This week, our weekly firm meeting was held on Thursday afternoon! Michael Kryworuk discussed the recent decision of the Court of Appeal in 1152729 BC Ltd v. Chicago Title Insurance Company Canada, 2022 ONCA 321.
History of the Litigation:
This appeal arises from a coverage dispute between the appellant insurer Chicago Title Insurance Company Canada (“Chicago”) and the respondent insured, 1152729 BC Ltd (“115”) regarding a property title insurance policy issued by the insurer to the insured.
In February 2018, the respondent insured, 115, purchased a property in Bradford, Ontario under a power of sale from 9706151 Canada Ltd. (“970”).
The former owner of the property, Mr. Sapusak, defaulted on his mortgage to company 970 and then sued company 970 as the vendor and company 115 as the new owner of the property seeking a declaration that the sale to the insured was invalid. Part of Mr. Sapusak’s claim was that the property was sold for less than fair market value, and he was not served with the notice of sale among other defects.
Before they acquired the property, the insured had purchased title insurance from its insurer, Chicago. In response to the underlying action by Mr. Sapusak, the insurer acknowledged its duty to defend and retained counsel to assume the defence subject to a reservation of rights letter. A statement of defence, counterclaim and cross-claim was delivered on behalf of the insured.
During the litigation, the insured, 115, defaulted on the vendor take-back mortgage it had entered into to purchase the property in dispute, and as a result, the property was then resold by an assignee of company 970 under a power of sale in June 2019.
In July 2019, the insurer informed the insured that because the insured no longer owned the property, the insurer no longer owed the insured a duty to defend the claim. Soon after, the counsel retained by the insurer was instructed to remove itself from the record.
The insured brought an application for an order that the insurer’s duty to defend continued even though it no longer owned the property, because the underlying claim by the former owner included a claim against the insured for damages, and once the insurer undertook the defence, the policy did not allow it to resile from the defence of the claim.
Decision of the Application Judge:
During the hearing, the Application Judge held that the insurer had made a concession that if the Application Judge found there was a damages claim against the insured, 115, in the underlying statement of claim by Mr. Sapusak, then the insurer’s duty to defend would continue. This concession was allegedly made based on some American jurisprudence on the same subject.
Following that concession, the Application Judge ultimately determined that by giving the statement of claim a “generous” reading, it did contain a claim for damages against the insured. As a result, the court held that the duty to defend continued.
However, the Application Judge also conducted an alternative analysis, in the event she was wrong regarding her finding there was a claim for damages in the underlying statement of claim. She found that if there was no claim for damages in the statement of claim, there would be no duty to defend once the insured no longer had title to the property because the policy only covered claims for defects in title. Without title, there was no longer any defect to defend.
The insurer, Chicago, appealed only on the basis that the Application Judge was wrong in her interpretation of the statement of claim and that it included a claim for damages against the insured.
On appeal, the insurer raised five errors in law made by the Application Judge.
- The Application Judge inappropriately considered the allegations made in the insured’s statement of defence;
- The Application Judge applied the wrong principles of interpretation and in particular, applied a fanciful rather than a reasonable reading of the pleading;
- The Application Judge failed to assess whether the statement of claim sought damages based on unjust enrichment against the insured;
- The Application Judge erred in the interpretation of available remedies for unjust enrichment;
- The Application Judge erred in considering extrinsic evidence in the interpretation of the effect of the statement claim.
In addition to those five enumerated grounds, counsel for the insurer raised two new arguments in oral submissions before the Ontario Court of Appeal.
First, the Application Judge misunderstood its concession, which was that the insurer would continue to have a duty to defend a claim for damages if the U.S. cases applied. The insurer argued that since the policy language in the present case was different, the US cases did not apply and so the concession did not apply.
The second was that even if there was a damages claim, the duty to defend would not be triggered because of the effect of policy exclusions contained in a reservation of rights letter sent to the insured when the insurer originally agreed to defend the claim.
The Court of Appeal began its decision by restating the principles that govern an insurer’s duty to defend. They cited the recent 2021 ONCA decision in Panasonic Eco Solutions Canada Inc. v. XL Specialty Insurance Company, 2021 ONCA 612 which drew upon older SCC cases such as Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49.
These principles include:
- That the pleading by the claimants against the insured is what triggers a duty to defend.
- The facts alleged in the pleading, if true, are what would require the insurer to defend.
- Pleadings should be interpreted broadly with doubts or ambiguities resolved in favour of the insured.
The Court of Appeal addressed each of the raised grounds of appeal.
Turning to the first of the alleged errors, the insurer argued that the Application Judge erred by considering the insured’s statement of defence instead of just the underlying statement of claim. The Court of Appeal panel noted that if the findings of the Application Judge turned on the Statement of Defence alone, then there would have been an error.
However, the panel found that the Application Judge clearly made their determinations on the meaning and effect of the statement of claim, and then found confirmation in the statement of defence. Therefore, there was no error.
The second alleged error was that the Application Judge failed to give the statement of claim a reasonable reading. Instead, the insurer argued that the “generous” reading taken by the Application Judge was fanciful and in error.
However, the panel took the view that the “generous reading” taken by the Application Judge was in line with the previous jurisprudence in giving the allegations contained in the statement of claim their “widest latitude” in a manner that was still reasonable as opposed to fanciful.
Third, the Court of Appeal panel agreed with the Application Judge’s finding that while the statement of claim did not explicitly seek monetary damages for unjust enrichment, it did specifically plead that the insured was unjustly enriched by getting the proceeds of the sale of the property.
If the underlying claim was successful, Mr. Sapusak would be entitled to a monetary or proprietary remedy for the difference between the sale price and the fair market value of the property which amounted to a “damages” award which would continue to trigger the duty to defend. 
The fourth error alleged was that because the property was Mr. Sapusak’s home, a proprietary remedy of a constructive trust was more appropriate than a monetary remedy, and that the Application Judge erred in finding that a monetary award was the only available relief in the circumstances.
The Court reviewed the jurisprudence and noted that a monetary remedy is the primary remedy for claims of unjust enrichment. As such the panel found that the Application Judge made no error as damages are not only an available remedy, but the default remedy for claims for unjust enrichment.
The fifth and final alleged error was that the Application Judge erred by considering extrinsic evidence in interpreting the statement of claim by considering the fact that the insured no longer owned the property.
According to the insurer, Chicago, the second sale which resulted in the insured losing title to the property came about after the statement of claim in the underlying action was delivered, and as such the relief sought in the underlying action should have been limited to proprietary remedies.
The Court of Appeal found that the Application Judge’s consideration of this fact constituted an error, but it was a harmless error as the subsequent second sale of the property was not a necessary part of the Application Judge’s consideration of claims for unjust enrichment from the first sale that was the subject of the underlying claim.
Following the disposition of the five enumerated grounds of appeal, the Court of Appeal briefly addressed the two novel issues raised by the insurer in oral arguments at the Court of Appeal.
Ultimately, the Court declined to consider the alleged misinterpretation of the insurer’s concession or the effect of the exclusions in the reservation of rights letter on the basis that these matters were not raised in the notice of the appeal nor the factum and were not the basis of the argument of the appeal.
The Court noted that the policy exclusions in the reservation of rights letter could still be relied upon by the insurer if indemnity under the policy became an issue later on in the litigation.
In this panel decision, the Court of Appeal dismissed the appeal finding that there was no error in the Application Judge’s analysis or conclusion that the statement of claim could be reasonably read to include a claim for damages against the insured.
Therefore, based on the concession made by the insurer to the Application Judge, the duty to defend continued in this case, even though the insured no longer owned the property.
This decision continues to stand for the proposition that the duty to defend by insurers will be triggered if the pleadings filed against the insured allege facts which, if true, would require the insurer to indemnify the insured.
Furthermore, courts must look beyond the text and labels used by the plaintiffs in their claim to ascertain the “true nature of the claim”.
Also, coverage clauses should be construed broadly, and exclusion clauses should be read narrowly.
This decision also stands as a note of caution for insurers to carefully consider policy and exclusion language before acknowledging their duty to defend or making concessions about their duty to defend
 1152729 BC Ltd v. Chicago Title Insurance Company Canada, 2022 ONCA 321, at para 8.
Ibid, at para 5.
 Ibid, at para 24.
 Ibid, at para 25
 Ibid, at para 28.
 Ibid, at paras 30-32.
 Ibid at para 37.
 Ibid at paras 38-39
 Ibid at para 41.