February 24, 2020 by Greg Meckbach
Twenty years after a loss resulting from food getting infested with insects, a commercial client has lost its coverage dispute with St. Paul Fire and Marine Insurance Co.
The Supreme Court of Canada announced Thursday it had denied leave to appeal to Marvelous Mario’s Inc., which wanted to contest a Court of Appeal for Ontario ruling released this past July.
St. Paul Fire and Marine wrote a policy for several firms ultimately owned by Mario Parravano and his wife Barbara Parravano, the latter of whom is not a party in Marvelous Mario’s Inc., et al. v. St. Paul Fire and Marine Insurance Co.
One firm owned by the Parravanos was the Bakemates Group of Companies, which provided baked goods to coffee shops and supermarkets. Bakemates went into receivership in 2000. That was the year after Sweet-Ease Inc., part of the Bakemates Group, had baked goods recalled due to a moth infestation.
Several disputes arose with St. Paul Fire and Marine, now owned by The Travelers Companies Inc. Most of the coverage disputes got settled in 2003 with KPMG, a court-appointed receiver.
But after that, Marvelous Mario’s and an associated numbered company tried to make a claim with the insurer. Marvelous Mario’s says it and the numbered company were owed money for leases that Bakemates failed to pay; this amount was not included in the 2003 settlement.
Marvelous Mario’s argued that Bakemates’ financial troubles arose because the moth infestation resulted in a product recall.
But the infestation was not a direct loss for Marvelous Mario’s, and therefore the loss of lease income was not covered, Justice Jasmine Akbarali of the Ontario Superior Court of Justice ruled in a decision released in 2018. That part of her decision was upheld on appeal.
Among the decisions cited was Ford Motor Company of Canada Ltd. v. Prudential Assurance Co. Ltd., released by the Court of Appeal for Ontario in 1958 and upheld by the Supreme Court of Canada. After a 1951 riot in Windsor, Ont., Ford tried to claim more than $900,000 on 24 insurance policies, one of which was provided by Prudential. The rioters had electricity, heating, ventilation and air conditioning turned off. Causes of damage to the plant included broken pipes and entry of snow and rain into the buildings.
An endorsement rider covered damage by riot while excluding losses caused by cessation of work or by interruption of processes or business operations or by change in temperature.
In 1958, the Court of Appeal for Ontario ruled in favour of Ford’s insurers, finding that riot was not the only proximate cause of the damage. This was because, after the riot, some work in the plants had ceased and temperatures in the buildings began to fall – causes that were excluded.
In Marvelous Mario’s, the “proximate cause” of the loss of lease income was the failure of the Bakemates group of companies to make the payments that were due, rather than the infestation, Justice Akbarali wrote.
There was also a coverage dispute over equipment that Marvelous Mario’s said it should have been able to keep when the Bakemates business was sold in late 2000 as a going concern.
The insurance policy stipulated that “Every action or proceeding against the insurer for the recovery of any claim under or by virtue of this contract is absolutely barred unless commenced within one year next after the loss or damage occurs.” Essentially, this means a coverage dispute lawsuit cannot proceed unless the client launched it within a year of discovering the loss.
Initially, Justice Akbarali ruled in 2018 that any business interruption losses from prior to Nov. 16, 2001 were barred by the terms of the policy, but business interruption losses occurring after Nov. 16, 2001 were not. The Court of Appeal for Ontario overturned that finding in 2019.
In overturning Justice Akbarali’s ruling, The Court of Appeal for Ontario said the question is not whether the client is continuing to suffer a loss or damage. Instead, the question is whether the insurer has engaged in multiple breaches of contract at different times.