Background
In October 1999, there was a moth infestation in the appellants’ factory. The infestation interrupted the business, of which the appellant had taken out insurance for. After the infestation, as a result of financial troubles KPMG was appointed as receiver-manager of the factory. The company became bankrupt. The owners are now suing for losses that caused the company to become bankrupt.
The appellants commenced two actions one in September 2000 and one in October 2000 under the respondent’s policy seeking indemnity for business interruption including losses that derived out of the bankruptcy and property losses consequent to the infestation.
The two issues in contention are:
1. Whether the losses that derived out of the bankruptcy were directly or indirectly related to the infestation, where in the latter it would not be covered under the respondent’s insurance policy;
2. Was it appropriate for the trial judge to invoke a rolling limitation period for the business interruption losses?
1. Whether the losses that derived out of the bankruptcy were directly or indirectly related to the infestation, where in the latter it would not be covered under the respondent’s insurance policy
The appellant argued, although they had received recovery from the insurer for the infestation, the effects of the infestation led to an eventual bankruptcy. They argued that the insurer should allow for the recovery of the bankruptcy losses as well. The TJ found that the losses suffered were caused by the company’s failure to the meet their obligations and not the infestation.
The appellant further argued the TJ’s analysis of the whether the claims were direct losses, the TJ considered damages, although this was a coverage-only trial. The COA found no issues with the TJ’s analysis. The COA viewed that the TJ’s reference to a double recovery was a sufficient analysis in interpreting the policy. The TJ was ensuring that the interpretation does not give rise to results that were unrealistic. Further the COA, found that it would be unrealistic and commercially unreasonable if the insured party should recover bankruptcy losses after the appellant recovered business interruption losses. The appellant could have satisfied the debt obligations to avoid bankruptcy. To award the appellant again for bankruptcy losses would be doubly awarding the appellant: an outcome that was not contemplated when the policy was issued.
2. Was it appropriate for the trial judge to invoke a rolling limitation period for the business interruption losses?
TJ concluded that the appellants knew or had the means of knowing they had a claim at the time of the sale of assets. Under the policy, there was a one-year limitation period. The action was not commenced until two years after the sale and thus the claim related to the loss of equipment was time-barred. However, some of the losses were incurred within the one-year period before commencement of the action. Therefore, the TJ ruled that these were not barred.
Property claims
The COA agreed with the TJ in concluding that the appellants either knew or had the means of acquiring the knowledge that they may have a claim under the policy. Therefore, the coverage for the lost property was time-barred.
Business interruption losses
The TJ here ruled that given that business interruption losses continued for a period of time, it was appropriate for a rolling limitation period to be invoked. Thereby allowing the appellant’s action to within the 1-year limitation period. The TJ cited a case from Saskatchewan: Treeland Motor Inn Ltd. v. Western Assurance Co., 1985 CarswellSask 165 (Sask C.A.), in that case the interruption, which was caused by a fire, caused further losses to accrue day to day after the initial fire. The court in that case found that business interruption was subject to a rolling limitation period. By way of analogizing some of the similar facts between the Treeland and the facts here, notably the damages accruing after the initial event, the TJ held that the facts here also attract a rolling limitation period.
The COA first noted that Treeland has never been followed in Ontario. But noticed that cases where a rolling limitation period were given, the judges did not engage in a fulsome analysis on the justifications for allowing a rolling limitation period. The COA reviewed some caselaw and narrowed in on two cases that the court found helpful in deciding when a rolling limitation period should be allowed. Namely, Richards v Sun Life Asssurance Company of Canada 2016 ONSC 5492 and Pickering Square Inc v Trillium College Inc. 2016 ONCA 179. The latter case, the plaintiff failed to pay monthly lease payments to the landlord. The court in that case found that there was a continuing breach because the plaintiff chose to affirm the lease.
The COA held that cases where the contract had a recurring obligation, it is equitable to impose a rolling limitation period.
In the former case of Richards, the court differentiated between when a tenant fails to make recurring payments, where in this case it is fair to impose a rolling limitation period because material facts will have arisen on a period basis, and cases where the issue in contention is whether the plaintiff is even entitled to the period payments. In the latter circumstance, it would inequitable for the plaintiff to re-litigate the facts as subsequent periodic payments are also not paid.
The COA based on the principles coming out of the cases mentioned, viewed that the TJ erred by focusing her analysis on the whether the appellants continued to suffer damages rather than on whether the respondent had a recurring contractual obligation. Based on the facts here, it was clear that the respondent was not obligated to make recurring payments. Therefore, this was not a case where a rolling limitation period should be invoked.