Decisions of the Court of Appeal

COURT OF APPEAL FOR ONTARIO

CITATION: 1472292 Ontario Inc. (Rosen Express) v. Northbridge General Insurance Company, 2019 ONCA 753

DATE:20190927

DOCKET: C65688

Feldman, Roberts, and Fairburn JJ.A.

BETWEEN

1472292 Ontario Inc. O/A Rosen Express

Applicant (Respondent)

and

Northbridge General Insurance Company

Respondent (Appellant)

Alan S. Cofman, for the Appellant

Patrick J. Monaghan, for the Respondent

Heard: March 7, 2019

On appeal from the judgment of Justice Edward M. Morgan of the Superior Court of Justice, dated June 27, 2018, with reasons reported at 2018 ONSC 4017, [2019] I.L.R. I-6077

Feldman J.A.:

Overview

[1]          This appeal arises out of a coverage dispute between a trucking company and its insurer as a result of the theft of two containers of electronic goods that the trucking company was consigned to deliver for a customer. Following the theft, the trucking company asked its insurer to confirm coverage, but after an investigation, the insurer sent a letter denying coverage for the stolen goods for two reasons. In the meantime, the customer had taken no steps to make a claim for its loss to the trucking company. All it did was fail to pay a number of outstanding invoices, which the trucking company assumed was a response to the theft.

[2]          The trucking company decided that it would be imprudent to make any inquiries of the customer regarding the outstanding invoices, lest it provoke a large loss claim that may be uninsured. It decided instead to bring an application against the insurer seeking a declaration that 1) the insurer was obliged to indemnify the trucking company for claims in respect of the stolen goods, 2) the insurer had a duty to defend and 3) the insurer was obliged to reimburse the trucking company for the costs of responding to the claims.

[3]          The insurer filed no material in response because no claim had been made for the loss, and requested an order striking out the relief sought or an adjournment. That request was denied. The application judge declined to make the declaration for indemnity requested in the application, but made two declarations of fact based on the evidence filed by the trucking company. Those declarations disposed of the insurer’s two reasons for denying coverage.

[4]          The trucking company sought to file fresh evidence on the appeal to show that following the decision on the application, the trucking company made inquiries of the customer, resulting in confirmation from the customer that it had offset from its payables to the trucking company some of the outstanding amount owed for the stolen goods, and that it valued the stolen cargo at $356,968.26. The trucking company subsequently commenced an action (the “subsequent action”) against the insurer for $356,968.26 for breach of contract, based on the two declarations of fact made by the application judge.

[5]          For the reasons that follow, I would allow the appeal, set aside the declarations and orders made by the application judge, and order that the application be consolidated with the subsequent action.

Background facts

[6]          The respondent Rosen is a truck carrier and load broker insured with the appellant Northbridge. Rosen contracted with a member of a group of companies collectively referred to as “FLS” to pick up and deliver two loads of cargo consisting of electronics from Toronto to Montreal. It subcontracted the Toronto pick-up to Greenway Carriers. Rosen, Greenway and a third company shared a truck yard. The two loads were picked up by Greenway on November 11, 2016 and delivered to the yard. Rosen was to transport them to Montreal on November 14, but the two containers were stolen on November 12 and 13 respectively.

[7]          Rosen reported the theft to the police and to Northbridge, seeking confirmation of coverage and indemnity. However, in a January 2017 letter, Northbridge denied coverage. In its letter, Northbridge gave two reasons for the denial of coverage. First, Rosen had failed to disclose in its application for insurance that it would be transporting electronics, which affected the risk and the premium, and that misrepresentation voided coverage for those loads. Second, the cargo was in the custody of Greenway and not Rosen at the time of the theft, and therefore not covered.

[8]          The police report valued the lost cargo at approximately $300,000, but FLS had not made any claim for compensation from Rosen. However, one or more FLS companies for which Rosen transported cargo failed to pay $65,516.01 of unrelated invoices, which Rosen assumed was a set-off against the loss. Rosen was not prepared to inquire about the unpaid invoices lest FLS assert a possibly uninsured loss claim for the total of approximately $300,000.

[9]          With no underlying claim from FLS having been made, Rosen brought this application for a declaration that a) Northbridge had an obligation to indemnify Rosen under the policy “for the claims advanced against Rosen Express in relation to two loads that were stolen from its yard…” (the “underlying claims”); b) Northbridge had an obligation under the policy to defend Rosen Express in the underlying claims; and c) an order that Rosen Express be repaid by Northbridge the legal expenses that it incurred in responding to the underlying claims.

[10]       Rosen filed an affidavit of its president on which Northbridge conducted a cross-examination. However, Northbridge filed no responding record. Its position was that the application should be struck and adjourned because there was no underlying claim to indemnify, with leave to amend if a claim were made.

Reasons of the application judge

[11]       Although the judgment dismisses the requests to strike out the relief sought in the application and for an adjournment, the application judge does not refer to or address those motions in his reasons.

[12]       The application judge stated that Northbridge raised two grounds for denying coverage of Rosen’s claim, then addressed each reason in turn. He acknowledged that there was a factual controversy over whether the goods had been delivered to Rosen at the time they were stolen. He referred to the president’s affidavit which states that the goods were dropped off at the Rosen yard. He then stated that Rosen’s evidence was that there was a shared yard and that the goods were delivered to Rosen’s portion of the yard, although they were still in the Greenway trucks. I note here that although the affiant gave evidence about the shared yard and that there were designated areas for each company, he was not asked whether the trailers were in Rosen’s part of the yard when the theft occurred.

[13]       Rosen’s position was that the goods were in its custody because the goods were waiting in the shared yard for a Rosen driver to start the delivery trip to Quebec, while Northbridge’s position was that the goods had not yet been handed over to Rosen by Greenway. The application judge stated that he was skeptical about Northbridge’s characterization of custody. He found that even if the goods had not been delivered to Rosen, they were in the custody of Greenway as Rosen’s agent, and if that was not accurate, then Greenway was a “connecting carrier” under the policy because it picked up the goods. According to the application judge, there was coverage either way.

[14]       Dealing with Northbridge’s second ground for denying coverage contained in its letter of January 2017, the alleged misrepresentation with respect to the type of cargo Rosen transported, the application judge set out Rosen’s position that its cargo was described generally in the application and would change from day to day but not in a dramatic fashion. Rosen’s president stated in cross-examination that electronics fell under “general freight.”

[15]       The application judge held that the onus was on the insurer to prove reliance on any misrepresentation, and that its denial letter was just an after the fact position and was not evidence of reliance. Sworn evidence was required.

[16]       Because no claim had been made for the loss by FLS, the application judge was not prepared to declare an obligation to indemnify. However, he made two other declarations: first, that Rosen did not make a material misrepresentation on its application for insurance with respect to its transportation of consumer electronic goods; and second, that the theft occurred while the cargo was in Rosen’s custody. His intention was to address Northbridge’s two objections to coverage referred to in the January 2017 letter. He concluded, however, that: “[o]f necessity…this approach leaves to another day the question of whether the actual claim of loss eventually brought against the Applicant is covered in whole or in part by the Respondent’s insurance policy, as that will depend on the nature and scope of that eventual claim.”

Proposed fresh evidence

[17]       Following the application judge’s decision, Rosen contacted FLS, resulting in confirmation that FLS had offset from its payables some of the outstanding amount owed for the stolen cargo, and that FLS valued the loss at $356,968.26. Rosen has subsequently issued a statement of claim against Northbridge in the subsequent action, claiming damages for breach of contract in that amount and reciting and relying on the two declarations to foreclose any objection to coverage by Northbridge.

[18]       Rosen seeks to adduce its correspondence with FLS that forms the basis for the subsequent action as fresh evidence. Northbridge takes no position on the fresh evidence motion. While the subsequent correspondence and procedural steps are not “fresh evidence” in the classic sense because they did not exist at the time of the application, as this court stated in similar circumstances in Sengmueller v. Sengmueller (1994), 17 O.R. (3d) 208 (C.A.) at p. 211: “where the evidence is necessary to deal fairly with the issues on appeal”, the court may admit it. As the existence of the subsequent developments is relevant and necessary to the remedy sought on the appeal, I would admit the fresh evidence.

Issues

1.    Did the application judge err by making declarations in the absence of an underlying claim and therefore a real dispute?

2.    Did the application judge err by declaring findings of fact?

[19]       Northbridge raises a number of other issues, including: did the application judge err by deciding issues that were not pleaded in the notice of application; did the application judge err by effectively penalizing Northbridge for not filing evidence when there was no claim to respond to; did the application judge err by misapprehending the evidence; and did the application judge err by failing to apply the statutory definition of “connecting carrier”? These issues do not need to be addressed in light of my conclusions on the first two issues and the remedy I propose.

Analysis

Issue 1: Did the application judge err by making declarations in the absence of an underlying claim and therefore a real dispute?

[20]       The Supreme Court most recently described the criteria for declaratory relief in S.A. v. Metro Vancouver Housing Corp., 2019 SCC 4, 430 D.L.R. (4th) 621, at para. 60:

Declaratory relief is granted by the courts on a discretionary basis, and may be appropriate where (a) the court has jurisdiction to hear the issue, (b) the dispute is real and not theoretical, (c) the party raising the issue has a genuine interest in its resolution, and (d) the responding party has an interest in opposing the declaration being sought (Ewert v. Canada, 2018 SCC 30, at para. 81; see also Daniels v. Canada (Indian Affairs and Northern Development), 2016 SCC 12, [2016] 1 S.C.R. 99, at para. 11; Canada (Prime Minister) v. Khadr, 2010 SCC 3, [2010] 1 S.C.R. 44, at para. 46).

[21]       The authority to make a declaration of right is found in s. 97 of the Courts of Justice Act, R.S.O. 1990, c. C.43. Section 97 provides:

The Court of Appeal and the Superior Court of Justice, exclusive of the Small Claims Court, may make binding declarations of right, whether or not any consequential relief is or could be claimed.

[22]       While the court has the jurisdiction and authority to make a declaration of right, it is only to be used when the declaration will have an effect on an existing dispute between the parties. It is not to be given as an opinion on a hypothetical set of facts, or as an academic exercise to settle what may happen in the future. For example, in Re Lockyer, [1934] O.R. 22 (Ontario Supreme Court – Court of Appeal), a will left the residue of the testator’s estate following the death of the life interest beneficiary to be divided among named charities, one of which was the Protestants’ Orphan Asylum. As there was no such charity in existence, the Protestant Children’s Homes sought a declaration that it was the intended residuary beneficiary. However, it brought the application before the death of the life interest beneficiary. The court refused to give the declaration because it would have no present effect and circumstances could change before it could have an effect; for example, the life interest beneficiary could use the entire interest before she died. At p. 26, Riddell J.A. quoted from Curtis v. Sheffield (1882), 21 Ch. D. 1, at pp. 3-4, where Jessel M.R. stated:

Now it is true that it is not the practice of the Court, and was not the practice of the Court of Chancery, to decide as to future rights, but to wait until the event has happened, unless a present right depends on the decisions, or there are some other special circumstances to satisfy the Court that it is desirable at once to decide on the future rights.

[23]       The leading decision from the Supreme Court on this issue is Solosky v. The Queen, [1980] 1 S.C.R. 821. Mr. Solosky, a federal prisoner, sought a declaration that it would be illegal for penitentiary officials to open and read his mail to and from his lawyer. Dickson J. stated that the principles that guide the court in exercising its jurisdiction to grant a declaration have been stated many times. There are two factors to consider. The first is the reality of the dispute: Dickson J. explained at p. 832 that “[i]t is clear that a declaration will not normally be granted when the dispute is over and has become academic, or where the dispute has yet to arise and may not arise”. In Solosky, the dispute was not hypothetical because there was an order in place requiring that Mr. Solosky’s mail be opened and read; that order had been and was continuing to be applied and therefore would apply to future mail.

[24]       If the dispute is established as a real dispute, then the second factor is “whether the declaration is capable of having any practical effect in resolving the issues in the case”: at p. 833. In Solosky, the court concluded that the appellant was not entitled to the declaration sought for other reasons, but that otherwise, the court could have exercised its jurisdiction to grant it because the two criteria stated above were met.

[25]       In the present case, neither of the two criteria for granting a declaration of rights was satisfied. First, Rosen sought a declaration that Northbridge was required to indemnify it for a claim that had not yet been made. While the theft had occurred, the party that suffered the loss had not yet sought to recover for that loss from Rosen. There was, as yet, no “real dispute”. It was unclear whether a claim would be made, and if so the nature or extent of the claim.

[26]       Second, the declaration had no practical effect. That was recognized by the application judge when he declined to make the declaration that was requested, which was that Northbridge was obliged to indemnify Rosen for a claim advanced in relation to the stolen goods. He found that because the nature and extent of the potential claim were not known, the court could not grant a declaration that required Northbridge to indemnify against it. As a result, the declarations that were made had no practical effect. The utility of the declarations was only hypothetical, and contingent on a “viable” claim being brought against Rosen.

[27]       This court set aside a declaration made under r. 612 (superseded by r. 14.05(3))[1] in somewhat analogous circumstances in 296616 Ontario Ltd. v. Richmond Hill (Town) (1977), 14 O.R. (2d) 787 (C.A.). In that case, parties to an agreement of purchase and sale of a building in Richmond Hill, Ontario brought an application for the court to declare in advance that the purchaser’s proposed use of the building would amount to a legal non-conforming use.

[28]       On appeal by the municipality, apparently on the merits, this court raised the question whether such a declaration could be made, and concluded that it could not, at pp. 789-90:

It is our respectful view that the order ought not to have been made. If Rule 612 is applicable at all, and we are not persuaded that it was, it applies, as it states, only where there are no material facts in dispute, or upon undisputed facts and the proper inference from such facts. The reference in the statement of facts to the future use of lands, should not be confused with the future facts when such use is said to occur. It is only upon the actual facts that the Court can declare the rights of the parties, and it cannot be said that, where those facts have not yet occurred, the situation is within the type contemplated by Rule 612. If it were otherwise, a declaration might well preclude any future action by the municipal corporation for what is then a breach of the by-law. Such a motion as this based upon a hypothetical situation could not be used to escape future enforcement of the by-laws of the municipality.

[…]

By adopting this course, it was again contended the Court will resolve future differences between the parties. However, this is not the function of this Court in this type of application. There is no pending issue between the parties to these proceedings, which raises the question of construction of the by-law and the right of the landowner as to present use, and the Court will not make an order on the basis of an assumed set of facts to resolve future matters.

[29]       In my view, this case, similarly, was not one where the court could make a declaration to govern the rights of the parties contingent on a possible future event, here, a claim against Rosen for compensation for the theft.

Issue 2: Did the application judge err by declaring findings of fact?

[30]       Declaratory relief must determine the rights of the parties. While determining the rights of the parties may entail findings of fact, courts do not have jurisdiction to simply declare facts, detached from the rights of the parties.

[31]       Where the issue between an insured and the insurer is not the interpretation and application of the policy to a specific set of facts, but rather, what were the facts that occurred, then it is not a proper case for declaratory relief. The application judge erred by making findings of fact under the guise of a declaration of right.  

[32]       This issue has been canvassed numerous times by the Ontario Superior Court of Justice in the context of s. 108(2) of the Courts of Justice Act, which provides that claims for declaratory relief are to be assessed without a jury. Therefore where a plaintiff asks for declaratory relief and seeks to strike a jury notice, the court will examine whether in fact the claim is for declaratory relief, in which case the jury notice will be struck, or whether it is in reality merely a factual dispute that can be decided by a jury. The jury notice will not be struck where the claim is not properly for declaratory relief but for findings of fact on disputed evidence: see Harrison v. Antonopoulos (2002), 62 O.R. (3d) 463 (S.C.); Ramm v. Sun Life Assurance Co. of Canada (1999), 43 O.R. (3d) 652 (S.C.); and Thibault v. Empire Life Insurance Co., 2012 ONSC 1723, 24 C.P.C. (7th) 208.

[33]        For example, in Reid v. Manufacturer, 2010 ONSC 4645, 89 C.C.L.I (4th) 149, the court explained at paras. 35-36:

Manulife's argument, of course, assumes that there was, in fact, a detrimental change in Mr. Reid's health in the relevant time period. But that fact is disputed. In fact it is the very centre of the dispute between the parties. There appears to be no dispute about their legal rights, obligations and entitlements depending on the outcome of that factual finding. The court in this instance is not called upon to make a pronunciation on the legal rights of the parties. They agree that their rights are spelled out in the policy. What they do not agree upon is whether a particular constellation of facts existed that vitiated the policy. The court is called upon to determine what is a relatively narrow factual dispute: whether there was a detrimental change in Joel Reid's health in the relevant time period.

On careful review, in pith and substance, this case is clearly a factual dispute. The parties seek a determination of that factual dispute and, at least from the plaintiff's point of view, a coercive order should that factual determination be resolved in his favour. [Emphasis added.]

[34]       With respect, once the application judge heard the application and found that he could not make a declaration of rights because no claim existed, it was an error to make factual findings in relation to the two disputed issues raised by Northbridge’s denial of coverage letter and to frame those findings as declaratory relief.

[35]       As an ancillary point, s. 138 of the Courts of Justice Act directs that: “As far as possible, multiplicity of legal proceedings shall be avoided.” This court has recently explained in the context of the propriety of awarding partial summary judgment, that cases should only rarely be bifurcated. In Butera v. Chown, Carins LLP, 2017 ONCA 783, 137 O.R. (3d) 561, the court set out a number of reasons why findings should not be made by one judge that do not dispose of the action and bind the judge that will hear and dispose of it, at paras. 29-34: (1) the danger of duplicative or inconsistent findings; (2) delay of the main action; (3) such motions can be expensive; (4) judges are required to spend time writing extensive reasons which do not dispose of the action; and (5) the record available at the hearing of a partial summary judgment motion will likely not be as expansive as the record at trial, increasing the risk of inconsistent findings.

[36]       In this case, the effect of the declarations of fact was to leave for another proceeding the issue of coverage, with findings that were intended to be used in a future dispute regarding a claim for compensation for the stolen property. Once that claim was made in this case, a subsequent action was commenced by Rosen against Northbridge. All issues could have been determined in that claim. The application and this appeal involved the unnecessary expenditure of the resources of the parties as well as judicial resources.

Remaining Issues

[37]       In light of my conclusions regarding the lack of propriety of the declaratory relief granted in this case, there is no need to address the balance of the evidentiary issues or the interpretation of “connecting carrier” in the policy, which may be determined, if raised, in the subsequent action that Rosen has brought.

Result

[38]       I would allow the appeal and set aside the declarations of fact made by the application judge. Rather than dismiss the application, I would order that it be consolidated with and continued as part of the subsequent action Rosen has commenced against Northbridge (court file number CV-18-00609508-0000). I would order the costs of the application and of this appeal to follow the event of the cause in the subsequent action, at the discretion of the trial judge or summary judgment motion judge.

Released: “K.F.” September 27, 2019

“K. Feldman J.A.”

“I agree. L.B. Roberts J.A.”

“I agree. Fairburn J.A.”