Executive Summary: Key Legal and Evidentiary Issues

• The court considered whether the insured could seek a declaration on a disputed coverage sub-limit through a separate application while its 2023 action over the same loss remained outstanding.
   
• Section 138 of the Courts of Justice Act, which directs that multiplicity of proceedings be avoided as far as possible, was found to be clearly violated by the duplicative application.
   
• Proceeding by application let the insured bypass safeguards in Rules 20, 21 and 22 of the Rules of Civil Procedure, including the close of pleadings and access to discovery.
   
• Material facts were in dispute, including the meaning of the policy’s terms, which documents were incorporated by reference, and whether the parties shared a common intention on coverage limits.
   
• Evidence for the insured came solely from a two-page affidavit sworn by a law clerk, which the insurers said shielded from cross-examination the agent they expected to confirm the parties’ common intentions.
   
• No tolling agreement covered the period up to the February 2, 2026 application, creating a limitation problem the insured could not solve by relying on its earlier action.
   

Facts of the case

Legacy Hospitality Exeter Inc., operating as Courtyard by Marriott – London, is an Ontario corporation that runs a Marriott-branded hotel on Exeter Road in London, Ontario. A Hilton-branded hotel under the same or related ownership operates on an adjacent parcel. In or around May 2021, the owners and operators of both hotels began ensuring that insurance arrangements would remain in place. Zurich Insurance plc (“Zurich UK”) was asked to consider a submission to cover the hotels through its international hotel program, under which a master policy is issued to each hotel group and a local policy is issued where needed to comply with local laws. Underwriter Jonathan Harris dealt with the hotels’ brokers, Arthur J. Gallagher International Ltd. and/or related entities (AJG). Those dealings produced a Master Policy issued in the United Kingdom by Zurich Insurance plc, UK Branch (policy no. 711558918), and a Local Policy issued in Canada by Zurich Insurance Canada Ltd. (policy no. 8877855).

On or about January 9, 2022, a sprinkler system ruptured on the sixth floor of the Marriott hotel, causing substantial damage to the building and contents and interrupting the hotel’s business. While negotiations continued, the insured sued Zurich Insurance Company Ltd. and Zurich Insurance PLC on June 19, 2023, alleging breach of contract for failing to provide coverage and reimbursement for all of its losses. A tolling agreement extended to the commencement of that action, but none covered the period up to February 2, 2026, when the insured issued the present application. Apparently, the defendants had neither delivered a statement of defence in the action nor brought a motion.

Neither party uploaded a confirmation for the hearing, a failure that would have justified refusing to hear the matter under a Southwest Region notice issued on August 13, 2025. Despite this, the court reviewed approximately 1,800 pages of material before asking counsel to address the procedural issues as a threshold matter.

Policy and legislative provisions at issue

The application asked for a declaration that policy no. 8877855, with a policy period of May 18, 2021 to May 17, 2022, provides a “per occurrence” limit of $42,642,250 and contains no sub-limit restricting recovery for building damage at the 864 Exeter Road location to $17,000,000. According to the insured, the Local Policy could have included a sub-limit but did not, and should be read as a blanket policy with one limit available to either hotel.

Zurich’s position was that the occurrence limit was meant to apply only to an occurrence damaging both adjacent hotels at once. It argued that the Local Policy was not intended to give broader coverage than the Master Policy, which set a separate sub-limit for each location at an amount representing the declared building, contents and business interruption values. In the insurer’s view, terms such as the “Schedule of Locations,” read with documents said to be incorporated by reference (the statement of values, location schedule and declaration documents), made the occurrence limit subject to location limits based on the agreed valuations, which in turn governed the premiums. Alternatively, it argued that rectification would be warranted on the basis of a common intention shared by Mr. Harris and AJG. Exhibits to Mr. Harris’s affidavit included a copy of the Local Policy, which was inadvertently not issued until after the loss.

Section 138 of the Courts of Justice Act and Rules 20.01(1), 21.01(1)(a) and 22 of the Rules of Civil Procedure framed the procedural analysis.

Reasoning and analysis

According to the court, the 2023 action already encompassed every issue affecting the scope of coverage for the loss, including the sub-limit question the insured had tried to isolate in the application. Duplicative proceedings waste court resources, increase time and expense, risk inconsistent findings, and are inherently an abuse of process.

Proceeding by application also sidestepped procedural safeguards that would apply within the action. A summary judgment motion under Rule 20.01(1) generally follows the close of pleadings, and a defendant obliged to “put its best foot forward” without access to discovery arguably is deprived of procedural and substantive fairness. The insurers wanted that discovery and objected that relying only on a law clerk’s affidavit, sworn by someone without direct knowledge, kept the agent they expected to confirm the parties’ common intentions out of cross-examination. Rule 21.01(1)(a) bars evidence without leave or consent, and should not be used where material facts are disputed or where a contract’s terms can bear different meanings, as noted in Portuguese Canadian Credit Union Ltd. (Liquidator of) v. CUMIS General Insurance Co., 2010 ONSC 6107. Both concerns applied here. A Rule 22 special case is limited to situations where the parties agree on the process and the underlying facts, and PCL Constructors Canada Inc. v. Allianz Global Risk US Insurance Co., 2014 ONSC 7480 confirms that factual disputes ought not to be resolved that way. Here there was no agreement, and the facts were contested.

Counsel for the insured argued that the action was simply a protective step against the limitation period, and that insurance claims were “unique” because they are complex and discoverability does not extend the limitation period. The court saw nothing unique about insurance litigation in that respect. It also agreed with the insurers that the insured could not ignore the action to avoid its procedural rules while relying on it to shelter an application brought more than four years after the loss.

Arguments based on interpretive principles, such as giving effect to unambiguous policy language and excluding evidence of one party’s subjective intention, were found to beg the question. Whether the policy terms were unambiguous, what documents formed the policy, and whether the insurers’ evidence showed subjective or common intention were all in dispute. If common intention were proven, rectification might be available to prevent the insured from receiving more coverage than the parties mutually intended, coverage for which it had not paid the corresponding premiums. The court also rejected the insured’s complaint that it would have to go “back to square one.” Any such prejudice was of its own making, since it could have pressed the action forward by demanding defence pleadings and proceeding with documentary discovery.

Ruling and overall outcome

In the result, the application was dismissed without prejudice to the insured’s ability to pursue the issues in its long-stalled 2023 action, and the court expressly stated that the dismissal did not decide the substantive coverage issues in the insurers’ favour. Zurich Insurance Company Ltd., as respondent, was entirely successful in having the application dismissed and was awarded costs thrown away in addressing the propriety of the application and its dismissal. No Bill of Costs had been prepared, and the court reserved quantification of those costs to the judge who decides the substantive issues in the action, so no amount was fixed. A corrected endorsement was issued on October 5, 2026, to fix clerical and typographical errors without changing the substance or disposition.