Date: 19971028 Docket: CA021807 Registry: Vancouver COURT OF APPEAL FOR BRITISH COLUMBIA ORAL REASONS FOR JUDGMENT: Before: The Honourable Madam Justice Southin October 28, 1997 The Honourable Mr. Justice Hinds The Honourable Mr. Justice Hollinrake Vancouver, B.C. BETWEEN: GEORGE E. PERCY PLAINTIFF AND: WEST BAY BOAT BUILDERS AND SHIPYARD LTD. DEFENDANT (RESPONDENT) AND: PETER W.T. JOYCE, SUE WATERMAN, JOHNSON & HIGGINS LTD., formerly known as JOHNSON & HIGGINS WILLIS FABER LTD. THIRD PARTIES (APPELLANTS) and: MARINE INDUSTRIES CO. THIRD PARTY J.J.L. Hunter, Q.C. appearing for the Appellant J.F. Dixon appearing for the Respondent [1] HINDS, J.A.: This is an appeal from the decision of Madam Justice Dillon pronounced 29 March 1996 wherein she granted judgment in favour of the respondent (West Bay) against the third parties, the appellants, in the amount of $283,931 and costs. Her reasons for judgment, which are reported at (1996), 36 C.C.L.T. (2d) 284, set forth the facts in detail. Accordingly, a brief summary of the facts will be sufficient for the purposes of these reasons for judgment. [2] Between 1986 and 1991 West Bay carried on the business of repairing commercial boats and of building new pleasure yachts. It obtained various types of insurance but prior to 1988 it did not carry products liability insurance or insurance covering damage occasioned to yachts it had built and sold to customers. [3] In January 1988 Sue Waterman, an agent with the appellant J&H, approached Aleida Vermuelen, controller and director of West Bay in charge of placing insurance. A meeting was arranged to discuss the insurance needs of the business and the possibility of changing insurers. At that time Ms. Waterman was given the complete insurance records of West Bay and she took them to examine before making recommendations about the type of insurance West Bay should purchase. [4] At about that time, West Bay's current insurance broker, Sedgewick Tomenson Inc. (Sedgewick), repeated the recommendation that it made to West Bay in previous years, that is to say, that it should obtain insurance to cover damage to yachts built by West Bay and sold to its customers. West Bay accepted the recommendation and an insurance policy was obtained through Sedgewick for the 1988-1989 policy year (the Sedgewick policy). It included coverage for claims made by purchasers of yachts built by West Bay. [5] It was recognized that it was too late for J&H to obtain insurance coverage for West Bay for the 1988-1989 policy year, and Ms. Waterman stated that she would contact Mrs. Vermuelen later in 1988. [6] On 16 December 1988 Ms. Waterman wrote to West Bay on behalf of J&H advising that "full liability and ship- repairers/boat builders coverage" for the 1989-1990 policy year had been located at premiums lower than West Bay's current premiums. [7] In December 1988 after receiving the letter Mrs. Vermuelen met with Ms. Waterman and informed her that West Bay had decided to change insurers and to follow the recommendations for insurance as set out by J&H in its December letter. [8] In February 1989 J&H wrote to West Bay to confirm the insurance it had arranged and advised West Bay that it had obtained a comprehensive general liability policy which covered "third party legal liability for compensatory damages including defence costs, arising out of your products". The letter did not point out any exclusions to coverage. [9] On 28 October 1991 West Bay received a claim from the plaintiff, George Percy. The claim arose from damage occasioned as a result of a fire to a boat built by West Bay and sold to Mr. Percy 15 months earlier. The fire arose from an electrical defect in the boat. The action was settled for $270,000, $200,000 of which was paid by the third party, Marine Industries Company, the manufacturer of the electrical equipment which caught fire, and by West Bay's parent company. [10] In August 1992 West Bay was informed by J&H that the loss was not covered under the policy obtained for West Bay by Ms. Waterman. West Bay then brought third party proceedings against J&H for the amounts paid and payable to the plaintiff and for the cost of defending the action. [11] In the factum filed on behalf of the appellants three errors in judgment were alleged: (i) The trial judge erred in finding that the appellants were negligent in failing to arrange insurance that would have covered the loss which West Bay incurred when its customer, George E. Percy, sued West Bay for a defect in the boat sold by West Bay to Percy 15 months earlier; (ii) The trial judge erred by imposing judgment in circumstances where there was no evidence that the insurance coverage contended for was available in the policy year in question, thereby failing to give effect to this Court's judgment in Markal Investments Ltd. v. Morley Shafron Agencies Ltd. (1990), 43 B.C.L.R. (2d) 348 (B.C.C.A.); and (iii) The trial judge erred in finding that the appellants were also liable in breach of contract because they had promised to provide "full liability coverage" and had not done so. [12] When considering the claim against the appellants based on negligence the trial judge had this to say: In this case, Johnson & Higgins did not consider the risk to West Bay arising from liability for damage to the product itself, did not adequately inspect the earlier proposals for and policies of insurance prior to making recommendations, did not adequately consider the nature of West Bay's business and assess risks accordingly, and did not make sure that West Bay was aware of the exclusion to coverage for property damage to the boats themselves. Most importantly, Johnson & Higgins did not advise of the gap in coverage arising from the exclusion. The critical facts about extended coverage were available to Johnson & Higgins through A. Vermuelen's information, previous letters of recommendation about coverage and the policy of 1988. They were aware that policies could differ based on brokers forms and knew that the needs of West Bay were special. They failed to give the highly personalized service expected of an insurance agent in these circumstances (see Fletcher v. Manitoba Public Insurance Co. (1990), 74 D.L.R. (4th) 636 at 654 (S.C.C.)). More specifically, Johnson & Higgins failed to review existing policies that were available to them to ascertain the coverage that had been obtained and failed to adequately review the previous recommendations to advise West Bay properly about products liability coverage. At the end of the day, they failed to advise West Bay of the exclusion to coverage for damage to the boats themselves for which West Bay could be liable. [13] After referring to the decision in Fine's Flowers Ltd. v. General Accident Assurance Co. (1977), 2 B.L.R. 257 (Ont.C.A.) Madam Justice Dillon concluded that J&H was liable in negligence. [14] Counsel for the appellants did not make oral submissions in respect to the first alleged error in judgment - the finding of negligence against J&H and its employees. He relied on the argument contained in the appellants' factum. [15] After considering the evidence to which we were referred and the reasons for judgment of the learned trial judge I am not persuaded that she erred in regard to her finding of negligence; indeed, in my respectful view, she came to the correct conclusion. [16] The argument with respect to the second alleged error is based upon the decision of this Court in Markal Investments, (supra). The facts in that case are readily distinguishable from the facts in this case. There, the insured approached its broker and asked it to obtain insurance for damage which might be caused from snow causing the collapse of a large tent - a most unusual type of insurance coverage. The broker told the insurer that such insurance could not be obtained. A heavy snowfall collapsed the tent. The insured sued the broker for damages alleging it was negligent in failing to obtain the insurance coverage before the tent collapsed. The trial judge granted judgment; it was overturned by a majority of the Court of Appeal on the basis that the plaintiff had failed to prove causation. It had failed to prove on a balance of probabilities that the insurance sought by the plaintiff insured was in fact obtainable. [17] In this case J&H, through its employee Ms. Waterman, approached West Bay seeking its insurance business; West Bay did not approach J&H. J&H did not state that insurance on the yachts was not obtainable; it stated that it had obtained better insurance than West Bay had obtained through the Sedgewick policy for the year 1988-1989, and it had obtained it at a lower premium. [18] In my view, the decision in Markal is not applicable to the circumstances of this appeal. [19] Assuming, but without deciding, that in the particular circumstances of this appeal it was incumbent upon West Bay to establish that insurance for damage occasioned to the yachts built by it (in argument before us referred to as "warranty insurance") could be obtained, I am satisfied that the trial judge did not err in finding that such insurance was in fact obtainable. Upon the evidence that the Sedgewick policy for the year 1988-89 covered damage occasioned to the yachts built by West Bay, on the evidence that in a year subsequent to the damage occasioned by the electrical malfunction in the yacht purchased by Mr. Percy, such insurance had been obtained by West Bay, and on the evidence that J&H had written to West Bay stating that it had obtained better insurance than that contained in the Sedgewick policy, Madam Justice Dillon drew the inference that such insurance was in fact available in the year 1989-90 - the critical year with respect to this appeal. In my view, the trial judge cannot be faulted for drawing that inference and in reaching the foregoing conclusion. [20] The third alleged error pertains to the finding of the trial judge that the appellant was also liable for breach of contract. While it is not strictly necessary to deal with this alleged error in order to dispose of this appeal, due to the conclusions I have reached with respect to the first and second alleged errors, I shall nevertheless briefly address this issue. [21] In the course of dealing with the matter of breach of contract, Madam Justice Dillon said this: Johnson & Higgins sought the business of West Bay and was able to secure it with the offer to obtain significantly improved coverage over the 1988- 1989 insurance year by provision of "full worldwide products liability coverage for all vessels...built and sold, or repaired, at any time". [22] Mr. Hunter asserted that there was no contract because there was no meeting of the minds between Mrs. Vermuelen and Ms. Waterman as to the provisions of the insurance policy. With respect, I cannot agree. In my view there was a consensus between them. The coverage was to be the same, if not better, than the existing Sedgewick policy. [23] Counsel for J&H asserted that J&H and its employees were unaware of the coverage in the Sedgewick policy because they had not read that policy. I cannot accede to that argument. J&H cannot escape liability in contract on the basis of its own failure to investigate the coverage provided by the Sedgewick policy and, indeed, by its failure to actually read that policy. [24] I do not wish to conclude these reasons for judgment without making reference to an aspect of this appeal which was not the subject of submissions contained in the factums, but was referred to by members of this panel during the course of the argument ably presented by Mr. Hunter. It is this. [25] When one considers the totality of the evidence adduced in the court below, it is apparent that J&H approached West Bay seeking its insurance business. It became the agent of West Bay in obtaining insurance coverage. It undertook to obtain insurance coverage that was equal to or better than the coverage included in the Sedgewick policy for the year 1988-89, and at a lower premium. As agent, J&H owed a duty of care to its principal, West Bay. It breached that duty of care. On the general law of principal and agent, which long preceded the more modern concept of liability based on negligence, or on breach of contract, or on both negligence and breach of contract, J&H as agent was liable to its principal, West Bay. It was conceded before us that if J&H had procured for West Bay the same coverage that existed in the Sedgewick policy for the year 1988-89, the loss sustained by Mr. Percy would have been covered. West Bay would therefore be entitled to recover from its agent, J&H, the amount West Bay was obliged to pay Mr. Percy in settlement of his claim and costs, namely, $283,931. [26] For the foregoing reasons I would dismiss the appeal. [27] SOUTHIN, J.A.: I agree. [28] HOLLINRAKE, J.A.: I agree. [29] SOUTHIN, J.A.: The appeal is dismissed. "The Honourable Mr. Justice Hinds"