



COURT OF APPEAL FOR ONTARIO

CITATION: Orion Interiors Inc. v. State Farm Fire and
    Casualty Company, 2016 ONCA 164

DATE: 20160229

DOCKET: C59989

Simmons, Pepall and van Rensburg JJ.A.

BETWEEN

Orion Interiors Inc.

Plaintiff (Appellant)

and

State
    Farm Fire and Casualty Company a.k.a. State Farm,

Rhyl Realty Inc.
,
    John Doe1, John Doe2, and John Doe3

Defendants (
Respondent
)

Stephen Panzer, for the appellant

Christopher R. Dunn and Joanna F. Reznick, for the
    respondent

Michael Unea, for the third party Metal Craft Mechanical
    Inc.

Heard: February 12, 2016

On appeal from the judgment of Justice Victoria R. Chiappetta
    of the Superior Court of Justice, dated January 6, 2015, with reasons reported
    at 2015 ONSC 248.

ENDORSEMENT

[1]

The appellant, Orion Interiors Inc., is the tenant of commercial
    premises owned by the respondent landlord, Rhyl Realty Inc. (the Leased
    Premises). The parties signed a lease in August 2005 with a term that ended in
    October 2010. The appellant continued to occupy the Leased Premises and to pay
    rent. Although there were negotiations, the parties never signed a lease
    extension or renewal.

[2]

The original lease required the tenant to obtain various types of insurance,
    including all risks insurance in an amount equal to the full replacement
    costs of all improvements, equipment and chattels in or serving the Leased
    Premises. The tenant was required to include the landlord as a named insured
    and the insurance policies were to contain a waiver of any subrogation rights
    by the tenants insurers against the landlord. These provisions are found in
    section 7.01 of the lease.

[3]

The lease also provided, in section 7.04, that the landlord was not
    liable for, among other things, damage to the tenants property, whether or not
    resulting from (a) the negligence of the landlord or those for whom it may in
    law be responsible; or (b) by the landlords failure to supply any services or
    utilities required by the lease where the failure was beyond the landlords
    reasonable control. It also provided that [t]he intent of this Section is that
    the Tenant  is to look solely to its insurers to satisfy any claim which may
    arise on account of  loss or damage, irrespective of its cause.

[4]

The tenant purchased all-risks property insurance from State Farm Fire
    and Casualty Company (State Farm), with the landlord as a named insured (the
    all-risks policy).

[5]

In July 2012, there was a flood that resulted in damage to the Leased
    Premises and its contents, after a rubber drain plug in a drain line from the
    roof of the building dislodged. The plug had been installed by Metal Craft
    Mechanical Inc. (Metal Craft), a company contracted by the landlord to
    perform work on the roof.
[1]

[6]

The appellant made a claim under the all-risks policy and State Farm
    paid the limits thereunder. The appellant was under-insured and commenced an
    action against the landlord claiming the balance of its loss.

[7]

The landlord third partied Metal Craft in the appellants action. The appellant
    also commenced a separate action against Metal Craft which in turn third
    partied the landlord.

[8]

The decision under appeal is the summary dismissal of the appellants action
    against the landlord. The motion judge concluded that this was an appropriate
    case for summary judgment. The main issue involved contract interpretation and
    the basic application of the law to the contract. She found that the terms of
    the lease governed the parties at the time of the flood notwithstanding that
    the term had expired. Interpreting the provisions of the lease in light of
    relevant case law, she found that the tenants covenant to maintain all-risks insurance
    in its name and the name of the landlord in an amount equal to the replacement
    cost of its property in the Leased Premises, and the provision that the
    landlord was not liable for damage to the tenants property, operated as an
    assumption by the tenant of the risks associated with the insured loss, and
    barred the tenant from claiming damages against the landlord, irrespective of
    the cause of the loss.

[9]

The respondent landlord was awarded costs of the proceedings in the sum
    of $28,000, inclusive of disbursements and taxes.

[10]

The
    appellant appeals the summary judgment and seeks to appeal the award of costs.

[11]

The
    appellant asserts that the motion judge made three errors in dismissing its
    claim against the respondent.

[12]

First,
    the appellant says that this was not an appropriate case for summary judgment,
    essentially because there were facts in dispute, and there is a risk of an
    inconsistent verdict in its separate action against Metal Craft.

[13]

There is no merit to this argument. At issue was the
    interpretation of the lease between the parties and the application of settled
    law to that lease. This court has determined that summary judgment is
    appropriate for deciding landlord/tenant waiver of subrogation cases: see
Amexon
    Realty Inc. v. Comcheq Services Ltd.
(1998), 37 O.R. (3d) 573, 1998 (C.A.).

[14]

Further,
    there is no risk of inconsistent verdicts. The summary judgment decision
    determined that, irrespective of why the flooding occurred  including whether
    it resulted from an act or omission of the landlord, or of its contractor  the
    risk of damage to its property was assumed by the tenant without the right by
    its insurer to subrogate, and without the tenants right to sue the landlord.
    The issues in the appellants action against Metal Craft  whether any act or omission
    of Metal Craft caused or contributed to the tenants loss, and whether the appellant
    has a claim against Metal Craft  are issues that have not been determined by
    the summary judgment decision.

[15]

We
    do not give effect therefore to the appellants argument that the case was
    unsuitable for summary judgment.

[16]

Second,
    the appellant argues that the terms of the lease, including the provisions
    relating to insurance, do not govern where the lease expired and was never
    renewed. In our view, s. 14.03 of the lease provides a complete answer: the
    appellant was an overholding tenant that remained in the Leased Premises
    subject to the terms, covenants and conditions set forth in the lease. The fact
    that the landlord did not exercise its option to double the base rent does not
    take the parties continuing relationship outside of this provision. See also:
AIM
    Health Group Inc. v. 40 Finchgate Limited Partnership
, 2012 ONCA 795, 113
    O.R. (3d) 187.

[17]

Third,
    the appellant asserts that, to the extent that the flooding resulted from the
    landlords failure to fulfill its obligations under the lease to keep the
    Leased Premises in good repair, it retains the right to sue the landlord,
    notwithstanding its obligation to insure and the related lease provisions. In
    this regard, the appellant relies on the landlords obligation under the lease
    to maintain and repair the roof drain system, and the wording of s. 7.04 of the
    lease. The appellant asserts that the landlord was to retain liability for
    breaches of the lease within its reasonable control. The appellant argues that
    the motion judge failed to make the necessary findings of fact about the cause
    of the flooding and whether the landlord had violated the covenant to repair,
    and failed to interpret the lease as a whole.

[18]

We
    disagree. The line of authority including
Madison Developments Ltd. v. Plan
    Electric Co.
(1997), 36 O.R. (3d) 80, 1997 (C.A.), leave to appeal
    refused, [1997] S.C.C.A. No. 659 and the Supreme Court of Canadas trilogy of
    decisions in
Agnew-Surpass v. Cummer-Yonge
,

[1976] 2 S.C.R.
    221,
Ross Southward Tire v. Pyrotech Products
, [1976] 2 S.C.R. 35, and
T. Eaton Co. v. Smith et al.,
[1978] 2 S.C.R. 749 applies. See also
    this courts recent decision in
D.L.G. & Associates Ltd. v. Minto
    Properties Inc.
, 2015 ONCA 705, at para. 19. The terms of the lease
    respecting insurance had the effect of shifting to the appellant the risk of
    damage to its property from an insured peril, in this case, flooding. This is
    so regardless of whether the landlords conduct in relation to the flooding is
    characterized as a breach of the lease or, as the appellant argues in the
    alternative, a fundamental breach or gross negligence. The tenant had a
    contractual obligation to insure its property against such a risk to its full
    replacement cost value and failed to do so. As the motion judge noted at para.
    23 of her decision, the assumption of risk that was bargained for cannot be
    transferred simply because the appellant failed to properly insure itself.

[19]

As
    for its appeal of the costs award, the appellant did not seek leave to appeal.
    In any event, the appellant would not have met the test for leave to appeal the
    motion judges discretionary costs award.

[20]

Accordingly, the appeal is dismissed. Costs to the respondent
    on a partial indemnity basis, in the amount agreed between the parties: $10,000
    inclusive of HST, plus disbursements of $1,000.


Janet Simmons J.A.

S.E. Pepall J.A.

K. van Rensburg J.A.





[1]
Although Metal Crafts counsel attended the hearing of the appeal, Metal Craft
    took no part in the appeal. The motion judges endorsement incorrectly shows
    Metal Crafts counsel as attending the summary judgment motion. Metal Craft was
    not a party to the summary judgment motion and took no part in the motion.


