



COURT OF APPEAL FOR ONTARIO

CITATION:
Papapetrou v. 1054422
    Ontario Limited, 2012 ONCA 506

DATE: 20120723

DOCKET: C54259

Laskin, Simmons and Cronk JJ.A.

BETWEEN

Maria Papapetrou

Plaintiff

and

1054422 Ontario Limited, The Cora Group Inc. and
Collingwood
    Landscape Inc
.

Defendants (Respondents/
Appellant
)

Andrew A. Evangelista and David W. Powrie, for the
    appellant

Nancy Crespo, for the respondents

Heard: April 10, 2012

On appeal from the order of Justice Jane Milanetti of the
    Superior Court of Justice, dated August 8, 2011, with reasons reported at 2011
    ONSC 4731.

Simmons
    J.A.:

1.

Introduction

[1]

Maria Papapetrou claims she was injured when she slipped and fell on
    black ice that had accumulated on stairs of The Galleria, a building owned by
    1054422 Ontario Limited and managed by The Cora Group Inc. (collectively, The
    Cora Group).

[2]

Collingwood Landscape Inc. contracted with The Cora Group to provide
    winter maintenance and snow removal services for The Galleria. In its service
    contract, Collingwood promised to name The Cora Group as an additional insured
    on Collingwoods commercial general liability insurance policy; however,
    Collingwood breached its obligation to do so.

[3]

On a motion for summary judgment, Milanetti J. ordered Collingwood to
    assume The Cora Groups defence in Ms. Papapetrous personal injury action and
    to indemnify The Cora Group for any damages awarded in the action.

[4]

In making her decision, the motion judge found that the true nature of
    [Ms. Papapetrous] claim is that [Collingwood and The Cora Group] were
    negligent in failing to maintain an ice free pedestrian stairway. In the
    motion judges view, based on the [service] contract, a duty to defend and
    indemnify therefore arose.

[5]

On appeal, The Cora Group concedes
that the order to
    indemnify was premature and should therefore be set aside.

[6]

Accordingly, the main issue on appeal is whether
    the motion judge erred in ordering Collingwood to assume the defence of
The
    Cora Group.

[7]

For the reasons that follow, I would allow the appeal and set
    aside the motion judges order. I would substitute an order requiring that
    Collingwood pay for The Cora Groups defence of the third partys action, save
    for any costs incurred exclusively to defend claims that do not arise from
    Collingwoods performance or non-performance of the service contract.

2.

Background

[8]

Collingwood and The Cora Group are defendants in an action brought by Ms.
    Papapetrou in which she claims damages for personal injuries resulting from a slip
    and fall on black ice that had accumulated on stairs at the entrance of The
    Galleria.

[9]

In her statement of claim, Ms. Papapetrou makes several allegations of
    negligence against Collingwood and The Cora Group, either individually or
    collectively. Her allegations include:

·

failing to prevent the formation and accumulation of ice;

·

failing to properly inspect or maintain the steps;

·

failing to remove the ice;

·

failing to warn of the danger created by the ice;

·

failing to have a regular system of inspection and maintenance;

·

failing to ensure that the defendants employees, agents and
    servants carried out their responsibilities to keep the premises safe; and

·

failing to ensure that the defendants employees, agents and
    servants had the requisite training, skill and knowledge to inspect and
    maintain the premises.

[10]

In addition,
    Ms. Papapetrou relies on ss. 3 and 4 of the
Occupiers Liability Act
,
    R.S.O. 1990, c. O.2, which set out an occupiers duty to take reasonable care
    that persons entering on premises are reasonably safe. The text of these
    provisions is set out in Appendix A.

[11]

Prior to
    the date on which Ms. Papapetrou says she was injured, Collingwood entered into
    a service contract with The Cora Group. Under the terms of the contract,
    Collingwood agreed to provide winter maintenance, and snow removal services at
    The Galleria.

[12]

As well, under
    the terms of its service contract, Collingwood agreed to indemnify the Owner
    and its agents against all claims, losses, liabilities, demands, suits and
    expenses  arising out of the performance or non-performance of the contract.
    The relevant parts of the indemnity provision read as follows:

The Contractor assumes sole responsibility for all persons
    engaged or employed in respect of the Work and shall take all reasonable and
    necessary precautions to protect persons and property from injury or damage.
The Owner shall not be responsible in any way for any injury to or the death of
    the Contractors employees  or to any other person  in any way resulting from
    any act or omission of the Contractor.
The Contractor shall indemnify and
    save harmless the Owner  against all claims, losses, liabilities, demands,
    suits and expenses
from whatever source, nature and kind in any manner
based
    upon, incidental to or arising out of the performance or non-performance of the
    contract by the Contractor
. [Emphasis added.]

[13]

Further,
    Collingwood agreed to obtain comprehensive general liability insurance
    covering the liability of the Contract [sic], his employees, agents and
    representatives for bodily injury  for a minimum of $2,000,000 and to include
    the Owners as an additional insured on the policy.

[14]

Contrary
    to its obligations under the service contract, Collingwood obtained an
    insurance policy covering a maximum of $1,000,000, instead of a minimum of $2,000,000.
    In addition, Collingwood failed to name The Cora Group as an additional
    insured.

[15]

Following
    examinations for discovery in the action, The Cora Group brought a motion for
    summary judgment asking: (i) that Ms. Papapetrous action against them be
    dismissed; or, (ii) in the alternative, that Collingwood assume The Cora
    Groups defence of Ms. Papapetrous claims against them. In support of the
    motion, The Cora Group relied on the insurance obligation and the indemnity
    provisions in the service contract.

[16]

Prior to
    the return of the motion, The Cora Group advised all parties that they would
    not be pursuing their request that Ms. Papapetrous claims against them be
    dismissed. Ms. Papapetrou did not attend the motion.

3.

The Motion Judges Decision

[17]

As I have said, the motion judge ordered that Collingwood both assume
    the defence of the action on behalf of The Cora Group and indemnify The Cora
    Group with respect to any damages awarded in the action.

[18]

In making her decision, the motion judge observed that Collingwood
    claimed that some of Ms. Papapetrous allegations against The Cora Group were
    for a breach of their responsibilities as occupiers apart from allegations
    relative to the icy stairs. She noted that, on this basis, Collingwood contested
    its obligation to defend and/or indemnify The Cora Group in relation to all the
    allegations in the statement of claim.

[19]

The motion judge agreed that some of the allegations of negligence
    fall within the general occupiers liability basket; however, she concluded
    that such allegations were still linked to the essential negligence alleged 
    the defendants failure to address icy conditions on the pedestrian stairway
    leading into the building.

[20]

The motion judge also observed that the service contract required
    Collingwood to assume sole responsibility  to protect persons and property
    from injury and damage and also to indemnify and save harmless the owner 
    against all claims  arising out of the performance or non-performance of the
    contract.

[21]

Relying on
RioCan Real Estate Investment Trust v. Lombard
    General Insurance Co.
(2008)
, 91 O.R. (3d) 63 (S.C.), the motion judge found that the true
    nature of Ms. Papapetrous claim is that the defendants were negligent in
    failing to maintain an ice-free pedestrian stairway and that, as a result, Ms.
    Papapetrou fell and sustained injuries.

[22]

Having regard to the nature of the claim and the terms of the
    service contract, the motion judge concluded that Collingwood is obligated to
    defend and indemnify the property owners. Moreover, the motion judge stated
    that Collingwood should not escape responsibility to defend/indemnify merely
    because [it] failed to meet [its] contractual responsibility [to name The Cora
    Group as an additional insured in its comprehensive general insurance policy].

4.

Discussion

[23]

Collingwood
    raises two main issues on appeal. First, it argues that the motion judge erred
    in ordering Collingwood to indemnify The Cora Group at this stage of the
    action. Second, the motion judge erred in ordering that Collingwood assume the
    defence of The Cora Group in the absence of any contractual duty to defend.

(i)

The Order that Collingwood Indemnify The Cora
    Group

[24]

As I have
    said, The
Cora Group concedes that the order that Collingwood
    indemnify them with respect to any damages awarded in the action is premature.

[25]

I agree with this concession. No evidence concerning the issues of
    liability or damages was led on the motion.

[26]

Moreover, contrary to the motion judges finding, the service
    contract does not provide that Collingwood will assume sole responsibility 
    to protect persons and property from injury and damage. Rather, it provides
    that Collingwood assumes sole responsibility for all persons engaged or employed
    in respect of the Work and that it shall take all reasonable and necessary
    precautions to protect persons and property from injury and damage.

[27]

In addition, Collingwoods obligation to indemnify The Cora Group
    under the terms of the service contract is not absolute. It is limited to
    claims based upon, incidental to or arising out of [Collingwoods] performance
    or non-performance of the [service] contract.

[28]

To make an order that Collingwood must indemnify The Cora Group, a
    court will first have to determine whether Collingwoods contractual obligation
    to indemnify has been triggered. As no evidence concerning the issues of
    liability or damages was led on the motion, this cannot yet be determined. Accordingly,
    I would set aside the motion judges order to indemnify.

(ii)

The Order that Collingwood assume The Cora
    Groups Defence

[29]

Collingwood
    argues that the motion judge erred in ordering that it assume the defence of
    The Cora Group. Specifically, Collingwood notes that, although the service
    contract includes an indemnity provision, the indemnity provision does not say
    that Collingwood must defend actions brought against The Cora Group. Further,
    Collingwood relies on the fact that The Cora Group did not object to the form
    of insurance Collingwood obtained  namely, coverage which failed to list The
    Cora Group as an additional insured.

[30]

Finally,
    even if a duty to defend arises from the insurance obligation in the service
    contract, Collingwood says that the motion judge erred in ordering Collingwood
    to assume the defence of the entire action against The Cora Group. At most, any
    defence obligation should extend only to claims arising out of Collingwoods
    performance or non-performance of the service contract.

(a)

Collingwoods Duty to Defend

[31]

I agree
    that the motion judge erred in ordering Collingwood to assume The Cora Groups
    defence.

[32]

In my
    view, however, Collingwood is liable in damages to The Cora Group for the cost
    of The Cora Groups defence of the Papapetrou action, save for any costs
    incurred exclusively to defend claims that do not arise from Collingwoods
    performance or non-performance of the service contract.

[33]

On appeal,
    The Cora Group did not argue that Collingwoods obligation to defend arises out
    of the indemnification provision in the service contract. Rather, it relied on Collingwoods
    failure to satisfy its contractual obligation to have The Cora Group named as
    an additional insured in its comprehensive general insurance policy.

[34]

However,
    Collingwoods breach of this contractual obligation does not create a duty to
    defend; rather, it gives rise to a remedy in damages.

[35]

The fact
    that The Cora Group did not object to the form of insurance Collingwood
    obtained is irrelevant. Collingwoods contractual obligation remained. Collingwood
    is liable to The Cora Group in damages for failing to satisfy its duty to have
    The Cora Group named as an additional insured.

[36]

The
    quantum of such damages is the amount The Cora Group will be required to pay
    for a defence of the claims Collingwoods insurer would have been obliged to
    defend on The Cora Groups behalf had Collingwood fulfilled its contractual
    obligations.

[37]

Ordinarily,
    the
scope of this obligation would be determined by the terms
    of the insurance contract (in particular, the additional insured endorsement).
    The difficulty in this case is that the terms of coverage for The Cora Group as
    an additional insured were not included in the insurance contract. Accordingly,
    the terms of the intended insurance coverage must be discerned from the
    insurance obligation and
the indemnity provision in the service
    contract.

[38]

As noted
    above, Collingwood was obliged to obtain comprehensive general liability
    insurance to insure against bodily injury. However, the scope of Collingwoods
    obligation to indemnify under the service contract was limited to claims  based
    upon, incidental to or arising out of the performance or non-performance of the
    contract by the Contractor.

[39]

Accordingly,
    in my view, the quantum of damages is the amount The Cora Group must pay to
    defend claims for bodily injury arising out of the manner in which Collingwood
    performed or failed to perform the service contract.

[40]

As I have
    said, in my opinion, these costs will include all costs of The Cora Groups
    defence of the Papapetrou action, save for any costs incurred exclusively to
    defend claims that do not arise from Collingwoods performance or
    non-performance of the service contract

[41]

I reach
    this conclusion for two reasons. The first is that an
insurers
    obligation to defend is limited to defending claims that  if proven true 
    would fall within coverage under the policy:
Non-Marine
    Underwriters, Lloyds of London v. Scalera,
2000 SCC 24,

[2000] 1
    S.C.R. 551, at paras. 74-76
and
Nichols v. American
    Home Assurance Co.
, [1990] 1 S.C.R. 801, at pp. 810-12. On
    this issue, McLachlin J.s comments in
Nichols
,
    at p. 812, are worth noting:

Requiring the insurer to defend claims which cannot fall
    within the policy puts the insurer in the position of having to defend claims
    which it is in its interest should succeed.
The
    respondent suggested that this potential conflict could be avoided if the
    insured was able to retain his own lawyer, with the cost to be borne by the
    insurer. However, this would not end the difficulty. An insurer would be
    understandably reluctant to sign a "blank cheque", and cover whatever
    costs are borne by whatever lawyer is retained, no matter how expensive. Yet
    the insurer could not challenge any of these expenses without raising precisely
    the same conflict.
For this reason, the practice is for the insurer
    to defend only those claims which potentially fall under the policy, while
    calling upon the insured to obtain independent counsel with respect to those
    which clearly fall outside its terms.
[Emphasis added.]

[42]

As Collingwoods obligation to pay for The Cora Groups defence is
    limited to the cost of defending claims that Collingwoods insurer would have
    been obliged to defend, Collingwoods obligation does not extend to paying for
    the cost of defending
independent claims against The Cora Group that Collingwoods
    insurer would not have been required to defend on The Cora Groups behalf.

[43]

In this
    regard, I do not agree with the motion judges conclusion that, because the
    claims in the action can all be characterized generally as claims in
negligence for failing to maintain an ice-free pedestrian stairway, this
    means that all the claims in the action would necessarily be captured under the
    insurers duty to defend.

[44]

In order
    to determine whether an insurers duty to defend arises in relation to the
    claims raised in a particular action, the
court is required to
    assess the substance or the true nature of each claim contained within the pleadings
    to see if it falls within the scope of coverage:
Monenco Ltd. v.
    Commonwealth Insurance Co.
, 2001 SCC 50, [2001] 2 S.C.R.
    699, at paras. 28-35;
Scalera
,

at paras. 74 and 79-82;
and
Nichols
,

at pp.
    810-11
.

[45]

T
his assessment must be made substantially on the facts as
    stated in the pleadings themselves; however, extrinsic evidence sometimes may
    be considered, including when such evidence has been referred to in the
    pleadings:
Monenco
, at paras. 36-38.

[46]

In this
    regard, it is important to bear in mind that
a pleading may
    contain both covered and uncovered claims.

As Doherty J.A. stated in
obiter
in
Unger (Litigation Guardian of) v. Unger
(2003), 68 O.R. (3d) 257 (C.A.), at para. 10: If there is a possibility that
    any of the claims are captured by [an insurers] coverage, [that insurer] has a
    duty to defend
those
claims (emphasis added).
See also
Atlific
    Hotels and Resorts Ltd. v. Aviva Insurance Co. of Canada
(2009), 97 O.R.
    (3d) 233 (S.C.).

[47]

However, assessing the true nature of a particular claim is not an
    exercise to be undertaken in the abstract. Rather it should be approached with
    a view to the specific limitations of the insurance coverage at issue.

[48]

In this case, the coverage would be limited to the matters relating
    to Collingwoods performance or non-performance of the contract.

[49]

With a view to the limits of coverage, the true nature of the
    claims in the action are best classified as allegations concerning: (i)
    negligent maintenance due to Collingwoods performance or non-performance of
    the service contract (which may include claims under the
Occupiers
    Liability Act
with regard to obligations which have been
    delegated to Collingwood); (ii) negligent conduct on the part of The Cora Group
    extending beyond Collingwoods obligations under the contract; as well as (iii)
    a statutory cause of action under the
Occupiers Liability Act
extending beyond those obligations delegated to Collingwood under the contract
. The duty to defend only extends to allegations that can be
    classified as falling under the first category of claims.

[50]

To the extent that this conclusion may differ from
Riocan
, I disagree with that decision.

[51]

The second
    reason for my conclusion about the extent of Collingwoods liability to pay for
    The Cora Groups defence is that
where an action includes both
    covered and uncovered claims, an insurer may nonetheless be obliged by the
    terms of the policy to pay all costs of defending the action save for those
    costs incurred exclusively to defend uncovered claims:
Hanis v.
    Teevan
, 2008 ONCA 678, 92 O.R. (3d) 594, leave to appeal to S.C.C.
    refused, [2008] S.C.C.A. No. 504.
[1]

[52]

In this
    case, as Collingwood failed to satisfy its insurance obligation under the
    service contract, it is unable to demonstrate that it should escape
    responsibility for paying for
The Cora Groups costs of
    defending the action save for those costs incurred exclusively to defend
    uncovered claims.

(b)

The Need for Separate Counsel

[53]

Collingwood also argued that its insurer is, in effect, already
    defending The Cora Group by defending Collingwood against the claims arising
    from its performance of the service contract. Collingwood argued that this is a
    sufficient answer to The Cora Groups claim for a defence.

[54]

I disagree. In this case, it would not be appropriate for
    Collingwood to assume The Cora Groups defence, nor is it sufficient for
    Collingwood to simply defend the primary allegations of negligence for which both
    Collingwood and The Cora Group may be found liable; rather, the proper remedy
    is in damages, and Collingwood must pay The Cora Group a quantum of damages
    equivalent to the cost of The Cora Groups defence in the manner I have
    explained.

[55]

In any event, where, as here, distinct claims are made against a
    service provider and a property owner, the ability of a single counsel to defend
    both claims is hampered by an inherent conflict. In this case, the conflict is
    accentuated by the fact that both Collingwood and The Cora Group have cross-claimed
    against each other. The service provider and the property owner each have an
    interest in blaming the other for the circumstances giving rise to the claim.

[56]

An insurer has a right to control its own defence (and appoint its
    own defence counsel), which, though not absolute, can only be shifted where
    there is a reasonable apprehension of conflict of interest
on
    the part of counsel appointed by the insurer
: see
Brockton
    (Municipality) v. Frank Cowan Co.
(2002), 57 O.R. (3d)
    447 (C.A.), at paras. 31-32 and 43; also see
Appin Realty Corp. v.
    Economical Mutual Insurance Co.
, 2008 ONCA 95, 89 O.R.
    (3d) 654, leave to appeal to S.C.C. refused, [2008] S.C.C.A. No. 145. However, the
    present case is not governed by this rule.

[57]

The Cora Group is not, in fact, insured under Collingwoods policy
    and the duty to defend does not flow from the policy, itself. Rather, Collingwood
    is simply being ordered to pay damages for the breach of a contractual
    obligation under the service contract.     Thus, in considering whether The
    Cora Group is entitled to choose their own counsel for whom Collingwood must
    pay, it is unnecessary to consider whether the potential conflict in this case
    meets the standard set in
Brockton
.

[58]

Nevertheless, the potential for conflict between Collingwood and The
    Cora Groups interests is clear. In fact, it likely meets the
Brockton
standard: see
Brockton
, at para.
    43. This conflict is best dealt with by The Cora Group continuing to retain independent
    counsel in respect of all allegations in the action. The obligation to pay (at
    least, in part,) for two defence counsel is a necessary consequence of Collingwoods
    breach of its contractual obligation.

5.

Disposition

[59]

Based on the foregoing reasons,

I
    would allow the appeal and set aside the motion judges order. I would
    substitute an order requiring that Collingwood pay for The Cora Groups defence
    of the third partys action, save for any costs incurred exclusively to defend
    claims that do not arise from Collingwoods performance or non-performance of
    the service contract.

[60]

As success on the appeal was divided, there will
    be no order as to costs of the appeal.

[61]

I understand that costs below have not yet been
    dealt with because of the appeal. If the parties are unable to resolve the
    issue of costs below themselves, I would remit the issue to the motion judge to
    consider in the light of, what is now, the divided success on the motion.

Signed:        J.
    M. Simmons J.A.

I
    agree J. I. Laskin J.A.

I
    agree E. A. Cronk J.A.

Released: J.S. July 23, 2012


Appendix A

Sections
    3 and 4 of the
Occupiers Liability Act,
R.S.O. 1990, c. O.2,
provide as follows:

3.--(1) An occupier of
    premises owes a duty to take such care as in all the circumstances of the case
    is reasonable to see that persons entering on the premises, and the property
    brought on the premises by those persons are reasonably safe while on the
    premises.

(2) The duty of care
    provided for in subsection (1) applies whether the danger is caused by the
    condition of the premises or by an activity carried on on the premises.

(3) The duty of care
    provided for in subsection (1) applies except in so far as the occupier of premises
    is free to and does restrict, modify or exclude the occupier's duty.

4.--(1) The duty of care
    provided for in subsection 3 (1) does not apply in respect of risks willingly
    assumed by the person who enters on the premises, but in that case the occupier
    owes a duty to the person to not create a danger with the deliberate intent of
    doing harm or damage to the person or his or her property and to not act with
    reckless disregard of the presence of the person or his or her property.





[1]
In
Hanis

v. Teevan
, Doherty J.A. explained the process by which defence costs are to
    be apportioned when an action raises both covered and uncovered claims
. In
Hanis
, the plaintiff sued the insured for wrongful
    dismissal and malicious prosecution. The insurance policy provided coverage for
    malicious prosecution. The insurer failed to defend. The insured launched third
    party proceedings against the insurer which were stayed pending the trial of
    the main action. At the trial of the main action, the plaintiff succeeded in
    its claim for wrongful dismissal.

Following
    the trial of the main action, the trial judge had to determine what part of the
    costs of defending the main action the insurer was required to pay. Costs
    incurred exclusively to defend the wrongful dismissal action were clearly the
    insureds responsibility. Accordingly, the main issue was how to apportion
    costs that were attributable to defending both the wrongful dismissal claim and
    the malicious prosecution claim.

On appeal,
Doherty J.A., writing for the court, determined that where costs
    are incurred in the defence of both covered and non-covered claims the extent
    of
the
insurers obligation to pay should be guided by
    the precise language of the insurance contract, and not by any principle of
    general application: para. 22.

The
    language of the policy at issue in
Hanis
required that the insurer
    defend in the name and on behalf of the Insured and at the cost of the Insurer
    any civil action which may at any time be brought against be Insured on account
    of [injury or damage falling under the policy coverage]. Doherty J.A, at para.
    32, observed that:

On a plain reading of the relevant part of the policy, [the
    insurer] was responsible for all costs associated with the defence of the
    [covered] claim. There is nothing in the language of the policy that qualifies
    that obligation or suggests that it does not apply to so called mixed
    claims.... If the costs were reasonably associated with the defence of the
    [covered] claim, nothing in the policy exempts [the insurer] from paying those
    costs simply because they also assisted ... in the defence of uncovered claims.


