1998 Carswell NB 321, 8 C.C.L.I. (3d) 216, 25 C.P.C. (4th) 276, 205 N.B.R. (2d) 29, 523 A.P.R. 29, [1998] N.B.J. No. 351

Norris v. Lloyd's of London

Kimball Edward Norris and Elizabeth Dermer-Norris, (Plaintiffs) Appellants andLloyd's of London, also known as Non-Marine Underwriters, Members of Lloyd's,London, England, (Defendant) Respondent

New Brunswick Court of Appeal

Rice, Ayles, Drapeau JJ.A.

September 17, 1998

Heard: May 20, 1998Judgment: September 17, 1998Docket: 215/97/CA

Proceedings: reversing (1997), 191 N.B.R. (2d) 339 (Q.B.)

Counsel: James L. Mockler, Esq., for the Appellants.

Edwin G. Ehrhardt, Q.C., for the Respondent.

Subject: Insurance; Civil Practice and Procedure

Limitation of actions --- Actions in contract or debt -- Actions on insurance policies -- General

Plaintiff homeowners' property was contaminated by underground storage tank -- Homeowners unsuccessfully brought action against defendant insurance company to recover costs already expended for engineering services and to recover future costs to remediate soil -- Insurance company successfully applied to strike action on ground that it was barred because it was not commenced within one year after damage was discovered as required by statutory condition 14 in policy -- Homeowners appealed -- Appeal was allowed -- Limitation period in policy applied to loss caused by all perils, not just fire -- Statutory condition did not bar action in tort -- Limitation period for action in tort was six years -- Statutory condition 14 did not bar action for future losses.

Cases considered by Drapeau J.A.:

Callaghan Contracting Ltd. v. Royal Insurance Co. of Canada, 39 C.C.L.I. 65, 59 D.L.R. (4th) 753, 97 N.B.R. (2d) 381, 245 A.P.R. 381, (sub nom. Royal Insurance Co. of Canada v. Callaghan Contracting Ltd.) [1989] I.L.R. 1-2491 (N.B. C.A.) -- referred to

Chiasson v. Century Insurance Co. of Canada (1978), 21 N.B.R. (2d) 192, 86 D.L.R. (3d) 342, 37 A.P.R. 192, [1979] I.L.R. 1-1082 (N.B. C.A.) -- referred to

Dressew Supply Ltd. v. Laurentian Pacific Insurance Co., (sub nom. Mindell v. Canadian Northern Shield Insurance Co.) 77 D.L.R. (4th) 317, (sub nom. Mindell v. Canadian Northern Shield Insurance Co.) 3 C.C.L.I. (2d) 286, (sub nom. Mindell v. Canadian Northern Shield Insurance Co.) 57 B.C.L.R. (2d) 198, (sub nom. Mindell v. Canadian Northern Shield Insurance Co.) [1991] 6 W.W.R. 174, (sub nom. Mindell v. Canadian Northern Shield Insurance Co.) [1991] I.L.R. 1-2755 (B.C. C.A.) -- considered

Dubé c. Dionne (June 24, 1998), Doc. 60/98/CA (N.B. C.A.) -- referred to

Gregg v. Pearl Assurance Co., [1978] I.L.R. 1-1010 (Sask. Q.B.) -- referred to

Jane Doe v. Metropolitan Toronto (Municipality) Commissioners of Police (1990), (sub nom. Jane Doe v. Board of Police Commissioners of Metropolitan Toronto) 40 O.A.C. 161, (sub nom. Doe v. Metropolitan Toronto (Municipality) Commissioners of Police) 1 C.R.R. (2d) 211, 5 C.C.L.T. (2d) 77, (sub nom. Doe v. Metropolitan Toronto (Municipality) Commissioners of Police) 74 O.R. (2d) 225, (sub nom. Doe v. Metropolitan Toronto (Municipality) Commissioners of Police) 72 D.L.R. (4th) 580, 50 C.P.C. (2d) 92 (Ont. Div. Ct.) -- referred to

Johnson v. Wunderlich (1986), 45 M.V.R. 184, 57 O.R. (2d) 600, 34 D.L.R. (4th) 120, 18 O.A.C. 89, 21 C.C.L.I. 248, [1987] I.L.R. 1-2155 (Ont. C.A.) -- referred to

Plourde c. Collin (1991), 119 N.B.R. (2d) 377, 300 A.P.R. 377, 9 C.C.L.I. (2d) 7 (N.B. C.A.) -- considered

Regal Films Corp. (1941) Ltd. v. Glens Falls Insurance Co., [1946] 3 D.L.R. 402, 13 I.L.R. 62, [1946] O.R. 341 (Ont. H.C.) -- referred to

Ronex Properties Ltd. v. John Laing Construction Ltd., [1982] 3 W.L.R. 875, [1982] 3 All E.R. 961, [1983] Q.B. 398 (Eng. C.A.) -- referred to

Statutes considered:

Insurance Act, R.S.N.B. 1973, c. I-12

Generally -- considered

Pt. IV -- considered

s. 122(1) -- considered

s. 122(1)(c) -- considered

s. 127(2) -- considered

s. 127(2), stat. con. 14 -- considered

Limitation of Actions Act, R.S.N.B. 1973, c. L-8

Generally -- considered

Rules considered:

Rules of Civil Procedure, R.R.O. 1990, Reg. 194

R. 21.01(1)(a) -- considered

New Brunswick, Rules of the Supreme Court, 1969

O. 25, R. 2 -- considered

O. 25, R. 3 -- considered

Rules of Court, N.B. Reg. 82-73

R. 22 -- considered

R. 22.04(3) -- considered

R. 23.01 -- considered

R. 23.01(1)(a) -- considered

R. 23.01(1)(b) -- considered

R. 23.01(1)(c) -- considered

R. 23.01(2) -- considered

R. 37.03(b) -- considered

R. 37.10(a) -- considered

Tariffs considered:

Rules of Court, N.B. Reg. 82-73

R. 59, Tariff D -- referred to

APPEAL by homeowners from judgment reported at (1997), 6 C.C.L.I. (3d) 252, 191 N.B.R. (2d) 339, 488 A.P.R. 339 (Q.B.).

Per curiam:

1 The appeal is allowed. The decision below is set aside, with costs of $2,500.00 payable by Lloyd's, together with disbursements

The judgment of the court was delivered by Drapeau J.A.:

2 In 1989, the Norris' purchased a home on University Avenue in Fredericton. In June 1993, they discovered that the property was contaminated when they removed an underground oil storage tank. Ethylbenzene was detected in groundwater samples, while petroleum hydrocarbons were discovered not only in soil samples, but in groundwater samples as well. The concentrations exceeded governmental guidelines. Both fuel and weathered gasoline were detected in groundwater samples from the basement area.

3 To date, the Norris' have spent approximately $12,000.00 not only for removal of the tank in June 1993, but also for work done since then, including site inspections as well as soil and water testing and monitoring. They have been advised that the cost of remediation and future monitoring will exceed $150,000.00 and may reach as much as $500,000.00. The contamination poses a serious threat to the environment and to their health. Needless to say, the value of their property has been significantly and adversely affected.

4 The Norris' contacted their insurer, Lloyd's of London, upon the discovery of the contamination. On June 18, 1993, Lloyd's denied coverage under the "Residential Insurance Homeowners Prestige Form" it had sold to the Norris'.

5 The Norris' brought this action on December 18, 1996. In their Statement of Claim, they set out the facts as outlined above and they assert that Lloyd's has not acted in good faith with respect to the contract of insurance, and that the denial of coverage is a breach of contract. They claim, inter alia, special damages in the amount of $12,000.00 and damages for the as of yet undetermined cost of remediation and future monitoring.

6 After filing its Statement of Defence, Lloyd's successfully moved for a determination pursuant to Rule 23.01 that the Norris' action is barred by statutory condition #14. This condition provides that every action against Lloyd's for the recovery of any claim, under or by virtue of the policy, is absolutely barred unless commenced within one year next after the loss or damage occurs.

7 Mr. Justice David Russell of the Court of Queen's Bench struck the action. His detailed reasons can be found in (1997), 191 N.B.R. (2d) 339 (N.B. Q.B.).

8 The Norris' appeal against the decision on the ground that the motion judge erred in concluding that Lloyd's could, by a policy provision, make statutory condition #14 applicable to their claims. Alternatively, the Norris' argue that the limitation provision does not bar their action.

9 The contentious issue of coverage under the policy for losses by "contamination" is raised by Lloyd's Statement of Defence. However, it was not raised by its motion. It is not before us.

10 The appeal raises several thorny issues. Each will be addressed in the answers to the following questions: first, does Rule 23.01(1)(a) by itself permit the court to strike an action? Second, did the motion judge err in determining that statutory condition #14 barred the action?

Analysis and Decision

a) Rule 23.01(1) (a) and the Power to Strike an Action

11 Lloyd's Notice of Motion does not identify which paragraph of subrule 23.01 it relies on, let alone the clause or subclause. Such a practice does not conform with the spirit nor the letter of Rule 37.03(b). A motion should, by its terms, direct the court to the specific rule, paragraph, clause or subclause relied on. If the opposing party does not insist upon this, the motion judge should.

12 In light of the generality of the motion, it is convenient to reproduce all of Rule 23.01 before addressing its application to the present case:

23.01 Where Available

(1) The plaintiff or a defendant may, at any time before the action is set down for trial, apply to the court

(a) for the determination prior to trial, of any question of law raised by a pleading in the action where the determination of that question may dispose of the action, shorten the trial, or result in a substantial saving of costs,

(b) to strike out a pleading which does not disclose a reasonable cause of action or defence, or

(c) for judgment on an admission of fact in the pleadings, in the examination of an adverse party, or in answer to a Request to Admit Facts;

(2) A defendant may, at any time before the action is set down for trial, apply to the court to have the action stayed or dismissed on the ground that

(a) the court does not have jurisdiction to try the action.

(b) the plaintiff does not have legal capacity to commence or continue the action, or

(c) another action is pending in the same or another jurisdiction between the same parties and in respect of the same claim.

(d) New Brunswick is not a convenient forum for the trial or hearing of the proceeding.

13 Paragraph (2) as well as clause (c) of para. (1) of subrule 23.01 can be quickly eliminated as a basis for the motion, since none of the conditions precedent to their application are present in this case.

14 As for clause (b) of para. (1), it authorizes the striking out of a pleading, not the striking of an action. In any event, the limitation condition involved here does not eliminate the cause of action, it merely bars the remedy. In such a case, the Statement of Claim can not be struck out under Rule 23.01(1) (b) on the basis that it does not disclose a reasonable cause of action. See Halsbury's Laws of England, Vol. 28, (4th ed.) (London: Butterworths, 1976) at p. 442, para. 856, and Ronex Properties Ltd. v. John Laing Construction Ltd., [1982] 3 All E.R. 961 (Eng. C.A.).

15 Thus, Rule 23.01(1) (a) stands alone as the basis for the relief obtained by Lloyd's.

16 Rule 23.01(1) (a), early determination of a question of law, is the successor to Rules 2 and 3 of Order 25 of the former Rules of Court. Rule 3 explicitly conferred on the court the power to dismiss an action where the circumstances contemplated by our present Rule 23.01(1) (a) prevailed. This explicit power to dismiss an action has not been continued in Rule 23.01(1) (a).

17 As well, our Rule 23.01(1) (a) is similar to Rule 21.01(1) (a) of the Ontario Rules of Civil Procedure, except for one striking difference: the Ontario rule, unlike ours, explicitly confers on the motion judge the power to grant judgment.

18 The silence in Rule 23.01(1) (a) with respect to the power to dismiss can be contrasted with the express conferral of this power in Rule 23.01(2). Likewise, its silence with respect to the power to grant judgment can be contrasted with the express conferral of such a power in Rules 23.01(1) (c), judgment on admissions, and in 22.04(3).

19 The omission to continue, in Rules 23.01(1) (a) and (b), the explicit power to dismiss an action found in Rule 3 of Order 25, as well as the difference between on the one hand, Rule 23.01(1) (a) and, on the other hand, Rules 23.01(2) and 22.04(3) with respect to the power to dispose of an action, without trial, are significant. In my view, they foreclose the possibility of reading in Rule 23.01(1) (a) an unstated or inherent power to strike the action.

20 As I read Rule 23.01(1) (a), the court's function is limited to determining a point of law raised by a pleading. Its mandate is not to actually dispose of the action, just as its mandate is not to actually shorten the trial or to actually bring about a substantial saving of costs. If the potential for achieving any of these results exits, the court may exercise its discretion and determine the point of law. To state it otherwise, the possibility that the determination of a question of law may dispose of the action is a condition precedent to the exercise of discretion envisaged by Rule 23.01(1) (a): the actual disposal of the action is not effected under it, a companion or follow-up motion being required.

21 In this regard, it is important to bear in mind that the rules make specific provision elsewhere for the granting of judgment following the determination of a question of law. I refer to Rule 22.04(3).

22 Here, the Court of Queen's Bench lacked the requisite power, inherent or otherwise, to strike the action, in effect dismissing the action and granting judgment, where the motion before it was confined to raising the determination of a question of law under Rule 23.01(1) (a). That is not to say that a judgment can never be granted as a result of a motion under Rule 23.01(1) (a): it can be where the motion includes a motion for summary judgment under Rule 22, or where the motion judge directs that the motion under Rule 23.01(1) (a) be converted into a motion for judgment, as permitted by Rule 37.10(a). (For an example of the successful combined use of Rule 23.01(1) (b) and Rule 22, see Dubé c. Dionne (June 24, 1998), Doc. 60/98/CA (N.B. C.A.). In the present case, Lloyd's did not apply for summary judgment under Rule 22, nor was there a direction by Mr. Justice Russell pursuant to Rule 37.10(a).

23 The motion judge erred in law in striking the action. This conclusion, without more, would amount to a purely Pyrrhic victory for the Norris'. Accordingly, this Court should go further and address now, rather than later, the question as to whether the motion judge erred in determining that statutory condition #14 barred the action. In doing so, I recognize that this Court should address only the questions of law which are necessary to resolve the appeal and which can be determined without regard to evidentiary considerations.

b) The Application of Statutory Condition #14 to Perils Other Than Fire

24 The Norris' take the position that the one year limitation period in statutory condition #14 applies only to losses resulting from the peril of fire. They argue that it does not apply to their action which is for losses resulting from contamination.

25 Lloyd's responds that it does not need to rely on statutory condition #14 as such. It takes the position that the policy has by contract, as opposed to statutory compulsion, created a bar to the action on terms identical to statutory condition #14.

26 However, the motion refers only to statutory condition #14 and para. 7 of the Statement of Defence alleges that the action is barred by reason that it was not brought "within one year of the date of occurrence of the damages or loss, pursuant to section 127(2) of the Insurance Act, R.S.N.B. 1973, c. I-12."

27 In my view, there is no need to deal with the question as to whether an insurer can incorporate in a policy of insurance a limitation period which is inconsistent with the provisions of the Limitation of Actions Act, R.S.N.B. 1973, c.L-8. The resolution of this difficult issue would require a consideration of the dispositions of this province's Limitation of Actions Act and Insurance Act. There may be differences in the wording between our statutes and the statutes of other provinces. As well, public policy considerations would come into play. These do not appear to have been factored into the reasoning which led to the ultimate conclusion in the cases relied on by the motion judge.

28 Statutory condition #14 is found in section 127(2). Section 127(2) is found in Part IV of the Insurance Act. Part IV contains s. 122(1) (c), which reads as follows:

122(1) This part applies to insurance against loss of or damage to property arising from the peril of fire in any contract made in the Province except,

. . . . .

(c) where the peril of fire is an incidental peril to the coverage provided; or ....

29 Our Court has held that, in light of the language of the sections which follow it, s. 122(1) must be interpreted as referring to the whole contract of insurance and not merely the peril of fire. See Chiasson v. Century Insurance Co. of Canada (1978), 21 N.B.R. (2d) 192 (N.B. C.A.).

30 As a result, for statutory condition #14 to apply to the Norris' action, fire must not be a mere incidental peril to the coverage provided.

31 Lloyd's policy is entitled "Residential Insurance Homeowners Prestige Form". While it is not expressly designated as a fire insurance policy, it is the typical home insurance policy with multi-peril coverage.

32 The precedential authorities reveal a lack of agreement as to the meaning of the words "incidental peril" as found in s. 122(1) (c) of the Insurance Act. The principle which has long been accepted is that where a policy covers different perils, the s. 122(1) (c) exception applies only if a peril, other than fire is primary. See Roderick S.W. Winsor and Harry B. Radomski, The Insurance Act of Ontario Annotated, (Toronto and Vancouver: Butterworths, 1987) at 147, Regal Films Corp. (1941) Ltd. v. Glens Falls Insurance Co., [1946] O.R. 341 (Ont. H.C.), and Gregg v. Pearl Assurance Co. , [1978] I.L.R. 1-1010 (Sask. Q.B.) at 1177.

33 Dressew Supply Ltd. v. Laurentian Pacific Insurance Co. (1991), 77 D.L.R. (4th) 317 (B.C. C.A.) takes a different approach. Locke J.A. expressed it as follows at pp. 328-29:

..."coverage provided" means the whole of the descriptive packages in the entire policy. The result is that if it covers a number of hazards: or if it is a "multi-peril" or "all-risk" policy: and if fire is only one of the many defined risks, the fire cover is "...incidental to the coverage provided ...". Exception 213(c) then applies, and the insurance policy is not subject to the fire conditions at all.

34 Upon reflection and with deference for contrary opinions, I have come to the conclusion that the traditional approach remains the correct one. It has been the accepted approach in our province and it has the advantage of greater certainty. More importantly, it does not make Part IV irrelevant. After all, it is common knowledge that the standard home insurance policy is a multi-peril policy. None expressly recognizes one peril as primary. If it is not necessary that a peril other than fire be primary before Part IV becomes inapplicable, then Part IV has in effect become obsolete for the typical contemporary home insurance policy. The door would be wide open to the inclusion in the policy of unregulated conditions. Such a result was not contemplated by the legislature, nor is it a result which should be facilitated by this Court.

35 In this case, no peril other than fire is primary. As a result, Part IV of the Insurance Act applies and statutory condition #14 applies to the recovery of all claims under the policy, no matter that the peril involved is not fire. See Chiasson v. Century Insurance Co. of Canada, supra.

c) The Reach of Statutory Condition #14

36 The wording of statutory condition #14 is far from all-encompassing. It reads as follows:

Every action or proceeding against the insurer for the recovery of any claim under or by virtue of this contract shall be absolutely barred unless commenced within one year next after the loss or damage occurs.

[Emphasis is mine]

37 Since statutory condition #14 works a forfeiture, it should be strictly interpreted and courts should only apply it in plain and unambiguous cases. In fact, this Court has previously indicated that it found statutory condition #14 to be ambiguous. See Callaghan Contracting Ltd. v. Royal Insurance Co. of Canada (1989), 97 N.B.R. (2d) 381 (N.B. C.A.), at p. 393, para. 34, leave to appeal dismissed (1990), 103 N.B.R. (2d) 90 (S.C.C.).

38 In the context of a motion under Rules 23.01(1) (a) or (b), pleadings ought to be interpreted generously to accommodate drafting deficiencies. See Jane Doe v. Metropolitan Toronto (Municipality) Commissioners of Police (1990), 72 D.L.R. (4th) 580 (Ont. Div. Ct.). Applying this sound principle to the Statement of Claim, I conclude that the action by the Norris' is for more than the recovery of a claim under or by virtue of the policy.

(i) The claim for bad faith

39 Paragraph 10 of the Statement of Claim raises, albeit imperfectly, the issue of Lloyd's lack of good faith, as a tort independent of the policy. It reads as follows:

10. On the 18th day of June, 1993, the Defendant denied coverage under the Policy. The Plaintiffs say that [the] Defendant has not acted in good faith with respect to the contract of insurance and that the denial of coverage thereunder is a breach of contract.

40 June 18, 1993 is the date of a letter sent to the Norris' by an adjuster acting on behalf of Lloyd's. The adjuster informed the Norris' that their policy did not provide coverage for contamination. He also told them that their policy did not cover the grounds, as opposed to buildings. If the adjuster was in error in the advice he gave the Norris', a claim for bad faith could have merit, depending on all the evidence adduced. In Plourde c. Collin (1991), 119 N.B.R. (2d) 377 (N.B. C.A.) at p. 383, para. 11, Angers J.A., speaking for the majority, describes the insurer's duty when providing information to its insured:

[TRANSLATION] Furthermore, there is a special relationship between the insurer and the insured. The two have a duty to exercise the [utmost] good faith (uberrima fides) in their dealings both from an information standpoint and in their respect for their mutual rights....

41 Statutory condition #14 does not bar an action in tort against Lloyd's. The period of limitation for an action in tort for bad faith is six years.

(ii) The claim for declaratory relief

42 The action by the Norris' is not only for losses which have already occurred, such as the cost of removal of the tank, of past monitoring, inspections and testing but also for future losses such as the cost of remediation, monitoring, inspections and testing.

43 By claiming reimbursement of expenses not yet incurred, the Norris' action is, to that extent, an action for a declaratory judgment. Statutory condition #14 does not bar an action for losses which have not yet occurred, nor does it bar an action for declaratory relief since such an action is not an action for the "recovery" of a claim. See Johnson v. Wunderlich (1986), 34 D.L.R. (4th) 120 (Ont. C.A.).

Conclusion and Disposition

44 For the reasons outlined above, the motion judge erred in determining that the action was barred by statutory condition #14. I would allow the appeal and set aside the decision below, with costs payable to the Norris' throughout. I would fix the costs at $2,500.00, which will be paid by Lloyd's, together with the disbursements allowed by Tariff "D" of Rule 59 of the Rules of Court.

Appeal allowed.