Genworth Financial Mortgage Insurance Company Canada v Casuga, 2016 ABQB 155

Court of Queen ’ s Bench of Alberta Citation: Genworth Financial Mortgage Insurance Company Canada v Casuga, 2016 ABQB 155 Date: 20160315 Docket: 1501 00016 Registry: Calgary Between: Genworth Financial Mortgage Insurance Company Canada and Bank of Montreal Plaintiffs - and - John H.G. Casuga Defendant _______________________________________________________ Memorandum of Decision of J. Farrington , Master in Chambers _______________________________________________________ The Applications [ 1 ] There are two applications before me. The defendant John Casuga (“Mr.

Casuga”) brings an application to either strike the plaintiff’s claim pursuant to Rule 3.68, or alternatively to have it dismissed summarily pursuant to Rule 7.3. The plaintiff Genworth Financial Mortgage Insurance Company Canada (“Genworth”) responds to that application and makes a cross application to amend its Statement of Claim. The amendments primarily seek to remove all references in the Statement of Claim pertaining to the Bank of Montreal (“BMO”). The Facts [ 2 ] Genworth is a mortgage default insurer. Mr.

Casuga acted as a lawyer on a number of high ratio mortgage transactions in 2006 and 2007 in which BMO was the lender and Genworth was the insurer. This action relates to one of those transactions involving a

mortgage on a property in Calgary in the amount of $341,184.19 in which Denny Dao (“Dao”) was the borrower. [3] This was one of many mortgages in which BMO alleged that numerous lawyers acting on its behalf did not take sufficientsteps to protect BMO’s interests as mortgagee. In particular, BMO alleged that there were certain red flags pertaining to the transactionsthat should have been brought to its attention. It further alleged that had those factors been brought to its attention, it would not havemade the various loans. [4] BMO sued many borrowers and many lawyers, including Mr. Casuga.

Its Statement of Claim went through variousamendments, and the Dao mortgage, which is the subject of this action, was specifically included in its claims against the variouslawyers and borrowers. [5] BMO entered into a settlement agreement with Mr. Casuga that was signed in October 2013, although the evidence is thatthe matter against Mr. Casuga was actually settled prior to May 2013. The settlement included a covenant not to sue by BMO. Thefinancial details were redacted. [6] In its foreclosure action on the Dao mortgage BMO obtained an Order for Sale to the Plaintiff on July 30, 2013 beforeMaster Hanebury.

She granted a deficiency judgment against Dao in the amount of $201,510.83 (being the loss) and BMO assigned thejudgment and corresponding writ of enforcement to Genworth on or about October 1, 2013. [7] Genworth filed its initial Statement of Claim against Mr. Casuga on January 2, 2015. The Statement of Claim included BMOas a plaintiff. Genworth now seeks to amend the Statement of Claim to remove any allegations suggesting that the source of its claim asagainst Mr. Casuga is BMO, or any suggestion that it is a subrogated claim derived from BMO.

It asserts that it is entitled to anindependent action based upon an independent duty of care owed by Mr. Casuga to Genworth for issues pertaining to losses on the Daomortgage. [8] Mr. Casuga’s application is for dismissal primarily on the basis that it says that the BMO settlement prevents any furtherclaim by Genworth against him. [9] Genworth filed no evidence on this application. Mr. Casuga filed an affidavit giving some general background anddescribing the BMO settlement details with the exception of the financial particulars. The Amendment Application [10] I will deal with the amendment application first.

It would typically be heard before the dismissal application, although thiscase is somewhat unique in that no new allegations are made in the proposed Amended Statement of Claim. The proposed AmendedStatement of Claim simply removes some allegations which were previously made. [11] Amendments are normally granted unless granting them would be prejudicial in a way that is not compensable in costs. Thereis no reason to deny the requested amendment in this case because there is no prejudice. Nothing new is added.

Even though there is noaffidavit evidence in support of the amendment application, I allow the application to file the Amended Statement of Claim so that I candeal with the real issues in dispute as Genworth wishes to frames them, and I will deal with the balance of this application on the basis ofthe Amended Statement of Claim. Subrogation or Independent Duty? [12] I begin with the law pertaining to insurers and subrogation. In Bow Helicopters Ltd. v. Bell Helicopter Textron, 1981 ABCA146 Haddad, JA held at paragraph 23: In my view the simple principle upon which the trial judge proceeded is this.

To subrogate is to substitute. An insurer to recover a lossby way of subrogation must be able to place itself in the position of the insured. It follows, then, that the insurer is only entitled to makesuch claims, in the name of the insured, as could have been made by that insured. In this case Bow had no claim against Bell because ofits agreement to insure Bell and to obtain a waiver of subrogation in its favour. This leaves the insurer without a remedy. It cannotsucceed where its insured cannot succeed. [13] In B.H. Shopping Centre Ltd. v.

Marrazzo, Perras, J held at paragraphs 10 to 14: The general principle of subrogation in insurance law has been well settled. In short the insurer, who has paid a loss, has a right to stepinto the shoes of the insured to recover or reduce the loss that the insurer has covered and paid for. In other words, the insurer, after paying a claim to the insured, can seek reimbursement from the person who caused damage to theinsured, and if the insurer does so his rights are exactly those of the insured, and no more.

It is noted the insurer does not bring action in his own name but must use the insured's name as the insurer's rights to pursue recoveryflow from his contract with the insured. In this case the insured has settled and discontinued the action; hence the insured no longer has a cause of action against the contractordefendants. The argument is that the insurer's right to pursue a subrogated claim against the contractor was preserved when the adjusters gave writtennotice to the contractors that the insurer would look to them for reimbursement.

[14] Further, Perras, J held at paragraph 16: The contractual duty to protect the insurer's right to subrogation falls on the insured, not the third party. Notice to the third party alonewill not, in my view, preserve the insurer's right to a subrogated claim failing the establishing of a lack of bona fides surrounding thesettlement of the action and its discontinuance. [15] If the claim in this action is a subrogated claim, it was clearly settled. BMO and Mr. Casuga entered into a settlementagreement and no further recourse would lie for BMO (or Genworth) as against Mr.

Casuga. [16] Genworth argues, however, that it was owed an independent duty of care by Mr. Casuga and that it is not bound by BMO’ssettlement. Such a claim would be novel in that it would allow the mortgage insurer to second guess after the fact many of theforeclosure transactions which are heard by the Courts on a regular basis, but that in itself is not a reason to dismiss Genworth’s action.There are other reasons. [17] One of the grounds upon which Mr. Casuga bases his

summary dismissal application is a limitations defence. Mr. Casugasays that the transactions were done in approximately 2007 and that the BMO action against the lawyers was fully crystallized byapproximately 2010, and as such the facts pertaining to the allegations as against Mr. Casuga were well-known to all by then. Genworthfiled no evidence as to what it knew about the BMO action or about the settlement with Mr.

Casuga. [18] Genworth argues that it could not have brought this action until it was assigned the BMO deficiency judgement against Daoon or about October 1, 2013, and it asserts that its limitation period began to run at that time. The initial Statement of Claim in this actionwas filed on January 2, 2015, which was within the two-year time frame from the assignment, and as such Genworth argues that itsaction was brought in time. [19] Genworth argues that it needed the assignment of the deficiency judgment before it was in a position to file its Statement ofClaim.

That would delay the start of its limitation period. That argument is intellectually inconsistent, however, with its argument that ithad an independent cause of action as against Mr. Casuga. If it truly had an independent cause of action it could have filed its Statementof Claim much earlier. An independent claim would have nothing to do with BMO and the assignment of the deficiency judgement. [20] A related argument is the fact that Genworth suffered no damages, and as such it was in no position to claim for anything untilit had paid out BMO’s claim.

While that argument nicely delays commencement of the limitation period, it contradicts any suggestionthat Genworth had an independent cause of action as against Mr. Casuga. Genworth’s loss was contingent upon it indemnifying BMOfor its loss which brings the matter fully back to the concept that its claim is derived from BMO. Upon suffering that loss, Genworth isthen subrogated to the rights of BMO and no more. That is clear from the cases.

Summary Judgment [21] Hryniak v. Mauldin, 2014 SCC 7 , [2014] 1 SCR 87 initiated a culture shift in the treatment of

summary judgmentapplications in Canada. In Hryniak Karakatsanis, J held at paragraphs 49 and 50: There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion forsummary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows thejudge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result. These principles are interconnected and all speak to whether

summary judgment will provide a fair and just adjudication. When asummary judgment motion allows the judge to find the necessary facts and resolve the dispute, proceeding to trial would generally not beproportionate, timely or cost effective. Similarly, a process that does not give a judge confidence in her conclusions can never be theproportionate way to resolve a dispute.

It bears reiterating that the standard for fairness is not whether the procedure is as exhaustive as atrial, but whether it gives the judge confidence that she can find the necessary facts and apply the relevant legal principles so as toresolve the dispute. [22] In Windsor v Canadian Pacific Railway Ltd., 2014 ABCA 108, the Alberta Court of Appeal reminded that when faced with asummary judgment application, a party is required to put its best foot forward.

At paragraph 21 the Court held: The appellant’s evidence that it was not foreseeable that the migration of TCE would cause harm to neighboring lands is uncontradictedon this record. A party faced with an application for

summary judgment must put its best foot forward, and present evidence to showsufficient “merit” to establish a genuine issue requiring a trial with respect to the outstanding issues: Lameman at para. 19. Speculatingthat evidence might be available at a trial is not sufficient to create a genuine issue requiring a trial. [23] Hryniak requires that I feel sufficiently comfortable with the record before me to arrive at a decision that is fair and just in allof the circumstances. [24] Part of the factual story appears to be missing in this case.

For example, the affidavit of records of Genworth contains norecords which appear to show communication between Genworth and BMO regarding the action against the various straw buyers andlawyers. That is surprising given the allegations of fraud, and the potential losses involved, but there is no documentation to that effect inthe affidavit of records and I must treat this action as such for the purposes of the

summary judgement application. [25] There also does not appear to be any documentation in the Genworth affidavit of records pertaining to the BMO settlementdiscussions with Mr. Casuga, and again that is odd given that it was the mortgage insurer, but I will once again assume for the purpose ofthis application that there were no such discussions.

[ 26 ] In addition, when trying to determine whether the claim is a subrogated claim, or an independent claim, one would think that the policy of insurance would be helpful, but that is not in evidence either. [ 27 ] Similarly, there is no evidence from Genworth as to when it became aware of the allegations relating to the various lawyers generally and Mr. Casuga in particular. [ 28 ] As noted in Windsor and other cases, Genworth is required to put its best foot forward. Genworth has filed no affidavit material, nor has it questioned on Mr.

Casuga’s affidavit of August 17, 2015. [ 29 ] The strategic and tactical choices made by the parties are very much respected, and I must proceed on the basis that Genworth has put its best foot forward. [ 30 ] I also note that section 546(1) of the Insurance Act , RSA 2000 provides: 546(1) Subject to section 570(6), an insurer that makes any payment or assumes liability for making any payment under a contract is subrogated to all rights of recovery of the insured against any person and may bring an action in the name of the insured to enforce those rights. [ 31 ] The balance of the

section deals with the rights of the insurer and the insured in relation to each other. Section 546(1) well illustrates the ordinary course. The insurer pays because it is obliged to pay under its contract of insurance, and it is then subrogated to the rights of the insured. Conclusions [ 32 ] For the foregoing reasons, and based upon the evidence before me, I find that the claim of Genworth is a subrogated claim derived from the loss on the BMO mortgage for which it indemnified BMO, and as a result I dismiss the claim of Genworth on the basis that BMO settled the claim against Mr. Casuga.

Summary dismissal of the action is granted pursuant to Rule 7.3. Alternative relief was sought pursuant to Rule 3.68. In light of my conclusion on the

summary dismissal application I need not consider that portion of the application. [ 33 ] If the parties cannot agree on costs I am prepared to hear a further application to deal with them. If the parties wish to do so they can contact the Masters’ office to select a time to have such an application heard at the end of one of my morning lists. Heard on the 1 st day of March, 2016. Dated at the City of Calgary, Alberta this 15 th day of March, 2016. J. Farrington M.C.C.Q.B.A. Appearances: Walsh LLP Katharine Zhang for the Plaintiffs Genworth Financial Mortgage Insurance Company Canada and Bank of Montreal

Peacock Linder Halt & Mack LLP Richard Van Dorp for the Defendant John H.G. Casuga