An insured's abilty to seek contribution and indemnity may be limited by past conduct

The appeal by two insurers from the dismissal of an application to dismiss a third insurer's contribution action was allowed where the Court found that the third insurer had already tried to seek contribution through amendments to an action by the insured pursuant to which the third insurer admitted that the contribution action was statute-barred and, consequently, the doctrine of issue estoppel was operative and the attempt to seek the same remedy through a separate action was found to be an abuse of process.

Insurance Co. of the State of Pennsylvania v. Global Aerospace Inc., [2010] S.J. No. 446, July 30, 2010, Saskatchewan Court of Appeal, S.J. Cameron, J.G. Lane and G.A. Smith JJ.A.

This is a companion appeal to Insurance Co. of the State of Pennsylvania v. Cameco Corp. [2010] S.J. No. 445.

In the summer of 1995, Cameco began construction of a mine in Kyrgyzstan. On October 4, 1995, a helicopter carrying workers to the mine crashed killing all on board including ten Canadians. At the time, Cameco had three potentially relevant insurance policies: an aviation liability policy issued by Global Aerospace, Inc. formerly known as Associated Aviation Underwriters, Inc. ("Global"); a general liability policy issued by the Insurance Company of the State of Pennsylvania ("ICSOP"), and a general liability policy issued by American Home Assurance Company ("American Home"). All three Insurers were put on notice of the claim by Cameco. Both ICSOP and American Home denied that their policies covered the claim.

In 1996, Actions were commenced by the Estates of the Canadian miners killed in the helicopter crash. ICSOP and American Home refused to participate in the defence of the Action while Global agreed on a "reservation of rights" basis to defend the Actions.

In February 1999, Cameco commenced an Action in the Court of Queen's Bench against ICSOP and American Home seeking declarations that these Insurers had a duty to defend Cameco in relation to any liability arising out of the claims. In February 2000, Cameco sought an order pursuant to Rule 188 of The Queen's Bench Rules for a determination on a point of law concerning the obligation of ICSOP and American Home to provide a defence and indemnity to Cameco. This order was granted by the Court of Queen's Bench but later overturned by the Court of Appeal on the basis that the issue involved questions of mixed fact and law.

Global and Cameco pursued settlements on behalf of Cameco in relation to the claims and, in February 2005, the claims were settled with Global incurring a total cost of approximately $6,411,000 to defend and settle the Actions. This constituted a full indemnity for Cameco in relation to these claims.

At this time, Global received advice from its legal counsel that any formal action for equitable contribution as against ICSOP and American Home was time barred. Therefore, in March 2007, Global applied to the Court of Queen's Bench for an order to amend the statement of claim in the Cameco Action to add itself as a Plaintiff and to claim payment in accordance with the policies of insurance directly from ICSOP and American Home to Global by way of contribution to the costs of defence and indemnity paid by Global on behalf of Cameco. The application by Global was brought pursuant to Rule 165 of the Queen's Bench Rules of Court which the Court found was limited to allowing a party to amend its own pleadings, not the pleadings of another party. However, as all parties were under the impression that Global was barred from directly bringing an Action for equitable contribution on its own behalf by the provisions of the Limitations Act, S.S. 2004, c. L-16.1, the Court found that the proposed amendments would be permitted pursuant to section 20 of the Limitations Act as Global's proposed claim arose out of the same transaction as that founding the Cameco Action. This decision was overturned on appeal on the basis that section 20 of the Limitations Act did not permit amendments so sweeping that they would in effect, transform a contract claim by Cameco against its Insurers and to a claim for equitable contribution by another Insurer.

In June 2008, Global retained new lawyers who took the view that, contrary to the position earlier taken by Global in both the Court of Queen's Bench and the Court of Appeal, the limitation period in relation to a direct, fresh claim for equitable contribution by Global against ICSOP and American Home had not, in fact, expired.

In June 2008, two applications were made to the Court of Queen's Bench in relation to the Cameco Action. First, Cameco sought to amend the action to explicitly convert it into a subrogation action on behalf of Global. This application was allowed by McMurtry J. Second, Global, relying on the advice of its new counsel, also launched a new and separate action directly against ICSOP and American Home claiming equitable contribution in relation to its costs of the defence and settlement of the claims against Cameco by the estates of its deceased employees. ICSOP and American Home brought an application seeking a summary dismissal of the Global Action arguing that the Court of Appeal had already determined that the limitation period applicable to Global's claim for contribution had expired and that the issue was res judicata, or governed by the principle of issue estoppel, and that the claim should be struck as an abuse of process. The Chambers judge dismissed ICSOP and American Home's application. ICSOP and American Home appealed.

The Court characterized the issue on this appeal as whether McMurtry J. erred in deciding not to apply issue estoppel, or abuse of process, in relation to the applications by ICSOP and American Home to dismiss Global's action for contribution against them on the basis of the findings in the earlier proceedings that the limitation period had expired.

The Court noted that the doctrine of issue estoppel is a form of res judicata, meaning "something which has already been decided". As such, the doctrine serves to preclude re-litigation of an issue that has already been litigated and decided: Angle v. Minister of National Revenue, [1975] 2 S.C.R. 248. The requirements are: (1) that the same question is being decided; (2) that the judicial decision which is said to create the estoppel is final; and (3) that the parties to the judicial decision or their privies were the same person as the parties to proceedings in which the estoppel is raised or their privies. Abuse of process is often related to issue estoppel and supported by the same policy grounds. The Court noted that the advantage of the doctrine of abuse of process is that it is unencumbered by the specific requirements of res judicata while offering the discretion to prevent re-litigation, essentially for the purpose of preserving the integrity of the Court's process, citing from the decision in the Supreme Court of Canada in Toronto (City) v. CUPE, Local 79, 2003 SCC 63.

In this case, the Court found that Global had made an informed and unequivocal admission in the Cameco action that the limitation period for commencing an action for contribution against ICSOP and American Home had expired. The Court noted that Global had decided to proceed under section 20 of the Limitations Act, which depends for its exercise upon the expiration of the limitation period in play. However, merely because the fact was admitted did not detract from its quality with respect to the res judicata requirements. The Court noted that the finding amounted, in the circumstances, to the functional equivalent of a determination of the matter. The Court agreed that McMurtry J. did have limited discretion to refuse to apply the doctrine of issue estoppel. However, the Court found that Global had brought the present state of affairs upon itself by admitting in the earlier proceedings that the limitation period had expired. Given the adversarial context in which Global decided to make this admission, it appears that it was a tactical decision made for the strategic purpose of eliminating the limitation defence of its opponents. Therefore, it was difficult to maintain a case that applying issue estoppel would work a "real injustice" to Global. Based upon this analysis, the Court was of the view that the case for the application of issue estoppel was much stronger than McMurtry J. had appreciated.

The Court further held that the case for abuse of process was considerably stronger than recognized by McMurtry J. The Court found that the commencement by Global of the separate action, given all that had gone before, amounted on the whole to an abuse of process. It noted that one had to review the whole of the case in order to properly assess the abuse of process issue. The Court noted that, as Global would have it, all that went before would be "laid waste". This would be done by the simple expedient of changing counsel and resiling from the positions previously taken. The Court held that this was untenable from the perspective of the proper administration of justice in the realm of civil law.

In the result, the Court was satisfied that the commencement by Global of the separate action amounted, in the whole of the circumstances, to an abuse of process and granted the application by ICSOP and American Home to dismiss the action.

This case was originally summarized by Jonathan D. Meadows and originally edited by David W. Pilley.

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