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Monday Morning Case Bites for November 5, 2018

Last Week’s Court Rulings from the Alberta Court of Queen’s Bench, Court of Appeal and SCC.

Edited by Amanda Kostek & Christie Dewar

SWAT Consulting Ltd v Canadian Western Bank, 2018 ABQB 875
Clean-up Costs l Duty of Insurer to Service Provider

This was a successful summary dismissal application by both the insurer and the bank against the plaintiff clean-up service provider. The issue was as follows:

[25] The issue I am being asked to decide is whether an insurer, faced with an insured seeking reimbursement for clean up costs, owes a legal duty to the service providers who did the clean up work (such as SWAT) to make sure that the insured has in fact paid those service providers or, if they have not been paid, a duty to send payment directly to the service provider.

[26] SWAT relies on the following arguments as to why Energy Insurance should have paid it directly, (or should now pay it directly)

(A) section 534 of the Insurance Act.
(B) the wording of the policies.

The Court reviewed the wording of the insurance policies and found:

[15] In my view ‘costs for clean up’ in these policies do not include costs incurred by an adjoining landowner cleaning up his/her land, because those costs would already fall under coverage for “Property Damage”, which is defined as follows:
‘Property Damage’ means loss of, damage to, or destruction of tangible property not owned by the Insured, and loss of use of tangible property not owned by the insured that has not been physically damages or destroyed.

[16] Instead, in my view, ‘costs for clean up’in these policies is meant to cover expenses incurred by the insured, Anterra, because Anterra was liable for those clean up costs pursuant to environmental legislation.

The Plaintiff relied on Section 534 of the Insurance Act:

[27] Section 534 of the Insurance Act states:

534(1) In any case in which a person insured against liability for injury or damage to persons or property of others has failed to satisfy a judgment obtained by a claimant for the injury or damage and a writ of enforcement against the insured in respect of the judgment is returned unsatisfied, the enforcement creditor has a right of action against the insurer to recover an amount, not exceeding the amount of insurance under the policy or the amount of the judgment, in the same manner and subject to the same equities as the insured would have if the judgment had been satisfied. (emphasis added)

(2) This section does not apply to contracts of motor vehicle liability insurance.

However, it was questionable whether the Plaintiff met the requirements of section 534:

[28] SWAT has three problems in trying to assert a claim under section 534 of the Insurance Act:

• it is dubious whether SWAT is a ‘claimant’ as that word is used in section 534.
• even if SWAT is a ‘claimant’ it has not met the technical requirements of section 534.
• Energy Insurance has already paid the loss to its insured Anterra.

The Court then considered whether the wording of the policy provided a claim against the insurer:

[41] In order to succeed in this claim SWAT would need to show that:

(i) the wording of the policy expressly or impliedly mandates that Energy Insurance is to pay SWAT (or to see that SWAT has been paid by Anterra), and
(ii) SWAT can enforce this wording notwithstanding the absence of privity of contract.

[42] If SWAT succeeded in establishing these two things, then Energy Insurance would be put to its alternative defences as follows:

• it fulfilled any duty to SWAT by taking all reasonable steps to see that SWAT was paid. Energy Insurance points to statements made to it by the principal of Anterra, and to the wording of the Proofs of Claim submitted by Anterra, which indicated that the service providers had been paid.
• it fulfilled any duty to SWAT by providing funds to Anterra that Anterra was to use to pay suppliers such as SWAT, and if those funds have been scooped by CWB then CWB should return them to the service providers.

The Court concluded that:

[43] The policies of insurance in question do not expressly require Energy Insurance to confirm that the service providers have been paid or, if not, to pay them directly.

[44] The wording could have, for example, set up an express trust. This is what is done with labour and material payment bonds.

[57] In my view, the wording of the policy, and in particular the use of the phrase ‘on behalf of the insured’ ,when considering a reimbursement of the insured for clean up costs as opposed to a third party liability claimant, does not mean that the proceeds are payable to service providers who did clean up work, such as SWAT.

Finally, the Court considered whether subsequent conduct of the parties could aid in interpretation of the contract, and concluded as follows:

[63] In my view, the wording of the insurance policies is not ambiguous and this subsequent conduct is not properly usable to aid in the interpretation of Energy Insurance’s policies.

The plaintiff’s arguments for the claim against the bank were as follows:

[69] SWAT sues CWB for knowing assistance in breach of trust.

[70] There are two possible arguments that SWAT can advance in this regard, namely:

(i) the policies of insurance constituted Anterra as a trustee of the insurance proceeds on behalf of service providers such as SWAT, or
(ii) there was a purpose (or Quistclose) trust established when Energy Insurance sent the insurance proceeds to Anterra

The Court made the following conclusion with respect to the first argument:

[74] Even if the policies were in CWB’s possession at all relevant times, in these reasons I have concluded that the wording of the policies of insurance does not create a trust in favour of service providers such as SWAT.

The Court then considered whether there was a purpose trust:

[80] To establish this type of trust, SWAT would need to establish that Energy Insurance paid insurance proceeds to Anterra for the specific purpose of paying suppliers such as SWAT, and that the funds were not to be mixed with Anterra’s other funds.

[81] There is no evidence to this effect, and in fact the insurance proceeds were ultimately deposited into Anterra’s general operating account.

Both the insurer’s and the bank’s summary dismissal applications were granted.