Canadian Indemnity Co. v. Okanagan Mainline Real Estate Board et al., [1971] SCR 493

Supreme Court of Canada

Canadian Indemnity Co. v. Okanagan Mainline Real Estate Board et al., [1971] S.C.R. 493

Date: 1970-11-27

Canadian Indemnity Company (Defendant) Appellant;

and

Okanagan Mainline Real Estate Board (Plaintiff) Respondent;

and

Whillis-Harding Insurance Agencies Ltd. (Defendant).

Okanagan Mainline Real Estate Board (Plaintiff) Appellant;

and

Whillis-Harding Insurance Agencies Ltd. (Defendant) Respondent.

1970: October 13, 14; 1970: November 27.

Present: Martland, Judson, Ritchie, Hall and Laskin JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR BRITISH COLUMBIA

Insurance—Bond issued to Real Estate Board for protection of public—Application form subsequently presented to and executed by Board—Agent misrepresenting reason for request for execution of application—Board unaware of indemnity clause in application form until after discovery of member’s defalcation—Liability of insurer—The Insurance Act, R.S.B.C. 1960, c. 197, s. 13.

The respondent Board obtained a bond from G Co. to enable it to pay claims to members of the public who had lost money by reason of defalcations by its members. Before the expiry of the bond, the agency which had acted for G Co. sold its insurance business to another agency. The new agency was not an agent of G Co. and it suggested to the Board a shift of companies. The Board had no wish to make any change but had no objection provided it received the same coverage at the same rate.

A bond was issued by the appellant C Co. in exact accordance with the wording of the old bond. At some time after the issuance and delivery of the bond the agency presented a blank application form to the Board. The application was duly executed by the Board and was then returned to the agency and later

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sent to the company. The agency gave the Board the impression that the execution of the application was only by reason of the change in bonding companies.

The bond was renewed annually and during the second renewal period the Board learned that one of its members had misappropriated trust funds. This gave rise to a claim against C Co. for $23,499.12. It was only after the discovery of the defalcation that the Board became aware that the application which it had signed contained a clause which obligated the Board to indemnify C Co.

The Board eventually paid the claims of the members of the public who had suffered loss and then demanded payment from C Co. The latter denied liability and the Board immediately brought action against the company and its agent.

The judgment at trial upheld the indemnity clause and dismissed the action against C Co. but gave judgment against the agency for $23,499.12 on the ground of its negligence as an agent. On appeal, liability was imposed on C Co., and the agency was, in consequence, freed from liability on the ground that the two causes of action were alternative. C Co. then appealed to this Court. The Board appealed against the dismissal of its action against the agency.

Held: The appeals should be dismissed.

Liability was imposed on C Co. because the application form by its wording was referable to the bond and was intended by C Co. to be part of the contract of insurance. It consequently fell within s. 13(1) of The Insurance Act, R.S.B.C. 1960, c. 197, the indemnity clause contained in the application form becoming “a term or condition of a contract which is not set out in the policy”. The Court further agreed with the holding of the Court of Appeal that the application for the bond made after the issue of the policy and in the circumstances of this case did not bring into force s. 13(2) so as to prevent the application of s. 13 (1).

Also, it was the misrepresentation by the company’s agent as to the contents of the application form that induced the Board to sign. A party who misrepresented, albeit innocently, the contents or effect of a clause inserted by him into a contract could not rely on the clause in the face of his misrepresentation.

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APPEAL by the defendant, Canadian Indemnity Co., from a judgment of the Court of Appeal for British Columbia[1], allowing an appeal by the plaintiff from a judgment of Brown J. in an action on a policy of insurance. Appeal by the plaintiff against dismissal of its action against the defendant, Whillis-Harding Insurance Agencies Ltd. Appeals dismissed.

H.E. Hutcheon, Q.C., and K.J. Yule, for the appellant, Canadian Indemnity Co.

W.A. Esson, for the respondent (appellant by cross-appeal), Okanagan Mainline Real Estate Board.

J.P. van der Hoop, for the respondent, Whillis-Harding Insurance Agencies Ltd.

The judgment of the Court was delivered by

JUDSON J.—The Canadian Indemnity Company appeals from a judgment of the Court of Appeal for British Columbia¹, which reversed the judgment at trial and ordered payment of $26,828.12 to Okanagan Mainline Real Estate Board. The Board had obtained a bond from Canadian Indemnity to enable it to pay claims to members of the public who had lost money by reason of defalcations by its members. In my opinion, the judgment of the Court of Appeal is well-founded and the appeal should be dismissed. The facts require statement in some detail.

The individual members of the Board are licensed by the Province of British Columbia as real estate agents and are required to file a bond for $25,000 with the appropriate authority for the protection of the public with whom they may have dealings. The bond in question in this action was taken out for additional protection to the public. It was issued on February 6, 1963, in the following terms:

KNOW ALL MEN BY THESE PRESENTS that we, THE CANADIAN INDEMNITY COMPANY, in the city of Vancouver, in the Province of British

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Columbia, (hereinafter called the surety) are held and firmly bound unto the OKANAGAN MAINLINE REAL ESTATE BOARD of the county of Yale, Province of British Columbia (hereinafter called the obligee), as trustee for the benefit of clients of members of the obligee in the amount of ONE HUNDRED THOUSAND AND 00/100 ($100,000.00) DOLLARS for which payment well and truly to be made the surety binds itself, its successors and assigns firmly by these presents.

NOW the condition of the above obligation is such that subject to the provisions of section 7 hereof the surety hereby agrees to pay to the obligee for direct pecuniary loss which is sustained by reason of wrongful or dishonest dealing on the part of any one or more of the members of the obligee in connection with a real estate transaction as defined in the “Real Estate Act” of the Province of British Columbia committed while this bond is in force as to such member or members, an amount not exceeding in the aggregate ONE HUNDRED THOUSAND AND 00/100 ($100,000.00) DOLLARS.

The circumstances surrounding the issue of this bond are unusual. In 1961 the Board had obtained a similar bond from the General Accident Assurance Company of Canada through the agency of Robert H. Wilson Realty Limited, a firm in Kelowna. Under this bond it was clear that there was no obligation on the part of the Board to indemnify General Accident. No application form was taken by General Accident, nor was there any form of indemnity agreement.

The General Accident bond ran from February 20, 1961, and provided for renewal by renewal certificate. It was so renewed for a further period of one year from February 20, 1962.

Before the expiry of the bond, Robert H. Wilson Realty sold its insurance business to Whillis‑Harding Insurance Agencies Ltd., one of the defendants in this action. In January of 1963, Whillis-Harding took up the question of the renewal of the bond. This new agency was not an agent of General Accident. It is apparent from the record that there was ill-feeling between the new agency and General Accident. The new

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agency suggested to the Board a shift of companies. The Board had no wish to make any change but had no objection provided it received the same coverage at the same cost.

On January 23, 1963, Canadian Indemnity notified Whillis-Harding that they would issue the bond at the same rate of premium but at an increased commission rate—25 per cent as against 20 per cent.

On February 6, 1963, the bond was issued by Canadian Indemnity in exact accordance with the wording of the old bond. The new bond was issued without any written application having been taken from the Board and without anything having been said to the Board about the need for any application.

At some time after the issuance of the bond Whillis-Harding presented a blank application form to the Board. The precise date is not clear but it was subsequent to the issue of the bond and its delivery to the Board. The form of application was duly executed by the Board and returned to the agent. It appears to have been executed on February 22, 1963, two days after the bond came into force. It was sent by Whillis-Harding to the Vancouver office of Canadian Indemnity, which, in turn, sent it to the head office at Winnipeg. There is a date stamp indicating that it reached some office of Canadian Indemnity on March 25, 1963. The Board received no copy of the application form. There is a finding of fact by the trial judge, set out later in these reasons, on what happened between the agency and the Board in relation to the execution of this application.

The bond was renewed for one-year periods beginning February 20, 1964, and February 20, 1965, and was in force when the claim arose.

In October of 1965, the Board learned that one of its members had misappropriated trust funds. This gave rise to a claim against Canadian Indemnity for $23,499.12. It was only after the discovery of the defalcation that the Board became aware that the application which it had signed contained a clause which obligated the

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Board to indemnify Canadian Indemnity. This was in late December 1965.

The Board eventually paid the claims of the members of the public who had suffered loss and then demanded payment from Canadian Indemnity. The company denied liability and the Board immediately brought this action.

The judgment at trial upheld the indemnity clause and dismissed the action against Canadian Indemnity but gave judgment against Whillis-Harding for $23,499.12 on the ground of its negligence as an agent.

On appeal, liability was imposed on Canadian Indemnity, and Whillis-Harding was, in consequence, freed from liability on the ground that the two causes of action were alternative. The learned trial judge made six findings of fact which cannot be challenged successfully. These are:

1. Whillis-Harding assured the plaintiff that the new bond would be the same as the old. Mr. Harding was quite frank to admit that his company’s primary duty was to get what their clients wanted.

2. Mr. Harding made no effort to get in touch with Mr. Wilson or Mr. Lennie who had arranged the original bond.

3. Mr. Harding gave the plaintiff’s officers the impression that the execution of the application form was required only by reason of the change in bonding companies.

4. Whillis-Harding made no attempt to renew the original bond with General Accident; it preferred for its own reasons to deal with Canadian Indemnity.

5. Canadian Indemnity would not have issued the bond without the expectation of the indemnity clause being executed by the plaintiff.

6. The bond with the indemnity clause executed was nearly worthless to the plaintiff. It could of course result in the minor advantage of creditors being paid while the plaintiff was trying to raise the money to honour the indemnification clause. On the other hand, if the loss were greater than the worth of the plaintiff,

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which I understood to be in the neighbourhood of $50,000-$60,000, the plaintiff would be reduced to insolvency by being forced to indemnify Canadian Indemnity.

The Court of Appeal founded its judgment on s. 13(1) of The Insurance Act, R.S.B.C. 1960, c. 197, and also held that the application for the bond made after the issue of the policy and in the circumstances of this case did not bring into force s. 13(2). These sections read:

13. (1) No term or condition of a contract which is not set out in full in the policy or in a document in writing attached to it, when issued, is valid or admissible in evidence to the prejudice of the insured or a beneficiary.

(2) This section does not apply to an alteration of the contract agreed upon in writing between the insurer and the insured after the issue of the policy.

There is no question that the bond is a contract of insurance within s. 13(1).

Liability was imposed on Canadian Indemnity because the application form by its wording was referable to the bond and was intended by Canadian Indemnity to be part of the contract of insurance. It consequently fell within s. 13(1), the indemnity clause contained in the application form becoming “a term or condition of a contract which is not set out in the policy”.

The Court of Appeal rejected the argument that the application form constituted a collateral agreement and that s. 13(2) operated to prevent the application of s. 13(1) on the ground that Canadian Indemnity intended both the bond and the application form to be bound up as one contract of insurance, and so pleaded in its statement of defence. I agree with both of these conclusions.

There is a further ground for the rejection of this appeal. The trial judge found that

3. Mr. Harding gave the plaintiff’s officers the impression that the execution of the application form

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was required only by reason of the change in bonding companies.

Whillis-Harding, in getting the indemnity agreement from the Board was acting as agent for Canadian Indemnity. After the policy had been issued and delivered it misrepresented the reason for the request for the execution of the application and it was this misrepresentation as to the contents of the document that induced the Board to sign. A party who misrepresents, albeit innocently, the contents or effect of a clause inserted by him into a contract cannot rely on the clause in the face of his misrepresentation: Mendelssohn v. Normand Ltd.[2]; Curtis v. Chemical Cleaning & Dyeing Co.[3]; Jaques v. Lloyd D. George & Partners Ltd.[4].

The appeal of Canadian Indemnity should be dismissed with costs payable to the Board.

Whillis-Harding is also before the Court as a respondent. The Board appealed against the dismissal of its action against Whillis-Harding. This company took the position before us that the judgment of the Court of Appeal should be affirmed and that the appeal of the Board against the dismissal of its action against Whillis-Harding should be dismissed with costs. I would dismiss the Board’s appeal but without costs to Whillis-Harding.

Appeal of Canadian Indemnity Company dismissed with costs; appeal of Okanagan Mainline Real Estate Board dismissed without costs.

Solicitors for the appellant, Canadian Indemnity Co.: Guild, Yule, Schmitt, Lane, Hutcheon & Collier, Vancouver.

Solicitors for the respondent, appellant by cross-appeal, Okanagan Mainline Real Estate Board: Bull, Housser & Tupper, Vancouver.

Solicitors for the respondent, Whillis-Harding Insurance Agencies Ltd.: Harper, Gilmour, Grey & Co., Vancouver.