COURT OF APPEAL FOR BRITISH COLUMBIA

Citation:	Agresso Corporation v. Temple Insurance Company,
	2007 BCCA 559

Date: 20071121

Docket: CA034773

Between:

Agresso Corporation

Appellant

(Plaintiff)

And

Temple Insurance Company, Continental

Casualty Company and Certain Underwriters at Lloyd’s Under

Contract No. Enc1-10

Respondents

(Defendants)

Before:	The Honourable Chief Justice Finch
	The Honourable Madam Justice Ryan
	The Honourable Mr. Justice Donald

 

E. Drown	Counsel for the Appellant
J. R. Singleton, Q.C.	Counsel for the Respondents
Place and Date of Hearing:	Victoria, British Columbia
November 1, 2007
Place and Date of Judgment:	Vancouver, British Columbia
November 21, 2007

 

Written Reasons by:

The Honourable Chief Justice Finch

Concurred in by:

The Honourable Madam Justice Ryan The Honourable Mr. Justice Donald

Reasons for Judgment of the Honourable Chief Justice Finch:

I.

[1]                The plaintiff appeals from the judgment of the Supreme Court of British Columbia on 5 January 2007 dismissing its application for a declaration that the defendants were obliged, under a policy of insurance, to defend it in an action brought in the Ontario Superior Court by Sault College of Applied Arts and Technology (“the Sault College Action”).  The learned trial judge held that the insurance policy was void (para. 67) because in its application for the insurance, the plaintiff failed to disclose information that was material to the contract.

[2]                For the reasons that follow, which differ in some respects from those of the learned trial judge, I would dismiss the appeal. 

II.

[3]                The facts as found by the learned trial judge are as follows:

[2]        The plaintiff, Agresso Corporation, designs, installs and maintains computer software systems.

[3]        In September and October 2000, Agresso entered software licence, implementation and maintenance agreements with Sault College of Applied Arts and Technology (“Sault College”) for an academic management information system, using software developed by Agresso known as Agresso InTuition.  The maintenance agreement was to continue until September 24, 2005, or when cancelled by one of the parties.

[4]        On January 14, 2002, Agresso applied for Information Technology Errors and Omissions insurance from the defendants.  A policy was issued for the period from February 28, 2002 to February 28, 2003.  Under the policy, Agresso was insured for “wrongful acts” that occurred within the policy period.

[5]        Agresso considered the implementation agreement with Sault College to be successfully completed by May 30, 2002.  However, there were on-going problems with the implementation.  Agresso continued to work with Sault College to solve these problems.  By January 20, 2003, Agresso was aware that Sault College was not satisfied with its progress on solving a major problem and believed that Agresso was not able to solve it.  Agresso was considering a change to its support mechanism in order to address the core issue.

[4]                The date of 20 January 2003 is significant.  On that day, the plaintiff’s project manager, Ron van der Wees, sent an e-mail message to Andrew Clark, the Vice-President, reviewing the history of the plaintiff’s dealings with Sault College.  In the e-mail, “Jim” is Jim Erb, the Registrar of Sault College.  The e-mail reads in part as follows:

Just got off the phone with Jim after a very candid exchange of ideas.  Jim, on behalf of the college, strongly expressed their dissatisfaction with the rate of progress on solving the whole issue of students accounts receivable.  It is their belief at this point that we are unable to solve the issue.

Jim expressed many of the same ideas that we are accustomed to (i.e. no resolution to outstanding items, no partnership, lengthy implementation, poor support) including the long held belief that we don’t know how to support them.

I believe however that we may well have identified the need to change the mechanism by which the college’s issues are resolved and it stems from their viewpoint that we did not implement the product to their satisfaction.  Whether we agree to that statement or not, Jim’s viewpoint does identify that our support mechanism may not be the method by which we solve their problem(s).  The college is not asking for anything in particular from us other than to be able to deal with someone who nows (sic) what there (sic) are doing and can solve the problem.  Whether this comes in the form of on-site assistance (at our expense of course) or via webex or some other means, they don’t care……let’s just get it done is the message they are delivering.

If we continue to use the support mechanism, we may potentially never deal with the core issue (see below).  The support mechanism by its nature only reacts to a specific complaint from the client (as logged through ServiceWise).  In Sault College’s case, I believe (like Jim) that there may well be an underlying implementation issue that should have focussed on a particular process (like student AR).  If we can find a way internally to provide a process based solution (perhaps via a BA session of some kind), then we may be on the right road, but we may want to talk about how this can happen.

Using a process based description, there is only one real issue to deal with: students account receivable is not achieving the results required.

[5]                The trial judge’s reasons continue:

[6]        On February 21, 2003, Agresso applied for a second policy.  It did not disclose to the defendants that there was a potential claim from Sault College.  The defendants issued a new policy on the same terms as the first one, for a policy period from March 28, 2003 to March 28, 2004, and a retroactive date of February 28, 2002.

[7]        In April 2003, Sault College abandoned the Agresso contract.  On June 30, 2003, counsel for Sault College wrote to Agresso advising that his firm had been retained to initiate legal proceedings “for losses sustained as a consequence of the failed implementation” of the InTuition software, and inquiring whether Agresso was interested in resolving the matter by meeting with Sault College on a “without prejudice” basis.

[8]        Following this, Agresso and Sault College were communicating about various issues through their respective counsel.  On January 20, 2004, Agresso notified the defendants of a potential claim and a voluntary mediation with Sault College.  On February 10, 2004, the defendants advised Agresso that there was no coverage due to non-disclosure of this potential claim in the application form of February 21, 2003.

[9]        On July 28, 2004, Sault College commenced an action against Agresso in the Ontario Superior Court for misrepresentation and breach of contract (the “Sault College Action”).  Agresso notified the insurers of this claim on August 12, 2004.  On August 25, 2004, the insurers denied coverage.  Agresso then filed a statement of defence in the Sault College Action, and commenced this action, seeking a declaration that the insurers are obliged to defend and indemnify it under the contracts of insurance.

[10]      In this motion, Agresso seeks only a declaration that the defendants have a duty to defend it in the Sault College Action.

[6]                Several issues were raised at trial.  The essential issue on appeal is whether the trial judge erred in finding that the plaintiff failed in its application to disclose information that was material to the insurance contract.

III. 

[7]                In the application for insurance completed on 21 February 2003, the Chief Financial Officer for the plaintiff declared that information contained in the application was true and correct (reasons para. 14).

[8]                The application included these questions:

42.       Please attach a list and status of all claims, disputes, suits or allegations of non-performance made during the past five years against the Applicant or any director, officer, employee or partner of the Applicant.

43.       Is the Applicant or any of his/her employees aware of any facts, circumstances or situations which may reasonably give rise to a claim other than as advised above?

[9]                This part of the application included the following exclusion:

Without limitation of any other remedy available to the insurer, it is agreed that if there be knowledge of any such fact, circumstance or situation, any claim or action subsequently emanating therefrom is excluded from coverage under the proposed insurance.

[10]            The plaintiff answered in the negative to both questions 42 and 43.

[11]            The learned trial judge correctly stated the law as to material non-disclosure in an application for insurance.  She held that the insurer had the onus of proving both the failure to disclose and that the non-disclosed information was material (para. 51).  She held that only a material non-disclosure would render an insurance contract void (or voidable).  She held that materiality was a question of fact to be determined on an objective standard (paras. 50 and 51).

[12]            After referring to various authorities, including Sayle v. Jevco Insurance Co. (1984), 58 B.C.L.R. 122 (S.C.) and Surrey (District) v. General Accident Assurance Co. of Canada (1994), 92 B.C.L.R. (2d) 115 (S.C.), aff’d (1996), 19 B.C.L.R. (3d) 186 (C.A.), the learned trial judge said this with respect to the plaintiff’s answers to questions 42 and 43:

[67]      The questions regarding potential claims in Sayle and Surrey were quite similar to question 43 in the application at issue here.  I am satisfied that a reasonable person in Agresso’s position at the time the application for insurance was made would have been of the opinion that the circumstances indicated that there was a reasonable likelihood that a claim would be made against it by Sault College.  I am also satisfied that if the defendants had been informed of the situation with Sault College, they would have acted differently by refusing to accept the risk or imposing special conditions.  Accordingly, the defendants have established that Agresso failed to disclose information that was material to the contract.  Under the terms of the policy, any claim emanating from this is excluded from coverage, and under s. 13 of the Insurance Act, the insurance contract is void.

[68]      I will add that I do not consider Agresso’s answer to question 42 of the application to be inaccurate.  That question required Agresso to attach a list of all “claims, disputes, suits or allegations of non-performance made during the past five years”.  The phrase “allegations of non-performance” is in itself very broad and quite ambiguous.  Given that this phrase follows the words “claims”, “disputes” and “suits”, and given that question 43 asks about “circumstances or situations which may reasonably give rise to a claim other than as advised above”, I would interpret this narrowly to require some sort of active legal matter that is capable of being put in a list.  As McLachlin J. said in Sayle, an applicant is not obliged to inform an insurer of every complaint or suggestion of incompetence.  Given its ambiguity, any other interpretation would not promote the intention of the parties and in my opinion, would bring about an unreasonable or unfair result.

[13]            I respectfully agree with the learned trial judge’s opinion concerning the plaintiff’s answer to question 43.  However, in my respectful view, the plaintiff’s answer to question 42 is equally inaccurate.

[14]            The plaintiff knew, almost from the outset of its contract with Sault College in 2000, that Sault College had complaints that there were deficiencies in the system provided, and that the system was not functioning as intended.  The plaintiff’s internal e-mail of 20 January 2003 demonstrates that some of the specific issues had remained unresolved into 2003.

[15]            Based on the e-mail of 20 January 2003, the plaintiff states that a reasonable person in its position, while knowing that Sault College was very upset with the plaintiff, would have believed that the complaints of Sault College could be rectified by revision of the support mechanism used with Sault College, without a claim being made.  As a result, the plaintiff states that the trial judge erred when she found that the plaintiff withheld material information in its answer to question 43.  According to the plaintiff, at the time the application for insurance was made, a reasonable person in its position would have believed that there was no reasonable likelihood that a claim would be made against them.

[16]            With respect, this submission does not provide an answer to the clear language used in questions 42 and 43.  On the facts as pleaded in Sault College’s statement of claim, and on the other evidence before the learned trial judge, there was ample evidence that the plaintiff had knowledge of a “dispute” and of “allegations of non-performance” in the preceding two years arising from its contract with Sault College.  The same “fact, circumstance or situation” that required an affirmative answer to question 43, similarly required an affirmative answer to question 42. 

[17]            Counsel for the insurer submitted, in addition to the defence of material non-disclosure, that Sault College’s claims were in any event excluded from coverage by virtue of a “prior acts” exclusion in the policy.  I do not consider it necessary to decide this point, or the applicability of the other exclusions relied upon in the respondents’ factum.

[18]            In my opinion the appeal should be dismissed for the reasons that there was a non-disclosure of material information provided by the plaintiff’s negative answers to both questions 42 and 43 in the application for insurance.

[19]            I would dismiss the appeal.

“The Honourable Chief Justice Finch”

I agree:

“The Honourable Madam Justice Ryan”

I agree:

“The Honourable Mr. Justice Donald”