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Featured Case: Gustanar et al. v Minto et al. and Franick Rd. Service Inc, 2016 ONSC 2341

Martin Smith
Martin Smith,
Partner

In Gustanar et al. v Minto et al. and Franick Rd. Service Inc, 2016 ONSC 2341, the court held that the co-defendant, Franick Road Service (“Franick”), must defend Minto Apartments Ltd. (“Minto”) as a result of a slip and fall claim brought by the plaintiff, Marie Gustanar (“Ms. Gustanar”). The Rule 21.01(1)(a) motion was successfully brought by Martin Smith, the managing partner in the Ottawa office of McCague Borlack LLP, to enforce the defence and indemnity clause within a snow removal contract.

The successful motion required Franick to fully defend Minto in the slip and fall action, that Minto be permitted to retain Martin at Franick's cost, and to reimburse Minto for its past costs throughout the action. Accordingly, this case serves as an important reminder of the usefulness and importance of defence and indemnity clauses.

Facts

In this case, the plaintiff sued the defendants for a slip and fall that purportedly occurred on a walkway owned by Minto on November 22, 2010. The plaintiff, Ms. Gustanar, alleged that when she left her apartment, she slipped on the ice and/or snow that accumulated on the parking lot. She claimed significant injuries as a result.

Prior to the slip and fall, Minto and Franick entered into a two-year snow removal contract, where Franick was required to provide snow removal services at the Minto owned property known as Elm Ridge Gardens. The contract included a defence and indemnity clause which provided that Franick “shall indemnify and save harmless Minto” all acts or omissions by the contractor.

Accordingly, Martin brought a motion on behalf of Minto to enforce the above-noted clause in order to require Franick to provide a full defence and indemnification to Minto. Specifically, Minto claimed:

  1. A declaration that the co-defendant Franick be obliged to defend Minto with respect to the full defence of all claims in the action; and,

  2. An order declaring that Minto is entitled to appoint independent counsel of its choice, and at Franick's expense, to defend it in the main action, due to the conflict of interest that prohibits Franick from assuming the defence of Minto in the main action.

The Contract

As mentioned, a two-year snow removal contract was in force between Minto and Franick. In that contract, Franick was required to provide snow removal and maintenance for the Minto owned property. Specifically, the contract included responsibilities for snow removal, snow clearing, and ice control. The relevant portion of the contract is reproduced below:

1.5 The Contractor shall indemnify and save harmless Minto, its officers, agents, employees or those for whom by Minto is responsible from any and all claims, liabilities, damages, costs suits or actions with respect to any damage to property and any injury to any person or persons, including death resulting at any time there from occasioned by any act or omission of the Contractor, its officers, employees, agents or those for whom by law the Contractor is responsible resulting from the operations of the Contractor on the property of Minto and/or the Landlord and/or the Condominium Corporation. If such claim or demand is made against Minto, any payments due or thereafter to become due to the Contractor shall be withheld to cover such loss and expense including solicitors' fees.

1.8 The Contractor hereby agrees to indemnify and hold harmless Minto/Owner from and against all liability, claims, judgements or demands from damages arising from accidents or injuries (including death) to persons or property occasioned by the negligent and/or non-negligent acts of the Contractor, his agents or employees. The said Contractor will defend any and all suits that may be brought against Minto/Landlord for any expenditure by Minto/Owner by reason of such accidents. Any subcontractor of the Contractor shall be deemed an "agent or employee" of the Contractor.

It was acknowledged by the court that this contract is a standard-form defence and indemnity clause.

Issues

This motion dealt with four distinct issues with respect to the interpretation of the defence and indemnity clauses. Minto was successful on every issue except for the duty to indemnify. The issues are below:

  1. Whether leave should be granted to admit extrinsic evidence on the motion;
  2. Whether Franick is responsible to defend and indemnify Minto;
  3. Whether Minto is entitled to retain its own counsel at Franick's cost; and,
  4. Whether Franick is obligated to reimburse Minto for its pasts costs for defending the action.

The Decision

Issue No. 1 – Extrinsic evidence is not to be used in a Rule 21.01(1) motion

...extrinsic evidence is not to be included in a Rule 21.01(1) motion without leave or consent.

The court held that, in general, extrinsic evidence is not to be included in a Rule 21.01(1) motion without leave or consent. Minto argued that extrinsic evidence should not be used in this motion. Minto further argued that the court need only rely on the contents of the pleadings rule to trigger the duty to defend. However, Franick argued that the court, without this information, would be unable to interpret the contract without “any evidence of the intention of the parties”. To get to that conclusion, the court acknowledged that extrinsic evidence may be included “with respect to facts that are not in dispute in the underlying action”. Nevertheless, in a slip and fall action, the location of the fall was held to be a live issue in the litigation, meaning that this evidence should not be permitted.

Issue No. 2 – Duty to Defend but not to Indemnify

The court held that Franick was responsible to defend but not indemnify Minto in this action. While it was held that the duty to defend was a low bar, the court held that sufficient evidence is required to trigger the duty to indemnify.

Minto argued for a broad interpretation of the duty to defend clause. Of particular note, Minto argued that the obligation to defend is triggered when an applicant “establishes a mere possibility that one or more of the allegations made in a pleading, when assumed to be true, is covered.” Accordingly, Minto relied on case law that held that the pleadings govern the duty to defend. In contrast, Franick argued for a narrow interpretation of the defence and indemnity clause. Specifically, Franick argued that it only had a duty to defend Minto if the accident happened at the location where Franick was responsible for maintenance. Franick also argued that this position puts the co-defendant in a “Catch 22” situation, whereby, on the one hand, if the court does not admit extrinsic evidence, the court cannot answer the motion. On the other hand, if extrinsic evidence is permitted, it would require findings of facts and credibility that are outside the scope of a Rule 21.01(1) motion.

The court disagreed with Franick's position. The court held that the pleadings rule is applicable in this motion. The court also held that Franick inverted the pleadings rule by stating that if there is a mere possibility that a claim will fail, they will not have a duty to defend, which was is clearly in contrast to the position taken by the Supreme Court of Canada. The court further reviewed the contract and held that the nature of the contract was to provide winter maintenance for Minto, clearly bringing the claim into the scope of the contract, making Franick responsible to defend Minto in the action.

Nevertheless, the court also held that, in the absence of evidence, a duty to indemnify cannot be triggered. Rather, the court held that the duty to indemnify is an issue that must be determined at trial.

Issue No. 3 – Minto is entitled to retain its own counsel at Franick's cost

The court also held that Minto was entitled to retain its own counsel at Franick's cost. Minto argued that the insured has a right to independent counsel paid by the insurer particularly in the case where there is a conflict of interest and the insurer's right to control the defence ceases. This was because of the cross-claim of Franick, as against Minto alleging that it was responsible for the condition of the area at issue. Franick disagreed. The court favoured the position of Minto, as liability could be attributed to Minto if Franick was found not to be responsible. This created, in the court's view, a clear conflict of interest, thereby holding that Minto was entitled to retain its own independent counsel.

Issue No. 4 – Franick is obligated to reimburse Minto for its past costs in defending the action

Finally, the court also held in Minto's favour and required Franick to reimburse Minto for its past costs in defending the main action. Minto relied on case law that obligated a third-party insurer to pay past legal costs for a co-defendant. Again, Franick disagreed. The court favoured the position of Minto, accepting that Franick was put on notice for the defence of Minto, in addition to being successful in the prior issue triggering the duty to defend, obliging Franick to reimburse Minto.

Conclusion

This case demonstrates the importance and usefulness of defence and indemnity clauses in commercial contracting. It also highlights that extrinsic evidence can rarely be used in a Rule 21.01(1) motion. Specifically, the court highlighted that the location of a slip and fall is to be a live issue that should be determined at trial. It also demonstrates that duty to defend clauses generally have a low bar and, if utilized in a contract, should be enforced. This case is another example of a defence and indemnity clause bringing significant costs savings to our firm's clients through the excellent advocacy of the lawyers at McCague Borlack LLP.


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