Hello everyone,

Below are the summaries of this week’s Ontario Court of Appeal decisions.  Topics covered include stare decisis and the vicarious liability of motor vehicle owners, class actions and charitable organizations, and the interpretation of a directors’ and officers’ liability policy with regard to the insurer’s liability for defence costs.

We hope you continue to find this blog useful and are sharing it with colleagues who may be interested.  As always, we welcome your comments and feedback.

John Polyzogopoulos

Blaney McMurtry LLP

JPolyzogopoulos@blaney.com

Tel: 416.593.2953

http://www.blaney.com/lawyers/john-polyzogopoulos

Table of Contents

Civil Cases

Fernandes v Araujo, 2015 ONCA 571 (click on the case name to read the summary)

Keywords: Torts, Negligence, Motor Vehicle Accidents, Insurance Law, Summary Judgment, Vicarious Liability of Owner of Motor Vehicle, Owner’s Consent to Operate Motor Vehicle,  Highway Traffic Act, ss.192(2), Stare Decisis, Overruling Prior Decision of the Court of Appeal as Wrongly Decided, Newman and Newman v Terdik

Amyotrophic Lateral Sclerosis Society of Essex v. Windsor (City), 2015 ONCA 572 (click on the case name to read the summary)

Keywords: Municipal Law, Ultra Vires Taxation, Class Actions, Certification, Charity Licensing Fees, Class Definition, Subclasses, Common Issues, Case Management, Preferable Procedure, Class Proceedings Act 1992, ss. 5(1), Limitations Act 2002, ss.  15(2), Ultimate Limitation Period

Onex Corporation v. American Home Assurance Company2015 ONCA 573 (click on the case name to read the summary)

Keywords: Insurance law, Coverage, Directors and Officers Liability, D&O Insurance, Excess Liability Policy, Defence Litigation Costs, Policy Interpretation, contra proferentem

For a list of Criminal Law decisions, click here.

Fernandes v Araujo, 2015 ONCA 571

[Sharpe, MacFarland, Rouleau, Lauwers and Pardu JJ.A.]

Counsel:

A. Gilbert, for the appellant

C. Brown and S. L. Stevens, for the respondent S. Fernandes

E. Takacs, for the respondents E. Araujo and The Superintendent of Financial Services

Keywords: Torts, Negligence, Motor Vehicle Accidents, Insurance Law, Summary Judgment, Vicarious Liability of Owner of Motor Vehicle, Owner’s Consent to Operate Motor Vehicle,  Highway Traffic Act, ss.192(2), Stare Decisis, Overruling Prior Decision of the Court of Appeal as Wrongly Decided, Newman and Newman v Terdik

Facts:

The plaintiff, S. Fernandes, sustained serious injuries as a passenger on an ATV driven by the defendant, E. Araujo. The ATV was beneficially owned by Carlos Almeida. Carlos’ cousin, John Paul, told the plaintiff and defendant how to use the ATV. In Carlos’ presence, John Paul also instructed them not to leave the farm property with the ATV. Later that day, without asking permission, the plaintiff and defendant drove the ATV off the farm property. On their return, they were involved in an accident.

The ATV was insured by the statutory third party/appellant, Allstate Insurance. Allstate denied the defendant, E. Araujo, third party coverage as she did not have the class of licence required to operate an ATV in contravention of a statutory condition of the standard Ontario Motor Vehicle Policy. The Ministry of Financial Services assumed Araujo’s defence pursuant to the Motor Vehicle Accident Claims Fund Act and issued a third party claim against Allstate. Allstate defended the third party claim and was added as a statutory third party to defend the main action.

Allstate brought two motions for summary judgment: the first, in the main action, on behalf of Carlos to dismiss Fernandes’ claim on the ground that Araujo was not driving the ATV with his consent, and the second, to dismiss Araujo’s third party claim on the ground that she was not entitled to coverage as she was driving the ATV without a proper licence.

The motion judge dismissed Allstate’s summary judgment motion in the main action but allowed the motion to dismiss Araujo’s third party claim for coverage. No appeal was taken with respect to the dismissal of the third party claim.

The motion judge’s refusal to dismiss Allstate’s motion in the main action rested on two grounds, one factual and the other legal. The motion judge found as a fact that Carlos permitted Araujo “to possess and drive the ATV and did not impose any restrictions on the use of the ATV”. He found that John Paul’s statement that Fernandes and Araujo should not leave the farm property with the ATV could not be attributed to Carlos. The legal ground for dismissing Allstate’s motion for summary judgment was that even if John Paul’s command to not leave the farm property could be attributed to Carlos, because Carlos had consented to Araujo’s possession of the ATV, pursuant to the authority of Finlayson v GMAC Leaseco Ltd, 2007 ONCA 557, any restrictions on the use of the ATV would not exculpate Carlos from vicarious liability.

Issues:

  1. Did the motion judge err by concluding that in the absence of an express prohibition against taking the ATV off the farm property, the owner must be taken to have consented to possession at the time of the accident?
  2. Did the motion judge err by failing to follow the decision of this court in Newman and Newman v Terdik, [1953] OR 1 (CA)?
  3. Should the decision of this court in Newman and Newman v Terdik be overruled?

Holding: Appeal dismissed with costs.

Reasoning:

  1. No, the motion judge did not err by concluding that since the owner of the ATV did not expressly prohibit the defendant from taking the ATV off the farm property, the defendant was in possession of the vehicle with the owner’s consent at the time of the accident. Allstate argued the test for the vehicle owner’s consent under ss.192(2) of the Highway Traffic Act turns on the subjective belief of the party in possession of the vehicle. However, this argument essentially challenges the factual findings of the motion judge. The defendant did not admit that she knew the owner had forbidden her from driving the ATV on the highway. There was also evidence that the owner took no steps to stop the defendant from driving after he knew the ATV was taken off of the farm property. In addition, pursuant to ss.192(2) of the Highway Traffic Act, it cannot be the case that if the person in possession subjectively believes that they have the owner’s consent, that alone is sufficient to determine the liability of the owner. This would allow anyone with actual possession of the vehicle to fix the owner with liability even where the owner had not consented to that person having possession of the vehicle. The focus of the language and purpose of the provision are on the actions of the owner who is charged with the responsibility of exercising appropriate caution when giving another person possession of the vehicle.
  2. No, Newman was wrongly decided. In Newman, the Court of Appeal held that where the owner gave the driver permission to drive on private property but expressly prohibited the driver from operating the vehicle on the highway, the owner is not vicariously liable for damages sustained as a result of a highway accident when the person with possession of the vehicle violated the condition and drove the vehicle on a highway. This decision is inconsistent with the reasoning and principle expressed in a long line of cases commencing with Thompson v Bourchier, [1933] OR 535, that if the owner has consented to possession, the owner will be vicariously liable even if there is a breach of a condition imposed by the owner relating to the use or operation of the vehicle. The purpose of ss. 192(2) of the Highway Traffic Act is the protection of the public by insisting that the owner of a vehicle exercise careful management when giving permission to another person to use it. This purpose is achieved by imposing vicariously liability for damages if the vehicle is operated in a negligent fashion.
  3. Yes, Newman should be overruled. While the rule of precedent (stare decisis) provides certainly, consistency, clarity and stability in the law, it is not absolute. There comes a point at which the values of certainty and predictability must yield to allow the law to purge itself of past errors or decisions that no longer serve the interests of justice. Moreover, decisions that rest on an unstable foundation tend to undermine the very values of certainty and predictability that stare decisis is meant to foster. In David Polowin Real Estate Ltd v Dominion of Canada General Insurance Co (2005), 76 OR (3d) 161, the Court of Appeal held that it is permissible for the court to overrule one of its prior decisions if it is satisfied that the error should be corrected after considering “the advantages and disadvantages of correcting the error.” In making this assessment, this court should focus on the nature of the error and “the effect and future impact of either correcting it or maintaining it,” including  “the effect and impact on the parties and future litigants” and “on the integrity and administration of our justice system.” To leave Newman intact would not serve the interests of certainty and predictability in the law. The court’s reasoning was inconsistent with the earlier 1933 decision in Thompson, and its authority has been severely attenuated by a steady string of subsequent decisions. It creates an anomaly that cannot be supported in principle, one that undermines the coherence of this area of law and that is likely to lead to confusion.

Tags: Torts, Negligence, Motor Vehicle Accidents, Insurance Law, Summary Judgment, Vicarious Liability of Owner of Motor Vehicle, Owner’s Consent to Operate Motor Vehicle,  Highway Traffic Act, ss.192(2), Stare Decisis, Overruling Prior Decision of the Court of Appeal as Wrongly Decided, Newman and Newman v Terdik

Amyotrophic Lateral Sclerosis Society of Essex v. Windsor (City), 2015 ONCA 572

[Strathy, LaForme and Tulloch JJ.A.]

Counsel:

Scott Hutchinson, for the appellant City of Windsor

Brendan van Niejenhuis, for the appellant Town of Tecumseh

Peter W. Kryworuk and Yola S. Ventresca, for the respondents

Keywords:  Municipal Law, Ultra Vires Taxation, Class Actions, Certification, Charity Licensing Fees, Class Definition, Subclasses, Common Issues, Case Management, Preferable Procedure, Class Proceedings Act 1992, ss. 5(1), Limitations Act 2002, ss.  15(2), Ultimate Limitation Period.

Facts:

Three charitable organizations that held lotteries and other fundraising activities, claimed that the defendant municipalities (City of Windsor and Town of Tecumseh) charged licensing and administration fees which greatly exceeded the associated costs of regulation.  The charitable organizations sought restitution for a class of persons who paid fees to the municipalities, submitting that the fees were, in effect, a tax imposed by the municipalities in the absence of legislative authority and, as such, ultra vires the municipalities.

At the certification motion, the motion judge certified the proceedings as class actions, but limited the scope of the class to those persons whose claims were not prima facie barred by the Limitations Act, 2002.  On appeal, the Divisional Court found that the motion judge erred in law in limiting the size of the respective classes, as the limitation periods issue should not have been decided on the certification motion.

The appellants (City of Windsor and the Town of Tecumseh) are appealing the certification of two class actions, on the primary basis that the scope of the class, which includes charities that have paid fees since 1990, reaches too far back in time.  There is a lack of commonality of issues and proceeding by class action is not the preferable procedure.

Issues:  

  1. How should class be defined?
  2. Was there a lack of commonality on some issues amongst the charitable organizations? Should the court create a subclass amongst those involved in the proceedings?
  3. Is a class proceeding the preferable procedure for the resolution of the claims?

Holding: Appeal Allowed, in part, the proceeding shall be certified as a class proceeding pursuant to ss. 5(1) of the Class Proceedings Act 1992.

Reasoning: 

  1. The court rejected an arbitrary definition of the class as any organization that had paid fees from 1990 onwards.  It defined that class in a rational manner by reference to the 15 year ultimate limitation period in ss. 15(2) of the Limitations Act, 2002.
  2. The appellants submitted that under ss. 5(2) of the Class Proceedings Act 1992, there existed a conflict of interest amongst class members.  The subclass members with presumptively time-barred claims would be prejudiced if they were represented by these plaintiffs.  The Court of Appeal, citing Pearson v. Boliden, reiterated that prejudice will occur when the representative cannot fairly and adequately represent the subclass, such that the need for a separate subclass representative arises.  The Court of Appeal found no prejudice here and therefore no subclass was required.
  3. The appellants submitted that a class proceeding was not the preferable procedure for these claims. The Court of Appeal applied the two-part test in Hollick to determine whether or not proceeding by way of class action was the preferable procedure. (1) whether or not the class proceeding would be a fair, efficient and manageable method of advancing the claim; and (2) whether a class proceeding would be preferable to other procedures.  The Court ruled in this case there are two issues of preferability. The first is the complexity introduced by the need to resolve time- barred claims, and the second concern is the existence of different regulatory and fiscal regimes over the broad class period.  The appellants submitted that the certification judge failed to address the preferable procedure requirement, they claim that combining the presumptively time barred claims with the timely claims is not the preferable procedure for the resolution of either set of claims.  The Court of Appeal disagreed, and stated that the ability to case manage groups of claims raising common issues and the ability to make binding determinations of those issues make a class proceeding appropriate to resolve these claims.

The court felt that these issues can most effectively and fairly be resolved in the context of a class proceeding.  Furthermore, the Court suggested the use of case management in regards to complex class proceedings may help the parties focus on finding a more efficient manner on resolving the issues.

Tags: Municipal Law, Ultra Vires Taxation, Class Actions, Certification, Charity Licensing Fees, Class Definition, Subclasses, Common Issues, Case Management, Preferable Procedure, Class Proceedings Act, 1992, ss. 5(1), Limitations Act 2002, ss.  15(2), Ultimate Limitation Period

Onex Corporation v. American Home Assurance Company2015 ONCA 573

[Juriansz, Lauwers and Huscroft JJ.A.]

Counsel:

Ronald G. Slaght Q.C., Glenn A. Smith and Jaclyn Greenberg, for the appellant

Geoffrey D.E. Adair Q.C. and Valerie A. Hogan, for the respondents

Keywords:  Insurance law, Coverage, Directors and Officers Liability, D&O Insurance, Excess Liability Policy, Defence Litigation Costs, Policy Interpretation, contra proferentem.

Facts:

This dispute has returned to the Court of Appeal for the second time (see 2013 ONCA 117). The respondent, a private equity corporation, Onex Corporation (“Onex”) purchased directors’ and officers’ (“D&O”) liability insurance from the appellant, American Home Assurance Company (“American Home”), covering a period from May 2002 to May 2003 for up to US$15 million (the “2002-2003 Onex Policy”). In contemplation of selling Magnatrax Corporation (“Magnatrax”), one of its subsidiaries in the United States, Onex purchased excess liability coverage with a limit of US$15 million (the “Run-Off Policy”) that covered the directors and officers of Magnatrax with respect to claims related to the potential sale during the period May 2003 to May 2009.

At the heart of this dispute, Onex had claimed entitlement to defence costs pursuant to both D&O policies, with respect to litigation that was commenced in the state of Georgia in 2005 (the “Georgia Action”). The Georgia Action was commenced by the litigation trustee of bankrupt Magnatrax alleging that Onex and several of its current or former officers and directors caused the bankruptcy of Magnatrax in 2003.

The Georgia Action settled for US$9.25 million, however, Onex incurred close to US$34 million in defence costs. American Home paid the US$15 million limit pursuant to the Run-Off Policy, but refused to pay outstanding defence costs under the 2002-2003 Onex Policy limits. American Home submitted that Endorsement #14 (a specific entity subsidiary exclusion) of the 2002-2003 Onex Policy excluded coverage for any Magnatrax-related claims, and in the alternative, any monies owing under the 2002-2003 Onex Policy could be set-off against what was already paid out under the Run-Off Policy pursuant to Endorsement #16 (a coordination of limits endorsement) of the Run-Off Policy.

This court first considered the dispute on appeal from summary judgment, focusing on the meaning of the word “Claim” in Endorsement #14 of the 2002-2003 Onex Policy. It found that the word “Claim” is susceptible to more than one meaning and therefore the wording of Endorsement #14 is ambiguous. This court sent the matter back to the Superior Court for factual findings to be made in order to resolve the dispute on which interpretation reflected the parties’ reasonable expectations or intentions in adopting Endorsement #14.

The trial judge concluded that the term “Claim” as defined in the 2002-2003 Onex Policy need not be interpreted to encompass the entirety of a civil proceeding. It is broad enough to encompass multiple claims within a single proceeding. American Home did not satisfy the onus of showing that Endorsement #14 unequivocally removed coverage under the 2002-2003 Onex Policy for Onex executives acting in their capacity as such. Further, if the evidence did not resolve the ambiguity in the endorsement, the doctrine of contra proferentem would apply. The plaintiffs (now respondents) were entitled to the US$15 million limit of the 2002-2003 Onex Policy. Endorsement #16 did not entitle American Home to set-off the monies paid under the Run-Off Policy against monies payable under the 2002-2003 Onex Policy.

Issues:

  1. Did the trial judge err in concluding that Endorsement #14 (specific entity subsidiary exclusion) of the 2002-2003 Onex Policy does not exclude coverage for the respondents’ defence costs in connection with the Georgia Action?
  2. Did the trial judge err in concluding that Endorsement #16 (coordination of limits endorsement) of the Run-Off Policy does not entitle American Home to set-off amounts owing under the 2002-2003 Onex Policy against payments made under the Run-Off Policy?

Holding: Appeal dismissed, the trial judgment in favour of the respondents against American Home in the amount of US$15 million is upheld.

Reasoning:

  1. No, there is no basis to conclude that the trial judge erred in concluding that Endorsement #14 does not exclude coverage for the respondents’ defence costs in the Georgia Action. First, this court resolved many of the issues and only sent the matter back for the Superior Court judge to determine the meaning of the ambiguous term “Claim” in Endorsement #14. However, American Home submitted arguments that, to the extent they did not rely on extrinsic evidence led at trial, were repetitions of arguments previously advanced. The Court of Appeal had already disposed of these arguments and found it unnecessary to consider them again.

Second, with regard to the new arguments that rely on extrinsic evidence led at trial, both arguments submitted by the appellant were insufficiently persuasive for this court to interfere with the trial judge’s decision. The appellant stated that the trial judge approached the interpretation of Endorsement #14 incorrectly by considering extrinsic evidence first, before interpreting the language of the agreement. This argument had no merit, as the Court of Appeal had already made contextual findings about the wording of the policies read as a whole. The trial judge sufficiently completed her narrow task of considering extrinsic evidence to determine whether the conceded coverage was excluded by Endorsement #14.

In addition, the trial judge used extrinsic evidence correctly, to resolve the ambiguity in the language of the endorsement, and did not use the evidence to give effect to the parties’ mutual subjective intention as the appellant submitted.

  1. No, the trial judge correctly read the language of Endorsement #16, given the meaning of “Claim” adopted under Issue 1 above. The appellant submitted that the trial judge erred in incorrectly interpreting Endorsement #16, given this court did not find that it was ambiguous. However, in addressing the wording, the trial judge noted that the word “Claim” in Endorsement #16 was not used in isolation but was part of the phrase “claim under this policy”. The phrase “claim under this policy” indicated that Endorsement #16 had no application to allegations not covered at all under the Run-Off Policy.

Tags: Insurance law, insurance, insurance coverage, coverage, Directors and Officers Liability, D&O Insurance, Excess Liability, Excess Liability Insurance, Policy Interpretation, contra proferentem, Defence Litigation Costs, Defence Costs, Costs

Criminal Law Decisions

R. v. Grandine, 2015 ONCA 574

[R.A. Blair J.A. (In Chambers)]

Counsel: M. Lacy and J. Baron, for the appellant

R. Shallow and K. Stewart, for the Crown

Keywords: Criminal Law, Appeal, First Degree Murder, Manslaughter, Criminal Code, s. 679(1) and (3)