Appraisal process terminated after all involved contributed to procedural fiasco: insurance case

An Ontario court has permanently terminated an appraisal process under s.128 of the Insurance Act, RSO 1990, c I.8 because the damage and animosity resulting from the parties’ mishandling of matters were beyond saving.

In Northbridge General Insurance Corp. v. Ashcroft Homes-Capital Hall Inc., 2021 ONSC 1684, the respondent was constructing a condominium tower in Ottawa, which was nearing its completion, when the tower was substantially damaged by a fire in April 2018. The respondent had an insurance policy with the applicant insurance company. In December 2018, the insurer initiated an appraisal process under s. 128 of the Insurance Act, which soon proved to be dysfunctional, particularly beginning May 2020, when the insured retained a law firm to replace its appraiser.

In August 2020, the insurer filed an application seeking the appointment of an appraiser for the insured, the insured’s compliance with s.128 of the Insurance Act and the provisions of s. 148 of Statutory Condition 11 and a declaration that the insured caused the delay of the process.

The insured filed a cross-application seeking the termination of the appraisal process with prejudice, its adjournment sine die pending the outcome of an action in Ottawa and the removal of the selected umpire from his duties.

The Superior Court of Justice of Ontario, dismissing the insurer’s application and granting the insured’s cross-application, permanently terminated the appraisal hearing as a matter of judicial review. The court issued its decision on the basis of the standard of reasonableness and of the flexible standards of procedural fairness. The court directed the parties to pay the umpire for his terminated services within 60 days. If the parties disagreed over such charges, then the court would resolve the dispute based on the parties’ written submissions.

The court said that the damage and the animosity arising due to the process were beyond repair, unless the parties started over with new appraisers, which would go against the principle that the parties are entitled to choose their own appraisers.

“I doubt that the court proceedings will move along faster than the aborted appraisal process, but the parties will have some certainty about the procedure and assured of procedural fairness but not the flexibility and adaptability of the appraisal process,” wrote Justice Paul Perell for the court.

The court found that there was enough bad conduct and that the umpire’s decisions failed to meet the standard of reasonableness, which justified the immediate termination of the appraisal process. The process was bungled due to the parties’ joint and several fault, with everyone involved contributing to the procedural fiasco and not understanding their roles and the nuances of the process, said the court.

The court noted that the appraisal process does not fall under the Rules of Civil Procedure, while the Insurance Act specifies no procedure. This lack of a rigid structure is meant to ensure flexibility in the appraisal process, to offer an insurer and an insured an expeditious and easy way to settle an indemnity claim under the insurance policy and to remove a valuation issue from the court’s jurisdiction if either party has invoked the process. Every appraisal process differs and depends on the specific facts of the loss and on the umpire’s choice on how to handle the matter, said the court.