Aviva Insurance Company of Canada v. Real Estate Errors and Omissions Insurance Corporation

2009 BCSC 1411 Aviva Insurance Company of Canada v. Real Estate Errors and Omissions Insurance Corporation IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Aviva Insurance Company of Canada v. Real Estate Errors and Omissions Insurance Corporation, 2009 BCSC 1411 Date: 20090706 Docket: S090163 Registry: Vancouver Between: Aviva Insurance Company of Canada Petitioner And: Real Estate Errors and Omissions Insurance Corporation Respondent - and - Docket: S090508 Registry: Vancouver Between: Real Estate Errors and Omissions Insurance Corporation Petitioner And: Aviva Insurance Company of Canada Respondent Corrected Judgment - December 21, 2009 The Citation name of this judgment has been edited and the listing for counsel for Aviva Insurance Company of Canada has been edited. Before: The Honourable Madam Justice Wedge Oral Reasons for Judgment In Chambers Counsel for Aviva Insurance Company of Canada: A. Nelson Counsel for Real Estate Errors and Omissions Insurance Corporation: C. Selby Place of Trial/Hearing: Vancouver, B.C. June 4, 23 and 29, 2009 Place and Date of Judgment: Vancouver, B.C. July 6, 2009 [1] THE COURT: There are two petitions before the court. The first was brought by Aviva Insurance Company of Canada ("Aviva"), against the Real Estate Errors and Omissions Insurance Corporation ("REEOIC"). [2] The issues arising from Aviva's petition related to the manner by which certain defence costs of an insured, Wynford Realty Group Limited ("Wynford"), should be allocated between the two insurers. Those issues were largely resolved by agreement of the parties, and I will review the elements of that agreement in due course. [3] The second petition was brought by REEOIC against Aviva. These reasons address the issues arising from that petition. [4] By way of overview, REEOIC sought a declaration that Aviva must contribute to the cost of third-party proceedings brought on behalf of Wynford pursuant to an indemnity plan policy issued by REEOIC. Aviva argued that it was not obliged to initiate those third party proceedings on Wynford's behalf or contribute to the cost of the proceedings. Background [5] The background to these petitions, briefly, is as follows. REEOIC is a special act corporation formed pursuant to the Real Estate Services Act, S.B.C. 2004, c. 42, to provide errors and omissions insurance to British Columbia real estate licensees. Aviva is a property and casualty insurance company with an office at 1100 - 1125 Howe Street in Vancouver. [6] Aviva issued a directors and officers liability insurance policy (the "D & O Policy"), to the strata corporation of a strata development known as the Europa located in downtown Vancouver (the "Strata Corporation"). [7] Wynford was the strata property manager for the Strata Corporation during the currency of the D & O Policy and, as such, was an additional insured under the D & O policy. Wynford was also insured by REEOIC under an indemnity plan policy. [8] On March 29, 2007, the first of several legal actions was commenced by strata lot unit owners against a company known as Henderson Developments Limited, ("Henderson"). Henderson and others developed the Europa. The actions were brought in respect of alleged deficiencies to the construction of the building. There are 75 individual claimants in 52 actions, to which I will refer as the "Underlying Actions". Three of the 52 actions are proceeding as representative actions. All were initiated in Provincial Court. [9] On January 11, 2008, Henderson commenced third party proceedings against the Strata Corporation in the three representative actions. I will refer to the Henderson actions as the "Third Party Actions". The Third Party Actions also named the Strata Council president in 2002, Kari Metzger, and the treasurer for 2002, Judith Langdon. In these proceedings, Henderson alleged that the Strata Corporation settled all claims against Henderson by means of a settlement agreement dated December 20, 2002. [10] On September 29, 2008, Ms. Metzger commenced three separate actions against the Strata Corporation, the Strata Corporation council members, and Wynford, seeking contribution and indemnity in respect of the Third Party Actions. Ms. Langdon then commenced three almost identical actions for contribution and indemnity. [11] Wynford was named as a defendant in both sets of actions, to which I will refer collectively as the "Indemnity Actions". Metzger and Langdon alleged that Wynford, as the Strata Corporation's property manager, owed duties of care and contractual duties to them and to the Strata Corporation. Specifically, they alleged that Wynford owed a duty to advise them that if they entered into a settlement agreement with Henderson without the requisite statutory authority (as alleged in the Third Party Actions), they could be held personally liable to the members of the Strata Corporation. [12] Aviva agreed, on a reservation of rights basis, to provide Wynford with a defence in respect of the Indemnity Actions. In particular, Aviva reserved the right to claim contribution and indemnity from any other insurers on risk. Aviva appointed legal counsel, David Twining, to defend Wynford in both the Underlying Actions and the Indemnity Actions, and is presently paying 100% of Wynford's defence costs. [13] The REEOIC indemnity plan policy covering Wynford contains the following insuring agreement: 1. Indemnity. We shall pay on your behalf all sums which you become legally obligated to pay as damages because of any claim first made against you and reported to us during the indemnity plan period arising out of an error by you in performing or failing to perform real estate services for others. [14] Wynford advised Aviva of the existence of the REEOIC policy. Counsel for Aviva made a formal demand of REEOIC that it contribute 50% of the defence costs of Wynford. As noted earlier, the Aviva petition was filed to seek REEOIC's contribution to those costs. [15] At the outset of the hearing concerning the petitions, REEOIC acknowledged first, that it owes a duty to defend Wynford based on the terms of the REEOIC policy; second, that both Aviva and REEOIC are primary insurers of Wynford; and third, that Aviva is entitled to contribution. REEOIC also agreed to immediately begin sharing the costs of defending the Indemnity Actions, including the costs already incurred. REEOIC is prepared to contribute to 50% of the costs at this point but seeks the right to seek reapportionment of the costs upon the conclusion of the lawsuits. The Dispute [16] As noted earlier, the live issue arises from the REEOIC petition. [17] Wynford managed the Europa pursuant to a Strata Management Agreement (the "Management Agreement") with the Strata Corporation dated February 1, 2002 and an amending agreement dated November 22, 2007. Central to the dispute is the indemnity clause contained in the Management Agreement. [18] Under paragraph 9.3 of the Management Agreement, the Strata Corporation agreed to include Wynford as a named insured under its general liability insurance policy. The indemnity clause, which is clause 9.2, provides as follows: Where the agent [Wynford] has acted in accordance with instructions of the council or the corporation, pursuant to the terms of this agreement, or pursuant to provisions of the Act, or pursuant to generally-accepted practices standard within the strata property industry, the corporation shall indemnify and save the agent harmless from any and all judgments, liabilities, actions, bonds, debts, accounts, or sums of money occasioned in whole or in part by the acts or failure to act by the agent, its employees, or agents in the performance of the duties and responsibilities, covenants, and conditions specified in the agreement herein or herewith, except, without limiting the generality of the foregoing, any acts or deeds which may be attributed to wilful misconduct or gross negligence on the part of the agent. [19] REEOIC took the position, based on clause 9.2, that Aviva must instruct its counsel, Mr. Twining, to issue third party proceedings on behalf of Wynford against the Strata Corporation. Aviva declined to so instruct its counsel on the basis that the Strata Corporation was Aviva's insured under the D & O Policy. [20] Accordingly, REEOIC retained its own legal counsel, William Knutson. Mr. Knutson filed third party notices against the Strata Corporation in the Langdon and Metzger Indemnity Actions on behalf of Wynford, seeking contribution and indemnity pursuant to clause 9.2 of the Management Agreement. [21] At the hearing of the petition, REEOIC argued that its counsel, Mr. Knutson, ought to take conduct of all of the proceedings, particularly as there will be considerable overlap between the issues raised in the Metzger and Langdon Indemnity Actions and those raised in the third-party proceedings brought on behalf of Wynford. [22] The Aviva policy is a "claims made" policy. Section 1 of the insuring agreement provides that Aviva is required to pay, on behalf of the insured, all "loss which the insureds shall be legally obligated to pay for any civil claim or claims first made against them because of a Wrongful Act." "Loss" is defined under section 3 of the insuring agreement as follows: "Loss" shall mean any amount which the insureds are legally obligated to pay for any claim or claims made against them for wrongful acts, and shall include but not be limited to damages, judgments, settlements, and costs, costs of investigation, and defence of legal actions .... [23] The definition of "loss" in the Aviva policy reflects the coverage granted by section 1(b) of the insuring agreement, which provides: The company will reimburse the entity for all loss for which the entity shall be required by law to indemnify the individual insureds for any civil claim. Positions of the Parties [24] Aviva submitted that the emphasis in all of these provisions is on indemnification of insureds for claims made against them, not for the cost of pursuing claims advanced by the insured. According to Aviva, the third party claim being pursued by REEOIC on Wynford's behalf is a separate claim being advanced by Wynford in accordance with the terms of the Management Agreement. Aviva argued that the terms of its policy do not require it to pursue a separate cause of action, based on a contractual indemnity between Wynford and the Strata Corporation, as part of its defence obligation to Wynford. [25] REEOIC argued that Aviva was misconstruing the above-cited provisions of the policy. According to REEOIC, s. 1 of the insuring agreement in the Aviva policy simply indicates that the policy is a "claims made" policy. In other words, s. 1 refers only to the event which triggers the insurer's obligation to indemnify, and not to whether the Aviva must bear the cost of Wynford's third party proceeding for indemnity under the Management Agreement. It was REEOIC's position that the third party proceeding initiated on the basis of clause 9.2 of the Management Agreement was an affirmative defence which Aviva was obligated, as Wynford's insurer, to bring on Wynford's behalf. Discussion [26] The issues arising from the REEOIC petition fall to be determined on the basis of the specific wording of the Aviva policy. I cannot accept the submission of REEOIC that the provisions in question must be construed as referring only to the event which triggers the insurer's obligation to defend. REEOIC cited several case authorities in support of its position (Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., [1993] S.C.R. 252; Boliden Ltd. v. Liberty Mutual Insurance Co., 2008 ONCA 288, [2008] O.J. No. 1438; MWH International, Inc. v. Lumbermens Mutual Casualty Company, 2007 BCCA 164, [2007] B.C.J. No. 559). However, these decisions are not authority for the proposition that the trigger for coverage in "claims made" policies must be considered separately from the scope of the insurer's defence obligations under the policy. They are silent on the question of whether an insurer under a "claims made" policy must pay the cost of pursuing an affirmative cause of action. The decisions do not suggest that the insurer's defence obligation, once the policy is triggered, is broader than defending the claim against the insured. [27] The decisions cited by REEOIC are authority for the general proposition that the scope of the insurer's defence obligations must be determined on the basis of the specific language of the particular policy in question. [28] The trigger for coverage is not in dispute. The question is whether the definition of "loss" in the policy defines both the trigger for coverage and the scope of coverage. On a plain reading of the language of the Aviva policy, the definition of "loss" is confined to amounts which Wynford, as the insured, is legally obligated to pay for any claim made against it and the cost of the defence of legal actions. Neither the definition of "loss", nor any other provision in the policy, states that the loss suffered by an insured includes the cost of initiating an affirmative cause of action under a contractual indemnity. [29] REEOIC relied on a series of American authorities for the proposition that affirmative defences such as counterclaims fall within the phrase "defence of an action". However, those authorities are distinguishable. In each case, the counterclaim was viewed by the court as an "affirmative defence" because, if successful, the counterclaim would have defeated the primary claim entirely. [30] I was referred to only one Canadian authority dealing with circumstances analogous to those in the present case. In Sapi v. American Assurance Company, [2004] I.L.R. I-4274, Lederman J. of the Ontario Superior Court considered the nature of a contribution and indemnity claim in the context of a "claims made" policy. At para. 10 the Court said: While I agree that there is a relationship between claims for contribution and indemnity and the defence, they are, nevertheless, claims initiated by the insured as opposed to a claim against the insured. [31] Similar circumstances were present, and a similar result was reached, in the American authority of Towne Realty, Inc. v. Zurich Insurance Co., 548 N.W. 2d 64 at 68-69. [32] Despite the very able arguments of counsel for REEOIC, I am not persuaded that the third party proceeding initiated on behalf of Wynford for indemnity under the Management Agreement is an affirmative defence to the Underlying Actions or to the Indemnity Actions launched by Metzger and Langdon. Rather, it is in the nature of an affirmative cause of action which will not dispose of the Indemnity Actions. [33] The claim of Wynford for indemnity under the Management Agreement is a separate claim from the Indemnity Actions brought by Langdon and Metzger against Wynford. Whether Wynford is found to be liable in the Indemnity Action will not depend on the existence or absence of any subsequent claim by Wynford for indemnity from the Strata Corporation. [34] Aviva has not deprived itself, by refusing to advance the claim of Wynford against the Strata Corporation under the Management Agreement, of any say in the manner of Wynford's defence to the claims made against it. [35] I accept Aviva's submission that the appropriate result in this case is to maintain the status quo. Mr. Twining, Aviva's counsel, may continue to defend Wynford. Mr. Knutson, REEOIC's counsel, may continue to pursue the contractual indemnity claim against the Strata Corporation funded and instructed by REEOIC. If necessary, an allocation can be made of the costs incurred in defending Wynford and those incurred pursuing the contractual indemnity. [36] Accordingly, REEOIC's petition must be dismissed. [37] The relief sought by Aviva in its petition is largely moot as a result of REEOIC's agreements described earlier. However, I accept REEOIC's submission that while the costs of defending Wynford are currently being borne equally by the parties, REEOIC ought to be at liberty, once the actions are concluded, to seek reapportionment of those costs. The Honourable Madam Justice C.A. Wedge