The Appeal Court’s decision raises the recurring debate over the efficacy of threshold tort systems. Alberta took a fairly hard line on “minor injuries” by imposing the cap, and this approach has been vindicated by the Court. The evidence was that premiums had dropped by 18 % since the imposition of the cap. Ontario has its own threshold, but does not like Alberta impose a cap on non-pecuniary damages for minor injuries. It actually goes further and denies any claim for non-pecuniary damages for non-threshold claims and the same applies to any type of injury (i.e. soft tissue, orthopaedic, psychological). It appears that the Alberta Court of Appeal’s decision may be appealed to the Supreme Court of Canada. If upheld, it will be interesting to see if this influences future changes to Ontario’s tort regime, and whether it prompts the goverment to implement further retrictions on damages.

Raj K. Datt

The Court of Appeal’s decision is interesting in that it appears to apply a strict application of the decisions of the Supreme Court in Vytlingam and Herbison. In the latter cases, the tortfeasor had already exited the vehicle when the tort was committed. Arguably this would move the facts in Russo closer to the required threshold for causation. It will be interesting to see whether the courts continue to apply a more strict application of the causation test, or whether at some point in time there is a relaxing of the standard.  

Raj K. Datt

Raj K. Datt

The Ontario Court of Appeal, by majority, allowed the appeal. In its view, a design error may, but need not, depend upon designer negligence.  A design must “‘take into account’, ‘accommodate’, ‘provide for’ and ‘withstand’ all foreseeable risks”  however unlikely or remote.  If, in these circumstances, there was a failure attributable to “design”, the exclusion applies.  In a 4:3 decision, a majority of the Supreme Court allowed the appeal and held that the Court of Appeal’s conclusion read the qualifying words “faulty or improper” out of the exclusion, and hence greatly expanded its scope. In the majority’s view, the “all risks” policy afforded the CNR greater protection than that which the majority in the Court of Appeal was prepared to allow.  At the time of contracting, all parties realized that this was to be the largest earth-balance TBM ever built.  Leading experts were enlisted to provide what was described as a “state-of-the-art machine”.  The “all risk” policy was written to cover physical damage to an innovative piece of equipment almost the length of a football field operating on a scale with which the state of the art had no previous experience.  The policy did not exclude all loss attributable to “the design”, but only loss attributable to a “faulty or improper design”.  The design exhausted the state of the art but left a residual risk.  Failure is not the same thing as fault or impropriety.  In the majority’s view, the insurers did not meet the onus of bringing the loss within the exclusion.  A design is not “faulty or improper” simply because it falls short of perfection in relation to all foreseeable risk. The majority of the Supreme Court distinguished a decision by the High Court of Austrailia (Queensland Government Railways v. Manufacturers’ Mutual Insurance, Ltd.) which holds that that the fact of failure not only speaks for itself but, once it is attributed to the design, it discharges the insurers’ onus of proof. The majority did not agree that a design can be said to be “faulty” if it conforms to the state of the art, as was found by the trial judge.

The minority, however, stated that the term “faulty or improper design” does not imply the introduction of a “state of the art” standard against which an impugned design is to be compared.  As explained in Queensland, the distinction that is relevant is between a design that is defective and design that is free from defect.  The question is whether or not the damage to the insured property was due to an inability of the design to fulfil its purpose in the foreseeable conditions of the property’s use. It was not appropriate to create a test akin to negligence when nothing in the term “faulty or improper design” in the insurance contract implied the introduction of the law of torts. The term “faulty or improper design” attaches to the thing that was designed, not to the work of the design engineers.  Whatever standard their work meets or does not meet, the thing designed either works for its intended purpose or it does not.

The Supreme Court’s decision is important for insurers as it poses the risk of transforming an “all risks” policy into a warranty. An insurer will be left covering a loss arising from the limitations of science. This may not exactly be the kind of risk the insurer signed up for. However, the case turns on a singular set of circumstances involving a highly complex and cutting edge piece of machinery. The case does not allow the insured to escape the exclusion simply because the machine was not negligently designed. Although not a standard of perfection, the majority’s “state of art” standard is still quite formidable.

Raj K. Datt

The Ontario Court of Appeal reversed the motion judge’s decision. The decision involved the application of s. 24(2) of the new Limitations Act. It was clear that the second action was based on acts or omissions which took place before the effective date of the new Act (Jan. 1, 2004). The dispute was over whether a proceeding had already been commenced prior to the effective date. If yes, then s. 24(2) applied to the second action. The Plaintiff argued that the first action counted as a proceeding. However, the Appeal Court rejected this since the first action did not concern any acts or omissions of the defendants in the second action. Thus, s. 24(2) was found to apply. The next issue was the correct application of s. 24(5) of the new Act. If the claim was discovered prior to the effective date, then the old limitation period applied. If it was not discovered before the effective date, then the new period applied and it would be assumed that the act or omission occurred on the effective date. The new defendants argued that the claim was not discovered prior to the effective date since the Plaintiff was mentally incompetent and could not have discovered the claim on his own. The Appeal Court disagreed and found that the Plaintiff’s litigation guardian had in fact discovered the claim before the effective date. The Court made a clear distinction between a litigation guardian’s ability to “discover” a claim vs. the triggering of the limitation period. It is settled law that even though the litigation guardian had discovered the claim, this did not trigger the limitation period in cases where the Plaintiff is incapacitated. The discovery of claims and the commencement of limitation periods are different, though related, notions and should not be conflated. Thus, the Court found the limitation period in the old Limitations Act applied. Since the old Act suspended the triggering of the limitation period due to mental incapacity, the second action was brought in time.

Raj K. Datt

This judgment was affirmed by the Ontario Divisional Court. The Court found that there was evidence upon which the trial judge could conclude on a balance of probabilities that the Respondent’s daughter had no conscious or deliberate physical control of the Respondent’s vehicle, despite her comments immediately following the event that she intended to test her mortality or immortality. Interestingly, the Court also dealt with the Respondent’s cross-appeal.  If the Appellant’s appeal were successful, the Respondent, on the cross-appeal, submitted that the trial judge erred in law in finding that the Respondent, the innocent owner of the vehicle that was damaged, was disentitled to compensation for loss under her standard automobile insurance policy as a result of an intentional act (if so found) of her daughter to whom the Respondent had innocently and without any negligence lent her vehicle. The Divisional Court held that since the loss was not intentional from the perspective of the Respondent, she could recover notwithstanding an intentionally caused loss. It would be interesting to see if such an argument would apply in other coverage situations, for instance in home owners’ or CGL policies. Typically these policies contain an exclusion for intentional or criminal acts of an insured. Depending on the wording of the exclusion, insurers often make the argument that the intentional or criminal acts of one insured excludes coverage for an innocent insured. Applying the reasoning in Sekhon would shift the focus to the perspective of the innocent insured, and thus provide an addtional argument for insurance coverage.

Raj K. Datt

The parties were unable to find any caselaw in which an Ontario court had determined a judgment creditor’s right to successfully invoke the provisions of s. 132(1) where the underlying judgment follows upon a jury verdict on liability and damages issues. The Court observed that the Oregon jury had issued no reasons; it simply answered the questions put to it following the completion of the trial. The Court stated that any review of evidence, of arguments by counsel and/or of directions given the jury by the trial judge would pre-suppose that such matters influenced the jury. One might thereby come to a firm but entirely inaccurate understanding of the outcome of the trial below. Thus, the Court held that a better approach would be to consider the judgment and the jury questions and answers within it in the context of the claims, as framed by the pleadings in the Oregon action. The Court ultimately found that the Oregon jury had indeed only awarded damages for economic losses, and thus not for damage to property. Without more in the way of clarity in the jury questions, the Court was not satisified that liability had been imposed for property damage. Thus, inter alia, the Court dismissed the action.

The Court in Unique Labeling Inc. was clearly troubled by the exact nature of the damages awarded by the Oregon jury. The decision is instructive as clearer jury questions and pleadings in the underlying action would have given the Court much more assistance in its analysis under s. 132(1). In trying an action before a jury, and in contemplation of a potential s. 132(1) proceeding, Unique Labeling Inc. illustrates that it is vital that an eye is kept on creating a record, specifically by way of clear jury questions, that will satisfy the requirements of s. 132(1).   

Raj K. Datt

In deciding whether or not coverage was available, the motions judge applied the two recent Supreme Court of Canada decisions in Vytlingham v. Farmer (2007), 53 C.C.L.I. (4th) 31 and Herbison v. Lumbermans Mutual Casualty Co. (2007), 53 C.C.L.I. (4th) 31. These decisions deal extensively with the issue of the scope and meaning of the phrase “use and ownership”. For an insurer to be liable, the claim must be sufficiently connected to the use and operation of the motor vehicle for it to be concluded that the claim is based on a tort committed by a motorist. Where the use or ownership of the vehicle is merely incidental to the claim, then there will not be a duty to indemnify.

The court ultimately ruled that coverage was not available. The boy had safely exited out of his father’s car. He then left the vicinity of the car and walked to a fence in order to watch a train pass by. By the time he was returning from the fence, the duties owed to him by his father and grandfather were owed as guardians of children, and not as “motorists”. Kopas is a very useful decision in that it is quite thorough in its review of the caselaw. As well, it further demonstrates that the courts are applying a more strict approach, in light of Vytlingham and Herbison, in determining auto liability coverage. It marks a shift away from the more “results oriented” approach in the past which would likely have resulted in coverage.  

Raj K. Datt

Key to the judge’s decision was the fact that it was possible that the damages arose solely from non-mould related circumstances (e.g. excessive moisture levels from flooding). Thus, though it may be that mould was a contributing factor, it was also possible that it was a non-factor. The continuing lesson from this line of cases is that the duty to defend will be interpreted more broadly than the duty to indemnify. Further, claimants would be wise to advance multiple theories of liability in order to negate the application of the mould exclusion. Insurers, in defending these insurance applications, may want to consider the availability of extrinsic evidence in determining the true nature of the allegations in the claim.

Raj K. Datt