



COURT OF APPEAL FOR ONTARIO

CITATION: Hanson v. Totten Insurance Group Inc., 2018 ONCA
    446

DATE: 20180510

DOCKET: C64230

MacFarland, LaForme and Epstein JJ.A.

BETWEEN

Nicola Anne Hanson and Paul Hanson

Plaintiffs (Appellants)

and

Totten Insurance Group Inc.
, Ives
    Insurance Brokers Ltd.,
John Malac
,
Lynne Malac
and
Lloyds
    Underwriters

Defendants (
Respondents
)

Steven Pickard, for the appellants

Mikel Pearce and Brett Stephenson, for the respondents
    Totten Insurance Group Inc. and Lloyds Underwriters

Michael Stocks, for the respondents John Malac and Lynne
    Malac

Heard: April 11, 2018

On appeal from the judgment of Justice Pamela L. Hebner
    of the Superior Court of Justice, dated August 11, 2017, with reasons reported
    at 2017 ONSC 4809.

MacFarland J.A.:

A.

Introduction

[1]

This
    is an appeal from a judgment dismissing the appellants motion for summary
    judgment in a mortgage enforcement action. The respondents, Lloyds
    Underwriters (Lloyds) and Totten Insurance Group Inc. (Totten), had issued
    a policy of insurance to the respondents, John and Lynne Malac, the mortgagees
    of the Hanson property. Following a loss to the Hanson property, Lloyds paid
    the Malacs their mortgage loss and claim, through subrogation, against the
    Hansons. The Hansons brought a motion for summary judgment in which they sought
    a determination as to whether the Lloyds policy covered their interest in the
    property so that the payment on the policy extinguished the mortgage debt.

[2]

In
    the usual situation of a homeowner with a mortgaged property, the homeowner, as
    required by standard mortgage terms, obtains and pays for a policy of insurance
    in his or her name. That policy will cover the homeowners interest in the
    property as well as the interest of the mortgagee. It is common practice for
    such policies to contain what is known as a standard mortgage clause. Such a
    clause will protect the interest of a mortgagee despite an act of the insured
    homeowner that would otherwise breach policy conditions. See, generally:
    Gowling Lafleur Henderson LLP,
Marriott and Dunn: Practice in Mortgage
    Remedies in Ontario
, loose-leaf (2018-Rel. 1), 5th ed. (Toronto: Thomson
    Reuters, 1994), vol. 2 at pp. 50-7 to 50-13; and Walter M. Traub,
Falconbridge
    on Mortgages
, loose-leaf (2017-Rel. 25), 5th ed. (Toronto: Thomson
    Reuters, 2017), at pp. 38-7 to 38-15.

[3]

However,
    in this case the appellants, who had obtained a private mortgage in the sum of
    $250,000 from the Malacs, were unable to obtain property insurance. The Malacs
    obtained a policy of insurance for $200,000 in their own names which was underwritten
    by Lloyds. That policy stated that it protected only the interest of the Malacs
    as mortgagees.

[4]

The
    main issues in this appeal are: (1) whether the Lloyds policy also covers the appellants
    interest in the property; and (2) whether Lloyds is entitled to exercise its
    right of subrogation having paid out the mortgagees interest.

[5]

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

B.

Background

(1)

History of the property

[6]

The
    subject property is owned by the appellant, Nicola Hanson. In August 2006, she
    granted a mortgage in favour of the Malacs. Paul Hanson is the husband of
    Nicola Hanson and the guarantor of that mortgage. For a number of years after
    the mortgage was placed, the appellants arranged the necessary insurance
    coverage for the property. Such insurance was taken out and paid for by the
    plaintiffs as mortgagor and covered both their interest in the property as well
    as that of the Malacs as mortgagee.

[7]

In
    September 2010, Allstate Insurance Company of Canada (Allstate), then the
    insurer of the property, cancelled its policy of insurance. The record suggests
    that its reasons for cancellation may have included the Hansons claims
    history, possible non-payment of premiums, breach of policy conditions and
    misrepresentation. Issues between the Hansons and Allstate are the subject of a
    separate proceeding.

[8]

However,
    when the Hansons were unable to obtain replacement insurance, the Malacs,
    concerned about their interest as mortgagee, offered to obtain insurance for
    which the Hansons would pay, as they were obligated to do under the standard
    terms of the mortgage.

[9]

The
    Malacs were told by both Allstate and their own agent that because they were
    not the owners of the property they could not insure in the Hansons names and
    they could only insure for their interest as mortgagees. This information was
    passed from the Malacs to the Hansons. The Hansons were also informed that they
    should contact the Malacs agent, Ives Insurance Brokers Ltd., to arrange
    insurance to cover their own interest in the property. The Hansons did not do
    so.

[10]

The policy which the
    Malacs obtained, names John Malac & Lynne Malac as insureds. The risk
    location is the address of the subject property in Kingsville, Ontario. The
    business insured is described as mortgagee. The property is noted to be a
    primary residence occupied by others. The coverage is described as Commercial
    Property  Named Perils Form Building. The face of the policy bears the
    notation Mortgagee Interest  No Co-Insurance Endorsement.

[11]

The policy limit was $200,000
    and the coverage initially was from October 10, 2010 to October 10, 2011. The
    policy was renewed twice before the events which give rise to this suit
    occurred in June 2013. The Malacs paid the premium for the policy and were
    subsequently reimbursed by the Hansons.

[12]

The policy contains
    the following term:

THIS
    ENDORSEMENT CHANGES THE POLICY
.

PLEASE READ
    IT CAREFULLY
.

MORTGAGE
    INTEREST  NO CO-INSURANCE ENDORSEMENT

[13]

This endorsement
    modifies the coverage provided as follows:

PROPERTY SECTION

Co-Insurance:
      It is noted and agreed that this policy is written on a No-Co-Insurance basis
    and that the sum insured is in the interest of the named Insured in their
    capacity as Mortgagee on the premises insured by this policy. In the event of a
    loss, this policy shall protect only the interest of the Named Insured and no
    other party.

[14]

Usual statutory and
    general conditions are attached and include General Condition G, which
    includes the following:

G) SUBROGATION

VII. The Insurer, upon making any payment or assuming liability
    therefor under this Policy, shall be subrogated to all rights of recovery of
    the Insured against others and may bring action to enforce such rights.

[15]

Also included is a
    standard mortgage clause, the relevant provisions of which provide:

It is hereby provided and agreed that:

1.       Breach Of Conditions By Mortgagor Owner Or Occupant 
    This insurance and every documented renewal thereof  as to the interest of the
    Mortgagee only therein  is and shall be in force notwithstanding any act,
    neglect, omission or misrepresentation attributable to the Mortgagor, Owner or
    occupant of the property insured, including transfer of interest, and vacancy
    or non-occupancy, or the occupation of the property for purposes more hazardous
    than specified in the description of the risk

2.       Right Of Subrogation  Whenever the Insurer pays the
    Mortgagee any loss award under this policy and claims that  as to the
    Mortgagor or Owner  no liability therefore existed, it shall be legally
    subrogated to all rights of the Mortgagee against the Insured; but any
    subrogation shall be limited to the amount of such loss payment and shall be
    subordinate and subject to the basic right of the Mortgagee to recover the full
    amount of its mortgage equity in priority to the Insurer

[16]

In June 2013, the
    property was substantially damaged by fire and was ultimately demolished. The
    Malacs claimed their mortgage loss from the insurer and were initially paid
    $100,000 and told a second cheque for $100,000 would follow shortly. Soon
    after, the insurers took the position that the Malacs had suffered no loss
    because the Hansons continued to make their monthly mortgage payments (and the
    mortgage was not due until December 2014). The Malacs returned the $100,000
    they had been paid.

[17]

The mortgage came due
    in December 2014 and when it was not paid, the Malacs began power of sale
    proceedings in February 2015. The insurers later paid the Malacs the $200,000
    of insurance monies and claimed to be subrogated to the Malacs rights to
    enforce the mortgage debt.

[18]

There is an obvious
    shortfall in the monies owed to the Malacs  the insurance limit did not cover
    the full amount of the debt. The Malacs wish to recover that shortfall.

(2)

The current proceedings

[19]

The appellants
    commenced this proceeding very soon after, on March 2, 2015. Within days of
    commencing their proceeding they moved for an order to prevent the Malacs from
    taking any steps to enforce the mortgage. Their motion was adjourned,
sine
    die
,
and an order entered
    on consent, establishing that the Malacs would take no steps to enforce the
    mortgage pending the return of the motion. The motion has not been returned. Meanwhile
    interest accrues, and the Malacs continue to pay the taxes and the arrears
    increase.

[20]

Oral and documentary
    discovery took place and in July 2016, the appellants moved for summary
    judgment. The motion was heard in February 2017, with the plaintiffs claiming:

a)       A Declaration that Lloyds Underwriters have no
    subrogated right to bring mortgage enforcement proceedings in respect of a
    mortgage dated August 4, 2006, and subsequently renewed on December 15, 2012
    and now matured on December 15, 2014 on the property owned by the plaintiff at [Kingsville,
    Ontario];

b)       An Order directing the defendants John and Lynne Malac
    and / or Lloyds Underwriters to provide a discharge of the said mortgage, to
    the extent that the balance owing on the mortgage has been paid down by the
    proceeds of insurance;

c)       An Order for an accounting of all monies paid and
    received on account of the balance due and owing on the said mortgage,
    crediting all funds received by John and Lynne Malac from Lloyds Underwriters
    respecting an insurance policy placed by them on the subject property; [and]

d)       An Order restraining the defendants John and Lynne
    Malac and / or Lloyds Underwriters as subrogee from taking or continuing any
    mortgage enforcement proceedings pursuant to the aforesaid mortgage[.]

[21]

The motion judge
    dismissed the motion in its entirety. After reviewing s. 6 of the
Mortgages
    Act
, R.S.O. 1990, c. M.40,
and
    concluding
that the purpose of this section
    is to benefit only the mortgagee, she noted, at para. 26, that the standard
    charge terms had a similar purpose
:

The same can be said for the standard charge terms of the
    mortgage, para. 16 set out above. The obligation to insure is on the mortgagor
    and not the mortgagee. If the mortgagor fails to obtain insurance, the
    mortgagee
may
obtain insurance itself and require the mortgagee to pay the premium. This term
    is for the benefit of the mortgagee and the mortgagee alone. [Emphasis in
    original.]

[22]

She reviewed the
    authorities on which the appellants relied, including
Sanofi Pasteur Ltd.
    v. UPS SCS, Inc.
, 2014 ONSC 2695, 119 O.R. (3d) 789, affd 2015 ONCA 88, 124
    O.R. (3d) 81, leave to appeal refused, [2015] S.C.C.A. No. 152. She concluded
    that because of paragraph 16 of the Standard Charge Terms, which formed part of
    the mortgage, the appellants assumed the risk of loss.

[23]

She held, at para. 31,
    that the terms of the policy and the evidence of the appellants was consistent
    with the conclusion that the policy was only for the benefit of the Malacs and
    further, at para. 34, that Lloyds subrogation right was enforceable against
    the mortgagors.

C.

Analysis

(1)

Does the Lloyds policy cover the appellants interest in the property?

[24]

In this court, the
    appellants argue that the motion judge erred in reaching the conclusion that
    the policy was only for the Malacs benefit. They contend that the only
    reasonable interpretation of Standard Charge Term 16 is that a mortgagee must
    obtain insurance that will cover the interests of both the mortgagor and
    mortgagee when a mortgagor does not, for whatever reason, insure the subject
    property.

[25]

Standard Charge Term
    16 provides:

The Chargor will immediately insure, unless already insured,
    and during the continuance of the Charge keep insured against loss or damage by
    fire, in such proportions upon each building as may be required by the Chargee,
    the buildings on the land to the amount of not less than their full insurable
    value on a replacement cost basis in dollars of lawful money of Canada. Such
    insurance shall be placed with a company approved by the Chargee. Buildings
    shall include all buildings whether now or hereafter erected on the land, and
    such insurance shall include not only insurance against loss or damage by fire
    but also insurance against loss or damage by explosion, tempest, tornado,
    cyclone, lightning and all other extended perils customarily provided in
    insurance policies including all risks insurance. The covenant to insure
    shall also include where appropriate or if required by the Chargee, boiler,
    plate glass, rental and public liability insurance in amounts and on terms
    satisfactory to the Chargee. Evidence of continuation of all such insurance
    having been effected shall be produced to the Chargee at least fifteen (15)
    days before the expiration thereof;
otherwise
    the Chargee may provide therefor
and charge the premium paid and
    interest thereon at the rate provided for in the Charge to the Chargor and the
    same shall be payable forthwith and shall also be a charge upon the land. It is
    further agreed that the Chargee may at any time require any insurance of the
    buildings to be cancelled and new insurance effected in a company to be named
    by the Chargee and also of his own accord may effect or maintain any insurance
    herein provided for and any amount paid by the Chargee therefor shall be
    payable forthwith by the Chargor with interest at the rate provided for in the
    Charge and shall also be a charge upon the land. Policies of insurance herein required
    shall provide that loss, if any, shall be payable to the Chargee as his
    interest may appear subject to the standard form of mortgage clause approved by
    the Insurance Bureau of Canada which shall be attached to the policy of
    insurance. [Emphasis added]

[26]

This provision
    contemplates two scenarios, one where the mortgagor/chargor obtains insurance,
    and the second where the mortgagee/chargee obtains insurance.

[27]

The appellants argue
    that the language otherwise the Chargee may provide
therefor
and charge (emphasis added) can
    only mean that the mortgagee/chargee, if it chooses to obtain insurance
    coverage, must obtain the same coverage that the mortgagor/chargor is required
    to obtain. They argue the word therefor can only refer back to the language in
    the earlier portion of the provision which outlines the mortgagors/chargors
    obligation to insure.

[28]

There are a number of
    difficulties with this argument.

[29]

First, the obligation
    to insure lies on the mortgagor/chargor in the first instance and is mandatory
     the mortgagor/chargor will immediately insure. There is no obligation on
    the mortgagee/chargee to insure. That portion of the clause dealing with the mortgagees/chargees
    right to insure is merely permissive  the mortgagee/chargee 
may
provide therefor (emphasis added). The
    appellants argument converts the permissive language of this term into a mortgagees/chargees
    mandatory obligation to obtain like insurance.

[30]

Second, as the Malacs discovered,
    mortgagees/chargees can only obtain insurance in their own names to cover their
    own interest in the subject property. The Malacs do not have an insurable interest
    in the equity of redemption  only the Hansons do. They told the Hansons this
    after their efforts to obtain coverage for them failed and their broker told
    them they could only get insurance for their interest as mortgagees/chargees.

[31]

Finally, this term is
    for the benefit of mortgagees/chargees. The property is to be insured by the mortgagor/chargor
    and the cost of that insurance is to be borne by the mortgagor/chargor. The assumption
    of risk lies with the mortgagor/chargor, not the mortgagee/chargee.

[32]

Next the appellants
    argue that because they paid the premiums for the insurance they are entitled
    to the benefit of any such coverage. The contract provides that the cost of
    such insurance is to be borne by the mortgagor/chargor and that includes the
    cost of
any
insurance obtained by the mortgagee/chargee.

[33]

Any policy obtained by
    the mortgagor/chargor is to provide that loss is to be payable to the mortgagee/chargee
    as its interest may appear and is to have a standard form of mortgage clause
    attached.

[34]

Reading Standard
    Charge Term 16 as a whole, there can be no doubt that, as the motion judge
    found, this term is for the benefit of the mortgagee/chargee and the mortgagee/chargee
    alone.

[35]

It is important to
    remember that a mortgage is, in its essence, a loan agreement. In the usual
    circumstances, the mortgage provides a significant sum of money to a mortgagor/chargor
    to acquire a property. There is a cost to obtain that loan. It includes
    interest on the principal sum but also other obligations that the mortgagor/chargor
    is required to pay and maintain. Where the mortgagor/chargor fails to make
    these payments, they are added to the principal sum of the mortgage and can be
    enforced in the same way: see
Marriott and Dunn
, at p. 50-4.

[36]

In the usual case, where the mortgagor/chargor obtains the required
    coverage to cover both its interest and that of any mortgagee/chargee and a
    loss occurs, on the insurers payment to the mortgagee/chargee of the mortgagees/chargees
    loss, the insurer is subrogated to the mortgagees/chargees rights. There
    usually are two conditions before the insurer can exercise those rights: (i) it
    must pay the mortgagees/chargees loss under the policy; and (ii) it must
    demonstrate that it owes nothing to the mortgagor/chargor. Once those
    conditions are satisfied the insurer may proceed with a subrogated claim
    against the mortgagor/chargor, limited, of course, to the amount it has paid to
    the mortgagee/chargee:
Pinder v. Farmers Mutual Insurance
Company
,
    2009 ONCA 831, 100 O.R. (3d) 200
, leave to appeal
refused,
[
2010] S.C.C.A. No. 10
.

[37]

That is not the
    situation in this case. Here the insurance was obtained by the mortgagees/chargees
    to cover only their interest in the subject property  their mortgage interest.
    Although the standard mortgage clause contains the language that references the
    second condition required by
Pinder
, that condition does not arise on
    the facts of this case as the Hansons have no interest in the subject policy
    and the entire limits of the policy were properly paid to the mortgagees/chargees.
    The policy proceeds were insufficient to cover the entire mortgage debt and accordingly,
    the Malacs are free to pursue the appellants for recovery of the remainder of that
    debt  and, as stated in the standard mortgage clause provision entitled Right
    Of Subrogation, in priority to the claim of the insurers.

[38]

As the motion judge
    found at para. 29:

When the Hansons failed to insure the property, the Malacs were
    free to do so at their option. Moreover, they were free to obtain whatever
    insurance they saw fit. There was no obligation on the Malacs to protect the
    Hansons from loss.

[39]

The appellants
    argument that the Hansons expected that the insurance policy would cover their
    interest was rejected by the motion judge. She concluded, at para. 32:

The Hansons knew, at all material times, that the insurance
    policy obtained by the Malacs was not for their benefit. This is consistent
    with the intention expressed in the policy.

[40]

Her finding in this
    regard is well-supported on the record before her including: the language of
    the insurance policy; the evidence of Lynne Malac; the evidence of Nicola
    Hanson; and the evidence of the senior claims adjuster assigned by Lloyds.

(2)

Is Lloyds entitled to exercise its right of subrogation?

[41]

At the end of her
    reasons the motion judge declined to set aside the Order of Howard J. dated May
    19, 2015. That order, made on consent, adjourned the appellants motion for an
    interlocutory injunction to prevent the Malacs from taking steps to proceed with
    their Notice of Sale proceedings. The term of the adjournment required the
    Malacs to take no steps to enforce the mortgage pending the return of that
    motion.

[42]

The motion judge
    concluded at para. 36, that the motion has not yet been returned. Accordingly,
    it is not before me. Under those circumstances, I decline to set aside the
    consent order.

[43]

In my view, it is
    immaterial that the parties adjourned the Hansons motion for an interlocutory
    injunction on consent in the face of the subsequent findings made on the
    summary judgment motion and affirmed in this appeal. It is important to note
    that the very basis for the adjourned injunction motion rests on the allegation
    that the Malacs undertook to obtain property insurance for the benefit of the Hansons
    and that although the named insureds were the Malacs, the policy was for the
    sole benefit of the Hansons. As indicated above, I agree with the conclusion of
    the motion judge that the policy was instead for the sole benefit of the Malacs,
    and not for the benefit of the Hansons. Accordingly, the Hansons cannot re-litigate
    what has already been determined in the present proceeding.

[44]

In any event, while
    there were no direct proceedings before the motion judge in relation to Justice
    Howards order, the appellants did seek before her:

d)       An order restraining the defendants John and Lynne
    Malac and / or Lloyds Underwriters as subrogee from taking or continuing any
    mortgage enforcement proceedings pursuant to the aforesaid mortgage.

[45]

This request is essentially
    the very same relief the appellants sought in their adjourned motion for
    injunctive relief and, in my view, overtakes those earlier interlocutory
    proceedings. In effect, the motion judge fully dealt with the Hansons ability
    to restrain the Malacs and Lloyds from continuing mortgage enforcement
    proceedings as if the adjourned motion for injunctive relief had been returned.

[46]

Their motion for
    summary judgment having been dismissed in its entirety, including their request
    for injunctive relief, there is no remaining impediment to the Malacs and the
    insurers proceeding with their power of sale proceedings.

[47]

For these reasons I
    would dismiss the appeal.
[1]

[48]

I would award costs to
    the respondent insurers fixed in the sum of $15,000 and to the Malacs in the
    sum of $10,000. Both awards are inclusive of disbursements and HST.

Released: May 10, 2018 (H.S.L.)

J.
    MacFarland J.A.

I agree.
    H.S. LaForme J.A.

I agree.
    Gloria Epstein J.A.





[1]

Appeals from dismissals of summary judgment motions
    are generally considered to be appeals of interlocutory orders: see
Skunk v. Ketash
, 2016
    ONCA 841, 135 O.R. (3d) 180. The issue was not argued by either party on this
    appeal. In any event, where, as in this case, a motion judge finally decides
    all of the disputed issues, the order may be final: see
Del Ridge Construction Inc. v. General Accident
    Assurance Co. of Canada
(2005), 27 C.C.L.I. (4th) 42
    (Ont. C.A.). In my view, the principle from
Del Ridge
applies in this
    case and the appeal properly lay to this court.


