Insurer Entitled To Deny Coverage To Carrier Based on Misrepresentation of Existing Contract

In this newly released decision (*1) C.H. Robinson Worldwide Inc. (“Robinson”), sought to recover from Northbridge Commercial Insurance Corporation (“Northbridge”) the payment of monies under the terms of a judgment obtained by Robinson as against Northbridge’s insured, KLM Express Ltd. (“KLM”), a trucking company. Robinson also sought a declaration that Northbridge was required to indemnify Robinson for the amount of the judgment subject to the limits of liability contained in KLM’s policy.

Robinson is a freight forwarder. Amongst other things, it contracts with motor carriers to transport property for its customers. Northbridge, is a commercial insurance company. At all material times, it was the insurer of KLM, a motor carrier that provided services for Robinson.

Robinson retained KLM to transport a shipment of food products from Ajax, Ontario to Calgary, Alberta. On or about June 22, 2012, they entered into a written Agreement for Motor Contract Carrier Services (the “Contract”) under which KLM would transport the goods in question. Under the terms of the Contract, KLM undertook to procure and maintain insurance coverage and to provide Robinson with written evidence of the insurance coverage.

KLM had an existing insurance policy with Northbridge, but the coverage period was set to expire on August 12, 2012. Accordingly, KLM took out another policy. The new policy that KLM obtained (Policy 2021043) ran from August 12, 2012 to August 12, 2013.

On July 18, 2012, KLM provided proof of the existing policy to Robinson by way of a Certificate of Liability Insurance. Following Robinson’s receipt of that Certificate, it sent an email to KLM dated July 24, 2012 stating, “Your insurance certificate has been accepted. You may continue conducting your business with C.H. Robinson.” Shortly thereafter, KLM sent a further Certificate of Liability Insurance covering the renewed policy.

In breach of the terms of the Contract, KLM failed to transport and deliver the food products. The truck carrying the shipment was involved in an accident and the food was destroyed. In response to the breach, Robinson corresponded with KLM and Northbridge, the latter to advise of the loss and claim. Robinson sent a letter to both KLM and Northbridge dated April 8, 2013 and a second letter, dated May 21, 2013. Robinson also provided Northbridge with a copy of the Contract. Northbridge maintained that this was the first time it had seen the Contract between KLM and Robinson. This Contract was critical in that it made KLM responsible for the full amount of the loss and did not entitle KLM to limit its liability to the standard $4.41 per kilogram limitation under a standard bill of lading or under the relevant Ontario legislation.

KLM failed to honour Robinson’s request for payment. Accordingly, Robinson commenced an action against KLM for damages in the Ontario Superior Court of Justice. Northbridge was served with a copy of the issued Statement of Claim but did not participate in that action. Northbridge had taken the position with KLM that it had misrepresented the facts (the existence of the Contract) relevant to the insurance and the policy of insurance was void.

KLM did not defend and was noted in default on October 24, 2013. Robinson obtained judgment in the amount of $223,701.85 plus costs of $1,106.07, together with post-judgment interest at the rate of 3% per annum.

Relying on section 132(1) of the Insurance Act (*2), Robinson sought payment from Northbridge of the monies ordered to be paid under the judgment. Northbridge refused, maintaining that Policy 2021043 was void for misrepresentation and, in the alternative, if Northbridge did have liability to Robinson, that liability must be limited to $65,953.29 as the maximum allowed under that policy (equivalent to the $4.41 per kilogram limitation amount under the standard bill of lading and legislation).

The Court noted that KLM had a common law obligation to fully and accurately disclose all matters within its knowledge that were relevant to the nature and extent of the risk to be assumed by Northbridge. The policy of insurance also contained a provision that “The entire policy shall be void if, whether before or after a loss, you have concealed or misrepresented any material fact or circumstance concerning this insurance or the subject thereof, or the interest of any Insured therein, or in case of any fraud or false swearing by you relating thereto.”

The misrepresentation concerned Northbridge’s Small Business Fleet Transportation Insurance Survey (the “Survey”), which was signed by Lekha Sivananthan on behalf of KLM on August 2, 2012. The Survey formed part of the application that KLM completed in order to secure insurance coverage from Northbridge. On page 8 of the Survey, the following question was posed:

Does [KLM] have any contracts with shippers that stipulate limits of liability that are required to supercede [KLM’s] standard Bill of Lading? (If yes, please provide copies.)

KLM placed an “X” in the No box. The Contract that KLM signed with Robinson six weeks earlier on June 22, 2012 expanded the limits of liability beyond the standard bill of lading terms and conditions.

The Court noted at paragraph 19:

  It is pertinent that section 191.0.1(1) of the Highway Traffic Act, R.S.O. 1990, c. H.8 deems every contract of carriage by commercial motor vehicle for compensation to include the terms and conditions set out in the regulations. Clause 9 of Schedule 1 (“Uniform Conditions of Carriage”) of Ontario Regulation 643/05 (the Carriage of Goods Regulation) under the Highway Traffic Act limits the liability of carriers such as KLM to the lesser of (1) the value of the goods at the place and time of shipment and (2) $4.41 per kilogram computed on the total weight of the shipment. Clause 10 of the Uniform Conditions of Carriage provides a declared value exception. If a contract of carriage declares the value of the goods on its face, the amount of any loss or damage shall not exceed that value. Unless a higher value is declared, liability is limited by the Carriage of Goods Regulation to $4.41 per kilogram.

The difference between limited liability ($4.41 per kilogram) and the declared value, in this case, is the difference between $65,953.29 and $223,701.85.

The Court found that KLM’s answer to the question on page 8 of the Survey to have been a misrepresentation. The next issue that the Judge had to determine was whether the misrepresentation was material to the risk. She accepted the evidence of the Northbridge representative that the existence of contracts that expand the insured’s or applicant’s liability beyond the standard $4.41 per kilogram limitation amount on a bill of lading are material to its underwriting process. Had this information been disclosed, it would have affected the amount of the premium charged to KLM. Although Northbridge did not calculate the exact amount, the Northbridge witness confirmed that the premium would have increased if the liability were in excess of $4.41 per kilogram. In response to Robinson’s argument that there was no evidence of what that increase would be, the Judge held that it was the fact that there would be an increase, rather than the quantum of that increase, that was relevant to materiality in this case.

Robinson’s claims against Northbridge were dismissed. Rui Fernandes and Kim Newton represented Northbridge in this matter.

Endnotes

(*1) 2015 ONSC 232

(*2) Section 132. (1) of the Insurance Act provides:  Where a person incurs a liability for injury or damage to the person or property of another, and is insured against such liability, and fails to satisfy a judgment awarding damages against the person in respect of the person’s liability, and an execution against the person in respect thereof is returned unsatisfied, the person entitled to the damages may recover by action against the insurer the amount of the judgment up to the face value of the policy, but subject to the same equities as the insurer would have if the judgment had been satisfied.