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Unsatisfied Judgment Provisions of the Ontario Insurance Act Considered
Published in the October 2008 issue of Litigation Notes - View Article
Synopsis: The Ontario Superior Court of Justice recently considered the provision of the Ontario Insurance Act which permits a creditor with an unsatisfied judgment to commence proceedings against an insurer of the debtor.
The Ontario Superior Court of Justice recently considered the unsatisfied judgment provisions of the Ontario Insurance Act. The plaintiff in the case was Unique Labelling Inc. (“Unique”), an American Company that supplied bottled water products to various retailers in the United States including the Kroger grocery chain in the state of Oregon. Some of the bottled water products purchased by Unique were supplied by Triumbari Beverages Limited (“TBL”), an Ontario Company which purchased plastic containers from a related company, Triumbari Containers Limited (“TCL”) and had the product bottled at the bottling facility of the Cynar Dry Company (“Cynar”) in Ontario.
Over a period of several months in 2000 and 2001, the products shipped from the Cynar bottling facility to Kroger stores in Oregon was found to be contaminated. Kroger ordered the product removed from its shelves and destroyed. Kroger then terminated its relationship with Unique, who commenced action in Oregon against TBL, TCL and Cynar. TCL and its officers were insured under a CGL policy by Economical Mutual Insurance Company (“Economical”) and Gerling Canada Insurance Company (“GCAN”) provided umbrella coverage to TCL. ING Insurance Company of Canada, carrying on business as Halifax Insurance Company, (“Halifax”) had issued a CGL policy to Cynar.
Economical retained counsel to defend the Oregon proceeding subject to a reservation of rights. Halifax and GCAN both denied coverage and declined to contribute to the defence of their insureds. The Oregon action was tried in front of a jury, which awarded damages of US $1.5 million dollars. Under Oregon law, all Defendants were jointly and severally liable to the Plaintiff. The judgment went largely unsatisfied and Unique commenced action in Ontario to recover the unsatisfied judgment from Economical, GCAN and Halifax. Unique relied on section 132 (1) of the Ontario Insurance Act which provides:
“Where a person incurs a liability for injury or damage to the person or property of another, and is insured against such liability, and fails to satisfy a judgment awarding damages against the person in respect of the person’s liability, and an execution against the person in respect thereof is returned unsatisfied, the person entitled to the damages may recover by action against the insurer the amount of the judgment up to the face value of the policy, but subject to the same equities as the insurer would have if the judgment had been satisfied.”
The Defendant insurers argued that the liability imposed upon TBL, TCL and Cynar by the Oregon judgment did not constitute damage “to the person or property of another” within the meaning of section 132 (1) and that in any event there was no coverage pursuant to the terms of the policy issued to their insureds. The Ontario Superior Court of Justice decision points out that counsel were unable to find any case in which Ontario Courts had been required to determine a judgment creditor’s right to invoke the provisions of section 132 (1) where the underlying judgment followed upon a jury verdict on liability and damages issues. In most cases the court will have the benefit of a record in the underlying action which contains pleadings, some evidence and a judgment and Reasons for Decision. In this case the jury issued no Reasons but simply answered a series of questions put to it following the completion of the trial in Oregon.
In addition, Unique had employed what the Ontario judge refers to as a “scatter-gun” approach to its pleadings, lumping TBL, TCL, Cynar and their officers together, without drawing any distinction as to the role that any particular one of them played in the production and distribution chain. This made it difficult for the Ontario Court to determine whether or not any one of the Defendants could be said to have caused damage to the “person or property of another”. Based on the evidence before it, the Court concluded that the contamination to the bottled water had occurred before it left Ontario and that it had not been processed, handled or purchased by Unique before the contamination occurred. Consequently the damage caused by the Defendants was not damage to the person or property of another. In addition, all of the damages claimed by Unique were for loss of profit and consequently fell within the category of pure economic loss and not damage to property.
Furthermore, the Court concluded that each of the three insurance policies contained provisions which excluded coverage. Both of the primary policies excluded coverage for the insured’s own property. The Halifax and Economical policies excluded property damage arising out of the name insured’s products or any part of such products and the named insured’s product was defined in the Halifax policy to mean “any goods or products manufactured, sold, handled, distributed… by the named insured”. The Economical policy also provided that it did not apply to property damage to “your product”. Finally the primary policies were written subject to “recall” exclusions, in which coverage is excluded for the cost or expense incurred by the insured or others in connection with the “withdrawl, recall, inspection, repair, replacement, adjustment, removal or disposal of ‘your product’”. The Court concluded that this exclusion also applied. Consequently Unique’s action pursuant to section 132 (1) of the Ontario Insurance Act was dismissed.
Unique Labelling Inc. v. Gerling Canada Insurance Company, 2008 CanLII 53846