“Fully Covered” – Contracts, Negligent Misrepresentation and Insurance Coverage
The Ontario Court of Appeal recently released its decision in Jakab v. Clean Harbors Canada Inc., 2023 ONCA 377. The decision revisits the basics of contractual interpretation and the elements of negligent misrepresentation.
Context
The appellants, Mr. Jakab and Ontario Heavy Express Ltd. (a corporation wholly owned by Mr. Jakab) owned a transport truck. The appellants exclusively operated the truck for the respondent, Clean Harbors Canada Inc. (hereinafter, “Clean Harbor”). The parties had entered into a “National Transportation Lease Agreement” in which the appellants agreed to provide freight haulage and furnish trucking equipment to Clean Harbour.
The appellants did not purchase any insurance for the truck, and Clean Harbor did not insure the truck for first party damage caused by fire, but did insure the truck for third party liability. However, despite the lack of first party coverage, an employee of Clean Harbor had allegedly advised the appellants that the truck was “fully covered”.
Approximately a year and a half after entering into the contract, the truck caught fire while it was being returned from service. After Clean Harbor failed to pay to replace the truck, the appellants commenced an action for breach of contract and negligent misrepresentation.
Breach of Contract
The National Transportation Lease Agreement contained a clause requiring Clean Harbor to “make available” all insurance to the appellants for the purpose of insuring the truck and the appellants under the policies of insurance obtained and maintained by Clean Harbor.
The appellants argued that this meant that Clean Harbor was to fully insure the truck for first and third party claims. Clean Harbor argued that the contract only required them to make the insurance that they already carried and maintained available to the appellant. The contract also contained the following provision about the insurance coverage made available to the appellants:
The insurance coverage made available by Clean Harbors to the [the appellants] shall be subject to (a) a limit of coverage not exceeding $5,000,000, and (b) the terms and conditions of the policies of insurance from time to time obtained by Clean Harbors, including without limitation, all exclusions of liability contained in such policies. Clean Harbors makes no representation or warranty with respect to the extent or adequacy of the insurance coverage made available by it and assumes no responsibility for the adequacy of such insurance. [The appellants] shall be solely responsible to satisfy himself as to the adequacy of the coverage afforded by such insurance.
At trial, the appellants were unsuccessful in establishing their claim for breach of contract. The trial judge determined that the contractual obligation of Clean Harbor was to make available only the coverage found in the policies of insurance that Clean Harbor obtained and maintained. Given that the contract also required the appellants to satisfy themselves of the sufficiency of the coverage, there was no commitment by Clean Harbor to provide first party property damage coverage for the fire.
This decision was upheld on appeal. Contractual interpretation requires the court to discover the “objective intentions of the parties as expressed in the words of the contract”[1]. It requires the entire contract to be read and interpreted as a whole and in a manner that gives meaning to all of its terms[2].
In this case, Justice Paciocco, writing for the Court, found that the phrase “make available” is descriptive of an obligation to provide access to something already held, and that if the clause created a positive duty for Clean Harbor to provide complete insurance, the provision requiring the appellant to satisfy itself of the adequacy of the insurance coverage would be rendered meaningless.
Negligent Misrepresentation
The claim for negligent misrepresentation arose from an alleged conversation between the appellants and staff members of Clean Harbor. When requesting information on the insurance provided, he was allegedly told by staff that the truck was “fully covered”.
The appellants were unable to say with confidence exactly who made the representation, but believed it was one of two managers that worked for Clean Harbor. The trial judge determined that there was not sufficient evidence to determine that a misrepresentation was made, and found that no duty of care was owed by the respondent to the appellant in the circumstances.
The court of appeal overturned this decision, and ordered that the issue be re-tried. There are five elements which must be proven for a claim in negligent misrepresentation. They are:
- A “special relationship” between the person making the statement and the person hearing it;
- It is reasonable for the person hearing the statement to rely on it;
- The statement is untrue;
- The person was careless in making the statement; and
- The person who reasonable relied on the statement suffered damages[3]
The Court of Appeal found that trial judge incorrectly applied the legal principles regarding three criteria of the test. The Court of Appeal noted that it was not relevant that the appellant did not remember who precisely made the representation to him, so long as it was established that the person who made the representation was authorized to speak on behalf of Clean Harbor.
In this case, both the employees alleged to have made the representation were managers and therefore were authorized to speak on behalf of Clean Harbor. The Court of Appeal found that, by contractually requiring the appellant to satisfy themselves that the insurance carried by the respondent was sufficient, Clean Harbor made the appellants dependent on the information that Clean Harbor provided regarding the available insurance coverage.
The Court also found that a contractual provision stating that no representations were being made by Clean Harbor regarding the insurance available only applied to those representations made before and at the time the contract was signed, and was therefore not applicable to representations made after the lease was entered into.
Regarding the third part of the test, the Court of Appeal found that the trial judge had overstated the onus on the appellants by requiring them to establish that the statement could not be considered true. A plaintiff need only show that it is more probable than not that the statement is inaccurate or misleading, not that the statement could not be considered true.
Regarding the fourth part of the test, the trial judge was also found to have applied too stringent a test. The trial judge stated that the appellants did not meet their burden of establishing that the statement was intended to convey that the insurance coverage included first party property damage claims. The Court of Appeal held that this was an error, as the test is not what was intended by the comment “fully covered”, but whether the comment that they were “fully covered” was negligent in causing the appellants to believe that they were fully covered.
Takeaways
This case serves as a good refresher on contractual terms and how terms of a contract should not be interpreted in a manner that renders other terms within the contract meaningless. In this case, the use of terms placing the duty on the appellants to satisfy themselves of the coverage provided was instrumental in establishing that the contract did not require the respondent to provide more coverage than what they had already owned and managed at the time of the signing of the contract.
This case is also an important reminder for the test of negligent misrepresentation. First, a special relationship can be created by contract where a party is placed in a position of dependency. Second, the specifics of precisely who made a negligent misrepresentation may not need to be proved, if on the balance of probabilities, the person was in a position to make the representation. Third, whether the statement could be considered true is not part of the test; the representation simply needs to inaccurate or misleading. Fourth, the intent of the comment is not part of the test for determining if a representation is negligent.
Regardless of what a message is intended to communicate, it may be a negligent misrepresentation if the person making the representation causes the recipient to believe that the statement was true.
Parties making representations to others regarding the extent of their insurance coverage should be cautious, and where details are not certain, should consider providing the details of the coverage, instead of making ambiguous assertions about the extent of the coverage.
Additionally, groups that regularly deal in making representations should keep detailed notes on the specifics of conversations and precisely what representations are made in order to defend against negligent misrepresentation claims. Special caution should be taken with unsophisticated parties who may not understand the nature of the insurance coverage being provided.
[1] Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53.
[2] 2249778 Ontario Inc. v. Smith (Fratburger), 2014 ONCA 788.
[3] Mahendran v. 9660143 Canada Inc., 2022 ONCA 676