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Parties - Standing of Judgment Creditor Against Debtor's Insurer

Insurance - Standing of Judgment Credit Against Debtor's Insurer

Insurance - Insurer's Duty of Good Faith to Insured Independent Cause of Action

Tort - Abuse of Process

Tort - Civil Contempt

Ernst & Young Inc. v. Chartis Insurance Company of Canada (AIG Commercial Insurance Company of Canada) (Ont CA, 2014)

In this case a large accounting firm acting as receiver successfully sued a trustee in Alberta for breach of fiduciary duties. The defendant trustee's insurer refused to honour the judgment, so the plaintiff receiver sued the insurer in Ontario for indemnity under the trustee's errors and omissions policy, arguing that it had the right to do so under Insurance Act s.132(1):
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.
On this issue the court affirmed:
[29] The challenge facing E & Y in this case is the decision of this court in Perry v. General Security Insurance Co. of Canada 1984 CanLII 2146 (ON CA), (1984), 47 O.R. (2d) 472. In that case, this court held (with Houlden J.A. dissenting) that s. 132(1) does not permit a direct cause of action against an insurer under a policy of lawyers’ professional liability insurance. The decision has been taken to mean that s. 132(1) does not apply to claims for economic losses unrelated to loss or damage to persons or property.

[30] The appellant asks us to find that Perry was wrongly decided. In that case, both MacKinnon A.C.J.O. and Arnup J.A. made pleas for legislative action to correct what they perceived to be an injustice, at least in the context of errors and omissions claims against lawyers.

[31] No legislative action has been taken and Perry remains good law – it has been followed in other cases. As it has stood and been relied upon by the insurance industry for over 25 years, I would be disinclined to overrule it, even if it were open to us to do so in these proceedings. As I will explain, it is not necessary to address the issue in this case, because the claim is excluded by the Policy.

[32] It is instructive, however, to note that it has been held that in an action against an insurer under s. 132 of the Insurance Act and its predecessors the judgment creditor does not have to prove, all over again, the underlying liability of the insured for the loss. It can rely on the judgment in which the insured was found liable.

[33] This flows from the judgment of the Supreme Court of Canada in Global General Insurance Company v. Finlay, 1961 CanLII 11 (SCC), [1961] S.C.R. 539, which was applied by this court in Stoyka v. General Accident Assurance Co. of Canada 2000 CanLII 26948 (ON CA), (2000), 47 O.R. (3d) 407. In Global General, at p. 552, the Supreme Court cited Halsbury’s Laws of England, Vol. 15, 3rd ed. (London: Butterworths, 1956), at p. 395, para. 706, in support of the proposition that “a final judgment pronounced by a court of competent jurisdiction … constituted conclusive evidence against all the world of its existence, date and legal consequences.”

[34] At the next page in Halsbury’s, at p. 396, para. 708, entitled “Judgments as estoppels or evidence”, the authors state:
A judgment in personam or inter partes operates as an estoppel or conclusive evidence against parties and privies of the truth of the facts upon which such judgment is based.
[35] In this case, in which Chartis defended the action on which E & Y bases its claim, it is a “privy” within the meaning of the above extract. In the words of Lander J. of the British Columbia Supreme Court in Sedam v. Simcoe & Erie General Insurance Co. 1983 CanLII 392 (BC SC), (1983), 147 D.L.R. (3d) 159 (B.C.S.C.), at p. 164, “[i]t would strike anyone as an absurd requirement to prove again what has already been proven in earlier proceedings at a great cost of time and money without a compelling reason for it.”
Another issue in the case was whether the defendant insurer had complied with it's duty of good faith with respect to the insured trustee. The court characterized the duty in the following terms, noting that breach of the duty gave rise to an independent cause of action against the insurer:
[70] There is no doubt that a liability insurer owes a duty of good faith to its insured in the defence of a claim. Before the motion judge and in this court, Chartis acknowledged it owed a duty of good faith to CGT in the defence of the Alberta Action. In 702535 Ontario Inc. v. Lloyd’s London, Non-Marine Underwriters 2000 CanLII 5684 (ON CA), (2000), 184 D.L.R. (4th) 687 (Ont. C.A.), leave to appeal to S.C.C. refused [2000] S.C.C.A. No. 258, this court stated, at para. 27:
The relationship between an insurer and an insured is contractual in nature. The contract is one of utmost good faith. In addition to the express provisions in the policy and the statutorily mandated conditions, there is an implied obligation in every insurance contract that the insurer will deal with claims from its insured in good faith: Whiten v. Pilot Insurance Co. 1999 CanLII 3051 (ON CA), (1999), 42 O.R. (3d) 641 (Ont. C.A.). The duty of good faith requires an insurer to act both promptly and fairly when investigating, assessing and attempting to resolve claims made by its insureds.
[71] As this court noted in 702535, relying on Whiten v. Pilot Insurance Co. 1999 CanLII 3051 (ON CA), (1999), 42 O.R. (3d) 641 (C.A.), reversed, 2002 SCC 18 (CanLII), 2002 SCC 18, [2002] 1 S.C.R. 595,[1] the duty to act in good faith is separate from the duty to compensate for the loss covered by the policy. It gives rise to a separate and independent cause of action, as noted at paras. 31-32:
A breach of the duty to act in good faith gives rise to a separate cause of action from an action for the failure of an insurer to compensate for loss covered by the policy. In Whiten v. Pilot Insurance, Laskin J.A. made the point at p. 650:
[I]n every insurance contract an insurer has an implied obligation to deal with the claims of its insureds in good faith. [cites omitted] That obligation to act in good faith is separate from the insurer's obligation to compensate its insured for a loss covered by the policy. An action for dealing with an insurance claim in bad faith is different from an action on the policy for damages for the insured loss. In other words, breach of an insurer's obligation to act in good faith is a separate or independent wrong from the wrong for which compensation is paid.
(See also, the Supreme Court’s decision in Whiten, at para. 79.)


[79] In Ferme Gérald Laplante & Fils Ltée. v. Grenville Patron Mutual Fire Insurance Co. 2002 CanLII 45070 (ON CA), (2002), 61 O.R. (3d) 481 (C.A.), leave to appeal to S.C.C. refused, [2002] S.C.C.A. No. 488, Charron J.A. observed, at para. 78:A breach of the duty to act fairly and in good faith gives rise to a separate cause of action that is distinct from the cause of action founded on the express terms of the policy and that is not restricted by the limits in the policy. Hence, it may result in an award of consequential damages distinct from the proceeds payable under the policy. [Emphasis added.]
[80] Laskin J.A. used similar language in Whiten, at p. 650, to describe the distinction between damages for breach of the duty of good faith and proceeds of insurance:
A breach of the duty of good faith may result in an award of damages which is distinct from the proceeds payable under the policy for the insured loss and which are not restricted by the limits in the policy.
Lastly, the court also noted that other 'procedural' torts might be available, her for civil contempt and abuse of process:
[83] If there is any evidence that Chartis intentionally misled the court or subverted the course of justice, there are remedies available, subject to any defences Chartis may have, including potential limitation defences. It is open to E & Y to move for appropriate relief, including perhaps the variation of the Houlden Order to include an assignment of CGT’s cause of action for a breach of the duty of good faith. Alternatively, E & Y might have a claim for abuse of process on the basis of a collateral attack on a court order: Toronto (City) v. Canadian Union of Public Employees, Local 79, 2003 SCC 63 (CanLII), 2003 SCC 63, [2003] 3 S.C.R. 77, at para. 34. Abuses of the court’s process are actionable in tort: Harris v. Glaxosmithkline Inc., 2010 ONCA 872 (CanLII), 2010 ONCA 872, 106 O.R. (3d) 661, at para. 27....

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