In this issue:
1. Firm and Industry News
2. Muscott 2.0 - Van Breda Test Applied
3. Insurance Broker Found Negligent in Providing Services to Client
- Client also Contributory Negligent
1. Firm and Industry News
- November 30th, 2010 Toronto: CBMU Annual Conference
- December 3rd, 2010 Montreal: Grunt Club Annual
- January 20th 2011 Toronto: Fernandes Hearn Annual
Seminar [By Invitation Only] [revised date]
- January 21st 2011 Toronto: CMLA Meeting [revised
- January 21st 2011 Toronto: Marine Club Annual Dinner [revised date]
- May 11-14 Las Vegas: Transportation Lawyers Assoc.
- May 25-26 2011 Collingwood: CBMU Semi-Annual Dinner
- June 3rd 2011 Quebec City: CMLA Annual Meeting
2. Muscott 2.0
- Van Breda Test Applied
In its recently released decision in Dilkas v.
Red Seal Tours Inc. (Sunwing Vacations), 2010 ONCA 634, the
Ontario Court of Appeal applied the "real and substantial connection"
test to determine whether Ontario courts should assume jurisdiction
over out-of-province defendants as it was recently clarified by
the Ontario Court of Appeal in Van Breda v. Village Resorts Limited
(Van Breda), 2010 ONCA 84 (hereafter "Van Breda").
Best Day Tours is a bus transportation company that
operates exclusively in Mexico. It had a contract with Sunwing,
a company headquartered in Toronto, to provide transport between
a Cancun resort and the Cancun airport for Sunwing tour guests.
The plaintiffs in the two actions were on a Sunwing tour package
from Ontario. On the way from the resort to the airport for the
flight home, the bus was involved a single-vehicle accident. As
a result, the traveling plaintiffs suffered serious injuries. The
accident was investigated by local police in Mexico, who reported
that it was caused solely by the negligence of the bus driver.
Lower Court Decision
The plaintiffs brought an action in Ontario for damages
against Sunwing and Best Day. Sunwing cross-claimed against Best
Day for contribution and indemnity, based primarily on an indemnification
agreement the two parties signed following the accident in order
to deal with claims arising out of the incident. Best Day challenged
the jurisdiction of the Ontario court and the convenience of the
Ontario forum. Ultimately dismissing the motion, the judge
applied the former Muscutt v. Courcelles (2002), 60 O.R.
(3d) 20 (C.A.) analysis to address the issues of jurisdiction and
Applying the eight Muscutt factors as they
stood prior to their clarification in Van Breda, to determine jurisdiction,
Justice Bellamy concluded that there was a real and substantial
connection between Ontario and the plaintiffs' claims. Her Honour
found a strong connection existed between the plaintiffs' claims
and Ontario based on the connections of the plaintiffs and their
witnesses to Ontario as well as the presumed expectation of Best
Day from transporting Ontario visitors. Further, the Ground Transportation
Agreement between Best Day and Sunwing was governed by Ontario law.
While there was some unfairness to the Mexican defendant
to have to defend in Ontario, there would be significant unfairness
to the plaintiffs if the claims had to be commenced in Mexico, including
the juridical impediment of an expired limitation period and the
fact that most of the witnesses were located in Ontario. Only two
factors militated against finding a real and substantial connection:
first, assuming jurisdiction in Ontario was more difficult to justify
because it was an international case and, second, enforcement in
Mexico would be difficult. Considering all the factors together,
Justice Bellamy concluded that there was a real and substantial
connection that warranted the assumption of jurisdiction by the
Turning to the question of forum conveniens,
the Justice Bellamy recognized several factors that were either
neutral or tilted in favour of Mexico as the convenient forum. Her
Honour found that all the factors she considered on the jurisdiction
al question supported the conclusion that Ontario was the convenient
forum for hearing the actions, and on that basis, she declined to
order a stay.
Court of Appeal Decision
Following the above-described motion decision, the
Court of Appeal released its decision in Van Breda, which
reconsidered and revised the Muscutt test. In light of the
updated jurisprudence, this appeal was argued based on the law as
now set out in Van Breda. The main issues were whether the
motion judge erred in concluding that Ontario should assume jurisdiction
over the claim and, if not, whether the motion judge erred in concluding
that Ontario was the convenient forum.
i. Jurisdiction Simpliciter
Applying the revised Van Breda analysis, the
court first turned to the issue as to whether there was presumed
jurisdiction because of the application of rule 17.02 (other than
ss. (h) and (o)) of the Rules of Civil Procedure, which governs
service out of the jurisdiction. Finding that none of the subsections
applied to Best Day, the focus of the jurisdiction analysis shifted
to the key connecting factor identified in Van Breda: the
connection of the claims and of the defendants to Ontario.
Observing that the appeal involved international travel
on a tour package by Ontario residents, the court found the case
at bar to be factually reminiscent of two of the cases that were
decided concurrently with Muscutt: Leufkens v. Alba Tours International
Inc. (2002), 60 O.R. 84 (C.A.) and Lemmex and Bernard (2002), 60 O.R. (3d) 53 (C.A.). As the court concluded in both of
those cases that Ontario should not assume jurisdiction,
the court focused its analysis on the identification of any relevant
factors in the appeal that might distinguish it from Leufkens and Lemmex.
In Leufkens, the Ontario plaintiffs purchased
a vacation package to Costa Rica from an Ontario company that, in
turn, contracted with a Costa Rican company, Swiss Travel, to provide
the tour services locally. One of the plaintiffs was injured on
a tree-top zip line excursion that they had purchased from the Costa
Rican company. The court concluded that there was an insufficient
connection between the jurisdiction and the defendant on the basis
that it was not reasonably foreseeable that the services provided
would cause an injury in Ontario.
In Lemmex, the Ontario plaintiffs purchased
a cruise package from Sunlight, a Canadian company that contracted
with Premier, an American company, to provide the cruise. Onboard
the ship, the passengers were offered various shore excursions.
The plaintiffs chose a trip to Grenada, which was provided by a
Grenadian company. During the excursion, one of the plaintiffs was
injured in a taxi. The court found that the connection between the
claim and defendants with Ontario was not sufficiently real and
substantial for Ontario to assume jurisdiction on the basis that
it would be unfair for a tourist's home forum to assume jurisdiction
based only on the foreseeablity that the tourist might be injured
in a taxi.
The Court found three key differences between the
subject proceeding and Leufkens and Lemmex. At paragraphs
19 and 20, the court states:
There are three key differences. First, the vacation
packages-which explicitly included ground transportation services-were
purchased in Ontario. Second, Best Day's Ground Transportation
Agreement with Sunwing was agreed to be governed by Ontario law.
This can be contrasted with the situation in Leufkens,
where the agreement between the Ontario tour operator and the
Costa Rican Swiss Travel company was made in Costa Rica and had
no Ontario aspect.
Finally, and most significantly, Best Day entered
into indemnity agreements with Sunwing and AutoTur following the
accident. Both agreements were made in respect of any lawsuit
that might be brought in Ontario by one of the tourists who was
injured in the bus accident, the very type of lawsuit that was
brought by the plaintiffs in these two cases. In the agreement
with Sunwing, Best Day agreed that if Sunwing were to be sued
as a result of the accident, that Best Day would indemnify Sunwing
and save it harmless including in respect of costs claimed and
its own solicitor's costs. Best Day also agreed that in interpreting
the indemnity agreement, Ontario courts would have exclusive jurisdiction
and that Ontario law would apply.
In its consideration whether the distinguishing factors
were sufficient to cause the court to conclude that Ontario ought
to assume jurisdiction, the court attributed significant weight
to the fact that Best Day voluntarily entered into indemnity agreements
with Sunwing and with the local bus provider, AutoTur. In doing
so, Best Day expected and contemplated that they would be litigated
in Ontario. These factors established a real and substantial connection
between the plaintiff's claims, Best day, and the Ontario forum.
The Court concluded its jurisdictional analysis by
drawing attention to the reformulated and holistic nature of the
analysis after Van Breda at paragraph 24 of the decision:
Van Breda instructs that other considerations
in the jurisdiction simpliciter analysis are no longer
to be treated as independent factors, but rather as principles
that bear upon the analysis, including the fairness to each party
of assuming or refusing to assume jurisdiction, the involvement
of other parties in the action, the willingness to recognize and
enforce an extra-provincial judgment with similar jurisdictional
connections to the forum, comity, and the standards of enforcement
in the other jurisdiction.
Finding that the motion judge did not err in her conclusion
that the balance favours Ontario assuming jurisdiction, the Court
proceeded to consider forum conveniens.
ii. Forum Conveniens
Seeing no error in the conclusion reached by the motion
judge that Mexico was not a more convenient forum, the Court of
Appeal declined to interfere with her determination. The Court did
note that the motion judge had considered the location and convenience
of witnesses under her consideration of jurisdiction simpliciter,
which was inappropriate and should have been correctly considered
under the forum conveniens analysis. Addressing the appellant's
reliance on the fact that all the liability witnesses are in Mexico,
the Court stated that, as the motion judge pointed out, the major
issue in these cases will be the extent and qualification of damages.
In light of this, the fact that the plaintiffs had 49 potential
medical-service witnesses as well as "Loss of Income and Collateral
Benefits" witnesses in Ontario weighted this factor in favour
of the plaintiffs.
Viewing this decision as an example of how courts
can be expected to treat the issue of jurisdiction after Van
Breda, it appears that the Ontario Court of Appeal has fully
embraced the principled, holistic approach to the determination
of jurisdiction simpliciter endorsed in Van Breda.
Gone by the wayside is the quasi-mathematical (and invariably somewhat-arbitrary)
weighing of Muscutt factors against one another and, instead,
the factors now are to be considered together under the rubric of
the court's overarching "gut feeling" towards assuming
jurisdiction, as based on the available facts.
Further, with regard to the potential risk-exposure
of Canadian companies engaged in the foreign tourism industry, this
decision illustrates the significance given to choice of law terms
designating the exclusive jurisdiction of Ontario and, as such,
Canadian companies engaging in business with foreign tourism-providers
should draft all agreements to include terms to this effect in order
to minimize the likelihood that a Canadian company might end up
defending an action in a foreign court.
For a summary of the decision in Van Breda,
see Rui Fernandes' article "Muscutt Test Clarified - Jurisdiction
for Out of Province Defendants" in the January
2010 Fernandes Hearn LLP Newsletter.
3. Insurance Broker Found Negligent in Providing
Services to Client - Client also Contributory Negligent
In this unusual decision of the Justice Whitten of
the Ontario Superior Court of Justice, CIA Inspection Inc. v.
Dan Lawrie Insurance Brokers, 2010 ONSC 3639, the claimant CIA
Inspection Inc. ("CIA") claimed that its insurance broker
was negligent and breached its contract with it, by allowing a gap
in coverage, resulting in significant damages.
CIA operated a global business inspecting oil refinery
coke drums. The claim arose out of the loss of one of CIA's two
sensors, a piece of expensive equipment used in the inspection process.
The loss occurred when a drill stem operator accidentally caused
the sensor to fall 150 feet to the bottom of the coke drum at a
a refinery in Venezuela.
Following the loss, CIA made a claim through its broker
to its insurer, Lloyd's of London. The claim was denied because
the insurer's position was that the policy was for cargo coverage
and only covered the sensor when in transit. The policy excluded
risks while the sensor was on the job site. Thus, the situation
in which this loss had occurred was not covered.
Justice Whitten reviewed the applicable law applicable
to the duties of an insurance broker, and in particular to determine
if the broker was negligent, breached its contractual duty and its
fiduciary duty to CIA.
The court reviewed the origins of the duty of care.
Such a duty, it noted, lies in common law and specifically in the
famous decision of the House of Lords in Hedley Bryne and Co.
v. Heller and Parners Ltd. , A.C. 465 where Lord Morris-Borth-y-Gest
stated at page 594:
(1)"If someone possessed of a specific
skill undertakes, quite irrespective of a contract to apply that
skill to the assistance of another person who relies upon the
skill, a duty of skill will arise
(2) if in a sphere in which
a person is so placed that others would reasonably rely upon his
judgment or his skill or upon his ability to make careful inquiry,
a person takes it upon himself to give information or advice to,
or allow his information to be passed on to another person who
as he knows or should know will place reliance on it, the duty
of care will arise".
The court then reviewed the seminal decision in Canada
as to the duties of insurance brokers, Fine Flowers Ltd. et al
v. General Accident Assurance Company of Canada et al 
17 O.R. (2d) 59. Justice Wilson, for the Court of Appeal, had reflected
upon the experience of the parties and the nature of the relationship
which existed between the client and the broker, to ascertain the
need and reliance that the former placed on the latter. She stated:
Two possible scenarios were posited. In one
scenario, the client did not give specific instructions to the
agent but seeks to have full protection
(t)his requires (the
agent) to inform himself about his client's business in order
to assess the foreseeable risks and to insure his client against
.an agent who does not have the requisite skills to
understand the nature of his client's business and assess the
risks that should be insured against, should not be offering this
kind of service.
Justice Wilson noted that in the second scenario the
client approaches the agent with a particular request. Justice Wilson
noted that agents are not insurers and stated:
"It is not part of their duty to know
everything about the clients business so as to be in a position
to anticipate every conceivable form of loss to which they may
be subject. The agent's duty
is to exercise a reasonable
degree of skill and care to obtain policies in the terms bargained
for and to service these policies as the circumstances might require."
Justice Wilson added:
"the agent also has a duty to advise
his principal if he is unable to obtain the policies bargained
for so that his principal may take such further steps to protect
himself as he deems desirable"
Justice Wilson was elevated from the Ontario Court
of Appeal to the Supreme Court of Canada. In the decision of Fletcher
v. Manitoba Public Insurance Co.  3 S.C.R. 191, sitting
as a justice of the Supreme Court of Canada, she reiterated what
had been established in Fine Flowers and added that insurance
agents are more than "mere sales people". She stated:
"In my view, it is entirely appropriate
to hold private insurance agents and brokers to a stringent duty
to provide both information and advice to their customers. They
are after all, licensed professionals who specialize in helping
clients with risk assessment and in tailoring insurance policies
to fit the particular needs of their customers. Their service
is highly personalized, concentrating on the specific circumstances
of each client. Subtle differences in the forms of coverage are
frequently difficult for the average person to understand. Agents
and brokers are trained to understand these differences and to
provide individualized insurance advice. It is both reasonable
and appropriate to impose upon them a duty not only to convey
information but also to provide counsel and advice"
Justice Whitten, in this CIA decision, then commented
on the issue of causation. Assuming that the broker was negligent
due to a failure to advise or communicate to CIA of the gap in coverage
due to an inability to obtain the coverage specifically requested,
the claimant still had to prove on the balance of probabilities
that it suffered damages as a result of the breach. There must be
established a causal link between the breach and the damage experienced.
The test used is the "but for" test. The claimant has
to show that the injury would not occur but for the negligence of
the defendant. The court noted that this test does not require that
the defendant's negligence be the only condition to cause the injury.
If another cause was attributable to the claimant, then the possibility
of contributory negligence would have to be considered. The court
summed up the situation as follows:
"Accordingly, given the negligence alleged
in this action, namely, the failure to communicate a gap in coverage,
the plaintiff would have to establish; 1) that the requested policy
would have covered the loss that occurred (i.e. the destruction
of the inspection unit on site) and 2) that had CIA known it was
indeed not covered for such a loss it would have sought other
coverage or modified its business to reduce exposure to the uninsured
The court noted that the relationship between client
and agent/broker is not without responsibility on the part of the
client. The client cannot ignore or not read the documentation provided
by the agent/broker. A failure to satisfy this duty to read a policy
or documentation, especially given a caution to do just that in
what is received from the broker, is tantamount to contributory
negligence on the part of the client. In the absence of a communication
from the client as to a difficulty in comprehension, it is not necessary
that the agent read to the client every clause of the policy.
In addition, the court noted, a failure of a client
to keep himself informed concerning his insurance coverage over
a period of time could be found to constitute a failure on his part
to exercise reasonable care to act prudently in the management of
his affairs, and as such be viewed as contributory negligence necessitating
a share of the responsibility for the loss.
Justice Whitten reviewed the business of CIA and its
history of dealing with its prior insurance broker and with DLIB.
It was clear to the court that CIA had provided information to DLIB
on its insurance needs and that it was looking for insurance far
more in excess of transit insurance. What is interesting about the
description of the relationship and dealings between CIA and DLIB
is that both sides failed to make notes or send emails confirming
their discussions and there were many individuals on both sides
dealing with insurance. It was not a situation of one person at
CIA dealing with one person at DLIB. Thus the risk of a gap was
increased, given the complexities and worldwide nature of CIA's
business. It was also clear DLIB failed on a number of occasions
to provide CIA with policy wordings on a timely basis.
Justice Whitten then noted that DLIB sent a letter
The letter of July 18, 2003 refers to renewal
of the "Ocean Cargo policy". The Cover Note dated May
13, 2003 refers to the policy as a Cargo Open Policy. The cover
note specifies that it is for "voyages to and from job sites
by air". A number of destinations are set out and then it
states "excluding risks whilst there".
Clark testified that when he read the letter
and the Cover Note, he thought it represented a subset of the
coverage that he had asked for. Despite this subset comment, Clark
about the rest of the coverage, he assumed that he was covered
and that his broker had obtained for him the coverage he requested.
However the court also noted that:
There is a credibility issue between Clark
and the employees of DLIB as to whether or not it was brought
home to him that he did not have property coverage for the sensors
on site. Mr. Clark's overarching belief that he had coverage out
there was in a way bolstered by the comments of DLIB staff and
the confusion amongst the staff as to exactly what the coverage
was. This confusion was from the top of the organization down.
Although six DLIB personnel were ultimately
involved in this file, there is no evidence of a co-ordinated
response. No one individual was designated as the point person,
a co-ordinator to get to the bottom of whether there was broad
form property coverage or not. One would have thought that given
the potential payout of $297,500, the importance of the sensor
to CIA, and the potential for an errors and omissions claim against
DLIB, that Dan Lawrie himself or one of his brokers would directly
focus their attention on this issue. That was what the client
had paid a premium for them to do. The premium was accepted and
was never refunded, despite the doubt as to the coverage.
The court dealt with the contributory negligence of
CIA. The court was influenced by the fact the central individual
at CIA, Mr. Rick Clark, was intelligent and successful. The court
Mr. Clark is an intelligent individual who
with his partners and by himself created a sensor that addressed
a niche need in the oil refinery industry. He has managed to nurse
CIA along after a significant financial loss, namely, the loss
of a sensor. Having said that, he was reckless in not pursuing
clarification from DLIB when he was receiving the cover notes
received with the wording to the effect the cargo policy did not
provide for onsite coverage. It has been found and observed that
there was confusion on what DLIB conveyed to him and how the employees
behaved; however, he should not have been satisfied with the state
of affairs .
Given his particular business acumen, one
would have thought especially since the sensors were so costly
to construct, that he would have pressed harder for answers in
the year and a half before the loss. He should have been more
proactive. Granted he was not aided by a particular reference
to a policy; however, it cannot be said that he acted prudently
in the management of his affairs. Mr. Clark was contributorily
negligent in so far as the damages so found.
The court held that DLIB did breach its duty as an
insurance broker and that Mr. Clark was contributorily negligent.
The court apportioned the degree of Mr. Clark's fault at 33 1/3
%. This is one of the few cases where an insured has been held at
fault for such a large percentage for contributory negligence. A
most unusual decision.
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