



COURT OF APPEAL FOR ONTARIO

CITATION:
1540039
    Ontario Limited v. Farmers' Mutual Insurance Company
    (Lindsay),  2012 ONCA 210

DATE: 20120330

DOCKET: C54167

Feldman, Hoy JJ.A. and Spence J. (
ad hoc
)

BETWEEN

1540039 Ontario Limited

Applicant (Appellant)

and

Farmers Mutual Insurance Company (Lindsay)

Respondent (Respondent)

David Zuber and James S. Schacter, for the appellant

William G. Scott, for the respondent

Heard: February 15, 2012

On appeal from the order of Justice J. Christopher
    Corkery of the Superior Court of Justice dated September 15, 2009.

Hoy J.A.:

[1]

Daniel Nearing was electrocuted while working on a pylon sign located in
    front of a commercial plaza. His surviving family members sued, among others,
    the appellant, 1540039 Ontario Limited, the owner of the plaza.

[2]

The appellant has primary coverage under its own comprehensive general
    liability policy. It is also an additional named insured under a comprehensive
    general liability policy issued by the respondent insurer, Farmers Mutual
    Insurance Company (Lindsay), to one of the appellants tenants, Design Depot.

[3]

The application judge dismissed the appellants application for a
    declaration that the policy bound the respondent insurer to share in the
    defence of the claim against the appellant.

[4]

At issue on this appeal is whether the application judge erred in
    failing to consider extrinsic evidence of the underlying facts, which the
    appellant characterizes as undisputed, in determining whether the respondent
    insurer had a duty to defend the appellant.

[5]

For the reasons that follow, I would dismiss the appeal.

A.

The Background

(1)

The pleadings

[6]

The plaintiff surviving family members plead that the appellant landlord
    was the owner and/or occupier of the plaza and was negligent in that it:


·

failed to regularly inspect the premises to ensure that it was
      kept in a safe condition;

·

employed incompetent servants, agents and employees to perform
      work on the premises;

·

failed to instruct its servants, agents and employees properly or
      at all in the proper methods and procedures to be employed while performing
      work on the premises;

·

failed to take such care as in all the circumstances was
      reasonable to see that persons entering the premises were reasonably safe,
      including Mr. Nearing;

·

improperly placed its signage;

·

failed to post warning signs; and

·

created a situation of danger.


[7]

In addition to the appellant, the plaintiffs sued Hydro One Inc.,
    claiming it was the owner and/or occupier of the hydro lines above the pylon
    sign, and Robert Monroe, carrying on business under the name TRJ Signman,
    claiming he subcontracted the work to Mr. Nearing that resulted in Mr. Nearings
    death. The plaintiffs allege that these defendants were also negligent.

[8]

The plaintiffs did not plead that the appellant hired TRJ Signman to
    work on the pylon sign. Their statement of claim is silent as to who hired TRJ
    Signman.

[9]

In its statement of defence and crossclaim, the appellant pleaded, at
    para. 5:

This Defendant states that it did not hire Daniel Nearing or
    any other contractor, person or entity, to perform the work giving rise to the
    alleged damages and losses outline in the Statement of Claim. Instead, Daniel
    Nearing was employed by the Defendant, Robert Charles Monroe c.o.b. as TRJ
    Signman, on behalf of 1139063 Ontario Ltd. c.o.b. as Design Depot.

[10]

In
    his statement of defence, counterclaim and crossclaim, which post-dates that of
    the appellant, Mr. Monroe pleaded that he was not Mr. Nearings employer, and
    that Mr. Nearing was a self-employed independent contractor. Mr. Monroe did not
    take issue with the appellants assertion that the work was done on behalf of
    Design Depot.

[11]

In
    its statement of defence, crossclaim and counterclaim, Hydro One pleaded that
    care and control of the property that the sign was situated on rested, at all
    material times, with the appellant, as owner of the property, and Robert Monroe
    c.o.b. as TRJ Signman, as contractor hired by the appellant to perform work on
    the property. Hydro One claimed that the appellants negligence caused or
    contributed to the damages alleged. Hydro One relied on the plaintiffs
    allegations of negligence against the appellant and made further allegations,
    including that the appellant failed to hire competent contractors, failed to
    ensure that its contractors were familiar with and followed prescribed
    occupational health and safety requirements, and failed to ensure that its
    contractors exercised due care prior to performing any work on the property.(
    Although not identified by  name, the contractors referred to are, by
    implication, TRJ Signman and/or Mr. Nearing.)

[12]

The
    plaintiffs did not sue Design Depot, and none of the appellant, Hydro One, or
    Mr. Monroe has issued a third party claim against it.

(2)

The extrinsic
    evidence in issue

[13]

The
    affidavit evidence of the respondent insurers adjuster, R. Ian Pepper, is that
    one of the principals of Design Depot, Beau Wasiluk, advised him that Design
    Depot had retained TRJ Signman to provide new signage for his storefront and
    the pylon sign. Mr. Pepper attached a copy of an invoice from TRJ Signman to
    Design Depot, which Mr. Wasiluk told him he had received from TRJ Signman.

[14]

The
    affidavit evidence of James Schacter, a lawyer with the firm representing the
    appellant, is that he was advised by the president of the appellant that Mr.
    Nearing was retained to perform work on behalf of Design Depot. Specifically, Mr.
    Nearing was placing a sign advertising Design Depots business.

(3)

The lease

[15]

Paragraph
    12 of the lease between the appellant and Design Depot requires Design Depot to
    list the appellant as an additional insured under its comprehensive general
    liability policy issued by the respondent:

The Landlord requires the Tenant to take out and keep in force comprehensive
    General Liability Insurance coverage with respect to the business carried on in
    the leased premises for the duration of the Tenancy. A copy of the insurance
    shall be provided to the Landlord who shall be listed as ADDITIONAL INSURED
    during the term of the tenancy.

[16]

Paragraph
    30 of the lease relates to occurrences on the leased premised only and has no
    application to occurrences elsewhere in the plaza. It contains provisions
    requiring Design Depot to indemnify the Appellant if the Leased Premises or
    any part thereof [are] damaged by fire, lightning, tempest, floods, structural
    defect or acts of God or by any additional perils from time to time defined and
    covered in the standard broad coverage fire insurance policy carried by the
    Landlord on the Leased Premises. If that precondition is satisfied, then the
    indemnity extends to, among other things, any injury to person or persons
    including death resulting at any time there from occurring in or about the
    Leased Premises.

(4)

The policy

[17]

As
    required by paragraph 12 of the lease, Design Depot added the appellant as an
    additional insured under the comprehensive general liability policy at issue.
    The Additional Insured Endorsement effecting that addition cross-references the
    insurance declaration. The insurance declaration indicates that the appellant
    is an additional insured as landlord only. It is not disputed that, once those
    cross-references are incorporated into the Additional Insured Endorsement, it
    reads as follows:

It is Hereby Understood and Agreed that [the appellant] is
    added as an Additional Insured for the term of as of April 9, 2007 to January
    14, 2008 but, only
with respect to liability arising out of operations by
    or on behalf of Design Depot for interior decorating - home decor
.

It is Further Understood and Agreed that the Additional Insured
    shall not be covered for other than Insured Contract as defined in the
    Insuring Agreements. [Emphasis added.]

[18]

The
    Insuring Agreement provides,

Insured contract means:

(a)  A lease of premises;

...or

(g) That part of any other contract or agreement pertaining
    to your business under which you assume the tort liability of another to pay
    compensatory damages because of bodily injury or property damage to a third
    person or organization, if the contract or agreement is made prior to the
    bodily injury or property damage. Tort liability means a liability that
    would be imposed by law in the absence of any contract or agreement.

[19]

The
    Occurrence Form in the policy provides that the insurer will pay those sums
    that the insured becomes legally liable to pay as compensatory damages because
    of bodily injury (defined to include death resulting from bodily injury)
    caused by an occurrence (defined to mean an accident) in the coverage
    territory (defined to include Canada and the United States) to which the
    insurance applies.

B.

The decision of the application judge

[20]

In
    his oral reasons of September 15, 2009, the application judge determined that
    the extrinsic evidence was not admissible because it would require findings to
    be made before trial that would affect the underlying litigation. He further
    concluded that, even if admitted, the extrinsic evidence would not establish a
    duty to defend.

[21]

In
    his subsequent written reasons, the application judge also concluded that, on
    the facts contained in the pleadings, there was no possibility of coverage
    under the policy having regard to the wording of the lease between the
    appellant and Design Depot. In his view, the effect of paragraphs 12 and 30 of
    the lease is to limit coverage to liability arising out of occurrences within
    the leased premises, in respect of which paragraph 30 provides a right of
    indemnity. On this reasoning, there would be no possibility of coverage, even
    if the extrinsic evidence were admitted.

C.

The law with respect to the duty to defend

[22]

As
    the application judge wrote:

[14]  An insurers duty to defend a claim is broader than its
    duty to indemnify. An insurer is obliged to defend a claim if facts are alleged
    in the pleadings that, if proven true, would require the insurer to indemnify.
    The mere possibility that a claim may fall within the policy is sufficient to
    trigger the duty to defend (
Nichols v. American Home Assurance Co.
,
    [1990] 1 S.C.R. 801 at 811;
Monenco Ltd. v. Commonwealth Insurance
,
    [2001] 2 S.C.R. 699 at para. 28).

[15]  In assessing whether the facts pleaded fall within the
    policy, the court must consider the substance and true nature of the claim (
Non-Marine
    Underwriters, Lloyds of London v. Scalera
,
[2000] 1 S.C.R. 551, at para. 79,
Monenco
,
    paras. 34-36).

[16]  In
Monenco
, Iacobucci J. addresses what evidence
    may be considered in assessing the substance and true nature of the claim:

36  While these principles are instructive for the purposes
    of the present case, one important question arising in this appeal has been
    left open by the jurisprudence to date. That is, whether, in seeking to
    determine the substance and true nature of a claim, a court is entitled to
    go beyond the pleadings and consider extrinsic evidence. Without wishing to
    decide the extent to which extrinsic evidence can be considered, I am of the
    view that extrinsic evidence that has been explicitly referred to within the
    pleadings may be considered to determine the substance and true nature of the
    allegations, and thus, to appreciate the nature and scope of an insurers duty
    to defend. I now turn to that question.

(2) Application of Legal
    Principles to the Present Case

(a) Reference to Extrinsic
    Evidence

37  It should be recalled that the question whether an
    insurer is bound to provide defence coverage in an action taken against the
    insured arises as a preliminary matter. Of course, after trial, it may turn out
    that there is no liability on the insurer, and thus, no indemnity triggered.
    But that is not the issue when deciding the duty to defend. Consequently, we
    cannot advocate an approach that will cause the duty to defend application to
    become a trial within a trial. In that connection, a court considering such
    an application may not look to premature evidence, that is, evidence which,
    if considered, would require findings to be made before trial that would affect
    the underlying litigation.

D.

The parties submissions

[23]

The
    appellant concedes that the facts alleged in the pleadings would not, if proven
    true, require the respondent insurer to indemnify it. There is no allegation in
    the pleadings that the hiring of TRJ Signman (and the deceased) by the tenant,
    Design Depot, leads to liability of the appellant.

[24]

Nevertheless,
    the appellant submits that the application judge erred in failing to admit the
    extrinsic evidence that it was Design Depot that hired TRJ Signman.

[25]

The
    appellant argues that the Supreme Court in
Monenco Ltd. v. Commonwealth
    Insurance Co.
, 2001 SCC 49, 2 S.C.R.
    699,
left the door open as to the extent that extrinsic evidence
    should be admitted. Counsel for the appellant notes that this court, in
Meadows
    v. Meloche Monnex Insurance Brokers Inc.
,
2010 ONCA 394, 102 O.R. (3d) 312, when presented with extrinsic evidence not
    explicitly referred to in the pleadings, carefully left open the possibility
    that such evidence might be admissible. Counsel urges this court to adopt the recommendation
    made by Gordon Hilliker,
Liability Insurance Law in Canada
, 5
th
ed. (Markham: LexisNexis Canada Inc., 2011), at p. 104:

...in certain limited circumstances, with respect to facts that
    are not in dispute in the underlying action and an issue that does not require
    findings to be made before trial that would affect the underlying litigation,
    the court may permit the admission of extrinsic evidence as an aid to determining
    the duty to defend.

[26]

Similar
    comments were made in Craig Brown and Thomas Donnelly,
Insurance Law in
    Canada
, looseleaf (Toronto, Ont.: Carswell, 2002), at p. 18-20:

Underlying facts may be admissible in certain limited
    circumstances, where the underlying facts do not deal with any matters at issue
    in the action against the insured...There is some logic in considering
    uncontroversial underlying facts where the matter at issue has nothing to do
    with the underlying action against the insured. There would be no prejudice to
    the insured in determining the issue based on underlying facts, and no conflict
    between the insurer and insured.

[27]

The
    appellant further submits that the extrinsic evidence is undisputed, and
    establishes that its liability arose out of Design Depots operation of its
    interior decorating - home decor business: Mr. Nearing was on the pylon sign
    because Design Depot had made arrangements to have a sign advertising Design
    Depots business posted on the pylon. The appellant argues that the application
    judge erred in his interpretation of the policy, and the extrinsic evidence
    establishes that the plaintiffs claim falls within the policy.

[28]

The
    insurer argues that the application judge was correct, both in concluding that
    the extrinsic evidence should not be admitted and that there was no possibility
    of coverage.

[29]

The
    insurer points to decisions of this court which did not consider extrinsic
    evidence of underlying facts in determining whether an insurer has a duty to
    defend:
Jon Picken Ltd. v. Guardian Insurance Co. of Canada
(
1993), 66 O.A.C. 39 (C.A.);
Trafalgar
    Insurance Co. of Canada v. Imperial Oil Ltd.
(2001)
, 57 O.R. (3d) 425 (C.A.);
Cooper v. Farmers
    Mutual Insurance Co.
(
2002),
    59 O.R. (3d) 417 (C.A.); and
Halifax Insurance Co. of Canada v. Innopex
    Ltd.
(
2004), 72 O.R. (3d)
    522 (C.A.). The insurer notes that, in
Trafalgar
, this court
    interpreted
Monenco
as having resolved the extent to which extrinsic
    evidence can be admitted in determining if there is a duty to defend.

E.

Analysis

[30]

While
    there may be merit in the position advocated by Hilliker, particularly in a
    case where there is no dispute between the insured and the insurer as to the
    underlying facts and the insured, rather than the insurer, seeks to rely on the
    extrinsic evidence, ultimately this is not the case to further extend the scope
    of extrinsic evidence that can be considered in determining whether or not an
    insurer has a duty to defend.

[31]

There
    are two problems with the position advanced by the appellant. The first is that
    the allegedly undisputed facts are not undisputed.

[32]

Hydro
    One put by whom Mr. Monroe, c.o.b. as TRJ Signman, was hired in issue in its
    crossclaim against the appellant. Hydro One alleges that the appellant hired
    TRJ Signman in its crossclaim in negligence against the appellant. The
    appellant denies that it hired TRJ Signman and alleges that Design Depot did so.
    Who hired TRJ Signman is accordingly in dispute in the underlying litigation.

[33]

The
    second and more serious problem is in my view that, even if admitted, the
    extrinsic evidence would not support a duty to defend. I come to this
    conclusion for different reasons than the application judge.

[34]

My
    reasoning is rooted in
Monenco.

[35]

Monenco
instructs that in assessing whether there is a duty to defend, the court
    must consider the substance and true nature of the claim. The substance and
    true nature of the plaintiffs claim against the appellant is a claim in
    negligence arising out of the appellants alleged failure to ensure that the
    pylon sign was kept in a safe condition and its alleged improper placement of
    the pylon sign. It is based on the appellants conduct as owner and occupier of
    the plaza and not as landlord of the premises leased to Design Depot. Hydro
    Ones crossclaim against the appellant similarly arises out of the appellants
    conduct as owner of the property.
In substance
, they are not claims
    arising out of the operation of Design Depots business. Nor did the plaintiffs
    or Hydro One sue Design Depot.

[36]

The
    extrinsic evidence, if considered, would not create a possibility that the
    claims against the appellant may fall within the policy; it cannot convert
    claims against the appellant qua owner into claims against the appellant as
    landlord of the premises leased to Design Depot. The extrinsic evidence
    exception to the pleadings rule cannot be used to demonstrate that pleadings
    that say one thing really mean something else.

F.

Costs

[37]

In
    accordance with the agreement of the parties, the respondent shall be entitled
    to costs in the amount of $10,000, inclusive of disbursements and HST.

Released: Mar 30, 2012                                         Alexandra
    Hoy J.A.

KF                                                                    I
    agree K. Feldman J.A.

I
    agree Spence J. (ad  hoc)


