2017 BCCA 362 Coast Capital Savings Credit Union v. Liberty International Underwriters

COURT OF APPEAL FOR BRITISH COLUMBIA

Citation:	Coast Capital Savings Credit Union v. Liberty International Underwriters,
	2017 BCCA 362

Date: 20171020

Docket: CA43629

Between:

Coast Capital Savings Credit Union

Appellant

(Petitioner)

And

Liberty International Underwriters and
Liberty Mutual Insurance Company

Respondents

(Respondents)

Before:

The Honourable Mr. Justice Tysoe

The Honourable Mr. Justice Groberman

The Honourable Madam Justice Dickson

On appeal from: An order of the Supreme Court of British Columbia, dated April 14, 2016 (Coast Capital Savings Credit Union v. Liberty International Underwriters, 2016 BCSC 655, Vancouver Docket No. S159370)

Counsel for the Appellant:	C.A.B. Ferris, Q.C. N.J. Tuytel L.L. Bevan
Counsel for the Respondents:	R.D.W. Dalziel S.J. McCalla
Place and Date of Hearing:	Vancouver, British Columbia February 10, 2017
Place and Date of Judgment:	Vancouver, British Columbia October 20, 2017

Written Reasons by:

The Honourable Mr. Justice Groberman

Concurred in by:

The Honourable Mr. Justice Tysoe

The Honourable Madam Justice Dickson

Summary:

Coast Capital is defending a class proceeding brought on behalf of its account holders. The action concerns exchange rates charged by the credit union on withdrawals from automated teller machines in foreign countries. The notice of civil claim alleges that the rates charged exceeded those provided for in the credit union’s account agreements. It also alleges that Coast Capital engaged in a deceptive practice by failing to clearly disclose the exchange rates being charged. Coast Capital sought to compel its professional liability insurers to indemnify it for the costs of defending the class proceeding. The insurers resisted, relying on a clause in the insurance policy that excludes from coverage “any claim based upon or arising from charges for services, including commissions and fees”. The chambers judge held that the exclusion was applicable, and dismissed Coast Capital’s application. Coast Capital appealed. Held: Appeal dismissed. Whether the claim is characterized as a breach of contract claim or a misrepresentation claim, it arises out of Coast Capital’s charges for the service of exchanging money. The judge made no error in finding that the exclusion clause applied.

Reasons for Judgment of the Honourable Mr. Justice Groberman:

[1] Coast Capital Savings Credit Union (“Coast Capital”) is the defendant in a proceeding under the Class Proceedings Act, R.S.B.C. 1996, c. 50, that alleges that, between August 2007 and August 2015, it imposed charges on its customers for foreign currency transactions that it failed to properly disclose, and that those charges were imposed in breach of Coast Capital’s contractual obligations. Coast Capital applied in the Supreme Court for an order that the respondents (collectively “Liberty Mutual”), its insurers under a professional liability insurance (“PLI”) policy, indemnify it for its defence costs in the class proceeding. The chambers judge dismissed the application, holding that an exclusion clause in the insurance contract applied to the claims. Coast Capital appeals.

The Class Proceeding

[2] The claim against Coast Capital was certified as a class proceeding in a judgment indexed as Finkel v. Coast Capital Savings Credit Union, 2016 BCSC 561. Pursuant to an order of a judge in chambers (Coast Capital Savings Credit Union v. Liberty International Underwriters, 2016 BCCA 420), an appeal from that decision was heard by the same panel that heard the current appeal. Judgment in the appeal from certification is being issued concurrently with these reasons.

[3] The claims in the class proceeding relate to charges imposed or passed on by Coast Capital when its account holders used their debit cards to make withdrawals in foreign currencies from automated teller machines (“ATMs”) outside Canada.

[4] Coast Capital’s debit cards can be used in ATMs that are associated with either the “Cirrus” or “Plus” interbank networks. Coast Capital’s account agreement entitles it to charge specified “personal service fees” for various transactions, including cash withdrawals from ATMs in foreign countries. With respect to the exchange rates for foreign currency transactions, Coast Capital’s account agreement stated:

If the [debit card] is used in connection with a Transaction in a foreign currency, the rate of conversion into Canadian currency will be fixed according to the rules of the electronic network through which the Transaction is conducted.

[5] “Electronic network” is not a defined term in the agreement. The representative plaintiff in the class proceeding says that it refers to Cirrus or Plus. He contends that the only conversion rate that is authorized under Coast’s account agreement is the standard daily exchange rate for foreign currencies set by the interbank network (either Cirrus or Plus) over which the transaction takes place.

[6] The notice of civil claim alleges that, during the period to which it applies, Coast Capital charged its customers amounts in excess of the authorized personal service fees and the applicable Cirrus or Plus network conversion rates for withdrawals made from ATMs outside Canada. It refers to the excess as a foreign exchange (or “Forex”) surcharge. The claim alleges that, in assessing the surcharge, Coast Capital breached the terms of its contracts with account holders.

[7] The claim also asserts that, even if Coast Capital was entitled to impose the surcharge under its account agreement, it “engaged in deceptive acts or practices in the supply, solicitation, offer, advertisement and promotion of … ATM Foreign Exchange Services”. Those acts or practices are said to contravene ss. 4 and 5 of the British Columbia Business Practices and Consumer Protection Act, S.B.C. 2004, c. 2. The deceptive acts and practices are said to include the following:

(a) Coast Capital represented that it charged only the Network Exchange Rates for ATM Foreign Exchange Services;

(b) Coast Capital failed to disclose the material fact that it charged the Forex Surcharge on ATM Foreign Exchange Services; and

[8] As I understand it, Coast Capital does not seriously dispute the assertion that, at least in some cases, its account holders paid exchange rates in excess of the standard daily exchange rates for foreign currencies established by the Cirrus or Plus networks. It says, however, that such exchange rates were authorized under the account agreement, which, it says, was not deceptive.

[9] Coast Capital does not, itself, have a direct relationship with the Cirrus or Plus interbank networks. Rather, it has an agreement with a third party – Moneris Solutions Corporation – that gives it access to electronic payment networks. Other financial institutions, including those operating ATMs in foreign countries at which Coast Capital’s debit cards may be used, may also have only indirect relations with the Cirrus or Plus interbank networks, with one or more third parties involved as intermediaries. Moneris and, perhaps, other third parties may impose their own levies on international transactions.

[10] Coast Capital says that, apart from the authorized personal service fees, it merely passed on the conversion rates that it was charged by the various electronic networks involved in international transactions. It says that the words “electronic network” in its account agreement are not meant to refer only to the Cirrus and Plus interbank networks, but also to all other intermediary organizations involved in the transaction chain between Coast Capital and the ATM from which money is withdrawn.

[11] The notice of civil claim seeks a variety of remedies, including restitutionary, compensatory and punitive damages, as well as costs and interest.

[12] There are many nuances to the parties’ positions that are not covered in this brief synopsis. Further, the allegations in the class proceeding remain fluid, and the facts surrounding the action have not yet been determined by a court. It is also important to recognize that the plaintiff class does not accept that Coast Capital’s actions were innocent or merely negligent. The proposed Second Amended Notice of Civil Claim tendered by the representative plaintiff, and apparently drafted by someone armed with a thesaurus, describes Coast Capital’s conduct as “high-handed, outrageous, reckless, wanton, entirely without care, deliberate, callous, disgraceful, wilful, and an intentional disregard of the rights of the Class.”

The Insurance Policy

[13] Coast Capital is insured by the respondents under a policy titled “Miscellaneous Professional Liability Insurance For Financial Institutions”. The policy is a “claims made” policy covering the period commencing December 1, 2012 and ending December 1, 2014, a period that includes the time when the claim in the class proceeding was first made against Coast Capital.

[14] The coverage clause of the policy is in the following terms (I have omitted, for readability, the policy’s use of bold-face to emphasize defined terms):

The [Insurer] shall pay on behalf of the Insured(s) all Loss which it shall become legally obligated to pay as a result of a Claim made against an Insured, or any other person for which the Insured is legally responsible, for a Wrongful Act arising out of the performance of or the failure to perform Professional Services for others, which takes place before or during the Policy Period.

[15] The following definitions are included in and apply to the policy:

“Loss” means the total amount which Insured(s) become legally obligated to pay on account of each Claim and for all Claims first made in a Policy Period against them for Wrongful Acts for which coverage applies under this policy, including, but not limited to damages …, costs and Defence Costs. Loss also includes punitive and exemplary damages …. However, Loss does not include:

…

(ii) the return of or restitution of fees or charges of Professional Services rendered;

….

“Wrongful Act” means any actual or alleged negligent act, error, omission or breach of duty committed in the rendering of or failure to render Professional Services.

“Defence Costs” means that part of the Loss consisting of reasonable and necessary costs, charges and expenses … incurred in investigating, defending, appealing or monitoring legal actions, Claims, or proceedings respecting a Loss or possible Loss….

“Professional Services” means those services … performed or required to be performed by an Insured for or on behalf of a Customer or prospective Customer:

a. for a fee, commission or other monetary consideration;

b. where a fee, commission or other monetary consideration would usually be received by the Insured but for business or other reasons is waived by the Insured; or

c. for other remuneration which inures to the benefit of such Insured.

….

[16] With respect to defence costs, the contract provides as follows:

(a) It shall be the duty of the Insured and not the duty of the [Insurer] to defend any Claim made against the Insured.

…

(e) Any amount paid by the [Insurer] prior to final determination of the Loss shall be considered to be an advance only, any such amount which is subsequently determined as not being covered by this policy, shall be promptly repaid by the Insured on whose behalf it was advanced and the payment of any such amount is without prejudice to such subsequent determination.

…

[17] The policy contains a number of exclusions. Those relevant to this appeal are expressed as follows:

THIS POLICY DOES NOT APPLY TO:

…

(d) any Claim based upon or arising out of fraudulent, dishonest, criminal or other malicious Wrongful Acts of the Insured, where such act is established in fact however this exclusion shall not apply with respect to any Insured who is neither the author of said act nor an accomplice;

…

(r) any Claim based upon or arising from charges for services, including commissions and fees;

….

The Proceedings Below

[18] Coast Capital notified the respondents of the claim against it, and sought advances for “defence costs”. The insurer denied that the claim was one covered by the policy, relying primarily on exclusion clause (r), and saying that the claim was “based upon or arising from charges for services”.

[19] Coast Capital petitioned the court for a declaration that the insurer was obligated to indemnify it for defence costs. In response to the petition, the insurer made four arguments, quoted by the chambers judge at para. 27 of his judgment:

1. As a matter of common law, the claim is uninsurable for lack of “fortuity”; insurance does not respond to losses intentionally caused by the insured.

2. The claims in the class action do not trigger the insuring agreement in the policy because coverage is limited to claims in negligence… No such claim in negligence is asserted in the action and hence no insured “wrongful act” has occurred.

3. The “true nature” of the claim against Coast Capital is for a return of fees or charges by Coast Capital, something which is expressly excluded from the definition of “loss” (no “loss”, ergo no coverage); and

4. Even if the Insuring Agreement is triggered, the claim is in any event excluded from coverage by virtue of the “dishonest/criminal act” and the “charge/fee” exclusions.

[20] The judge summarized Coast Capital’s response as follows:

[28] Here, it is argued, the claims do not sound in intentional tort, nor are they limited to a return of fees or charges. Rather, the claim is for damages that are not necessarily dependent upon intentional harm by the insured, whether framed as an action in contract or under the legislation, and so both the requirements of any fortuity principle and the Insuring Agreement are met.

[29] Further, argues Coast Capital, the fee/charge exclusion is not applicable to a claim that is based essentially upon alleged misrepresentation or non-disclosure and, is in any event ambiguous in its application to the present circumstances such that it must be construed against the insurer and in favour of coverage in this case.

[21] Before analysing the arguments, the judge expressed some reservations about the application:

[8] [The] Policy provisions respecting the payment of defence costs might trigger a concern that the coverage enforcement petition brought in this case is premature; it is in effect a proceeding to compel the insurer to make “advances” on account of defence costs which, as the Policy states, would be “without prejudice” to any subsequent determination that any given claim may not actually be covered under the Policy.

[9] When the Court raised this issue with the parties, neither objected to the petition on grounds of prematurity. Both were content to have the Court determine at this time whether the claims presently framed in the class action against Coast Capital are of a sort for which the Policy provides coverage.

[22] In the circumstances, the judge was satisfied that he should proceed with the application.

[23] The judge rejected the insurer’s argument that a lack of “fortuity” or the absence of a “wrongful act” precluded the possibility of the claim being covered by the insurance policy. He did so because his view of the claim was that it might be established without showing that Coast Capital deliberately acted wrongfully:

[37] The fact that Coast Capital may have intentionally charged a fee that was misrepresented, unauthorized or not disclosed is not necessarily determinative of the insurer’s denial based on any lack of fortuity or failure to trigger the Insuring Agreement. I am inclined to agree with Liberty Mutual that the word “negligent” in the policy definition of “wrongful act” modifies all of the words that follow, i.e. “act, error, omission or breach of duty”. However, the word “negligent” may not refer to the tort but rather may simply be synonymous with neglectful, remiss, careless, irresponsible and/or thoughtless, i.e. an absence of any intent to wrongfully cause harm.

[38] Insofar as any cause of action under the BPCPA is concerned, it is noteworthy that in Findlay v. Couldwell (c.o.b. Beywood Motors) (1976), 69 D.L.R. (3d) 320 (B.C.S.C.), the court concluded with respect to its predecessor legislation:

… a deceptive act [within the meaning of the Act] does not necessarily involve deliberate intention to deceive. Deception need only have the capability of deceiving or misleading and it may be inadvertent yet still sufficient to [trigger consequences] under the statute … (para. 18).

…

[41] It may be that the evidence in the class action will ultimately substantiate intentional deception and/or intentional breach of contract but it is equally possible the outcome may be a finding of unintentional breach and unintentional deception. ….

[42] For these reasons, it cannot be said with any certainty that the class action claims against Coast Capital necessarily fail any “fortuity” requirement whether as a matter of common law or as embodied in the policy’s definition of “wrongful act”.

[24] The judge also rejected the argument that Coast Capital could not suffer a “loss” as a result of the litigation:

[43] Liberty Mutual’s argument that the true nature of the class action is for a return of fees and thus no “loss” as defined by the policy exists can also be dealt with summarily. It is true that the definition of “loss” expressly excludes any claim for the return of fees or charges. However, the definition expressly includes “damages, judgments, settlements, costs, and even punitive damages”. Judgment is being sought in the class action for both damages at large and punitive damages, among other things, on account of the claims made against Coast Capital. That, without more, is sufficient to meet the requirement of “loss” as defined in the policy.

[25] He then turned to an analysis of the exclusion clauses. He found that, at this stage of proceedings, it could not be said that the dishonest/criminal act exclusion was applicable:

[44] Liberty Mutual invokes the “dishonest acts” exclusion to deny coverage. It excludes “any Claim based upon or arising out of fraudulent, dishonest, criminal or other malicious Wrongful Acts of the Insured, where such act is established in fact …”

[45] It is too early to determine whether this exclusion has any application. Whether Coast Capital’s conduct that is the subject matter of the litigation was fraudulent, dishonest, criminal or malicious has yet to be determined. The exclusion can only be invoked after such a determination has been made. That has not yet occurred. The exclusion therefore does not apply, at least at the present time.

[Emphasis in original.]

[26] The judge did find, however, that the clause that excluded claims “based upon or arising from charges for services, including commissions and fees” applied, rejecting Coast Capital’s arguments to the contrary:

[55] Coast Capital argues that the class action is not based upon any charge or fee. Rather, it says the claim is based upon deceptive practices such as misrepresentation and non-disclosure. This distinction, it argues, means the exclusion has no application in the circumstances.

[56] Such a characterization of the claim amounts to dancing on the head of a pin. The suggested distinction is nothing but semantic gymnastics designed to circumvent the plain meaning of the phrase and the obvious intent of the policy.

[57] The levying of a (unauthorized and undisclosed) fee for ATM foreign exchange transactions is integral to every cause of action alleged against Coast Capital. If no fee was charged, no cause of action would exist. It is the very existence of the charge in the circumstances which gives rise to the claim. It is the basis of the claim in every sense of the word.

[58] In his Reasons for Judgment, Justice Masuhara observed that the charging of undisclosed surcharges by Coast Capital was “the essence of the action”. He was entirely correct in that description. In my view, the “charge/fee exclusion” is unambiguous and squarely applies to the entirety of the claim with the result that the policy does not extend coverage to Coast Capital in that regard.

[27] In the result, the judge dismissed the petition, finding that the insurance policy did not require Liberty Mutual to advance defence costs.

The Standard of Review on this Appeal

[28] The parties do not agree on whether deference is owed to the judge’s interpretation of the contract of insurance. The insurers, relying on Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, argue that contractual interpretation is generally a question of mixed fact and law, and that deference is, therefore, owed to the trial judge (Housen v. Nikolaisen, 2002 SCC 33). For its part, Coast Capital says that the interpretation of insurance contracts is an issue of law, and that appellate review, therefore, is on a standard of correctness. In support of this proposition, it cites Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37.

[29] In Ledcor, the majority of the Supreme Court of Canada carved out an exception to Sattva for “standard form” contracts. The majority reasoned that because standard form contracts are not negotiated on an individual basis, the factual matrix in an individual case will not, typically, be important to their interpretation:

[32] … [F]or standard form contracts, the surrounding circumstances generally play less of a role in the interpretation process, and where they are relevant, they tend not to be specific to the particular parties. Accordingly, the first reason given in Sattva for concluding that contractual interpretation is a question of mixed fact and law – the importance of the factual matrix – carries less weight in cases involving standard form contracts.

[30] The majority also noted the importance of precedent and consistency in interpreting standard form contracts, and held that such considerations justified treating the interpretation of standard form contracts as involving issues of law:

[46] Sattva should not be read as holding that contractual interpretation is always a question of mixed fact and law, and always owed deference on appeal. I would recognize an exception to Sattva’s holding on the standard of review of contractual interpretation. Where, like here, the appeal involves the interpretation of a standard form contract, the interpretation at issue is of precedential value, and there is no meaningful factual matrix specific to the particular parties to assist the interpretation process, this interpretation is better characterized as a question of law subject to correctness review.

[31] The parties to this appeal do not disagree on the legal principles that determine the standard of review. They accept that, in general, Sattva establishes that contractual interpretation is a question of mixed fact and law, on which a trial judge is accorded deference. They also agree that Ledcor creates an exception to Sattva for standard form contracts. They disagree, however, on whether the contract in issue in this case should be characterized as a “standard form contract”.

[32] While insurance contracts are typically drawn in standard forms, they need not be. In this case, the insurers say that it would be a mistake to presume that the contract in issue in this case is in a standard form. They emphasize the specialized nature of the insurance – the contract is specifically designed for insuring financial institutions. They also note that the premium paid for the policy is relatively high, suggesting that negotiation of the terms of the insurance policy would have been financially practical. They also point out that the jurisprudence does not reveal any cases in which contracts with identical language has been interpreted.

[33] For its part, Coast Capital notes that there is no evidence of actual negotiation of the terms of the contract, and that the form of the policy has every appearance of being a standard policy issued by the respondents.

[34] In my view, the position of Coast Capital on this issue should prevail. The contract is clearly based on a standard document of the insurer. While it is possible that some negotiation on the wording of specific clauses took place, there is no evidence of that happening. Neither side has presented any meaningful factual matrix that assists in interpreting the contract. In saying this, I do not ignore Liberty Mutual’s contention that the presence of endorsements that modify the policy is evidence of negotiations. While the contract does contain endorsements, there is no indication that the language of the endorsements is other than standard, or that the language or presence of endorsements was the subject of negotiations.

[35] I agree that, in the circumstances, the Court can infer that the insurance policy is in a standard form. In the result, I apply a “correctness” standard of review to the judge’s findings.

[36] I note, in any event, that the judge’s decision was based on his view that the “charge/fee exclusion” clause was free of any ambiguity, and that only a single interpretation of the contract was possible. In view of the nature of the judge’s reasoning, it is difficult to see that the standard of review can make a difference to the outcome of this appeal. If the contract is, indeed, unambiguous, the judge’s determination cannot be overturned. On the other hand, if there is a lack of clarity in the contractual language, it would seem that the judge’s conclusion that only one interpretation is possible would constitute a palpable and overriding error. In short, this is not a case in which much will turn on the standard of appellate review.

The Judge’s Approach to Contractual Interpretation

[37] In Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33 at paras. 26-28, Rothstein J., speaking for a unanimous Court, set out a general approach to interpreting a commercial general liability (“CGL”) insurance policy:

[26] … CGL insurance policies typically consist of several sections. The policy will set out the types of coverage contained in the agreement, for example, property damage caused by an accident.

[27] This is typically followed by specific exclusions to coverage. Exclusions do not create coverage – they preclude coverage when the claim otherwise falls within the initial grant of coverage. Exclusions, should, however, be read in light of the initial grant of coverage.

[28] A CGL policy may also contain exceptions to exclusions. Exceptions also do not create coverage – they bring an otherwise excluded claim back within coverage, where the claim fell within the initial grant of coverage in the first place. Because of this alternating structure of the CGL policy, it is generally advisable to interpret the policy in the order described above: coverage, exclusions and then exceptions.

[Citations omitted.]

[38] The insurance policy in issue in this case is a PLI policy rather than a CGL insurance policy. Nonetheless, it is common ground that the structure of the policy – coverage, then exclusions, then exceptions – mirrors that discussed in Progressive Homes. For the reasons Rothstein J. discussed in Progressive Homes, the “advisable approach” to interpretation of the policy in this case is to first examine the coverage provisions, then turn to the exclusions, and, if necessary, to exceptions.

[39] The judge, while recognizing the approach suggested in Progressive Homes, commenced his analysis as follows:

[35] In my opinion, notwithstanding the approach to interpretation suggested by Progressive … (coverage first, then exclusions, finally exceptions), the outcome of this case is dictated by the “charge/fee” exclusion which in my opinion is unambiguous and which squarely excludes coverage for the Finkel class action.

[40] Coast Capital argues that the judge’s approach resulted in a “fatally flawed analysis of the Policy.”

[41] In my opinion, the approach taken by the chambers judge was not inconsistent with Progressive. In analysing the various arguments put forward by the parties, the judge considered the coverage provisions in detail, and recognized that the exclusions had to be considered in light of the coverage provisions. While he did not expressly adopt a deliberate, step-by-step approach to interpretation, it is apparent to me that he adopted a methodology that was consistent with Progressive.

[42] I note in particular that, before analyzing the exclusion clauses, the judge considered the coverage clauses in the context of arguments concerning fortuity, “wrongful act”, and “loss”. The judge’s reasons indicate a clear understanding of the scope of coverage. There is nothing in the judgment to suggest that the judge forgot or ignored the coverage provisions when he came to examine the exclusion clauses.

Contractual Provisions Other than the Charges for Services Exclusion

[43] As they did before the chambers judge, both parties reject the proposition that this application is premature. I agree with that view. The insurance policy places a duty on the insurer to indemnify the insured for defence costs where a claim is within the policy’s coverage. The parties are entitled to know, at this stage, whether the insurers are required to make indemnity payments.

[44] The parties have advanced arguments on the question of whether the same standards that apply to “duty to defend” cases also apply to “duty to indemnify for defence costs” cases. It is clear that in “duty to defend” cases, the insurer must assume the defence if there is a “mere possibility” that a claim falls within the policy’s coverage, based on the “true nature of the claim” disclosed in the pleadings: Non-Marine Underwriters, Lloyd’s of London v. Scalera, 2000 SCC 24 at paras. 79-80; Progressive Homes at paras. 19-20.

[45] In my view, it is, at this juncture, not necessary to finally address the issue of whether the “duty to defend” jurisprudence is applicable to an insurance policy that contains only a “duty to indemnify for defence costs” provision. The insurance policy at issue in this case contains provisions entitling the insurer to reclaim amounts advanced for defence costs where a claim is found, in the final analysis, not to be within the policy’s coverage. Such a provision seems to contemplate that the insurer will provide indemnity payments, in the initial instance, whenever there is a possibility that the claim falls within the coverage. Thus, whatever might be the case in respect of the final accounting between the insurer and the insured, in the initial stages, the contract contemplates an advance of defence costs whenever there is a possibility that the claim falls within the coverage.

[46] Turning to the substantive issues, I agree with the judge’s view that a claim under the Business Practices and Consumer Protection Act can result from a negligent act or practice that is unintentionally deceptive. Accordingly, such a claim may fall within insurance coverage – such coverage does not violate the “fortuity principle”, nor is it clear the claim cannot be for a “wrongful act” as that phrase is defined in the contract. While I do not necessarily endorse the judge’s conclusion that the claim sounding in breach of contract might also fall within the coverage clause, it is not necessary to fully analyse that question.

[47] I also agree with the judge’s conclusion that the definition of “loss” in the policy is sufficiently broad that it covers at least some of the financial burden that the claims may place on Coast Capital – in particular, any judgment for costs or punitive damages, as well as amounts expended on defence costs, would constitute “loss” as that term is defined in the policy.

[48] The judge’s interpretation of the “dishonest acts” exclusion is also correct. Unless and until there is a determination that Coast Capital acted in a fraudulent, dishonest, criminal or malicious manner, the exclusion is not applicable.

[49] The real question on this appeal, then, is whether the judge erred in finding that the exclusion of claims “based upon or arising from charges for services, including commissions and fees” applies in this case.

The Charges for Service Exclusion

[50] I turn, then, to that exclusion. The general principles of construction applicable to insurance contracts are well-established. In Sabean v. Portage La Prairie Mutual Insurance Co., 2017 SCC 7, the Court summarized the principles as follows:

[12] In Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, this Court confirmed the principles of contract interpretation applicable to standard form insurance contracts. The overriding principle is that where the language of the disputed clause is unambiguous, reading the contract as a whole, effect should be given to that clear language: Ledcor, at para. 49; Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 S.C.R. 245, at para. 22; Non-Marine Underwriters, Lloyd’s of London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551, at para. 71. Only where the disputed language in the policy is found to be ambiguous, should general rules of contract construction be employed to resolve that ambiguity: Ledcor, at para. 50. Finally, if these general rules of construction fail to resolve the ambiguity, courts will construe the contract contra proferentem, and interpret coverage provisions broadly and exclusion clauses narrowly: Ledcor, at para. 51.

[13] At the first step of the analysis for standard form contracts of insurance, the words used must be given their ordinary meaning, “as they would be understood by the average person applying for insurance, and not as they might be perceived by persons versed in the niceties of insurance law”: Co-operators Life Insurance Co. v. Gibbens, 2009 SCC 59, [2009] 3 S.C.R. 605, at para. 21; see also Ledcor, at para. 27.

[51] As I have indicated, the insurance policy in issue in this case appears to be a standard form contract. The approach outlined in Sabean is, therefore, the appropriate one.

[52] The exclusion in this case is clearly worded. It excludes coverage for claims “based upon or arising from charges for services” (emphasis added). Clearly, the words “based upon or arising from” connote a strong connection between the claim and the basis for exclusion. Causation is essential to that connection.

[53] As Coast Capital points out, while most of the exclusions in the policy use the words “based upon or arising from”, some use words connoting a weaker or less direct connection. There are, for example, exclusion clauses in the policy that use the words “based upon, arising out of, [or] relating to”, “arising out of or in connection with” and “based upon, arising from or in any way related to”. Given the language used for the charges for services exclusion, a claim will not be excluded from coverage simply because it has some relation or connection with charges for services. In order for the exclusion clause to be applicable, charges for services must lie at the foundation of the claim, and not simply be ancillary to or coincidental with it.

[54] It is self-evident that charges for services lie at the foundation of the breach of contract claim. That claim is about nothing other than the charges for services that Coast Capital imposes or passes on for currency exchange transactions.

[55] Coast Capital argues that the claims under the Business Practices and Consumer Protection Act are “based upon and arise out of” alleged misrepresentations or deceptive statements, rather than charges for services. They say that “based upon and arising out of” requires causation to be direct, and that, in this case, the intervening factor of an alleged deceptive business practice prevents the requisite causation from being present.

[56] I am not persuaded that Coast Capital is correct in this regard. The fact that misrepresentations or deceptive practices are alleged does not diminish the connection between the claim and the charges for services. Charges for services remain at the foundation of the claim: the “deceptive” practices are deceptive only as a result of the charges that are made for services, and “misrepresentations” are misrepresentative only because they are not congruent with the charges that are imposed.

[57] In my view, then, misrepresentations or deceptive practices are not intervening factors that break the chain of causation between the claim and charges for services.

[58] Coast Capital contends, however, that even if charges for services form an essential element of the claim, the exclusion clause will not be effective to preclude coverage where another element (here the absence of proper disclosure) was also essential. In support of this proposition, it cites Derksen v. 539938 Ontario Ltd., 2001 SCC 72.

[59] In Derksen, a contractor was involved in laying cable. In the course of cleaning up the construction site, the contractor’s foreman placed the steel baseplate of a construction sign on a tow bar that connected a compressor unit to the truck. He intended to leave the baseplate there only briefly, and to properly stow it before leaving the site. Unfortunately, he forgot to do so. He then drove the truck down the highway. The unsecured baseplate flew off the tow bar, and crashed through the windshield of an oncoming school bus, killing a child and injuring others.

[60] The contractor had a CGL policy that excluded coverage for bodily injury or property damage “arising out of the ownership, use or operation” of a motor vehicle. The insured contended that the injuries arose out of the improper placement of the baseplate on the tow bar rather than from the use or operation of the motor vehicle.

[61] The Supreme Court of Canada considered that, in order to bring the loss within the exclusion clause, the insurer would have to establish either that the contractor “used” the motor vehicle by loading the sign onto it, or that the driving of the vehicle was the proximate cause of the accident.

[62] The Court accepted the findings of the trial judge that the contractor had not loaded the sign base on the tow bar; rather, he had simply set it down, intending to leave it on the tow bar only momentarily. That act did not constitute “use” of the motor vehicle.

[63] With respect to the question of whether the accident “arose out of” the operation of the vehicle, the Court said:

[30] … [T]he appellants claimed that the single dominant cause of the loss was driving the vehicle with an insecure load. … Simply put, the basis of this argument is that but for the driving of the vehicle, the accident would not have occurred, therefore driving was the dominant cause.

[31] However, it is equally true that the accident would not have happened had there been no negligence during the clean up of the work site. In these circumstances, … driving with an insecure load was the result of the two independent and concurrent acts of negligence ….

[Emphasis in original.]

[64] In light of the concurrent causes of the injuries, the Court was called upon to construe the breadth of the exclusion clause. It held that it did not serve to oust coverage:

[55] In the circumstances of this case, the loss arose partly from the use or operation of the automobile. Consequently, [the exclusion clause] is triggered. However, the excluded use or operation of an automobile was not the only contributing cause. The failure to properly clean up the work site was a concurrent cause and a risk that was covered by the CGL policy. It follows that the exclusion clause is in play but only in respect to that portion of the loss that is attributable to the auto-related cause. This conclusion is consistent with the rule of construction that exclusion clauses are to be construed narrowly and the contra proferentem rule. It is also consistent with the earlier conclusion that if an insurer wishes to exclude coverage where the loss is concurrently caused by a covered peril and an excluded peril, the insurer must expressly state it.

[65] It is important to recognize that Derksen does not stand for the proposition that merely showing that a loss is the result of concurrent causes will deprive an exclusion clause of force. The important factor in Derksen was that the concurrent cause that was not excluded from coverage (the negligent clean-up of the construction site) was independent of the concurrent cause that was excluded (operation of the motor vehicle). Where two concurrent causes are closely intertwined, an exclusion clause applicable to one will also serve to exclude liability under the other.

[66] The result in Derksen would have been different if the two concurrent causes of the injury had been interdependent. For example, if the Court had accepted the allegation that the contractor had deliberately loaded the baseplate onto the truck, the concurrent causes of the accident (negligent clean-up of the construction site and negligent loading of the motor vehicle) would have been intimately connected. In the result, the concurrent cause of the damage that was not excluded from coverage (negligent clean-up of the construction site) would not have been independent of the concurrent cause that was excluded (negligent loading of the vehicle). In the result, the exclusion clause would have been applicable.

[67] GCAN Insurance Company c. Univar Canada Ltd., 2016 QCCA 500 is an example of a case in which concurrent causes of injury were so intertwined that an exclusion clause extending to one of the causes was held to also exclude liability for the other. In GCAN, a chemical supplier sold feed grade copper sulphate to a customer, knowing that it was to be used as a supplement in animal food. Feed grade copper sulphate must be free of dioxins, furans, and dioxin-like polychlorinated biphenyls (PCBs). In response to inquiries from the customer, the supplier assured it that the product was free of prohibited contaminants. Later, it arranged for a sample of the product to be tested by an independent laboratory, and had the results (which confirmed that the product was uncontaminated) sent to the customer.

[68] In fact, the product sold by the supplier was not feed grade. It was contaminated. It appears that the sample sent for testing was not, in fact, from the product that was delivered to the customer.

[69] The supplier had a CGL insurance policy issued by GCAN, and looked to GCAN for indemnity. GCAN denied coverage, relying on a clause in the policy that excluded coverage in cases of “products hazard”, which was defined as including “property damages arising out of the … Insured’s products”. The clause was acknowledged to exclude coverage for the supply of a contaminated product.

[70] Relying on Derksen, the plaintiff argued that the supplier’s negligent misrepresentations constituted concurrent causes of the loss, and that they fell outside of the exclusion clause. The Quebec Court of Appeal disagreed:

[60] In my view, there is no need for the exclusion to mention representations or warranties as to the quality of the products, for these to be captured by the “products hazard” exclusion. Any product sold by a manufacturer or a distributor … must be free of any defect which renders it unfit for the use for which it was intended and, if it is not so, the liability of the manufacturer or distributor is engaged whether explicit representations as to the quality (or fitness) of the product were made or not. The representations made by a manufacturer or a distributor as to the quality of its products, whether implied or explicit, at the request of the customer or not, are intimately related to, or inextricably intertwined with, the product. It would therefore be wrong to conclude that, should they be inaccurate, misleading or incomplete, they would constitute a source of liability different and separate from that of selling or distributing a defective product itself.

[61] If the product is defective, these representations and warranties cannot be a source of liability different and separate from that of having sold the product. If they were, the “products hazard” exclusion would have no meaning as one could always argue that there were representations made or warranties provided by the manufacturer, seller or distributor, implied or explicit, as to the quality or fitness of the product. The insured could benefit from the “products hazard” liability coverage without incurring the very substantial additional cost of purchasing such coverage. In my opinion, the misrepresentation cause of action is subsumed within and is entirely derivative of the defective product cause of action and thus caught by the “products hazard” exclusion.

[71] Coast Capital contends that GCAN is not relevant because, it says, it was decided under the Quebec Civil Code. Coast Capital is in error. The Quebec courts applied certain provisions of the Civil Code to the proceedings (particularly article 2501, which allows an aggrieved party to sue the insurer of a party along with, or instead of, the insured). The policy itself, however, was interpreted according to the law of British Columbia, where it was subscribed for and delivered (see the trial judgment, Univar Canada Ltd. c. Aslchem international inc., 2014 QCCS 401, at para. 30, and the appeal judgment at paras. 23 and 39).

[72] Coast Capital also seeks to distinguish GCAN on other bases. I acknowledge that aspects of sale of goods law are important to the GCAN decision, and that, in any event, it is not binding on this Court. In my view, however, GCAN is consistent with Derksen, and illustrates the limits of that decision. I note, as well, a similar analysis by the Ontario Court of Appeal in Unger v. Unger (2003), 234 D.L.R. (4th) 119.

[73] In the case before us, although deceptive business practices or misrepresentations are not per se excluded from coverage, where those deceptive practices or misrepresentations “arise out of” charges for service, they cannot be said to constitute concurrent independent causes of a loss.

The intimate causal connection between the alleged deceptive business practices and charges for service results in the exclusion clause being effective to exclude coverage in this case.Conclusion

[74] The chambers judge did not err in finding that the charges for service exclusion was applicable to the claims, and that it excluded coverage. Accordingly, I would dismiss the appeal.

“The Honourable Mr. Justice Groberman”

I AGREE:

“The Honourable Mr. Justice Tysoe”

I AGREE:

“The Honourable Madam Justice Dickson”