Zurich Insurance Co. v.

Reeve, 1992 CarswellOnt 737

1992 CarswellOnt 737, [1992] I.L.R. 1-2877, 35 A.C.W.S. (3d) 654

1992 CarswellOnt 737

Ontario General Division

Zurich Insurance Co. v. Reeve

1992 CarswellOnt 737, [1992] I.L.R. 1-2877, 35 A.C.W.S. (3d) 654

Zurich Insurance Company, Royal Insurance Company of Canada, The General

Accident Assurance Company of Canada, Non-Marine Underwriters at Lloyd's
Under Cosntract No. O.C. 617, Applicants v. Peter E. Reeve, James A Meldrum,
Samuel F. Hughes, James M. Reeve, Peter K. Wood, Eric Mitchell, Murray
Agawa, J. Brian Reeve, Robert A. Chamillard, James B. Prendergast, Joanne
Browne, Rudolph W. Gardner, Judith O. Pennyfeather, Joan C. Fraser, in
her personal capacity and as Administrix of the Estate of Haddon S. Fraser,
Joseph G. Robertson, David G. Ford and Salvatore R. Curiale, formerly James P.
Corcoran, Superintendent of Insurance of the State of New York, as Liquidators
of Northumberland General Insurance Company (U.S. Branch), Respondents
Dilks J.

Judgment: September 21, 1992

Docket: Doc. RE1105/92

Counsel: G.F. Luftspring, for the applicants.

T.G. Andrews, for the respondent, Salvatore R. Curiale, Superintdent of Insurance for the State of New York, as liquidator of
Northumberland General Insurance (U.S.Branch).
J.W. Mik, for the respondents Peter E. Reeve, James M. Reeve, J. Brian Reeve and Judith O. Pennyfeather.

Subject: Insurance
Headnote
Insurance --- Claims — Policy limits
Application for declaration of liability limit — Factual issues in dispute — Premature application.
A liability insurance policy limited liability to a specified amount for claims in each policy year. In 1 year, notice of two claims
were submitted. There was a disagreement over the dates of the events giving rise to the claims and over the dates on which the
claims were made. The policy was ambiguous as to whether a notice constituted a claim. Insurer brought an application for a
declaration limiting its liability. Held, the application was dismissed. As substantial factual issues were in dispute, and as there
was no evidence before the Court with which it could resolve the ambiguity, the application was premature.

Dilks J.:

REASONS FOR RULING

1 This application is brought by insurers for a declaration under Rule 14.05(3)(d) limiting to a maximum of $3,000,000
their exposure under a policy of liability insurance issued to certain number of the respondents in their capacity as officers
and directors of Northumberland General Insurance Company, of which company the remaining respondent is the liquidator
in the State of New York.

2 None of the unrepresented respondents have appeared, although I find that they have been duly served with notice of
this application.

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Zurich Insurance Co. v. Reeve, 1992 CarswellOnt 737
1992 CarswellOnt 737, [1992] I.L.R. 1-2877, 35 A.C.W.S. (3d) 654

3 I am asked by those respondents who have appeared to rule on a preliminary issue, that is to say whether it is inappropriate
to seek such a declaration by way of application where, as it is contended, material facts are in dispute and the question is
largely hypothetical and premature.

4 The policy in question (Exhibit A to the affidavit of Michael Yip, filed in support of the application) was initially issued
for a period of one year from June 22, 1982 to June 22, 1983. It was extended for two further consecutive one-year periods
ending June 22, 1985.

5 For reasons which are not relevant to this ruling, the applicants cancelled the policy effective June 22, 1985. As permitted
under Section III thereof, the policy was nevertheless extended by the insureds for a fourth year to June 22, 1986.

6 It is common ground that:

1) claims presented during the policy period (June 22, 1982 to June 22, 1985) will be covered (including those in respect
of events giving rise to the claim which may have taken place before the policy period started, except where the insureds
were aware of the claim before the start of the policy year in which the claim is presented to the insurers).

2) claims presented during the extended policy period from June 22, 1985 to June 22, 1986 (also known as the "discovery
period") will also be honoured provided the event giving rise to the claim took place before the date of cancellation.

3) notices with respect to the two claims were given to the insurers July 18, 1985 and June 18, 1986 respectively. Although
the notices themselves were given in the same policy year, there is no agreement either as to the dates on which the claims
were made against the insureds or as to the dates of the events on which those claims were based.

4) the limit of liability is $3,000,000 for each policy year, under Item III of the Declarations in the policy.

5) the respondent Superintendent of Insurance for the State of New York has pursued one of the aforementioned claims in
the Supreme Court of the State of New York against certain of the respondents, but that action has not yet come to trial.

6) the Great Global Assurance Company was the claimant in the second claim. That claim has been settled by the applicants
paying out to Great Global the sum of $2,200,000 under the policy.

7 I should pause here to note that in the second part of their application, the applicants seek a declaration that, having paid
out the $2,200,000 to Great Global, the amount of $800,000 remains under the policy to satisfy the claim of the respondent
Superintendent of Insurance for the State of New York. Counsel have agreed, however, that this part of the application is not
to be dealt with at this time regardless of my ruling on the first part.

8 The position of the applicants is that the annual limit of liability applies to claims in respect of which notice was given
in the same policy year, and that since the two notices were presented in the same policy year, the limit to be applied to them
in aggregate is $3,000,000.

9 Under para. A (1) of section II "Insuring Agreements", the policy provides that the insurer "agrees ... to pay all loss that the
directors and officers shall become legally obligated to pay as a result of any claim ... made against them for a wrongful act."

10 Under para. A of section IV "Computation of Amounts Payable by the Insurer", the insurer shall pay 100% of loss (in
excess of a stated deductible) up to the maximum stated in Item III of the Declarations, i.e. the sum of $3,000,000 "which
amount regardless of the time of payment by the insurer shall be the maximum aggregate liability for loss in each policy year".

11 "Loss" is defined in s.IF as any amount which the insureds are legally obligated to pay ... for a claim or claims made
against them.

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Zurich Insurance Co. v. Reeve, 1992 CarswellOnt 737
1992 CarswellOnt 737, [1992] I.L.R. 1-2877, 35 A.C.W.S. (3d) 654

12 "Claim" is defined in s.IA as meaning that the insureds have either received notice that someone intends to hold them
responsible for a wrongful act or have learned of an occurrence which might later cause someone to hold the insureds responsible
for a wrongful act.

13 "Wrongful act" is defined in s.IJ as meaning "libel, slander, defamation of character, any breach of duty, neglect,
error, misstatement, misleading statement, omission or other act done or wrongfully attempted" by insureds in their capacity
as directors or officers.

14 From these provisions one might well conclude that the general position of the respondents is valid in that if the losses
occur in different policy years they will each have the benefit of the $3,000,000 maximum. However, the applicants point to
s.VI ("General Conditions"), particularly para. B) ("Notice of Claim") as being determinative of the issue in their favour. After
providing that the insureds are obliged to give written notice with full particulars thereof as soon as practicable after being made
aware of a "claim situation" (a phrase which the policy fails to define), para. B) states: - "... then any such claim ... arising out of
such particulars and which subsequently materializes in judicial proceedings shall be treated as a claim made during the policy
year in which such notice was given".

15 Finally, as the applicants argue, s.II(B) makes it clear that the policy is to apply only to claims presented to the insurer
during the policy period.

16 The applicants rely on the wording of these portions of s.VI to support their claim that on a proper interpretation of the
policy the maximum amount of coverage available to cover the two claims is $3,000,000 by reason of the fact that notice of
the two claims was given in the same policy year.

17 An application is not an appropriate vehicle where there are material facts in dispute (Anglo Canada Fire & General
Insurance Co. v. Robert E. Cook Ltd., [1973] 2 O.R. 385; Beloit Canada Ltee./Ltd. et al v. Valmet O.Y. (1986), 8 C.I.P.R. 68); or
where the factual situation, although not strictly in dispute, is really hypothetical (Barnes et al v. Townships of Kaladar, Angelsea
and Effingham, 52 O.R. (2d) 283; Re 296616 Ont. Ltd. and Town of Richmond Hill, 14 O.R. (2d) 787; Re Skinner, [1970] 3
O.R. 35); or where the effect will be to fragment the trial (Elcano v. Richmond, Richmond, Stambler and Mills, 9 C.P.C. (2d)
260; Beloit Canada Ltee./ Ltd. v. Valmet O.Y. (supra)); or when the determination will not end the dispute (Anglo Canada Fire
& General Insurance Co. v. Rogert E. Cook Ltd. (supra)); or when the document to be interpreted is ambiguous (Trans Canada
Pipelines Ltd. v. Northern & Central Gas Corp. Limited, 146 D.L.R. (3d) 293).

18 The respondents allege bad faith in connection with the payment to Great Global. That, however, is an issue which is
relevant only to the second part of the application, and that part of the application does not concern me at this time.

19 All counsel agree that there are factual issues as to when the wrongful acts occurred and as to when the claims came to
the attention of the insureds. Of course, if the applicants are correct in their contention that it is the giving of notice (that is to
say the presenting of a claim) to the insurer that governs, then such factual issues would be irrelevant. But, as Van Camp J. said
in Anglo Canada File & General Insurance v. Robert E. Cook Ltd. (supra) at p. 387, "where an order of the Court, under these
Rules, will only end litigation if one finding is made, I cannot find that this procedure should be adopted".

20 In applications such as this it often becomes necessary to balance the right of the parties to have all matters adjudicated
upon at the same time in the same litigation, with the desirability of being able to deal with matters at an early stage of the
proceedings and thereby shorten or simplify the trial or even make it unnecessary altogether.

21 Although it may well be true that a determination in this application would be of great assistance to the applicants, in
that they would know the maximum amount of their exposure, and as well perhaps in much the same way of great interest to
the respondent Superintendent in the prosecution of the New York action, the liability to the Superintendent of the remaining
respondents in the application will still have to be determined. The applicants are not parties in the New York proceedings,
and, in fact, no action has been commenced against them. In this sense the matter is as hypothetical as it was in Barnes et al v.
Township of Kaladar (supra), or in Re 296616 Ontario Ltd. and Town of Richmond Hill (supra).

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Zurich Insurance Co. v. Reeve, 1992 CarswellOnt 737
1992 CarswellOnt 737, [1992] I.L.R. 1-2877, 35 A.C.W.S. (3d) 654

22 Here one cannot say with certainty that the Superintendent will be successful in the New York action. If he should fail
there would be nothing for the insurers to indemnify (the matter of any obligation to defend or to pay the costs of the New
York action was not argued)

23 That the policy is difficult to interpret is abundantly clear. But that does not necessarily mean that it is ambiguous. These
two terms were commented upon by Cory J.A. in Trans Canada Pipelines Ltd. v. Northern & Central Gas Corp. Ltd. (supra)
where, at p.297 he states:

The mere fact a contract is difficult to interpret is not fatal to its validity. Nor the authorities tell us, is a difficulty with the
interpretation to be regarded as synonymous with ambiguity. The contract may be effective even though it is open to more
than one construction if the court can ascertain the intended meaning: see 9 Hals., 4th ed., p. 151, para 269.

The principles set out above are hallowed with age but, like many legal precepts, are difficult to apply. According to the
Oxford Dictionary, the common meaning of the word "ambiguous" is "open" to more than one interpretation; equivocal".
This definition appears to make the term "ambiguous" applicable to those written documents that are difficult to interpret.
It is all very well to say that there is a real distinction between the terms "difficult to interpret" and "ambiguous" but the
question remains what is that difference?"

Later on the same page he continues:

In light of the dictionary meaning of "ambiguous", it may well be a hard task to differentiate between a written contract
that is "difficult to interpret" and one that is "ambiguous". What course then, should a trial judge follow when confronted
with such a written document? Obviously, he should make every effort to construe the document based upon its wording
for the parties have taken the time to reduce their agreement to writing in order to avoid possible disputes. If the trial judge
in unable to construe the contract based on its wording, he must be of the opinion that the document is ambiguous in the
sense of being difficult to interpret before he can resort to extrinsic evidence.

The extrinsic evidence is admitted to assist the court to determine if there is in fact a latent ambiguity in the written
document and, if there is, to ascertain how that ambiguity should be resolved.

24 The extrinsic evidence in this case, and which is not before me on this application, is that of the real intention of the parties.

25 For the reasons above stated, I hold that the application is at best, premature in that substantial material factual issues
remain in dispute, and in that it is not appropriate that the respondents should have to have their rights determined in a piecemeal
fashion. The application is therefore dismissed. If counsel are unable to agree on costs I may be spoken to.

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