Last Week’s Court Rulings from the Alberta Court of Queen’s Bench, Court of Appeal and SCC.
Edited by Noah Toth
Aryan Corporation Ltd v Wawanesa Mutual Insurance Company, 2022 ABQB 3
Causation | Foreseeability | Security for Costs
The Plaintiff corporation brought a claim against its insurer alleging it was wrongfully denied insurance coverage with respect to a motel destroyed in a fire. Shortly after the action was commenced, the principal of the insured corporation suffered cardiac arrest and was left in a vegetative state. Subsequently, a related action was brought by the principal via his litigation representative, alleging that the insurer’s negligent handling and denial of the insurance claim caused the Plaintiff’s underlying anxiety condition to worsen to the point where he was prescribed medication that caused his cardiac arrest.
The Master summarily dismissed the second action, stating that even if the insurer negligently denied coverage based on their conclusion the Plaintiff committed fraud, the Plaintiff’s adverse medical outcome was not the result of their actions nor was it reasonably foreseeable.
The Master applied the analysis from Mustapha v Culligan of Canada Ltd, 2008 SCC 27. In Mustapha the Plaintiff sued for psychiatric injury sustained as a result of seeing dead flies in a bottle of water supplied by the Defendant. While the Supreme Court found the Defendant owed a duty of care, breached that duty of care, and the Plaintiff suffered injury as a result, the Supreme Court held the Plaintiff’s injuries were too remote to warrant recovery as it was not foreseeable that the Plaintiff would suffer a serious and prolonged mental injury from the Defendant’s breach.
The Master in Aryan noted that there is not a recognized duty of care by an insurer to the principal of an insured for personal injury arising from denial of coverage. Even if the Plaintiff was able to establish that a duty of care was owed and breached, the Master held that the Plaintiff’s claim would fail on foreseeability and causation.
The Master acknowledged that it is not necessary for the Plaintiff to raise a triable issue that the insurer should have foreseen the exact mechanics leading to the Plaintiff’s medical condition, but held it was not foreseeable a denial of coverage would result in the Plaintiff suffering any serious and prolonged mental injury:
[21] It is, however, necessary that a triable issue be raised based on whether Wawanesa ought to have foreseen that its assertion of arson and fraud would result in a person of ordinary fortitude suffering a serious and prolonged mental injury, as opposed to it causing the more ordinary kind of stress and anxiety that will occasionally afflict any member of society.
[22] In seems to me an insurmountable stretch to say that Wawanesa should have foreseen that its assertion of arson and fraud would have caused a person of ordinary fortitude a serious and prolonged mental injury, nor do I see how trial (viva voce) evidence would assist in making this determination.
The Master noted further the lack of evidence establishing that the denial of coverage was the cause of the Plaintiff’s worsening anxiety and increased medication:
[23] In my view, Uddin’s litigation representative has not put forward evidence raising a triable issue concerning whether the anxiety/shock to Uddin arising from coverage denial (as opposed to the anxiety/shock caused by the fire itself) in fact led to a change in medication, which change in medication (and not the medication he was already taking) caused his cardiac arrest and the resulting persistent vegetative state.
[24] I note that is has now been more than seven years since the unfortunate medical calamity befell Uddin, and yet his litigation representative has either not obtained, or chosen not to submit, a formal expert opinion supporting the alleged causation.
The Plaintiff’s claim was dismissed based on the injuries not being foreseeable and the lack of evidence establishing causation.
The Master then dealt with the Defendant insurers application seeking security for costs in both actions. While the Plaintiff corporation accepted it was impecunious, it claimed security for costs should not be ordered as its impecuniosity was caused by the Defendant’s denial of coverage. This was rejected by the master as there was not sufficient evidence to conclude the Plaintiff’s impecuniosity was caused by the denial of coverage.
Citing paragraph 25 of Orubor v Borden Ladner Gervais LLP, 2019 ABQB 328, the Master noted that when impecuniosity is demonstrated, the Plaintiff has the burden of showing that security should not be required.
There was a lack of evidence of the Plaintiff’s financial status both before and after the fire:
[37] We know that Aryan purchased the motel in April of 2013 for $570,000, utilizing two mortgages totalling approximately $441,000, and a loan of approximately $160,000.
[38] In other words, Aryan may have had no equity in the motel, and no other assets, prior to the fire.
Without providing sufficient evidence that its impecuniosity was caused by the insurer’s denial of coverage, it was held the Plaintiff failed to meet the established burden:
[39] While Wawanesa denied coverage to Aryan, it was compelled (due to the existence of mortgage clauses preventing a denial of coverage to mortgagees) to pay out the two mortgages against the motel. These payments may have left Aryan in a position to obtain refinancing to rebuild the motel as the existing mortgages were now paid out.
[40] Aryan apparently obtained refinancing to rebuild the motel but this seems to have been halted by Uddin’s unfortunate health crisis.
…
[42] Consequently, Aryan has not satisfied me that it became impecunious because of Wawanesa’s failure to provide coverage, and accordingly I award Wawanesa security for costs in Action 1401.
The Master made a determination on security for costs with respect to the second action in the event of the summary dismissal being set aside:
[51] If there is evidence to the contrary to the effect that Uddin had financial resources before the fire in question, such evidence has not been put forward by Uddin’s litigation representative.
[52] As indicated earlier in these reasons, Aryan has not satisfied its onus that it was rendered impecunious by Wawanesa, and so it follows that Uddin, as a shareholder of Aryan, likewise has not demonstrated a loss caused by Wawanesa’s refusal to provide insurance coverage to Aryan.
Accordingly, the Master ordered that in the event of the summary dismissal being set aside, the Plaintiff would be required to provide security for costs in that action as well.