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Ontario court rules against scrap dealer who tried to use liability insurance to pay employee’s injury claim


April 3, 2013   by Greg Meckbach, Associate Editor


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The Ontario Court of Appeal recently upheld a lower court decision in favour of Lombard General Insurance Company of Canada, which was sued by a Hamilton-based scrap metal dealer, for not defending or indemnifying it when it was sued by a vice president who was injured on the job but not covered by provincial workers’ compensation.

Legal

In May of 1998, John Ferber was working in the yard of Sam’s Auto Wrecking Co. Ltd., which carries on business as Wentworth Metal. Ferber, at the time a vice president of Wentworth’s parent company, had his right leg severed below the knee after he was run over by a crane.

According to court records, Ferber had been covered by the Ontario Workplace Safety Insurance Board (WSIB) until about 1990, when the owners, Ken and Lorne Rochwerg, decided to get private disability insurance for their executives, through AFLCA insurance, instead of paying for WSIB.

“All of Wentworth’s employees were covered by Workers’ Compensation, as required by Ontario law,” the Court of Appeal noted in background information.  “However, in 1989 or 1990, Wentworth purchased disability insurance for its management team …Wentworth determined that the disability insurance was less expensive than Workers’ Compensation premiums.”

Wentworth had been buying insurance through Dalton Timmis Insurance Group Inc., and its individual broker, George McCarter. In 1997, the year before the accident, they had purchased a commercial general liability policy, through Timmis, from Lombard General.

In early 2000, when he left the firm, Ferber sued both Wentworth and the crane operator, Bill Cooper. That suit was settled in 2003 and was not part of last Thursday’s Court of Appeal decision. In the settlement, Ferber was paid a total of $950,000, of which $200,000 was paid by or on behalf of Wentworth and Cooper and the remainder by or on behalf of Dalton and McCarter.

“The CGL insuring agreement provided broad coverage for bodily injury and property damage liability,” the Court of Appeal noted in its decision. “One exclusion was the employee injury exclusion: the insurance coverage did not apply to ‘bodily injury to an employee of the Insured arising out of and in the course of employment by the Insured.’  The scope of this exclusion is at the heart of this appeal.”

One issue on appeal was whether Judge Alan Whitten, in 2011, had erred in holding that the employee injury exclusion meant that Wentworth was not entitled to indemnification by Lombard.

Wentworth argued that Ferber was not an employee, but Judges John Laskin, Marc Rosenberg and Michael Tulloch of the Ontario Court of Appeal disagreed for several reasons. They wrote Thursday that Ferber’s employment contract referred to him as an “employee”, his  employment contract prescribed his hours of employment, he did not have an ownership interest in Wentworth, he was not a signing officer of Wentworth, he had no authority to sign cheques, he was paid outstanding vacation pay when his employment ended and when he stopped working he was issued a record of employment.

Wentworth also argued that even if Ferber was an “employee”, the employee injury exclusion under the Lombard liability policy does not extend to employees who are also executive officers.

Citing the Lombard policy, the Court of Appeal disagreed, noting that although Wentworth had a coverage gap, the firm could have eliminated it by having Ferber covered by the WSIB because the province’s Workplace Safety and Insurance Act allows a company to have its executive officers covered.

But instead, the court noted, Wentworth “decided to take Ferber and its other executive officers out of Workers’ Compensation and pay for a private disability insurance policy. It was, of course, entitled to do so, but its decision had the consequences that have led to this litigation.”

Both the brokerage firm Dalton Timmis, and McCarter, were named as defendants when Wentworth sued Lombard 13 years ago over Lombard’s refusal to indemnify Wentworth after Ferber sued Wentworth and crane operator Cooper. Court records indicate Wentworth’s owners “never told McCarter that some of their employees … were outside the coverage of the WSIB” and that they did not ask for coverage to protect against the management team and executive officers being injured by an employee.

McCarter “was the point person” leading up to Wentworth’s purchase of its CGL policy from Lombard in 1997, according to court records.

“The Rochwergs never dealt directly with Lombard and never sought advice as to the coverage from Lombard. It was always through McCarter,” Judge Whitten noted of Wentworth’s owners in his 2011 decision. “The Rochwergs never corrected any of the information incorporated in the application for the initial comprehensive business policy, nor in the subsequent application for an umbrella policy.”

That umbrella policy, which Wentworth obtained in February 1998 provided an additional $3 million in liability insurance but the policy did not apply to “personal injury to an employee of the Insured arising out of and in the course of employment” by Wentworth.

Judge Whitten added the broker McCarter did not know Ferber was not fully insured and therefore he did not seek an extension of a base policy. Judge Whitten added that Wentworth’s application for the umbrella, or excess liability policy, presupposed the existence of a base policy.

Of the application, Judge Whitten noted, “the responses ticked off would leave the reader with the impression that:  all employees are covered by WSIB, that there is employer’s liability insurance for those not covered by WSIB and that there is contingent employer’s liability insurance carried for all employees covered by WSIB.”

Court records indicate McCarter did not believe that the employee injury exclusion would apply to executive officers and that he expected it to cover both Wentworth as a company, and crane operator Cooper as an individual, in Ferber’s lawsuit, which was later settled.

Wentworth alleged in its appeal of Judge Whitten’s 2011 decision that Lombard was “vicariously liable” for the broker’s alleged negligence.

But last Thursday, the Court of Appeal suggested it could not hold Lombard vicariously liable for omissions on the part of its broker.

“Wentworth did not pursue its negligence claim against Dalton and McCarter,” the court of appeal wrote. “Thus, there is nothing for which Lombard could be vicariously liable.”

The court added Thursday there is no evidence to suggest Dalton was an agent.

“At trial, McCarter called himself a ‘property and casualty insurance broker’ for Dalton, a ‘Tier 2’ insurance brokerage,” the court of appeal wrote. “He marketed himself as an independent broker, entitled to sell the products of various insurance companies.  He acted quite differently from the insurance agent of a particular insurer.  He was not beholden to Lombard or any other insurance company.”


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