THE COURT OF APPEAL FOR SASKATCHEWAN Citation: 2009 SKCA 44 Date: 20090420 Between: Docket: 1430 Saskatchewan Government Insurance Appellant (Third Party) and Mel Sebastian and Campbell Haliburton TWC Insurance Investments Respondents (Defendants) and Stewart Drader and Cathy Drader Respondents (Plaintiffs) Coram: Vancise, Lane and Hunter JJ.A. Counsel: Christopher S. Weitzel for the Appellant David J. McCashin for Mel Sebastian and Campbell Haliburton Appeal: From: 2007 SKQB 61 (CanLII) Heard: January 14, 2009 Disposition: Appeal Allowed Written Reasons: April 20, 2009 By: The Honourable Madam Justice Hunter In Concurrence: The Honourable Mr. Justice Vancise The Honourable Mr. Justice Lane Hunter J.A. [1] Mel Sebastian (“Sebastian”), is licensed insurance agent with Campbell Haliburton TWC Insurance and Investments (“TWC”). In 1993, Sebastian prepared Home-Pak Application on behalf of Stewart and Cathy Drader (“the Homeowners”), which they signed and he submitted to Saskatchewan Government Insurance (“SGI”) for the purpose of obtaining policy of insurance for their home, including coverage for their Swarovski Silver Crystal figurines collection (“the Swarovski collection”) with an estimated value of approximately $9,950. [2] Sebastian had the Homeowners execute form, which cancelled the prior home insurance policy issued by SGI, which had been placed by McCallum Hill in 1992. Unknown to Sebastian, McCallum Hill had arranged for coverage outside of that which is usually provided for in the policy. The coverage was referred to as “manual narrative”. This special coverage covered loss or damage due to accidental breakage of their Swarovski collection. In response to the application submitted by Sebastian, SGI issued the standard “comprehensive perils” home coverage policy with Fine Arts Rider for the Swarovski collection, which contained an exclusion for accidental damage to and breakage of fragile items. [3] On April 21, 2004, the Homeowners’ display case, which contained items of the Swarovski collection, fell off the wall and many of the collectibles were damaged and destroyed. The Homeowners made claim under their house insurance policy. SGI denied coverage on the basis of the exclusion in the policy; the loss was due to an accidental breakage, which did not constitute “listed peril” as defined in the policy. [4] The Homeowners sued Sebastian and TWC alleging negligence or breach of contract for failing to obtain the coverage for insurance as instructed by the Homeowners. Sebastian and TWC issued a third party claim against SGI and claimed SGI was negligent or in breach of contract or contributory negligence pursuant to The Contributory Negligence Act[1] for failing to issue a policy of insurance in accordance with the application submitted to SGI by Sebastian on behalf of the Homeowners. [5] The trial judge concluded Sebastian and TWC were negligent and liable for the loss suffered by the Homeowners, which he assessed at $7,739 (U.S.), pre-judgment interest and PST and GST, if payable. Further, the trial judge concluded that the insurer, SGI, owed duty of care to both Sebastian and TWC, and the Homeowners, to properly underwrite and deal with the application for insurance. The trial judge concluded SGI contributed equally to the Homeowners’ loss by “their negligent acts” and was responsible to pay 50% of the judgment. The negligence of Sebastian and TWC is not disputed in this appeal. The Homeowners have been paid the amount owed under the judgment and advised they have no interest in the matter and did not participate in the appeal. [6] SGI appeals and says the trial judge erred in determining that SGI: (a) owed a duty of care to the insureds, Homeowners, and to the broker when it received an application for insurance in “all the circumstances”; and (b) breached its duty of care. Facts and Trial Judgment[2] [7] In August 1993, the Homeowners first contacted Sebastian. They advised him their home was currently insured with SGI through McCallum Hill Agency. They further advised Sebastian they were interested in insuring instead with Sask Mutual or another insurer. They had chosen TWC and Sebastian to be their intermediaries for that purpose. The trial judge summarized the evidence of the meeting of October 14, 1993, between Sebastian and the Homeowners as follows: [11] They advised him of the importance to them of the crystal collection and provided him with list of their collection along with valuations. This was the day before the McCallum Hill SGI policy was scheduled to expire or to be renewed. At no time did Mr. Sebastian request the Draders to provide him with copy of their existing insurance policy nor did he examine it at any time during his meeting with the Draders. After discussing alternative insurers the Draders decided to continue to insure with SGI. Mr. Sebastian had them sign Home Cancellation form cancelling their existing SGI policy number H4409596-6 (the McCallum Hill SGI policy). At the bottom of the form the reason for cancellation was expressed as “rewritten with us” reference to the fact that the Draders had elected to now use the Campbell Haliburton agency as opposed to McCallum Hill agency to obtain this SGI coverage. [12] At the same time Home-Pak Application Form was prepared by Mr. Sebastian and signed by Mr. Drader. The Home-Pak Application, in paragraph dealing with “special belongings other property,” under the heading property description states: Fine Arts: Swarovski silver crystal As per support file SF 222 (see H4409596-6). [8] The trial judge found that the Homeowners and Sebastian had some discussion about the coverage for breakage and damage to the Swarovski collection, but their recollection differed and he concluded: [14] it is clear that Mr. Sebastian and the Draders were talking at cross purposes based upon their own understanding or misunderstandings of the nature and scope of the coverage which the Draders had under the McCallum Hill SGI policy. On cross-examination during the trial, Mr. Sebastian accepted that Mr. Drader did instruct him to obtain the same or better coverage with SGI than the Draders enjoyed under the McCallum Hill SGI policy. [9] By virtue of special “manual narrative” endorsed on the McCallum Hill SGI policy, the Homeowners had coverage for accidental breakage for the Swarovski collection. The trial judge found that this was unknown to Sebastian, but was available for him to know if he had examined the McCallum Hill SGI policy. Sebastian did not ask to see the policy nor did the Homeowners produce it to him. [10] In respect of the special coverage for accidental breakage in the policy McCallum Hill had obtained from SGI on behalf of the Homeowners, the trial judge explained the insurer’s evidence as follows: [21] Mr. Gordon Giles gave evidence on behalf of the third party, SGI. His evidence establishes that in 1993 there was nothing in the SGI rate manual that dealt with accidental breakage coverage for items like the Draders’ Swarovski crystal. Nevertheless, SGI did, on an individual insured and policy basis, negotiate for such breakage coverage if requested to do so. McCallum Hill had done so on behalf of the Draders and the Draders had this special coverage by manual endorsement on their policy. Such endorsements were only offered to very, very few policy holders numbering approximately 200 [transcript reads 100] or so. Some years after 1993, SGI decided to phase out these special endorsements entirely and it gave notice of the termination of these special endorsement coverages to those policy holders that had them. That notice would not have gone to the Draders after they began their dealings with Campbell Haliburton since the Campbell Haliburton policy as issued did not have this special coverage. The Homeowners requested the special coverage from their agent, McCallum Hill, who at the time sought and obtained the special coverage from SGI. [11] In describing the insurance broker’s duty of care to the insured Homeowners, the trial judge referred to number of authorities from the Supreme Court of Canada and this Court. The duty of the broker is to procure the requested coverage, or draw to the attention of the insured that he could not get the coverage, and to advise the insured of the consequent gap in coverage. If the insurance broker fails to do so, he may be liable in negligence. (See: Fletcher v. Manitoba Public Insurance Co.;[3] Fine’s Flowers Ltd. v. General Accident Insurance Co. of Canada;[4] and Piggott Construction (1969) Ltd. v. Saskatchewan Government Insurance Office.[5]) For ease of reference, the trial judge’s conclusions finding Sebastian and TWC negligent are reproduced: [33] This Court concludes that Mr. Sebastian and his employer Campbell Haliburton, the defendants in this case, are liable in negligence for the loss suffered by the plaintiffs. Mr. Sebastian failed in his duty of care to properly identify the nature and extent of the Draders’ existing insurance coverages which he could easily have done by carefully reviewing copy of their existing policy. The evidence suggests he may, in fact, have done so but in either case he appears not to have noted the special coverage the Draders had including “Loss or damage due to breakage” (exhibit “F” and paragraph 16 Sebastian affidavit). He undertook, as he admits in cross-examination, to provide the Draders with insurance coverage equal to or better than the McCallum Hill SGI existing policy which they had. [34] Mr. Sebastian deposes that he was not aware, through any published SGI materials, that SGI did have coverage available for the accidental loss or damage due to breakage of the Draders’ Swarovski crystal collection. Nor, he claims, was he aware that the Draders had such special coverage under their McCallum Hill SGI policy. Nevertheless, with due and proper diligence that information should and would have been available by simple examination of the McCallum Hill SGI policy which Mr. Sebastian testified it is his normal practice to obtain and review. Had he done so carefully, he would have discovered the special coverage which the Draders had for their Swarovski crystal collection under the McCallum Hill SGI policy. In either case, that would no doubt have prompted him to ensure that the application for the renewal coverage that he had completed for Mr. Drader’s signature would have very specifically referred to the special scope of coverage being applied for. His actions or inactions constituted negligence at law. [Emphasis added] [12] The trial judge concluded Sebastian and TWC were liable in negligence on the basis that Sebastian was in breach of his duty of care because he failed to properly identify the nature and extent of the Homeowners’ existing insurance coverage, which he could easily have done by carefully reviewing copy of the McCallum Hill SGI policy. Sebastian admitted in evidence that he undertook to provide the Homeowners with insurance coverage equal to or better than the McCallum Hill SGI policy. Sebastian was not aware the Homeowners had special coverage under the McCallum Hill SGI policy, but with due and proper diligence he could have found that out by simply examining their previous policy. [13] Having determined Sebastian and TWC were liable in negligence, the trial judge then moved on to discuss the issues raised in the third party claim: whether SGI was liable to indemnify Sebastian and TWC or contribute to the amount of the judgment payable to the Homeowners on the basis of negligence, contract, or pursuant to The Contributory Negligence Act. [14] Significant to the third party claim is the trial judge’s conclusion that had Sebastian examined the McCallum Hill SGI policy, it would have prompted him to ensure that the application for renewal coverage that he completed for the Homeowners “would have very specifically referred to the special scope of coverage being applied for. His actions or inactions constituted negligence at law.”[6] [15] The trial judge states: [35] The Court now turns to an examination of the liability of SGI to the defendants upon the third party claim. [36] The Court has already concluded that SGI, as insurer, owed duty of care to both the defendants and the plaintiffs to properly underwrite and deal with the application for insurance submitted by its agent Campbell Haliburton on behalf of the Draders as prospective insureds. [37] The evidence satisfies me, as the defendants claim, that SGI did not publish the availability of this special insurance coverage which it had extended to the Draders under the McCallum Hill SGI policy in any of the materials distributed to its agents including Campbell Haliburton. Whether it had duty to do so or not, as claimed by the defendants, needs not be determined in this case. [38] The circumstances alone, combined with the application for insurance which SGI received, leads this Court to conclude that SGI did breach its duty of care to the defendants (as well as to the plaintiffs) in respect of the [TWC] policy it issued October 15, 1993, to replace the McCallum Hill SGI policy that expired the same date. [16] The trial judge’s conclusion that SGI had duty, and breached the duty of care to the Homeowners and Sebastian and TWC, is founded on the reference in the application form submitted by Sebastian (on behalf of the Homeowners) to the previous McCallum Hill SGI policy #H4409596-6 and the support file SF 222 containing list of the Swarovski crystal collection and its valuation. The trial judge characterizes this as specific direction to SGI. [39] The application specifically directs SGI, in this paragraph 4, to “see H4409506-6,” the McCallum Hill SGI policy. [40] This was not done. References to the expiring policy both in the heading of the application and as well in the coverages portion of the application (namely, in paragraphs and 4) were apparently ignored. [17] The trial judge noted that SGI examined the support file SF 222 when the policy was issued in 1993. In later years, SGI requested that Sebastian have the Homeowners update their collection list and valuations. The trial judge then concludes: [40] Had the McCallum Hill SGI policy been referred to, as directed by the application, one would expect that the SGI replacement policy issued, without further or other discussion, would have reflected the same scope of coverage (the special coverage) as the Draders had under the prior McCallum Hill SGI policy. If not, at least inquiries would have been made to clarify the scope of coverage then being applied for. [41] The resultant situation, and ultimately the loss incurred by the Draders with respect to their Swarovski crystal collection was reasonably foreseeable. Mr. Sebastian deposes that he was not aware that SGI extended special coverages as they did under the McCallum Hill SGI policy and therefore he would have proceeded, over all of the years, on the assumption that the Draders had exactly what they previously had under normal home-pak SGI policy without the special coverages. [18] The trial judge then addressed the allegation in the third party claim of whether SGI is contributorily negligent: [43] The defendants plead against the third party in contributory negligence. Upon the evidence, the law and for the reasons given and upon the analysis undertaken in this judgment, this pleading is well-founded. This Court finds upon the analysis undertaken, that the defendants and third party each equally contributed (50%/50%), by their negligent acts, to the loss sustained by the Draders. The defendants’ claim against SGI pursuant to The Contributory Negligence Act, R.S.S. 1978, c. C-31 succeeds and they are entitled to recovery against SGI equal to 50% of the judgment. For ease of reference, note the relevant provisions of The Contributory Negligence Act are: 2(1) Where by the fault of two or more persons damage or loss is caused to one or more of them, the liability to make good the damage or loss is in proportion to the degree in which each person was at fault, but if, having regard to all the circumstances of the case, it is not possible to establish different degrees of fault, the liability shall be apportioned equally. (2) Nothing in subsection (1) operates so as to render any person liable for any damage or loss to which his fault has not contributed. When it appears that person not party to an action is or may be wholly or partly responsible for the damages claimed, he may be added as party defendant or may be made third party to the action, upon such terms as are deemed just. [19] Lastly, the trial judge concluded the Homeowners were not contributorily negligent for their loss and he proceeded to assess damages. This last issue is not before us in this appeal. [20] There are two principle issues in this appeal, namely, did the trial judge err: (a) when he held that the third party insurer is liable for 50% of the damages the broker owes to the Homeowner; (b) when he stated that SGI had duty of care to the insured when the application for insurance was submitted to it, by broker, on behalf of the Homeowner. [21] Since January 1, 1985, TCW has been party to an agreement (“Agency Agreement”) with SGI. The Agency Agreement, inter alia, appoints TWC to be an agent of SGI, although not exclusively. Sebastian is employed by TCW. It authorized TWC, and by extension, Sebastian, to do such things as are necessary to carry out the terms of the Agency Agreement, including soliciting applications, collecting premiums and to bind SGI in certain situations. [22] Other than when TWC is in default, it is clear that TWC owns the clients. Clause 8(a) of the Agency Agreement provides: the property in and the ownership of the portfolio of business written by the Agency shall at all times be and remain in the Agency and the ownership of and property in the Agency’s records pertaining thereto and the right to use them for the purpose of transacting business shall be and remain in the Agency. [23] The Agreement prohibits SGI (other than at the request of the policyholder) from using its records to transact insurance business with homeowners, nor can it permit the use of its records by any other “agent, broker or insurer or any other person who might use them” to compete with TWC or to infringe on the business owned by TWC. [24] This then is the background necessary to understand the transactions in the instant case. In this case, the Homeowners are TWC’s clients. [25] In Insurance Law in Canada,[7] there is discussion about the use of intermediaries, i.e., agents and/or brokers, in the insurance industry as customers often deal with an agent or broker when purchasing insurance. Generally, the terms agent and broker may be used interchangeably. In the instant case, whether Sebastian or TWC are described as broker or agent is of no import as Sebastian and TWC are intermediaries. The Agency contract does not bind TWC to deal exclusively with SGI. In fact, it is evident, both from the contract and the evidence, that TWC and its employees are at liberty to place insurance for their customers with insurers other than SGI. [26] In describing the personal liability of an intermediary, Brown notes that the intermediary may become liable to either the insured or the insurer, depending on the nature of the error. He states at page 3-17: Should customer be denied claim because an agent has failed to transmit information properly to the insurer, s/he may be able to turn instead to the intermediary for redress. On the other hand, an insurer might find itself bound to pay claim made by customer it would not have insured in the first place had it known facts that were not passed on by an intermediary acting with the requisite authority. Here the insurer may seek redress from the intermediary. In this section we shall examine the legal bases on which insurance intermediaries may be found liable to insurers or customers and the nature of the duty that liability implies. The possible legal bases are warrant of authority, contract, tort or equity. [27] In the numerous cases listed in Brown[8] there is breach of the duty of care of the broker to the insured, if the broker fails to procure the appropriate insurance for the customer or fails to advise that it is unavailable. Also, the intermediary has been held liable to the insurer where the broker fails to convey information relating to changes in the risk or amended conditions to the insurer, or fails to forward information to the insurer that has been given to the broker by the customer (see: Yorkshire Trust Co. v. Laurentian Pacific Insurance Co.[9]). [28] In the instant case, Sebastian met with his customer, the Homeowners, from whom he obtained information about their insurance needs. Sebastian had information about the coverage and premiums for number of insurers as TWC was not the exclusive agent for one insurer. It is clear that TWC and Sebastian are intermediaries within the meaning of the term as used by Brown. [29] Even though the Homeowners wanted insurance coverage for the accidental breakage of their collection, Sebastian was never aware that such coverage was available or that their prior policy with SGI, written by McCallum Hill, provided this coverage by way of “manual narrative”. Sebastian was found liable for failing to apply for the insurance coverage the Homeowners desired and instructed him to obtain on their behalf. Given this finding by the trial judge, how, in these circumstances, should the insurer who received this application owe duty to the applicant to provide coverage beyond what is understood by, and applied for by the broker? In other words, is there duty on the insurer (i.e., its underwriters) when it receives the application for insurance from broker on behalf of homeowner to conduct its own review of the needs, wishes or desires of the applicant? In my view (absent specific request by the broker, which the insurer agrees to undertake), there is no such general duty on the insurer. [30] While it is unclear what the trial judge meant by the phrase “[t]he circumstances alone” in para. 38 of the judgment, it would seem he relied on that portion of the application form where the previous McCallum Hill policy number was stated together with the reference to the support document SF 222. The question is whether these references provided an adequate direction to the insurer about the coverage that was to be procured for the customer. The further question is whether these references, when taken together with the number of changes in coverage applied for by Sebastian and the practice of SGI, created special set of circumstances which warrant the creation of “new duty” to be imposed on the insurer. In my view, for the reasons stated below, it does not. [31] In this case, the trial judge correctly placed the duty of care on the intermediary, Sebastian. He gathered the information from the Homeowners, reviewed the existing coverage, and completed the application. It is his duty to properly complete this set of tasks. In return, commission is paid to the broker. [32] Further, the onus is placed squarely on Sebastian to make the appropriate inquiries of the Homeowners, review their prior policy if that was the basis for the coverage requested by the Homeowners, and be clear in requesting the special scope of coverage being applied for in the application form. [33] Sebastian deposed that the Homeowners did not specifically advise him they had accidental breakage coverage for their collection in the McCallum Hill policy, but they only advised him that the collection was insured through Fine Arts Rider.[10] [34] In the application for insurance submitted by Sebastian, it shows that the coverage requested, with $250 deductible, was for $71,000 for each the dwelling and belongings and $7,100 for the outbuildings. The total premium cost was $272 and an additional $14 premium charge for the glass deductible. Under the heading “Special Belongings Other Property” Sebastian had written in the following: FINE ARTS: SWAROVSKI SILVER CRYSTAL AS PER SUPPORT FILE SF 222 (see H4409596-6) (see revised list attached) Under the coverage limit column, the figure 9,995.50 is circled and written in ink, whereas it appears the first writing of the amount of coverage on this application form is 10,500. Under the column “Ded.”, is the figure and the premium was $50. The total premium for the insurance applied for was $336. [35] By contrast, the insurance under the McCallum Hill policy shows that with deductible of $250, the dwelling and belongings were insured for $88,000 and the outbuildings for $8,800, for premium cost of $303, and the glass breakage coverage of $240 for premium cost of $14. The coverage under the Fine Arts Rider for the Swarovski Silver Crystal was listed on support file SF 222 for coverage of $9,776 with premium cost of $94, including loss or damage due to breakage. The total premium charged was $426. [36] It is evident from comparing the McCallum Hill SGI policy and the coverage applied for by Sebastian in the application form, that there are number of differences in the coverage requested, culminating in twenty per cent reduction in the premium from that charged for the McCallum Hill SGI policy. [37] During cross-examination on his affidavit, Sebastian said he understood support file to be something the insurer would have in their records to show the values and description of the items that made up the approximate $9,700 value for the amount of insurance coverage for these items. In the application form he submitted, Sebastian had included the prior policy number as “reference for SGI to refer to that policy to which the new application was taking over from”. He did not say for what purpose it was reference. He also filed form executed by the homeowners cancelling the McCallum Hill SGI policy. [38] Gordon Giles explained that the support file SF 222 is an actual physical file that SGI keeps. The file: would have given physical description of the items that the [Homeowners] had insured. The support file itself would only document the items that were insured. It would not outline the coverage.[11] In this in this case because of the existence of the support file our staff would have reviewed what was there to to get descriptor of the items insured and the values.[12] [39] Gordon Giles in his evidence on behalf of the insurer, spoke to the role of the insurer and stated: SGI did not compare the [McCallum Hill] policy with the new policy application for the second policy. SGI merely processed the application as submitted by [Sebastian]. In practice, SGI does not compare previous policy with new policy application to make sure that any changes in coverage are intentional. SGI relies on the broker’s expertise in this regard.[13] [40] In response to questions from the Court with respect to the role of the insurer, the following exchange occurred:[14] THE COURT: Now, is there any notation there that would have prompted SGI to conclude that there was change in the scope of coverage? THE WITNESS: Well, what happens, Your Lord, is as common business practise because of the volumes that we deal with on daily basis where we deal with approximately 150,000 policies annually just in the business area that I’m responsible for. We receive many applications from brokers where an individual has gone is an SGI client, have moved from one broker to another for whatever business reasons. We do not review the prior policy of the customer, the reason being is that one, is that it would manifest itself and it would be physically impossible for us to provide the service levels that we established for ourselves. The second is that on many occasions people will change their coverage when moving from one broker to another. They may, for example, decide to move from $500 deductible to $1000 deductible. When my staff receive that we don’t feel that it’s well, it’s not our responsibility to to review that. Our responsibility is to fulfill the request from an insurance broker for insurance coverage that we receive. [Emphasis added] THE COURT: Right, but what does this communicate to you in terms of the requested coverage if there is reference to, in this particular area, the prior policy? THE WITNESS: In this particular area what it’s saying to my staff is that there was coverage for scheduled belongings for this crystal for the [homeowners] on the previous policy and what the reference to the support file number is on there is just providing them with the descriptor and the listing of the values for that. THE COURT: Right, and that’s not in issue, it’s the nature of and scope of coverage that is in issue in this case and I’m asking you what you take this application for insurance referencing in this area the prior policy to mean with respect to the scope of coverage the nature and scope of coverage. THE WITNESS: In terms of the nature of the scope of coverage, what I’m referring well, how would reference it is that we would provide the coverage that’s requested by the broker. THE COURT: Right. And that is by reference to the previous policy? THE WITNESS: That is by reference to the application the broker has submitted. [41] Gordon Giles was asked why an SGI staff member would contact Sebastian about the value of the coverage on the Fines Arts Rider requested on the application form. The following exchange occurred: why SGI would be recalculating those numbers. Well, I’m assuming that what happened is is that the initial application that we got from Mr. Sebastian would have requested $10,500 in coverage. When my staff would have looked at the support file they would have seen total value of $9,995, so they would have contacted Mr. Sebastian to to verify what the correct value was or the other assumption would have been that perhaps there might have been an item that wasn’t put on the support file that Mr. Sebastian wanted to have insured. And why would it be important for SGI to to determine what the correct value is? Well, for two reasons. One is to ensure that the customer has proper coverage in place in terms of the values of their of the scheduled items and secondly is to get the proper premium for the risks that we’re insuring.[15] [42] From the above evidence, it is clear the insurer relies on the broker to apply for the coverage in accordance with his clients’ (i.e., the insureds’) wishes and needs. The evidence is clear that the references in the application form to SF 222 and the previous policy number do not request the insurer to provide the same coverage as existed in the previous policy of insurance. If that is the coverage requested, then the application form should have said so. Further, the trial judge concluded that if Sebastian had looked at the McCallum Hill SGI policy, it would have prompted him to ensure that the application he completed “would have very specifically referred to the special scope of coverage being applied for. His actions or inactions constituted negligence at law.”[16] [43] The coverage requested in the application form differs from the previous coverage in the McCallum Hill SGI policy. The premium charged for the requested coverage is significantly less than the previous policy. In my view, the evidence does not support the inference made by the trial judge that the coverage applied for by Sebastian was to be identical to the coverage that existed in the cancelled McCallum Hill policy. Therefore, the reference in the application form to the policy number of the cancelled policy submitted to SGI cannot form the factual basis for the trial judge to conclude the insurer has duty to inquire of the insured whether the coverage applied for in an application filed on behalf of the insured by broker is adequate and in accordance with the insureds’ instructions. There was no other evidence before the Court to establish the standard of care; the basis for imposing a duty at law where none has previously existed; or the subsequent breach of that duty by the insurer, SGI, in connection to the application for insurance submitted by Sebastian. [44] It appears the trial judge founded the basis of liability of SGI to Sebastian and TCW on the basis of tort. However, the instant case is factually and legally distinguishable from the only situation in Yorkshire Trust cited to this Court in which an insurer was found to have duty to its intermediary. [45] The trial judge’s analysis follows: [29] The defendants claim that the insurer, SGI, owes duty of care to the plaintiffs, as the insured, and the defendants as SGI’s agent, in all of the circumstances. The defendants rely upon Yorkshire Trust Company v. Laurentian Pacific Insurance Company (1987), 28 C.C.L.I. 368 (B.C.S.C.) as setting out the principle that, in certain circumstances, particularly as they relate to the processing of an application for insurance, an insurer may well be liable to an insured and the insurer’s agent in negligence and/or breach of contract. This case supports the principle that an insurer has duty of care to underwrite risk and issue an insurance policy in accordance with an application for insurance that is submitted and in respect of which an insurer has made appropriate and careful inquiry. If, in breach of an insurer’s duty, an insurer is negligent in its treatment of an application for insurance, the insurer may well be liable to anyone who can reasonably be foreseen as harmed by that negligence which may include the insured and/or the insurance agent that presents the application. This Court agrees with and accepts these legal principles as applicable in this case. (See also Fletcher v. Manitoba Public Insurance Co., supra; Audio Works Production Services Ltd. v. Canadian Northern Shield Insurance Co., 2005 MBQB 209 (CanLII); [2006] W.W.R. 643 (Man. Q.B.); C. Brown and J. Menzies, Insurance Law in Canada, 2nd ed. (Toronto: Carswell, 1991) at pp. 57 and 58; Piggott Construction (1969) Ltd. v. Saskatchewan Government Insurance Office, supra) [36] The Court has already concluded that SGI, as insurer, owed duty of care to both the defendants and the plaintiffs to properly underwrite and deal with the application for insurance submitted by its agent Campbell Haliburton on behalf of the Draders as prospective insureds. [46] As point of clarification, the question of whether the insurer, SGI, owed an independent duty of care to the insured when broker, on behalf of the insured homeowner, completes the application for insurance and submits it to the insurance company, was not raised by the Homeowners. However, Sebastian and TWC, in the Third Party Claim, plead that such duty exists based on their contention that SGI was obliged to inform them of the coverage under the McCallum Hill SGI policy. However, the trial judge correctly concluded that task belonged to the broker. So why does the insurer have duty to provide advice to the broker as to the contents of previous insurance policy held by an insured when the insured changes brokers, and it is the new broker who applies (on behalf of the insured) for new policy of insurance? [47] have found no cases where broker’s breach of the duty of care for failing to procure the appropriate insurance for the customer has been extended to recognize an independent duty owed by the insurer (who receives the application for insurance from the broker) to the customer to procure the appropriate insurance for the customer. [48] This leads to the question whether the duty of the insurer extends beyond providing policy in accordance with what is requested in the written application form? Does the law impose on the insurer duty to conduct inquiries of the broker and/or the insured when there are any requests for any changes from that contained in previous insurance policy issued by that insurer? If so, what is the nature of that duty? Is it duty imposed by contract law or tort law? If tort law, what is the standard of care against which the conduct of the insurer is to be measured? [49] Counsel for Sebastian acknowledges that many of the authorities relied on by the trial judge in support of the principle he cites imposing liability on the insurer in this case, do not support the principle he sets out. The trial judge states the following principle: [29] the principle that an insurer has duty of care to underwrite risk and issue an insurance policy in accordance with an application for insurance that is submitted and in respect of which an insurer has made appropriate and careful inquiry. If, in breach of an insurer’s duty, an insurer is negligent in its treatment of an application for insurance, the insurer may well be liable to anyone who can reasonably be foreseen as harmed by that negligence which may include the insured and/or the insurance agent that presents the application. [50] In the respondents’ factum, they concede the following authorities cited by the trial judge do not support the principle asserted. They stated: 52. That is the case with regard to the reference to C. Brown and J. Menzies, Insurance Law in Canada, (2nd ed. 1991) at pp. 57 and 58 The section of the text cited discusses the duty and potential liability of an insurance agent but not an insurer. Piggott Construction 1969 Ltd. v. Sask. Government Insurance Office does not explicitly state the principle set out by the Judge. Fletcher v. Manitoba Public Insurance Co. involved situation where the insureds dealt directly with public auto insurer and there was no independent agent or broker involved. Therefore it is not similar factually to the circumstances at issue in this appeal.[17] [51] The result is that the only authority cited by the trial judge that can be relied on for this principle is Yorkshire Trust. In my view, this case fails as an authority for the principle stated and relied on by the trial judge because it deals with fundamentally different legal issue based on an unusual fact pattern substantially different from the instant case. [52] Yorkshire Trust involved an action by three mortgagees under commercial policy of property insurance that covered building destroyed by fire. The insurer defended and argued the policy was void because one of the mortgagees fraudulently omitted to disclose material change relevant to the risk. In addition, the insurer brought third party action against the insurance agent for failing in his duty to advise the insurer of these material facts. [53] The insurer was unable to convince the Court that the policy was void as result of the fraudulent misrepresentation of the mortgagees at the time of the application for insurance. Therefore, the mortgagee (plaintiff) was entitled to recover under the policy. [54] The Court concluded the insurer would not have accepted the risk and would not have issued the policy if it had been told what the agent knew: The insurance agent, being in the same complex, knew more than enough to have been alerted to these risks. Despite his knowledge of the building and its owner, and of the probability that the owner and former owner were in financial difficulties, [the agent] communicated no warning at all to [the insurer]. When he phoned to seek coverage and obtained the necessary commitment, the information which he gave to [the insurer] was sparse, innocuous and, in my view, plainly inadequate to discharge the agent’s duty to an insurer in such circumstances. do not, however, believe that the insurer would have accepted any part of the risk had it been told what [the agent] then knew. Had he been frankly told that the bank was his customer, that it was covering only its own interest, that much less than half of the property seemed to be income-producing and that the reputation of the owner was questionable, think it probable that [the insurer] would have instructed [the agent] to make further inquiries, initially of the bank. Had those inquired not been frankly answered by the bank, any policy issued would have been void under statutory condition 1. Had frank answers been given, they would have led to discovery by the insurer …[18] [55] The Agent was liable to the insurer for his failure to provide material information to the insurer at the time of underwriting the policy of insurance. [56] The Court, in the unique circumstance of that case, found the insurer 50% liable for its loss. The Agent in Yorkshire Trust was an inexperienced agent with no power to bind the insurer. In addition, there were number of circumstances which should have alerted the underwriter to ask for more information. The Court found: Most other relevant details concerning the property including its age, wiring, heating, location in relation to fire hydrants and fire protection system were simply “guessed” by someone in his office who filled out the data sheet, often quite wrongly. …[19] [57] More importantly, the Court noted that the underwriter’s readiness to take on the risk on the basis of paucity of information was factor in the policy being in place and the subsequent loss to the insurer. The Court noted, with respect to the standard of care, that it: did not conform with that of reasonably careful fire risk underwriters as explained in expert evidence, and substantially contributed to its loss.[20] [Emphasis added] [58] The special set of circumstances in Yorkshire Trust can be contrasted with the instant case. Here the agent is experienced, has authority to bind the insurer, works with his clients for in excess of fifty days in search of new insurer, who on the day before coverage expires submits new application for insurance with several changes in coverage, and who fails to review his client’s existing policy. [59] The only evidence before the Court relating to the relationship of the underwriter, insurer, to the broker was that of Gordon Giles. He dealt with the practice followed by SGI in this case. It was his testimony that their practice was consistent with their standard practice in such situations. Accordingly, in this transaction, with respect to the obligation of the insurer to the broker, SGI did that which could reasonably have been expected of it. It issued the policy in accordance with the application. [60] As previously discussed and, further, conceded by the appellants, neither Fine’s Flowers nor Fletcher are authority for duty being owed by an insurer to an insured, independent of the duty owed by an agent or broker to an insured. There is nothing in the facts of this case which leads this Court to conclude that such duty ought to be created in the circumstance of this case. The insurer’s obligation to the insured is to issue policy in accordance with the application submitted. There may well be other circumstances where the law requires more of an insurer, but this is not such circumstance. [61] I conclude there is nothing in this transaction which warrants the creation of a duty of care owed by the insurer to a broker applying for insurance on behalf of his clients. [62] The relationship of intermediaries to their clients, the insureds and to the insurers, is matter of long established law, both in contract (which when required may be changed by agreement) and in tort. The commentators cited at length by counsel for the Appellants[21] advocate the extension of or the creation of new duties of insurers to intermediaries and to insureds. There is, however, nothing in this case which should cause long standing commercial relationships or the expectations of the parties to those relationships to be altered. Further, the established duty of intermediaries to their clients is adequate to protect insureds. [63] note that in Clause 7(a) of the Agency Agreement, the parties thereto, SGI and TWC, have provided, by contract, for an obligation of the insurer to indemnify the Agent where the Agent has become obligated to pay damages as result of loss sustained by the policyholder caused by the error or omission of SGI. It is apparent the parties have provided for contractual mechanism to cover the circumstances. Accordingly, this is the obvious justification for not creating “new” or “novel” duties and imposing them on insurers. With respect to this contractual provision, there is nothing in the evidence to suggest that the loss sustained by the Homeowners is result of an “error or omission” on the part of SGI. [64] For all of these reasons, that portion of the judgment finding that SGI is liable for 50% of the damages payable to the Homeowners is set aside and the Third Party Claim is dismissed. Accordingly, the appeal is allowed with costs to the Appellant. DATED at the City of Regina, in the Province of Saskatchewan, this 20th day of April, A.D. 2009. “Hunter J.A.” HUNTER J.A. concur “Hunter J.A. for” VANCISE J.A. concur “Lane J.A.” [1] R.S.S. 1978, c. C-31. [2] 2007 SKQB 61 (CanLII), [2007] W.W.R. 705. [3] 1990 CanLII 59 (SCC), [1990] S.C.R. 191. [4] (1977), 1977 CanLII 1182 (ON CA), 81 D.L.R. (3d) 139 (Ont. C.A.). [5] 1985 CanLII 2669 (SK CA), [1986] W.W.R. 530, (1985), 44 Sask. R. 203 (C.A.). [6] Supra note at para. 34. [7] Craig Brown, et al., Insurance Law in Canada, looseleaf (Toronto: Thomson-Carswell, 2002). [8] Ibid. at pp. 3-24 to 3-28. [9] (1987), 28 C.C.L.I. 368 (B.C.S.C). [10] Exhibit D4 at Trial, Affidavit of Mel Sebastian, dated December 5, 2006, at para. 4. [11] Transcript of Trial Proceedings Held: December 20, 2006, at p. 100. [12] Ibid. at p. 102. [13] Exhibit T1 at Trial, Affidavit of Gordon Giles, dated November 30, 2006, at para. 7. [14] Supra note 11 at pp. 108-10. [15] Ibid. at p. 111. [16] Supra note 6. [17] Factum on Behalf of the Respondents, Mel Sebastian and Campbell Haliburton. [18] Supra note at pp. 378 and 379. [19] Ibid. at p. 380. [21] Professor James A. Rendall annotation in Yorkshire Trust Co. v. Laurentian Pacific Insurance Co. (1987), 28 C.C.L.I. 368; and Professor Marvin G. Baer annotation in Fletcher v. Manitoba Public Insurance Co. (1987), 1987 CanLII 4382 (ON SC), 26 C.C.L.I. 236.
The respondent Homeowners sued the respondents Sebastian and the TWC alleging negligence or breach of contract for failing to obtain the coverage for insurance as instructed by the Homeowners. Sebastian and TWC issued a third party claim against the appellant SGI and claimed SGI was negligent or in breach of contract or contributory negligence pursuant to the Contributory Negligence Act for failing to issue a policy of insurance in accordance with the application submitted to SGI by Sebastian on behalf of the Homeowners. The trial judge concluded Sebastian and TWC were negligent and liable for the loss suffered by the Homeowners. Further, the trial judge concluded that the insurer, SGI, owed a duty of care to both Sebastian and TWC and the Homeowners to properly underwrite and deal with the application for insurance. The trial judge concluded SGI contributed equally to the Homeowners' loss by 'their negligent acts' and was responsible to pay 50% of the judgment. The negligence of Sebastian and TWC is not disputed in this appeal. The Homeowners have been paid the amount owed under the judgment and advised they have no interest in the matter and did not participate in the appeal. SGI appeals and submits the trial judge erred in determining that SGI: (a) owed a duty of care to the insureds, Homeowners, and to the broker when it received an application for insurance in 'all the circumstances'; and (b) breached its duty of care. HELD: That portion of the judgment finding that SGI is liable for 50% of the damages payable to the Homeowners is set aside and the Third Party Claim is dismissed. Accordingly, the appeal is allowed with costs to the Appellant. The trial judge correctly placed the duty of care on the intermediary, Sebastian. It is clear the insurer relies on the broker to apply for the coverage in accordance with his clients' (i.e., the insureds') wishes and needs. There was no other evidence before the Court to establish the standard of care, the basis for imposing a duty at law where none has previously existed, or the subsequent breach of that duty by the insurer, SGI, in connection to the application for insurance submitted by Sebastian. The Court concluded there was nothing in this transaction which warrants the creation of a duty of care owed by the insurer to a broker applying for insurance on behalf of his clients.