ONTARIO SUPERIOR COURT OF JUSTICE

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1 COURT FILE NO.: CV B1 DATE: October 08, 2009 ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: ONTARIO INC., operating as the No one attending for Plaintiff Silverado Restaurant and Nightclub and CUC THI NGUYEN Executrix of the Estate of Binh Nguyen Plaintiff - and - JULIAN GERSHON SAKINOFSKY No one attending for Defendant Defendant - and DOMENIC A. ROSSO Mr. H. Isenberg, for the Third Party Third Party - and - JULIAN GERSHON SAKINOFSKY Defendant to Counterclaim - and LAWYERS PROFESSIONAL INDEMNITY COMPANY, HIMELFARB PROSZANSKI LLP, and JOSEPH REBELSON GOUVEIA Fourth Parties No one attending for Defendant to Counterclaim Ms. V. Edwards, for Lawyers Professional Indemnity Company of the Fourth Party HEARD: September 24, 2009, At Thunder Bay, Ontario 2009 CanLII (ON S.C. Regional Senior Justice H.M. Pierce Introduction Reasons on Motion to Dismiss Third Party Claim

2 Ontario Inc.(Silverado Restaurant Reasons on Motion to Dismiss Third Party Claim [1] The Lawyers Professional Indemnity Company, popularly known in the legal community as LawPro, moves pursuant to Rules 20 and 21 of the Rules of Civil Procedure for an order striking Rosso s 4 th party claim against LawPro. [2] The allegations in the case are as follows: [3] The plaintiffs became clients of the defendant solicitor, Sakinofsky in September, In October of 2001, Mr. Justice McCartney ordered that all affidavits of documents be served within 45 days and that examinations for discovery take place within 6 months of his order. [4] Master Peterson dismissed the action for delay in December, The case was reinstated on consent with new deadlines. These deadlines were not met by the plaintiffs. In July, 2002, the action was again dismissed for delay by order of Mr. Justice Platana. [5] When their action was dismissed, the plaintiffs sued their solicitor, Sakinofsky, for professional negligence. Mr. Sakinofsky launched a third party claim against his former law clerk, Rosso, alleging that the fault lay with him. [6] Rosso counterclaimed against Sakinofsky. His counterclaim seeks damages for a variety of wrongs including unpaid wages; breach of fiduciary duty; breach of contract arising from a solicitor-client relationship; libel and slander; intentional infliction of mental and emotional distress; punitive damages, and contribution and indemnity for any liability in the third party claim. [7] Rosso then began a fourth party claim against LawPro. In it, Rosso claimed contribution and indemnity for any liability found against him in the third party claim, punitive damages, and damages for intentional infliction of mental and emotional distress CanLII (ON S.C. Position of the Parties [8] LawPro submits on the Rule 20 motion for summary judgment that: Rosso is not an insured under any LawPro policy of insurance; Rosso s instructing solicitor, Sakinofsky, did not have actual or apparent authority to enter into insurance contracts on LawPro s behalf; and

3 Ontario Inc.(Silverado Restaurant Reasons on Motion to Dismiss Third Party Claim LawPro is not liable for any representations that Sakinofsky made to Rosso that Rosso s work was covered under his LawPro policy. [9] On the Rule 21 motion, LawPro submits the 4 th party claim discloses no cause of action against it and should be struck. [10] Rosso submits: That the applicable LawPro policy was issued in 2001, not 2002; 2009 CanLII (ON S.C. That even though he is not a named insured under the LawPro policy, he is protected because errors of a solicitor s staff are the responsibility of the solicitor; That he relied on the representations of Sakinofsky and LawPro that a solicitor s staff was protected by the policy covering the solicitor; That an error in the solicitors address on the LawPro insurance declaration raises a genuine issue for trial; That LawPro s inaccurate and misleading documents and its failure to answer questions on cross-examination raise a genuine issue for trial. That the conduct of Sakinofsky s counsel, who was instructed by LawPro, made Rosso adverse in interest to Sakinofsky; and That had LawPro instructed counsel for Sakinofsky to move to set aside the dismissal order, the claim would have been reinstated and the plaintiffs would have suffered no loss. The Law Related to Rule 20 [11] The law on Rule 20 or summary judgment motions is well-settled: is there a genuine issue for trial? The test was summarized by the Supreme Court of Canada in Guarantee Co. of North America v. Gordon Capital Corp. [1999] S.C.J. No. 60 at par. 27: The appropriate test to be applied on a motion for summary judgment is satisfied when the applicant has shown that there is no genuine issue of material fact requiring trial, and therefore summary judgment is a proper question for consideration by the court.once

4 Ontario Inc.(Silverado Restaurant Reasons on Motion to Dismiss Third Party Claim the moving party has made this showing, the respondent must then establish his claim as being one with a real chance of success. [Citations omitted.] [12] Once the moving party has established a prima facie case that there is no genuine issue for trial, the evidentiary burden shifts to the responding party to present evidence to show it has a real chance of success at trial. See: Lang v. Kligerman {1998] O.J. No (Ont. C.A., par 9. [13] If there is an issue of credibility on a material issue, a trial will be required. See Ontario Limited v. Ontario Jockey Club ( O.R. (3d 547 (Ont. C.A. p CanLII (ON S.C. The Law Related to Rule 21(1 (b [14] This rule permits a party to move for an order striking out a pleading on the ground that it discloses no reasonable cause of action. On such a motion, the court must accept the allegations in the pleadings as proven. No evidence is admissible on a Rule 21 (1 (b motion. Where it is plain and obvious on the pleading that no reasonable cause of action is disclosed, the court may strike the pleading. See: Hunt v. Carey Canada Inc. [1990] S.C.J. No. 93 (S.C.C. paras Analysis of Rule 20 Motion [15] The LawPro policy of insurance is based on claims made. That is, the policy that applies to a claim is the policy that is in effect at the date the claim was reported, not the date the error was made. In this case, the policy engaged in the main action against Sakinofsky is for 2002, which is the year he advised LawPro of a potential claim by the plaintiffs. [16] Mr. Gouveia reported the claim against him in 2009; that is the policy applicable to him in the fourth party claim. [17] LawPro s policy of insurance covering Mr. Sakinofsky is limited to lawyers. In argument, Mr. Rosso, a non-lawyer, conceded he is not a named insured under the LawPro policy issued to Mr. Sakinofsky. He also conceded that he never believed LawPro was liable to him as there was no contractual relationship between them. Thus, Rosso did not rely on any representation made by LawPro as to coverage.

5 Ontario Inc.(Silverado Restaurant Reasons on Motion to Dismiss Third Party Claim [18] Rosso also admitted that he did not rely on Sakinofsky s actual or apparent authority to make representations on behalf of LawPro. Therefore, he does not suggest that Sakinofsky acted as LawPro s agent in making representations that Rosso was covered by the policy. At its highest, Rosso submits that he is entitled to coverage for his work as Sakinofsky s employee. [19] LawPro s duty of care is to the solicitor who is named as an insured on the policy, Mr. Sakinofsky. The terms of the policy specifically exclude coverage for paralegals, law clerks, legal assistants and related personnel. There is no half-way house for coverage of a solicitor s staff under the LawPro policy CanLII (ON S.C. [20] Traditionally, errors and omissions insurance has afforded a lawyer coverage for errors made by his staff. However the right to coverage belongs to the lawyer, who is the sole insured under the policy. It is an error in law to fuse together the right of the lawyer to be protected for the errors of his staff with an entitlement by the staff to protection under the policy, as Mr. Rosso argues here. [21] Mr. Rosso is at liberty to sue Mr. Sakinofsky for contribution and indemnity if he is found liable in the third party action, as he has done in his counterclaim against Sakinofsky. However, he has no independent cause of action against LawPro on these facts. [22] The incorrect address of the solicitor on LawPro s declaration of insurance is not a material fact that gives rise to a trial. [23] Material is defined in Garner s A Dictionary of Modern Legal Usage as having some logical connection with the consequential facts. In this case, an incorrect address on a policy of errors and omissions insurance has no connection to an issue to be determined by the court: is Mr. Rosso liable for any damages? It cannot be said that an error in the solicitor s office address on the policy extends coverage to the solicitor s staff in the event the staff person is liable. It is not a material fact. [24] On a Rule 20 motion, absence of evidence is not proof of a serious issue to be tried. The court is entitled to conclude that the responding party has advanced all relevant evidence to support his case, and is not waiting for trial in the hope that better evidence will emerge.

6 Ontario Inc.(Silverado Restaurant Reasons on Motion to Dismiss Third Party Claim [25] Had Mr. Rosso concluded that the representative of LawPro refused to answer relevant questions, he could have moved for an order compelling LawPro to answer them. He has not done so. Therefore the court must evaluate the evidence that is before it on the motion. [26] The summary judgment process is intended to weed out cases that are unmeritorious, preferably at an early stage. A party is not obliged to engage in the full discovery process before bringing on a motion for summary judgment. [27] Consequently, there is no genuine issue for trial arising from Mr. Rosso s claim for contribution and indemnity from LawPro under Sakinofsky s policy of insurance (or indeed Gouveia s. Nor is there a genuine issue for trial arising from representations made by LawPro or Sakinofsky about coverage for Rosso as there was no reliance on these representations CanLII (ON S.C. Analysis of the Rule 21 Motion [28] Mr. Rosso contends that LawPro s conduct amounts to an abuse of process. He contends that it set up an adversarial relationship between him and Sakinofsky, leading to mental suffering. He also claims that had LawPro instructed its solicitors to move to set aside the second dismissal order in the original lawsuit, the plaintiffs would not have suffered damages as they allege. [29] This reasoning is flawed. In order to ground a claim for negligence, there must be a duty of care between the tortfeasor and the party claiming to be harmed. Here, there is no duty of care between LawPro and Mr. Rosso. A duty of care arises when there is reasonable foreseeability of harm in light of a proximate relationship between the parties. This is the test referred to in Anns v. Merton London Borough Council [1971] A.C. 728 cited by the Supreme Court of Canada in Edwards v. Law Society of Upper Canada, [2001] 3 S.C.R. 562 (S.C.C. and other cases. [30] In Edwards, a number of clients sued the Law Society when funds they deposited into a lawyer s trust account disappeared. The Law Society began an investigation of the trust arrangements after a complaint from another lawyer. The clients argued that once the Law

7 Ontario Inc.(Silverado Restaurant Reasons on Motion to Dismiss Third Party Claim Society had knowledge of improper dealings with the trust account, it was under a duty to warn them. [31] The Supreme Court of Canada disagreed, holding that the Law Society owed no private law duty of care to the lawyer s clients when investigating his practice. [32] There is no proximity and therefore no duty of care between an insurer and a party adverse in interest to the insured. Without a contractual relationship, there is no duty of care to a third party. The insurer s duty of care is confined to the insured. Were it not so, there would be far-reaching liability to third parties, making it impossible for an insurer to gauge its risk when agreeing to insure CanLII (ON S.C. [33] This was the conclusion in two cases cited by LawPro: Harrison v. The Lawyers Professional Indemnity Co CanLII (S.C.J. and D.M. v. Alberta Lawyers Insurance Assn. ( D.L.R. (4 th 246 (Alta. Q.B.. [34] In Harrison, Mr. Justice Pitt held at par. 7 that the claim against LawPro in negligence must be struck as disclosing no reasonable cause of action. The court found that the insurer for the parties was adverse in interest to the plaintiff in the action and therefore did not owe the plaintiff a duty of care. [36] In D.M. clients retained lawyers who missed a limitation period. The clients sued the malpractice insurer in tort, alleging the insurer failed to protect their interests. The court found there was no proximity between the plaintiffs and the insurer. At par. 61 of the decision, the court held that the recourse of the clients was against the solicitor with whom the insured had a contractual relationship. The insurer did not owe a duty of care to the third party clients to whom it was not contractually bound. [37] An insurer is not obliged to minimize the liability of a party adverse in interest or to protect his interest. In Overload Tractor Services Ltd. v. British Columbia (Insurance Corp. of British Columbia [1988] B.C.J. No. 94 (B.C.S.C. the insurer delayed in settling a claim. Had it been settled earlier, the claim would have cost less. The excess insurer then sued the principal insurer, claiming it had a duty to minimize the liability of the excess insurer but failed to do so.

8 Ontario Inc.(Silverado Restaurant Reasons on Motion to Dismiss Third Party Claim The court held there was no liability as there was no contract between the two insurers. At p. 3, the court concluded that bad faith can only arise where an insurer has committed a tort against its own insured. [38] The facts in this case are similar to D.M. Rosso admits he has no contractual relationship with LawPro. The contract is between Sakinofsky and LawPro. The insurer owes Rosso no duty of care because there is no reasonable foreseeability of harm and no proximate relationship with him. Without these foundational relationships, the insurer is not obliged to take account of Rosso s interests. If it were otherwise, LawPro would be caught up in a hopeless conflict of interest between the interests of Sakinofsky and those of Rosso. Whom would it favour? 2009 CanLII (ON S.C. [39] Rosso is not without recourse. He has already counterclaimed against Sakinofsky advancing the same claims that he advances against LawPro. If Sakinofsky s conduct has led to mental suffering, Rosso can claim damages in his counterclaim. If Sakinofsky failed to mitigate the plaintiffs damages, Rosso can also make that argument in the counterclaim. Conclusion [40] For the foregoing reasons, I conclude there is no genuine issue for trial against LawPro under Rule 20 and no reasonable cause of action against it under Rule 21. [41] LawPro is granted summary judgment, dismissing Rosso s third party claim against it. If the parties cannot agree on costs, they may apply, within thirty days, to the trial coordinator for a date to argue same. Counsel are granted leave to argue costs by teleconference if so advised. Regional Senior Justice H.M. Pierce Released: October 08, 2009

9 COURT FILE NO.: CV B1 DATE: October 08, 2009 ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: ONTARIO INC., operating as the Silverado Restaurant and Nightclub and CUC THI NGUYEN Executrix of the Estate of Binh Nguyen - and - Plaintiff 2009 CanLII (ON S.C. JULIAN GERSHON SAKINOFSKY - and - DOMENIC A. ROSSO - and - Defendant Third Party JULIAN GERSHON SAKINOFSKY Defendant to Counterclaim - and - LAWYER S PROFESSIONAL INDEMNITY COMPANY, HIMELFARB PROSZANSKI LLP, and JOSEPH REBELSON GOUVEIA Fourth Parties REASONS ON MOTION TO DISMISS THIRD PARTY CLAIM Regional Senior Justice Pierce Released: October 08, 2009 /ket