Marsh Canada Ltd. v. Grafton Connor Property Inc., 2017 NSCA 54

Nova Scotia Court of Appeal Citation: Marsh Canada Ltd. v. Grafton Connor Property Inc. , 2017 NSCA 54 Date: 20170615 Docket: CA 444276 Registry: Halifax Between: Marsh Canada Limited, a body corporate Appellant Respondent on Cross-Appeal v. Grafton Connor Property Incorporated, a body corporate, c.o.b. Grafton-Connor Group, Beaufort Investments Incorporated, a body corporate, c.o.b., North End Beverage Room and Sean Murphy, in his capacity as Attorney in Fact in Canada for Lloyd’s of London Underwriters Respondents Appellants on Cross-Appeal Judge: The Honourable Justice David P.S. Farrar Appeal Heard: October 12 and 13, 2016, in Halifax, Nova Scotia Subject: Insurance Law.

Interpretation of Insurance Policies. Material misrepresentations entitling an insurer to deny coverage. Recklessness in providing particulars of the property to be insured. Standard of Care of an Insurance Broker. Imputation of Knowledge to a Corporation.

Summary: The North End Pub was destroyed by fire on March 7, 2007. The building was owned by Beaufort Investments Inc. and insured with Lloyd’s of London Underwriters. Beaufort Investments is part of the Grafton Connor Group of Companies. Grafton Connor, in its application for insurance, represented that the pub was of masonry construction and sprinklered. Neither was true. The insurer denied liability. Grafton Connor sued its broker, Marsh Canada Limited, and Lloyd’s. Marsh cross-claimed against Lloyd’s and Lloyd’s counterclaimed against Grafton Connor.

After an 18-day trial the trial judge found that the policy was void as a result of material misrepresentations on the part of Grafton Connor. He dismissed the claim of Grafton Connor against Lloyd’s, allowed the counterclaim by Lloyd’s against Grafton Connor and dismissed the cross-claim of Marsh against Lloyd. He found that Marsh was 50% contributorily negligent to Grafton Connor for the losses suffered in the fire. Marsh appeals, Grafton Connor cross-appeals, Lloyd’s also cross-appeals and filed a Notice of Contention.

Issues: 1 . 1. Whether the trial judge erred in failing to interpret and apply the provisions of the Policy to find coverage in favour of Grafton Connor; (Marsh’s Appeal, Grafton Connor’s Cross-Appeal) 2 . 2. Whether the trial judge erred by failing to attribute to Grafton Connor the actual knowledge of Gary Hurst concerning the construction and sprinklering of the North End Pub; (Marsh’s Appeal) 3 . 3. Whether the trial judge erred in formulating the standard of care to be met by Marsh and by attributing liability to Marsh; (Marsh’s Appeal) 4 . 4.

Whether the trial judge erred by interpreting the Policy as a “blanket” and not a “scheduled” policy; (Lloyd’s Cross-Appeal) 5 . 5. Whether the trial judge erred by failing to apply the co-insurance provisions of the policy against Grafton Connor; (Lloyd’s Cross-Appeal) 6 . 6. Whether the trial judge’s decision can be affirmed on the basis that Grafton Connor was “reckless” in relation to its placement of insurance with Lloyd’s; (Lloyd’s Notice of Contention) 7 . 7.

Whether the trial judge erred by finding that Marsh did not cause Grafton Connor’s loss by failing to provide Lloyd’s with a copy of the TRS Report; (Grafton Connor’s Cross-Appeal) and 8 . 8. Whether the trial judge erred in his apportionment of liability as between Grafton Connor and Marsh (Grafton Connor’s Cross-Appeal). Result: 9 . Appeal of Marsh allowed, in part. The trial judge erred in his formulation of the standard of care of Marsh in these circumstances. His determination that it was 50% contributorily negligent was set aside. 10 . Marsh’s and Grafton Connor’s appeal against Lloyd’s was dismissed.

The trial judge did not err in finding that Lloyd’s was entitled to void the policy. 11 . Grafton Connor’s cross-appeal against Lloyd’s and Marsh was also dismissed, again, based on the finding the trial judge did not err in allowing Lloyd’s to deny liability. 12 . Grafton Connor’s claim against Marsh failed because of the finding that Marsh was not contributorily negligent for its loss. 13 . Lloyd’s Notice of Contention was allowed. It was found that Grafton Connor was reckless in its provision of information to Lloyd’s. 14 . Lloyd’s cross-appeal was dismissed.

The trial judge did not make any error in interpreting the policy to find that it was a blanket policy and that the co-insurance clause was not triggered. 15 . Costs were awarded to Lloyd’s in the amount of $40,000, $20,000 of which would be payable by Marsh and $20,000 by Grafton Connor. Marsh was awarded $20,000 in costs payable by Grafton Connor. 16 . This information sheet does not form part of the court’s judgment. Quotes must be from the judgment, not this cover sheet. The full court judgment consists of 60 pages. Nova Scotia Court of Appeal Citation: Marsh Canada Ltd. v.

Grafton Connor Property Inc. , 2017 NSCA 54 Date: 20170615 Docket: CA 444276 Registry: Halifax Between: Marsh Canada Limited, a body corporate Appellant Respondent on Cross-Appeal v.

Grafton Connor Property Incorporated, a body corporate, c.o.b. Grafton-Connor Group, Beaufort Investments Incorporated, a body corporate, c.o.b., North End Beverage Room and Sean Murphy, in his capacity as Attorney in Fact in Canada for Lloyd’s of London Underwriters Respondents Appellants on Cross-Appeal Judges: Farrar, Bourgeois and Van den Eynden, JJ.A.

Appeal Heard: October 12 and 13, 2016 Held: Marsh’s appeal against Grafton Connor allowed, in part; Marsh’s appeal against Lloyd’s dismissed; Lloyd’s appeal against Grafton Connor dismissed; Lloyd’s Notice of Contention allowed; Grafton Connor’s cross-appeal dismissed. Costs awarded to Lloyd’s payable by Marsh and Grafton Connor; Costs awarded to Marsh payable by Grafton Connor per reasons for judgment of Farrar, J.A.; Bourgeois and Van den Eynden, JJ.A. concurring. Counsel: Christopher C. Robinson, Q.C., Kevin Gibson and Ian Dunbar, for the appellant/respondent on cross- appeal Marsh Canada Limited Geoffrey A.

Saunders and Selina Bath, for the respondents/appellants on cross-appeal, Grafton Connor Property Incorporated and Beaufort Investments Incorporated Michael S.

Ryan, Q.C., for the respondent/appellant on cross-appeal, Lloyd’s of London Underwriters Index Page 1 Overview ……………………………………………………………………… 2 2 Background …………………………………………………………………… 3 3 Issues ………………………………………………………………………….. 6 4 Issue #1 Whether the trial judge erred in failing to interpret and apply the provisions of the Policy to find coverage in favour of Grafton Connor (Marsh’s Appeal, Grafton Connor’s Cross-Appeal) ………………………………………… 7 5 Issue #2 Whether the trial judge erred by failing to attribute to Grafton Connor the actual knowledge of Gary Hurst concerning the construction and sprinklering of the North End Pub (Marsh’s Appeal) …………………………………………. 15 5.1 Should this Court entertain Marsh’s Argument on this Appeal? ………... 16 5.2 Mr.

Hurst’s Knowledge ………………………………………………….. 20 5.3 In these circumstances is the knowledge of Mr.

Hurst the knowledge of Beaufort Investments? …………………………………………………………. 22 6 Issue #3 Whether the trial judge erred in formulating the standard of care to be met by Marsh and by attributing liability to Marsh (Marsh’s Appeal) ………….. 27 7 Issue #4 Whether the trial judge erred by interpreting the Policy as a “blanket” and not a “scheduled” policy (Lloyd’s Cross-Appeal) …………………………... 36 8 Issue #5 Whether the trial judge erred by failing to apply the co-insurance provisions of the policy against Grafton Connor (Lloyd’s Cross-Appeal) ……… 40 9 Issue #6 Whether the trial judge’s decision can be affirmed on the basis that Grafton Connor was “reckless” in relation to its placement of insurance with Lloyd’s (Lloyd’s Notice of Contention) …………………………………………. 42 10 Issue #7 Whether the trial judge erred by finding that Marsh did not cause Grafton Connor’s loss by failing to provide Lloyd’s with a copy of the TRS Report (Grafton Connor’s Cross-Appeal) ……………………………………………….. 57

11 Issue #8 Whether the trial judge erred in his apportionment of liability as between Grafton Connor and Marsh (Grafton Connor’s Cross-Appeal) ………... 59 12 Costs ……………………………………………………………………….. 59 13 Conclusion …………………………………………………………………. 60 Reasons for judgment: 1 Overview [2] The North End Beverage Room or North End Pub, as it has been referred to, was destroyed by fire on March 7, 2007. The building was owned by Beaufort Investments Incorporated, part of a group of companies that has been referred to as the Grafton Connor Group of Companies.

Beaufort Investments is a named insured under the policy of insurance at issue. I will sometimes refer to the Grafton Connor Group of Companies and Beaufort Investments collectively as Grafton Connor. That is how the parties in their submissions to this Court and the court below have referred to them. When the context requires, I will refer to Beaufort Investments individually. [3] At the time of the fire, the North End Pub was insured by Lloyd’s of London Underwriters under a policy of insurance which was effective from July 1, 2006 to July 1, 2007. In a

summary provided to Lloyd’s when placing the insurance, the North End Pub was described as being of masonry construction and 100% sprinklered. In the course of investigating the fire, Lloyd’s discovered that the North End Pub was neither sprinklered nor was it entirely of masonry construction. It denied coverage. [4] The denial spawned a lawsuit by Grafton Connor against Lloyd’s and Marsh Canada Limited, Grafton Connor’s insurance broker. In turn, Marsh cross-claimed against Lloyd’s for any amount it might be required to pay to Grafton Connor.

To round out the pleadings, Lloyd’s counterclaimed against Grafton Connor for the amount it paid for debris removal before it denied coverage. [5] After an 18-day trial in the summer and fall of 2014, Justice Arthur J. LeBlanc, found that the policy was void as a result of material misrepresentations on the part of the insured. He dismissed the claim of Grafton Connor against Lloyd’s, allowed the counterclaim by Lloyd’s against Grafton Connor, and dismissed the cross-claim of Marsh against Lloyd’s.

He found that Marsh was 50% contributorily negligent to Grafton Connor for the losses suffered in the fire (reported 2015 NSSC 195 ). [6] Marsh appeals. Grafton Connor cross-appeals. Lloyd’s also cross-appeals and filed a Notice of Contention. I will set out the issues arising from the appeals, cross-appeals and Notice of Contention later. [7] For the reasons that follow, I would allow the appeal by Marsh, in part, setting aside the finding that it was 50% contributorily negligent for the damages of Grafton Connor. I would dismiss Marsh’s appeal against Lloyd’s.

I would also dismiss Grafton Connor’s cross-appeal against Lloyd’s and Marsh. I would allow Lloyd’s Notice of Contention and dismiss its Cross-appeal. I would award costs to Lloyd’s in the amount of $40,000.00, inclusive of disbursements, half of which is to be payable by Marsh and half by Grafton Connor. I would award costs to Marsh in the amount of $20,000.00, inclusive of disbursements, payable by Grafton Connor. 2 Background [8] The North End Pub was a longstanding fixture in the North End of Halifax. Before it was destroyed it consisted of two integrated buildings.

The original building, which housed the North End Diner, was a century old. The second building, which housed the pub business, was constructed in 1950. Neither structure was sprinklered. [9] Gary Hurst was the president and owner of the Grafton Connor Group of Companies at the time of the fire. At one time, Ed Raymond and John O’Hearn along with Mr. Hurst had ownership interests in some of the Grafton Connor companies. In 2001, Mr. Raymond and Mr. O’Hearn sold their ownership interests to Mr. Hurst. The purchase price was paid out over several years with Mr.

Raymond continuing to be involved in the business until 2003. Mr. Raymond and Mr. O’Hearn never had an ownership interest in Beaufort Investments. [10] In addition to the North End Pub, Grafton Connor operated and insured a number of businesses in Nova Scotia. The businesses are set out in detail in the trial judge’s decision (¶36). It is not necessary to list them here. [11] Until 1996 Mr. Hurst was responsible for placing insurance for the Grafton Connor properties. In 1996 he delegated responsibility for placement of insurance to Mr. Raymond. Mr.

Raymond’s primary contact for assistance on insurance matters was Charlotte Henderson, an assistant comptroller with Grafton Connor. Mr. Raymond was responsible for placing the insurance until 2003, when he delegated the task to Steve McMullin. [12] In 2003, Mr. McMullin held the position of Comptroller at Grafton Connor. He was named Vice-President of Finance in 2004. [13] Mr. Hurst has a Bachelor of Commerce degree from Dalhousie University in 1963 and completed a law degree in 1966. Mr. Raymond was a law classmate of Mr. Hurst and a partner in McInnis Wilson and Hallett.

At the time of leaving the practice of law in 1980 or 1981, he had been named a Queen’s Counsel.

[14] Mr. Raymond began his relationship with Gary Hurst in 1979, five years after Mr. Hurst purchased the North End Pub on his own through Beaufort Investments. Beaufort Investments’ only director was Mr. Hurst. [15] During the years Mr. Raymond was responsible for placing insurance on the Grafton Connor properties, several brokers, including Marsh, were soliciting Grafton Connor’s business. [16] Blake Miller began working for Marsh as an account executive in 1996.

At that time, Marsh was launching its national Molson Customer Care Program in Nova Scotia, an insurance package designed specifically for the hospitality industry. Mr. Miller first approached Mr. Raymond in 1997 in an attempt to obtain Grafton Connor’s business. He was unsuccessful. [17] In 1999, Marsh was successful in obtaining Grafton Connor’s property insurance business. From 1999 until 2003 it placed the property insurance with various insurance companies. [18] In May 2003, Marsh became aware that the insurer on the Grafton Connor account would not be renewing the property coverage for the 2003-2004 year.

At that time, the account was being managed for Marsh by Eric Bourque, who had taken over from Blake Miller in 2002. [19] Mr. Miller had transitioned into the role of Risk Placement Specialist dealing primarily with the account executives in the office who advised him of their account needs. The Risk Placement Specialist goes to the market to get renewal terms or obtain new alternative quotes and has no direct contact with the insured. [20] Mr. Bourque informed Mr. Miller that the Grafton Connor account needed a new insurer. Mr.

Miller contacted Marsh’s affiliate, Marsh UK in London, England, to determine whether it would quote insurance for the Grafton Connor account. In an email which he forwarded to Marsh UK, Mr. Miller attached three documents: 1. a Location Details

Summary; 2. a risk

summary; and 3. a claims history. The Location Details

Summary took the form of a 7-column spreadsheet pertaining to nine properties owned by various Grafton Connor entities. For each location, the

summary included information on construction type, monitored alarms, hydrants, sprinklers, building values, content values and business interruption. For the North End Pub, the Location Details

Summary indicated that the property was of masonry construction and 100% sprinklered. [21] Marsh UK was an accredited Lloyd’s broker and as such was entitled to place insurance with Lloyd’s of London Underwriters. Shortly after receiving Mr. Miller’s correspondence, Marsh UK approached Lloyd’s with a copy of Mr. Miller’s email and the documents attached in order to obtain a quote for coverage. [22] Martin Pope was the lead underwriter at Lloyd’s who dealt with the Grafton Connor application. He reviewed the documents and proposed two coverage options to Grafton.

Grafton Connor accepted one of the options presented and coverage was bound effective July 1 st , 2003. [23] Eric Bourque left Marsh in early 2004. After his departure, Andrew Timmons took over as account executive for the Grafton Connor account. He was responsible for renewing coverage with Lloyd’s for 2004-2005. In that year, Grafton Connor added two new locations to the Policy – the Riverside Pub and the Esquire. The Riverside Pub, like the North End Pub, was listed in the Location Details

Summary as being of masonry construction and 100% sprinklered. The Esquire was listed as being a framed construction, 100% sprinklered and having no monitored alarms. Neither the Riverside Pub nor the Esquire were sprinklered. [24] Lloyd’s renewed the Policy from July 1 to July 1 for the years 2005-2006 and 2006-2007, the year of the North End Pub fire. [25] The Certificate of Insurance refers to the “Grafton Connor Group and as more fully defined herein”.

The named insureds refers specifically to “Beaufort Investment”. [26] Lloyd’s denied coverage for the fire on the basis that the insured had materially misrepresented the risk by indicating the North End Pub was sprinklered and of masonry construction when it was not. The underlying lawsuits resulted and ultimately this appeal. [27] To the extent necessary, I will add additional facts when addressing the various issues raised by the parties on this appeal. 3 Issues [28] The appeal, cross-appeals and notice of contention raise a number of issues. I will address them in this order: 1.

Whether the trial judge erred in failing to interpret and apply the provisions of the Policy to find coverage in favour of Grafton Connor; (Marsh’s Appeal, Grafton Connor’s Cross-Appeal) 2. Whether the trial judge erred by failing to attribute to Grafton Connor the actual knowledge of Gary Hurst concerning the construction and sprinklering of the North End Pub; (Marsh’s Appeal) 3. Whether the trial judge erred in formulating the standard of care to be met by Marsh and by attributing liability to Marsh; (Marsh’s Appeal)

4. Whether the trial judge erred by interpreting the Policy as a “blanket” and not a “scheduled” policy; (Lloyd’s Cross-Appeal) 5. Whether the trial judge erred by failing to apply the co-insurance provisions of the policy against Grafton Connor; (Lloyd’s Cross-Appeal) 6. Whether the trial judge’s decision can be affirmed on the basis that Grafton Connor was “reckless” in relation to its placement of insurance with Lloyd’s; (Lloyd’s Notice of Contention) 7.

Whether the trial judge erred by finding that Marsh did not cause Grafton Connor’s loss by failing to provide Lloyd’s with a copy of the TRS Report; (Grafton Connor’s Cross-Appeal) and 8.

Whether the trial judge erred in his apportionment of liability as between Grafton Connor and Marsh (Grafton Connor’s Cross- Appeal). [29] I will address the standard of review when addressing the individual grounds of appeal. 4 Issue #1 Whether the trial judge erred in failing to interpret and apply the provisions of the Policy to find coverage in favour of Grafton Connor (Marsh’s Appeal, Grafton Connor’s Cross-Appeal) Standard of Review [30] This ground of appeal involves the

interpretation of Endorsement 10 of the Policy. In their facta, Marsh and Grafton Connor argue that the trial judge erred in the selection of the principles by which he approached the task of interpreting Endorsement 10, or alternatively, that he failed to properly apply those principles or failed to consider a required element of the applicable legal test. Both cite Sattva Capital Corp. v. Creston Moly Corp. , 2014 SCC 53 : [53] Nonetheless, it may be possible to identify an extricable question of law from within what was initially characterized as a question of mixed fact and law ( Housen , at paras. 31 and 34-35). Legal errors made in the course of contractual

interpretation include “the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor” ( King , at para. 21).

Moreover, there is no question that many other issues in contract law do engage substantive rules of law: the requirements for the formation of the contract, the capacity of the parties, the requirement that certain contracts be evidenced in writing, and so on. [31] Between the time of the parties filing their facta and the hearing of this matter, the Supreme Court of Canada released its decision in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co. , 2016 SCC 37 .

At the hearing of this matter, the parties argued that Endorsement 10 falls within the exception in Sattva as identified by the Supreme Court of Canada in Ledcor where it held: [4] … Where … the appeal involves the

interpretation of a standard form contract, the

interpretation at issue is of precedential value, and there is no meaningful factual matrix that is specific to the particular parties to assist the

interpretation process, this

interpretation is better characterized as a question of law subject to correctness review. [32] On my review of the record, there is very little evidence that the factual matrix was a significant factor in the formation of the wording of Endorsement 10. Unlike standard contractual

interpretation, the exception set out in Sattva and particularized in Ledcor , relies upon the idiosyncrasy of the insurance world in which agreements (specifically, standard form agreements) go undiscussed by the parties. When this happens, assessing specific facts regarding the relationship, particularly negotiation on the terms, is of little assistance to the Court ( Ledcor , ¶27). [33] Justice Wagner in Ledcor notes, commenting upon Justice Cromwell’s concurring decision, that some surrounding facts will still remain relevant.

The market at issue, the roles of the parties, the type of insurance, etc. may all be useful to the reviewing court. He notes, however, that these will not be specific to the parties but will be based upon market or industry norms and are, therefore, not “inherently fact specific” ( Ledcor , ¶31-32 and Sattva , ¶55). [34] I am satisfied that Endorsement 10 falls within the exception identified in Ledcor and Sattva and this ground of appeal will be reviewed on a correctness standard. Analysis [35] Endorsement 10 to the Policy provides as follows: 23.

ERRORS AND OMISSIONS Any unintentional error or omission made by the Insured shall not void or impair the insurance hereunder provided the Insured reports such error or omission as soon as reasonably possible after discovery by the Insured’s Home Office Insurance Department and further provided that in the event of any error or omission including a declaration of the Insured’s total insurable values being less than (80%) eighty percent of the actual insurable values at the time of declaration, any loss payable in respect of the property involved or other insurable interests in the loss shall be reduced in the proportion that the said actual insurable value bears to the declared insurable value provided that this provision shall only apply when the actual building(

s) or individual property(ies) or other insurable interests involved

in the loss are the subject of an incorrect declaration of values. ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED. [Emphasis added) [36] Both Grafton Connor and Marsh, on this appeal, and before the trial judge below, say that any misrepresentations regarding the construction of the North End Pub and the presence of sprinklers therein were excused pursuant to the first part of Endorsement 10. Like the trial judge, I disagree. [37] The logical starting point is the findings of fact made by the trial judge.

He found: [124] Having considered all of the evidence, I am satisfied that the misrepresentations by Grafton Connor, when taken together, were objectively and subjectively material. … [125] I accept that if Underwriters had been informed that the North End Pub was of mixed construction and lacked a sprinkler system, it would have charged a higher premium for coverage. As a result, Underwriters is entitled to void coverage under the Policy with respect to the Pub. … [145] That is not the situation here.

Underwriters did not deny coverage on the basis of a failure by Grafton Connor to disclose information that Underwriters knew was material to its assessment of the risk but chose not to ask about.

It denied coverage on the basis that the information provided by Grafton Connor, upon which it relied in determining a premium, turned out to be false. [38] The trial judge concluded the policy was void under Statutory Condition 1 of the Policy. [39] Statutory Condition 1 in the Policy provides as follows: Misrepresentation If a person applying for insurance falsely describes the property to the prejudice of the insurer, or misrepresents or fraudulently omits to communicate any circumstance that is material to be made known to the insurer in order to enable it to judge the risk to be undertaken, the contract is void as to any property in relation to which the misrepresentation or omission is material. [40] Grafton Connor and Marsh argue the material misrepresentations were “unintentional errors” within the meaning of the Endorsement and, therefore, did not void or impair the insurance.

To accept this argument, Statutory Condition 1 would have to be written down or varied to apply only to intentional precontractual material misrepresentations to void or impair the insurance contract. The trial judge rejected this argument. So do I. [41] Before undertaking his analysis, the trial judge correctly set out the interpretative principles.

I will repeat what he said: [61] The “overriding concern” when interpreting insurance policies and other commercial contracts “is to determine ‘the intent of the parties and the scope of their understanding’”: Sattva Capital Corp v Creston Moly Corp , 2014 SCC 53 , [2014] SCJ No 53 at para 47 , citing Jesuit Fathers of Upper Canada v Guardian Insurance Co of Canada , 2006 SCC 21 , [2006] 1 SCR 744, at para 27 per LeBel J.

To accomplish this, the court “must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract”: Sattva , at para 47. [62] In Sattva , Rothstein J. for the Court, explained the justification for considering the surrounding circumstances: 47 … Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning: No contracts are made in a vacuum: there is always a setting in which they have to be placed... .

In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating. ( Reardon Smith Line , at p. 574, per Lord Wilberforce) 48 The meaning of words is often derived from a number of contextual factors, including the purpose of the agreement and the nature of the relationship created by the agreement… As stated by Lord Hoffman in ( Investors Compensation Scheme Ltd. v.

West Bromwich Building Society ), [1998] 1 All E.R. 98 (H.L.) : The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. [p. 115] [63] Rothstein J. elaborated on the role of surrounding circumstances in contractual

interpretation: 57 While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement … The goal of examining such evidence is to deepen a decision-maker's understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The

interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract ... While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement …

58 The nature of the evidence that can be relied upon under the rubric of "surrounding circumstances" will necessarily vary from caseto case. It does, however, have its limits. It should consist only of objective evidence of the background facts at the time of the executionof the contract … that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the dateof contracting.

Subject to these requirements and the parol evidence rule discussed below, this includes, in the words of Lord Hoffmann,"absolutely anything which would have affected the way in which the language of the document would have been understood by areasonable man" (Investors Compensation Scheme, at p. 114). Whether something was or reasonably ought to have been within thecommon knowledge of the parties at the time of execution of the contract is a question of fact. [64] In searching for the intent of the parties, the court should avoid an

interpretation that would bring about “a result which wouldnot be contemplated in the commercial atmosphere in which the insurance was contracted”: Consolidated-Bathurst Export Ltd v MutualBoiler and Machinery Co, (SCC), [1980] 1 SCR 888 at p 901. In other words, “the interpretive process should beginwith an effort to construe an insurance policy in a commercially reasonable fashion which harmonizes all of its different parts”: GeoffHall, Canadian Contractual

Interpretation Law, 2d ed (Markham: LexisNexis Canada, 2012) at p 207. [42] He then referred to Highlands Insce v. Continental Insce, [1987] 1 Lloyd’s Rep. 109 (Com. Ct.) and Pan Atlantic v. Pine TopInsurance, [1993] 1 Lloyd’s Rep. 496 which considered Error and Omissions Clause(

s) albeit with different wording than the wording inthis case. [43] In Highlands the clause was as follows: The insured hereunder is not to be prejudiced by an unintentional and/or inadvertent omission error incorrect valuation or incorrectdescription of the interest, risk or property, provided that notice is given to the Company as soon as practicable upon the discovery of anysuch error or omission. [Emphasis added] [44] In Pan Atlantic the wording of the clause was: It is hereby declared and agreed that any inadvertent delays, omissions or errors made in connection with this Reinsurance shall not beheld to relieve either of the parties hereto from any liability which would have attached to them hereunder if such delay, omission orerror had not been made, provided rectification be made upon discovery, and it is further agreed that in all things coming within thescope of this reinsurance the re-insurers shall share to the extent of their interest the fortunes of the reinsured. [Emphasis added] [45] As is the case here, the error in Highlands and the omission in Pan Atlantic were held to be material.

In both instances, theCourt held that the Error and Omissions Clause, properly construed, did not relieve the insured of its obligation to accurately report allmaterial matters in the application for insurance. In Highlands the insured was prejudiced by a material misrepresentation. In PanAtlantic a material omission relieved the insurer of its liability to indemnify.

In both instances the coverage was held to be void becauseof an unintentional material error (Highlands) or omission (Pan Atlantic). [46] After a thorough review of those cases the trial judge here concluded: [75] I recognize that the wording of the clauses considered in Highlands and Pine Top is not identical to that used in Endorsement10. I also note that the Pine Top decision involved an omission, not a misrepresentation. I am satisfied, however, that the reasoning isequally applicable in this case. When one considers the contract as a whole and the surrounding circumstances, the

interpretationproposed by Grafton Connor and Marsh is commercially unreasonable. [76] The terms and conditions of an insurance contract are the product of the underwriter’s assessment of the risk, calculated usingthe information provided by the insured. To interpret the word “error” in the Endorsement as including misrepresentations would meanthat, after coverage is bound, an insurer who learns of an unintentional misrepresentation that materially increases the risk would have nomeans of increasing the premium, nor any right to void the insurance policy.

Yet the same insurer, pursuant to Statutory Condition 4,would have the right to increase the premium or void the contract if it learned from the insured of a material change to the risk occurringafter coverage was bound. I do not accept that this result was contemplated by either party to the insurance contract. [77] While it may be possible, as Marsh suggests, for an insurer to vary its statutory right to avoid a contract for unintentionalmisrepresentation, I find that the contract would have to include clear and unequivocal language to that effect.

The use of the word“misrepresentation” would be an appropriate starting point. [47] I agree and adopt the analysis of the trial judge. I would add there is an important distinction between the wording of the Errorsand Omissions Clause and Statutory Condition 1. The Errors and Omissions Clause makes reference to “Any unintentional error oromission made by the Insured”. In my view, the use of the word “insured” in that clause is significant. It is intended to address errorsand omissions which are made once the policy is in place.

Contrast that with the Statutory Condition 1 which provides: If a person applying for insurance falsely describes the property to the prejudice of the insurer, or misrepresents or fraudulently omits tocommunicate any circumstances that is material … [Emphasis added] [48] Statutory Condition 1 is intended to address those misrepresentations that are made when applying for insurance. It does notaddress issues once the insurance is in place. This is made clear by Statutory Condition 4 which deals with material change in the risk.

Once again, the terminology used in Statutory Condition 4 refers to “the insured” as contrasted with “person” in Statutory Condition 1.

It provides: Material Change 4.

Any change material to the risk and within the control and knowledge of the insured avoids the contract as to the part affected thereby, unless the change is promptly notified in writing to the insurer or its local agent, and the insurer when so notified may return the unearned portion, if any, of the premium paid and cancel the contract, or may notify the insured in writing that, if the insured desires the contract to continue in force, the insured must, within fifteen days of the receipt of the notice, pay to the insurer an additional premium, and in default of such payment the contract is no longer in force and the insurer shall return the unearned portion, if any, of the premium paid. [Emphasis added] [49] The difference between Statutory Condition 1 and Statutory Condition 4 are evident on their face, that is, Statutory Condition 1 applies before the insurance is put in place; Statutory Condition 4 applies once the insurance is in place.

Similarly, the use of the word “insured” in Endorsement 10 supports the

interpretation it was intended to apply to errors or omissions that occur once the insurance is in place. Endorsement 10 does not apply to precontractual material misrepresentations made in the course of applying for insurance as was the case here (see Highlands , p. 117). [50] Marsh seeks to distinguish the two cases based on different wording in those clauses and Endorsement 10: “prejudice” and “held to relieve … from any liability” ( Highlands and Pan Atlantic ) and “void” (Endorsement 10). With respect, this is a distinction without a difference. The import of the clauses in each of the cases is the same.

The insurer is entitled to deny liability under the policy of insurance as a result of the material misrepresentation. [51] The trial judge also found that the

interpretation suggested by Grafton Connor and Marsh was commercially unreasonable as there was no provision in the clause to increase the premium (¶55 and ¶76). A similar conclusion was reached in Highlands where the Court held: …Significantly, the clause contains no provision for an additional premium. That may be commercially acceptable in relation to formal errors, e.g., the address of the insured premises. It is, however, quite inconceivable that it was intended to apply to a risk which was materially misrepresented.

No doubt, as was submitted on behalf of Highlands, there are a number of other answers to the reliance placed on this provision. It is sufficient, however, to record that I am quite satisfied it does not apply to precontractual material representation, which entitled the re-insurers to void on the grounds of misrepresentation. Inevitably, this argument must fail. [52] Again, I agree with the trial judge’s conclusion. [53] Marsh argued that it is possible to vary the statutory condition to preclude the voiding of the contract for material misrepresentation and that is what the parties agreed to in this case.

Such was the case in HIH Casualty and General Insurance Limited v. Chase Manhattan Bank , [2003] UKHL 6 , relied upon by the appellants. However, the clauses in HIH are markedly different from Endorsement 10.

They provide: "[6] the Insured will not have any duty or obligation to make any representation, warranty or disclosure of any nature, express or implied (such duty and obligation being expressly waived by the insurers) and [7] shall have no liability of any nature to the insurers for any information provided by any other parties and [8] any such information provided by or nondisclosure by other parties including, but not limited to, Heath North America & Special Risks Ltd (other than

Section I of the Questionnaire) shall not be a ground or grounds for avoidance of the insurers' obligations under the Policy or the cancellation thereof". [54] The context in which this clause was created is entirely removed from this case. In HIH the insured, Chase, had been enticed into investing in the development of films. Not being experts in film-making, Chase was relying on its broker/agent, Heath for the information. The entire scheme to have banks invest in films had been developed by Heath as a middle person.

They provided the expertise and the banks provided the funds. [55] Chase insured against potential loss with the underwriter, HIH, on the understanding that the risks were not something Chase could disclose. Heath was the expert and not Chase. In fact, Chase had no useful information for the insurer at all. In light of this, Chase required indemnification for the information provided by Heath or they would have never entered the investment opportunity or the insurance contract. In that circumstance, unlike here, the insured was not in a superior position to the insurer as regards of risk to be insured.

As a result, the drafting of the clause and the commercial reality of the agreement in HIH are completely different than the present case and does not assist the appellants. [56] I am satisfied, taking into consideration the wording of the policy, the circumstances of the parties and commercial realities, that Endorsement 10 was never intended to relieve the insured of its obligations under Statutory Condition 1. [57] I would dismiss this ground of appeal. 5 Issue #2 Whether the trial judge erred by failing to attribute to Grafton Connor the actual knowledge of Gary

Hurst concerning the construction and sprinklering of the North End Pub (Marsh’s Appeal) [58] Although the parties address this issue as an attribution to Grafton Connor of Mr. Hurst’s knowledge, I think it is more appropriately framed as the attribution to Beaufort Investments of Mr. Hurst’s knowledge. As noted earlier, Grafton Connor is used to refer to a group of companies. Although there is a Grafton Connor Property Inc., it was not the owner of the North End Pub. Grafton Connor, as referred to by the trial judge and the parties, is not a separate corporate entity.

As a result, when addressing this issue I will refer to Beaufort Investments as it is the relevant entity. [59] There are two distinct issues arising under this ground of appeal. The first is whether Marsh is entitled to raise the argument that Mr. Hurst’s knowledge concerning the construction and sprinklering of the North End Pub ought to be attributed to Beaufort Investments. Grafton Connor argues that the issue was not raised before the trial judge and, therefore, we should not entertain it. [60] The second issue, if we entertain the argument, is whether Mr.

Hurst’s knowledge should be attributed to Beaufort Investments. 5.1 Should this Court entertain Marsh’s Argument on this Appeal? [61] In order to answer this question, some further background is necessary. Often, in lengthy cases like this one, the pleadings get forgotten or ignored. On this issue, it is important to go back to the pleadings and the submissions of the parties to determine what was in issue before the trial judge. I will start with the Originating Notice (Action) and Statement of Claim which was filed on March 7, 2008. It states: 5.

By written memorandum dated July 22 nd , 1999, Blake Miller forwarded to the Plaintiffs copies of the Molson Business Edge policy of insurance covering the Premises along with eight copies of the application form on which particulars had been filled out.

The Plaintiffs were instructed to sign and return the applications to Blake Miller at Marsh and did not notice the applications, as filled in by Marsh, had stated in error that the premises were 100% sprinklered, and that the construction of the Premises was “Masonry” . [Emphasis added] [62] The Statement of Claim does not say the Plaintiffs did not know of the true state of the construction and sprinklering at the North End Pub but rather they “did not notice” the error. [63] The Statement of Claim was amended on May 9 th , 2012, four years after the original Statement of Claim and well into the litigation.

There was no change made to paragraph 5. [64] The Statement of Claim was further amended on November 4 th , 2014. Again, no change to paragraph 5. [65] In its pre-hearing brief filed on May 27, 2014, Grafton Connor says the following: 39. It is acknowledged that the property was not sprinklered and accordingly the description in the Location Details

Summary was incorrect. Nevertheless, it is the position of Grafton Connor that the misdescription was unintentional and is forgiven by Endorsement No. 10 and did not entitle Lloyd’s to void the policy. … 40. There will be no evidence to suggest the description was intentional. [66] In its extensive post-trial submissions dated September 5, 2014, Grafton Connor did not deny that it had knowledge of the true state of the construction of the North End Pub.

The issue focused on whether Lloyd’s was entitled to void the policy and whether Marsh ought to have taken steps to ensure the information provided was correct. [67] In Marsh’s pre-trial brief dated May 26, 2014, it says: … The law allows an insurance broker to rely upon the accuracy of the information it is provided by its client. The evidence at trial will also disclose that Gary Hurst, the President of Grafton Connor, knew at all relevant times that the North End Pub was not sprinklered and was not of masonry construction. Marsh’s client was Grafton Connor, and through Mr.

Hurst, Grafton Connor knew whether the North End Pub was sprinklered and of masonry construction. Marsh is not required to inform Grafton Connor of information that it already knows, and that Grafton Connor had simply failed to accurately disclose through its own carelessness. Accordingly the claim against Marsh must be dismissed with costs. [Emphasis added] [68] To put this statement into the context of Beaufort Investments, Marsh was saying that its client was Beaufort Investments and through Mr.

Hurst, Beaufort Investments knew whether the North End Pub was sprinklered and of masonry construction. [69] Later in that same brief Marsh makes the following submissions: However, there is no basis in law for the contention that a broker in the position of Marsh is under a duty to independently verify the representations of an insured, particularly where knowledge of the correct state of affairs is within the actual knowledge of the insured making the representations. … [Emphasis added]

[70] In its post-hearing brief dated October 3 rd , 2014, Marsh, again, raises the issue of the knowledge of Beaufort Investments with respect to the representations: 46. Regardless whether Endorsement 10 operates to provide coverage to the Plaintiffs, there is no basis for the contention that a broker in the position of Marsh owes a duty to its client to independently verify the representations of an insured where knowledge of the correct state of affairs is within the actual knowledge of the insured making the representations .

The Plaintiffs themselves have offered no authority to support that contention, which is also contrary to common sense. … [Emphasis added] [71] There is no ambiguity in Marsh’s submissions; it made it clear that in the formulation of the standard of care the trial judge had to consider the knowledge of the insured. [72] A review of the pleadings, the pre and post-trial submissions reveal Beaufort Investment’s knowledge of the true state of affairs was never really in issue. It only becomes an issue as a result of the findings in the trial judge’s decision where he focuses on Mr.

Raymond’s personal knowledge: [314] … I am satisfied that an insurance broker of reasonable competence, taking on a client like Grafton Connor in 1999, would have made inquiries of Mr. Raymond to satisfy himself that he was capable of completing the application forms accurately. He would have asked if there had been inspections done on the properties in the past from which Mr. Raymond could glean the relevant information. If not, he would have discussed the benefit of inspections with the client, and the consequences of a failure to provide accurate information.

I find that Marsh’s failure to make these inquiries constituted a breach of its duty to provide appropriate counsel and advice. … [316] If Mr. Miller had asked Mr. Raymond about his experience placing property coverage and his ability to provide accurate answers to the questions on the application, Mr. Raymond would have realized that he could not rely on Mr. Miller to compile the information for him . … [317] Whether the standard of care will require the insurance broker to make inquiries of the nature described above will depend on the complexity of the risk.

The decisions in Biggar , O’Connor , Wolfe , Goodbrand , and Edwards involved basic life, home and auto insurance applications. The information required to obtain these types of coverage would be within the personal knowledge of the applicant, regardless of his or her experience with the placement of insurance .

In such a situation, there would be no obligation on the broker to make inquiries as to the applicant’s ability to accurately respond to the questions being asked. [Emphasis added] [73] As can be seen from the above passage, the trial judge is making a distinction between the duty of care in the situation where the information is within the personal knowledge of the applicant and where it is not. By the applicant in this case, he is referring to Mr. Raymond.

He did not turn his mind to whether the insured, Beaufort had knowledge of the true state of affairs, as argued by Marsh. [74] Grafton Connor says the following in its factum: 69. At trial, there was no focused inquiry with respect to Grafton Connor’s directing mind and, in particular, who that individual might have been with respect to placing insurance . The answer to that question is one of mixed law and fact and Grafton Connor did not have an opportunity to present any evidence to challenge Marsh’s new assertion that the role was fulfilled by Hurst.

As such, it would be clearly prejudicial to allow argument on the issue based on the Trial Record. [Emphasis added] [75] With respect, there was no focused inquiry with respect to Grafton Connor’s (Beaufort Investments) directing mind as Grafton Connor did not take the position at trial that it did not have knowledge of the true state of affairs. [76] At no time was it pleaded or suggested that the knowledge of Mr. Hurst was not the knowledge of Beaufort Investments. Nor did it deny that Beaufort Investments had knowledge of the true state of the construction and sprinklering of the building.

Contrary to the submissions of Grafton Connor, it would be unfair to Marsh not to address the issue on this appeal. [77] It is clear Beaufort’s knowledge in placing the insurance was a live issue at trial and it is, therefore, necessary to consider what was its knowledge and what, if any impact, that knowledge had on the formulation of the standard of care of Marsh.

I find it is not only appropriate to consider what Beaufort Investments’ knowledge would have on the formulation of the standard of care, it is necessary to address the issues on appeal. [78] On the basis of the pleadings, the pre-hearing and post-hearing briefs alone, I would conclude that Mr. Hurst’s knowledge that the building was not of masonry construction and not sprinklered should have been attributed to Beaufort Investments. Simply because it was never an issue that Beaufort had that knowledge. However, I will go further and consider whether Mr.

Hurst’s knowledge ought to be attributed to Beaufort Investments based on the applicable legal principles. 5.2 Mr. Hurst’s Knowledge [79] As noted, Mr. Hurst was the owner of the North End Pub. His direct evidence of his knowledge on the sprinklering of the North End Pub is as follows:

Q. All right. At the time prior to the fire at the North End Pub, had you been aware of whether either portion of that building had been sprinklered? A. I knew that they were that neither were sprinklered . Q. Why did you know that? A. Well, because of the age of the building.

There are no buildings of this era built in the early '50s that are sprinklered in Nova Scotia because there were no requirements for sprinklers. … A. … And anyone with rudimentary knowledge of sprinkler requirements and fire protection should have known that. [Emphasis added] [80] Later in cross-examination the following exchange took place between Mr. Hurst and Lloyd’s counsel: A. I don't agree with the inference that I walked in the sense that I abandoned the representation of our company and our insurance matters to somebody who didn't have the ability or the knowledge or the skill to handle the job. Q.

If you find the way I put the question offensive, let me rephrase it. All you did after Raymond took over all you did in relation to insurance the extent of your interest, the extent of your involvement was discussions with him and perhaps others about whether there were liability coverages available, whether they were adequate, and how much you were going to pay for the premiums. Correct? A. I take you up on your offer. I don't think that accurately represents what I did or my state of mind.

I thought I was convinced then, as I am now, that the matter was left in good hands with Ed Raymond, as I did with Steve McMullin. They're both very skilled guys and they take their jobs very they take their jobs seriously, and I have the highest regard for their integrity . … Q. You did not look at one single application for insurance on all of these properties from when nineteen ninety what year was it? When did Ed Raymond take it over? A. I think six, '96. Q. 1996. From that point in time until after the fire, you never looked at one application for coverage, did you ? A.

I delegated the work to Ed Raymond, just the same way as people delegate CEOs and other people delegate jobs to others. But I mean, there was nothing unusual about it . Q. Mr. Hurst, put the notion of delegation aside. Let's just put that out in the corridor for a minute, and just answer my question. Did you look at any applications for insurance from nineteen ninety whatever it was forward to 2007? Do you understand the question? A. Yes. Q. What's the answer ? A. No . Q. Thank you.

Did you have any dealings whatsoever with anybody at Marsh Canada from whenever Raymond took over until after the fire in March of 2007? Yes or no? A. No. Didn't feel the need to. [Emphasis added] [81] The evidence establishes that Mr. Hurst, in or around 1996, delegated the responsibility for placing insurance on the North End Pub to Mr. Raymond. He had confidence in Mr. Raymond and, later Mr. McMullin, to do the job appropriately. He delegated the work to Mr. Raymond just as a CEO would do with respect to any number of tasks.

Between 1996 and 2007 he personally did not review any of the information submitted on the insurance applications nor did he have any interaction with Marsh. [82] I will now turn to the testimony of Mr. Raymond and his relationship to Beaufort Investments: Q. And this proceeding involves a series of properties that were covered by insurance. You've seen the identity of the properties or the operations that are involved in this lawsuit. Were you involved in all of those ? A. No, I wasn't.

And, in fact, Beaufort Developments, which owned the property in question for this case, was a company that I never had any interest in, ownership interest . I was a director of that company as a convenience to Gary for a number of years. I think I resigned in 1995. I've never had any financial interest in Beaufort . Q. In the other properties you were A. The other properties? A number of them I did have an interest.

I don't know if I can name them all but I can refer to some of them, The Five Fishermen Limited, Cornwallis Properties, which owed Lawrence of Oregano, we owned Alfredo Weinstein and Ho, the Grafton Dinner Theatre, we got involved with Dooly's at a later date and owned a couple of those. I may not have included everyone but that's a number of them.

… Q. What was your function in the years that you were there? What were your responsibilities? A. Well, I would be a general manager of specific locations, such as My Apartment or Five Fishermen, the dinner theatre, Alfredo's, and I would work with the operating manager on those locations. As a matter of interest, I never was the general manager of Beaufort or the North End Pub . [Emphasis added] [83] Mr. Raymond mistakenly refers to Beaufort Developments. In this context, he clearly meant Beaufort Investments (There is no Beaufort Developments in the Grafton Connor Group of Companies). Mr.

Raymond had no ownership interest in Beaufort Investments. He had an interest in some of the other entities covered under the insurance policies. He acted as general manager of some specific locations but never was the general manager of Beaufort or the North End Pub. [84] What we are left with is that Gary Hurst, the sole director and owner of the North End Pub with actual knowledge that the pub was not of masonry construction nor sprinklered.

He delegated responsibility to individuals who he felt were competent to ensure that the insurance was placed appropriately. 5.3 In these circumstances is the knowledge of Mr. Hurst the knowledge of Beaufort Investments? [85] I agree with the submissions of Beaufort that who may be a directing mind of a corporation, and for what purposes, are fact- specific questions. The answers will largely depend on the specific circumstances. [86] Both Marsh and Beaufort cite Sweet & Maxwell, MacGillivray on Insurance Law , 12 th ed. (Thomson Reuters (Professional) UK Limited: 2012) at pp. 477-478, although to different ends.

I will reproduce the

section in full: Actual knowledge of natural and corporate assureds. Whether a material circumstance is known by a natural assured is simply a question of fact—“he knows what he knows.” Thus a proposer for life or sickness insurance need not disclose the existence of a medical condition of which his doctors have not told him, so long as he is genuinely ignorant of it and is not shutting his eyes to the truth. The knowledge of a corporate assured is more complex.

It depends upon the identification of those persons whose actual knowledge is to count as the knowledge of a company for the purpose of the disclosure rule imposed upon all proposers for insurance in order to enable insurers to make an informed assessment of the risks presented to them. There is little authority on this question, which in practice arises when the director or manager responsible for arranging the company’s insurances is ignorant of a fact known to another director or employee.

It is submitted that the knowledge of those who represent the directing mind and will of the company, and who control what it does, is to be identified as the company’s knowledge, whether or not they are responsible for arranging the insurance cover in question . This class of persons usually consists of directors and officers of the company. It can include non-directors to whom the exercise of the company’s powers has been delegated by the board of directors, whether generally or in relation to a particular business activity.

It has been said in obiter that the knowledge of a person responsible for arranging the insurance cover should count as the company’s knowledge even if not identifiable as part of its directing mind and will, but it is submitted that corporate knowledge is restricted to the knowledge possessed by the company’s directing minds, and that the knowledge of employees and agents is not the actual knowledge of the company, although it may be deemed to know what they know on other grounds .

Section 18(1) of the Marine Insurance Act 1906 provides that in certain circumstances a corporate insured is deemed to know what its agents and employees know, and this appears to be based on the imputation of such knowledge to the persons who embody the directing mind of the company.

The courts have interpreted the deemed knowledge provision in s.18(1) restrictively, and, if the actual knowledge of employees below the status of director is too readily identified as the actual knowledge of the company, there is a risk that the limitations placed on the imputation of their knowledge, qua agents, to the directing minds of the company will be circumvented .

The nature and terms of the particular insurance policy may also make it inappropriate to attribute the knowledge of one or more directors to a corporate assured. [Footnotes omitted, emphasis added.] [87] “Attribution” then is dependent on the identification of the natural persons whose knowledge and will are to be attributed to the corporation. While employees and agents may be so identified, MacGillivray suggests this should be done restrictively. There is some combination of practicality and policy in this suggestion.

The “identification” of the directors, whether or not involved in the insurance negotiation, satisfies concerns arising from a lower level identification: • To identify at the level of the agent would, otherwise, permit directors to claim ignorance of what they should know. • A director with knowledge unknown to the agent should not be able to avoid their responsibility to the insurer by simply not sharing the relevant information. • Uberima fides should require the corporate insurance seeker to take all the steps a natural person seeking insurance is required to take.

If this requires investigation, discussion, etc., because of the size or number of assets, this is squarely the responsibility of the insured. Attribution to directors places ultimate responsibility for this undertaking upon those specifically designated by shareholders and the corporation itself with management of such issues. [88] Beaufort is, therefore, arguing against what would seem to be a logical and basic principle: a director will be the identified source of corporate knowledge, absent some exceptional scenario.

The intrusion of an agent or employee into the mix does not disrupt this, but rather places an obligation on the director to satisfy his role as director by sharing all relevant knowledge to and through his

agent. [89] Jetivia SA v. Bilta (U.K.) Ltd. , [2015] UKSC 23, finds the same principle in its analysis of Meridian Global Management Asia Ltd. v.

Securities Commission Co. (New Zealand) , 1995 UKPC 26 : [67] …The primary rule of attribution is that a company must necessarily have attributed to it the state of mind of its directing organ under its constitution, ie the board of directors acting as such or for some purposes the general body of shareholders. … [90] In Jetivia , Lords Toulson and Hodge discuss the attribution of knowledge in the civil sphere and identified three different contexts in which it arises: 1. when a third party is pursuing a claim against the company arising from the misconduct of a director, employee or agent; 2. when the company is pursuing a claim against a director or an employee for breach of duty or breach of contract; and 3. when the company is pursuing a claim against a third party. (¶204) [91] The third circumstance is this case. [92] Lord Sumption in Jetivia also cites Royal Brunei Airlines Sdn Bhd v.

Tan [1995] 2 AC 378 , in which a “one man” company is held liable for the knowledge/actions of the one man. This is attribution at its most direct. [93] In Jetivia , after outlining the three contextual circumstances where attribution arises, Lords Toulson and Hodge give an example of the third context: 207. In the third case, where the company claims against a third party, whether or not there is attribution of the director’s or employee’s act or state of mind depends on the nature of the claim.

For example, if the company were claiming under an insurance policy, the knowledge of the board or a director or employee or agent could readily be attributed to the company in accordance with the normal rules of agency if there had been a failure to disclose a material fact . … [Emphasis added] [94] The example given is precisely the situation which we have before us. Beaufort Investments, in placing insurance, made a material misrepresentation of a fact which was within the knowledge of Mr.

Hurst, its owner and sole director. [95] If Gary Hurst is not the directing mind of Beaufort and his knowledge is not attributed to Beaufort, Beaufort had no knowledge of its own assets. This result cannot be acceptable. [96] Mr. Hurst’s situation is similar to that which arose in 373409 Alberta Ltd. (Receiver of) v. Bank of Montreal , 2002 SCC 81 . The Supreme Court of Canada found that a sole shareholder, director and officer of the numbered company was the only person capable of acting as the corporation’s directing mind.

It held: 19 There can be no doubt that Lakusta's act of directing the Bank to deposit the proceeds of the cheque into Legacy's account can be attributed to and considered authorized by 373409. See Lennard's Carrying Co. v. Asiatic Petroleum Co. , [1915] A.C. 705 (H.L.) , per Viscount Haldane L.C., at p. 713: ... a corporation is an abstraction.

It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation. That person may be under the direction of the shareholders in general meeting; that person may be the board of directors itself... . 20 Here, Lakusta was the sole shareholder, director, and officer of 373409.

He was the only person capable of acting as the corporation's directing mind, and he formed the entire "ego" and "personality" of the corporation. In his capacity as sole shareholder and director of the corporation, he had the full capacity to delegate authority to the corporation's agents . He was the sole officer of the corporation, and its only agent. Consequently, any act which he undertook as 373409's agent must be deemed authorized by the corporation.

The only conclusion available on the evidence was that Lakusta, qua shareholder and director, authorized Lakusta, qua officer, to deposit 373409's funds into Legacy's account. [Emphasis added] [97] While this case is referring to a situation involving an issue of fraud, the concept of primary attribution is useful. There is no other person “within Beaufort” who could be its directing mind or its “ego” as referred to by the Supreme Court of Canada.

As a result, when Hurst was acting qua Beaufort, (in earlier years when he placed insurance or later when delegating) he was the corporation. [98] Earlier I set out the testimony of both Mr. Hurst and Mr. Raymond with respect to their relationship with Beaufort Investments. It is clear from that testimony that Mr. Hurst was the directing mind of the company who delegated the responsibility for placing insurance to Mr. Raymond. Mr.

Raymond had little, if any, relationship to Beaufort other than to place the insurance. [99] I have no hesitation finding in these circumstances that Hurst’s knowledge ought to be attributed to Beaufort. I agree with Blair, J.A.’s comments in Livent Inc. (Receiver of) v. Deloitte & Touche , 2016 ONCA 11 , that attribution is not the end of the analysis, but rather, a step in determining the legal consequences of the knowledge or state of mind (¶103). [100] It was Mr. Hurst who was the directing mind and will of the company and he controlled what it did.

Under these circumstances, his knowledge is the knowledge of the company.

[101] I will now turn to what impact that knowledge has on the formation of the standard of care. 6 Issue #3 Whether the trial judge erred in formulating the standard of care to be met by Marsh and by attributing liability to Marsh (Marsh’s Appeal) Standard of Review [102] The formulation of the standard of care is a question of law and will be reviewed on the standard of correctness ( Cherubini Metal Works Ltd. v. Nova Scotia (Attorney General) , 2011 NSCA 43 . See also Gwynne-Timothy v. McPhee , 2005 NSCA 80 , ¶33). Analysis [103] As I had mentioned earlier in these reasons, Mr.

Hurst was responsible for the placing of insurance for Beaufort Investments and the other Grafton Connor companies until 1996; between 1996 and 2003 Mr. Raymond was responsible for placing insurance; from March 2003 until the fire Mr. McMullin was the party responsible for placing insurance. The judge reviewed, in considerable detail, the evidence of the various witnesses at trial (see ¶147-266 of trial decision). After reviewing the evidence he made certain findings of fact relating to Marsh’s liability to Grafton Connor. I will summarize the findings of fact made in the trial judge’s decision: • Mr.

Raymond and Mr. McMullin were both successful professionals. However, neither was sophisticated with respect to the placement of commercial property insurance. Mr. Raymond and Mr. McMullin were both aware of the importance of providing accurate information to an insurer underwriting coverage. • Mr. Hurst was aware that the North End Pub was of mixed construction and was not sprinklered. • When Mr. Hurst asked Mr. Raymond to assume responsibility for placing property insurance he provided no instructions to Mr. Raymond nor did he review the features of any of the properties with Mr.

Raymond, including the North End Pub. • Neither Mr. Raymond nor Mr. McMullin knew whether the North End Pub was sprinklered. Nor did either of them ask Mr. Hurst or any employee of the pub whether the property was sprinklered. • The misrepresentation that the North End Pub was of masonry construction and sprinklered originated with Marsh on the 1999 application form. • When Mr. Raymond reviewed the 1999 application form he agreed with the description and adopted it as his own. • In 1999, the forms were filled out by Mr.

Miller with the assistance of Charlotte Henderson, an assistant comptroller with Grafton Connor. • When Mr. Raymond reviewed the forms he believed the information thereon had been gathered by Blake Miller. He relied upon Mr. Miller to complete the forms accurately. However, he did not tell Mr. Miller that he was relying on him, nor did he ask Mr. Miller or Ms.

Henderson how the information on the forms had been acquired. • The error on the 1999 form was the product of the conflation by Marsh of information pertaining to the North End Pub and Tomorrow’s Lounge. • Each year Grafton Connor was given the opportunity to review and update the information being submitted to the insurer in order to renew coverage. • The representations that the North End Pub was of masonry construction and 100% sprinklered appeared on the forms each year and remained uncorrected. • In 2003, Mr. Raymond delegated responsibility for insurance to Mr. McMullin.

He gave no instructions and did not review the various kinds of coverage with him. • The first time Mr. McMullin saw the Locations Details

Summary was in 2003. Marsh did not discuss the individual categories listed on the Locations Details

Summary, other than the business interruption which Mr. McMullin was shown how to calculate. • When Mr. McMullin was asked to update the Locations Details

Summary, he assumed the information in the construction and sprinklering comments was accurate because it was historical information and he had no reason to doubt its veracity. • There were two inspection reports prepared by a company named Technical Risk Services Inc. (TRS). It performed inspections on the Grafton Connor building and the North End Pub in November 2002. • Mr. Burke of Marsh Adjustment knew of the inspections and received a report for the Grafton Connor building but he did not receive a copy of the inspection report for the North End Pub. • Mr.

Burke did not provide the TRS inspection report for the Grafton Connor building to Marsh UK. [104] The trial judge made other findings of fact, however, those outlined above are the findings applicable to his analysis of the

standard of care of an insurance broker. One finding that is absent from the trial judge’s decision is the status of the TRS inspectionreport on the North End Pub. That report is attached to a letter dated January 16, 2003, and is addressed to the then General Manager ofthe North End Pub, Harvey Warren. In that report there are two statements that clearly showed the North End Pub was not sprinklered. On page 3 of the report the author states: The contact stated they are currently getting a price on installing a sprinkler system. On the next page he says: There is currently no automatic sprinkler system.

The insured is in the process of getting a quote to have the building sprinklerprotected. [105] It does not appear that this report was received or reviewed by anyone at Grafton Connor. [106] Whether it was received by Grafton Connor is a bit of an aside because no one is suggesting the information relating to thesprinklers is inaccurate. To the contrary, Grafton Connor relies on its accuracy in its claim against Marsh. [107] I mention this evidence as it appears to me to be somewhat important for the issues that were before the trial judge. In ¶329 ofthe trial judge’s decision he says: [329] … Mr.

Hurst appears to have been the only person at Grafton Connor who was aware that the North End Pub was mixedconstruction and had no sprinklers. … [108] This document certainly calls into question his finding that Mr. Hurst was the only person at Grafton Connor who was aware thatthe North End Pub had no sprinklers. The best that can be said from the evidence at trial was that as between Mr. Raymond, Mr.McMullin and Mr. Hurst, only Mr. Hurst had that knowledge. [109] It certainly begs the question of whether Mr. Warren who, by Mr.

Hurst’s account, was the General Manager of the North EndPub for two to three years in the late 1990s, would have knowledge that the property was not sprinklered. Particularly in light of Mr.Hurst’s evidence that I had referred to earlier that “anyone with rudimentary knowledge of sprinkler requirements and fire protectionshould have known” that the North End Pub was not sprinklered. It defies logic that Mr.

Warren, the general manager working in thepub, would not have known that. [110] With this factual backdrop, I will now turn to the trial judge’s formulation of the standard of care of Marsh. [111] With respect, it is my view that the trial judge’s formulation of the duty of care owed by Marsh to Grafton Connor is both legallyand factually flawed. Particularly where the trial judge failed to consider that Grafton Connor had knowledge that the pub was notsprinklered and of mixed construction. [112] The relationship between an insured and an agent is well-established. In Ken Murphy Enterprises Ltd. v.

Commercial UnionAssurance Co. of Canada, 2005 NSCA 53, this Court found that it is the insured’s duty to provide correct information to its agent and itis the agent’s duty to deliver a policy which provides the appropriate coverage. Freeman, J.A. stated: 42 The customer's duty is to provide accurate information respecting the risk, and to pay the premium. The customer is entitled to relyon the skill and expertise of the agency to obtain and deliver a policy which provides the insurance coverage his premium has paid forduring the coverage period.

If a material change in the risk occurs during the coverage period it is the duty of the customer, the insured,to notify the agency or the insurer. … [113] The relationship has also been discussed in the Fletcher v. Manitoba Public Insurance Co., (SCC), [1990] 3S.C.R. 191 in which Justice Wilson, adopted the reasoning of the majority in the seminal case of Fine’s Flowers Ltd. et al. v.

GeneralAccident Assurance Co. of Canada (1977), (ON CA), 17 O.R. (2d) 529 (C.A.) as follows at p. 216: In my view, Fine's Flowers stands for the proposition that private insurance agents owe a duty to their customers to provide notonly information about available coverage, but also advice about which forms of coverage they require in order to meet their needs. Inote that Professor Snow has summarized the effect of Fine's Flowers in "Liability of Insurance Agents for Failure to Obtain EffectiveCoverage: Fine's Flowers Ltd. v. General Accident Assurance Co." (1979), 9 Man.

L.J. 165, in the following terms, at p. 169: The implication of this case and many others like it in recent years seems clear. Consumers who place their faith in insurance agentsholding themselves out as competent and find their faith misplaced, will frequently be able to find recourse against the agent. ... [T]heextent of the duty owed by an insurance agent, both in placing insurance and in indicating to the insured which risks are covered andwhich are not, as set out in this case, is a fairly stringent one for the agent.

Moreover, given the general situation of the principal relyingvery heavily on the expertise of the agent, it does not seem to be an unreasonable burden for an insurance agent to bear. [Emphasisadded.] The duty of care owed by an insurance agent was further elaborated in G.K.N. Keller Canada Ltd. v. Hartford Fire Insurance Co.(1983), 1 C.C.L.I. 34 (Ont. H.C.) (conf. on appeal (1984), 4 C.C.L.I. xxxvii (Ont. C.A.)).

It was held in that case that where the customeradequately describes the nature of his or her business to the agent, the onus is then on the agent to review the insurance needs of thecustomer and provide the full coverage requested.

Should an uninsured loss occur, the agent will be liable unless he or she has pointedout the gaps in coverage to the customer and advised him or her how to protect against those gaps. [Emphasis added] [114] Although the trial judge references the above-noted cases, in my view, he failed to properly apply them or to explain why he wasdeviating from the well-settled law on the respective duties of the parties.

[115] His deviation from the normal duties of the parties seems to arise from his characterization of Mr. Raymond and Mr. McMullin asunsophisticated clients and the risks to be insured as significantly complex. At ¶312 he says the following: [312] As Marsh points out in its submissions, the content of a broker’s duties will vary depending on the sophistication of the client.According to Marsh, Ed Raymond, a former lawyer, and Steve McMullin, an accountant, were sophisticated clients, and Marsh wastherefore entitled to assume that they needed little in the way of counsel and advice.

I have heard no evidence, however, that arepresentative of Marsh ever made inquiries of either man to ascertain his experience placing commercial property insurance, or thedegree of confidence each had in his respective ability to provide accurate answers to the questions required to secure coverage. Thatsuch inquiries were never made of Mr. Raymond is patently obvious, since he believed, despite multiple meetings with Blake Miller, thatMr.

Miller had gathered all of the information for the initial application and ensured its accuracy. [Emphasis added] [116] To put the trial judge’s statement into context, he would require agents in the position of Marsh to make inquiries of their clientsas to whether or not they had the necessary sophistication to determine whether or not the North End Pub was sprinklered and ofmasonry construction. With respect, this appears to be an attempt by the trial judge to do an end-run around the well-settled law whichrequires a customer to provide accurate information to its agent.

Stated another way, it is imposing upon an agent a requirement toverify the information which is in the knowledge of the insured. This would be a significant departure from the law as it presently exists. [117] The trial judge then goes on to speak in terms of the complexity of the risk: [317] Whether the standard of care will require the insurance broker to make inquiries of the nature described above will depend on thecomplexity of the risk. The decisions in Biggar, O’Connor, Wolfe, Goodbrand, and Edwards involved basic life, home and autoinsurance applications.

The information required to obtain these types of coverage would be within the personal knowledge of theapplicant, regardless of his or her experience with the placement of insurance. In such a situation, there would be no obligation on thebroker to make inquiries as to the applicant’s ability to accurately respond to the questions being asked. [318] Where the risk is significantly more complex, the broker must make additional inquiries, before the application form iscompleted or the information otherwise compiled, to ensure that the

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