Supreme Court of Canada
Hartford Fire Insurance Co. v. Benson & Hedges, [1978] 2 S.C.R. 1088
Date: 1978-05-16
Hartford Fire Insurance Company, Royal Insurance Company, United States Fire Insurance Company, Reliance Insurance Company of Philadelphia, Aetna Insurance Company, Phoenix Assurance Company, Ocean Accident & Guarantee Corporation Limited, Western Assurance Company, Canada Security Assurance Company, Continental Insurance Company (M.O.A.C.), St. Paul Fire & Marine Insurance Company, Federal Insurance Company, Maryland Casualty Company, Home Insurance Company, The Travelers Indemnity Company of Canada, Great American Insurance Company, London Assurance, The Non-Marine Underwriters at Lloyds under Contract No. 820, Employers Insurance of Wausau, CNA Assurance Company, Gerling Global General Insurance Company, Central Mutual Insurance Company, American Home Assurance Company, Commonwealth Insurance Company, Fireman’s Fund Insurance Company, Continental Casualty Company, The General Accident Assurance Company of Canada (Defendants) Appellants;
and
Benson & Hedges (Canada) Limited (Plaintiff) Respondent.
1977: October 25; 1978: May 16.
Present: Laskin C.J. and Martland, Ritchie, Spence, Pigeon, Dickson and Pratte JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.
Insurance—Property insurance—Explosion—Use of experts to determine cause—Faulty welding of tanks—Use of experts to investigate undamaged tanks for similar defects—Obligation of insured to mitigate damages—Liability of insurer to cover fees of experts—Fees for minimization of future risks—The Insurance Act, R.S.O. 1970, c. 224, statutory condition No. 9.
Respondent company was carrying on its brewing operations at a newly erected brewery at Barrie, Ont. On March 23, 1972, one of the bottling tanks exploded
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causing the death of several employees, injuries to others and a total plant shut-down for several days. The bottling room could not be used for some three months. Respondent thereafter hired experts who determined that one of the causes of the explosion was faulty welding of the tanks. Experts also checked the other tanks and found that a quarter were faulty; the faulty tanks were later re-welded. When legal action was taken to recover the $296,120 which respondent alleged to have lost as a result of the mishap the trial judge disallowed $60,798.45, the cost of retaining these experts, and $1,253.50 the account of a professional photographer. The Court of Appeal allowed the appeal by the respondent to the extent of the $60,798.45. The subsequent appeal was solely concerned with the right of respondent to recover this amount paid by it to the experts to investigate the cause of the explosion and the state of the other tanks, under statutory condition No. 9 relating to Salvage prescribed by s. 122 of The Insurance Act, R.S.O. 1970, c. 224, and under the Sue and Labour Clause stipulated in one of the insurance policies.
Held (Laskin C.J. and Spence and Dickson JJ. dissenting): The appeal should be allowed.
Per Martland, Ritchie, Pigeon and Pratte JJ.: There is a distinction between the obligation of an insured to minimize his loss and his obligation to minimize a risk that has yet to materialize; statutory condition No. 9 relates to the former and is but the contractual expression of the common law duty to mitigate loss; it only obligates an insured to prevent a loss that would be the normal consequence of an event that has occurred. The obligation of the insured under statutory condition No. 9 was limited to preventing damages resulting from the explosion of the ruptured tank; it did not extend to correcting the faulty workmanship in the unexploded tanks so as to reduce the risk of explosion in these tanks or to inspecting the re‑welding on those tanks. Therefore, under statutory condition No. 9, the insured may not recover the cost of the work undertaken to determine the soundness or otherwise of the unruptured tanks or to inspect the re-welding of the tanks where faulty workmanship was found; it may however recover the cost of the work carried out to detect the cause of the rupture in the tank that had exploded since the insured could hardly have been expected to repair the damaged property without knowing the cause of the explosion. The expenses incurred are not recoverable under the Sue and Labour Clause stipulated in one of the policies since this
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policy excludes from its coverage the expenses incurred to correct defective workmanship of which the expenses claimed are but an accessory.
Per Laskin C.J. and Spence and Dickson JJ., dissenting: The question is whether the engaging of the several experts were “reasonable steps to prevent further damage to such property so damaged and to prevent damage to other property insured”, pursuant to Statutory Condition 9 of s. 122 of The Insurance Act. Condition 9 on Salvage should not be restricted to the damage which has occurred, but extended to the prevention of further damage to insured property from the same risk, namely that of tank explosion from faulty welding. That risk was continuing and indivisible, merely affecting different pieces of insured property. In interpreting Condition 9 and the Sue and Labour Clause it is important to remember that the true rationale is to benefit insurers. Respondent in this case took reasonable and proper steps, and in fact was obliged to do so, to minimize potentially greater loss. The validity of the claim for inspection following re-welding was thus also justified.
[Office Garages Ltd. et al. v. Phoenix Insurance Company of Hartford et al. (1966), 59 D.L.R. (2d) 81, [1966] 2 O.R. 909; Leebov v. United States Fidelity and Guaranty Co., 165 A. (2d) 82 (1960); Harper v. Pelican Trucking Company, 176 So. (2d) 767 (1965); Slay Warehousing Company Inc. v. Reliance Insurance Company, 471 F. (2d) 1364 (1973) distinguished.]
APPEAL from a judgment of the Court of Appeal for Ontario allowing an appeal from a judgment of Grant J. at trial. Appeal allowed, Laskin C.J. and Spence and Dickson JJ. dissenting.
B.J.E. Brock, for the appellants.
T. Forbes, Q.C., and A.M. Gans, for the respondent.
The judgment of Laskin C.J. and Spence and Dickson JJ. was delivered by
DICKSON J. (dissenting)—A bottling tank located in the respondent’s newly-erected brewery at Barrie, Ontario, exploded, shattering the walls of the bottling cellar and killing two persons. The respondent hired experts who determined that one
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of the causes of the explosion was faulty welding of the tank. Experts also checked similar tanks on the premises and found that about one quarter of all tanks were faulty. The faulty tanks were later re‑welded.
The issue in this appeal is whether the respondent insured can recover from its insurers the fees, amounting to $60,798.45, paid by the insured to the experts for investigating the cause of the explosion and determining the state of the other tanks. More narrowly, the question is whether the engaging of the experts was a reasonable step taken by the respondent to prevent further damage to the damaged property, and to prevent damage to other property insured under the policies issued by the appellants to the respondent.
I have had the opportunity of reading in draft the reasons for judgment prepared by Mr. Justice Pratte, and there is no reason to repeat the facts related by him. There are one or two additional details which might be mentioned. The tanks in question are of great size, some fourteen feet in diameter and fifty to sixty feet in length. The tanks, valves, pipes, and instrumentation utilized in the brewing industry are complex and very expensive. The amounts involved are large. The insurance policies issued by the appellants to the respondent provide coverage of over $10,000,000. The damages sustained as a result of the explosion, exclusive of the fees now in contention, were in excess of $276,000.
Mr. Trevor Jones, a professional engineer associated with the firm of Warnock Hersey, professional testing and investigation engineers, made many tests with respect to the damaged property. He concluded that the main factor, among many contributing to the explosion, was poor workmanship in the manufacture of tank No. 67, particularly in the welding of the head to the body. When the tests were being carried out, Mr. Ross Ritchie, a consulting engineer acting for the insurers, was present as a participant and an observer. He and Mr. Jones agreed on the steps to be taken. Mr. Jones characterized their work as a “joint venture.” He said he would not have gone to
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such detail if Mr. Ritchie had not been there to advise him. There was an awareness of the possibility of subrogation rights and subsequent litigation.
In order to recover from its insurer the expenses incurred in respect of the professional fees, it is incumbent upon the respondent to establish, pursuant to Statutory Condition 9 of s. 122 of The Insurance Act, R.S.O. 1970, c. 224, that the steps taken by the respondent, as an insured, were “reasonable steps to prevent further damage to such property so damaged and to prevent damage to other property insured,” or under the Sue and Labour clause, that there was threatened loss or damage and that the respondent laboured “for, in and about the defence, safeguard and recovery of the property insured,” or any part thereof.
The trial judge, Mr. Justice Grant, rejected the claim of the respondent. He held that the testing and investigation made by Warnock Hersey were beneficial to both respondent and insurers. It provided the respondent with valuable information as to the cause of the explosion and the requirements of replacement or repair to the tanks. It was most helpful to the insurers in that it permitted repairs to be commenced at an early date, thereby reducing the time during which the insurers would be liable for loss of profits or business under the insurance contracts. It also provided both insured and insurers with evidence in support of any subsequent claim against the party supplying and installing the tanks. These factors, though not conclusive, may be taken into account in determining “reasonableness.” Notwithstanding, the trial judge relieved the insurers of the burden of paying any part of the cost of the tests, investigation, and preventive measures. He accepted the argument that an insurer cannot be required to contribute to any further investigative or preventive measures once the immediate and present danger of further loss is reasonably believed to be eliminated. The judge held that the obligation of the insurer is only in respect of “imminent danger.” He distinguished the case of Office Garages Ltd. v. Phoenix Insur-
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ance Company of Hartford[1], relied on by the insured, by finding there was no danger of any further explosion from any of the eight tanks in the bottling cellar from the moment the beer contained therein was discharged into the sewer.
With respect, I agree with the Ontario Court of Appeal (judgment of Howland J.A., concurred in by Brooke and Estey JJ.A.) that, in limiting the obligation of the insurers under Statutory Condition 9 to that period before which imminent danger was temporarily eliminated by draining the tanks in the cellar, without determining the cause of the explosion, the trial judge placed too narrow an interpretation on the provision. It is true that when the tanks were drained, and so long as they remained empty, there was no present danger. But there was latent danger. There was a continuing risk. The tanks could not remain empty. They had to be refilled if the brewery were to continue to operate.
I also agree with the Ontario Court of Appeal that determination of the cause of the explosion was an essential preliminary to prevent damage both to property already affected and to other insured property. I can find nothing in the language of Statutory Condition 9, nor in the authorities, to justify the “imminent danger” test. The language of the condition is broad and general and should be given a large and liberal interpretation. The insurers, of course, were under a continuing obligation to indemnify the insured, in the event of damage from explosion of one or more of the other tanks. It seems to me that damage having occurred, the measures taken by the insured were reasonable steps to prevent damage to other property insured within Statutory Condition 9. Even applying such a limited construction as the “imminent danger” test, I think that danger was imminent so long as the cause of the explosion was unknown and the potential of the other tanks to explode was unknown. So far as the other tanks are concerned, exposure to real and immediate danger would arise as soon as those tanks were refilled.
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I agree with Mr. Justice Pratte that the cost of the services rendered by Warnock Hersey and by Independent Inspection Services Ltd. with respect to the detection of the cause of the explosion of bottling tank No. 67 is recoverable by the respondent. With regret, I cannot agree with him that Statutory Condition 9 is to be restricted to the damage which has occurred. In my opinion, it extends to the prevention of further damage to insured property from the same risk. The risk, as I apprehend, was that of tank explosion from faulty welding. That risk was continuing and indivisible. I do not think that whenever a different piece of property is involved, a different risk is incurred, i.e. that the risk of tank No. 2 exploding from faulty welding is different from the risk of tank No. 1 exploding from faulty welding. The risk is the same. It merely affects different pieces of insured property. To hold that whenever a separate piece of property is involved a different risk exists within the context of Statutory Condition 9 is to ignore the fact that the insured’s obligation expressly extends beyond the piece of property which has been damaged to include “damage to other property insured hereunder” (emphasis added). The interpretation that one risk may affect several pieces of property, including property not damaged by the original accident, is the only interpretation consistent with this express inclusion in the provision.
The point was advanced that to allow recovery of the expenses of inspecting all the tanks is to put on the insurers a liability which properly rests with the manufacturers. Whatever test is used, the insurer may be liable vis-à-vis the insured for at least some expense or loss occasioned by defective manufacture. The original damage from the accident itself might be due to such defect. Even if the narrow “imminent damage” test is used, such danger could result from defective construction, for which the manufacturer might be liable if sued The effect of the insurance contract is to shift the burden of certain losses and expenses to the insurer from the insured, whether or not the insured might have another recourse against a third party. This is the reason the insurer is subrogated to the rights of the insured. The insurer cannot escape responsibility on the basis that lia-
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bility for the loss might be incurred by a third party. The contract of insurance is not affected by the possible liability of the third party. It must be interpreted solely on its own terms which determine who, as between insurer and insured, shall bear a particular loss. After this is determined, the party on whom the loss prima facie has fallen may be able to shift it to a third party on the basis that, as between the third party and the insured or insurer, the third party is liable for the loss.
In this case, as I have said, the allocation of risk as between the insured and the insurer depends on the proper interpretation of the insured’s obligation to “take all reasonable steps…to prevent damage to other property insured” (Condition 9) and “to labour…in and about the defence [and] safeguard…of the property” (Sue and Labour Clause). In interpreting these provisions, it is important to remember that the true rationale is to benefit insurers. The provisions impose obligations on persons insured to take steps to prevent loss for which the insurer would be liable if such loss occurred. Here such loss could have come from continued business loss or damage from another explosion. To prevent the greater loss to the insurer which might thus occur, the insured is obliged to act to prevent the loss and the costs of these steps is shifted to the insurers. This cost is almost certainly less than the potential loss if such steps were not taken. In the present case, if a second explosion had occurred causing damage, and it were established that the insured had failed to take adequate investigative and preventive measures following the first explosion, is it not to be expected that the insurers would rely on breach of Statutory Condition 9 in denying liability? Is that not one of the purposes of the Statutory Condition—to encourage insurers to take reasonable steps to eliminate or minimize risk of damage to other insured property from a cause which has already resulted in damage to property itself?
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The obligation under Statutory Condition No. 9 is in no way negated or diminished by the obligation imposed by Statutory Condition No. 6 which requires the insured upon the occurrence of any loss or damage to the insured property, in addition to observing the requirements of inter alia, Condition 9, to deliver a proof of loss stating that the loss did not occur through any wilful act or neglect of the insured. Statutory Conditions 6 and 9 operate in concert with Condition 6 being expressly supplemental to Condition 9. Condition 9 dominates. An insurer may be in a position to deny liability for failure to observe Condition 9, or Condition 6, or both. This, however, does not prevent an insured from claiming contribution from the insurer for acts taken in compliance with Condition 9.
An important limitation on the liability of the insurer under Statutory Condition 9 is that he is obliged to contribute only toward “reasonable and proper expenses” incurred by the insured in taking steps required under subpara. 1 of the Condition, which steps themselves must be “reasonable.” Every case will depend in large measure on its facts for the determination of what steps are “reasonable” and “proper.” It would not, in my view, be either reasonable or proper for the insurer to contribute to the cost of replacing equipment or machinery affected by a risk from normal wear and tear, which had caused one piece to explode, or otherwise cause loss or damage. Expenses to replace such equipment, which would have had to be replaced in the normal course of business about this time in any event, would not be reasonable and proper expenses to prevent damage to insured property. They would be simply the costs of replacement consequent upon normal usage. Of course, if the original loss or damage had occurred from the neglect of the insured, as for example from inadequate inspection which failed to reveal the danger, there would be a breach of Statutory Condition 6 which would preclude recovery in respect of this loss altogether.
A question was raised as to the validity of the claim for inspection following re-welding. This
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claim was allowed by the Court of Appeal and may, I think, be justified on the basis that the expenditure was to ensure that the repairs had been done properly and the original danger eliminated.
I would dismiss the appeal with costs.
The judgment of Martland, Ritchie, Pigeon and Pratte JJ. was delivered by
PRATTE J.—This is an appeal with leave of this Court from the order of the Court of Appeal for Ontario dated June 23, 1975 allowing the appeal of the respondent and varying the judgment of Mr. Justice Grant dated January 22, 1974 by increasing by an amount of $60,798.45 the sum to be recovered from the appellants under certain insurance policies issued by them in favor of the respondent.
This appeal is solely concerned with the right of the respondent to recover this amount of $60,798.45 which represents the price of certain professional services rendered to respondent for the alleged purpose of minimizing the amount of its loss under the policies.
The facts are as follows:
In 1971 the respondent was engaged in the brewing business under the name of Formosa Spring Brewery. In November 1971 it started to move its brewing operations to new facilities it had caused to be erected on the outskirts of the City of Barrie in the Province of Ontario and in which it began to bottle beer in January 1972. This new plant comprised among other things a fermentation room with sixteen fermentation tanks, an aging room with twenty-six aging tanks and a bottling room or cellar with eight bottling tanks.
On March 23, 1972, a bottling tank known as No. 67 ruptured or exploded causing the death of two employees, injuries to several others and extensive damage to the premises. Immediately after the explosion, the plant was totally shut down; the damage to the bottling cellar was found to be so extensive that it could not be used for a period of three months. It was however possible to resume production four days after the explosion
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through the use of a temporary system of pipes and refrigeration which by-passed the bottling room.
Following this mishap, the respondent retained the services of Warnock Hersey International Limited (“Warnock”) essentially to determine the cause of the failure of bottling tank No. 67. Trevor Jones, a professional engineer who did the actual investigation for Warnock came to the conclusion that the main cause of the rupture of tank No. 67 was poor workmanship in the construction, more specifically in the welding of the head to the body of the tank. The cost of the investigation carried on by Mr. Jones was $12,675.45 which is part of the amount in dispute in this appeal.
The respondent also retained the services of Independent Inspection Services Limited (“Independent”) to carry out a thorough investigation of all the tanks and related equipment throughout the respondent’s facilities. As a result of this investigation defective welding was found in some of the other tanks. The account of Independent was in the amount of $48,123 which is the balance of the amount in dispute in this appeal.
On March 21, 1973, the respondent took legal action against the appellants to recover an amount of $296,120 which it alleged to have lost as a result of the mishap above-mentioned and to be owing to it pursuant to various contracts of insurance.
The learned trial judge gave judgment for the respondent for an amount of $215,635.92, disallowing the amounts that had been claimed for the Warnock and Independent accounts as well as the account of Bruno Faverio, professional photographer, for $1,253.50.
While all policies issued by the appellants in favor of the respondent are not subject to the same conditions, some contained the statutory conditions which are prescribed by s. 122 of The Insurance Act, R.S.O. 1970, c. 224, and especially Statutory Condition No. 9 which reads as follows:
SALVAGE
(1) The insured, in the event of any loss or damage to any property insured under the contract, shall take all reasonable steps to prevent further damage to such
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property so damaged and to prevent damage to other property insured hereunder including, if necessary, its removal to prevent damage or further damage thereto.
(2) The insurer shall contribute pro rata towards any reasonable and proper expenses in connection with steps taken by the insured and required under subparagraph 1 of this condition according to the respective interests of the parties.
In addition, the Multi-peril Subscription Policy No. MP/S Ontario 20084 contained the following clause:
SUE AND LABOUR
In case of loss or damage, or threatened loss or damage under this policy, it shall be lawful and necessary for the Insured, their factors, servants, assigns, to sue, labour and travel for in and about the defence, safeguard and recovery of the property insured hereunder, or any part thereof, without prejudice to this insurance. The Insurers will pay the charges so incurred subject to the limit of liability stated elsewhere herein. The acts of the Insured or the Insurers in recovering, saving and preserving the property insured in case of loss or damage shall not be considered a waiver or an acceptance of abandonment.
Those are the only provisions relied on by the respondent as the basis for its claim of $60,798.45; we were advised by Counsel as were the Courts below, that in our disposition of this appeal it would not be necessary to specify the policy or policies under which any liability might be found to exist or to apportion such liability as among the various appellants.
The only matter at issue is whether the said sum of $60,798.45 is in whole or in part recoverable from the appellants, more especially under statutory condition No. 9 or under the Sue and Labour clause above-mentioned.
Under sub-para. 2 of statutory condition No. 9 the insured has the right to recover the expenses which, pursuant to sub-para. 1 thereof, it was obligated to make in the fulfilment of its contractual obligation to “take any reasonable steps to prevent further damage to such property so damaged and to prevent damage to other property insured hereunder”.
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The situation is not different under the Sue and Labour clause above quoted whereby the Insurers are obligated to pay the charges which it was “necessary for the Insured” to incur “for…the defence, safeguard and recovery of the property insured hereunder”.
Considering first the situation under statutory condition No. 9, the question that stands for determination is as to whether the accounts of Warnock and Independent are “reasonable and proper expenses in connection with steps” that the respondent was required to take under para. 1 of this statutory condition in order “to prevent further damage to any such property so damaged and to prevent damage to other property insured”.
There was some disagreement in the Courts below as to the percise nature of the services covered by the accounts of Warnock and Independent.
In his reasons for judgment, Mr. Justice Howland as he then was, said, speaking for the Court of Appeal: “All of the work included in the above accounts of Warnock Hersey International Limited and Independent Inspection Services Limited was of an investigative nature to determine the cause of the explosion and none of it was with respect to the work of restoration necessary to put the tanks in proper operating condition”.
This is contrary to the findings made by the learned trial judge. As regards the account of Warnock, Mr. Justice Grant found as follows: “It is quite apparent that the work for which this account was rendered involved a very thorough examination of all the eight tanks to determine not only any weakness in them and the extent and mode of repair required, but also to gather expert proof which would be available in any claim thereafter being made against the party providing and installing the same”.
With respect to the account of Independent, Mr. Justice Grant determined that it included the cost of inspection of the original welding on all the tanks and also the cost of the inspection of the re-welding on the tanks where the original welding was found to be defective.
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In my view, the findings of the trial judge are supported by the evidence and should not have been disturbed by the Court of Appeal.
The work covered by the accounts of Warnock and Independent may therefore be classified into three categories as follows:
(1) Work respecting the detection of the cause of the rupture of bottling tank No. 67;
(2) Work respecting the inspection of the unruptured tanks to determine the soundness or otherwise of their construction; and
(3) Work respecting the inspection of the re-welding of those tanks where faulty workmanship was found.
The cost of detecting the cause of the explosion of bottling tank No. 67 is in my view part of the loss suffered by the respondent as a result of such explosion; an Insured can hardly be expected to repair the damaged property without knowing the cause of the damage. I am therefore of the opinion that the cost of the services rendered by Warnock and Independent with respect to the detection of the cause of the explosion of bottling tank No. 67 is recoverable from the appellants as part of the loss suffered by respondent and quite apart from statutory condition No. 9.
The inspection of the unruptured tanks was intended to show whether the welding on these tanks was also defective and the risk of rupture real. These inspections and tests did not reduce or extinguish such risk any more than it was created or increased by them. The risk of some of the other tanks exploding because of faulty workmanship in their construction always existed; the work of Warnock and Independent served to surface the risk, to make its existence known to Insured and Insurers alike.
The work of the second category did not per se prevent any damage or further damage to any property insured under the policies. The risk of an explosion was not reduced by the inspection but by the re‑welding that was done following the tests. However, this inspection was a necessary prerequisite to the correction of the defective workmanship in some of the unruptured tanks and as such the cost would be recoverable from the appel-
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lants if and to the extent that respondent was obligated by sub-para. 1 of statutory condition No. 9 to correct the faulty workmanship in the tanks that had not exploded.
The issue here is as to whether the obligation stipulated in sub-para. 1 of statutory condition No. 9 is limited “to prevent damage” that would otherwise normally result from the peril that has already come into operation or whether it also extends to averting the occurrence of another peril so as to prevent the damage that would normally result from such other peril.
The distinction essentially is as between the obligation to minimize a loss and the obligation to minimize a risk that has yet to materialize. At common law, the Insured has a duty to mitigate his loss, but he is however under no obligation to minimize the risk, indeed the negligence of the Insured which is not so gross as to amount to a wilful act would not be a good defence to an otherwise valid claim of the Insured.
The obligation set out in sub-para. 1 of statutory condition No. 9 arises “in the event of any loss or damage”, i.e. if one of the perils insured against come into operation. This indicates that the damage to be mitigated must result from the contingency that has occurred as opposed to being the consequence of another contingency that has yet to occur.
Confirmation for this view may be found in the fact that the right of the Insured to recover a loss is by statutory condition No. 6 made conditional upon sub-para. 1 of statutory condition No. 9 being complied with. In the absence of clear and unambiguous language, I cannot accept that sub-para. 1 of statutory condition No. 9 be construed so as to make the right of the Insured to recover an actual loss resulting from a peril that has come into operation conditional upon the Insured preventing the occurrence of another peril.
Furthermore, there does not seem to be any reason why the insured, who has become aware of the probability of the operation of a risk following a loss, should be under any greater obligation than if he had acquired the same information prior to any loss.
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This is not to say that the Insured is under no obligation whatsoever to avert a loss; its obligation in this regard flows from the common law and other provisions of the policy, inter alia statutory conditions 4, 6 and 7 which read in part as follows:
4. Any change material to the risk and within the control and knowledge of the insured avoids the contract as to the part affected thereby, unless the change is promptly notified in writing to the insurer or its local agent, and the insurer when so notified may return the unearned portion, if any, of the premium paid and cancel the contract, or may notify the insured in writing that, if he desires the contract to continue in force, he must, within fifteen days of the receipt of the notice, pay to the insurer an additional premium, and in default of such payment the contract is no longer in force and the insurer shall return the unearned portion, if any, of the premium paid.
6. (1) Upon the occurrence of any loss of or damage to the insured property, the insured shall, if the loss or damage is covered by the contract, in addition to observing the requirements of conditions 9, 10 and 11,
(a)…
(b) deliver as soon as practicable to the insurer a proof of loss verified by a statutory declaration,
(i)…
(ii)…
(iii) stating that the loss did not occur through any wilful act or neglect or the procurement, means or connivance of the insured,
7. Any fraud or wilfully false statement in a statutory declaration in relation to any of the above particulars, vitiates the claim of the person making the declaration.
In my view, statutory condition No. 9 is but the contractual expression of the common law duty of the Insured to mitigate its loss; it only obligates the Insured to prevent a loss that would be the normal consequence of an event that has occurred.
In the case at bar, the obligation of respondent under sub-para. 1 of statutory condition No. 9 was limited to preventing damages resulting from the explosion of tank No. 67; it did not extend to correcting the faulty workmanship in the unexploded tanks so as to reduce the risk of explosion in these tanks; such risk was another hazard which
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existed independently from and was not the result of the explosion of tank No. 67. It was made known by the explosion, not caused by it.
The circumstances here are therefore quite different from those which were found to exist in the four decisions referred to by Mr. Justice Howland, as he then was: Office Garages Ltd. et al. v. Phoenix Insurance Company of Hartford et al[2]; Leebov v. United States Fidelity and Guaranty Co.[3]; Harper v. Pelican Trucking Company[4]; Slay Warehousing Company Inc. v. Reliance Insurance Company[5]. In all these cases there was either a direct causal connection between the original loss and that which the Insured had attempted to mitigate or avert or it was effectively the same loss. Furthermore, in the Office Garages Ltd. case, part of the amount sought to be recovered was the cost of investigating the cause of the mishap which, as I have indicated before, is recoverable by the Insured as part of its loss. None of these decisions however are authority for the proposition that statutory condition No. 9 creates an obligation upon the Insured to take such steps as may be necessary to prevent the occurrence of a risk which has not in any way been created or increased by the loss that has already happened.
I am therefore of the opinion that the respondent was not obligated by sub-para. 1 of statutory condition No. 9 to determine whether the tanks that had not exploded were also defective. It therefore follows that the cost of the work of the second category is not, in my view, recoverable from the appellants under sub-para. 2 of statutory condition No. 9.
I reach the same conclusion as regards the work of the third category. I totally fail to see how the meaning of statutory condition No. 9 can be stretched to the point where the cost of inspecting the re‑welding of the tanks would be recoverable from the appellants. There is no suggestion anywhere in the evidence that these tests did in any way prevent or reduce any damage.
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There remains to see whether these accounts of Warnock and Independent are recoverable from the appellants under the Sue and Labour clause stipulated in Multi-peril Subscription Policy No. MP/S Ontario 20084.
This clause which finds its origin in marine insurance reads in part as follows: “In case of…threatened loss or damage under this policy, it shall be…necessary for the Insured…to sue, labour and travel for…the defence, safeguard and recovery of the property insured hereunder,… The Insurers will pay the charges so incurred subject to the limit of liability stated elsewhere herein”.
I find it unnecessary to express any opinion as to the type of expenses that would normally be covered by this clause. Indeed in the case at hand the policy containing the Sue and Labour clause also provides as follows: “This Policy does not insure against: (a)…(b) the cost of making good faulty materials, workmanship, construction or design but this exclusion shall not apply to damage resulting therefrom”.
If the cost of making good the defective workmanship of the tanks is not covered by the policy it is quite clear to me that the expenses that were necessary to determine whether there was faulty workmanship or not cannot be recovered under the same policy; these expenses are but an accessory of those incurred to correct the defective workmanship.
On the whole, I therefore come to the conclusion that of all the expenses at issue in this appeal, respondent is entitled to recover only that part of the accounts of Warnock and Independent which is in respect to the detection of the cause of the explosion of bottling tank No. 67; while this amount might be relatively small, the record does not permit the apportionment of the accounts as between this category of expense and the other two categories.
I would therefore allow the appeal, set aside the judgment of the Court of Appeal for Ontario to the extent that it allowed the respondent to recover from the appellants $60,798.45 for the accounts of
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Warnock and Independent, refer the case back to the Supreme Court of Ontario for the determination by it of that part of these accounts that was incurred for the detection of the cause of the explosion of bottling tank No. 67 and which part, as indicated above, shall be paid by the appellants to the respondent together with interest thereon at the rate of 5 per cent per annum from March 21, 1973, to the date of payment the judgment of Grant J. should be varied accordingly; the appellants should have their costs in this Court, but there shall be no costs in the Ontario Court of Appeal. The costs of the reference shall be in the discretion of the judge holding it.
Appeal allowed with costs, reference directed, LASKIN C.J. and SPENCE and DICKSON JJ. dissenting.
Solicitors for the appellants: Montgomery, Cassels, Mitchell, Somers, Dutton & Winkler, Toronto.
Solicitors for the respondents: Miller, Thomson, Sedgewick, Lewis & Healy, Toronto.