The appeal by 1540039 Ontario Ltd (the "Plaza Owner") from the dismissal of its application for a declaration that its tenant's insurer had a duty to defend was dismissed where the court found that the claim of negligence arose out of the Plaza Owner's conduct as owner of the property, not as landlord.
1540039 Ontario Ltd. v. Farmers' Mutual Insurance Co. (Lindsay),  O.J. No. 1380, March 30, 2012, Ontario Court of Appeal, K.N. Feldman, A. Hoy JJ.A. and J.M. Spence J. (ad hoc)
Daniel Nearing was electrocuted while working on a pylon sign located in front of a commercial plaza owned by the Plaza Owner. His surviving family members sued, amongst others, the Plaza Owner, Hydro One Inc. and Robert Monroe, carrying on business under the name "TRJ Signman". The allegations against the Plaza Owner related solely to negligence on the part of the Plaza Owner as the owner and occupier of the premises.
Plaza Owner had coverage under its own comprehensive general liability policy. It was also an additional name insured under a CGL policy issued by Farmers' Mutual Insurance Company to one of the tenants of the plaza, Design Depot. An application judge dismissed Plaza Owner's application for a declaration that the policy bound Farmers' Mutual to share in the defence of the claim against Plaza Owner. Plaza Owner appealed this decision on the basis that the application judge erred in failing to consider extrinsic evidence of the underlying facts in determining whether Farmers' Mutual had a duty to defend.
The extrinsic evidence which Plaza Owner wanted the court to consider related to whether or not Design Depot had hired Mr. Nearing to perform the work on the sign. No party had advanced any claim against Design Depot in the litigation. The lease between Design Depot and Plaza Owner required Plaza Owner to be named as an additional insured under its CGL policy but only with respect to the business carried on in the leased premises. The court found that the lease terms related to occurrences on the leased premises only and had no application to occurrences elsewhere in the plaza.
The court reviewed the decision of the Supreme Court of Canada in Monenco Ltd. v. Commonwealth Insurance,  2 S.C.R. 699, where the court held that it was appropriate, in seeking to determine the "substance" and "true nature" of a claim, for a court to go beyond the pleadings and consider extrinsic evidence provided that the extrinsic evidence has been explicitly referred to within the pleadings. However, in that decision, the Supreme Court of Canada was careful to note that it could not advocate approach that would cause the duty to defend the application to become "a trial within a trial" and therefore, any court reviewing the duty to defend should not be reviewing "premature" evidence which would require findings to be made before trial that would affect the underlying litigation.
In this case, the court held that there were no allegations in the pleadings that the hiring of TRJ Signman by the tenant, Design Depot, would lead to the liability of Plaza Owner. Neverthless, Plaza Owner submitted that the application judge erred in failing to admit the extrinsic evidence that it was Design Depot that hired TRJ Signman. The court noted two problems with the position advanced by Plaza Owner. First, the facts at issue in the extrinsic evidence were not undisputed. Plaza Owner denied that it hired TRJ Signman and alleged that Design Depot did. Hydro One indicated in its crossclaim that Plaza Owner hired TRJ Signman. In the circumstances, it was inappropriate to make such findings of fact prior to the trial. The court held that the more serious problem was that the substance and true nature of the plaintiff's claim against Plaza Owner was a claim in negligence arising out of Plaza Owner's alleged failure to ensure that the pylon sign was kept in a safe condition and its alleged improper placement of the pylon sign. This related to Plaza Owner's conduct as owner and occupier of the plaza and not as the landlord of the premises leased to Design Depot. Therefore, the extrinsic evidence, even if considered, would not create a possibility that the claims against Plaza Owner may fall within the policy. The court held that the evidence could not convert the claims against Plaza Owner qua owner into claims against Plaza Owner as landlord of the premises leased to Design Depot and, consequently, there was no duty to defend under the CGL issued to Design Depot.