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Insurance - Umpire Appraisals [s.128] (2). Truscott v. Co-Operators General Insurance Company
In Truscott v. Co-Operators General Insurance Company (Ont CA, 2023) the Court of Appeal considered whether the umpire appraisal system [under s.128] must be exclusive of all claims that an insured might have against their insurer [it's not]:[62] The appellants submit that the motion judge erred in law in concluding that, having invoked the appraisal process under s. 128 of the Insurance Act, Co‑operators is immunized from considering, adjusting in good faith, and paying, any claims for building loss and valuable papers loss not before the umpire at the appraisals. They point to the unfairness created by the Judgment, which allows Co-operators to refuse to consider almost $240,000 of otherwise valid insurance claims, some of which predated the appraisals. The appellants acknowledge that they would still need to prove the subsequent claims in the regular course.
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C. The Relevant Statutory Provisions
[65] Sections 128 and 148 of the Insurance Act are the only legislative provisions dealing with appraisals.
[66] Section 128 provides for appraisals. The relevant subsections of s. 128 read as follows:Contracts providing for appraisals
128 (1) This section applies to a contract containing a condition, statutory or otherwise, providing for an appraisal to determine specified matters in the event of a disagreement between the insured and the insurer.
Appraisers, appointment
(2) The insured and the insurer shall each appoint an appraiser, and the two appraisers so appointed shall appoint an umpire.
Appraisers, duties
(3) The appraisers shall determine the matters in disagreement and, if they fail to agree, they shall submit their differences to the umpire, and the finding in writing of any two determines the matters. [67] Section 148(1) prescribes certain statutory conditions that are deemed to be part of every fire insurance contract in force in Ontario. It reads as follows:Statutory Conditions
148 (1) The conditions set forth in this section shall be deemed to be part of every contract in force in Ontario and shall be printed in English or French in every policy with the heading “Statutory Conditions” or “Conditions légales”, as may be appropriate, and no variation or omission of or addition to any statutory condition is binding on the insured. ....
E. Analysis
(1) Overview
[77] I see nothing in the legislation or the jurisprudence to suggest that interim proofs of loss are impermissible or that the appraisal process contemplated by the Insurance Act is a “one-shot” valuation, as Co-operators contends. In my view, correctly interpreted, the legislation permits an umpire to specifically confine an appraisal award to identified loss claims known at the time of the appraisal. In such circumstances, the insured has the right to submit, after an appraisal, further proofs of loss under a given head of coverage regarding different expenses.
[78] Interpreting the legislation in this way respects the wide latitude given to an umpire to determine the manner in which the appraisal process is conducted: see e.g., Northbridge General Insurance Corp. v. Ashcroft Homes-Capital Hill Inc., 2021 ONSC 1684, at para. 27, and Aviva Insurance v. Cunningham et al., 2022 ONSC 6331, at para. 20. It also respects the intention underlying the appraisal scheme in the Insurance Act, namely, to provide an easy, expeditious, and cost‑effective means of settling claims for indemnity under insurance policies: Desjardins General Insurance Group v. Campbell, 2022 ONCA 128, 467 D.L.R. (4th) 480, at para. 27.
(2) The Relevant Legislation
[79] I begin by considering the relevant legislative provisions in accordance with the modern approach to statutory interpretation: “the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament”: Rizzo & Rizzo Shoes Ltd. (Re), 1998 CanLII 837 (SCC), [1998] 1 S.C.R. 27, at para. 21.
[80] Section 128 establishes an appraisal process. On a plain reading of s. 128(1), the appraisal process is intended to “determine specified matters” over which the insured and the insurer disagree:128 (1) This section applies to a contract containing a condition, statutory or otherwise, providing for an appraisal to determine specified matters in the event of a disagreement between the insured and the insurer. [Emphasis added.] [81] A plain reading of s. 128(1) does not support an interpretation that an appraisal is a “one-time only” final determination of all claims under a head of coverage, including those not before the umpire.
[82] Section 128(3) refers to “the” matters in dispute, reinforcing that the umpire is to determine the specific matters in disagreement. Again, nothing in its wording supports an interpretation that an insured is limited to a single appraisal for any given head of coverage:(3) The appraisers shall determine the matters in disagreement and, if they fail to agree, they shall submit their differences to the umpire, and the finding in writing of any two determines the matters. [Emphasis added.] [83] Section 148 also gives no indication that an award is intended to finally settle an insured’s entitlement under a head of coverage. As we have seen, it simply prescribes certain statutory conditions that are deemed to be part of every fire insurance contract in Ontario.
[84] The motion judge relied on Statutory Condition 6 to conclude that the Awards were final and binding, and operated to bar the appellants from having their other loss claims related to the building and valuable papers considered. At para. 56 of his reasons, he noted that Statutory Condition 6 provides that the insured must deliver a proof of loss “as soon as practicable” and give a “complete inventory of the destroyed and damaged property” and provide the details associated with the amount of loss claimed.
[85] Co-operators also relies on Statutory Condition 11 as support for the motion judge’s interpretation. For ease of reference, I repeat the text of Statutory Condition 11 here:11. In the event of disagreement as to the value of the property insured, the property saved or the amount of the loss, those questions shall be determined by appraisal as provided under the Insurance Act before there can be any recovery under this contract whether the right to recover on the contract is disputed or not, and independently of all other questions. There shall be no right to an appraisal until a specific demand therefor is made in writing and until after proof of loss has been delivered. [86] Nothing in the plain wording of these conditions indicates that, following an appraisal, an insured is automatically precluded from filing other proofs of loss under the same head of coverage. To interpret the requirements in Statutory Condition 6, alone or in conjunction with those in Statutory Condition 11, in that manner would run afoul of the main objective of insurance law legislation, which is consumer protection: Smith v. Co-operators General Insurance Co., 2002 SCC 30, [2002] 2 S.C.R. 129, at para. 11. As this case demonstrates, such an interpretation is inconsistent with the objective of consumer protection because it works to the detriment of the insured.
[87] The appellants needed to rebuild so they could get back to operating their business in appropriate premises. They did not have the means to finance the rebuild. The respondents allegedly refused to make a payment on an interim building loss claim so the appellants removed the word “interim” from their building loss claim and submitted it. They knew that their building loss estimate was incomplete because the cost of by-law compliance was unknown. But, according to them, all parties knew this and so too did the umpire – hence his notation on Award #1 that “Building by-law issues have not been considered within this award”. Now that the costs of by-law compliance are known – and with hundreds of thousands of dollars of space in the building coverage – it would work to the detriment of the appellants if their further building loss claims were not considered.
[88] The respondents make factual assertions to support their submission that the appellants are prohibited from submitting further claims, given that the appraisals have taken place. Those assertions are based on controverted matters of fact about the lead up to the appraisals, the respondents’ handling of the appellants’ loss claims, and what happened during the appraisal processes. As I explain in my analysis of Issue #1, above, those matters must be left for the trial judge to decide, because they are inextricably intertwined with the appellants’ bad faith allegations in the Claim. In any event, such assertions do not assist in interpreting the relevant legislative provisions.
(3) Some Relevant Jurisprudence
[89] Neither the court below nor this court were pointed to any caselaw directly addressing whether appraisals under the Insurance Act can proceed in a successive fashion. However, in two first instance decisions, interim proofs of loss were permitted: Campbell v. Desjardins, 2020 ONSC 6630, aff’d in part, 2022 ONCA 128, and Senator Real Estate v. Intact Insurance, 2021 ONSC 200 (Div. Ct.). I hasten to add that in neither case was the court asked to interpret the legislation to determine the validity of successive claims following an appraisal.
[90] In Campbell, one group of plaintiffs triggered the appraisal process with an interim proof of loss. The amount claimed was qualified as “estimated damages and indemnity based on quotes received” and the plaintiffs advised the insurer that a final and further proof of loss would be submitted once the rebuild was complete. The insurer took the position that an insured cannot wait until the rebuild is complete to submit its final proof of loss. The motion judge in Campbell rejected this argument. He said the insured’s approach enhances efficiency and creates a more complete record before the umpire: at para. 113. I note that if the insurer refuses to provide interim funding and the insured does not have the funds to finance the rebuilding, as the appellants allege is the case in this proceeding, such an approach is unavailable to the insured.
[91] The motion judge in this case distinguished Campbell on the basis that, in Campbell, the proofs of loss never purported to be final.
[92] In Senator Real Estate, the insured had submitted a proof of loss marked “interim” which stated that the replacement cost and cash value of the building were “TBD” (to be determined). No party disputed the plaintiff’s right to submit an interim proof of loss. The issue in that case was the rate of depreciation the umpire used for the replacement cost value of the building.
[93] The motion judge did not explicitly distinguish this case from Senator Real Estate. However, in his reasons he underlined and bolded the words “interim” and “TBD”. From that, it appears that the motion judge saw as significant that the proof of loss in Senator Real Estate explicitly reserved the right to submit a final proof of loss.
[94] The issue in this case is whether, following an appraisal, the relevant legislative provisions preclude the insured from submitting further proofs of loss under a given head of coverage regarding different expenses. On that issue, I see no valid distinction between this case and Campbell or Senator Real Estate. It is correct that in both Campbell and Senator Real Estate the proofs of loss were explicitly marked as “interim”. In this regard, it is significant to note that the word “final” is not found on the appellants’ building proof of loss that was before the umpire on the first appraisal. Further, on the face of both Awards, it is clear that the appraisals were limited. Award #1 states that it did not include building by‑law issues and Award #2 states it was limited to the April 17, 2017 proof of loss.
(4) Conclusion
[95] For these reasons, in my view, the motion judge erred when he interpreted the relevant provisions of the Insurance Act as barring the appellants from submitting, after the appraisals, further proofs of loss regarding different expenses, under the building loss and valuable papers loss heads of coverage. On a plain reading of the relevant legislative provisions, the appraisal process contemplated by the Insurance Act is not a “one-shot” valuation. Rather, it permits an umpire to specifically confine an appraisal award to identified loss claims known at the time of the appraisal. In this case, the Awards were expressly confined.
[96] Interpreting the legislation in this way respects: the wide latitude given to an umpire to determine how the appraisal process is conducted; the intention underlying the appraisal scheme to provide an easy, expeditious, and cost‑effective means of settling claims for indemnity under insurance policies; and, that this is consumer protection legislation.
[97] In this case, the umpire did not purport to adjudicate an entire head of coverage in either Award #1 or #2: both awards were restricted to specified claims of the appellants. Accordingly, the legislation does not preclude the appellants from submitting other claims for building loss or valuable papers loss. It will be for the trial judge to make the necessary factual findings to determine whether, as Co‑operators contends, the parties agreed that the appraisals finally determined the appellants’ rights to make claims under the building loss and valuable papers loss heads of coverage. . Intact Insurance Company v. Laporte et al.
In Intact Insurance Company v. Laporte et al. (Div Court, 2023) the Divisional Court states some law of insurance appraisals:The Law regarding the Appraisal Procedure
[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.
[25] Justice Perell summarized the process as follows:(a) First the appraisers are appointed. As noted above, the prerequisite that appraisers be competent and disinterested was removed from the Insurance Act. Thus, the appraiser, but not the umpire, may be a partisan advocate for the insured or the insurer that appointed the appraiser. A review of the cases reveals that sometimes lawyers act as appraisers and other times experts with subject matter expertise are the appraisers….
(b) Second, the appraisers appoint an umpire. A properly appointed umpire must be impartial and much like an expert at trial might be an expert in the field at issue between the parties either from special training or experience.
(c) Third, the appraisers determine the matters in disagreement.
(d) Fourth, if the appraisers do not agree, then they submit their differences to the umpire, and the finding in writing of any two determines the matter. The decision of the two appointed appraisers and/or the umpire is determinative and is a binding valuation of the insured property that is damaged or lost.[7][Northbridge General Insurance Corp. v. Ashcroft Homes-Capital Hall Inc., 2021 ONSC 1684, at para 28.] [26] The process contemplates that the appraisers and umpire will arrive at a binding decision based upon their own knowledge and expertise. The process is designed to be collaborative and not adjudicative. The umpire is the ultimate decision-maker. The umpire may permit viva voce testimony under oath and receive affidavit evidence but is not required to do so.[8][Northbridge General, at para. 29.]
[27] The Ontario Court of Appeal has also confirmed that the appraisal mechanism is not adjudicative or quasi-judicial in nature but rather one based upon discussion and on the sharing of expertise in valuation. It is not an arbitration and does not require a hearing, consideration of evidence, or reasons.[9][Desjardins General Insurance Group v. Campbell, ONCA 128, at para. 47.]
[28] The Supreme Court has opined on situations where no reasons are required:There will nonetheless be situations in which no reasons have been provided and neither the record nor the larger context sheds light on the basis for the decision. In such a case, the reviewing court must still examine the decision in light of the relevant constraints on the decision maker in order to determine whether the decision is reasonable. But it is perhaps inevitable that without reasons, the analysis will then focus on the outcome rather than on the decision maker’s reasoning process. This does not mean that reasonableness review is less robust in such circumstances, only that it takes a different shape.[10][Vavilov, at para 138.] . Desjardins General Insurance Group v. Campbell
In Desjardins General Insurance Group v. Campbell (Ont CA, 2022) the Court of Appeal considered whether insurance appraisers appointed under s.128 Insurance Act need be impartial:[27] First, it is well established that the purpose of the appraisal scheme under the Insurance Act is to provide an easy, expeditious, and cost-effective means for the settlement of claims for indemnity under insurance policies: Madhani v. Wawanesa Mutual Insurance Company, 2018 ONSC 4282 (Div. Ct.), at para. 46; Northbridge General Insurance Corp. v. Ashcroft Homes-Capital Hall Inc., 2021 ONSC 1684, at para. 23. The narrow function of the appraisal process is to provide the parties to the dispute with a valuation of the loss, and not the determination of legal rights: Madhani, at para. 40.
[28] The appraisal process is not exhaustive of all potential disputes between the parties. For example, there may be a dispute about the scope of coverage such as whether landscaping restoration is covered. While such a loss might be valued as part of the appraisal process, that process cannot address other issues.
[29] Second, as Perell J. noted in Northbridge, at para. 29, the process is designed to be collaborative and not adjudicative:The appraisal process is designed to be collaborative and not adjudicative, and the process, which does not require a hearing with evidence, contemplates that the appraisers and the umpire will arrive at a binding decision based on their own knowledge and expertise. The umpire is the ultimate impartial decision-maker that makes a binding determination that removes the quantification of the loss from the court. As for procedure, the umpire may permit viva voce testimony under oath and may receive affidavit evidence but he or she is not required to do so. [Footnotes omitted.] This point also relates to the question of whether the application judge correctly described the process as an adjudicative tribunal which will be addressed further below.
[30] Third, as the application judge noted, the legislature removed the qualification “competent and disinterested” from the word “appraiser” through An Act to Amend the Insurance Act, S.O. 1966, c. 71, s. 8. The appellants, in effect, ask this court to read this qualification back into the statute.
[31] The court must give effect to what the legislature intended. The best source of the legislature’s intention is the legislation itself. As the application judge noted, ss. 128(2) and (3) of the Act have never stipulated that appraisers must be “competent and disinterested.” While a previous version of Statutory Condition 11 at s. 148 of the Act stipulated that both appraisers and umpires had to be “competent and disinterested,” this condition was removed by the 1966 amendment. Although no explanation was given for this change, it must be presumed that the legislature was not simply careless with the language and did not intentionally make the statute vague: see Sullivan, at p. 41; D. R. Fraser Co. v. Minister of National Revenue, 1948 CanLII 318 (UK JCPC), [1948] 4 D.L.R. 776 (P.C.), at p. 781. The legislature must have intended to remove the qualification “competent and disinterested” for appraisers. Were it found otherwise, insureds would not be able to self-represent and provide a valuation of their own loss.
[32] The appellants argue that the reason s. 128 of the Insurance Act does not explicitly state that an appraiser must be independent is because the ordinary meaning of the terms “appraisal” and “appraiser” imply a degree of independence. In support of this argument the appellants submit the Black’s Law Dictionary definition of the term “appraisal” as meaning “[a] valuation or estimation of value of property by disinterested persons of suitable qualifications” and of the term “appraiser” as meaning “[a]n impartial person who estimates the value of something, such as real estate, jewelry, or rare books. – Also termed valuer.” It must be noted that these definitions have been lifted out of different editions of the dictionary: Joseph R. Nolan et al., Black’s Law Dictionary, 6th ed. (St. Paul, Minn.: West Publishing, 1990), sub verbo “appraisal”; Bryan A. Garner et al. 8th ed. (St. Paul, Minn.: Thomson/West, 2004), sub verbo “appraiser”. In any event, Black’s Law Dictionary definitions are not helpful as they cannot take into account the context and purpose of the appraisal process under the Insurance Act.
[33] The cases relied on by the appellants for the proposition that appraisers must be disinterested do not assist them.
[34] In both Ice Pork Genetics Inc. v Lombard Canada Ltd. et al, 2010 MBQB 77, and Florida Insurance Guaranty Association, etc. v. Branco (2014), 148 So. 3d 488 (Fla. 5th Dist. Ct. App.), the court was interpreting legislation or an insurance policy which specified that appraisers must be disinterested. There is no such provision in the Ontario Insurance Act.
[35] In Congregation of Knox's Church (Trustees) v. Hudson's Bay Co., [1993] O.J. No. 764 (Ont. C. J. (Gen. Div.)), the court was concerned with the narrow issue of whether valuators appointed pursuant to a private act of the Ontario legislature to determine rental lands leased to Hudson’s Bay Company had to be independent. As such, the case is not helpful in the insurance context.
[36] While appraisers need not be disinterested, I would disagree with the application judge that they are therefore advocates. The purpose of the appraisal scheme under the Insurance Act is to provide an easy, expeditious, and cost-effective means for the settlement of claims for indemnity under insurance policies: Madhani, at para. 46; Northbridge, at para. 23. It is designed to be collaborative and not adjudicative: Northbridge, at para. 29. To fulfil the purposes of the appraisal scheme outlined above and to facilitate a collaborative process, an appraiser must attempt, in good faith, to reach a compromise with their fellow appraiser. That does not preclude the appointment of one party’s lawyer as their appraiser as well, but the appraisal process presupposes that each appraiser work collaboratively. While this involves advocacy in the sense that each side may be expected to advocate their valuation to the other, their overall role within the appraisal process is more collaborative and less adversarial. The umpire will ultimately choose one side or the other. That places a premium on each side to be reasonable and also to reach agreement with the other side if possible.
[37] If the appraisers are nevertheless unable to agree and therefore appoint an umpire to resolve their disagreement, then the umpire becomes the tie breaker. At that point, the umpire becomes the ultimate decision maker, who must necessarily be impartial and make a binding determination: Northbridge, at para. 29. While the appraisal process is not subject to the SPPA, it is subject to judicial review for denial of procedural fairness at common law from the moment of the umpire’s involvement: Madhani, at paras. 37-38. It is the umpire who bears the responsibility for ensuring that the process is fair.
[38] The content of procedural fairness in the appraisal process is modest and flexible, and will depend upon the exigencies of the particular case, having regard to, for example, the amount of money involved in the dispute: Northbridge, at paras. 34, 71 and 73. There is no requirement that reasons for decision be provided: Madhani, at para. 41. The more complex cases may require a more structured and formal appraisal process: Northbridge, at para. 73. To that end, the umpire enjoys considerable discretion. Courts afford the umpire’s choice of procedure considerable deference and will be reluctant to interfere unless there is proof of fraud, collusion, bias, or partiality on the part of the umpire, or the umpire or the appraisers exceed their jurisdiction under the Act: Northbridge, at para. 34, Shinkaruk Enterprises Ltd. and Mr. Klean Enterprises Ltd. v. Commonwealth Insurance Company et al., 1990 CanLII 7738 (SK CA), 71 D.L.R. (4th) 681 (Sask. C.A.), at p. 688.
[39] This lack of a rigid structure is deliberate, intended to provide the insureds and the insurers with an expeditious and easy means for the settlement of claims for indemnity under insurance policies: Northbridge, at para. 68. It is in the best interests of appraisers to be objective in the appraisal process and not harm their position by losing credibility in the eyes of the umpire. In other words, the appraisal process itself provides sufficient constraint on the conduct of appraisers.
[40] On appeal, the appellants argued that the real issue in this case was Mr. Obagi’s dual role as appraiser and counsel in the insured’s bad faith action against the insurer. They submit that this creates a conflict of interest and Mr. Obagi, in his role as appraiser, has the ability to influence and impact the decision in such a way that it could impact upon the bad faith claim.
[41] This submission was not put to the application judge. The issue was rather framed as whether a lawyer, whose duties are to the client, can act as a disinterested appraiser. The application judge reviewed the Act’s provisions, surveyed the Hansard records, looked at the usual practice in the field, and concluded that an appraiser need not be disinterested.
[42] In any event, the bad faith claim and the appraisal are different issues. The bad faith claim involves the conduct of the insurer prior to the reconstruction of the homes at issue, which have now been reconstructed and the sole issue for appraisal is their replacement cost. Should these issues become intertwined at a later point, for example if there arose a possibility that Mr. Obagi may be called as a witness, the conflict of interest that arose may be cured by Mr. Obagi’s removal as counsel of record in accordance with s. 5.2 of the Rules of Professional Conduct.
[43] In short, the flaw in the appellants’ argument that appraisers must be independent is that it collapses the roles of the umpire and the appraisers. The integrity of the process depends on the impartiality of the umpire. The structure of the process, according to which the umpire ultimately chooses one appraisal over the other, encourages compromise and collaboration between the parties.
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