Ontario Court of Appeal addresses available insurance coverage & additional insured

The excerpted article was written By Laura DayKevin McGivney

In Sky Clean Energy Ltd. v. Economical Mutual Insurance Company, 2020 ONCA 558, the Ontario Court of Appeal (the Court) discussed the availability of insurance coverage to an additional insured. The appeal concerned the interpretation of a common insurance term that requires liability to “arise out of the operations” of a named insured. The Court considered the requisite connection between the contractor’s operations and the additional insured’s liability. The Court upheld the traditional limits to the term “arising out of the operations,” requiring more than a “but for” analysis in order to establish the connection between the liability of the additional insured and the operations of the named insured. In the context of this case, it was not enough that the contractor had installed the equipment at issue.

Background

The project owner (the Owner) was a developer of solar energy projects and the contractor was an electrical contracting company. The Owner entered into contracts with the contractor to install a solar power system that the Owner designed, using equipment selected and sourced by the Owner. The Owner contracted with equipment suppliers to provide the main components of the system, including the inverter and transformer. It was the contractor’s responsibility to install the components.

Before beginning to install the first transformer, the contractor discovered that the transformer delivered by the Owner’s supplier did not conform to the Owner’s design specifications. Due to time restrictions, the Owner asked the contractor to help source new transformers. The contractor’s supplier located a transformer manufactured by a third party. It was the Owner’s decision to accept the third party transformer, and the contractor was not asked to provide an opinion on the suitability of the transformer. Upon completing the first project, representatives of both the Owner and contractor observed an anomaly in the power flow and recommended shutting down and investigating the system. The Owner’s representative decided to leave the system energized for “observation” and the Owner formally took control of the facility.

Three days later, the transformer overheated and caught fire.

After investigating the fire, the Owner determined that the third party transformer was suitable for the projects, as long as a technical adjustment was made to one of the connections. The Owner approved the change and authorized the contractor to proceed with the installation at the second site (and replace the transformer at the first site). Soon after, a fire broke out at the second project site and the transformer destroyed. As a result, both systems were shut down temporarily and replacement transformers installed. The Owner paid for the remediation and lost revenue of just under $600,000.

The Owner commenced various proceedings against the insurer (under which it was an additional insured), the contractor and the manufacturer of the transformer.

The contract

Under the contract between the Owner and the contractor, the contractor agreed to indemnify the Owner against the contractor’s failure to perform its contractual obligations and for its negligent acts.  The contractor also agreed to name the Owner as an insured under its Commercial General Liability insurance policy with its insurer, but only with respect to liability arising out of its operations.

The interpretation of “arising out of”

In interpreting the policy language “arising out of,” the Court reiterated that courts consistently interpret language such as “arising out of” or “arising from” as requiring more than a “but for” connection between the liability of the additional insured and the operations of the named insured. There must be an “unbroken chain of causation” and a connection that is more than “merely incidental or fortuitous.”

The interpretation of “operations”

The Court also considered the meaning of “operations,” which was said to include “the creation of a situation, or circumstance, that is connected in some way to the alleged liability.” It does not necessarily imply an “active” role by the named insured in the creation of the liability.

Findings of the Court of Appeal

The Court agreed with the trial judge and found that the contractor’s connection with the failure of the transformer was “merely incidental.” The trial judge found that the failure of the transformer caused the fire. Though the fire would not have occurred “but for” the fact that the contractor ordered and installed the transformers in the course of its operations under the contracts, the contractor’s “operations” under the contract did not require it to select the transformers to be installed in the projects. That was up to the Owner.

Takeaway

Consideration as to the underlying obligations between the parties necessarily informed the Court’s decision in this case. While the Court rejected the argument that the language of the contract between the Owner and the contractor should affect the interpretation of policy of insurance (other than to explain the commercial context), central to the Court’s decision was that the contractor was not responsible to choose the transformer. The Court noted that the Additional Insured Endorsement provided insurance with respect to the liability arising out of the “operations” of the named insured. The contractual obligations, including the scope of work, therefore formed part of the inquiry.

The Court upheld the traditional limits to the term “arising out of the operations,” requiring more than a “but for” analysis in order to establish the connection between the liability of the additional insured and the operations of the named insured. Despite the finding that the failed transformer caused the fire, the transformer was chosen by the Owner and thus it was not enough that the contractor installed the equipment at issue.

Newfoundland & Labrador – Glen L.C. Noel, Q.C., in insurance law is now a judge

Cox & Palmer is proud to share that Glen L.C. Noel, Q.C., has been appointed a Judge of the Supreme Court of Newfoundland and Labrador and a Judge ex officio of the Court of Appeal of Newfoundland and Labrador.

Since 1990, Glen has worked exclusively with Cox & Palmer (and its predecessor firms), building an extensive practice for almost 30 years in insurance law, commercial insurance litigation, and personal injury law. Consistently recognized as a leading practitioner, Glen’s dedication to the legal profession, commitment to his clients and professional integrity have been paramount to the success of Cox & Palmer.

Albeit managing a demanding practice, Glen has an innate ability to approach every situation with sound judgement and definitive resolve. Steadily encouraging fairness, inclusion and comradery, Glen’s positive influence inspires all those around him. A true leader, Glen always makes time for his colleagues and has been an exceptional mentor and friend to the entire team at Cox & Palmer.

We are honoured to have him serve the Province of Newfoundland and Labrador as Justice Noel, and we are tremendously proud to congratulate him on this well-deserved achievement.

Read the media release from the Government of Canada.

Protect Your Insured From Being Added To Litigation

Article by Ian S. Epstein

When an opposing party brings a motion to add an insured to existing litigation, the courts usually allows the party to be added, unless there are clear reasons not to do so, such as an expired limitation period. Consent is usually provided, as the threshold to add a party is low. Yet, recent developments show that a court may look deeper and assess the strength of the claim and evidence in support, to determine whether the addition of a party is improper, from the outset.

In Tacoma Engineers Inc. ats TNS Landco Inc. 2019 ONSC 1296, we successfully opposed a motion for Tacoma, a structural engineer, to be added as a Third Party on the basis that there was no merit to the claim against it, and that the claim was statute-barred.

The matter arose out of a failed septic system on a commercial property, which failed partly due to improper coordination of consultants. Without their knowledge or consent, Tacoma was listed as the consultant responsible for coordination, on a contract between the Claimant owner and the Design-Builder. In fact, as the structural engineer on the project, Tacoma was never responsible for coordinating others.

Instead of simply adding Tacoma, and requiring it to subsequently bring a summary judgment motion to strike the action against it, the court considered the evidence to ascertain Tacoma’s involvement. Justice Fowler Byrne dismissed the motion on the basis of the missed limitation period, and the fact that there was no basis to the claim.

The court noted that Tacoma’s invoices all dealt with structural issues, and not coordination. She also found that at no time did the Claimant notify Tacoma about a septic issue, nor ask for their assistance to fix things. The court also drew an adverse inference from the fact that the Claimant did not even mention Tacoma when they retained an expert to opine on the cause of the septic issues.

The key take-away is that while the threshold may be low to add a party, there is a threshold. The court can assess the evidence to determine whether a party is improper or a limitation period is expired, and make a determination to not add them at a very early stage. 

The case has important implications for insurers. Before simply consenting to a motion to add an insured to litigation, take a look at the facts. Is there clear evidence that the insured is an improper party? Is there clear evidence that the limitation period has expired? If so, it may be worth opposing the motion. If successful, it will prevent the insured from being added to the litigation, saving significant costs. If it is not successful, it may help to set up the evidentiary record needed to bring a summary judgment motion at a later stage.

Insurers should give careful consideration as to whether to consent or oppose a motion for an insured to be added as a party to existing litigation. Doing so may help reduce legal costs, and assist in potentially getting an insured out of litigation at an early stage. 

Ian Epstein has a general insurance practice covering a wide array of insurance issues including E&O, general liability and product liability claims as well as coverage assessments. He has been recognized by Lexpert® Canadian Legal Directory as a leading practitioner consistently recommended in Professional Liability matters and ranked by Best Lawyers® in Canada for his expertise as a practitioner in insurance law.

Lauren Rakowski’s insurance practice focuses on professional liability, tort, and commercial litigation. She has experience representing lawyers, engineers, individuals, corporations and financial advisors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be ought about your specific circumstances.

Lawyers file court challenge over ICBC’s new limits on auto insurance payouts

By Justine Hunter | The Globe and Mail

A group representing B.C.’s trial lawyers is asking the courts to overturn new limits on automobile insurance payouts that they say discriminate against people with disabilities.

Effective Monday, the provincial government imposed new rules to curb skyrocketing payments for minor-injury claims by capping settlements for pain and suffering at $5,500 and limiting when accident victims can sue.

The province is the last in Canada to abandon a system in which victims could sue for any type of injury − known as a full tort system.

But the Trial Lawyers Association of British Columbia filed a constitutional challenge on Monday. They say the challenge is to protect the Charter rights of British Columbians because the right to sue is a basic human right.

Rather than waiting for an individual complainant to challenge the law, the case is filed on behalf of “Jane Doe,” an individual whose identity is not yet known who suffers a “minor injury” as a result of an accident and has to follow the new rules.

Attorney-General David Eby said he is confident the amendments will stand up in court. “We believe the amendments we have made are not just constitutional, but good public policy,” he said in an interview.

Basic auto insurance in the province is only available through the Crown-owned Insurance Corp. of B.C., which is on track to post its second $1-billion deficit in a row. Without the caps, he said, insurance rates would have had to climb significantly this year.

Mr. Eby said the changes are expected to restore ICBC’s fiscal health, even after the province has boosted support for those needing medical services after an accident.

“We need to stop the bleeding at ICBC and this is a $1-billion reform that will actually increase benefits for British Columbians,” he said.

The diagnosis of injuries are made by a doctor and ICBC will then assess whether the injury falls under new definitions for a minor injury.

British Columbians with motor-vehicle-accident claims totalling $50,000 or less will have to resolve them through an online dispute resolution tribunal, without the opportunity to go to court.

Shelley Howard, executive director of the non-profit Campbell River Head Injury Support Society, said she is concerned that some accident victims may be caught under the new cap before they realize the extent of their injuries.

“The medical world doesn’t always recognize brain injuries right off the bat. It’s a complex injury,” she said. “I don’t know how the system will be able to go back and rectify the situation.”

The advocacy group wants assurances that people who suffer head injuries won’t fall through the cracks if their injuries are not promptly diagnosed.

Under ICBC’s rules, individuals have two years to settle their claims. Injuries can be switched from the minor classification to the non-minor category if new symptoms emerge in that time and if the file is still open. However, once an individual settles their claim, there is no opportunity to reopen their case.

“People who have a concussion will likely receive legal advice to not settle until that time period is over and it is clear the extent of the injury,” Mr. Eby said.

The trial lawyers association consulted with former NDP premier and attorney-general Ujjal Dosanjh on the case.

In an interview, Mr. Dosanjh said the government is violating the intent of the ICBC system when it was created in the 1970s.

“What you have now is the NDP government of British Columbia saying, ‘we will continue public auto insurance but we will increase rates and diminish your rights,’” he said.

“Taking away tort isn’t modernization, it’s going to medieval times without the right to go to court.”

Nine Insurance Scams from 2018

Source: The Coalition Against Insurance Fraud

While much of insurance fraud goes unreported, at least $80 billion in fraudulent claims are made annually in the U.S. The Coalition Against Insurance Fraud, a group of insurance, consumers and government organizations, reported the following incidents:

Burning desire. Two firefighters died when a brick wall fell on them as they fought an arson fire. Thu Hong Nguyen set the blaze to burn her nail salon for insurance money in Kansas City, Mo.

Driven to steal. A vast fraud ring run by Felix Filenger stole fully $23 million for bogus whiplash injury claims from real and setup car crashes in South Florida.

Bribes for blood. The largest doctor bribery scheme in U.S. history saw chiropractor David Nicoll stealing more than $100 million. He bribed at least 38 corrupt doctors for false testing of blood samples in Parsippany, N.J.

Toddler killer. Erica White poisoned her blind and deaf toddler Tyrael McFall to death for $50,000 of life insurance in the Atlanta area.

Maladjusted adjuster. Public adjuster Jorge Fausto Espinosa burned and flooded dozens of homes for $14 million of inflated claims in South Florida. Damage was rigged to look like electrical problems, kitchen accidents and faulty water lines.

Home arsonist floored. Firefighter Patrick Wolterman died when he fell through a seared floor while combating an insurance arson set by Billy Lester Parker and Billy Tucker in Hamilton, Ohio.

Pain for profit. Homeless people were inflicted with painful and unneeded spinal injections. Detroit-area streets also were flooded with more than 4 million painkillers in a $300-million Medicare plot by Dr. Mishiyat Rashid.

Unsober sober homes. Yury Baumblit ran unsafe flophouses that housed homeless people and addicts in the New York City area. He pushed many into unneeded drug rehab, forced some to take drugs, and evicted anyone who didn’t cooperate.

Money addiction. Kirsten Wallace co-owned a corrupt sober home that stole the identities of addicts to overbill insurers in a $175-million insurance crime. It was one of the largest health-insurance plots in California history.

Car thefts on rise in Canada as thieves target trucks, SUVs: insurance board

A new report says thieves are setting their sights on older-model Ford trucks and high-end SUVs as the number of automotive thefts rose again last year.

The Insurance Bureau of Canada said Tuesday, December 11, 2018 in its annual list of the most frequently stolen vehicles that the Ford F250 and F350 trucks dominated the list of most stolen vehicles in 2017.

In Ontario, Chevrolet dominated the list, including older model Tahoes and Silverados. In Quebec, the most stolen vehicle was the 2017 Acura MDX, while in Atlantic Canada the Nissan Maxima was the top pick.

Henry Tso, the board’s vice-president of investigative services, said thieves are going after older model trucks because they have less sophisticated security measures.

“Usually you need the card key information to get the diagnostic to start the car. A lot of the older vehicles, it doesn’t have that, so once you have a key cut you can start the vehicle.”

Thieves are, however, targeting newer vehicles that have key fobs through a technique known as a relay attack, where they use a device to remotely pick up the radio signal coming from the fob to unlock and start the car.

“Right now it’s just trending up right now, it’s fairly new,” said Tso.

To prevent the relay attack, vehicle owners should consider keeping their fob in what’s known as a Faraday sleeve or pouch, which blocks the radio signals, he said.

Many drivers, however, would do well to simply not leave their keys in their vehicles. In Alberta, about 25 per cent of thefts occurred when the keys were in the car, often to keep the vehicle warm, said Tso.

“It’s easily preventable, the 25 per cent, all they have to do is be a little colder in their vehicle.”

Alberta also saw the most thefts, making up about 25,000 of the 85,000 vehicles stolen in 2017 for a nationwide increase of about six per cent.

New Brunswick saw the sharpest rise in thefts with a 28 per cent jump, with Ontario seeing a 15 per cent increase.

The board says New Year’s Day is the most common time for vehicles to be stolen.

But, it says vehicles are often smuggled outside the country, sold to unsuspecting consumers, scrapped for parts or used to commit another crime with organized crime rings usually involved.

The Criminal Intelligence Service of Canada says crime groups involved in auto thefts operate primarily out of Montreal and Toronto.

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