r v. Willowdale A.M.C., 2011 ONSC 6441

Sam's Auto Wrecking Co. Ltd., c.o.b. as Wentworth Metal v. Lombard General Insurance Company of Canada et al. [Indexed as: Sam's Auto Wrecking Co. Ltd. v. Lombard General Insurance Co. of Canada] 108 O.R. (3d) 206 2011 ONSC 6441 Ontario Superior Court of Justice, Whitten J.

October 28, 2011 Insurance -- Liability insurance -- Exclusions -- Commercial general liability policy excluding bodily injury to employee of insuredarising out of and in course of employment -- Insured's operations manager also was executive officer of insured -- Insured takingmanager out of workers' compensation scheme and obtaining private disability insurance for him without informing liability insurer --Manager injured on job and suing insured -- Insurance policy not ambiguous -- Insurer properly taking position that there was nocoverage for personal injury to manager.

The plaintiff operated a scrap business. Its operations manager, F, was seriously injured on the job by another employee and sued theplaintiff. The defendant Lombard, the plaintiff's insurer under a commercial general liability insurance policy, took the position that theloss was not covered by the policy. The policy provided that the insurance did not apply to bodily injury to an employee of the insuredarising out of and in the course of employment. F was an executive officer of the plaintiff.

Before the accident, the plaintiff had taken Fout of the workers' compensation scheme and obtained disability insurance for him through a private company without informing thedefendants. The plaintiff brought an action against Lombard and its insurance broker. Held, the action should be dismissed. The policy was not ambiguous. It exempted personal injury to an employee in the course of his or her employment. Given the nature ofthe business, employees injured in the course of employment would be anticipated to be covered by the workers' insurance regime.

Theexemption did not render the general coverage a nullity or a departure from reasonable commercial expectations. ACTION by the insured against the insurer and the insurance broker. Cases referred to671122 Ontario Ltd. v. Sagaz Industries Canada Inc., [2001] 2 S.C.R. 983, [2001] S.C.J. No. 61, 2001 SCC 59, 204D.L.R. (4th) 542, 274 N.R. 366, J.E. 2001-1832, 150 O.A.C. 12, 17 B.L.R. (3d) 1, 11 C.C.E.L. (3d) 1, 8 C.C.L.T. (3d) 60, [2002] CLLCÂ210-013, 12 C.P.C. (5th) 1, [2001] 4 C.T.C. 139, 108 A.C.W.S. (3d) 300; 702535 Ontario Inc. v. Non-Marine Underwriters, Lloyd's ofLondon, (ON CA), [2000] O.J.

No. 866, 184 D.L.R. (4th) 687, 130 O.A.C. 373, [2000] I.L.R. I-3826, 95 A.C.W.S.(3d) 556 (C.A.); Berger v. Willowdale A.M.C. (1983), (ON CA), 41 O.R. (2d) 89, [1983] O.J. No. 2959, 145 D.L.R.(3d) 247, 23 B.L.R. 19, 18 A.C.W.S. (2d) 290 (C.A.); CIA Inspection Inc. v. Dan Lawrie Insurance Brokers, [2010] O.J. No. 3313, 2010ONSC 3639, [2010] I.L.R. I-5029, 87 C.C.L.I. (4th) 159, 75 C.C.L.T. (3d) 211; Consolidated Bathurst Export Ltd. v. Mutual Boiler andMachinery Insurance Co., (SCC), [1980] 1 S.C.R. 888, [1979] S.C.J. No. 133, 112 D.L.R. (3d) 49, 32 N.R. 488, [1980]I.L.R.

Â1-1176 at 595, 1 A.C.W.S. (2d) 169; [page207] Fine's Flowers Ltd. v. General Accident Assurance Co. of Canada (1977), (ON CA), 17 O.R. (2d) 529, [1977] O.J. No. 2435, 81 D.L.R. (3d) 139, 2 B.L.R. 257, [1978] I.L.R. Â1-937 at 894, [1977]2 A.C.W.S. 1022 (C.A.); Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada (2003), (ON SC), 68O.R. (3d) 178, [2003] O.J. No. 4534, [2003] O.T.C. 976, 6 C.C.L.I. (4th) 276, [2004] I.L.R. I-4247, 126 A.C.W.S. (3d) 860 (S.C.J.);Monenco Ltd. v. Commonwealth Insurance Co., [2001] 2 S.C.R. 699, [2001] S.C.J.

No. 50, 2001 SCC 49, 204 D.L.R. (4th) 14, 274 N.R.84, [2002] 2 W.W.R. 438, J.E. 2001-1712, 155 B.C.A.C. 161, 97 B.C.L.R. (3d) 191, 32 C.C.L.I. (3d) 165, [2001] I.L.R. I-3993, 108A.C.W.S. (3d) 159; Nichols v. American Home Assurance Co., (SCC), [1990] 1 S.C.R. 801, [1990] S.C.J. No. 33, 68D.L.R. (4th) 321, 107 N.R. 321, J.E. 90-643, 39 O.A.C. 63, 45 C.C.L.I. 153, [1990] I.L.R. Â1-2583 at 10058, 20 A.C.W.S. (3d) 699;Non-Marine Underwriters, Lloyd's of London v. Scalera, [2000] 1 S.C.R. 551, [2000] S.C.J.

No. 26, 2000 SCC 24, 185 D.L.R. (4th) 1,253 N.R. 1, [2000] 5 W.W.R. 465, J.E. 2000-935, 135 B.C.A.C. 161, 75 B.C.L.R. (3d) 1, 18 C.C.L.I. (3d) 1, 50 C.C.L.T. (2d) 1, [2000]I.L.R. I-3810, 96 A.C.W.S. (3d) 479; Royal Winnipeg Ballet v. M.N.R., [2006] F.C.J. No. 339, 2006 FCA 87, [2007] 1 F.C.R. 35, 264D.L.R. (4th) 634, 346 N.R. 276, 48 C.C.E.L. (3d) 163, [2006] CLLC Â240-004, [2008] 1 C.T.C. 220, 2006 D.T.C. 6323, 146 A.C.W.S.(3d) 275; Zurich Insurance Co. v. 686234 Ontario Ltd. (2002), (ON CA), 62 O.R. (3d) 447, [2002] O.J. No. 4496,222 D.L.R. (4th) 655, 166 O.A.C. 233, 43 C.C.L.I. (3d) 174, [2003] I.L.R.

I-4137, 118 A.C.W.S. (3d) 719 (C.A.) Statutes referred toWorkmen's Compensation Act, R.S.O. 1980, c. 539, ss. 1, 2 Authorities referred to Lichty, Mark G. and Marcus B. Snowden, AnnotatedCommercial General Liability Policy, looseleaf, vols. 1 and 2 (Aurora, Ont.: Canada Law Book, 1997) Mark M. O'Donnell and John G. Webster, for plaintiff (and cross-claimants Dalton Timmis Insurance Group and George McCarter). Jack Fitch and Jason G. Arcuri, for defendants (save and except for Dalton Timmis Insurance Group and George McCarter). [1] WHITTEN J.: -- The activity in the yard of Sam's Auto Wrecking Co.

Ltd. ("Sam's") mid-morning May 26, 1998 was typical of thescrap business. A large steel vessel had been brought into the yard on the back of a flatbed trailer. The immediate task was to unload thisvessel using an overhead crane. [2] Bill Cooper ("Cooper"), an employee of Sam's, was the crane operator. Another yard employee (the truck driver), John Peters, and

the operations manager, John Ferber, released the chains holding the vessel on the flatbed. Cooper positioned the crane to push the vessel off the flatbed. [ 3 ] Mr. Ferber took it upon himself to ensure that the landing area was clear. Regrettably, by so doing he put himself in a blind spot for Cooper, the crane operator. [page208] [ 4 ] The crane moved closer to the flatbed, running over Mr.

Ferber, severing his right leg between the ankle and knee, and cutting his left heel profoundly. [ 5 ] Brothers Ken and Lorne Rochwerg (the "Rochwergs"), owners/operators of the yard, testified as to the horrific scene after the accident. Their efforts to address the physical and financial needs of Mr. Ferber afterwards were laudable. Mr. Ferber continued to receive the salary and benefits due his position. The Rochwergs also contributed to the necessary changes to the Ferber residence to accommodate Mr.

Ferber's needs. [ 6 ] Ken Rochwerg by statement dated June 4, 1998 (Exhibit #19) described these tragic circumstances to Lombard General Insurance Company ("Lombard"), who provided a comprehensive business policy for Sam's. [ 7 ] The Rochwergs and Mr.

Ferber ended their working relationship when the latter commenced a lawsuit in the spring of 2000 against Sam's and the employee Bill Cooper (the "Ferber action"). [ 8 ] Claims adjuster George Centritto ("Centritto") advised the insured shortly after being notified of the Ferber action that Lombard would be taking the position that the loss was not covered by the insurance provided and consequently Lombard would not defend the Ferber action. [ 9 ] Not surprisingly, Sam's commenced this action against Lombard, the brokerage Dalton Timmis Insurance Group Inc. ("Dalton") and the individual broker George McCarter ("McCarter"). [ 10 ] On September 3, 2003, Sam's, Dalton and George McCarter resolved the Ferber action through mediation by way of Sam's paying $200,000 and the broker/brokerage paying $750,000.

Lombard acknowledged this settlement to be reasonable. [ 11 ] By way of counterclaim, the broker/brokerage becomes a de facto plaintiff alongside Sam's in seeking indemnification for this payout and their costs. Sam's independently seeks punitive damages against Lombard. Issues [ 12 ] The central issue is whether or not the personal injury experienced by Mr.

Ferber, indirectly at the hands of an employee at Sam's operating within the scope of his employment, was or should have been covered by the commercial general liability which was part of the comprehensive business policy provided by Lombard. (At one point during this trial, it was argued that the automobile policy that was part of the [page209] commercial general liability policy would also apply. Thankfully, for overwhelmingly logical reasons, this was abandoned.) [ 13 ] Without that coverage or imputed coverage, issues such as duty to defend, bad faith and punitive damages become moot.

General Background [ 14 ] Sam's was established by the Rochwerg brothers' grandfather. As Ken Rochwerg described in his statement found in Exhibit #19, the business centred on the buying and selling of scrap metal. Scrap metal would be purchased from various industries and from individual peddlers who attended at the yard.

The scrap would be cut up, if necessary, sorted and sold to foundries as raw material. [ 15 ] Persons present at the yard site would be management and employees of Sam's, and from time to time members of the public, for example, peddlers and those persons who delivered scrap to the yard. [ 16 ] There were various pieces of heavy equipment used in the operation of the business, including the overhead crane which Mr. Cooper operated on May 26, 1998.

Lorne Rochwerg (who was responsible for insurance for the business) believed that all of the equipment used was covered by the "contractors equipment" floater (referred to in

part III of the policy under the heading "Inland Marine"). [ 17 ] In October 1989, John Ferber was hired as operations manager.

His employment contract (Exhibit #1), in para. 3, states: The employee shall be responsible for supervising the entire operation of the Employer's yard and warehouses, dispatching trucks, managing the Employer's peddler operation, marketing the Employer's services both by personal attendance and by telephone, and assisting the growth and expansion of Wentworth Metal Recycling, a division of the Employer. [ 18 ] John Ferber was obviously appreciated by the Rochwergs as he was made vice-president of the company by corporate resolution dated March 6, 1990 (as was Lorne Rochwerg). Mr.

Ferber received interest-free loans from the company which were ultimately forgiven through bonuses. RRSPs were purchased in his name. Family holidays were paid for. [ 19 ] He was considered to be an executive officer of the company along with the Rochwergs. He had an expense account and an automobile. He did not, however, share in the ownership of the company. Nor did Mr. Ferber decide his salary level or any bonuses he might receive. He was "prohibited" according to his contract from involvement in any other business without the written consent of the directors.

His hours of employment were prescribed by his contract of employment. [page210] [ 20 ] Although he was an executive officer, he was as Ken Rochwerg testified, "like all of them", a salaried employee of the company. [ 21 ] Initially, in his employment, Mr. Ferber was covered by Workers' Compensation Insurance ("WSIB") along with the rank and file employees. On or about 1990, the Rochwergs decided to take the management team which consisted of the Rochwergs and John Ferber out of WSIB coverage as they were able to obtain similar disability insurance through a private company known as AFLAC Insurance ("AFLAC").

This insurance coverage provided 24- hour protection for less than the necessary WSIB premiums. WSIB was notified of

this switch (Exhibit #19). From there on (as Lorne Rochwerg testified), the annual basis report to the WSIB (namely, the reconciliation of the premiums to the T4 salaries) excluded their executive officers from the premium calculation. [ 22 ] From the late 1980s onwards, Sam's acquired its insurance coverage through Dalton, specifically dealing with George McCarter. The Rochwergs never told McCarter that some of their employees (namely, the management team and executive officers) were outside the coverage of the WSIB.

Nor did they ever ask for coverage specifically to protect against the management team and executive officers being injured by an employee. [ 23 ] McCarter testified that he only became aware of this fact after the crippling of Mr. Ferber. [ 24 ] In April 1997, McCarter obtained the comprehensive business policy with Lombard on behalf of Sam's. In the lead-up to obtaining this policy, McCarter was the "point person". The Rochwergs never dealt directly with Lombard and never sought advice as to the coverage from Lombard. It was always through McCarter.

The Rochwergs never corrected any of the information incorporated in the application for the initial comprehensive business policy, nor in the subsequent application for an umbrella policy. The latter basically expanded the fiscal limits of the former. [ 25 ] McCarter testified that Dalton was a "Tier 2" independently owned brokerage. Ultimately, he became a 25 per cent shareholder and president of the brokerage. The comprehensive business policy obtained by McCarter from Lombard, renewed and in force at the time of the incident, contained various parts.

Part VI, Commercial General Liability is the key. This insurance commences with s. 1 -- "Coverages". Coverage A is Bodily Injury and Property Damage Liability.

Part 1 of this

section is entitled "Insuring Agreement", which basically describes the nature or substance of the insurance provided. [page211] [ 26 ] Subparagraph "a" states in part that [w]e will pay those sums that the insured becomes legally obligated to pay as compensatory damages because of "bodily injury" to which this insurance applies. (Emphasis added) [ 27 ] Obviously, the last underlined phraseology speaks of limitations to coverage. This is not a carte blanche for all liability arising out of personal injury. [ 28 ]

Part 2 of this

section is the "Exclusions": This insurance does not apply to . . . (d.) "Bodily Injury" to an employee of the insured arising out of the and in the course of employment by the insured. This exclusion applies: 1) Whether the insured may be liable as an employer or in any other capacity[.] [ 29 ] The next relevant

section of this

part is

Section II -- "Who is an Insured", which speaks to who is actually to receive this insurance coverage. Paragraph 1 describes the different types of business organizations that can be insured, namely, sole proprietorships, partnerships and corporations. Subsection (

c) uses the following descriptors: An organization other than a partnership or joint venture, you are an insured. Your executive officers and directors are insureds, but only with respect to their duties as your officers or directors. Your stockholders are also insureds, but only with respect to their liability as stockholders. [ 30 ]

Part 2 of this

section goes on to expand upon the concept of the "insured". It commences: Each of the following is also an insured:

a) Your employees, other than executive officers, but only for acts within the scope of their employment by you, none of those employees is insured for 1) Bodily Injury or Personal Injury to you or to a co-employee while in the course of his or her employment[.] (Emphasis added) [ 31 ] As previously mentioned, an application was made in May of 1997 for excess and umbrella liability insurance (Exhibit #69). The actual application was by way of a form prepared by Gerling Global Insurance Company ("Gerling"). This according to McCarter is not in and of itself unusual. The form was completed by one of his staff.

Because an umbrella or excess liability application presupposes the existence of a base policy (in this case, Sam's comprehensive business policy), that base policy is referenced and described. Paragraph 19 of the application specifically deals with the issues of employer's liability.

The responses ticked off would leave the reader with the impression [page212] that all employees are covered by WSIB, that there is employer's liability insurance for those not covered by WSIB and that there is contingent employer's liability insurance carried for all employees covered by WSIB. [ 32 ] McCarter testified that the commercial general liability coverage sets limits in respect of a bodily injury claim against Sam's. Executive officers were included along with employees as named insured. He believed that would include both claims against and by executive officers.

He did not believe that the employee injury exclusion would apply to executive officers. He expected that the Ferber action against Sam's and Cooper was covered. He knew as a broker that employees of a company could be in or out of WSIB coverage. If a worker was covered by WSIB, that worker could not sue a fellow employee nor his employer for personal injury. The injured worker would have to apply for WSIB. If outside of WSIB coverage, the employee would be able to sue the employer for the injury arising out of the acts of a co-employee.

Somehow, McCarter believed that the latter possibility was envisaged under the base policy for commercial general liability. McCarter's impressions (and one must keep in mind that he had not received any information from his client that would suggest that this was an issue) were obviously replicated by his employee in this application for the umbrella policy. [ 33 ] McCarter was aware of an employer's bodily injury liability extension.

This extension would "extend" the commercial general liability policy to limit the liability of an employer for claims brought from employees (outside WSIB coverage) for injuries by other employees. McCarter had no experience with Lombard having issued such an endorsement. [ 34 ] McCarter's lack of knowledge of the fact that Ferber wasn't fully insured meant that he did not seek an extension of Sam's base

policy. The umbrella policy specifically excluded such a possibility in its endorsements. The umbrella policy basically expanded existingfiscal limits in the base policy. Whatever shortcomings existed in the service provided by the broker, Sam's is not seeking any legalredress against McCarter. [35] As mentioned previously, Mr. Ferber continued to work for Sam's for approximately another two years after the incident, with theend of his employment being signalled by his lawsuit.

The usual record of employment completed by Ron Rochwerg was forwarded onDecember 1, 2000 and stated "employee alleges that he is unable to continue with his employment due to illness". [36] It appears that it was only after the incident occurred that the broker first became aware of a lacuna in WSIB coverage [page213]amongst the employees. It was shortly after the launch of the Ferber action that Mr. Centritto on behalf of Lombard indicated that thecompany was taking the position that there was no coverage. The company never deviated from that point of view.

It did not defend theFerber action, but instead it merely maintained a "watching brief". [37] Lombard does not question the reasonableness of the settlement of the Ferber action. It is simply not covered by the policy.Applicable Law [38] As trite an observation as it may seem, an insurance contract is still a contract subject to the same rules of

interpretation applied tocontracts generally. Estey J. noted in Consolidated Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., (SCC), [1980] 1 S.C.R. 888, [1979] S.C.J. No. 133, at para. 26, that the objective is . . . to search for an

interpretation which, from the whole of the contract, would appear to promote or advance the true intent of the partiesat the time of entry into the contract. (Emphasis added) [39] Therefore, the

interpretation process is invariably with an eye to the background or context in which the contract was negotiated.Factors to consider are:

(1) What was the nature of the activity sought to be insured, in other words, what was the nature of the business operated by the potentialinsured?

(2) Was there an intermediary between the contracting parties? In the case of insurance, was there an independent insurancebroker involved? Or was the insurance solicited direct from the insurance company?

(3) If a broker was involved, what was requested orcommunicated to the broker?

(4) What was the broker's understanding of what was communicated to him or her that guided the requestfor coverage from the insurer?

(5) What was the broker's understanding or knowledge as to the appropriate insurance coverage? [40] All of these questions reflect upon the duties of an insurance broker as described in [page214] Fine's Flowers Ltd. v. GeneralAccident Assurance Co. of Canada (1977), (ON CA), 17 O.R. (2d) 529, [1977] O.J. No. 2435 (C.A.). These dutiesare based on the specialized services provided by an insurance broker, especially in a case such as this, in which the insurance was placedthrough a broker. [41] This court in CIA Inspection Inc. v. Dan Lawrie Insurance Brokers, [2010] O.J.

No. 3313, 2010 ONSC 3639, at para. 10, identifiedas a starting point for the duties of a broker (1) that the agent takes objectively reasonable steps to acquire that which has been requested;(2) the agent services the policy which would require vigilance with respect to the context; and (3) that if the form of insurance is notavailable, to properly advise the clients so that he or she can govern themselves accordingly, namely, protect themselves. [42] As mentioned, counsel for the plaintiffs has stated on the record that there is no legal issue between the plaintiffs and, in particular,Sam's is not seeking any remedies with respect to the service provided by McCarter and the brokerage.

Nonetheless, whatever transpiredin that relationship is the backdrop of the formation of the contract and the process leading up the creation of the contract. It cannot beignored. [43] As was observed in Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada (2003), (ON SC), 68O.R. (3d) 178, [2003] O.J. No. 4534 (S.C.J.), at para. 17: The process of

interpretation is used to determine the meaning of a contractual term or to gain a specific understanding. In interpreting aninsurance policy, the following rules come into play:

(1) The contra proferentem rule;

(2) The principle that coverage provisions should be construed broadly and exclusion clauses narrowly; and

(3) The desirability, at least where the policy is ambiguous of giving effect to the reasonable expectation of the parties[.] [44] The court in Jesuit Fathers of Upper Canada proceeded to explain that the contra proferentem rule basically means that anyambiguities in a document of insurance would be construed against the author of the document. [45] As observed above, ambiguity in the contract invites consideration of the reasonable expectations of the parties. Ambiguity alsoinvites application of the parole evidence rule, which allows for extrinsic evidence to aid in the interpretative process.

This [page215]exercise would not give weight to a literal meaning which may produce an unrealistic result in the context of the commercial atmospherein which the contract was made. If the words of a contract are capable of more than one

interpretation, the most reasonable

interpretationwhich promotes the intention of the parties prevails. Likewise, an

interpretation which defeats such intentions should be rejected infavour of an

interpretation "which promotes a sensible commercial result": Non-Marine Underwriters, Lloyd's of London v. Scalera,2000 SCC 24 , [2000] 1 S.C.R. 551, [2000] S.C.J. No. 26, at para. 71. [46] This practical approach in the face of ambiguity transcends

interpretations in which there is no ambiguity and has expressed itself instrong judicial statements against literal

interpretation. Justice Borins in Zurich Insurance Co. v. 686234 Ontario Ltd. (2002), (ON CA), 62 O.R. (3d) 447, [2002] O.J. No. 4496 (C.A.), at para. 28, concluded that "even though an exclusion clausemay be clear and unambiguous, it will not be applied where: (1) it is inconsistent with the main purposes of the insurance coverage andwhere the result would be to virtually nullify the coverage provided by the policy". See, also, Iacobucci J. in Non-Marine Underwriters,

Lloyd's of London v. Scalera (Opus Cited). [47] The hope is that after interpreting the particular contract of insurance, coverage or lack thereof will be apparent. The presence ofcoverage or even the possibility of coverage evokes a duty on the part of the insurer to defend. [48] In this case, the Ferber action was based on personal injury to Mr. Ferber caused by actions of Mr. Cooper, an employee of Sam's. Itis acknowledged that the latter was operating within the scope of his employment.

If the facts of that claim fall within the coverage, theinsurer is required to defend the action regardless of the truth or falsity of the allegations. In this regard, the duty to defend is broaderthan the duty to indemnify. Any doubt as to inclusion of the facts has to be resolved in favour of the insured party. Nichols v. AmericanHome Assurance Co., (SCC), [1990] 1 S.C.R. 801, [1990] S.C.J. No. 33; Monenco Ltd. v. Commonwealth InsuranceCo., [2001] 2 S.C.R. 699, [2001] S.C.J.

No. 50, 2001 SCC 49. [49] Despite the fact that the duty to defend is broader than the duty to indemnify primarily because it is evoked by the possibility ofinclusion, it is not so broad that "it arises with respect to allegations which are clearly beyond the scope of the policy": McLachlin J. (asshe then was) in Nichols v. American Home Assurance Co., supra, at para. 13. [page216] [50] Counsel for Sam's advances the argument that the characterization of Mr.

Ferber as an executive officer as opposed to being anemployee somehow carves out an exception to the limitation of coverage with respect to injury occasioned by fellow employees. Thispossibility of co-employee caused injury is a recognized lacuna in situations of lack of homogenous WSIB coverage which requires anemployer's liability endorsement:Mark G. Lichty and Marcus B.

Snowden, Annotated Commercial General Liability Policy, looseleaf, vols. 1 and 2 (Aurora, Ont.:Canada Law Book, 1997), updated February 2010, release 14. [51] This distinction between executive officers and employees may be an artless distinction. Justice Weatherston in his dissent in Bergerv. Willowdale A.M.C. (1983), (ON CA), 41 O.R. (2d) 89, [1983] O.J. No. 2959 (C.A.) described an executive officeras not being an employee for the purposes of the Workers Safety Insurance Board Act but nonetheless [at para. 62] "an employee of thecompany at common law". This observation mirrors the testimony of Ken Rochwerg.

In other words, Mr. Ferber could very well havebeen both. [52] Justice Major in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59 , [2001] 2 S.C.R. 983, [2001] S.C.J.No. 61, in the context of a decision involving the distinction between an independent contractor and an employee, invites considerationof the total relationship.

Possible factors (not an exhaustive list) for consideration are (1) the degree of control over the individualworker's activities; (2) the degree of responsibility for investment and management possessed by the worker; (3) whether the workerprovides his own equipment, hires his own helpers; and (4) what opportunity if any for profit lies with the worker in the performance ofhis tasks. [53] Justice Sharlow of the Federal Court of Appeal in Royal Winnipeg Ballet v. M.N.R., [2006] F.C.J.

No. 339, 2006 FCA 87, at para.52, cautions against undue reliance on the parties' characterization of their legal character. [54] Counsel for the plaintiff argues that the mere fact of the use of terminology such as executive officer versus employee creates ameaningful exemption. Neither term is defined in the policy. It comes down to the

interpretation of the policy. [page217] [55] As for whether or not Lombard exercised bad faith in its decision to deny coverage and not to defend, reference is made to 702535Ontario Inc. v. Non-Marine Underwriters, Lloyd's of London, (ON CA), [2000] O.J. No. 866, 184 D.L.R. (4th) 687(C.A.). Associate Chief Justice O'Connor wrote, in para. 27, that the contractual relationship between insurers and insured is "of [the]utmost good faith". This duty requires that insurers "act both promptly and fairly when investigating, assessing and attempting to resolveclaims made by its insureds".

Naturally, this duty applies to the assessment of the claim and the decision to pay or not to pay. "A decisionby an insurer to refuse payments should be based on a reasonable

interpretation of its obligation under the policy" (ibid., at para. 29). [56] This duty does not require that the insurer necessarily be correct in its decision. Mere denial may in itself not be indicative of badfaith (ibid., at para. 30). [57] A discussion of the principles surrounding the imposition of punitive damages is premature before a finding of actual or imputedcoverage. Analysis [58] Sam's was a modest but obviously successful enterprise. The organization of the business was not particularly sophisticated. At thetime of the incident, it was essentially the Rochwerg brothers and Mr.

Ferber as the management team and approximately 15 rank-and-file employees. The latter would provide the hands-on contact with the scrap metals and the processing thereof. [59] The Rochwergs, for economic reasons, opted out of the WSIB insurance for themselves and Mr. Ferber. The alternative disabilityinsurance was cheaper and went beyond the workplace. It would appear that that Rochwergs did not direct their minds to the possibilityof insurance for personal injury to themselves and Mr.

Ferber at the workplace beyond that disability insurance. [60] It was with that limited perspective that they approached McCarter, their long-term broker, to acquire a comprehensive businesspolicy. Regrettably, the Rochwergs failed to advise McCarter that participation in the WSIB was not universal in their workplace.McCarter, given the size and relative simplicity of Sam's and the nature of that business, probably did not consider that there wereworkers outside of the statutory scheme.

McCarter in turn contacted Lombard for quotations on a comprehensive business policy whichwould deal with everything ranging from property and automobile insurance, [page218] equipment coverage and commercial generalliability. The factual foundation of the Lombard policy would be based on what McCarter provided as there were no direct dealingsbetween insured and insurer. [61] Commercial general liability was quite important to such an operation as the business dealt with members of the public on their site,the peddlers and those persons who delivered the scrap metal or, for that matter, removed it.

The nature of the site, with its heavyequipment for loading, unloading and generally handling scrap in an area where scrap piles would be in the outside area or in the

warehouse would be potentially hazardous to those particular members of the public. Add to this picture the actions of the employees in their execution of their various duties and the risk is compounded. Therefore,

Section I -- Coverage for Bodily Injury Liability is completely necessary. [ 62 ] There is no ambiguity in subsections 1 and 2. The Insuring Agreement and Exclusions (specifically subsection (d)), personal injury to the public described above is covered. However, what is exempted is personal injury to an employee working in the course of his or her employment. Given the nature of the business, that exemption could be anticipated to be covered by the WSIB regime. That exception is understandable in such coverage and is a function of the existence of the WSIB scheme and the need to avoid double indemnification.

The exemption per se does not render the coverage a nullity or a departure from reasonable commercial expectations. [ 63 ] At this juncture, there is the broad coverage with the exemption for employee injury. This exemption is continued in the description contained in

Section II -- "Who is an Insured". As referred to, subsection 1 describes the various forms of business organization. Subsection (

c) recognizes that a corporation has stockholders, directors and executive officers. These persons are also part of the coverage available with respect to the injury to the public insofar as they are acting within the scope of their roles. [ 64 ] Subsection 2 expands the definition of who is insured beyond stockholders, directors and executive officers to "employees" operating within the scope of their employment. Executive officers could be employees, as was the case in Sam's. It does not matter as far as liability for injury to the public is concerned. The insurance covers them.

However, there is no coverage for personal injury caused by an employee to any of the "insureds", whether they be stockholders, directors and executive officers or other employees. It is this internal risk in the sense of those within the company or on the company payroll which is exempted from coverage for personal injury. The public they [page219] serve are covered, but not amongst themselves. The reference to executive officers does not create a special class not touched by the exemption. It is simply a descriptor of a potential role within the corporation that is considered an "insured". [ 65 ] In the

section which describes "who is an insured", there is no ambiguity. It cannot be said that it flies in the face of what is commercially reasonable. There is a WSIB scheme that provides disability insurance to its participants. The management team has their own private disability insurance. Yes, there is a lacuna with respect to coverage for personal injury beyond disability insurance, but that was neither requested nor contemplated by the Rochwergs. That gap was equally not contemplated by McCarter, the broker.

He did not request an employer's liability endorsement. [ 66 ] Lombard is not required to second guess the insured and the broker. Lombard provided its commercial liability policy, complete with its exceptions and was never questioned. [ 67 ] As it was, after the fact of the incident, when he became aware that not everyone was within the WSIB scheme, McCarter thought the policy did cover the gap or lacuna referred to above. This misunderstanding on his part was perpetuated by his employee when she completed the application for the umbrella coverage (Exhibit #69).

McCarter had never inquired of the Rochwergs as to the gap. In fairness, there were no flags or indications which would have caused him to do so. Thus, there was a potential issue of coverage that was neither contemplated nor addressed by either the insured or the broker. Given the relinquishment of any liability for negligence as between the two plaintiffs, the buck effectively stops there. [ 68 ] There was no coverage for the personal injury to Mr. Ferber either as an employee or an executive officer. The distinction between the two terms is academic. If it were not, the court would be inclined to say that Mr.

Ferber was within the classic definition of an "employee". He was not an independent contractor. He was an employee subject to the terms of his employment contract and the appreciation of the Rochwergs. He was described as such by the latter. [ 69 ] The settlement achieved in the Ferber action was, as Lombard has noted, quite reasonable. It resolved quite effectively and consistent with precedent any liability between insured and broker.

However, because of the lack of coverage it was not a settlement that Lombard was required to indemnify. [ 70 ] Obviously, these findings include a determination that because of a clear lack of coverage, there was no duty to defend. Equally so, there was no bad faith demonstrated by Lombard in [page220] denying coverage.

Consequently, the possibility of punitive damages is moot. [ 71 ] Therefore, for all of the above reasons, the claim by the plaintiffs herein whether by counterclaim or otherwise is dismissed. [ 72 ] If counsel cannot agree as to the level, quantum and entitlement to costs, written costs arguments of no greater length than five pages, exclusive of bills of costs, are to be exchanged and responded to within 60 days of the release of this judgment. Action dismissed.