COURT OF APPEAL FOR ONTARIO

CITATION: Nodel v. Stewart Title Guaranty Company, 2018 ONCA
341

DATE: 20180409

DOCKET: C63468

Epstein, Paciocco and
Nordheimer JJ.A

BETWEEN

Karl Nodel

Applicant (Respondent)

and

Stewart Title Guaranty Company

Respondent (Appellant)

Peter H. Griffin
and Danielle
Glatt, for the appellant

Gavin J. Tighe, Alexander Melfi, and John A. Campion, for the
respondent

Heard: December 1, 2017

On appeal from the judgment of Justice Wendy M. Matheson
of the Superior Court of Justice, dated February 8, 2017, with reasons reported
at 2017 ONSC 890.

Paciocco J.A.:

OVERVIEW

[1]

Mr. Karl Nodel, a private mortgage lender, was the victim of a mortgage
fraud. He made a claim for his loss under a mortgage insurance policy he had
purchased from Stewart Title Guaranty Company (Stewart Title).

[2]

Stewart Title refused to pay. In denying the claim, Stewart Title relied
on a coverage exception in the policy that applies if mortgage proceeds are
paid to any person other than the registered title holder. Since Mr. Nodels
lawyer had paid the mortgage proceeds to the borrowers lawyer, in trust,
rather than directly to the borrower, Stewart Title said the exception applied.

[3]

The dispute over coverage was brought before an application judge. She
concluded that, properly construed, the exception did not apply. In her view, the
registered title holder was paid when the borrowers lawyer received the mortgage
proceeds in trust. She declared that Mr. Nodels loss was therefore covered by
the mortgage insurance policy. Stewart Title now appeals.

[4]

In my view, the application judge was correct. Properly interpreted, the
exception enabling Stewart Title to deny coverage applies if the proceeds of the
mortgage are transferred beneficially to a person or entity other than the
borrower in the Insured Mortgage transaction (as defined in the policy). This
did not happen here. Instead, the payment was made in trust to the borrowers
lawyer for the benefit of the borrower. It was, in law, a payment to the
borrower. The application judge was correct in declaring that Mr. Nodels loss
was covered by the mortgage insurance policy.

[5]

I would therefore dismiss the appeal.

RELEVANT FACTS

[6]

A man posing as John Colarieti (the borrower) sought a $1,100,000 loan
from Mr. Nodel, for investment purposes. Mr. Nodel agreed to lend the money to
the borrower, to be secured with a second mortgage on a valuable residential
property registered in Mr. Colarietis name.

[7]

Mr. Nodel hired a lawyer, Mr. Isaac Singer, to arrange mortgage security
and to close the transaction. He instructed Mr. Singer to acquire mortgage
insurance. Mr. Singer was an Examining Counsel, authorized to assist in the
purchase of mortgage insurance from Stewart Title. He arranged mortgage
insurance from Stewart Title that included coverage for mortgage fraud.

[8]

At closing, Mr. Singer paid the mortgage money to the borrowers lawyer,
Mr. Bryan Dale, in trust. After he received the money, Mr. Dale did not transfer
the money to his client. Instead he transferred the money to third parties
under his clients direction. The money and the client then disappeared.

[9]

At Mr. Nodels direction, Mr. Singer made a claim against Stewart Title for
coverage under the policy because of the mortgage fraud. Stewart Title refused
to pay, relying on an exception in the policy that permits Stewart Title to
deny coverage in certain circumstances.

[10]

Specifically, Clause 2 of Schedule B to the insurance policy provides,
in relevant part:

2. Notwithstanding anything else contained within this Policy,
in the event the proceeds of the Insured Mortgage are paid to any person or
entity other than: i) to the registered title holder  then the Company can
deny coverage and shall have no liability to the insured for any matters that
involve the allegation of mortgage/title fraud.

[11]

Mr. Nodel sued Mr. Singer. Mr. Singer commenced a third party claim
against Mr. Dale and Stewart Title. LawPro, the insurer for both lawyers  Mr.
Singer and Mr. Dale  settled with Mr. Nodel, and took over the claim against
Stewart Title. LawPro and Stewart Title agreed to settle their dispute about
insurance coverage through an application by LawPro, in Mr. Nodels name, for a
declaration that the title insurance provides coverage for the losses incurred.
The application judge declared that the exception does not apply, and that the
policy does provide coverage. Stewart Title now appeals, claiming that the
application judge erred.

THE ARGUMENTS OF THE PARTIES AND
THE STANDARD OF REVIEW

[12]

Stewart Title argues that there is no need to look beyond the four
corners of the policy because the language of Clause 2 is clear and
unambiguous. Stewart Title says that on the plain language of the provision, the
proceeds of the mortgage have to be disbursed or directed to the registered
title holder for the exception to be avoided and for insurance coverage to
apply. During oral argument before this court, Stewart Title explained that
this entails the requirement that the money be transmitted into the hands of
the registered title holder. It says that since the money was paid to the
borrowers lawyer, it was not paid into the hands of the registered title
holder.

[13]

Stewart Title urges that the application judge erred, in turn, by: (i) failing
to give effect to this clear meaning, and in finding ambiguity by looking at
the word paid in isolation; (ii) giving no weight to the factual matrix
surrounding how the Policy language operates in practice and in its commercial
context when resolving the ambiguity; and (iii) resorting to
contra
proferentem
reasoning before exhausting other methods of contract
construction.

[14]

LawPro contends that the application judges conclusion is correct. It argues
that the words are paid to cannot be confined to payment transmitted into the
hands of the registered title holder without nullifying coverage under the
policy. It agrees that paid to is unambiguous, but argues that it is unambiguously
a broad enough term to encompass many methods of payment, including payment to
the borrowers trustee. In the alternative, LawPro argues that if Stewart
Titles proposed interpretation is viable and the exception is ambiguous, then that
ambiguity must be resolved in favour of coverage, as the application judge did.

[15]

The parties agree that this appeal is to be determined on a correctness
standard because the policy is a contract of adhesion or a standard form
contract. See also
MacDonald v. Chicago Title Insurance Company of Canada
,
2015 ONCA 842, 127 O.R. (3d) 663, at para. 41; and
Ledcor Construction Ltd.
v. Northbridge Indemnity Insurance Co.
, 2016 SCC 37, [2016] 2 S.C.R. 23, at
para. 46.

[16]

In oral argument, LawPro placed great emphasis on the fact that the
legal burden is on Stewart Title because it is relying on an exception. I do
not agree that the burden of proof is central to this appeal. It is true that
where coverage is established or conceded, an insurer bears the burden of
establishing that an exception to that coverage applies:
Progressive Homes
Ltd. v. Lombard General Insurance Co. of Canada
, 2010 SCC 33, [2010] 2
S.C.R. 245, at para. 51.
[1]
This case does not turn, however, on a factual contest. It is about whether the
application judges construction of the policy is correct, a question not
heavily affected by who bears the burden of proof.

FOCUSING THE INQUIRY

[17]

Before examining whether the application judge was correct, I want to
address the fact that much of the information shared with us was of limited
utility.

[18]

First, we were presented with a series of documents released by Stewart
Title to its Examining Counsel setting out its expectations and approval
practices. These documents are largely irrelevant. The documents released to
Examining Counsel are not incorporated into the insurance policy. Even though
these documents purport to reflect Stewart Titles interpretation of its
contracts of insurance, it is trite law that the meaning of an insurance
contract is to be found within the four corners of the policy. The plain
meaning of the language in the context of the policy governs unless the
language is ambiguous, in which case the search is for the intention of the
parties as determined using the tools of construction, including, if necessary,
the rules of strict construction. The meaning that terms bear in a contract cannot
be controlled by the subjective interpretations of one of the parties to the
contract as reflected in other documents that the party generates. The Supreme
Courts decision in
Sattva Capital Corp. v. Creston Moly Corp.
, 2014 SCC
53, [2014] 2 S.C.R. 633, at paras. 59-61, expressly distinguished admissible
objective evidence of the factual matrix from inadmissible parol evidence of a
partys subjective intent.

[19]

We have also been provided with detailed information about Stewart
Titles insurance application process, and the breadth of the direction to pay
that Mr. Singer was provided. In my view, this information is also largely
irrelevant.

[20]

As the application judge mentioned, she was not dealing with the
enforceability of the policy. The issue before her, and hence before us,
relates to the interpretation of an exception in a contract of adhesion, and
whether the payment that was made triggered the exception. That exception is a
term of a standard form contract. As such, its meaning does not vary from case
to case, nor is that meaning affected by the way the application process
unfolded in this particular case.

[21]

In my view, the sole contribution the backstory can make arises if the
clear words of the contract do not settle matters. If that occurs, this
backstory can assist in illustrating the broader commercial context in which
the contract must be interpreted, a point I will return to later.

[22]

Similarly, whether the policy provides coverage for the losses incurred
does not depend on the direction to pay, but rather on the actual payment made.
The application judge found that the money was disbursed to the borrowers
lawyer, in trust for his client. That finding has not been appealed.

[23]

The sole issue requiring resolution before the application judge,
therefore, was whether the exception was invoked by payment to the borrowers
lawyer in trust for the borrower. As indicated, the sole issue before us is
whether the application judge was correct in holding that the exception did not
apply.

ANALYSIS

A.

Overview

[24]

In my view, Clause 2 is ambiguous. As discussed below, the application
judge attempted to apply the ordinary meaning of are paid to, and came to the
conclusion that the phrase includes payment in trust to the borrowers lawyer. However,
as I will explain, given the context in which are paid to is used, its
ordinary meaning does not resolve the matter.

[25]

Stewart Titles contention that the ordinary meaning of Clause 2 requires
direct delivery to the registered title holder suffers from problems of its
own, not the least of which is that such an interpretation would nullify the
mortgage fraud insurance coverage in its entirety, a construction impermissible
in law.

[26]

Given that the ordinary meaning of the terms cannot apply, there are at
least two potential meanings that arise for the language used, in context.
Either the exception arises where money is paid beneficially to someone other
than the borrower, or where money is handed over or delivered to someone other
than the borrower.

[27]

When Clause 2 is interpreted in context, in light of the reasonable
expectation of the parties and in a commercially sensible manner, the ambiguity
that is created by these complications is resolved. Properly interpreted, that
exception is triggered if the proceeds of the mortgage are transferred beneficially
to any person or entity other than the borrower in the Insured Mortgage transaction.
Payments in trust to the borrowers lawyer for the borrower do not fall within
that exception, since, in law, such payments are to the borrower, not to any
person or entity other than the borrower.

[28]

I will begin by examining the juridical nature of a payment in trust, followed
by an evaluation of the application judges attempt to resolve the
interpretation of Clause 2 by using ordinary language. I will then identify the
difficulties with the interpretation offered by Stewart Title using ordinary
language. Finally, I will review and support the application judges
alternative analysis, involving the use of the tools of construction to resolve
the meaning of the Clause 2.

B.

The Juridical Nature of a Trust

[29]

Since this case is a contest over whether an authorized payment to a
lawyer in trust is payment to the client-borrower within the meaning of Clause
2, it is helpful to put the dispute into context by describing, in simple
terms, the juridical nature of a trust.

[30]

A trust is a fiduciary relationship, which exists between a trustee and
a beneficiary (or beneficiaries), whereby the trustee holds title to property
and manages it for the benefit of the beneficiary who has exclusive enjoyment
of it:
Dunnison Estate v. Dunnison
, 2017 SKCA 40, [2017] S.J. No. 205,
at para. 15, citing Donovan W.M. Waters, ed.,
Waters Law of Trusts in
Canada
, 4th ed. (Toronto: Carswell, 2012) at p. 9.

[31]

A trust beneficiary has an equitable entitlement to compel a trustee to
use its legal ownership over the property for the benefit of the beneficiary,
according to the terms of the trust. Indeed, a sole trust beneficiary who is a
competent adult and absolutely entitled to the trust property can, at any time,
collapse the trust and demand delivery of full title, relying on the rule in
Saunders
v. Vautier
, [1841] E.W.H.C. J82, affirmed (1841), 41 E.R. 482 (Eng. Ch.
Div.): Eileen E. Gillese,
The Law of Trusts
, 3rd ed. (Toronto: Irwin
Law, 2014), at pp. 85-88. This right is based upon the theory that, though
title and management rest in the trustees, the significance of property lies in
the right of enjoyment:
Waters Law of Trusts
, at p. 1235.

[32]

Not surprisingly, a beneficial interest in a trust is therefore considered
to be property for the purposes of the
Family Law Act
, R.S.O. 1990, c.
F.3:
Rawluk v. Rawluk
, [1990] 1 S.C.R. 70, [1990] S.C.J. No. 4, at p. 91;
and
Hamilton v. Hamilton
(1996), 92 O.A.C. 103 (C.A.), [1996] O.J. No.
2634, at paras. 32-40. Indeed, the beneficiary of a resulting trust was
described in
Kerr v. Bananow
, 2011 SCC 10, [2011] 1 S.C.R. 269, at para.
16, citing A.H. Oosterhoff
et al.
,
Oosterhoff on Trusts: Text,
Commentary and Materials
, 7th ed. (Toronto: Carswell, 2009), at p. 25 as
the true owner of the trust property.

[33]

For these reasons, a party owing a payment obligation to another will be
considered, in law, to have fulfilled that obligation by transferring the
payment, as directed, to the trustee of the person to whom the payment is owed.
Put more plainly, delivery to the trustee is a mode of paying the beneficiary. Indeed,
it is through payment to a lawyer in trust that mortgage funds are typically
advanced. The instant question is whether, by its terms, Clause 2 removes this
usual method of payment as an acceptable method of payment if insurance
coverage is to apply.

C.

The Application Judges Ordinary interpretation

[34]

The application judge did not offer a precise definition of Clause 2, the
exception clause. What she did was accept that the exception did not apply
because the clause accommodated the applicants ordinary proposition that
payments to a lawyer, in trust of his or her client, are payments to the
client. This is another way to pay the registered title holder/borrower.

[35]

Stewart Title suggests that the application judge effectively
interpreted the words are paid to as meaning disbursed in such a way as to
amount at law to payment that satisfies an obligation. If this is what the
application judge did, her interpretation is consistent with the ordinary
meaning of the operative word paid, taken in isolation. As I will explain
shortly, it is not consistent, however, with the way the phrase are paid to
is used in Clause 2. I will nonetheless begin with the ordinary meaning or the
operative word paid because this discussion remains relevant to the ultimate
meaning of Clause 2.

[36]

The ordinary denotative or technical meaning of paid does require
payment in satisfaction of an obligation. The word paid is not a synonym for
disbursed to or directed to or even delivered to. This is because the
concept of payment is inherently legalistic, denoting more than mere
transmission or transfer to another. If I gift money to another, I am not
paying them. If I transfer money to another, I am not necessarily paying them.
I am only paying them in the ordinary sense of the term if I transfer money to
them in satisfaction of an obligation. And if I, as a lender, transfer money
with the borrowers authority to the borrowers lawyer, that borrower would be
hard-pressed to argue credibly that the money owed was not paid to them. In
effect, the ordinary meaning of the term paid describes more than a physical
act of transfer. It requires a transfer that has an effect, namely, the
satisfaction of an obligation.

[37]

In coming to this conclusion the application judge relied on
Blacks
Law Dictionary
, 10th ed. (Thomson West, 2014), at p. 1309, to list five
definitions of pay.
[2]
The fifth, [t]o be profitable; to bring in a return, refers to a different
and inapplicable use of the term, unfitting in the context of an insurance
policy. The other four definitions all require that the transfer be made in fulfilment
of an obligation:

1.

To give money for a good or service that one buys; to make satisfaction.

2.

To transfer money that one owes to a person, company, etc.

3.

To give (someone) money for the job that he or she does; to compensate a
person for his or her occupation.

4.

To give (money) to someone because one has been ordered by a court to do
so.

[38]

The first and third definitions expressly link the act of transmission
and the effect of transmission  specifically, (1) giving money to make
satisfaction and (3) giving money to compensate. The other two definitions
imply that payment is in satisfaction of obligations  specifically, (2) to
discharge a debt and (4) to comply with a court order. The ordinary definition
of pay does not simply describe an act of transmission.

[39]

Stewart Title, which contends that the phrase paid to describes only
the act of handing the money over, is correct in insisting that words, or even
a phrase, cannot be interpreted in isolation, but must be read in the context
of the contract as a whole. In my view, this does challenge the ordinary
meaning of the word paid I have described.

[40]

As indicated, Clause 2 provides, in material part, that Stewart Title
can deny coverage in the event that the proceeds of the Insured Mortgage are
paid to any person or entity other than: i) to the registered title holder. In
Clause 2, the term are paid to therefore contemplates money being paid to
two categories of recipient: (i) to the registered title holder, which will
satisfy the mortgage lenders obligation; and (ii) to any other person or
entity, which may not satisfy the mortgage lenders obligation. The natural, ordinary,
or denotative meaning of paid does not extend to delivery to persons not in
satisfaction of the relevant obligation. By using the term are paid to with
reference to such transfers, it appears that a meaning other than the ordinary
meaning described is meant to apply. It follows that the ordinary meaning of
the words used in Clause 2 does not resolve the issue decisively in LawPros
favour.

D.

The Difficulty with Stewart Titles Interpretation

[41]

Stewart Title argues that the ordinary meaning of Clause 2 requires
transmission into the hands of the registered title holder before there will be
insurance coverage. In its factum, Stewart Title attempted to rely upon the
second of the four definitions I have reproduced above to support this
position. It urged that the ordinary meaning of paid means  to
transfer
money that one owes to a person, company, etc. (emphasis in original). In my
view, even if this definition were to be chosen it would not be decisive in
Stewart Titles favour. The transfer of money owed to a person can be achieved
by putting the money into the hands of the person owed, or by transferring the
money to an authorized agent of the person owed, including a trustee of a trust
in which the person owed is the beneficiary. There is nothing in the ordinary
language of Clause 2 to require the kind of direct payment to the borrower that
Stewart Title calls for.

[42]

Even if the ordinary meaning of Clause 2 does purport to require
transmission into the hands of the registered title holder before there will be
insurance coverage, which I do not accept, Clause 2 cannot be given this
interpretation. This is because no mortgage fraud occurs where money is
transmitted into the hands of the registered title holder. If Clause 2 were to require
transmission into the hands of the registered title holder for coverage to
apply, the policy would provide no actual mortgage fraud insurance. As a matter
of law, an exception clause that results in a policy insuring nothing is
nullified:
Cabell v. The Personal Insurance Company
, 2011 ONCA 105,
104 O.R. (3d) 709, at paras. 1-2. Simply put, if Clause 2 does purport to
negate coverage where mortgage proceeds are not transmitted into the hands of
the registered title holder, Clause 2 is a nullity.

[43]

No doubt because of this difficulty, Stewart Title conceded before the
application judge that receipt by an approved party is not part of the
definition of are paid to. Its position before the application judge was that if
money is paid in trust to a lawyer with an undertaking to disburse the funds
directly to an approved party, then that will suffice even if mortgage fraud
then occurs.

[44]

The application judge rejected Stewart Titles attempt to interpret
Clause 2 in this way because doing so would require reading words into the
provision that are not there. In my view, the application judge was right in
this regard.

[45]

Perhaps because of this difficulty, Stewart Title changed its position on
appeal. It retreated from the concession that payment in trust will suffice if
there is a direction to pay the registered title holder, and now contends that payment
in trust to the borrowers lawyer under direction to pay the borrower will
satisfy the policy only if delivery is ultimately made to the borrower. In an
attempt to skirt the nullification problem this new interpretation gives rise
to Stewart Title accepts that the policy would have provided coverage in this
case if the money had been received by the imposter rather than the lawyer in
trust. The problem with this attempt to find some room for coverage in the
policy is that the policy requires that proceeds of the Insured Mortgage be
paid to  the registered title holder, and an imposter is not the registered
title holder.

[46]

Simply put, in promoting its ordinary interpretation, Stewart Title
encountered a paradox. Because of the nullification doctrine, its ordinary
interpretation submission relating to Clause 2 depends on avoiding the ordinary
interpretation of the registered title holder.

[47]

Having made this point, the difficulty the nullification doctrine
presents for the ordinary meaning of the registered title holder can be
overcome. It could not have been in the reasonable contemplation of the parties
that Clause 2 would be given an interpretation that would nullify it. The
option of interpreting Clause 2 as requiring receipt by the actual registered
title holder is not on the table, if the clause is going to be interpreted to
be valid. Where a clause reasonably bears a meaning that would not nullify it,
then the meaning that should apply is the one that maintains the clauses
validity. Registered title holder must therefore be read as the application
judge evidently did, and as both parties have assumed throughout, as a
reference to the individual identified as the registered title holder in the
Insured Mortgage transaction; in other words, the borrower.

[48]

Even though the ambiguity in the term registered title holder can be
overcome in this way, it is obvious from this problem alone that the meaning of
Clause 2 cannot be resolved using the ordinary or natural meaning of the words.
In my view, Clause 2 is ambiguous in another more central respect, a point I
now turn to below.

E.

The Proper Construction

(1)

Clause 2 is Ambiguous

[49]

In her alternative analysis, the application judge found that if Stewart
Titles interpretation was viable, then Clause 2 would be ambiguous based on
the contested interpretations of the provision. She also found that Stewart
Titles position was effectively a concession of ambiguity, given Stewart
Titles attempt to limit the different ways a payment can be made, allowing
some but not others, without any supporting language in the policy. On appeal,
Stewart Title argues that the application judge erred in finding ambiguity on
these bases.

[50]

I need not resolve the dispute over whether these bases for finding
ambiguity are appropriate. In my view, Clause 2 is ambiguous because the ordinary
language of Clause 2 does not offer a clear or settled meaning. I have
explained that, because Clause 2 contemplates payments that do not satisfy
obligations, the ordinary meaning of paid  disbursed in such a way as to
amount at law to a payment that satisfies an obligation  cannot apply. The
failure of the ordinary meaning of that operative word to provide a clear
meaning leaves open more than one possible interpretation of Clause 2.

[51]

On the one hand, even without a transfer satisfying an obligation, the
operative word paid in the phrase are paid to connotes a transfer of the benefit
of money. This interpretation would, of course, service LawPros position that
payment to the borrowers lawyer in trust for the borrower is enough, since
payment to the borrowers lawyer in trust is considered in law to be a payment
for the benefit of the borrower.

[52]

On the other hand, a more colloquial use of the phrase could simply
describe the act of transmitting money from one to another. This interpretation
would service Stewart Titles position that, properly interpreted, Clause 2
requires that the mortgage proceeds be transmitted directly into the hands of
the registered title holder before there will be insurance coverage.

(2)

Resolving the Ambiguity

[53]

Stewart Title takes issue with the way the application judge resolved
the ambiguity in Clause 2. It urges that the application judge should have
exhausted all means of ascertaining the meaning of the language before turning
to the
contra proferentem
principle. In my view, the application judge complied
with this analytical scheme.

[54]

The first thing the application judge did in an effort to resolve the
ambiguity she perceived was to look at the context of the policy, the
reasonable expectations of the parties, and the reasonable commercial results
the very things Stewart Title says must go into the construction of the
contract before the
contra proferentem
principle applies. Indeed, at
para. 43 of her reasons, the application judge adverted to and applied the
principles of interpreting insurance contracts that this court endorsed in
MacDonald
,
at para. 66.

[55]

This exercise by the application judge did not produce the result that
Stewart Title desired. In the application judges words at para. 59 of her
reasons:

Relevant surrounding circumstances support the conclusion that
the exception permits payments to a lawyer in trust for his or her client. Both
the regulatory regime and common practice support the applicants
interpretation as reasonable and commercially sensible. And the regulatory
regime and common practice are part of the industry in which the insurer
operates.

[56]

The application judges analysis is persuasive. In my view, an
interpretation of Clause 2 that is supported by the context of the policy, the
reasonable expectations of the parties, and the reasonable commercial results,
supports LawPros position and defeats Stewart Titles claim that only direct
transmission to the borrower will permit coverage.

[57]

Interpreted in context, the term are paid to is capable of describing
either a transfer of beneficial ownership or the act of transmitting money. In
my view, however, the former use of the term is more natural. This is because
the concept of payment connotes the transfer of beneficial interest, and not
just the act of transmission. In other words, the term are paid to more
naturally refers to the effect of a transfer rather than the act of
transmission. Interpreting are paid to in context as describing the transfer
of beneficial interest in money honours the connotation of the term, whereas interpreting
are paid to as simply describing the act of transmitting money requires
setting aside both the denotation and the ordinary connotation of the phrase.
Thus, the contextual interpretation preferred by LawPro is the more natural
interpretation.

[58]

The reasonable expectations of the parties also serves LawPros
preferred interpretation. As the application judge noted, payment of mortgage
money to a borrowers lawyer in trust is a routine practice. In my view, it
would not be in the reasonable contemplation of the parties that using the
standard method of disbursing mortgage money to the borrower would disqualify
mortgage fraud insurance.

[59]

Moreover, disqualifying coverage where payment is made to the borrowers
lawyer in trust would not produce a reasonable commercial result. As the
application judge pointed out, if the borrower has counsel, the lenders lawyer
cannot deal directly with the borrower and must deal with the lawyer.

[60]

Indeed, if Stewart Titles position that Clause 2 requires direct
delivery to the borrower is accepted, even a direct deposit into a bank account
in the name of the borrower would not suffice to assure coverage. This is
because a depositor does not own the money in the account. The bank does,
subject to a simple debtors obligation to pay the amount of the deposit to the
depositor as its creditor:
Foley v. Hill
(1848), 2 H.L. Cas. 28, 9 E.R.
1002 (U.K.H.L.); and
B.M.P. Global Distribution Inc. v. Bank of Nova Scotia
,
2009 SCC 15, [2009] 1 S.C.R. 504, at para. 63. It follows that a direct deposit
by the lender into the borrowers bank account would not entail direct delivery
to the borrower, even if the negotiable instrument used to achieve payment was made
payable in the borrowers name. The interpretation Stewart Title offers would therefore
effectively absolve it from paying insurance unless the lender put a bag of
money or a cheque directly into the borrowers hands. In my view, such an
interpretation is not commercially reasonable because direct payment of the
kind contemplated would be impractical and inefficient.

[61]

In my view, Stewart Titles submissions about the involvement of lawyers
being inadequate to prevent fraud, or the goal of improving visibility of the
destination of mortgage proceeds, do not add weight to its interpretation
either. These matters may well be of concern to insurers, but they are not the
kinds of considerations that, in the face of the routine use of in trust
payments, can sustain a mutual or objectively reasonable expectation that the
exception would disqualify coverage if in trust payments are made to lawyers.
Put more plainly, these are subjective concerns that insurers may hold. They
are not the kinds of considerations that the parties to an insurance policy,
the insurer and the insured, would naturally contemplate in understanding the
meaning of the policys terms.

[62]

Nor am I persuaded that trust payments to lawyers do not provide a
commercially reasonable mode of paying mortgage advances given the risks of
mortgage fraud, whereas payment to financial institutions would do so. Lawyers
are obliged by
Rules of Professional Conduct
to take steps to assure the
identity of their clients, and trust funds held by lawyers receive greater
legal protection than bank deposits do. While Stewart Title would be well
within its rights to insist that insurance coverage will extend only if money
is paid directly into the hands of borrowers, or into their bank accounts, the
disparity in the security of transactions it claims between trust payments to
lawyers and deposits into financial institutions is not, in my view, a
consideration that can drive the interpretation of Clause 2, based either on
considerations of the parties reasonable expectations or commercial
reasonableness.

[63]

The specific elements cited by Stewart Title in its factum as relevant
to the factual matrix it relies upon, cannot fairly drive the interpretation of
this standard form contract either. The fact that
this
transaction was
a private lender contract cannot colour the meaning of a general exception
clause that purports to apply to all lender contracts, private or not. Meanwhile,
Mr. Singers subjective awareness that payments to third parties unrelated to
the transaction increases the risk of fraud is irrelevant to the meaning of a
standard form contract. Even converting Mr. Singers subjective appreciation into
a more general proposition that third party payments are a flag indicating
possible fraud says nothing about payments to lawyers authorized to receive
funds for lenders, since those lawyers are not third parties. Questions asked
by Stewart Title, one party to a contract, of its Examining Counsel when
considering an insurance request may reflect its policy positions in lending,
but cannot drive the contractual interpretation of an agreement entered into
with others.

[64]

Simply put, a consideration of the factors that Stewart Title says
should have been examined first by the application judge in resolving any ambiguity
in Clause 2 actually defeats an interpretation of the exception that would
invalidate coverage if payment is made to lawyers in trust for the borrower.

[65]

Properly interpreted using these tools of construction, the Clause 2 exception
is triggered if the proceeds of the mortgage are transferred beneficially to
any person or entity other than the borrower in the Insured Mortgage
transaction. Payments in trust to the borrowers lawyer do not fall within that
exception, since, in law, they are payments to the borrower.

[66]

In my view, had these ordinary tools of construction not resolved the
meaning of are paid to in Clause 2, things would not have become easier for
Stewart Title. If there is ambiguity in a valid exclusion clause, that
exclusion clause will be strictly or narrowly interpreted. As this court
explained in
Cabell
, at para. 11, ambiguity in the policy will be
construed against the insurer, applying the
contra proferentum
doctrine
(emphasis in original). On this basis, it is difficult to see how the term are
paid to can be interpreted to exclude the conventional way of advancing
mortgage money by payment to a borrowers lawyer in trust for the borrower.

[67]

As a result, Clause 2 cannot be relied upon by Stewart Title to exclude
coverage in this case. Either the clause is invalid as an improper attempt to
nullify coverage under the policy, or Clause 2 is to be interpreted as
including payment to the borrowers lawyer in trust as money paid to  the
registered title holder.

[68]

Since this resolves the question on appeal, it is unnecessary to deal
with the respondents fresh evidence application.

CONCLUSION

[69]

In my view, the application judge was correct in declaring that the
exception in Clause 2 does not exclude coverage for the loss incurred by Mr. Nodel,
and that the title insurance provides coverage for the losses incurred. I would
dismiss the appeal.

[70]

Counsel for both parties agree that the successful party should receive
costs in the amount of $20,000, inclusive of taxes and disbursements. I would therefore
order costs in that amount to the respondent. I would not disturb any costs
award made in the proceedings below.

David M. Paciocco J.A.

I agree. Gloria Epstein J.A.

Nordheimer J.A. (dissenting):

[71]

I have read the very thorough reasons of Paciocco J.A. and agree with
much of the analysis he undertakes. I agree that the standard of review is
correctness. I also agree that the burden of proof is not central to this
appeal because this case does not turn on a factual contest. I further agree
that much of the additional material provided to us was of limited, if any,
assistance. Unfortunately, I do not agree with my colleague with respect to his
conclusion on the central issue, that is, whether the exception clause is
ambiguous.

[72]

My colleague has set out the factual background to this case so I do not
need to repeat it.

[73]

In my view, the answer to the question posed by this appeal is, in the
first instance, a straight forward one. Is the language of the exception to the
title insurance policy ambiguous? If it is, then a more detailed analysis must
follow, as my colleague has undertaken. If it is not, then Stewart Title
Guaranty Company (Stewart Title) was entitled to deny coverage and the matter
ends. As Rothstein J. said in
Progressive Homes Ltd. v. Lombard General
Insurance Co. of Canada
, 2010 SCC 33, [2010] 2 S.C.R. 245, at para. 22:

The primary interpretive principle is that when the language of
the policy is unambiguous, the court should give effect to clear language,
reading the contract as a whole

[Citation omitted.]

[74]

Although they reach their conclusions through different routes, both my
colleague and the application judge conclude that the language of the exception
is ambiguous. I do not agree.

[75]

This whole case arises from the reality that the borrower was not in
fact the registered title holder. Rather, he pretended to be the registered
title holder and was, apparently, able to convince his lawyer, Mr. Dale, that
he was, in fact, the registered title holder. There can be no dispute that the
insurance policy was intended to provide coverage against such a result, but
only if the terms of the policy were complied with. This is the commercial
context that surrounds this insurance contract interpretation appeal.

[76]

The starting point for the analysis is the actual language of the
exception. While my colleague has set out the language above, I repeat it here
for the sake of convenience. The exception is contained in Clause 2 of Schedule
B to the policy. It reads, in part:

Notwithstanding anything else contained within this Policy, in
the event that the proceeds of the Insured Mortgage are paid to any person or
entity other than: i) to the registered title holder or holders, as the case
may be [] then the Company can deny coverage

[77]

There is no dispute on the facts of this case that the proceeds of the
Insured Mortgage (as defined in the policy) were not paid to the registered
title holder. Rather, the proceeds were paid to Mr. Dale, the lawyer for the
imposter registered title holder. They were so paid pursuant to a written
direction, ostensibly signed by the registered title holder, that the funds
were to be paid to Bryan R. Dale in trust or as he may further direct in
writing. The question is whether that method of payment falls within the
exception language in Clause 2.

A.

The Coverage Exception is Not Ambiguous

[78]

In my view, fairly read, there is nothing ambiguous about the wording of
the exception. It is clear that Stewart Title is entitled to deny coverage if
the proceeds are paid to any person or entity other than the registered title
holder. The right to deny coverage is clear from the opening words of Schedule
B:

This policy does not insure against loss or damage [...] which
arise by reason of...

[79]

Stewart Title has the right to create exceptions to the insurance
coverage it is agreeing to provide. Once an insured accepts the insurance
policy provided, the insured is bound by the exceptions, just as any person is
bound by the terms and conditions of any contract to which they are a party. As
Moldaver J.A. said in
Stuart v. Hutchins
(1998), 40 O.R. (3d) 321
(C.A.), 164 D.L.R. (4th) 67, at para. 30:

Trite though it may be, an insurer has the right to limit
coverage in a policy issued by it and when it does so, the plain language of
the limitation must be respected.

[80]

Both my colleague and the application judge reject this plain meaning
because it would result in the policy insuring nothing. That conclusion is
based on their interpretation that a plain meaning interpretation would suggest
that the funds had to be received by the actual registered title holder,
otherwise Clause 2 would apply. I do not share their view.

[81]

This disagreement frames the central issue in this appeal: what is the
meaning of the words are paid to as used in Clause 2? The nullity consequence
relied upon both by my colleague and the application judge only occurs if the
words are paid to are given the restricted interpretation prescribed by the
application judge as disbursed in such a way as to amount at law to payment
that satisfies an obligation.

[82]

With respect, that is not the only plain meaning of the word paid and
it is not the appropriate meaning to be given in the context of this contract
of insurance. The
Oxford Dictionary of English
, 3rd ed. (Oxford
University Press, 2010) defines pay as meaning, among other things, to Hand
over or transfer the amount due to someone. This is also consistent with the
second definition of pay to which my colleague refers from
Blacks Law
Dictionary
, 10th ed. (Thomson West, 2014), at p. 1309, that is, To
transfer money that one owes to a person, company, etc.

[83]

My colleague says that the plain meaning of hand over or transfer
cannot be accepted because no mortgage fraud occurs where money is transmitted
into the hands of the registered title holder. This is because my colleague
restricts the meaning of registered title holder to
actual
registered
title holder, and excludes an
imposter
registered title holder. As
such, the title insurance contract would be of no use if the monies had to be
paid to the actual registered title holder. In his view, the words are paid
to must be given a meaning that ameliorates the restrictive meaning that he
imposes upon the words registered title holder. Therefore, my colleague
interprets the words are paid to to include a payment to the borrowers
lawyer. Further, my colleague also holds the view that one cannot pay an
imposter registered title holder because there is no legal obligation to be discharged
vis-à-vis the imposter. Again, I do not agree.

B.

The Commercial Context

[84]

With respect, my colleagues interpretation is detached from the
commercial realities of the context of this case. The object of the title
insurance contract must be kept in mind. What is being insured against is the
possibility that money will be transmitted into the hands of a person, who is
believed to be the registered title holder, but who is not, in fact, that
person. The plain meaning of are paid to in this context is a transfer or
hand over of money that may or may not satisfy an obligation. And the plain
meaning of registered title holder must include an imposter registered title
holder. In this case, if the funds had been transferred or handed over to the
imposter registered title holder, the insurance coverage would have applied.
But that is not what happened. Rather, the money was handed over to a lawyer.

[85]

The words are paid to and registered title holder have to be
understood in the context of the instant insurance contract. This fundamental
principle regarding the interpretation of a contract was stated in
Sattva
Capital Corp. v. Creston Moly Corp.
, 2014 SCC 53, [2014] 2 S.C.R. 633,
where Rothstein J. said, at para. 47:

Regarding the first development, the interpretation of
contracts has evolved towards a practical, common-sense approach not dominated
by technical rules of construction. The overriding concern is to determine the
intent of the parties and the scope of their understanding [] To do so, a decision-maker
must read the contract as a whole, giving the words used their ordinary and
grammatical meaning, consistent with the surrounding circumstances known to the
parties at the time of formation of the contract. Consideration of the
surrounding circumstances recognizes that ascertaining contractual intention
can be difficult when looking at words on their own, because words alone do not
have an immutable or absolute meaning:

No contracts are made in a vacuum: there is always
a setting in which they have to be placed. ... In a commercial contract it is
certainly right that the court should know the commercial purpose of the
contract and this in turn presupposes knowledge of the genesis of the
transaction, the background, the context, the market in which the parties are
operating

[Citations omitted.]

[86]

The same point was again made in
Ledcor Construction Ltd. v.
Northbridge Indemnity Insurance Co.
, 2016 SCC 37, [2016] 2 S.C.R. 23, a
case that also dealt with insurance policies, where Wagner J. said, at para.
50:

These rules include that the interpretation should be
consistent with the reasonable expectations of the parties, as long as that
interpretation is supported by the language of the policy; it should not give
rise to results that are unrealistic or that the parties would not have
contemplated in the commercial atmosphere in which the insurance policy was
contracted

[87]

In this case, the commercial purpose of the title insurance policy is
clearly to protect against fraud, that is, the receipt of monies by someone
other than the person who is expected, and entitled, to receive the funds.
Consequently, the term registered title holder, as used in Clause 2, cannot
mean the actual registered title holder because, as my colleague quite
correctly points out, that would eliminate any opportunity for the insurance
coverage to apply. In order to give commercial sense to the contract, in other
words to have it operate as the parties bargained for and intended, the term
registered title holder must be understood as meaning a person who everyone
involved in the transaction believes to be the actual registered title holder.
It is the possibility of those persons being duped, in that regard, which
constitutes the event that the title insurance policy insures against. This
does not mean that the term registered title holder is ambiguous because, as
Rothstein J. observed, words alone do not have an immutable or absolute
meaning:
Sattva
, at para. 47. It simply means that the term has to be
understood in a manner that honours the commercial purpose of the contract.

[88]

A substantially similar point applies to the use of the term are paid
to in Clause 2. Where the same word has different meanings, it is not
appropriate to create an ambiguity as a consequence of adopting a meaning of a
word that leads to an absurdity or, in this case, results in the nullification
of insurance coverage. Rather, the proper rules of interpretation direct that
one first looks for a meaning of the word that does not render terms of the
contract ineffective:
Weyerhaeuser Company Limited v. Ontario (Attorney
General)
, 2017 ONCA 1007, at para. 65. In this case, given that there are
different meanings for the words pay or paid, the interpretative process
ought to begin with giving the word a meaning that will not result in the
insurance coverage being nullified. Neither my colleagues approach, nor that
of the application judge, accords with that fundamental principle.

[89]

One of the surrounding circumstances known to the parties at the time
of formation of the contract was that the more hands that mortgage monies pass
through, the greater the chance for mortgage fraud to occur. As the Law Society
of Upper Canada noted in its March 24, 2005 Report to Convocation on Mortgage
Fraud, at para. 21:

In this type of transaction, numerous parties are involved
many never know or actually meet each other in person. Without due diligence
throughout the process, it is easy for fraudsters to pass themselves off and to
take advantage of the lack of oversight.

[90]

In light of that reality, Stewart Title had the contractual right to
restrict the parties, in terms of their movement of the funds, given the
purpose of the insurance. Stewart Title was entitled, as a term of its
coverage, to only permit the mortgage funds to be transmitted to the person who
was believed to be the registered title holder and not to any intermediary,
including the purported registered title holders lawyer. Insofar as this
involved a departure from the usual or routine practice of monies being paid to
a partys lawyer in trust, Stewart Title was entitled to insist on that
departure in favour of a requirement that the monies had to be paid to the
registered title holder. Put another way, Stewart Title was entitled to insist
on a more restricted method of payment in order to reduce its exposure under
the policy.

[91]

Therefore, contrary to what my colleague concludes, the language in
Clause 2 is unambiguous in my view. The plain meaning of the words are paid
to in this context is the transferring of an amount to another. In particular,
the words are paid to carries this meaning, given the context of the case and
the commercially reasonable expectations of the parties to this title insurance
contract. As such, there is no contradiction in concluding that Clause 2 is not
invoked where a transfer of funds is made to an imposter registered title
holder with no legal effect. Since the plain meaning of the words do not give
rise to an ambiguity, there is no basis to read into Clause 2 an additional method
of paying to a lawyer in trust.

C.

Restricting the Opportunities for Fraud

[92]

It might be asked why this makes a difference. Surely payment to the
partys lawyer is payment to the party, as some, including my colleague, would
say. The answer to that question is evident from this case. If payments are
allowed to be made to the registered title holders lawyer, Stewart Title is
then relying on the lawyer to ensure that his or her client is, in fact, the
registered title holder. As this case (and, unfortunately, many others) proves,
that is not always a reliable safeguard. If, on the other hand, the monies have
to be paid (that is transferred) to the registered title holder, instead of the
lawyer receiving the funds and then retransmitting them as directed by his or
her client, then the funds have to be transferred or handed over to the person
who purports to be the registered title holder. Normally, such a transfer will
be accomplished either by way of cheque or electronic transfer. In that
situation, the purported registered title holder must convince some financial
institution that he or she is the actual registered title holder in order to
receive the funds. Stewart Title was entitled to its reasonable belief that
Canadian financial institutions may be less easily fooled by a fraudster than a
lawyer might be. By requiring this method of payment only, Stewart Title could
rely on the extra security steps that a Canadian financial institution must
take when dealing with its account holders to reduce the possibility of fraud.
[3]

[93]

In this case, for example, if a cheque or electronic transfer for the
mortgage funds had been directed to John Colarieti, the actual registered title
holder, then in order to gain control over the funds, the imposter would have
had to arrange with a Canadian financial institution for an account to receive
those funds so that the imposter could then gain access to them. Again, I
believe that one can reasonably assume that a Canadian financial institution,
approached by an individual asking to receive $1.1 million, would require a
high level of proof of the identity of the individual before it would agree to
process such a sum. I say Canadian financial institution since the actual
registered title holder, Mr. Colarieti, was known to be Canadian. This was not
a transaction involving foreign investors or borrowers, or a transaction that
otherwise called for the funds to be sent out of the country. Indeed, under the
meaning I give to the exception, if the borrower had asked that the mortgage
funds be transferred to a foreign financial institution or foreign location,
that, in and of itself, might have given rise to questions which might have
revealed the fraud.

[94]

Mr. Nodel argues that there was no evidence that requiring the monies to
be paid in the manner involving a Canadian financial would invoke more
stringent scrutiny than in a private lender transaction. I make two
observations in response to that point. First, the application judge accepted
that more stringent scrutiny would likely be the result from the requirement
that a Canadian financial institution be involved. She said, at para. 66 of her
reasons, I accept that a bank may take steps that would reduce the risk of
fraud, to the benefit of Stewart Title. Second, common sense should be sufficient
to conclude that would be the case. However, in the end result, it matters not
whether increased scrutiny would have resulted in fact. The point is that
Stewart Title was entitled to contractually require payment of the funds to the
registered title holder, and not through a lawyer, because it believed that
would reduce the risk of fraud.

D.

Payments to Agents

[95]

Another ground on which my colleague and I differ in respect of the
plain meaning of Clause 2, is the application of the general principle that
payment to an authorized agent is payment to the person to whom the obligation
is owed. The application judge took the same approach as my colleague. She
said, in her reasons at para. 59:

Relevant surrounding circumstances support the conclusion that
the exception permits payments to a lawyer in trust for his or her client. Both
the regulatory regime and the common practice support the applicant's
interpretation as reasonable and commercially sensible. And the regulatory
regime and common practice are part of the industry in which the insurer
operates.

[96]

I do not quarrel with this general proposition or the common practice
described. But the general proposition and industry practice has little
application where the manner of payment is expressly provided for and
restricted by the contract itself. As I have already alluded to, a party to a
contract is entitled to exclude what may otherwise be normal or routine manners
of payment. It is especially entitled to do so where it is insuring against
fraudulent conduct. In this case, Stewart Title saw fit to preclude the ability
to pay through intermediary agents (as that term is understood in law).

[97]

I would also note, on this point, that the concern raised that lawyers
must deal with other lawyers, and not with a party directly, does not arise
here nor can it be used to bolster my colleagues interpretation. What is
central to the issue raised is how the monies are transmitted, not who
transmits them. Put another way, it is a question as to whom the cheque for the
proceeds is made payable, not who delivers the cheque or to whom it is
delivered.

[98]

The proposition that my colleague advances in support of his
interpretation that payment to the borrowers lawyer was permitted might have
more sway if Clause 2 had been worded more generally. For example, if Clause 2
had read simply Unless the proceeds are paid to the registered title holder,
then the scope for payment to an agent, such as a lawyer, might be more easily
found. That is not, however, how the exception is worded. Clause 2 expressly
provides that if payment is made to any person or entity other than the
registered title holder, then the exception applies. With respect, the wording
could not be clearer.

E.

When Does Ambiguity Actually Arise?

[99]

Finally, the suggestion was made that, because there has been a debate
over the meaning of the words used in the exception, that disagreement on its
own establishes that the language is ambiguous. I do not accept that
proposition. I have no doubt that lawyers can find a basis to argue over
different interpretations no matter what words are used. Indeed, I suspect that
there are no words used in a contract or statute that lawyers could not argue
over. The fact that they can use their talents for that purpose does not mean
that the words are, in fact, ambiguous. As Iacobucci J. said in
Bell
ExpressVu Limited Partnership v. Rex
, 2002 SCC 42, [2002] 2 S.C.R. 559, at
para. 30:

For this reason, ambiguity cannot reside in the mere fact that
several courts  or, for that matter, several doctrinal writers  have come to
differing conclusions on the interpretation of a given provision. Just as it
would be improper for one to engage in a preliminary tallying of the number of
decisions supporting competing interpretations and then apply that which
receives the higher score, it is not appropriate to take as ones starting
point the premise that differing interpretations reveal an ambiguity.

[100]

It
follows from this same point that the mere fact that a word has more than one
plain meaning does not automatically render the meaning of that word ambiguous
when it is used in a contract or other document. Rather, in keeping with the
modern rule of interpretation, one employs the meaning of the word that is
consistent with the purpose of the contract. In the context of this contract of
title insurance the meaning of the word paid must be hand over or transfer
in order to fairly achieve the purpose of Clause 2, which is to reduce the
likelihood of fraud, while still maintaining coverage when a fraud occurs.

[101]

I
would add that holding the parties to a strict interpretation of the insurance contract
does not produce any unfairness in this case. The true victim in this case, Mr.
Nodel, has been compensated for his loss. What is left is a battle between two insurers
as to which of them should bear the loss. Given that it is clear that it was
the lawyer who allowed himself to be duped by the imposter, it does not seem
unreasonable that his insurer, LawPro, should be the one to bear the resulting loss.

CONCLUSION

[102]

The
fact of the matter is that the wording of the exception is unambiguous and by
its plain terms it applies to this situation. The mortgage funds were not
handed over or transferred to the registered title holder, or the person
everyone assumed was the registered title holder, and thus the funds were not
paid in accordance with the terms of the insurance contract. If they had been,
and the person posing as the registered title holder had managed to make off
with the funds, then undoubtedly Stewart Title would have had to provide
coverage (subject to any other defences or claims against others). But that is
not what happened in this case. The mortgage funds were paid in breach of the
express terms of the insurance policy. As a result, Stewart Title was entitled,
under the terms of its policy, to deny coverage.

[103]

I
would allow the appeal, set aside the order of the application judge, and
dismiss the application.

Released: April 9, 2018 G.E.

I.V.B.
Nordheimer J.A.

[1]

In
Progressive Homes
, the Supreme
Court analyzed a commercial general liability insurance policy. Justice
Rothstein, writing for the court at paras. 26-28, used the term exceptions to
describe provisions intended to bring exclusions from coverage back into
coverage. In the instant case, however, Clause 2 of Schedule B is referred to
in the Stewart Title policy as one of the EXCEPTIONS FROM COVERAGE. Stewart
Title also refers to Clause 2 as an exception in its written materials. As
such, I refer to Clause 2, which operates to exclude liability in certain
circumstances, as an exception in these reasons.

[2]
The definitions of the word pay in the
Concise Oxford English
Dictionary
, 12th ed. (Oxford University Press, 2011) are similar.

[3]

If there is any doubt about the existence of these
security steps, I would refer the reader to the provisions of the
Proceeds
of Crime (Money Laundering) and Terrorist Financing Act
, S.C. 2000, c. 17
and the regulations thereunder.