Author: Dan

Ontario: In loss transfer claims, each request for indemnification has its own limitation period

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Economical Mutual Insurance Company v. Zurich Insurance Company has brought certainty to the limitation of loss transfer claims between insurers. In a loss transfer claim, each Request for Indemnification is an independent cause of action with its own limitation period.

The facts are straightforward. A person was injured in a motor vehicle accident in July 2005.  Economical responded to her accident benefits claim and made payments to her. The truck that struck this person was insured by Zurich. Economical provided a Notice of Loss Transfer to Zurich in November 2005. Economical subsequently forwarded four Requests to Indemnification to Zurich in January 2006, February 2008, November 2009, and a final one in December 2011. Zurich didn’t pay. Economical commenced arbitration.

Zurich’s position was that the limitation period had expired. It argued that the limitation period commenced on the date of Economical’s first Request for Indemnification and Economical commenced arbitration more than two years later.

The arbitrator rejected this argument.  She relied on the Court of Appeal decision in Federation Insurance Company of Canada v. Kingsway General Insurance Company, [2012] OJ No 1505, in which the Court held that the limitation period for a loss transfer claim runs from the date of the Request for Indemnification, to conclude that each request is a distinct claim subject to its own limitation period, not the limitation period applicable to the first request.

Justice Lederer upheld the arbitrator’s decision. He found that Zurich sought to treat the loss transfer as if it were based on the underlying tort, “the negligence that was the cause of the motor vehicle accident”, when it’s not a tort but a statutory cause of action.

Justice Lederer relied on State Farm Mutual Automobile Insurance Co. v. Dominion of Canada General Insurance Co., a case decided under the old limitation act, for the principle that there is “no reason to apply the principles of limitation that have been developed in the common law of torts” to statutory causes of action. Instead, he reasoned, it’s more appropriate to apply the principles developed in the law of in contract:

The better analogy is to claims in contract, say for the payment of rent under a lease or for some product purchased over time. If a tenant or purchaser stops paying monthly rent or installments and no action is commenced for more than two years after the first payment is missed, it would not be the case that the landlord or the seller would lose out on its ability to sue for every and all future failures to pay. Rather, the entitlement to sue would remain for all payments not made within the preceding two years.

[…]

The limitation period should not be applied as it would be in common law torts. The proposition that no new action or claim would have to be commenced is equally true in the analogy to contract claims to which I referred earlier. If a claim is made for a failure to pay rent or to make periodic payments in the furtherance of the purchase of some product, it is unlikely that a new claim would be required for each failure that occurs after an action has begun.

There’s no faulting this conclusion: if each Request for Indemnification is a new cause of action as the Court of Appeal held in Federation Insurance, then each request has its own limitation period. However, the analysis is a surprising reversion to the previous limitation regime. The Court’s consideration of whether a loss transfer claim is better analogised to a claim in tort or contract could almost make a lawyer nostalgic for the days when the classification of an action was the first step in determining the applicable limitation period.

Since 2004, the law hasn’t distinguished between actions that sound in contract, tort, equity, or anything: the Limitations Act, 2002 applies alike to all claims “to remedy an injury, loss or damage that occurred as a result of an act or omission”.

Also since 2004, it’s section 5 of the Limitations Act, 2002 that determines when a limitation period commences:

Discovery

(1) A claim is discovered on the earlier of,

(a) the day on which the person with the claim first knew,

(i) that the injury, loss or damage had occurred,

(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,

(iii) that the act or omission was that of the person against whom the claim is made, and

(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and

(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a). 2002, c. 24, Sched. B, s. 5 (1).

Presumption

(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved. 2002, c. 24, Sched. B, s. 5 (2).

The question under section 5 is when Economical suffered its loss—non-payment of the Requests for Indemnification. This was apparently on the date of the requests. Because the requests are individual losses and not one loss, by operation of section 5(2), the limitation period for each is presumed to have commenced on its date.

Zurich’s non-payment of Economical’s first Request for Indemnification couldn’t have commenced the limitation period for subsequent requests, because Economical couldn’t have suffered a loss for non-payment until it made the request (assuming, as appears to have been the case, that it doesn’t follow from the non-payment of one request that the insurer won’t pay the subsequent requests).

A first party-party insurer like Economical could of course rebut the section 5(2) presumption and argue pursuant to section 5(1) that it discovered its loss on a later date . For example, a first-party insurer may only disover that the second-party insurer won’t pay a request sometime after the request is made (see G.J. White Construction Ltd. v. Palermo (1999), 7 C.L.R. (3d) 13).

It’s anyone’s guess why the Court rejected a section 5 analysis in favour of the old classification of actions approach. My theory is that counsel are very fond of The Law of Limitations and insist on using it until there is a new edition, which, thankfully, is forthcoming.

Alberta: Trustees of a person under disability can delay commencing an action indefinitely (or at least for decades)

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Section 5 of the Limitations Act suspends the operation of limitation periods during the time that a claimant is a “person under disability”. In Knibb v. The Carstairs Battle Cats, the Court of Appeal confirmed that “person under disability” includes a claimant for whom an order of trusteeship has granted a trustee power to commence and settle litigation. Such a trustee can, in theory, rely on section 5 to delay commencing an action indefinitely.

The case involved a motor vehicle accident in June 2004 (and not, as one might have hoped, battle cats). The defendant struck Knibb while driving and seriously injured him. The injuries left Knibb cognitively and physically disabled.

Knibb’s mother was appointed his guardian and trustee. She filed a Statement of Claim on Knibb’s behalf in May 2006 naming as defendants the driver and owner of the motor vehicle. In June 2008, the defendants filed a Third Party Notice alleging certain third parties contributed to Knibb’s injuries by over-serving him beer. The third parties applied for a summary trial to have the Third Party Notice dismissed on the basis that it was barred by the Limitations Act.

At trial, the parties agreed that Knibb was a “dependent adult” under the Dependant Adults Act and a “represented adult” under the Adult Guardianship and Trusteeship Act, and, accordingly, a “person under disability” as defined by section 1(h) of the Limitations Act:

“person under disability” means

(i)    a represented adult as defined in the Adult Guardianship and Trusteeship Act or a person in respect of whom a certificate of incapacity is in effect under the Public Trustee Act, or

(ii)    an adult who is unable to make reasonable judgments in respect of matters relating to a claim;

Section 5 of the Limitations Act provides as follows:

5(1)      The operation of the limitation periods provided by this Act is suspended during any period of time that the claimant is a person under disability.

(2)        The claimant has the burden of proving that the operation of the limitation periods provided by this Act was suspended under this section.

The third parties argued that the “claimant” in section 5 was Knibb’s mother and not Knibb himself. The trial judge rejected this argument.

On appeal, the appellants submitted that because the Limitations Act defines “claimant” as “the person who seeks the remedial order”, Knibb’s mother was the claimant because only she had authority and capacity to seek the remedial order. Knibb’s mother wasn’t disabled and so section 5 didn’t apply.

The appellants argued further that if section 5 does operate to suspend the limitation period during the time that a person under disability has a guardian, the guardian would be able to bring an action decades after the injury. The appellants characterised this as an “absurd” result contrary to the Limitations Act’s purpose of preventing belated actions.

The respondents submitted that Knibb, as the injured party, was the “claimant” as a matter of common sense and section 5 did apply. Moreover, if a guardian is the “claimant” under section 5, there is no situation in which the section would suspend the limitation period applicable to the claim of a person under disability. This is because it is the appointment of the guardian that defines the adult as “disabled” under section 1(h) (that is, to envoke section 5, the claimant must be a person under disability, and to be a person under disaility the claimant must have a guardian, and if a claimant has a guardian, by the appellants’ reasoning she is not a claimant under section 5).

The respondents also noted that the Limitations Act in other sections distinguishes between people who are and are not represented by guardians, such as in the case of a minor. If the Legislature had intended that guardians be included in the definition of “claimant”, it could have said so expressly.

The Court of Appeal accepted the respondents’ position:

We see no basis in the Limitation Act to hold that the “claimant” is anyone other than Knibb. This interpretation can arguably lead to undesirable consequences in that the commencement of an action could be delayed for years or perhaps decades. That said, given the express wording of the current Limitations Act and the complete absence of any provision analogous to section 59 of the former Limitations of Actions Act [which dealt with the situation where a trustee had been appointed for a person under disability, as discussed below], this interpretation is not “manifestly absurd, or extremely harsh, unjust, or capricious”.

The implication of this decision is that there is effectively no limitation period for claims arising from injuries suffered by persons under disability.

It’s also worth noting the Court of Appeal’s discussion of section 59 of the former Limitations of Actions of Act, the predecessor of section 5 of the Limitations Act. Section 59 provided as follows:

(1)  When a person entitled to bring an action to which this Part applies is under disability at the time the cause of action arises, he may commence the action at any time within 2 years from the date he ceases to be under disability.

(2)        Subsection (1) does not apply

(a) if the person under disability is a minor in the actual custody of a parent or guardian, or

(b) if the person under disability is a person in respect of whom

(i)   a committee is appointed under The Mentally Incapacitated Persons Act, or

(ii)   a guardianship order under the Dependent Adults Act is in effect and the guardianship order

(A)    appoints a plenary guardian
in respect of the person under disability, or

(B)      appoints a partial guardian who has capacity to commence an action.

The Alberta Law Reform Institute expressly rejected bringing section 59 forward into the new legislation:

We are familiar with too many cases in which a parent, a committee, or a guardian, as the case may be, has permitted a limitation period to expire without bringing a claim, to the serious prejudice of a person under disability. Hence we will not recommend that any provisions analogous to subsection (2) be included in the new Alberta Act.

The trial judge in Knibb took note of the incentive guardians have to commence actions promptly:

If a guardian did not bring an action in a reasonable time then they may suffer the consequences of being removed as guardian for instance. In any event, delay harms both parties – faded memories are not very helpful to the plaintiff who has the onus of proof.

This observation is rather at odds with the Alberta Law Reform Institute’s position.  It’s an unusual guardian that’s inexperienced enough to  allow a limitation period to expire, but has the sophistication to appreciate the impact of delay in litigation.  Regardless, one can’t fault the Court for looking to find some limit on what is otherwise a guardian’s absolute discretion to commence an action on behalf of a person under disability whenever she chooses.

Section 5 is in contrast to capacity provisions like section 7 of Ontario’s Limitations Act, 2002, which has a similar effect to the old section 59.  In Ontario, once the a litigation guardian is appointed, time begins to run for the person under disability’s claim.  This is an approach that is, on its face, more consistent with the basic purposes of limitations legislation–“certainty, evidentiary and diligence” (see the Supreme Court deceision in M.(K.) v. M.(H.) at para. 30).

Alberta: Limitations Act applies to Appointments to Tax (plus a short limitations history lesson from the Court of Appeal)

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The Court of Appeal has held that a claim brought in 2009 to review legal accounts from the late 1980s is barred by the expiry of the limitation period.

That’s not surprising.

What is noteworthy about the decision in Samson Cree Nation v. O’Reilly & Associes is the Court of Appeal’s confirmation that an Appointment to Tax is within the section 1(a) definition of “claim”. Taxing a legal account is subject to the Limitations Act.

The decision is also helpful for its succinct discussion of the history and intent of the Limitations Act:

[164]      For about four centuries, times to sue were a patchwork quilt. There were well over a dozen different time limits, found in a very large number of pieces of legislation. Which period applied usually depended upon the nature of the legal claim asserted, and so there was much litigation merely to characterize legally various suits, as that could dramatically affect the limitation period applicable.

[165]      The Alberta Law Reform Institute studied the topic thoroughly, and recommended dramatic reductions in the number of pieces of legislation, dramatic reductions in the number of limitation periods, adopting a general limitation period only two years long, removing the legal analysis of the type of claim, and giving limitation periods substantive effect, not merely procedural effect. Then the Alberta government studied the matter further for some years. Ultimately the Legislature repealed most of the old legislation and enacted the Limitations Act instead. It fully incorporated the Institute’s big recommendations just listed.

[166]      The scope of the Limitations Act is broad: generally it bars and extinguishes claims brought too late. It applies to more than claims brought by statement of claim: it covers all requests for a “remedial order”.

[167]      A number of times the Alberta Court of Appeal has recognized the policy and scope of the Act, and interpreted it broadly. So has the Supreme Court of Canada. They have held that the Act covers court proceedings beyond mere suits by statement of claim. In particular, the Supreme Court of Canada and the Court of Queen’s Bench of Alberta held that the Limitations Act covers all causes of action by its wide wording: see Yugraneft Corporation v Rexx Management Corporation, 2010 SCC 19 (CanLII), 2010 SCC 19, [2010] 1 SCR 649, 401 NR 341, 482 AR 1 (paras 36-41); Sharma v 643454 Alberta, 2006 ABQB 119 (CanLII), 2006 ABQB 119, 392 AR 353 (para 34).

Ontario: Being Slovenian affects when you discover a claim

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Slovenians may discover claims against each other more slowly than claims against people of other nationalities.  In Miletic v. Jaksic, Justice Price inferred from the “power-distance index” that the Slovenian national culture created a relationship of dependency between two Slovenians , and that this dependency had an impact on when one discovered his claim against the other.

Justice Price’s decision summarises the general facts nicely:

[1]         Bozidar Miletic emigrated from Slovenia to Canada in 1996.  In 2002, he began working as a machinist for George and Nada Jaksic, also natives of Slovenia, at a machine shop that the Jaksics had owned and operated since 1984.

[2]         On September 21, 2006, Mr. Miletic entered into an agreement with the Jaksics whereby he believed the machine shop business, Micro Precision Machining Limited, was sold to him.  In fact, the shares of the business were never transferred to him, and the Jaksics continued to manage it.

[3]         Mr. Miletic, believing that he now owned the machine shop business, and that the Jaksics worked for him, made payments to them as salary and/or installment payments of the purchase price for his shares.  It wasn’t until Nada Jaksic died in February 2010 that Mr. Miletic first gained access to the business’ financial records, and learned that it had owed substantial tax arrears, even when he had entered into his agreement to buy it, and was in dire financial difficulty.

[4]         When Mr. Miletic consulted James Wheeler, the lawyer he thought had acted for both him and the Jaksics in the sale of the business to him, he discovered that Mr. Wheeler had represented only the Jaksics, and was now not prepared to assist him. He therefore retained another lawyer, who began the present action on his behalf, to recover the funds he had paid to the Jaksics.

[5]         Mr. Jaksic and his wife’s estate counterclaimed for the unpaid balance of the purchase price for the business. They now bring the present motion, pursuant to Rule 20.04 of the Rules of Civil Procedure, for summary judgment dismissing Mr. Miletic’s action against them on the ground that it is statute barred and discloses no cause of action. They also move for summary judgment against Mr. Miletic on their counterclaim

The Jaksics argued that the limitation period commenced in 2006 when Mr. Miletic purchased Micro Precision and ought to have discovered his claim. Justice Price rejected this argument and found that the claim was not discoverable until June 2010:

[93]      Mr. Miletic’s relationship with the Jaksics did not break down until June 2010.  In so far as his ownership of Micro Precision was concerned, Mr. Miletic had no reason to suspect foul play until after Ms. Jaksic died and he discovered that:

(1)    Mr. Wheeler had not, in fact, been his lawyer;

(2)    The shares were not transferred to him in 2006;

(3)   The Jaksics had not resigned as directors at that time;

(4)   The company had owed a substantial tax liability throughout the period from when the Agreement was signed until 2010.

[94]      While Mr. Miletic would have liked to see the Jaksics leave the company, he did not consider it proper to force them out.  He continued to pay Mr. Jaksic a salary until May 2010.  Had he known that he had a claim against the Jaksics, he would have stopped paying their salaries.  I find that that it was not until June 2010, when he retained Mr. Garvey, that Mr. Miletic knew that he had a cause of action against the Jaksics or Mr. Wheeler.

[95]      Mr. Miletic’s relationships with Mr. Wheeler and the Jaksics were ones of dependence.  The Jaksics were older than Mr. Miletic, they had been his employers, and had been officers and directors of Micro Precision, with intimate knowledge of its business, since 1984.  Both Mr. Miletic and the Jaksics were Slovenian, and the evidence supports an inference that the Slovenian culture which they shared is high in the power-distance index [citation to http://geert-hofstede.com/slovenia.html].

[96]      I find that, at the very least, Mr. Miletic relied heavily on the Jaksics to handle the financial affairs of the business, and that he relied on both them and Mr. Wheeler in concluding that he had become the owner of Micro Precision in 2006. This Court, in Sheeraz et al. v Kayani et al., found that s. 5 of the Limitations Act must be interpreted in a way that takes account of a relationship of dependence [quotation ommitted]

[97]      I find, in all the circumstances, including Mr. Miletic’s dependence on the defendants, that his claim was not discoverable until June 2010.

What distinguishes this decision is Justice Price’s recognition of the power-distance index (curiously, apparently without the benefit of any expert evidence). A CanLII search suggests that this is a first in Canadian jurisprudence. Mr. Miletic’s counsel Anser Farooq deserves credit for a novel argument.

The index is a component of the cultural dimension theory developed by the Dutch social psychologist Geert Hofstede. This theory analyses systematic differences in national cultures on four primary dimensions: power distance (PDI), individualism (IDV), uncertainty avoidance (UAI) and masculinity (MAS).

The Hofstede Centre, which hosts the website cited by Justice Price, defines power distance:

Power distance deals with the fact that all individuals in societies are not equal – it expresses the attitude of the culture towards these inequalities amongst us. Power distance is defined as the extent to which the less powerful members of institutions and organisations within a country expect and accept that power is distributed unequally.

This is the Hofstede Centre’s power distance ranking for Slovenia:

Slovenia scores high on this dimension (score of 71) which means that people accept a hierarchical order in which everybody has a place and which needs no further justification. Hierarchy in an organization is seen as reflecting inherent inequalities, centralization is popular, subordinates expect to be told what to do and the ideal boss is a benevolent autocrat.

Should you be curious, Canada has a score of 39. Here, we are told, hierarchy exists for convenience.

It remains to be seen whether the cultural dimension theory gains traction as a factor in the discovery analysis. On its face, the theory is compelling. Any plaintiff would be pleased to envoke a high power-distance index to defeat a limitation defence (Malaysians take note: your national culture has the highest index at 104).  Nevertheless, this case can only go so far as a precedent; it’s evident that the power index theory wasn’t determinative in the analysis.  The facts were such that had the parties been native Canadians (or Austrians, with an index of 10) rather than Slovenians, Mr. Miletic would still have commenced the action in time.

 

 

Ontario: Will challenges subject to the two-year limitation period

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The Superior Court has ruled on the application of the Limitations Act, 2002 to will challenges. The general two-year limitation period in section 4 of the act applies, subject to the section 5 discovery provisions.

Leibel v. Leibel involved two wills. The wills left a specific asset to the testatrix’s son Blake, and divided the remaining assets equally between Blake and her other son Cody. Blake applied for a declaration that the wills were invalid, and Cody and other respondents moved for an order dismissing the application on the basis that it was statute-barred by the expiry of the limitation period.

Justice Greer held that limitation period began running in June 2011, the date of the testatrix’s death , because a will speaks from death (see paras. 36 and 50). However, Just Greer found that Blake discovered his claim within the meaning of section 5 about a month later in July 2011:

In applying the “discoverability principle,” Blake had the knowledge to commence a will challenge on or before July 31, 2011. By that date he knew the following facts:

(a)   Prior to Eleanor’s death Blake knew that Eleanor [the testatrix] had recovered from lung cancer but now had brain cancer.

(b)   He knew Eleanor had changed her previous Wills.

(c)   He knew the date of Eleanor’s death, as Lorne had called him and Cody on that date.

(d)   He received copies of the Wills prior to July 31, 2011, and he knew who the Estate Trustees were under the Wills.

(e)   He knew what Eleanor’s assets were. He had at least a sense of her income, as she had been sending him monthly cheques before the date of her death and had a sense of the value of her assets.

(f)   He signed corporate documents for a company now owned by her Estate prior to July 31, 2011.

(g)   He had communicated with Ms. Rintoul [a lawyer] about his concerns and she gave him the names of three estates counsel to consider, as independent legal advisors.

Blake, therefore, had all of the information needed to begin a will challenge. He chose, instead, to take many of his benefits under the Wills before he commenced his Application (see para. 39).

By the time Blake brought his application in September 2013, the limitation period had expired.

Justice Greer rejected Blake’s argument that no limitation period applied to his will challenge pursuant to section 16(1)(a) of the act because his challenge did not seek consequential relief. This is noteworthy. Prior to this decision, it was widely considered that this section would apply to a will challenge. Consider a passage from Anne Werker’s influential 2008 article on limitation periods in estate actions:

It has been suggested that the 15-year absolute limitation period applies to will challenges. I do not agree. Section 16(1)(a) of the new Act expressly states that there is no limitation period in respect of “a proceeding for a declaration if no consequential relief is sought”.

In particular, it was thought that where a distribution had not been undertaken before the will challenge, no consequential relief would be necessary and so no limitation period would apply. (See Anne Werker, “Limitation Periods in Ontario and Claims by Beneficiaries”, (2008) 34:1 Advocates’ Q at 24-28).

Justice Greer held that the legislature did not intend for section 16(1)(a) to exclude will challenges from the two-year limitation period:

To say that every next-of-kin has an innate right to bring on a will challenge at any time as long as there are assets still undistributed or those that can be traced, would put all Estate Trustees in peril of being sued at any time. There is a reason why the Legislature replaced the six-year limitation in favour of a two-year limitation. (See para. 52).

In any event, Justice Greer found that the order Blake sought did ask for consequential relief:

Although subsection 16 (1) (a) of the Act says there is no limitation period in respect of a proceeding for a declaration if no consequential relief is sought, Blake’s will challenge claims consequential relief in that it asks for an Order revoking the grant of the Certificate of Appointment of Estate Trustees with a Will issued to Roslyn and Lorne, asks for an Order removing them as Estate Trustees, asks for an Order that they pass their accounts as Estate Trustees, and for an Order appointing an Estate Trustee During Litigation.  In addition, Blake asks for declarations relating to the revocation of Eleanor’s December 12, 2008 Wills and for an Order in damages in negligence against Ms. Rintoul and her law firm, and for Orders disclosing Eleanor’s medical records and her legal records.  Consequential relief is clearly sought by Blake (see para. 28).

This decision should have a significant impact on how the estates bar approaches will challenges, and it will be interesting to see whether there is an appeal. Meanwhile, it’s likely that it will influence estates jurisprudence in other jurisdictions with limitations provisions equivalent to section 16(1)(a), for example section 2(1)(d) of the BC Limitation Act.