Mourits Trucking Ltd. Applicant - v. -, 2012 ABQB 206

Court of Queen ’ s Bench of Alberta Citation: Mourits Trucking Ltd. v . Sovereign General Insurance Company , 2012 ABQB 206 Date: 20120328 Docket: 1103 01104 Registry: Edmonton Between: Mourits Trucking Ltd. Applicant - and - The Sovereign General Insurance Company Respondant _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice R.

Paul Belzil _______________________________________________________ The Application [ 1 ] Pursuant to an Originating Application, the Respondent seeks Judicial Review of the award of an umpire and requests an order setting it aside and substituting a different award. Factual Background [ 2 ] On June 6, 2004 a fire occurred on a vacant farm owned by Mourits, which completely destroyed a barn.

[ 3 ] Mourits purchased the land and buildings on it in 2002 for $80,000.00. He insured the barn and requested that his insurance broker CMB obtain insurance for it. Coverage was placed through Sovereign for $545,000.00 on an actual cash value basis (ACV). [ 4 ] Mourits advised CMB and Sovereign that he had no plans to actively pursue hog farming. The entire property was listed for sale in the Spring of 2004 for $109,500.00 and he entered into an agreement to sell it for $105,000.00. [ 5 ] It was determined that the fire was caused by a wiring defect and was not intentional.

Mourits appointed Dean Schmode to pursue the claim under the Sovereign policy for replacement cost. [ 6 ] Sovereign retained the firm of Henderson and Butt as its appraisers which firm prepared a detailed appraisal report which concluded that the barn had an ACV of $80,000.00. [ 7 ] I was appointed case manager and on September 28, 2009 ordered Mourits to reconsider its position that it was entitled to replacement cost coverage. Mourits did so and agreed that it was entitled to ACV coverage only.

Both parties agreed that the ACV valuation issue would be submitted to an umpire appointed pursuant to s. 514 of the Insurance Act , RSA 2000 c -3 (as am) and that the umpire would either accept the valuation of the Applicant or the Respondent. [ 8 ] Joseph J. Kueber, Q.C. was appointed the umpire. [ 9 ] Schmode, on behalf of Mourits, submitted that the barn should be assessed an ACV of $325,000.00 whereas Henderson and Butt assessed the ACV in the amount of $80,000.00, both figures being exclusive of GST and debris removal. [ 10 ] In a letter dated December 22, 2010 Kueber accepted the award of $325,000.00.

After reviewing the evidence and applicable legal principles, he reached the following conclusions on page 3 of his award: In applying these

definitions and factors, in considering all of the information and materials presented and upon which each appraiser has determined the Actual Cash Value of the loss, and recognizing the fact that Actual Cash Value is not necessarily the replacement value, market value, nor purchase price, but rather that these are just considerations, along with the condition of the property, and its standards of maintenance, I am left with choosing between the two suggested values, neither of which I could readily and easily accept as being accurate.

As mentioned earlier, I have to accept one of these two values as being the most fair and reasonable in the circumstances, bearing in mind all of these factors and that judicial decisions have said that it boils down to “ the Actual Cash Value of the particular property to the particular insured on the basis of a purely intrinsic valuation ” . I have defined, compared and assessed the components of each Appraiser ’ s valuation bearing in mind the

definitions provided by Mr. Butt, the insurance policy, and the case law. In doing so, I have concluded which of the two valuations provides the most acceptable estimate of the Actual Cash Value of the loss of the hog barn as of June 6, 2004.

Given all that I have reviewed, assessed, considered and summarized above, including the square footage of the hog barn, its condition as revealed in the photographs provided, the estimates of replacement cost given by each of you, the analysis regarding suitable depreciation to be deducted, and the terms of the contract of insurance itself, I have concluded that I must accept that the Actual Cash Value of the loss of the hog barn is $325,000.00, plus the agreed cost of debris removal of $16,780.50. These amounts are exclusive of GST. Determining the Standard of Review

[11] The relevant portions of

section 514 of the Insurance Act are as follows: 514(1) This

section applies to a contract, other than a contract of hail insurance, containing a condition, statutory or otherwise, providingfor an appraisal to determine specified matters in the event of a disagreement between the insured and the insurer.

(2) The insured and the insurer must each appoint an appraiser, and the 2 appraisers so appointed must appoint an umpire.

(3) The appraisers must determine the matters in disagreement and, if they fail to agree, they must submit their differences to theumpire, and the finding in writing of any 2 determines the matters. [12] In O’Brien v. Non-Marine Underwriters, Lloyd’s, London (AB KB), [1991] A.J. No. 1145, WachowichJ. (as he then was) described the standard of review from a decision of an umpire under what is now s. 514 of the Insurance Act at para.7: The Saskatchewan Court of Appeal cases indicate that the state of the law in Saskatchewan is reasonably settled in reference toappraiser’s authority.

The decision resulting from the appraiser process is prima facie binding unless there is proof to indicate theappraisers or umpire exceeded their jurisdiction. An appraiser or umpire may exceed their jurisdiction through fraud, collusion, bias,partiality or defects in the appraisal process itself. What is not clear from the Saskatchewan cases is whether an unreasonable valuationrobs the appraiser or umpire of jurisdiction. [13] In Peace Hills General Insurance Co. v.

Doolaege 2005 ABQB 217, the court accepted that establishing a standard ofreview from a decision made pursuant to s. 514 of the Insurance Act had to reflect changes in the law respecting how one establishes astandard of review. [14] In Dunsmuir v.

New Brunswick [2008] SCC 9, the Supreme Court of Canada significantly revamped the law in this area andconcluded that there should be two standards of review from administrative decisions; the deferential standard of review ofreasonableness and the standard of review of correctness which is not deferential. [15] At para. 47 reasonableness was defined as follows: 47 Reasonableness is a deferential standard animated by the principle that underlies the development of the two previous standardsof reasonableness: certain questions that come before administrative tribunals do not lend themselves to one specific, particular result.Instead, they may give rise to a number of possible, reasonable conclusions.

Tribunals have a margin of appreciation within the range ofacceptable and rational solutions. A court conducting a review for reasonableness inquires into the qualities that make a decisionreasonable, referring both to the process of articulating the reasons and to outcomes. In judicial review, reasonableness is concernedmostly with the existence of justification, transparency and intelligibility within the decision-making process.

But it is also concernedwith whether the decision falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and law. [16] In Dunsmuir at paras. 63 and 64 the court adopted the preferred terminology of a standard of review analysis which wasdefined as follows: 63 The existing approach to determining the appropriate standard of review has commonly been referred to as “pragmatic andfunctional”. That name is unimportant. Reviewing courts must not get fixated on the label at the expense of a proper understanding ofwhat the inquiry actually entails.

Because the phrase “pragmatic and functional approach” may have misguided courts in the past, weprefer to refer simply to the “standard of review analysis” in the future. 64 The analysis must be contextual. As mentioned above, it is dependent on the application of a number of relevant factors,including: (1) the presence or absence of a privative clause; (2) the purpose of the tribunal as determined by

interpretation of enablinglegislation; (3) the nature of the question at issue, and; (4) the expertise of the tribunal. In many cases, it will not be necessary to

consider all of the factors, as some of them may be determinative in the application of the reasonableness standard in a specific case. [ 17 ] At para. 53 the following passage appears: 53 Where the question is one of fact, discretion or policy, deference will usually apply automatically ( Mossop , at pp. 599-600; Dr. Q , at para. 29; Suresh , at paras. 29-30).

We believe that the same standard must apply to the review of questions where the legal and factual issues are intertwined with and cannot be readily separated. [ 18 ] Both parties agree that Kueber was acting within his jurisdiction as they both agreed that the procedure under s. 514 would be utilized. [ 19 ] In undertaking a standard of review analysis in this case, it is apparent that there is no applicable privative clause. The enabling legislation is clearly intended to determine insurance disputes in an expedited fashion. The question at issue is best described as one of mixed fact and law.

Kueber made some fact findings and his decision involves some discretionary elements which were then applied to legal authorities respecting how ACV is determined. It is not suggested that he would have any more expertise than a court in interpreting case authorities. [ 20 ] In my view, a standard of review analysis results in the conclusion that the deferential standard of review of reasonableness applies.

Application of the Standard of Review of Reasonableness [ 21 ] Sovereign ’ s position is that the award of $325,000 is unreasonable and focusses on the fact that Mourits chose to list the entire property for sale, including the land, for $109,500 and agreed to sell it for $105,000. Sovereign argues that he had no expectation that the barn was worth anything close to $325,000. [ 22 ] Mourits argues that its appraiser presented a rational argument that a valuation of $325,000 was defensible.

While acknowledging that the sale price of the property was somewhat incongruous compared to this suggested valuation, Mourits asserts that market value is only one factor to be considered and that Kueber had proper regard for a number of issues which he used in reaching what Mourits asserts is an intelligible decision which is reasonable as that term has been defined in the case law. [ 23 ] It is common ground between the parties that the policy of insurance contains a

section entitled Basis of Settlement which contains the phrase “ actual cash value with a proper deduction for depreciation ” . The term ACV is not defined in the policy and indeed it would be virtually impossible to do so as the term has many potential meanings. [ 24 ] In Brown, Insurance Law in Canada (Looseleaf Edition), the following passage appears at s. 11-3(c): (

c) Actual Cash Value Unless the contract specifies otherwise, the measure of loss in property cases is usually referred to as “ actual cash value. ” Actual cash value means the cost of reinstatement less depreciation unless circumstances indicate another, more appropriate measure. But this still leaves considerable room for dispute in individual cases. For example, “ reinstatement ” may refer either to the cost of repair or the cost of complete replacement so criteria for determining which it should be is necessary.

Further, within the concept of replacement a distinction must be drawn between the cost of purchasing a substitute and the cost of making a substitute. It is also necessary to identify those situations where reinstatement in any form is inappropriate. The following categories are suggested as useful (if imperfect) guidelines for the solution of valuation problems:

1. the cost of repairs, 2. the cost of buying a substitute 3. the cost of making a substitute, 4. the diminution in value resulting from the damage, 5. loss of commercial value. These are not mutually exclusive categories. Nor are they legal rules. They merely represent an attempt to make sense of a variety of (frequently conflicting) approaches used in valuation. Together they provide a methodical approach for use in particular cases. [ 25 ] No single factor is determinative in defining ACV, including market value. In Ollerhead v.

Ecclesiastical Insurance Office PLC 2005 NLTD 145 , at para. 27 the court observed that the meaning of “ actual cash value ” is determined in the context of the facts of the case, the insurance contract and case authorities. [ 26 ] As was argued before Kueber and observed by him in his award, a number of factors were presented which impacted the ACV valuation including: age of the barn, the type of construction used, its description, projections for its economic life, replacement cost and deduction of depreciation from replacement cost. [ 27 ] He noted that none of the comparables presented to him on behalf of the Respondent were entirely satisfactory and he also observed that there was disagreement as to the age of the barn. [ 28 ] Kueber commented that neither appraisal on the evidence was completely suitable and observed that he was tasked with determining which valuation was the most fair and reasonable in the circumstances.

In other words, his mandate was extremely limited. [ 29 ] Sovereign ’ s argument rests heavily on its assertion that Kueber ’ s award was unreasonable because Mourits voluntarily agreed to sell the entire property for $105,000. [ 30 ] I do not agree. Market value is only one factor to be considered. The issue is whether, having regard to the totality of the evidence and his limited mandate, the award was unreasonable. [ 31 ] The appraisers on behalf of the parties presented differing calculations of how ACV could be calculated.

There is no evidence that either appraiser referred to extraneous factors. [ 32 ] In Dunsmuir , the Supreme Court of Canada accepted that what is reasonable encompasses a number of possible solutions. [ 33 ] Moreover, it is problematic to allege that a decision is unreasonable in a situation wherein the umpire ’ s jurisdiction was limited by agreement of the parties to choosing one of two options contrasted to a situation wherein a tribunal has a much broader latitude in reaching a decision. [ 34 ] Kueber ’ s decision is based on the evidence, is transparent and intelligible.

It falls within a range of reasonable decisions which could be reached on the evidence and the applicable law. Conclusion

[ 35 ] The application to set aside the appraisal award is dismissed. Mourits is entitled to recover costs from Sovereign. Heard on the 19 th day of March, 2012. Dated at the City of Edmonton, Alberta this 28 th day of March, 2012. R. Paul Belzil J.C.Q.B.A. Appearances: Joseph Rosselli Fraser Milner Casgrain LLP for Sovereign General Insurance Company Richard J. Mallet James H. Brown & Associates for Mourits Trucking Ltd.