



COURT OF APPEAL FOR ONTARIO

CITATION: Paulin v. Keewatin Patricia District School Board,
    2019 ONCA 286

DATE: 20190410

DOCKET: C65425

Hourigan, Miller and Paciocco JJ.A.

BETWEEN

Elaine Marguerite Marie Paulin

Plaintiff

and

Keewatin Patricia District School Board

Defendant (Respondent)

and

The Corporation of the Municipality of Red
    Lake

Third Party (Appellant)

K. Dearlove, for the appellant

D. Lester, for the respondent

Heard: February 6, 2019

On appeal from the order of Justice Terrence A. Platana
    of the Superior Court of Justice, dated May 7, 2018, with reasons reported at
    2018 ONSC 2848.

Paciocco J.A.:



OVERVIEW

[1]

In 2010, a daycare employee injured herself from a fall in a daycare
    classroom operated by the appellant, the Corporation of the Municipality of Red
    Lake [Red Lake]. Red Lake leased the daycare space from the Keewatin Patricia
    District School Board [the School Board].

[2]

A law suit followed. Only the School Board was sued.

[3]

The School Board joined Red Lake in the action through a third party
    claim. Specifically, the School Board claimed that under the terms of their commercial
    lease agreement [the Lease], Red Lake is required to defend and indemnify the
    School Board. The School Board contends that Red Lake assumed the risk that
    allegedly occurred when the daycare employee was injured, by agreeing to insure
    against that risk, and through related provisions in the Lease.

[4]

Red Lake disagreed with the School Boards position. It urged that,
    properly interpreted, the Lease actually requires the School Board, and not Red
    Lake, to insure against and bear the relevant risk.

[5]

Both parties brought overlapping r. 21.01 motions to settle their
    disagreement over the proper interpretation of the Lease, as a question of law.
    Red Lake also moved to strike the School Boards third party claim.

[6]

This is an appeal by Red Lake from the motion judges decision on those
    motions, ordering Red Lake to defend and indemnify the School Board in respect
    of the daycare employees claim, and dismissing Red Lakes motion to strike. Red
    Lake claims that the motion judge erred in law in numerous respects in interpreting
    the Lease, and asks that his decision be set aside and the relief it requested
    in its motions be granted.

[7]

I disagree. For the reasons that follow, I would dismiss Red Lakes
    appeal.

The MATERIAL FACTS

[8]

Red Lake and the School Board entered into the Lease dated December 16,
    2008. Pursuant to the Lease, Red Lake, as tenant, obtained the use of 2,420
    square feet of the Red Lake Madsen Public School where it operated the daycare
    facility.

[9]

In July 2010, Elaine Paulin, an employee at the daycare facility,
    allegedly slipped and fell on a wet floor while in a daycare class room. She
    injured her knee and secured benefits from the Workplace Safety and Insurance
    Board [the WSIB].

[10]

In
    the spring of 2012, the WSIB commenced a subrogated action against the School
    Board in Ms. Paulins name pursuant to
Workplace Safety and Insurance Act,
    1997
,

S.O. 1997, c. 16,

s. 30(1). The heart of Ms.
    Paulins claim was that the School Board was liable because it failed to
    maintain the subject portion of the premises in accordance with reasonable
    standards.

[11]

The
    School Board chose to defend the action and brought the third party claim
    against Red Lake, asserting that a declaration should be made directing Red
    Lake to defend and indemnify the School Board regarding Ms. Paulins claim.

[12]

The
    School Board contended that these obligations arise from covenants in the Lease.

[13]

It
    urged that under the Lease, Red Lake is required to insure against the kind of
    claim Ms. Paulin advances. The School Board relied on a long line of authority
    holding that, a contractual undertaking by the one party to secure property
    insurance operates in effect as an assumption by that party of the risk of loss
    or damage caused by the peril to be insured against:
Deslaurier Custom
    Cabinets Inc. v. 1728106 Ontario Inc.
, 2016 ONCA 246, 130 O.R. (3d) 418,
    at para. 36 [
Deslaurier
], citing
Madison Developments Ltd. v.
    Plan Electric Co.
(1997), 152 D.L.R. (4
th
) 653 (C.A.), at para.
    9, leave to appeal refused, [1997] S.C.C.A. No. 659. See also:
Orion
    Interiors Inc. v. State Farm Fire and Casualty Company
, 2016 ONCA 164, 57
    C.C.L.I. (5th) 73;
Cummer-Yonge Investments Ltd. v. Agnew Surpass Shoe
    Stores Ltd.
, [1976] 2 S.C.R. 221 [
Cummer-Yonge
];
Pyrotech
    Products Ltd. v. Ross Southward Tire Ltd.
, [1976] 2 S.C.R. 35 [
Pyrotech
];
T. Eaton Co. v. Smith et al.
, [1978] 2 S.C.R. 749 [
T. Eaton Co.
];
D.L.G. & Associates Ltd. v. Minto Properties Inc.
, 2015 ONCA 705, 341
    O.A.C. 50.
[1]
The School Board argued that since Red Lake was to insure the relevant risk, as
    a matter of law Red Lake agreed to bear the risk of loss and must therefore indemnify
    and defend the School Board against Ms. Paulins claim.

[14]

The
    School Board urged that Red Lakes obligation to indemnify finds further support
    in the Lease. Specifically, s. 9(5) of the Lease required Red Lake to acquire
    an insurance policy and add the School Board as an additional insured under
    it. The School Board also relied upon s. 9(2) of the Lease that specifically obliged
    Red Lake to indemnify the School Board.

[15]

Red
    Lake did not contest the legal proposition relied upon by the School Board that
    a contractual undertaking to secure property insurance against a peril carries
    with it the assumption of risk from that peril. It disagreed, however, with the
    School Boards reading of the Lease. The Lease has insurance covenants that
    bind both parties, and Red Lake contended that, properly interpreted, the
    obligation to insure against the kind of claim Ms. Paulin advances actually falls
    to the School Board. It is therefore the School Board that assumed the relevant
    risk.

[16]

Red
    Lake argued, in the alternative, that even if the Lease can be interpreted to
    impose on Red Lake an obligation to insure against Ms. Paulins claim, the Lease
    is not clear enough, as a matter of law, to oblige Red Lake to assume
    responsibility for the School Boards own negligence.

[17]

Finally,
    Red Lake argued that the indemnification clause applies only to liability that
    is not covered by the kinds of insurance provided for in the Lease. The kind of
    claim Ms. Paulin advances is covered by insurance contemplated under the Lease,
    making the indemnification clause irrelevant.

[18]

In
    response to the School Boards third party claim, Red Lake therefore brought a r.
    21.01 motion for a determination, as a question of law, whether the Lease required
    Red Lake to defend and indemnify the School Board. The School Board brought a
    cross-motion seeking essentially the same relief. Red Lake also moved for an
    order striking out the third party claim on the ground that it discloses no
    reasonable cause of action.

[19]

These
    are the Lease provisions that required interpretation to resolve the motions:

9. INSURANCE

(1)  During
    the Term of this Lease and any renewal thereof the Landlord [School Board]
    shall maintain with respect to the Premises, insurance coverage insuring
    against:



(b) liability for bodily injury or death or
    property damage sustained by third parties up to such limits as the Landlord
    [School Board] in his sole discretion deems advisable;

(2) 
    The Tenant [Red Lake] covenants to keep the Landlord [School Board] indemnified
    against all claims and demands whatsoever by any person, whether in respect of
    damage to person or property, arising out of or occasioned by the maintenance,
    use or occupancy of the Premises or the subletting or assignment of same or any
    part thereof. And the Tenant [Red Lake] further covenants to indemnify the
    Landlord [School Board] with respect to any encumbrance on or damage to the
    Premises occasioned by or arising from the act, default, or negligence of the
    Tenant [Red Lake], its officers, agents, servants, employees, contractors,
    customers, invitees or licensees;

(a) And the Tenant [Red Lake] agrees that the
    foregoing indemnity shall survive the termination of this Lease notwithstanding
    any provisions of this Lease to the contrary.



(5) Liability
    Insurance

(a) The Tenant [Red Lake] shall maintain
    comprehensive general liability insurance in the amount of not less than Two
    million ($2,000,000.00) dollars per occurrence.


i.

The
    Insurance shall include the Tenants [Red Lakes] legal liability;


ii.

The
    Landlord [School Board] shall be named in the insurance policy as an Additional
    Insured,


iii.

The
    Insurance policy shall include a cross-liability endorsement;


iv.

The
    insurance policy shall include a 30-day cancellation clause.

(b)  Upon signing of the within lease, the Tenant
    [Red Lake] shall provide the Landlord [School Board] with a certificate of
    insurance.

[20]

On
    May 7, 2018, the motion judge held in favour of the School Board. He ordered Red
    Lake to defend and indemnify the School Board in respect of Ms. Paulins claim,
    and dismissed Red Lakes motion to strike the third party claim.

[21]

In
    simple terms, the motion judge held that the School Boards insurance
    obligations under the Lease are limited by other terms of the lease,
    specifically, Red Lakes obligation to insure under s. 9(5), and Red Lakes
    covenant to indemnify for damages under s. 9(2). Since, as a matter of
    interpretation, Red Lake undertook to insure against the risk presented by Ms.
    Paulins claim, Red Lake assumed the relevant risk.

ISSUES

[22]

Red
    Lake advances the following grounds of appeal, which I have reordered for
    analytical convenience:

(1)

The motion judge erred in considering
    material clauses:

a.

The motion judge
    erred in law by failing to give every clause meaning, and by giving effect to
    the more general insurance covenant in s. 9(5) instead of the more specific
    insurance covenant in s. 9(1); and

b.

The motion judge
    erred in law by reading the insurance covenant in s. 9(5) with the indemnification
    clause in s. 9(2), and considering the indemnification clause over the
    insurance covenants.

(2)

The motion judge erred in law by
    permitting insurance policy considerations relating to Red Lakes obligation to
    insure to predominate over the insurance covenants; and

(3)

The motion judge erred in law by
    concluding that Red Lake assumed the risk of the School Boards own negligence,
    in the absence of specific wording in the Lease to this effect.

[23]

The
    parties agreed before us that since these grounds of appeal raise the governing
    principles of contract interpretation and the proper application of binding
    authority, they raise extricable errors of law that attract the correctness
    standard, as in
Deslaurier
, at para. 31. We will resolve the appeal on
    that basis.

ANALYSIS

(1)

ERRORS IN CONSIDERING MATERIAL CLAUSES

[24]

A
    court is to interpret a commercial contract as a whole, in a manner that gives
    meaning to all of its terms and avoids an interpretation that would render one
    or more of its terms ineffective:
Bell Canada v. The Plan Group
, 2009
    ONCA 548, 252 O.A.C. 71, at para. 37, cited in
Deslaurier
, at para.
    48. Red Lake contends that in finding that s. 9(5) obliged Red Lake to insure
    against the risk of bodily injury to persons in the daycare, the motion judge improperly
    failed to give meaning to the School Boards s. 9(1) covenant to insure against
    liability for bodily injury sustained by third parties.

[25]

I
    disagree. In my view, the motion judge gave meaning to both insurance
    covenants. He held that the School Board agreed to maintain insurance coverage
    against bodily injury sustained by third parties generally, but this obligation
    was limited by Red Lakes assumption of liability to insure for bodily injury
    arising from the maintenance of the leased premises, the very event that
    allegedly befell Ms. Paulin. The School Board argued for this interpretation
    and the motion judge accepted it, saying:

I agree with the interpretation of the lease by the landlord.
    The landlord agreed to maintain general coverage on the leased premises.
    However, the landlord bargained contractually for the tenant to assume coverage
    for damages to person arising out of maintenance of the premises.

[26]

The
    reading I have given this passage requires some explanation. In my view, it is
    clear from the arguments made and the decision as a whole that in this passage the
    motion judge was using the same term, premises, to refer to different things.
    In the case of the School Boards obligation to insure, he used the term premises
    to refer to the school generally. In the case of Red Lakes obligation to
    insure, he used the term premises to refer to the leased premises or space.

[27]

This
    imprecision can be explained by the Lease itself. It, too, uses the undefined term
    premises ambiguously.

[28]

For
    example, the recital to the Lease employs the term premises to refer to the
    entire school, when it refers to a [l]ease of Space in the premises known
    municipally as: Red Lake Madsen School Box 5001, 201 Howey St. Red Lake, ON P0V
    2M0.

[29]

In
    contrast, the indemnification clause in s. 9(2) uses the term premises with
    obvious reference to the leased space. It says:

The Tenant [Red Lake] covenants to keep the Landlord
    [School Board] indemnified against all claims and demands whatsoever by any
    person, whether in respect of damage to person or property, arising out of or
    occasioned by the maintenance, use or occupancy of the
Premises
or the subletting or assignment of same or any part thereof. [Emphasis added.]

[30]

Even
    though this indemnification clause does not use the term space, which is
    defined in the Lease specifically to accommodate reference to the leased
    premises,
[2]
it is obvious that s. 9(2) is about the leased premises. This is so because s. 9(2)
    speaks of Red Lakes obligations relating to damage to person  arising out of
    or occasioned by the maintenance, use or occupancy of the Premises, or the
    subletting or assignment of same or any part. First, the only area occupied
    by Red Lake is the leased premises. Second, that is the only space that Red Lake
    has authority to sublet or assign.

[31]

The
    motion judge therefore did not fail to give meaning to all of the terms of the Lease.
    Under its s. 9(1) covenant, the School Board is to insure for bodily injury to
    third parties generally. However, under its s. 9(5) covenant to obtain
    comprehensive general liability insurance, Red Lake is to insure for bodily
    injury arising out of or occasioned by the maintenance, use or occupancy of the
    leased premises. In this way, both insurance covenants operate, and in a commercially
    reasonable way.

[32]

I
    disagree with Red Lake that this interpretation leaves it without benefits from
    the School Boards s. 9(1) insurance covenant. This covenant provides Red Lake
    with the certainty of coverage for loss or damage from bodily injury that
    occurs in the school but outside of the leased space, and frees Red Lake from
    responsibility should such loss or damage occur.

[33]

This
    interpretation also answers Red Lakes complaint that the motion judge erred by
    interpreting Red Lakes s. 9(5) general insurance covenant as carrying a higher
    obligation to insure against bodily injury to third parties, than the School
    Boards s. 9(1) covenant to insure specifically against bodily injury to third
    parties. To the contrary, what the motion judge did was interpret the
    obligation that Red Lake undertook as applying to a restricted space, making it
    a more specific insurance obligation than the School Boards responsibility to
    insure the general school property. The motion judge correctly identified and
    applied the more specific insurance obligation.

[34]

There
    is no doubt that in coming to this conclusion, the motion judge did consider
    the indemnification clause, as well as the additional insured clause. I do
    not accept Red Lakes contention that doing so was in error. In my view, the
    motion judge quite properly considered the Lease as a whole when interpreting
    the insurance covenants.

[35]

Indeed,
    the indemnification clause, the additional insured clause, and the insurance
    covenants are housed together in s. 9 of the Lease, under the heading INSURANCE.
    The clauses were clearly meant to work together to ensure that the contemplated
    risks, including the risk that occasioned (the bodily injury to Ms. Paulin
    alleged to have arisen from the maintenance of the premises), would be assumed
    by Red Lake.

[36]

For
    example, the additional insured clause properly supports the motion judges
    conclusion that under the Lease, the School Boards obligation to maintain
    general coverage of the school is limited by Red Lakes insurance covenant. By
    insuring the School Board as well, Red Lake was clearly agreeing that it would assume
    the insured risks in the leased space on behalf of the School Board. This
    reinforces, appropriately, the motion judges understanding of the relationship
    between the two insurance covenants. Simply put, anything covered by Red Lakes
    insurance covenant is removed from the School Boards obligation to insure.

[37]

What
    then of the indemnification clause? This clause properly reinforces the
    intention of the parties to exempt the School Board from liability for the
    risks Red Lake agreed to insure.

[38]

I
    am satisfied that this is how the motion judge used the indemnification clause.
    I therefore reject the suggestion made by Red Lake that the motion judge
    improperly treated the indemnification clause as having been triggered. The motion
    judges order to indemnify and defend arose from Red Lakes agreement to assume
    the relevant risk, not from the triggering of the indemnification clause.

[39]

Red
    Lake also argues that the motion judges reasoning erroneously permits the indemnification
    clause to overtake the School Boards s. 9(1) insurance covenant. I disagree.
    This courts decision in
Deslaurier
addresses an example of improperly
    permitting an indemnification clause to overtake an insurance covenant.

[40]

In
Deslaurier
, the lease agreement obliged the tenant to carry insurance
    in its own name insuring against the risk of damage to the Tenants property
    within the Premises caused by fire, and the tenant was to include the landlord
    as an additional insured under the policy. Instead of giving effect to this
    covenant, the motion judge in
Deslaurier
disregarded it, holding that
    the landlord had assumed responsibility under the lease in respect of the same
    damage by agreeing to indemnify the tenant in respect of that same damage. Put
    otherwise, the indemnification covenant in
Deslaurier
was not used to
    assist in interpreting the insurance covenant. It was used to deprive the insurance
    covenant of meaning, in disregard of the general rule that a contractual
    undertaking to insure operates as an assumption of risk.

[41]

Indeed,
Deslaurier
affirms what the motion judge did here. Cronk J.A. cited
    with approval and relied upon the decision in
Lincoln Canada Services LP v.
    First Gulf Design Build Inc.
, [2007] O.J. No. 4167 (S.C.), affd 2008 ONCA
    528, where the motion judge agreed with the landlord that the effect of the
    tenants insurance covenant and the landlords indemnity covenant, read
    together, was that the parties intended the landlord to be exempt from
    liability for the specific matters that were to be insured against by the
    tenant:
Deslaurier
, at para. 65.

(2)

ERRORS IN USING INSURANCE POLICY CONSIDERATIONS

[42]

Red
    Lake argues that the motion judge erred by permitting insurance policy
    considerations to predominate over the terms of the Lease when he relied upon the
    additional insured clause. I do not agree.

[43]

To
    be sure, the legal principle Red Lake invokes is correct. The scope of
    indemnity does not depend on the insurance policy, but rather, on the terms of
    the lease:
Royal Host Limited Partnership (General partner of) v. 1842259
    Ontario Ltd.
, 2018 ONCA 467, 422 D.L.R. (4th) 661, at para. 15. That is
    why it would be an error for a court to accept an invitation by an insurer, such
    as the one extended in
Pyrotech
and
Cummer-Yonge
,

to
    use the insurance policy to determine the right of an insurer to commence a
    subrogated claim in the name of one party to a commercial lease, against the
    other party to that lease, where that lease addresses the risk of loss.

[44]

However,
    the motion judge did not contravene this legal principle here. Red Lakes
    obligation to add the School Board as an additional insured was a term of the Lease
    itself. The motion judge was entitled to consider that term and its insurance
    law implications in deciding whether Red Lake had agreed in the Lease to bear
    the relevant risk of loss.

(3)

THE OWN NEGLIGENCE ERROR

[45]

In
    the alternative, Red Lake appeals against the motion judges decision on the
    basis that, even if Red Lake did assume the relevant risk of loss, the indemnification
    clause is not clear enough to oblige Red Lake to indemnify the School Board for
    its own negligence. Red Lake relies on the
Canada Steamship Lines Ltd. v. R
,
    [1952] UKPC 1, [1952] 2 D.L.R. 786, line of authority, calling for very clear
    words before a party is exempted from liability for their own negligence.

[46]

I
    would reject this ground of appeal. As I have indicated, the outcome of this
    case did not turn on the triggering of the indemnification clause. The outcome
    followed from Red Lakes contractual assumption of the risk of loss through the
    insurance obligations that it assumed. In
T. Eaton Co.
, Laskin C.J.C.
    made clear that the
Canada Steamship Lines
principle does not apply
    where the claimed exoneration is based not on an exculpatory clause, but on the
    fact that the other party to a commercial lease has agreed to insure against the
    relevant negligence. As Laskin C.J.C. said at p. 756, with reference to the
    kind of policy at issue in that case:

An insurer could not refuse to pay a claim for loss by fire merely
    because the fire arose from the insureds negligence. I can see no reason why
    its position can be any better against a tenant, whose negligence caused loss
    by fire, if the lease with the landlord makes it clear that a policy was to be
    taken out by the landlord to cover such fires, and a policy is written which
    does so. In short, the insurer can claim only by subrogation under the lease.

CONCLUSION

[47]

None
    of the grounds of appeal advanced are persuasive. I would dismiss Red Lakes
    appeal and uphold the motion judges order that:

1. The third
    party, The Corporation of the Municipality of Red Lake, shall defend and
    indemnity the defendant, Keewatin Patricia District School Board, in respect of
    the plaintiffs claim for damages; and

2. The
    motion of the third party to strike out the Third Party Claim is dismissed.

[48]

As
    agreed, Red Lake shall pay costs in this appeal in the amount of $10,000,
    inclusive of all taxes and disbursements.

Released: BM Apr 10, 2019

David M. Paciocco
    J.A.
I agree. C.W. Hourigan J.A.
I agree. B.W. Miller J.A.





[1]
This rule does not apply if the parties contract otherwise, as in
Royal Host
    Limited Partnership (General partner of) v. 1842259 Ontario Ltd.
, 2018 ONCA
    467, 422 D.L.R. (4th) 661, at paras. 14-16. This limitation does not arise in
    this case.



[2]
The Lease defines space as follows: (1) Space means square footage in the
    building known as Red Lake Madsen Public School in Red Lake, Ontario. (2) For
    the purposes of this lease, said Space encompasses 2,420 square feet located in
    Red Lake Madsen Public School.


