1037466 Alberta Ltd. operating under the style of Shadified Salon v. Spa, 2017 ABQB 172

Court of Queen’s Bench of Alberta Citation: 1037466 Alberta Ltd (Shadified Salon and Spa) v Intact Insurance Company, 2017 ABQB 172 Date: 20170313 Docket: 1203 15220 Registry: Edmonton Between: 1037466 Alberta Ltd. operating under the style of Shadified Salon and Spa Plaintiff - and - Intact Insurance Company Defendant _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice B.R.

Burrows _______________________________________________________ [ 1 ] 1037466 Alberta Ltd. (“Shadified”) claims on a fire insurance policy issued by Intact Insurance for the loss by fire of its business premises which were insured under the policy. Intact takes the position that the policy had been cancelled before the date of the loss. It submits that it complied with the requirements of the statutory conditions of the policy relating to termination of the policy. Shadified submits that the statutory conditions governing termination were not met.

Also in issue is the quantum payable under the policy if it had not been cancelled. [ 2 ] The principal of Shadified, Mohamad Rahall, testified that the salon and spa business was opened in 2003 by his father and was run as a family business. He and his several siblings worked in the business from an early age. In 2011, his father became seriously

ill and moved back to his homeland, Lebanon. Mr. Rahall and his brother took over the management of the business. [ 3 ] The business operated out of leased premises in a commercial strip mall in north Edmonton. It was insured from the time of its opening in 2003. Until 2011, the premium had always been paid as required. [ 4 ] Intact issued the policy against which Shadified claims for the period beginning October 1, 2011 and ending October 1, 2012. This was not long after Mr. Rahall and his brother had taken over management of the business.

It was during the time when members of the family were focused on their father’s condition and were taking turns travelling to Lebanon to be with him. Shadified admits that it neglected to make the insurance premium payments required by the policy. [ 5 ] Shadified also admits that on or about November 30, 2011, Intact sent a notice of termination of the policy by registered mail addressed to Shadified at its business address. The notice was sent from Intact’s head office in Calgary, Alberta.

The parties admit that the reason for the termination was non-payment of the premium installment of $563 and interest of $35 that had become due. The notice of termination stated that the effective date of cancellation or termination of the policy was December 20, 2011 at 12:01 a.m. [ 6 ] Shadified disputes having received the notice of termination and that the notice arrived at Shadified’s business premises.

It admits, however, that Canada Post did not return the notice of termination to Intact. [ 7 ] Shadified also formally admits the following: On December 2, 2011, the Notice of Termination arrived in the City of Edmonton, in the Province of Alberta, at which time Canada Post has documented that at approximately 8:45 a.m., the Notice of Termination was received at the post office to which it was addressed. [ 8 ] A fire occurred at Shadified’s business premises on September 26, 2012. The damage was extensive.

Following the fire, and upon reporting a claim under the policy, Shadified was advised that the policy had been terminated by Intact for non-payment of premiums on or about December 20, 2011. Was the Policy Terminated? [ 9 ] The procedure which Intact was required to follow in order to terminate the policy was set out in the statutory conditions of the policy. In 2011, the relevant statutory conditions ( Insurance Act, RSA 2000, c. I-3, s. 549) provided: Termination of Insurance 5(1) This contract may be terminated (

a) by the insurer giving to the insured 15 days’ notice of termination by registered mail or 5 days’ written notice of termination personally delivered . . .

(5) The 15 days mentioned in clause (

a) of subcondition (1) of this condition commences to run on the day following the receipt of the registered letter at the post office to which it is addressed. . . . Notice 15 . . .

Written notice may be given to the insured by letter personally delivered to the Insured or by registered mail addressed to the Insured at the Insured’s latest post office address as notified to the Insurer. . . . [ 10 ] Intact submits that the admitted facts establish that the requirements of these statutory conditions were met, and accordingly, the policy was terminated and was not in force at the time of the fire loss. [ 11 ] First, given Shadified’s admission that Intact Insurance sent a notice of termination of the policy by registered mail addressed to Shadified at its business address, Intact submits that the requirement of statutory condition 15 regarding giving the insured written notice was satisfied. [ 12 ] Second, given Shadified’s admissions that on December 2, 2011, the notice of termination was received at the post office to which it was addressed, Intact submits that the requirement of statutory condition 5(5) regarding the triggering of the 15 day termination notice period was satisfied. [ 13 ] Shadified disputes Intact’s

interpretation of statutory condition 5(5). It submits that the receipt of Intact’s notice of termination in the Edmonton post office does not satisfy that condition. Intact addressed the letter containing the notice of termination to Shadified at its business address. It did not address the letter to a post office.

Shadified submits that the words “post office to which it was addressed” in statutory condition 5(5) are ambiguous and must be read as meaning, “postal address of the insured”. [ 14 ] Shadified submits that the actual meaning of the words “post office to which it was addressed” was revealed when the Legislature amended the statutory conditions in 2012. After the amendment, statutory condition 5(4) (found in the Insurance Act s. 540) replaced statutory condition 5(5) which had been in force at the time of the Intact’s termination notice. The amended statutory condition provides:

(4) The 15-day period referred to in subparagraph 1(

a) of this condition starts to run on the day the registered letter or notification of it is delivered to the insured’s postal address. [ 15 ] In effect, Shadified submits that the words “post office to which it was addressed” should be understood to have the same meaning as the words “post office address” in statutory condition 15 and “insured’s postal address” in the 2012 statutory condition 5(4).

“Post office address” was understood by Intact to mean Shadified’s business address since that is the address which appeared on the faceof the notice which was an agreed exhibit. [16] Shadified submits that the onus is on Intact to prove that the notice was received where the statutory conditions require it tohave been received, which it submits is Shadified’s business address. There is no evidence that the notice was ever received at thataddress. Indeed, Mr. Rahal’s evidence was that so far as he is aware it was not.

Therefore, Shadified submits Intact has failed to provethat the policy was terminated. [17] I cannot accept Shadified’s submissions in this regard. [18] I leave aside the possibility that Shadified’s submissions are inconsistent with the admission it made as quoted above inparagraph [7].

For the sake of my analysis, I will read that as an admission of the fact that the notice of termination was received at theEdmonton post office and not as an admission that statutory condition 5(5) was satisfied. [19] In my view, the words “post office to which it is addressed” in statutory condition 5(5) are not ambiguous and the 2012amendment does not serve to clarify their meaning. There has been no doubt as to the meaning of the words “post office to which it isaddressed” in a statutory condition dealing with the termination of an insurance policy for more than half a century.

The meaning wasauthoritatively stated in the decision of the Supreme Court of Canada in Lumbermens Mutual Casualty Co. v. Stone (SCC), [1955] S.C.R. 627.

The 2012 amendment effected a change of legislative policy from that which was identified in Lumbermens,not a clarification of the previously existing legislative policy. [20] In Lumbermens, the majority of the Supreme Court of Canada held that an insurance policy statutory condition dealing withnotice of policy termination and using the words, “post office to which it is addressed” was intended to provide the insurer with a secondway of terminating the policy as an alternative to personally serving the termination notice on the insured.

The alternative method wassending the notice of termination by registered mail addressed to the last post office address as notified to the insurer. The policy wasdeemed terminated 15 days after the notice arrived at the place from which the postal service operates, that is, the post office, at thenotice’s “place of destination”. [21] If the notice arrived at the post office of its place of destination and 15 days passed, the termination was effective, whether ornot the notice actually got to the insured.

After the notice arrived at the post office of its place of destination, the risk of the mail, that isthe risk that it would not actually be delivered to the insured, “is entirely laid upon the insured.” (per Killock J.) In Lumbermens itself,the notice had been returned from the destination post office undelivered, yet its receipt at the post office of the place of destinationeffectively terminated the policy. [22] There is no suggestion in the majority decisions in Lumbermens that the statutory condition containing the words “post officeto which it is addressed” were considered ambiguous. [23] Shadified’s submission reflects the dissenting reasons of Cartwright J. in Lumbermens.

Cartwright J. noted that the registeredletter containing the notice had arrived at the post office nearest the insured’s “post office address”. He said: In the circumstances set out above, can it be said that the notice was received “at the post office to which it was addressed”? Thecontention of the appellant [the insurer] which found favour with the learned trial judge, is that the receipt of the letter at the Notre Damede Grace Postal station was receipt at the post office to which it was addressed; but the simple answer to this appears to me to be that theletter was not addressed to such post office.

No doubt, as counsel for the appellant argued, a majority of the letters mailed in Canada areno longer addressed to addresses at post offices to which they go from time to time to call for their mail but are addressed to the streetnumbers of the addresses and delivered there by the postal authorities; but this fact does not appear to me to furnish a sufficient reasonfor reading into [the statutory condition] words which are not there.

The construction for which the appellant contends requires theinsertion in the conditions of some such words as those which I have italicized in the following sentence: -- “the fifteen days abovementioned shall commence to run from the day following the receipt of the registered letter at the post office to which it is addressed orif it is not addressed to a post office then from the day following its receipt at the post office or postal station at which in the ordinarycourse of the business of the postal authorities it would be received for the purpose of being given to a carrier for delivery to the streetaddress to which it is addressed.” I am unable to so construe the condition; and, in my view, the notice of cancellation to the insured was at no time “received at the postoffice to which it was addressed” within the meaning of the words of the [statutory condition]. [24] Cartwright J.’s analysis, which as noted is in essence the argument advanced by Shadified in this case, was a dissent.

Themajority of the Supreme Court came to the opposite conclusion. I am obliged therefore to reject Shadified’s submission. [25] In my view, the amendment to the statutory condition in 2012 is not accurately characterized as the Legislature’s attempt toclarify the meaning of “received at the post office to which it is addressed”. Rather, it represents a change of legislative policy. Afterthe amendment, the insured no longer bears the risk that the notice will not be delivered by the postal service after it is received in thedestination post office. The insurer now bears that risk.

But this was not the legislative policy which applied at the time Intact sent thenotice of termination of Shadified’s insurance policy. [26] Shadified referred me to two Alberta Queen’s Bench decisions citing Lumbermens: McLaughlin & Sons Oil & WaterHauling Ltd. v. Zurich Insurance Co. [1989] A.J. No. 1208; and Frelick v. Wawanesa Mutual Insurance Co., [1999] A.J. No. 677.

Ifind no support for the submissions advanced by Shadified in either case. [27] In my view, the decision of the Supreme Court of Canada in Lumbermens, by which I am bound, requires me to rejectShadified’s submissions and to accept Intact’s. [28] I hold that the policy was terminated in December 2011 and was not in force at the time of the fire in September 2012.

Provisional Assessment of Damages [ 29 ] Much of the evidence presented by Shadified at trial was directed to proving the quantum that would have been recoverable under the policy had it been in force. I provide my findings on that issue provisionally in case my conclusion that the policy was terminated nine months before the fire is determined hereafter to be in error. [ 30 ] Photographs of the damage caused by the fire establish that the interior of the salon was destroyed. Nothing of value was salvageable. Shadified surrendered the lease of the damaged premises to the landlord.

The principals eventually acquired another salon in another location and resumed business operating through a different corporation. [ 31 ] The lost property falls into three general categories: the tenant improvements, the inventory of beauty salon products, and the fixtures and equipment. [ 32 ] The evidence included estimates prepared at Shadified’s request by contractors and suppliers who could replace all three categories of destroyed property.

None of the estimates was obtained until July 2016, nearly four years after the fire. [ 33 ] In some cases, the evidence as to the estimate was hearsay in that the individual who prepared the estimate did not testify. No objection was taken to the admission of the hearsay evidence, but Intact submitted that the weight that should be accorded to it is reduced by the fact that no witness was produced to testify as to how it was prepared. [ 34 ] In some cases, for example in the context of the inventory of beauty salon products, there was no evidence as to exactly what was destroyed.

The evidence is not directly as to the value of the lost inventory or as to the cost of replacing items proved to have been lost. Rather, it is as to the cost of the inventory that would reasonably be required to start up a salon which Mr.

Rahall testified is less than what was actually lost. [ 35 ] In the case of the estimate for fixtures such as tanning beds and salon chairs, it is not certain that the quality of the quoted item is the same as the quality of the destroyed item. [ 36 ] In some cases, particularly in respect of tenant improvements, the witness who prepared or provided the estimate is a relative or associate of Mr. Rahall, not an independent arms-length contractor.

Tenant’s Improvements Loss [ 37 ] In the case of the tenant improvements, the policy provided that if the damaged improvements were not repaired or replaced with due diligence or dispatch, the value of the insured property would be: . . . that portion of the original cost of the lost or damaged tenant’s improvements which the unexpired term of the lease at the time of loss or damage bears to the period(

s) from the date(

s) such tenant’s improvement were made to the expiration of the lease. (Article 20(d)(ii))). [ 38 ] This provision applies since Shadified surrendered the damaged premises to the landlord and did not repair or replace them. The evidence provided by three witnesses as to the estimated cost in 2016 of replacing the tenant improvements shown on the plans for the destroyed spa, is therefore irrelevant. In the circumstances, the policy value was not the replacement cost.

It was that portion of the original cost of the improvements assignable proportionally to the unexpired term of the lease. [ 39 ] The term of Shadified’s lease was from September 15, 2003 to September 30, 2013. It was a 10 year lease and at the time of the fire, one year remained in the term. The evidence includes a balance sheet for Shadified dated December 31, 2006. The leasehold improvements are valued on the balance sheet at $150,000 before depreciation.

This represents the best evidence of the original cost of the damaged tenant’s improvements. [ 40 ] Pursuant to the quoted provision of the lease, the value of the tenant improvements at the time of the fire would be one tenth of $150,000 or $15,000. I find provisionally that the policy value of the destroyed tenant’s improvements was $15,000. Inventory of Beauty Products [ 41 ] Mr. Rahall presented five estimates prepared by beauty product suppliers. These he testified, listed products of the type that would have been in the inventory destroyed by the fire. The quantities used for the estimate, Mr.

Rahall testified, would be less than the quantities of inventory destroyed. [ 42 ] The total estimated value shown on the estimates is $76,095.36 (after adjusting one estimate by deducting $4,117.50 because Mr. Rahall was not certain that the associated item was not a repeat of items on other estimates). [ 43 ] As noted, these estimates were hearsay and probably inadmissible. Intact did not take that objection but rather submitted that their hearsay quality reduced the weight that should be attached to them.

Further, the evidence supporting the conclusion that the items listed were actually in the destroyed inventory is not strong. Intact submitted that these frailties in the evidence should result in the value in the estimates being discounted by 50%. I agree with that submission. I provisionally value the claim for lost inventory at $38,047.68. Fixtures and Equipment [ 44 ] The policy value for insured fixtures and equipment destroyed in the fire was its actual cash value which the policy stated would take into account replacement cost less depreciation, and market value.

The evidence as to replacement cost presented by the

plaintiff, which indicated a total replacement cost of $132,882.40, suffered from the same frailties as the evidence as to the policy value of the inventory. [ 45 ] In addition, there was no evidence as to the depreciation or market value of the fixtures and equipment that were destroyed. Presumably, some of the destroyed fixtures and equipment were in the salon when it opened nine years before the fire. Presumably, some of it would have been acquired over the course of those nine years.

The evidence did not address these points or their effect on the actual cash value of the destroyed equipment and fixtures. [ 46 ] Intact submitted that in this context, it would be reasonable to discount the estimate presented by 75% to account because of these frailties in the evidence. I agree. I provisionally value the claim for lost fixtures and equipment at $33,220.60. Provisional Assessment [ 47 ] The total claim, which as mentioned, I assess provisionally given my conclusion that the policy had been terminated nine months before the fire, is $86,268.28.

Conclusion [ 48 ] The action is dismissed with costs. Heard on the 13 th and 14 th days of February, 2017. Dated at the City of Edmonton, Alberta this 13 th day of March, 2017. B.R. Burrows J.C.Q.B.A. Appearances: Jason R. Thomas for the Plaintiff Sigurd Delblanc for the Defendant