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Insurance - 'Actual Cash Value'. Truong v. Jeweler’s Mutual Insurance Company
In Truong v. Jeweler’s Mutual Insurance Company (Ont CA, 2024) the Ontario Court of Appeal dismissed a jewelry insurer's appeal, here where a central issue was whether the insured actually owned the stolen jewels.
Here the court addresses issues of 'but for' and 'actual cash value' measures of damage:[4] The trial judge found in favour of the respondents and awarded them $502,100 as compensatory damages for the loss of the jewellery. He also awarded a further $45,000 as punitive damages. He was of the view that the respondents never should have been put to the proof of their pre-Policy ownership of the jewellery because Jeweler’s Mutual accepted the respondents’ ownership when it issued the Policy – a policy it admitted had not been the result of any material misrepresentation. By not paying, and defending, on the basis that once there was a loss the respondents had to prove pre-Policy ownership, Jeweler’s Mutual attempted to impose an obligation on the respondents that would not have been reasonably expected by an insured and arrogated unto itself an un-bargained for right, in bad faith.
[5] Jeweler’s Mutual does not challenge, on appeal, the trial judge’s findings that the respondents owned the jewellery and that it was stolen from them as they alleged. It asserts, however, that there was no legal basis for an award of punitive damages, and that the compensatory damages were assessed on an incorrect principle.
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[8] There was also no reversible error in the trial judge’s calculation of compensatory damages in the sum of $502,100 to reflect the loss payable under the Policy. Although the trial judge was in error to say, at one place in his reasons, that Jeweler’s Mutual was not permitted to rely on provisions of the Policy that specified what would be paid in the event of a loss, the error was of no moment. The trial judge calculated the loss on the basis of the appraised values of the jewellery reflecting its replacement cost, which was one of the bases the Policy prescribed for settlement of a loss. Jeweler’s Mutual led no evidence that the other basis in the Policy, actual cash value, was less than the appraised values, and the evidence it points to on appeal does not justify that conclusion.
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[47] Jeweler’s Mutual submits that compensatory damages should be calculated so as to put a plaintiff in the position they would have been in had the breach not occurred, but that in doing so the terms of the contract cannot be ignored. It submits that the trial judge erred when he found that Jeweler’s Mutual could not rely on terms of the Policy that stipulate what would be paid in the event of a loss and instead valued the loss in accordance with the appraisals submitted at the time of the Policy.
[48] Although it acknowledges that the appraisals reflected the replacement value of the items, and this was one of the payment options under the Policy, it argues that another option was to pay the “actual cash value” of the jewellery. While that term is not defined in the Policy, Jeweler’s Mutual submits it has an equivalent meaning to market value.
[49] I agree with Jeweler’s Mutual that in assessing damages for breach of contract, where there are several ways in which the contract may be performed, damages are to be assessed on the basis of the mode of performance that would have been the least costly for the defendant: Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303, at paras. 11 and 20. See also SS&C Technologies Canada Corp. v. The Bank of New York Mellon Corporation, 2024 ONCA 675, at paras. 131-34.
[50] The loss settlement provisions of the Policy contemplated payment of replacement value or actual cash value as modes of performance by Jeweler’s Mutual in the case of loss. The trial judge’s articulation of the measure of damages could only have led to an erroneous result if actual cash value was the less costly alternative, that is, if actual cash value was less than replacement value. The appraisals in this case reflect replacement value.[2]
[51] Jeweler’s Mutual did not plead in its statement of defence that actual cash value should be the basis of the calculation of the respondents’ damages, nor did it lead any evidence at trial of the actual cash value, at least in those terms. That distinguishes this case from Lieberman v. Federation Insurance Company of Canada, 2004 BCSC 572, 12 C.C.L.I. (4th) 265, where the court awarded an amount equal to the actual cash value of a ring, as opposed to its higher replacement value. There the court had evidence of both values: see para. 18.
[52] Jeweler’s Mutual points, on appeal, to evidence from which it submits we could discern actual cash value, and fix it at an amount less than replacement value. It fairly concedes that it did not present these calculations to the trial judge. However, even if we were to consider the argument at this stage, the evidence does not support the conclusion we are asked to draw.
[53] For example, Jeweler’s Mutual points to references in the evidence about wholesale prices, but it conceded in argument that actual cash value was not the same as a wholesale price. It points to evidence that the purchase amounts reported by Mr. Truong of the four non-inherited pieces of jewellery were, on average, 14% lower than the appraised values for those items. But the purchases described by Mr. Truong occurred years before the appraisals and therefore the purchase prices would not necessarily reflect actual cash value at the time of the loss.
[54] Finally, Jeweler’s Mutual points to evidence of the appraisers who testified that while major retailers would charge prices in accordance with the appraised values, individual jewellery stores may charge less in some circumstances. The evidence of one of the appraisers (Mr. Stern) was that while a major retailer would probably sell for more than the appraised amount, lower prices might be available “if you have a friend or something in the business”. The other appraiser (Mr. Ho) confirmed that major retailers sell at “full” price and that discounts may be available at individual stores (in unquantified amounts) depending on who they were selling to or what was being sold.
[55] The evidence of Mr. Stern does not assist Jeweler’s Mutual. Market value, or fair market value (to which actual cash value equates[3]), is defined as “the price that a seller is willing to accept and a buyer is willing to pay on the open market and in an arm's-length transaction” (see Black’s Law Dictionary, at p. 1871). Prices that are hypothetically available in non-arm’s length transactions (from a “friend… in the business”) are not market transactions. Similarly, Mr. Ho’s evidence of potential discounts in unquantified amounts contingent on what is sold and to whom is far too speculative to support the conclusion about actual cash value that Jeweler’s Mutual asks us to draw. Indeed, the evidence that major retailers would sell at the appraised values – if not higher – undercuts the argument that actual cash value was lower than the appraised values the trial judge used.
[56] In order to succeed on this ground of appeal, Jeweler’s Mutual must satisfy us that any error in the trial judge’s articulation of the measure of damages had an effect on the outcome. I am not satisfied that the evidence shows that there was any effect on the outcome flowing from the trial judge’s use of appraised values, regardless of his statement about the measure of damages. I would therefore reject this ground of appeal. . Stewart v. Bay of Quinte Mutual Insurance Co.
In Stewart v. Bay of Quinte Mutual Insurance Co. (Ont CA, 2024) the Ontario Court of Appeal dismissed a property insurance appeal, here where the appellant alleges that the insurer paid "considerably less than the value of items that [were] lost in the fire".
Here the court considers 'umpire appraisal' issues [under IA s.128] in contrast with the 'actual cash value' (ACV) determination of value:The trial judge did not err in declining to order an appraisal under s. 128 of the Act
[12] The trial judge declined to order an appraisal under s. 128 of the Act, concluding that it was preferable in the circumstances for the court to assess the actual cash value (ACV) of the personal property that Mr. Lynch claimed to have lost in the fire. BOQ contends that this is a reversible error because the statutory appraisal process was mandatory but could not be undertaken, given the insured’s failure to deliver a sworn proof of loss.
[13] An appraisal mechanism is set out in s. 128 of the Act. Under s. 128(2) the insured and the insurer each appoint an appraiser, and the two appraisers so appointed appoint an umpire. Subsection (5) provides for a court order to give effect to the appraisal mechanism:(5) Where,
(a) a party fails to appoint an appraiser within seven clear days after being served with written notice to do so;
(b) the appraisers fail to agree upon an umpire within fifteen days after their appointment; or
(c) an appraiser or umpire refuses to act or is incapable of acting or dies,
a judge of the Superior Court of Justice may appoint an appraiser or umpire, as the case may be, upon the application of the insured or of the insurer. [14] A judge has the discretion to decline to appoint an appraiser under s. 128(5), based on the permissive language (“may” rather than “shall”) and the interpretation of the provision by this court. In 56 King Inc. v. Aviva Canada Inc., 2017 ONCA 408, the court held that s. 128 “signals a decided preference for appraisal, as the authorities note, but the language of s. 128 gives the court discretion to curb abuse”.
[15] BOQ relies on The Dominion of Canada General Insurance Company v. Nelson, 2023 ONSC 386 (Div. Ct.). In that case, the parties engaged in an appraisal process to determine an insured’s loss in a fire. Following the appraisal process, the insured brought a civil action against the insurer seeking damages for alleged breach of contract for insurance coverage. The insurer sought the dismissal of the action through a summary judgment motion. The motion was dismissed at first instance but granted on appeal. The Divisional Court held that “the Superior Court does not have jurisdiction to hear and decide a claim relating to an appraisal of fire insurance damages under an insurance policy that has already been the subject of an appraisal process and determination by an Insurance Umpire under the Act”.
[16] Nelson involves the jurisdiction of the Superior Court to assess a fire loss claim that has already been subject to a s. 128 appraisal process. It does not address the discretion of a Superior Court judge to compel a party to submit to such a process and does not supersede this court’s determination in 56 King Inc. that a judge has the discretion to refuse to order an appraisal.
[17] BOQ argues alternatively that the trial judge’s refusal of an order for an appraisal in this case was unwarranted. We disagree.
[18] Having found that the insured’s failure to provide a sworn proof of loss was not fatal to its claim, Justice Hurley found the appellant waived its right to an appraisal. As he noted:Neither side expressed any interest in [an appraisal]. They focused on other factual and legal issues. Not only was the defendant’s position not pleaded, there was no evidence that the defendant even raised the issue of an appraisal except for the brief reference to it in Ms. Lyons letter of July 6, 2011— not when the claim was being adjusted; at the examinations for discovery; in correspondence between counsel; or in the pretrial conference report under rule 50.08. I conclude that both parties were content to proceed with the litigation in the ordinary way and it was not until the trial was imminent that the defendant first asserted that an appraisal was a necessary precondition to the adjudication of the contents claim. [19] The trial judge found that ordering an appraisal would not save any money or time, as he had all the information necessary to assess the value of Mr. Lynch’s lost property:Here, I can justly adjudicate the contents claim. I have a comprehensive evidentiary record. I am in as good a position as an umpire would be at an appraisal to decide the ACV of the contents claim. An appraisal would only result in additional delay and expense. I bear in mind the important goals of affordability, timeliness and proportionality: Hryniak v. Maudlin, 2014 SCC 7. [20] We see no basis to interfere with the trial judge’s exercise of discretion under s. 128(5). As he observed, the purpose of the appraisal mechanism in the Act is to provide an expeditious and easy means for the settlement of claims for indemnity under insurance policies. By the time BOQ took the position that the ACV could only be decided through an appraisal, nine years had passed since the fire. Mr. Lynch’s claim that BOQ had negligently under-insured his property would have had to proceed to trial anyway. In the circumstances, the trial judge’s conclusion that an appraisal would result in additional delay and expense was eminently reasonable.
The trial judge did not err in assessing the ACV of the lost personal property
[21] BOQ contends that there was no reliable evidence on which the trial judge could determine the ACV of Mr. Lynch’s lost personal property. We disagree.
[22] As the trial judge correctly noted, there is no single or right way to calculate the ACV under an insurance policy. As already mentioned, BOQ had an opportunity to examine Mr. Lynch on the Schedule of Loss prepared by an adjuster he retained, NFA. At trial, an NFA adjuster, David LeBlanc, testified as an expert witness. He calculated the ACV of the items on the Schedule at $134,053; this was lower than the original total as Mr. Leblanc acknowledged that some items should not have been included on the Schedule. BOQ’s expert was an auctioneer, Boyd Sullivan. He valued the items at $20,000-$25,000 based solely on his experience as an auctioneer. He acknowledged on cross-examination that he was not familiar with the term ACV or the value of certain items on the Schedule.
[23] The trial judge accepted Mr. Leblanc’s evidence, concluding that his opinion was based on information that the trial judge deemed credible and reliable, and that the depreciation factors applied were reasonable. The trial judge found Mr. Sullivan’s evidence of no assistance.
[24] The trial judge was entitled to accept the respondent’s evidence and to prefer it to BOQ’s evidence. BOQ has not identified any palpable and overriding error in the ACV determination. . Intact Insurance Company v. Laporte
In Intact Insurance Company v. Laporte (Ont CA, 2024) the Ontario Court of Appeal allowed an appeal against an earlier JR quashing of a s.128 insurance umpire decision "of the actual cash value (“ACV”) of a business premises that had been partially destroyed in a fire".
Here the court considered principles of 'actual cash value' determination in awarding the dollar value of a claim:[12] First, I agree with Leiper J. that Intact, and the decision of the majority, have given unwarranted priority to market value in assessing ACV by treating it as a benchmark. Although the market value is an important factor to be considered, depending on the circumstances, ACV can exceed market value. The disparity between market value and an assigned ACV is therefore not necessarily a dependable indicium of an unreasonable ACV assessment. In my view, the majority erred by effectively accepting Intact’s position, and giving market value undue weight by treating it as a benchmark.
[13] The reason ACV can exceed market value is that, unless its meaning is altered by the policy, “‘actual value’ means the actual value of the property to the insured at the time of the loss”: Re Barrett et al. v. Elite Insurance Co. et al (1987), 1987 CanLII 4160 (ON CA), 59 O.R. (2d) 186 (C.A.), at p. 189, citing Canadian National Fire Ins. Co. v. Colonsay Hotel Co., 1923 CanLII 49 (SCC), [1923] S.C.R. 688 (emphasis added). What others may pay for the property may not reflect the value of the property to the insured: Barrett, at p. 189. In this case the definition was not altered by the policy. It simply lists “market value” as a factor to be considered, without assigning it any prevalence in quantifying ACV. Specifically, the insurance policy states, in relevant part:Actual Cash Value: Various factors shall be considered in the determination of actual cash value. The factors to be considered shall include, but not be limited to, replacement cost less any depreciation and market value. In determining depreciation, consideration shall be given to the condition of the property immediately before the damage, the resale value, the normal life expectancy of the property and obsolescence. [14] Second, I also agree with Leiper J. that, contrary to the position of the majority, there was a foundation before the umpire permitting him to assign the ACV that he did. It is not contested that Mr. Laporte had been operating a profitable business prior to the fire. The brief furnished to the umpire described the unique location near the Petawawa base as the key to this success, identifying particular advantages that location provided. It also described the functionality and utility of the adapted building to the business, identifying particular features that made it so. The majority discounted these claims as bald assertions. They were not. The basis for the claims was explained. Moreover, the umpire was able to observe the features of the building during his site visit. These are not mere indications of emotional value that should not be entertained. They are features that affect the monetary value of the premises to Mr. Laporte.
[15] Moreover, Mr. Laporte made clear his intention to continue to operate from the business location as he had been doing before the fire, a claim that was solidly supported by the fact that he was still operating from the partially repaired premises some 16 months after the fire when the umpire attended the location. There was no information before the umpire that Mr. Laporte had attempted to or was intending to sell the building and every indication that retaining that business location was worth enough to him to undertake the necessary expenses to keep the business operating as he had been the day before the fire. To give the amount required to keep him operating in that location, the umpire was provided with three repair estimates, the amounts of which were not challenged.
[16] However, the majority accepted Intact’s submission that this repair cost information could not be considered in assessing ACV because to do so would be to conflate ACV with depreciated replacement value, which was not the valuation method under consideration. I do not agree. As I have indicated, the policy specifically identifies depreciated replacement value as a factor for consideration in assessing ACV. Indeed, as Laskin J.A. recognized in Carter v. Intact Insurance Company, “[s]ince most property depreciates over time, actual cash value is equivalent to replacement cost less depreciation”, in some cases: 2016 ONCA 917, 133 O.R. (3d) 721, at para. 21, leave to appeal refused, [2017] S.C.C.A. No. 53. Without question, repair estimates can assist in identifying replacement costs before depreciation. Moreover, it is clear that the umpire did not conflate the two evaluation methods. As I will elaborate below, he selected the amount of $1,084,000 based on the competing ACV calculations offered by the parties. . Intact Insurance Company v. Laporte et al.
In Intact Insurance Company v. Laporte et al. (Div Court, 2023) the Divisional Court considers an 'actual cash value' (ACV) appraisal, here primarily under the principle of 'indemnity':[24] The appraisal mechanism under the Insurance Act is a unique process without formalized rules or procedures, which derives its jurisdiction from the terms of the policy of insurance and s. 128 of the Insurance Act.
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[29] The Applicant submits the assessed ACV valuation is unreasonable because it is contrary to the indemnity principle. In this case, the ACV is almost four (4) times the Property’s market value. The Applicant submits that insurance policies should be interpreted consistently with the principle of indemnity, and a windfall should be avoided.[11] [Brissette v. Westbury Life Insurance Co., 1992 CanLII 32 (SCC)]
[30] The Applicant asserts that, regardless of the methodology used to determine ACV, it is the market value of the Property that sets the defining boundary of the indemnity principle which governs the valuation. The Supreme Court has confirmed that replacement costs less depreciation is not the correct calculation of the ACV if the person will not replace in the damaged property.[12][Canadian National Fire Insurance Co. v. Colonsay Hotel Co., 1923 CanLII 49 (SCC), [1923] S.C.R. 688] The Applicant submits that the assessed ACV will not indemnify the insured, but rather will give a profit, as it would provide recovery for an amount beyond the loss suffered by the Respondent.
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Does the ACV violate the principle of indemnity?
[35] The Applicant asserts that, as the assessed ACV violates the principle of indemnity, the decision suffers from the second fundamental flaw identified by the Supreme Court in Vavilov: the decision is untenable in light of the relevant factual and legal constraints imposed upon the Umpire.
[36] The approach to interpretation of insurance contracts is well-settled law. Those principles include:a. effect should be given to clear and unambiguous language;
b. ambiguous language should be interpreted using general rules of contract construction; and
c. courts should avoid interpretations that would give rise to an unrealistic result or one that would not have been in the contemplation of the parties at the time that the Policy was entered.[13] [Progressive Homes v. Lombard General Insurance Co of Canada, 2010 SCC 33, at paras 21-25] [37] Justice Laskin, writing on behalf of the Ontario Court of Appeal, stated that “indemnity is a main objective of insurance and, to the extent possible, coverage provision should be interpreted with that objective in mind”.[14] [Carter v. Intact Insurance Co. 2016 ONCA 917, at para. 48]. He described a policy providing for actual cash value coverage as a pure indemnity contract: “actual cash value recovery prevents insureds from profiting or benefitting from their loss.”[15] [Carter, at para. 21].
[38] Justice Sopinka stated that “[a]n interpretation which will result in either a windfall to the insurer or an unanticipated recovery to the insured is to be avoided”.[16] [Brissette] Justice Laskin explained how insurers control or limit the “moral hazard” in the context of replacement cost coverage:But, allowing insureds to replace old with new raises a concern for the insurance industry. The concern is moral hazard: the possibility that insureds will intentionally destroy their property in order to profit from their insurance; Or the possibility that insurers will be careless about preventing insured losses because they will be better off financially after a loss.
To put a brake on moral hazard, insurers will typically only offer replacement cost coverage if insureds actually repair or replace their damaged or destroyed property. If they do not, they will receive only the actual cash value of their insured property.[17] [Carter, at paras. 24-25.] [39] The Declaration Page of the Policy states “[i]n consideration of the premium stated, [Intact] will indemnify the [Respondent] with the terms and conditions of the Policy.” It also states that should the insured’s property be “lost or damaged during the policy period by an insured period, the insurer will indemnify the Insured against the direct loss or damage so caused…”
[40] Under the Policy, the Respondent had a choice to either rebuild or accept the ACV. Had the Respondent elected to rebuild, he would have had access to the replacement cost amount, which the parties had agreed was $2,500,000.00.
[41] As the Respondent has elected to not rebuild, under the terms of the Policy he is only entitled to receive the ACV. The principle of indemnity applies.
[42] In the text, Insurance Law, Denis Boivin describes the factors involved in determining ACV as follows:Actual cash value is the default basis of valuation; the method that is the most consistent with the indemnity principle. In the absence of a valued policy or replacement cost option, the insured's loss will be settled on this basis. The expression has acquired a technical meaning in the industry and case law. “Actual cash value” signifies (1) the cash value of the damaged, destroyed or lost property, (2) to the person insured by the contract, (3) calculated at the time of the loss. This definition has three interrelated components.[footnotes removed][18] [Denis Boivin, Insurance Law, 2nd edition, Toronto, Irwin Law Inc., 2015 p. 462] [43] The Ontario Court of Appeal has described ACV in similar terms:“actual value” means the actual value of the property to the insured at the time of the loss and not its replacement value… the actual cash value is not or is not necessarily the replacement value nor the market value. The value to the insured may depend on many factors; there may be a value in use by the insured much higher than its market value; at the same time its value to the owner may be much less than the cost of replacement even allowing for physical and functional depreciation.[19] [Barrette et al v. Elite Insurance Co. et al, 1987 CanLII 4160 (ON CA)] [44] The Supreme Court in Colonsay Hotel identified actual cash value as:... “the actual value of the property to the insured at the time of the loss,” having regard to all the conditions and circumstances then existing--not necessarily its market value on the one hand and certainly not, on the other, its “replacement value” which, while it may sometimes be less than its actual value to the insured, will more often exceed that value and sometimes, as in the present instance, very grossly exceed it. The right of recovery by the insured is limited to the actual value destroyed by the fire.[20] [Colonsay Hotel, at p. 694.] ....
[58] While I recognize that the actual cash value is not or is not necessarily the replacement value nor the market value, the ACV must be constrained by the indemnity principle: the insured must not receive a windfall. ...
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[64] Absent evidence to establish that the Property had a particular value to the Respondent in excess of the market value, an ACV of $1,084,000, offends the indemnity principle, as it creates a potential windfall: Groupone Insurance Services v. Li, 2019 ONSC 3428, at para. 7. The decision would be untenable in light of the relevant legal constraints imposed upon the process.
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[66] The Court of Appeal in Newfoundland and Labrador cited with approval a passage from Boivin as follows:... Second, the loss must be evaluated from the perspective of the insured. The question is not what value a reasonable person would attach to the property. The question is what value the insured attached to the property. Accordingly, the insured may establish that the good had a particular value to him or her, as long as that value is quantifiable and capable of being proven. Third, the process of evaluation must be conducted in monetary terms. It is the value in cash that must be determined. Thus, non-pecuniary factors such as attachment and sentimental value have no bearing in this analysis. [footnotes omitted][21] [Cornhill Insurance v. Sphere Drake Insurance, 2006 NLCA (CanLII), at para. 115][emphasis added] [67] It is for the insured to establish that the Property had a particular pecuniary value to him, provided this value is quantifiable and capable of being proven. The key is that the value must be quantifiable and capable of proof.
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