March 24, 2011 by Canadian Underwriter
This is an updated, corrected and amended version of a story that appeared in Canadian Underwriter‘s online news on Mar. 9, 2011. The article reported on an Ontario Court of Appeal decision in the case Shoeless Joe’s v. Insurance Portfolio Inc.
In our original version of the story, the second paragraph incorrectly used the word “uninsured” instead of “underinsured.” This was an editing oversight and Canadian Underwriter sincerely apologizes for making the error. It was not our intention to suggest Shoeless Joe’s had not received compensation when it in fact had.
Also, this amended version includes material previously omitted that makes explicit the central issue yet to be litigated is whether Shoeless Joe’s settled for “less than the value of its loss.” It should be made clear that this is an allegation that has yet to be proved. It was not in fact a finding of the Court of Appeal, as some readers may have incorrectly inferred based on the original wording of the story.
Again, Canadian Underwriter apologizes for any confusion the first version of the article may have caused.
Ontario’s Court of Appeal has partially lifted a stay allowing an insured to proceed with a claim against its broker for allegedly underinsuring it.
The allegations of the insured have not been proven in court.
The Court of Appeal partially lifted the stay on an action between the company, Shoeless Joe’s, and its brokerage firm, Insurance Portfolio Inc., meaning a court is now open to assess Shoeless Joe’s allegations that Insurance Portfolio caused the company to be underinsured. The remainder of the claim remains stayed.
According to the Appeal Court decision, Insurance Portfolio arranged for loss insurance for Shoeless Joe’s. When Shoeless Joe’s called on that insurance, it was told there was insufficient coverage for the business interruption loss.
Mikel Pearce of Papazian Heisey Myers, the lawyer for Insurance Portfolio, says the main issue in the litigation is whether Shoeless Joe’s settled with the third party insurer, the Dominion of Canada General Insurance Company, for less than the value of its loss.
“Our position is that Shoeless Joe’s was in fact overcompensated because Dominion miscalculated the rate of gross profit,” said Pearce.
Shoeless Joe’s was fully compensated with regard to the property loss, Pearce notes. The insured had also already been paid $248,000 on the business interruption loss, “so it’s not as though there wasn’t a BI payment made by Dominion,” said Pearce. “There certainly was, and it was significant.”
The court will ultimately decide the merits of whether these payments were sufficient.
In the meantime, the Appeal Court was asked to determine the status of a release Shoeless Joe’s signed in favour of Dominion, agreeing not to make a claim against anyone who might claim contribution or indemnity from Dominion.
According to the decision of the Appeal Court, upon signing this release with Dominion, Shoeless Joe’s then sued Insurance Portfolio, which then sought indemnification against Dominion.
Dominion moved to stop (or “stay”) Shoeless Joe’s action and Insurance Portfolio’s claim for indemnification, based on the release it signed with Shoeless Joe’s.
The court lifted the stay on the main action, meaning Shoeless Joe’s could proceed with its claim against the broker.
But the broker’s indemnification action against Dominion couldn’t succeed, the court ruled, not only because of the waiver, but because the broker was arguing Shoeless Joe’s was actually properly insured, and that Dominion was negligent in paying less than what it should have.
“In our view, it is plain and obvious that [Insurance Portfolio’s] third party claim [against Dominion] for indemnification arising from [Shoeless Joe’s] underinsured claim cannot succeed,” the court ruled.
If Shoeless Joe’s was successful in proving it was underinsured, then the basis of Insurance Portfolio’s third party indemnity claim against Dominion – i.e. that Shoeless Joe’s was properly insured – fell away, the court noted.
Conversely, if Shoeless Joe’s was unsuccessful in proving it was underinsured, it suffered no loss. Thus, the brokerage couldn’t claim contribution or indemnity from Dominion.