


COURT OF APPEAL FOR ONTARIO

CITATION:

General Electric Canada
    Company v. Aviva Canada, Inc.,
2012 ONCA 525

DATE: 20120802

DOCKET: C53139

Weiler, Armstrong and Rouleau JJ.A.

BETWEEN

General Electric Canada Company

Applicant (Appellant)

and

Aviva
    Canada, Inc. and The Dominion of Canada General
    Insurance Company

Respondents (Respondents)

Nina Bombier and Stephanie Couzin, for the appellant

Donald H. Rogers and David M. Rogers, for the respondent
    Aviva Canada, Inc.

John A. Campion and Rosalind H. Cooper, for the
    respondent The Dominion of Canada General Insurance Company

Heard: January 12, 2012

On appeal from the judgment of Justice Michael A. Penny of
    the Superior Court of Justice, dated January 4, 2011 with reasons reported at
    2010 ONSC 6806, [2011] O.J. No. 2198.

Armstrong
    J.A.:

introduction

[1]

General Electric Canada Company (GE) sought a declaration that its
    insurers had a duty to defend GE in respect of a request by the Ontario
    Ministry of the Environment (MOE) to provide certain information relating to
    the contamination of groundwater near an industrial property once owned by GE. 
    It was GEs position that the costs associated with its response to the MOE
    were defence costs which were fully funded under its relevant insurance
    policies with the respondents.  Justice Penny of the Superior Court of Justice
    dismissed the application for the declaration and GE now appeals to this court. 
    The application judge granted an order declaring that the respondents have a
    duty to investigate and defend GE in an action brought by the Toronto Transit
    Commission (TTC).  That order is not in issue in this appeal.

[2]

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

THE FACTS

[3]

The property in issue is located in Toronto and was known as the Ward
    Street site although its municipal address is apparently 224 Wallace Street. 
    GE owned the property from 1903 to 1980.  During this period, it carried on a
    manufacturing operation from which it produced a wide variety of products. 
    During at least some of this period of time, it used the chemical
    trichloroethylene (TCE) as a degreasing agent.  The record does not disclose
    when the use of TCE began or terminated.

[4]

On February 11, 2004, the MOE wrote to GE and three other former owners
    of the property advising that it was reviewing potential TCE contamination of
    the groundwater within a two block area, which included the Ward Street site. 
    The February letter requested the assistance and co-operation of GE and the
    other recipients of the letter asking them to provide any environmental
    assessments that they had in their possession.

[5]

On April 16, 2004, the MOE sent a second letter to GE.  This letter
    requested further information concerning the potential TCE contamination and
    required GE to take certain action.  The letter in part stated:

On February 15, 2004 you received further information in
    regards to the TTC subsurface investigation in the area of 224 Wallace and
    south of this property.  The data appears to support a TCE plume migrating
    from/ through the former GE property located at 224 Wallace.

As discussed you will be required to take action in delineating
    the source area on your former property.  The delineation investigations are to
    determine the current levels and the full vertical and horizontal extent of all
    contamination within the soil and groundwater which are on site location.  The
    delineation report shall include at minimum the following:

...

At this time the ministry is willing to enter into an agreement
    with GE to pursue the required action items voluntarily.  If at any time the
    ministry determines there is unsatisfactory progress a Directors Order will be
    issued to resolve the matter.

[6]

GE responded to the MOE request by agreeing to co-operate.  GE claims
    that by April 2009, responding to the MOE request had resulted in out-of-pocket
    expenses of $2.1 million for investigation costs, $1.86 million for remedial
    costs and $750,000 for legal costs.  It is these costs that GE asserts are
    payable by its insurers pursuant to the terms of the relevant insurance
    policies.

the insurance policies

[7]

The insurance policies in issue are the following:

(a)   A
    comprehensive general liability policy issued by The Canadian General Insurance
    Company (a predecessor to Aviva) for the policy period of December 31, 1968 to
    December 31, 1971 with a policy limit of $1 million; and

(b)   A
    comprehensive general liability policy issued by The Canadian Indemnity Company
    (CIC, a predecessor to The Dominion) for an initial policy period of December
    31, 1971 to December 31, 1972 with a policy limit of $1 million.  CIC issued
    further comprehensive general liability policies for the period from December
    31, 1972 to December 31, 1982; the policy limits of those policies were $1
    million in the early years, rising to $5 million by the end of this period.

[8]

Under the Aviva property damage endorsement, the insurer agreed:

1.    TO PAY
    on behalf of the Insured all sums which the Insured shall become obligated to
    pay [by] reason of the liability imposed upon the Insured by law... for damages
    because of damage to or destruction of property caused by an occurrence within
    the Policy Period...

2.    TO SERVE
    the Insured by the investigation of claims on account of such damage to or
    destruction of property and occurrence alleged as the cause thereof, and by
    negotiations or settlement if deemed expedient and by negotiations for
    settlement, if deemed expedient by the Insurer of such claim whether groundless
    or not, and to pay the costs of such investigation.

3.    TO
    DEFEND in the name and on behalf of the Insured any suit against the Insured
    alleging such damage to or destruction of property and seeking damages on
    account thereof, even if such suit is groundless, false or fraudulent.

4.    TO PAY
    ... (b) the costs taxed against the Insured in any such defended suit,...(d)
    all interest accruing after the entry of judgment for damages Insured against
    hereunder until the Insurer has paid, tendered or deposited in court, such part
    of such judgment as does not exceed the limit of the Insurers liability
    thereon.

5.    TO PAY
    the amounts of money incurred under the foregoing Agreements 2, 3, and 4,
    except settlements of claims and suits, in addition to the applicable limit of
    liability of this Endorsement.

[9]

Under the Dominion of Canada policy in paragraph 1(b), the insurer
    agreed to pay on behalf of the insured:

PROPERTY DAMAGE  All sums resulting from the liability imposed
    by law upon the Insured ... for damage to or destruction of property, including
    loss of use thereof caused by an occurrence as defined herein.

[10]

In
    para. 2 of the Dominion of Canada policy, the insurer agreed:

(a)

To serve
    the Insured upon notice of such... damage to property of others, by
    investigation and by such negotiation or settlement of any resulting claims as
    may be deemed expedient.

(b)

To defend
    in the name and on behalf of the Insured, suits which may be instituted against
    him alleging such... damage to property of others, and demanding damage on
    account thereof even if such suit is groundless, false or fraudulent.

(c)

To pay (i)
    All costs taxed against the Insured in any such defended suit... and (iii) All
    expenses incurred by the [insurer] for investigation, negotiation or defence...

the reasons for judgment of the application judge

[11]

The
    application judge, after reviewing the legal principles governing the
    interpretation of insurance policies and, in particular, the pleadings rule
    in respect of the insurers duty to defend, concluded that the application
    raised two questions:

(1)

whether it
    is possible the MOE letter amounts to a claim that falls within the policies
    and thereby triggers the insurers duty to defend; and

(2)

whether
    the applicant is seeking a defence to the MOEs claim or, rather an indemnity
    for the cost of compliance with the MOE request.

[12]

The
    application judge observed at paragraph 19 of his reasons:

Most of the argument on the MOE letter issue was directed at
    the question of whether the MOE letters and, in particular, the letter of April
    16, 2004:

(1)

with
    respect to the Aviva policy, constituted a claim for damages because of
    damage to or destruction of property or a suit against GE alleging damages
    on account of damage to or destruction of property; and

(2)

with
    respect to the Dominion policy, constituted notice of damage to property of
    others or a suit against GE for damages alleging damage to property of
    others,

thereby engaging the duty to investigate and the duty to defend
    under those policies.

[13]

In
    concluding that there was no duty to defend, the application judges reasons
    state:

[35]    ...A duty
    to investigate and defend is only triggered in the context of these policies by
    a claim arising from an alleged liability for damage.  Under the pleadings
    rule, one looks at the claim to determine whether it falls within the scope
    of the coverage afforded by the policy.  There is a distinction in the policies
    between the obligation to investigate/defend and the obligation to indemnify. 
    There is, in my view, also a distinction between the cost of investigation/defence
    of a claim and the cost of compliance with a claim.

[36]    Here, the
    only evidence of a claim by the MOE was the April 16, 2004 letter in which
    the MOE requested GE to take action in
delineating the source area on your
    former property
 (emphasis added).  In the context of the MOE letter,
    therefore, any duty to investigate or defend could only arise with respect to
    that claim.  Here, however, by GEs own admission, GE did not defend
    against this claim nor did it investigate this claim.

[39]    The cost of
    investigation or defence of a claim is distinct from the cost of compliance
    with a claim.  GE argues that the steps taken by GE were in the nature of
    defence costs in that they sought to delineate and reduce any liability.  The
    flaw in that argument, in my view, is that the only claim by the MOE entered
    into evidence on this application did not allege liability for cleanup costs to
    ameliorate damage to the property of others but simply an obligation to conduct
    a delineation exercise with respect to TCE contamination on GEs former
    property at the Ward Site.  What GE calls defence costs were not costs of
defending
    against
the MOEs claim but, in fact, the costs of
complying with
the MOEs claim.  GE complied with the MOEs request and performed the work on
    the basis that it was thought to be in GEs best interests to do so.

[43]    In coming
    to this conclusion, I make no finding on whether the matters alleged and
    requested in the MOEs letter fall within the coverage language of the Aviva
    and Dominion policies from an indemnity perspective.  I base my conclusion
    rejecting GEs request for a declaration that Aviva and Dominion have a duty to
    investigate and to defend the MOEs request solely on the fact that there was
    no investigation or defence of the MOEs claim at all.  What GE is seeking, in
    my view, is indemnification for its costs of complying with the MOEs claim. 
    This is not the time to make findings on the merits of GEs indemnity claim in
    this regard.  As the Ontario Court of Appeal said in
Halifax Insurance,
    supra
, the time to determine the insurers duty to indemnify is at the
    conclusion of the underlying litigation, not during the abbreviated application
    for defence costs.  My conclusion, therefore, is without prejudice to the
    parties positions on whether the MOE letter is a claim or to GEs right to
    seek these costs by way of an indemnity claim against Aviva, Dominion, or both,
    as well as the right of those insurers to argue against the existence of that
    obligation.

THE APPEAL

[14]

GE
    raises the following grounds of appeal:

(i)

Whether
    the application judge erred in limiting his analysis of the MOEs assertion of
    liability to the literal text of the April Letter and in failing to consider
    the underlying statutory context and the broader liabilities it imposed on a
    PRP (potentially responsible party) like GE Canada.

(ii)

Whether
    the application judge erred in concluding that costs incurred by GE Canada in
    response to the MOEs assertion of liability were only compliance costs and
    not investigation or defence costs, such that he should not rule on whether the
    MOE made a sufficient claim to trigger the Primary Policies.

(iii)

Whether the
    MOEs assertion of liability against GE Canada triggered the Primary Policies
    and the Respondents duties to investigate and/or defend.

In order to dispose of this appeal, it is only
    necessary to deal with the first ground.  The second and third grounds of
    appeal are simply a further elaboration of the first ground.

Did the application judge err in restricting his
    analysis to the literal text of the April letter?

[15]

Counsel
    for GE argues that the application judge erred in ignoring the reality of what
    was being communicated in the April letter.  He cites
Reid Crowther &
    Partners Ltd. v. Simcoe & Erie General Insurance Co.
, [1993] 1 S.C.R.
    252, at p. 275:

What is required, unless the policy expressly so stipulates, is
    a
form
of demand or assertion of liability, not a
formal
demand or assertion of liability.  Under a policy
    such as the one in this appeal, which contains no express requirement of a
    formal demand or indeed any demand at all, what constitutes a claim made is a
    question to be resolved on the facts of the case.  There is no magic formula. 
    One must look to the reality of what the third party was communicating to the
    insured by words and conduct.  If the message was clear, the fact that the
    third party through politeness refrained from stating its demand or intention
    to hold the insured liable in categorical legal terms should not preclude a
    finding that a claim has been made.

[16]

Counsel
    for GE submits that the application judges focus on the strict language of the
    April letter led him to ignore a substantial potential liability for property
    damage imposed by the
Environmental Protection Act
, R.S.O. 1990, c.
    E.19 (the EPA).  By concentrating on the delineation of the source of the
    contamination in the April letter, the application judge failed to appreciate
    that the letter involved the possibility of broader off-site liabilities.

[17]

Counsel
    for GE further argues that the application judge failed to appreciate that the
    substance and reality of the April letter was much more than a claim to
    undertake the delineation of the source.  The April letter should be read as an
    allegation that GEs operations at the Ward Street site were responsible for a
    TCE plume that was the source of downstream contamination at a property owned
    by the TTC.

[18]

Counsel
    for GE also submits that the application judge erred in failing to consider the
    underlying statutory scheme and the range of liabilities for property damage
    that would flow from GE being a responsible party under the EPA.  The letter,
    in effect, was only the beginning of a potential adversarial process whereby GE
    would be required to undertake extensive remedial work, including off-site
    clean up.  In respect of this submission, counsel relies on American
    jurisprudence such as
Johnson Controls, Inc. v. Employers Ins.
, 665
    N.W. 2d 257 where the Wisconsin Supreme Court said at page 26:

[The receipt of a regulators letter] marks the beginning of
    adversarial administrative legal proceedings that seek to impose liability upon
    an insured.  A PRP letter significantly affects legal interests of the
    insured.  Therefore, a reasonable insured would expect this letter to trigger
    its CGL insurers duty to defend.

analysis

[19]

I
    start with reference to the relevant authorities.

[20]

On
    the issue of whether a duty to defend arises depends upon the pleadings rule. 
    The Supreme Court of Canada has articulated the rule in a number of cases.  In
Monenco
    Ltd. v. Commonwealth Insurance Co.
, [2001] 2 S.C.R. 699 at para. 28, the
    court said:

The starting premise for assessing whether an insurers duty to
    defend has been triggered rests in the traditional pleadings rule.  Whether
    an insurer is bound to defend a particular claim has been conventionally
    addressed by relying on the allegations made in the pleadings filed against the
    insured, usually in the form of a statement of claim.  If the pleadings allege
    facts which, if true, would require the insurer to indemnify the insured for
    the claim, then the insurer is obliged to provide a defence.  This remains so
    even though the actual facts may differ from the allegations pleaded.

Although in most cases the pleadings rule applies to
    a statement of claim or similar pleading, it can apply to a letter that asserts
    liability for damages against an insured.  Therefore, a careful analysis of the
    April letter must be the starting point in the case at bar.

[21]

The
    Supreme Court of Canada also described the necessary requirements to establish
    a claim that would give rise to a duty to defend.  In
Jesuit Fathers of
    Upper Canada v. Guardian Insurance Co. of Canada
, [2006] 1 S.C.R. 744 at
    para. 50, the court said:

The authorities establish that as a general rule, for a claim
    to be made there must be some form of communication of a demand for
    compensation or other form of reparation by a third party upon the insured, or
    at least communication by the third party to the insured of a clear intention
    to hold the insured responsible for the damages in question.

[22]

With
    the above authorities in mind, I turn to the application judges treatment of
    the April letter.  I can find no fault in the application judges approach to,
    and interpretation of, the April letter.  I agree with him that the only
    evidence of a claim by the MOE in the April letter is the request, or
    requirement if you will, that GE take action in delineating the source of the
    TCE contamination.  GE did not oppose, defend or investigate that request.  GE,
    as it was invited to do in the letter, voluntarily complied with the request of
    the MOE.  It cannot be said that it has suffered any defence or investigation
    costs recoverable under its insurance policies.  As the application judge
    concluded, the costs incurred were compliance costs  not defence costs.  The
    fact that GE provided a list of costs, which it has characterized as potential
    defence costs does not, in my view, change the analysis of whether the April
    letter triggers a duty to defend.

[23]

I
    see no merit in GEs position that the April letter was much more than a claim
    to undertake the delineation of the source of contamination.  The application
    judge has read and understood the plain language of the letter and correctly
    applied the pleadings rule in arriving at a conclusion with which I fully
    agree.

[24]

Similarly,
    I see no merit in the argument that the application judge erred in failing to
    consider the underlying statutory scheme of the EPA and the range of
    liabilities for property damage that might be imposed on GE.  To do so would
    have been to invite speculation: it would not have served any useful purpose.

[25]

The
    reliance of counsel for GE on American case law is not helpful.  I accept the
    conclusion of the application judge and the submissions of counsel for the
    respondents that there are numerous American cases, which go in both directions
    concerning the effect of a regulators letter.  GE submits that only a small
    number of American cases support the application judges conclusion.  The
    number of cases is not the point.  The American cases do not advance the
    argument.

[26]

For
    the sake of completeness, I wish to refer to two Ontario cases, which were
    raised in both the written and oral submissions of counsel.

[27]

GE
    relied on an Ontario Superior Court judgment in
Bridgewood Building Corp.
    (Riverfield) v. Lombard General Insurance Co. of Canada
[2005] O.J. No.
    2083.  In that case, certain general contractors built houses that were covered
    by the Ontario New Home Warranty Plan.  The foundations of a number of houses
    crumbled as a result of defective cement.  The foundations were constructed by
    subcontractors.  The general contractors were obligated under the home warranty
    legislation to repair the defects.  The issue in the case was whether the cost
    of repair was covered by the commercial general liability insurance policies of
    the general contractors.  In holding that there was coverage, the court said at
    para. 36:

It is evident that the Act and
    ONHWP are in the nature of consumer protection legislation, designed to assist
    and protect the purchasers of new homes.  In my view, this no-fault remedial
    and protective legislative scheme is akin to environmental protection
    legislation which requires pollution clean-up and the costs thereof to be
    carried out and absorbed by persons regardless of proof of negligence or
    fault.  Coverage for these and attendant costs under CGL policies has often
    been considered by courts in the United States. [Case citations omitted.]  Since
    1990, most courts that have considered costs of cleaning up environmental
    damage, costs connected with compliance with the Comprehensive Environmental
    Response, Compensation and Liability Act (CERCLA) 42 U.S.C. s. 9601 et seq. Or
    state statutes, are covered by the standard language in CGL insuring agreements
    which pay all sums which the insured shall become legally obligated to pay as
    damages (see: Lathrop, M.L., Insurance Coverage for Environmental Claims,
    Volume 1, (2002) LexisNexis, at p. 3-27).  In my view, the same approach should
    be taken in this particular case.

[28]

The
    application judge in the case at bar distinguished
Bridgewood
on the
    basis that it involved very different issues and the interpretation of a very
    different regulatory regime.  He also called into question Bridgewoods
    reliance on U.S. authority.

[29]

Although
Bridgewood
was upheld on appeal, this
    court made no reference to the lower courts comments concerning environmental
    protection legislation.  The court upheld the decision on the basis of the
    interpretation of the insurance contracts in issue.  See (2006), 79 O.R. (3d)
    494 (C.A.).  I do not find
Bridgewood
helpful to the analysis here.

[30]

Perhaps a more apt Ontario decision is found in
Brockton
    (Municipality) v. Frank Cowan Co.
,
    [2000] O.J. No. 4455.  The case was relied upon by counsel for both
    respondents.
Brockton
arose out of the E-coli contamination of Walkertons water supply.  Walkerton,
    through amalgamation, had become part of the new Municipality of Brockton.  The
    central issue in the case was whether Brockton had a right to take control of
    the defence of certain civil actions from its insurer by appointing its own
    counsel.  Brockton also sought a declaration that its insurer had a duty to
    defend it, which included reimbursement of the following costs:

1.

Legal fees for the
    compensatory damage claims;

2.

Legal fees for responses
    made to regulatory and investigative authorities including the O.P.P., the
    coroner, the MOE, and the Public Inquiry;

3.

Engineering expenses to
    respond to the MOE field order;

4.

Public relations
    expenses;

5.

Remediation expenses.

[31]

The application judge rejected Brocktons position
    concerning reimbursement for costs beyond the civil actions.  Caswell J. of the
    Superior Court said at paras. 81 and 82:

It is my view, however,
    that the expenses incurred by Brockton with respect to the MOE and O.P.P.
    investigations, the engineering reports, remediation work, the public relations
    expenses and the Public Inquiry are simply too remote and are not covered by
    the liability policy.

The investigations of the
    MOE will not result in findings of liability and the imposition of damages. 
    Brockton was required to obtain the engineering reports pursuant to the MOE
    field orders.  The town was also required to undertake the remediation work as
    ordered.  I do agree that prompt and efficient reaction by Brockton may
    ultimately impact on the ensuing litigation.

[32]

The
Brockton
judgment was upheld in the Court of Appeal.  See
    (2002), 57 O.R. (3d) 447 (C.A.).  No reference was made to the above quotation
    of the application judge.  Our court held that the insurance policy in issue
    obliged the insurer to reimburse the insured only for those reasonable expenses
    (other than loss of earnings), which were incurred at the insurers request. 
    The court concluded that none of the expenses claimed were incurred at the
    request or authorization of the insurer.

[33]

While
Brockton
, on its facts, is arguably closer to the case at
    bar, the decision in this court, and in the court below, turned on the precise
    language of the insurance policy in issue.

[34]

In my view, neither of the two
    Ontario cases is determinative of the issue that the application judge had to
    decide.  As already indicated, I am in agreement with the application judges
    analysis and I see no basis upon which this court should interfere.

disposition

[35]

In
    the result, I would dismiss the appeal.

COSTS

[36]

In
    accordance with the agreement of the parties, I would award partial indemnity
    costs of $35,000 each to the respondents.  Such awards are to be inclusive of
    disbursements and applicable taxes.

Released: AUG 02 2012                   Robert P.
    Armstrong J.A.

KMW                                               I
    agree K.M. Weiler J.A.

I
    agree Paul Rouleau J.A.


