2005 BCSC 95 Swiss Reinsurance Company v. Camarin Limited et al

Before: The Honourable Mr. Justice Melnick

Reasons for Judgment

Counsel for plaintiff	S.P. Strukoff
Counsel for defendants and third party	E.J. Adair and H.W. Veenstra
Date and Place of Hearing:	November 30 and December 1, 2004
	Vancouver, B.C.

[1] The defendant, Camarin Limited (“Camarin”), is applying for an order that portions of the amended statement of claim of the plaintiff, Swiss Reinsurance Company (“Swiss Re”), be struck out or, alternatively, that Swiss Re deliver further and better particulars of its allegations. Camarin also seeks to strike out the entire statement of defence of Swiss Re to its counterclaim.

[2] The defendant, Weyerhaeuser Company Limited (“WCL”), is applying for orders striking out certain parts of the amended statement of claim of Swiss Re and the whole of the third party notice filed by Swiss Re against WCL; and an order requiring Swiss Re to deliver further and better particulars of its allegations against WCL in its amended claim.

[3] Swiss Re is applying to compel both defendants to deliver lists of documents.

I. BACKGROUND

[4] WCL was insured by American Home Assurance Company (“American Home”) under certain excess umbrella CGL insurance policies. Camarin reinsured part of the liability of American Home to WCL. Camarin is indirectly wholly owned by WCL and apparently provides insurance only as required by WCL. In turn, Swiss Re reinsured all of Camarin’s exposure under its policies issued to American Home.

[5] In this action, Swiss Re is seeking a declaration that the reinsurance policies which it issued to Camarin are void on the grounds of alleged non-disclosure or misrepresentation of material facts. Among other things, Swiss Re alleges that Camarin and WCL made negligent or fraudulent misrepresentations in connection with the placement of the reinsurance. Swiss Re is claiming against Camarin on the basis of contract and against WCL on the basis of tort.

II. DISCUSSION

A. Application by Camarin and WCL to strike out portions of the amended claim

[6] Rule 19(24) of the Supreme Court Rules, B.C. Reg. 221/90 (“Rules of Court”) provides that:

At any stage of a proceeding the court may order to be struck out or amended the whole or any part of an endorsement, pleading, petition or other document on the ground that

(a) it discloses no reasonable claim or defence as the case may be,

(b) it is unnecessary, scandalous, frivolous or vexatious,

(d) it is otherwise an abuse of the process of the court,

and the court may grant judgment or order the proceedings to be stayed or dismissed and may order the costs of the application to be paid as special costs.

[7] To succeed on an application under Rule 19(24), the defendant must show that it is “plain and obvious” that the pleadings offend any one of the subrules in Rule 19(24). For the purposes of determining whether the pleadings disclose a reasonable claim, the facts pleaded are assumed to be true.

[8] Assuming that the facts are true as claimed, Swiss Re has a reasonable cause of action in law against Camarin on the basis of contractual misrepresentation or fraud. Likewise, assuming the facts are true, Swiss Re’s claim against WCL as a defendant for the tort of negligent misrepresentation is a reasonable cause of action in law. Although it may be unlikely that WCL owed Swiss Re a duty of care in tort due to a lack of proximity, it is still a question that should be left for trial. Subject to the following exceptions, it is not “plain and obvious” that Swiss Re’s claims against the defendants offend any of the subrules in Rule 19(24).

[9] The expressions “the above representations” in paragraph 26 of the amended claim and “the above statements” in paragraph 27 of the amended claim are unacceptably vague. The representations and statements should be specifically identified. Swiss Re has leave to further amend its pleadings by providing better references for the words in question.

[10] Counsel for Swiss Re indicated on this application that Swiss Re will seek to further amend its statement of claim by deleting many of the portions complained of by the defendants. Counsel for the defendants questioned whether counsel for Swiss Re had Swiss Re’s instructions to seek to file that document. For the purposes of these reasons, I assume that counsel for Swiss Re has those instructions, or can obtain those instructions, and will forthwith apply to file the further amended statement of claim. As I was not provided with a copy of the proposed changes, I cannot rule on them.

[11] I would therefore dismiss the defendants’ applications to strike portions of the amended claim of Swiss Re. However, as noted above, I am making this order on the assumption that Swiss Re will file its further amended statement of claim.

[12] Camarin’s application to strike out the entire statement of defence to its counterclaim is also dismissed. Camarin’s counterclaim is essentially a claim against Swiss Re in the event that Swiss Re’s claim is dismissed at trial. Thus, Swiss Re’s statement of defence to this counterclaim relies on its statement of claim and this is a reasonable defence in the circumstances.

B. Application by Camarin and WCL to deliver further particulars

[13] Under Rule 19(16) of the Rules of Court, the court may order a party to deliver further and better particulars of a matter stated in a pleading. An order under this rule is discretionary. The court must decide if particulars already given are sufficient; if further particulars should be delivered now; or if particulars should be delivered following discovery (Cominco v. Westinghouse (No. 1) (1978), 6 B.C.L.R. 25 at 29 (S.C.)).

[14] Particularly, where the party is alleging misrepresentation or fraud, full particulars, with dates and items where applicable, shall be stated in the pleadings (Rule 19(11)). The defendants rely on this rule in asking for specific dates and circumstances in which the alleged misrepresentation or fraud occurred.

[15] However, Rule 19(11.1) states that particulars need only be pleaded to the extent that they are known at the date of pleading, but further particulars may be delivered after they become known. Where full particulars can only be determined through the discovery process because the particulars are within the exclusive knowledge of the defendants, it is sufficient that only some particulars be plead, so long as those particulars satisfy the basic function of particulars. This principle has been applied in cases where a plaintiff’s claim alleges misrepresentation or fraud. In Kowalewski v. Investors Group Financial Services Inc., 2001 BCSC 300, the plaintiff filed a statement of claim which claimed investment losses arising from negligent non-disclosure by the defendant brokerage firm. In dismissing the defendant’s application for further particulars, the court stated at para. 12:

Because this is largely a case of “failure to disclose” on behalf of Investors, I am satisfied that the plaintiffs do not have complete knowledge of the evidence to support each and every one of their allegations contained in the Statement of Claim at this time…. In some cases the material may reveal a basis for the plaintiff’s general allegation and the particulars sought are exclusively or almost exclusively within the knowledge of the defendant and not within the knowledge of the plaintiff. In these instances the law gives the court a discretion in postponing an order for delivery of particulars by the plaintiff until after his discovery of the defendant.

[16] In paragraph 25 of the amended claim, Swiss Re claims that WCL knowingly misled Swiss Re. If Swiss Re was, in fact, misled, it should presently have within its own knowledge which act or statement misled it. Those acts or statements should be particularized. However, given the unusual circumstances of this case, it may be that other particulars sought by the defendants were almost exclusively within the knowledge of the defendants. Therefore, other than the particulars referred to above, Swiss Re is not required to deliver further particulars until after it has had the opportunity to obtain discovery of documents and conduct an examination for discovery.

C. Application of Swiss Re for discovery of documents

[17] As noted above, it is likely that certain particulars which Swiss Re should have in its amended claim are within the exclusive knowledge of the defendants. Therefore, after Swiss Re provides the particulars I have ordered it to provide above, pursuant to Rule 26(10) the defendants should provide lists of documents to Swiss Re in accordance with its demands. If any such documents are of a sensitive nature so that their production should have attached thereto conditions of confidentiality, counsel may include such conditions in the order. Liberty to apply if the parties cannot agree upon such conditions, if required.

D. Application of WCL to strike out Swiss Re’s third party notice

[18] From its position as the defendant in a counterclaim brought against it by Camarin, Swiss Re has filed a third party notice against WCL. In its counterclaim, Camarin is claiming over against Swiss Re for indemnification or contribution in the event that it becomes liable to pay out under its reinsurance policies. Swiss Re names WCL in its third party notice on the basis that WCL made negligent or fraudulent misrepresentations to Camarin who in turn made these misrepresentations to Swiss Re. Swiss Re claims that it relied upon these misrepresentations to its detriment when it issued reinsurance policies to Camarin.

[19] Swiss Re’s liability to Camarin in relation to any particular reinsurance policy is consistent only with Camarin fulfilling its duty of utmost good faith under that contract, and Camarin being entitled to indemnification in accordance with the terms of the reinsurance policy. Swiss Re’s liability to Camarin with respect to any particular reinsurance policy therefore requires the absence of any grounds upon which Swiss Re is entitled to rescission of the reinsurance policy.

[20] Camarin and WCL submit that Swiss Re’s third party notice is not an alternative claim, but rather an inconsistent claim. That is, Swiss Re is claiming that, on the one hand, Camarin fully disclosed and did not misrepresent material facts sufficient to prove rescission, while at the same time, assuming that WCL, which is alleged to be the source and controller of the information that Camarin is providing to Swiss Re, is misrepresenting those very same facts. It thus appears as though Swiss Re is relying on the representations of both before it makes its decision whether or not to issue a reinsurance policy.

[21] A representation or statement of fact cannot be true if made by Camarin, but false if made by WCL. If WCL misrepresented a material fact which was in turn represented to Swiss Re by Camarin, then that same fact could not have been the true fact. Since even innocently failing to disclose material facts is sufficient to void an insurance policy, Swiss Re would not have any liability to Camarin and would be entitled to a declaration that the reinsurance policy is void. Alternatively, if Camarin represented the true facts, Swiss Re would not be entitled to void the reinsurance policy and thus there would be no possibility of any conduct of WCL affecting Swiss Re’s liability in any way. In such circumstances, WCL’s conduct is irrelevant to Swiss Re’s liability.

[22] If facts are misrepresented by an insured and they are material, then a reinsurance policy will be void. If facts are not misrepresented and they are not material to the risk then a reinsurance policy will not be void. The law does not contemplate a result in which facts material to the risk are misrepresented by an insured where the insured had a duty to do so, but the insurer is nevertheless liable on the policy. However, the latter is the circumstance which is contemplated in Swiss Re’s third party claim against WCL. As such, the claim is bound to fail. I therefore would strike out Swiss Re’s third party notice in accordance with Rule 19(24)(a).

[23] Furthermore, a third party claim cannot be maintained with respect to an obligation belonging to a plaintiff which a defendant can raise directly against the plaintiff (Adams v. Thompson, Berwick Pratt and Partners (1987), 39 D.L.R. (4^th) 314 (B.C.C.A.). Here, the defendant by counterclaim (Swiss Re) seeks to raise against WCL a matter of material non-disclosure which it has already raised by way of defence against the plaintiff by counterclaim. Such a pleading by way of a third party notice is bound to fail and must be struck out in accordance with Rule 19(24)(a).

[24] Finally, although it is not necessary to my decision to strike Swiss Re’s third party notice, I observe that there may be a fundamental problem with Swiss Re’s third party claim against WCL in that there is arguably no right of indemnity in law as between Camarin and WCL. An insurer’s right of subrogation is derivative. If the insured (Camarin) does not have an enforceable right against WCL, then neither does the insurer (Swiss Re). In the present case, Camarin arguably has no enforceable right against WCL because Camarin is indirectly a wholly owned subsidiary of WCL. If Camarin sought indemnity from WCL for misrepresentation, it would essentially be seeking to recover from itself (see Simpson v. Thompson (1877), 3 App. Cas. 279 (Scotland H.L.).

III. SUMMARY OF CONCLUSIONS

[25] Camarin’s and WCL’s applications to strike out portions of Swiss Re’s amended statement of claim are dismissed with liberty to Swiss Re to further amend its claim as noted.

[26] Camarin’s application to strike out Swiss Re’s statement of defence to its counterclaim is dismissed.

[27] Swiss Re must provide particulars to Camarin and WCL of how WCL misled Swiss Re with respect to each reinsurance policy. Otherwise particulars need not be provided until after counsel for Swiss Re have obtained discovery of documents and conducted examinations for discovery of representatives of each of Camarin and Swiss Re.

[28] The third party claim of Swiss Re against WCL is struck out in its entirety.

IV. COSTS

[29] Counsel may make submissions on costs at a time to be arranged or, if more convenient, in writing.

“T.J. Melnick, J.”
The Honourable Mr. Justice T.J. Melnick

Citation:	*Swiss Reinsurance Company v. Camarin Limited et al*,
	2005 BCSC 95