Commercial Union Assurance Company of Canada v. Etter

Commercial Union Assurance Company of Canada v. Etter Court Court of Appeal Date 1998-03-25 Citation 1998 NSCA 69 Docket CA 140658 Judge/Registrar/Adjudicator Chipman, David (Honourable Justice); Freeman, Gerald B. (Honourable Justice) (CA); Pugsley, Ronald N. (Honourable Justice) Document Type Decision Relations Library Sheet - Commercial Union Assurance Company of Canada v. Etter - 1998 NSCA 69 - 1998-03-25 - Library Sheet Decision Content Date: 19980324 Docket: CA140658 NOVA SCOTIA COURT OF APPEAL Cite as: Commercial Union Assurance Company of Canada v. Etter, 1998 NSCA 69 Chipman, Freeman and Pugsley, JJ.A. BETWEEN: COMMERCIAL UNION ASSURANCE ) John Kulik and COMPANY OF CANADA and BROOKLYN ) Paul MacLean INSURANCE AGENCY LIMITED ) for the Appellant ) Commercial Union ) ) Alexander S. Beveridge ) for the Appellant ) Brooklyn Insurance Appellants ) ) Randall P.H. Balcome - and - ) for the Respondents ) Etter and Hart ) RICHARD ETTER and LOIS HART ) ) Respondents ) ) ) Appeal Heard: ) February 3, 1998 ) ) ) Judgment Delivered: ) March 25, 1998 ) ) ) ) ) ) ) ) THE COURT: The appeal is dismissed, per reasons for judgment of Pugsley, J.A.; Chipman and Freeman, JJ.A., concurring. PUGSLEY, J.A.: This appeal arises out of a claim by the respondents, Richard Etter and Lois Hart, against the appellants, Brooklyn Insurance Agency Limited, (Brooklyn), and Commercial Union Assurance Company of Canada (CU), resulting from the loss by windstorm on January 28, 1996, of a barn under construction on the respondents' farm property. Justice Boudreau, of the Supreme Court, determined that Brooklyn and CU were negligent, and breached their respective duties of care to “provide the insurance coverage the respondents required”. Justice Boudreau also found Mr. Etter was contributorily negligent in failing to ask Brooklyn if his proposed reconstruction plans for the barn would be insured under his existing coverage. Not finding it possible to determine the degree of fault to be apportioned among Brooklyn, CU, and the respondents, the trial judge concluded that the respondents should be entitled to judgment against Brooklyn and CU, jointly and severally, for 50% of the damage to the barn sustained in the wind storm (approximately $17,000). Justice Boudreau dismissed a cross-claim for contribution brought by CU against Brooklyn as CU was "an equal participant in the negligence". Brooklyn submits that Justice Boudreau erred when he: (1) concluded that Brooklyn failed to provide the insurance coverage requested by the respondents; (2) expanded the scope of duties of an insurance agent to a client beyond those traditionally accepted; (3) failed to determine that any breach of duty by Brooklyn to the respondents did not cause the respondents' damage. CU argues that Justice Boudreau erred: (1) in finding CU was liable in tort to the respondents, as they had only framed their action against CU in contract; (2) in finding CU owed a duty of care to the respondents; (3) in finding CU vicariously responsible for the negligence of Brooklyn; (4) in dismissing CU's claim against Brooklyn for indemnity. The respondents did not appeal from the finding that they were contributorily negligent. Background In the spring of 1995, the respondents arranged to purchase a property in Upper Burlington, Hants County, consisting of approximately 100 acres, including a residence, and three large barns. Shortly before the closing scheduled for June 15, according to Mr. Hazel, manager and principal shareholder of Brooklyn, Mr. Etter attended at his office to “arrange insurance for his house and barns”. Mr. Etter had used the agency previously for both his home and auto insurance as Mr. Hazel was a boyhood friend. Mr. Hazel was familiar with the farm property as his agency had insured it in prior years. There is a conflict in the evidence respecting the advice given by Mr. Etter respecting the repairs he planned to carry out to the dwelling and barns. Mr. Etter testified that he told Hazel that: The place needed total renovations. All the buildings, the house, everything needed to be fixed . . . the barns had to be fixed up, all of the them. Not to the extent barn No. 2 was. Mr. Hazel testified that he was told that Mr. Etter planned to carry out renovations to the dwelling, which was not in good repair, as well as some “minor repairs . . . nothing major” to the barns which would be eventually used to stable horses. Mr. Hazel selected the standard homeowner's policy as the appropriate coverage for the dwelling until the repairs would be completed. An application form was completed providing for coverage of $60,000 on the dwelling and $5,000 on additional buildings. Mr. Hazel wrote at the bottom of the form: Liability is extended to cover three saddle horses. Permission to complete renovations. As the barns were not covered under the dwelling application, Mr. Hazel elicited some details respecting them. Mr. Hazel was familiar with their construction as he had effected the insurance when they were first erected in the 1970's. Mr. Etter did not wish to incur the costs for replacement insurance on the barns. Both Mr. Etter and Mr. Hazel agreed on coverage for the three barns on an actual cash value basis for $35,000, $25,000, and $15,000, respectively. Mr. Hazel did not request Mr. Etter to complete a separate application form for the insurance for the barns as CU "insured the risk prior to that, too, so they had knowledge of the risk". Mr. Hazel then forwarded the application form for the dwelling insurance, some reasonably current photographs of the dwelling and barns that were in the file maintained by Mr. Hazel with the previous insured, and a location plan with some details of the barns, to Raymond Scott, a Halifax marketing representative for CU. As the application for the dwelling policy was apparently misfiled by CU, it was not until October 3, 1995, that Mr. Scott forwarded the material to his head office with the following memo: I agreed to write this as accommodation business for this broker. The attached photographs indicate that this property needs major renovations. It was indicated to me that these renovations would start right away and would be completed over the summer. This property at one time was a farm and the new owners will not be operating a farm. Please issue a H.O. (Standard) as per the attached application which got misplaced with our commercial policy No. 6265773, being issued covering on three barns. I will be inspecting next week to see what is the present status of the renovations and operations. Don't ask me why I wrote this, other than to say for a class 1-A broker. I will advise you after my visit. Ray P.S. If I don't like what I see, we will cancel. On the same day, Mr. Scott wrote Mr. Hazel: Policy 6265773 - Richard Etter and Lois Hart Robert, I apologize for the long delay in issuing the above and which you will receive shortly. This policy will be issued without the Farmers Liability coverage as we previously both agreed that this is no longer a farm. I will be inspecting this property next week and will be in contact with you. Ray P.S. The H.O. will also follow shortly. Two policies were then issued by CU on October 3, 1995 - one a commercial policy (CCN 6265773) insuring the barns, and the other, an IDEAL HOME POLICY, providing coverage on the dwelling (PCN7379602). Mr. Scott did not visit the property prior to the loss because of a "backlog of work". In the fall of 1995, Mr. Etter carried out two or three days' “cosmetic cleaning” of the residence, and minimal repairs to barn #1. Sometime in November of 1995, Mr. Etter commenced to dismantle barn #2 because "of the number of structural defects it had". He described his activity as follows: . . . I started from the very top and tore the barn down to the very bottom ... . . . tore the floor joists off, and then tore a small, four foot wall off the foundation, leaving the sill and the foundation intact. With an assistant, it took approximately three to four weeks to complete this work. The materials were then stacked in piles around the perimeter of the barn. Mr. Etter then started the reconstruction by studding up the walls with some of the 2' x 6' joists, that “were taken off the floor, built it up to a 12' level with that and strapped it off”. On January 11, 1996, CU wrote Brooklyn, re Policy 7379602: Please advise if the renovations are now complete. We also require a new photo of the risk. On January 15, Mr. Hazel replied: Renovations are not yet complete. As of January 27, 1996, Mr. Etter had strapped approximately one-half of the roof. The next day there was, according to Mr. Etter, a “wild storm ... the timing was bad. The building wasn’t finished, strapped off, and it knocked it over”. Mr. Etter reported the loss to Brooklyn, who in turn notified CU. On February 5th, CU wrote to the respondents in part as follows: We have reviewed this matter and regret to inform you that at the time of the loss there was no insurance coverage on the barn under construction. The insurance policy in force provides coverage to the specific barn and since that barn was torn down the insurance on that particular barn would no longer be in force. Unfortunately we have no alternative other than to deny your claim and regret to inform you that we can be of no further assistance to you. CU then cancelled the policy, enclosing a cheque for the unearned premium. Brooklyn’s Appeal Brooklyn first takes issue with a number of findings made by Justice Boudreau submitting that he lacked probative admissible evidence in support of some of his conclusions, and that in making findings of credibility, he ignored inconsistencies in the evidence of both of the respondents. The credibility of witnesses, however, is a matter peculiarly within the province of the trial judge who has the advantage of seeing and hearing the witnesses. I am not satisfied that there are any cogent reasons which would justify this Court in reversing the findings of credibility made by Justice Boudreau, an experienced trial judge. With respect to Justice Boudreau’s conclusions on matters of fact generally, Brooklyn has failed to establish any palpable, or overriding error, justifying our interference. (See Parker v. Parsons (1997), 160 N.S.R. (2d) 321). Counsel next argues that the duty of an insurance agent to a client, in the absence of a relationship imposing a special duty of care is not that of an insurer, but rather to exercise a reasonable degree of skill and care to obtain policies in the terms bargained for and to service those policies as circumstances might require, citing the decision of the Ontario Court of Appeal in Fine's Flowers Ltd. et al. v. General Accident Assurance Co. of Canada et al. (1977), 17 O.R. (2d) 529. Applied to this case, counsel submits that the test did not oblige Mr. Hazel to review in detail the statutory conditions forming part of the insurance policy, with Mr. Etter, to ensure that he would conform with their provisions. Those conditions, it is argued, are expressed in clear language. It is not the duty of an insurance agent to "point out the obvious". There was no evidence of a lengthy insurance history between the parties based upon Brooklyn's analysis of the respondents' insurance needs, such as existed in Fine's Flowers. This is, however, in my opinion, a case like Fine's Flowers where the findings of fact and credibility of the trial judge are crucial to the outcome of the appeal (see Wilson, J. A., as she then was, at p. 537). Justice Boudreau's findings include the following: - Mr. Hazel had been familiar with the property for some twenty years and he had insured it in prior years and had visited the property on a number of occasions, but not in the recent past. . . . - Mr. Hazel was aware the buildings were run down and they needed extensive repairs or renovations. Mr. Hazel told Mr. Etter that Mr. Coffill, a previous owner, had had to cancel the insurance on barn number 2 because of the extent of the deterioration. . . . - I find that Mr. Etter was relying on Mr. Hazel’s skill and experience to advise him as to what was the required or best coverage to insure the property; within Mr. Etter’s means. I also find that Mr. Etter advised Mr. Hazel they intended to board horses on the farm and that they intended to undertake extensive renovations. . . . - When asked, Mr. Hazel admitted he did not know what renovations would be made to the dwelling or any other buildings, and they were not specified anywhere. Mr. Hazel did not ascertain what the intended renovations would be and how extensive these might be. Nor did he discuss with or advise Mr. Etter that there might be any limits to the renovations under the coverage he was placing. - I find that, when Mr. Etter left Brooklyn Insurance, he was under the impression that Mr. Hazel had placed the required coverage on the buildings . . . and that Mr. Etter had permission to complete the renovations. . . . - I find that Mr. Etter was relying on Mr. Hazel to provide him the coverage which he needed. Mr. Etter did rely on Mr. Hazel to his detriment. . . .Mr. Hazel owed Mr. Etter a duty of care, which duty he breached. . . . - Mr. Hazel never ascertained or specified any renovations yet it appears coverage may have depended on some renovations. . . . The foregoing findings of fact, inferences, and deductive conclusions, are all supported by the evidence and lead me to conclude that there was a duty imposed on Mr. Hazel to keep in contact with the respondents to ensure that when their plans for renovations were crystallized that those plans would either be insured within the existing coverage, or if not that the respondents would be advised of the coverage that would be required. Mr. Hazel's failure to carry out this duty deprived the respondents of an opportunity to arrange for appropriate coverage, or alternatively, prevented them from modifying their modification plans to conform with appropriate coverage that was within their budget. It was Mr. Hazel who selected the IDEAL HOME POLICY as the appropriate coverage. Like the trial judge, I find it relevant that the barns were not covered under that policy but rather placed under a separate commercial policy which attracted a higher rate of premium. Mr. Hazel testified that "sometimes a major renovation would require a change in insurance coverage", and that business risk insurance was the appropriate coverage when "major renovations" were being carried out. It is significant that Raymond Scott, CU's marketing representative, agreed that in approving this application it was important that he was planning to "later on go out and actually inspect the property". Mr. Scott acknowledged that although the barns were insured as commercial buildings, and as he was not quite sure if there was going to be any commercial purpose, he formed the opinion: At the beginning I said, "You know, let's find out what is being done". And initially nobody knew. It was, in my opinion, of equal importance for Brooklyn to keep fully advised of Mr. Etter's renovation plans in view of the uncertainty respecting those plans. Mr. Hazel lived in the community. He was familiar with the property. He in fact had arranged for insurance on the property with a previous owner. The trial judge accepted that Mr. Hazel: . . . told Mr. Etter that Mr. Coffill, a previous owner, had had to cancel the insurance on barn number2 because of the extent of the deterioration. The importance CU placed on the status of the renovations must have been clear to Mr. Hazel as he was advised on October 3, 1995 that Mr. Scott would be inspecting the property the following week and would be in contact with him. In fact, no such contact occurred until January 11, 1996 when Mr. Hazel was requested by CU to: Please advise if the renovations are now complete. We also require a new photo of the risk. Mr. Hazel responded on January 15 that renovations were not complete as of that date. This advice, Mr. Hazel testified, was communicated to him by Ms. Hart. Ms. Hart's recollection of the conversation is significantly different. She testified: A. Well, he called at one point and he called us. I answered the phone and asked about renovations. Q. And when was this? Just approximately. A. I think it was late in the year ‘95. Q. And just tell me what you remember about the conversation. A. I told him at that point that we were turning barn No.2 into an indoor riding ring. Q. And why did you tell them that? A. He had asked about renovations to the house and I told him we were - that we weren’t doing that. We were working on changing barn No.2 into an indoor riding ring. Q. And did he have any response to that or do you remember anything else about the conversation? A. No I can’t. Q. And did you have any further discussion with Mr. Hazel - Robert Hazel concerning insurance on this property? A. No. I think that was the last time I had talked to him. The trial judge focused on this important discrepancy and determined: During the weeks and months after June 15, the plaintiffs, but primarily Ms. Hart, called to enquire as to when they might receive their insurance policies. I find that during these conversations, Mr. Hazel was told the plaintiffs were commencing to board horses and that they were turning barn number 2 into an indoor riding ring. . . . During the fall of 1995, as part of their renovations, the plaintiffs had decided to turn barn number 2 into an indoor riding ring . . . Mr. Hazel possessed knowledge about the intended use of the buildings and the conversion of barn number 2 which he did not pass on to Commercial Union. . . . The trial judge, with respect, was confused concerning the timing of the call. I think it is a fair inference when one examines the memo of January 11, 1996, together with Ms. Hart's viva voce evidence, that the call must have occurred some time between January 11 and January 15, 1996. The matter is important because Mr. Hazel testified that if he had been advised that barn #2 was being turned into an indoor riding ring, that would have constituted a "material change in the risk from what it was". The trial judge has determined that neither respondent had any . . . noteworthy prior business experience . . . Mr. Etter has testified he was not aware of any policy conditions or limitations with regard to renovations or a material change in risk and, considering his formal education and his lack of business experience, I am sure he did not and would probably not have been any the wiser with a more careful look at his policies. The obligation on an insurance agent to make inquiry concerning the nature of the risk is, obviously a fact specific matter. As Justice Hart said, on behalf of this Court, in Bon Portage Fisheries Ltd. v. L. G. Trask Agency Ltd. (1986), 23 CCLI 299 at pp. 303-304: During the course of this discussion, the trial judge did express an opinion that there was no duty on Mr. d'Eon to make enquiries as to the extent of the stock in trade from time to time and, although this may have been so in this case, I would not want to be heard to say that there could not be a situation in which such enquiries should be made by an insurance agent. The extent of the duty would, of course, depend upon the instructions given and the sophistication of the client. Brooklyn relies on the decision of Scott, Dist. C. J. in Doherty et. al. v. The Home Insurance Company Ins. Co. et. al. (1986) I.L.R. 1-2007, a case where the plaintiff's action against his insurer was dismissed for failure to disclose a change material to the risk. The plaintiff had also sued, unsuccessfully, his insurance agent for breach of duty to provide full coverage. The basis of the dismissal of the action against the agent was the finding by the trial judge that the agent was not aware of the plaintiff's insurance needs, due to the plaintiff's failure to advise he had rented his house for one year to a family of four. The present case is distinguishable as Justice Boudreau made findings adverse to the position of Brooklyn respecting the communications between the respondent and Mr. Hazel which defined their relationship. Our attention is also directed to Fairview Enterprises Ltd. v. U. S. Fidelity & Guarantee et al. (1978), C.I.L.R. 1-1088 (B.C.S.C.), a case where the insured advised his agent of the intention to convert the upper floors of the insured premises to office space. The critical issue in the case is addressed by Justice Proudfoot at p. 140 in these words: However, I wish to deal with some of the cases submitted by the plaintiff's counsel. These deal with the situations where a relationship of trust or contract is created between the insured and the agent, such that the agent owes a duty to the insured to take some initiatives or precautions to ensure that the client has adequate coverage. I was asked to consider the following passage from Asfar & Co. v. Blundell [1896] 1 Q.B. 123 (C.A.): The rule as to this is well known, and as to it I feel no doubt. The assured is bound to disclose every material fact which is within his knowledge, and which is not to be taken as being within the knowledge of the underwriters. If he fails to do so, he is guilty of what is called in insurance law concealment, which may in fact be either innocent or fraudulent. But it is not necessary to disclose minutely every material fact; assuming that there is a material fact which he is bound to disclose, the rule is satisfied if he discloses sufficient to call the attention of the underwriters in such a manner that they can see that if they require further information they ought to ask for it. Can it be said that in the present case the agent and/or the insurers should have addressed their minds to the possibility of a vacancy and made further inquiries? Mr. Eng made the first contact concerning the change in status. Did the onus shift to the defendants to inform themselves once they were put on notice that there had been a change in status? The decision on this point rests on a finding of fact. It is not the case that Mr. Williams was left in some doubt as to the use to be made of the building. He was definitely told that construction would begin on the conversion to offices. He had a right to rely on that assertion without further inquiry. As Justice Proudfoot noted, the question of whether the agent was placed on notice to enquire respecting the proposed renovations rests on a finding of fact. Justice Boudreau has determined that the circumstances surrounding the relationship cast a duty on Brooklyn to ensure that coverage was in force respecting the change in barn #2 to a riding ring, or alternatively, to advise the respondents, so that they could have the opportunity to arrange for appropriate coverage, or alternatively, change their modification plans. Brooklyn further takes the position that even if the respondents had been advised of the necessity of obtaining builders' risk insurance, they would not have purchased it as they could not afford it. There is evidence from Mr. Scott that the premium for a builders' risk policy for the barn in question, while under construction, would have been at least $500. On this issue, I agree with Justice Boudreau's conclusion that: The fact the plaintiffs may or may not have been able to afford builders' risk insurance is irrelevant. If the plaintiffs had been advised of their options or the limits or risks involved, they would have the option to decide whether or not to proceed with such extensive renovations. I would dismiss Brooklyn's appeal. CU's Appeal I agree with CU's submission that: No evidence was tendered nor was any argument advanced on behalf of Commercial Union to refute any suggestion of negligence on its part as none was required. There was no indication in the pleadings nor in the arguments advanced on behalf of Etter and Hart at Trial that Commercial Union was in any way negligent . . . It appears that the Learned Trial Judge acted ex mero motu (of its own motion) in finding Commercial Union liable in negligence. It is, with respect, an error of law for a trial judge after the evidence has been completed and arguments submitted, to recast a plaintiff's claim to the prejudice of a defendant (Stafford v. New Brunswick Liquor Corp. (1996), 177 N.B.R. (2d) 317 C.A.)). As there was no allegation in the statement of claim that CU was vicariously responsible for the negligence of its agent Brooklyn, it is not appropriate to consider this issue. No support can be found in the evidence to substantiate the respondents' claim against CU in contract. I would, accordingly, allow the appeal of CU with costs. Justice Boudreau determined that "as the plaintiffs and the defendants were each 50% successful in this matter, each party shall bear its own costs". I would allow CU's appeal, setting aside the finding of liability against it, and award costs of both the trial and the appeal to CU, against the respondents Etter and Hart, which I would fix at a total of $1,200.00 plus disbursements. I would dismiss Brooklyn's appeal with costs to the respondents Etter and Hart, which I would fix at $800.00 plus disbursements. I would affirm the decision of the trial judge that the respondents Etter and Hart are entitled to recover 50% of their loss from Brooklyn. Pugsley, J.A. Concurred in: Chipman, J. A. Freeman, J. A. C.A. No.140658 NOVA SCOTIA COURT OF APPEAL BETWEEN: COMMERCIAL UNION ASSURANCE ) COMPANY OF CANADA and ) BROOKLYN INSURANCE AGENCY LIMITED) ) Appellants ) - and - ) REASONS FOR ) JUDGMENT BY: RICHARD ETTER and LOIS HART ) ) PUGSLEY, J.A. ) ) Respondents ) ) ) ) ) ) )