    so on September 24, 2014, obtaining a default judgment of $61,306.98, plus
    costs. This later judgment was not referred to by the parties.

B.

Discussion

[12]

Rules
    19.03(1) and 19.08(1) provide the basis for setting aside a noting of default
    and a default judgment, respectively. Both rules give the court discretion to
    set aside the default on such terms as are just. This court has held that the
    tests to be met under these rules are not identical. See
Metropolitan
    Toronto Condominium Corp. No. 706 v. Bardmore Developments Ltd.
(1991), 3
    O.R. (3d) 278 (Ont. C.A.), at pp. 284-85.

[13]

When exercising its discretion to set aside a noting of default,
    a court should assess the context and factual situation of the case:
Bardmore
,
    at p. 285. It should particularly consider such factors as the behaviour of the
    plaintiff and the defendant; the length of the defendants delay; the reasons
    for the delay; and the complexity and value of the claim. These factors are not
    exhaustive. See
Nobosoft Corp. v. No Borders
    Inc.
, 2007 ONCA 444, 225 O.A.C. 36,
    at para. 3;
Flintoff v. von Anhalt
, 2010 ONCA 786,
[2010] O.J.
    No. 4963,
at para. 7. Some decisions have also
    considered whether setting aside the noting of default would prejudice a party
    relying on it: see e.g.
Enbridge Gas Distribution Inc. v. 135 Marlee
    Holdings Inc.
,
[2005] O.J. No. 4327
,
    at para. 8. Only in extreme circumstances, however, should the court require a
    defendant who has been noted in default to demonstrate an arguable defence on
    the merits:
Bardmore
, at p. 285.

[14]

On a motion to set aside a default judgment, on the other hand,
the court considers five major factors, one of which is
    whether the defendant has an arguable defence on the merits. The five factors
    are:

(a)

whether the motion was brought
    promptly after the defendant learned of the default judgment;

(b)

whether the defendant has a
    plausible excuse or explanation for the  default;

(c)

whether the defendant has an
    arguable defence on the merits;

(d)

the potential prejudice to the defendant
    should the motion be dismissed, and the potential prejudice to the plaintiff
    should the motion be allowed; and

(e)

the effect of any order the court
    might make on the overall integrity of the administration of justice.

Again, these factors are not rigid rules. The court
    has to decide whether, in the particular circumstances of the case, it is just
    to relieve a defendant from the consequences of default:
Mountain View Farms
    Ltd. v. McQueen
, 2014 ONCA 194, 372 D.L.R. (4th) 526, at paras. 48-50.

[15]

The
    motion judge applied the test for setting aside a default judgment. As he found
    that Intact had an arguable defence on the merits, his application of that test
    alone did not affect the outcome of his decision. He refused to set aside both
    defaults because he found that Intact had not adequately explained its delay
    and that Kisel and Bijelic would be prejudiced if he granted the motions. These
    were relevant considerations both on the motion to set aside the noting of
    default and on the motion to set aside the default judgment.

[16]

Nonetheless,
    in my opinion the motion judge erred in relying on these two grounds for
    refusing to set aside the defaults. In my opinion, Intact had a reasonable
    explanation for its defaults and neither Bijelic nor Kisel would have been
    prejudiced by allowing Intact to defend each action.

(i)

Intacts explanation

[17]

In
    finding that Intact had not offered a reasonable explanation for its defaults,
    the motion judge stopped short of interpreting the hold harmless agreements.
    The parties had differed on their interpretation: Bijelic and Kisel maintained
    that the hold harmless agreements were triggered once the two service providers
    served demand letters; Intact maintained that the hold harmless agreements
    would only be triggered when the service providers started an action. The
    motion judge thought that Intact had the better interpretation, but concluded
    it was neither necessary nor appropriate to decide the point.

[18]

Yet
    the proper interpretation of the hold harmless agreement was fundamental to
    Intacts submission that it had a reasonable explanation for not defending the
    actions. Intacts simple position was that on a proper interpretation of the
    hold harmless agreements, Bijelics and Kisels causes of action against Intact
    had not accrued because when they sued Intact, neither service provider had yet
    sued them.

[19]

In
    this court, both sides filed lengthy written submissions on the interpretation
    of the hold harmless agreements. It is unnecessary to review these submissions.
    On the plain wording of these agreements, they do not come into effect until
    either Osler Rehabilitation or Assessment Direct sues either Bijelic or Kisel.
    They do not come into effect on a mere demand for payment. The hold harmless
    agreements provide an indemnity from any claims brought by the two service
    providers, not from any demands for payments. Claims and demands are different.
    A claim means an action, not a demand letter.

[20]

This
    interpretation is supported by two other provisions of the parties settlement
    documents. First, the other handwritten clause in the hold harmless agreement:
    The applicant agrees to cooperate fully with Intact and attend an examination
    under oath forthwith if a claim is commenced as against Ms. Kisel. A claim is
    commenced when an action is started. Until one is started, Kisel would have no
    obligation to attend an examination.

[21]

The
    second provision supporting this interpretation is included in the terms of the
    full and final release, which Bijelic and Kisel signed with the benefit of
    legal advice: Bijelic and Kisel HEREBY RELEASE AND FOREVER DISCHARGE [Intact]
    from any and all actions, causes of actions, Mediations, Arbitrations, claims
    and demands for Statutory Accident Benefits.  In other words, the release
    distinguishes between claims and demands. The letters from the service
    providers were demands for payment; they were not claims.

[22]

For
    these reasons, neither Bijelic nor Kisel had a cause of action against Intact
    when each chose to sue the insurer in 2013. Thus, though Intact ought to have
    delivered a statement of defence in each action, it had a reasonable
    explanation or excuse for not doing so. On this ground alone, I would set aside
    the noting of default and the default judgment.

[23]

During
    oral argument we were told that both Osler Rehabilitation and Assessment Direct
    have now sued for payment of their outstanding accounts. In other words, they
    have made claims. In accordance with the hold harmless agreements, Intact has
    agreed to defend these actions.

(ii)

Prejudice

[24]

The
    motion judge found that Bijelic and Kisel would be more prejudiced from setting
    aside the defaults than Intact would be by maintaining them. That finding is unreasonable.
    Setting aside the defaults would cause no prejudice to either Kisel or Bijelic.
    Neither can be inoculated against a claim by the service providers. Short of
    paying the entire amount of the outstanding accounts of Osler Rehabilitation
    and Assessment Direct, Intact could not prevent either service provider from
    suing Bijelic and Kisel. And Intact was entitled to resist paying the full
    amounts on the ground that the accounts were allegedly unjustified.

[25]

Intact,
    on the other hand, is prejudiced by not setting aside the defaults because it
    becomes liable for outstanding accounts it disputes and may well have no
    obligation to pay.

[26]

Moreover,
    this is not a case like many brought under rules 19.03 and 19.08, in which a
    plaintiff gives a defendant a considerable indulgence before taking default
    proceedings. Here, Bijelic and Kisel moved very quickly  each noted Intact in default
    within 45 days of the delivery of the statement of claim. Although they were
    entitled to do so, and Intact had fair warning that they might do so, the
    shortness of the period between the delivery of the statement of claim and the
    noting of default is a consideration on the question of prejudice.

[27]

Even
    if I am incorrect in my interpretation of the hold harmless agreements, on the
    ground of prejudice alone I would set aside the defaults.

C.

Conclusion

[28]

I
    would set aside the noting of default and the later default judgment in the
    Bijelic action, and the default judgment in the Kisel action. If either
    plaintiff wishes to continue with his or her action, then Intact must deliver a
    statement of defence within 30 days of the release of these reasons, failing
    which each default will be reinstated.

[29]

I
    would order no costs of the motions. Intact is entitled to its costs of this
    appeal, which I would fix in the amount of $5,000, inclusive of disbursements
    and applicable taxes.

Released: March 26, 2015 JL

John
    Laskin J.A.

I
    agree Janet Simmons J.A.

I
    agree David Watt J.A.


