Mike Holmes weighs in on Title Insurance

Construction deficiency claims and title insurance being two of my primary areas of practice and both being near and dear to my heart, I read Mike Holmes’ article “A flood of misinformation: Title insurance is not a home warranty” in the National Post with some interest.

I don’t agree with everything that Holmes says in the article but he got the title right anyway.  Title insurance is a specialized insurance product and, as a very general statement, protects purchasers of real property from a long list of “title” or “ownership” related problems or “risks”.  It is not, and doesn’t pretend to be, a warranty of good design and/or construction.  The title of the article seems to suggest that Holmes agrees with this proposition. So far, so good.

Where Holmes really loses me, though, is when, in discussing hypothetical homeowners who discover major construction deficiencies, he writes, “Who’s at fault? Is it the homeowner who got the renovation? Is it the contractor that was hired? Is it the title insurance company, the building inspector or the government? As far as I’m concerned, it’s all of the above.”  How can the title insurer be at fault?

A policy of insurance (be it title insurance or some other kind of insurance coverage) covers what it covers and doesn’t cover what it doesn’t cover.  For Holmes to suggest, as he does, that the title insurer is at fault in the scenario he outlined is a bit like saying that when your house gets broken into and your auto insurer won’t pay for your stolen sofa, your auto insurer is partly at fault for your loss.

In any case – I thought the article was worth mentioning as Homes has brought some good media exposure to title insurance and cast at least a little bit of light on a common misunderstanding that I see all too often in my practice.

Ontario Court of Appeal finds that the decisions of Tarion’s inspectors are “judicial decisions”

The Ontario Court of Appeal  released  Metropolitan Toronto Condominium Corporation No. 1352 v. Newport Beach Development Inc. earlier this week.  It’s an interesting case and may actually provide some useful jurisprudence in litigation involving defects and claims under the Ontario New Home Warranties Plan Act (ONHWPA).

The facts are nicely summarized at the outset of the Decision as follows:

2] The respondent Metropolitan Toronto Condominium Corporation No. 1352 (“Metro 1352”) manages a luxury condominium project in Etobicoke near the shore of Lake Ontario. It alleges that the project has two major construction defects. It claims that the sanitary sewer system was not built properly, causing toilets in the condominium units to overflow and the units themselves to flood with sewage. It also claims that a systemic failure of the exterior cladding over the project, called the exterior insulated finish system (“EIFS”), has caused water penetration in the condominium units.

[3] Metro 1352 sought compensation for these two defects under the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. 0.31 (the “Act”). The administrator of the Act, the respondent Tarion Warranty Corporation, denied compensation. Instead of appealing Tarion’s decisions to the Licence Appeal Tribunal, as it was entitled to do, Metro 1352 started this litigation. It has sued Newport, the vendor and declarant of the project; Canderel, a developer related to Newport; Spampinato, an officer of Canderel; Enersys Engineering Group Ltd. and Eric Pun, the engineers on the project; and Tarion. It has asserted causes of action for breach of statutory warranty, negligence, breach of fiduciary duty and breach of contract. The engineers have been noted in default. The other defendants have not delivered a statement of defence.

[4] On its Rule 21 motion Newport asked for various forms of relief, but principally for an order dismissing the action on the ground that the litigation is an abuse of process. Newport argued that Tarion’s decisions denying warranty coverage could only be reviewed by an appeal to the License Appeal Tribunal. Either the doctrine of issue estoppel or the rule against collateral attack prevented Metro 1352 from re-litigating its claim by a civil action. The motion judge, Corrick J., disagreed and dismissed the motion in its entirety.

[5] On its appeal Newport raises three issues, which I put in the form of questions:

(1) Did the motion judge err by failing to dismiss Metro 1352’s claims relating to defects in the sanitary sewer system and the EIFS, both against Newport and Tarion, as an abuse of process?

(2) Did the motion judge err by failing to dismiss the claim for breach of warranty for defects in the sanitary sewer system on the ground that they do not constitute a major structural defect under s. 13(1)(b) of the Act?

(3) Did the motion judge err by failing to dismiss the claim for defects in the EIFS on the ground that the claim was a new cause of action added by amendment to the statement of claim after the expiry of the limitation period?

One of Newport’s arguments in relation to the first question above was that the doctrine of “issue estoppel” should – Metro 1352 having already been provided determinations by Tarion that the defects were not compensable under the ONHWPA – prevent Metro 1352 from suing Newport in Court over those very same issues.

In analyzing Newport’s argument regarding issue estoppel, one of the things that the Court of Appeal had to consider was whether Tarion’s decisions were “judicial” decisions.  To my surprise and horror (OK…not horror, near horror), the Court of Appeal disagreed with the motion judge and ruled that the decisions of Tarion’s inspectors are “judicial” in nature.

I obviously don’t know whether any of the learned judges hearing this appeal have personally gone through the process of a Tarion inspection and of finding out what Tarion deems “warranted” or “not warranted” via its Warranty Assessment Report process. I also don’t know what evidence the learned judges had before them in terms of what the inspectors do (process, rules, policies) and what sort of education and training they have.  That said, in addition to representing clients involved in disputes with Tarion, I’ve been through several Tarion inspections myself  and  “judicial” is not a word that comes to mind when I consider how the Tarion inspectors handled my claims.  In my own experience, the Tarion inspectors that determined what was deemed warranted and what was deemed not warranted:

  • Communicated regularly with both me and the builder in the absence of the other before (and after) issuing the Warranty Assessment Report, making the process far from open and transparent. Both sides can feed the inspector information without the other side necessarily knowing about it and there is, therefore, no way to know what information is being provided and what sort of verification is being done.
  • Did not hold anything that could reasonably be considered a “hearing”.
  • Don’t allow third/non-parties to be present during the inspection. If it is “judicial” or adjudicative in nature, why wouldn’t an owner or builder be permitted to have a lawyer or an expert, for example, present?
  • Adhered rigidly and inflexibly to Tarion’s “Construction Performance Guidelines” which are a useful but, in my view, imperfect and incomplete set of “guidelines”.  There is not much “judicial” analysis involved in robotically applying “guidelines” as though they are infallible and carry no exceptions.
  • Did not have any legal training.
  • Ignored large amounts of information provided to them (such as manufacturer’s installation instructions that had not been followed by our builder).  None of this showed up anywhere in our Warranty Assessment Reports and when I asked about it at the inspection, I was told by one of the inspectors that he “hadn’t looked at it”.
  • Didn’t bring a ladder or binoculars or have any way of “inspecting” second story exterior deficiencies for which they had ample and complete notice were to be assessed.  If the inspectors are tasked with inspecting deficiencies and then making a “judicial” determination regarding same, how can they possibly do so if they show up and don’t have any manner of even looking at the alleged deficiency?
  • Didn’t take note of most things either party said during the inspection. While I don’t think a detailed transcript should be required, when few notes are taken one is left to wonder how much information is actually making it onto “the record”.

At the end of the day, I think that the outcome (and most of the analysis) in this Decision is correct so it may be that not much turns, in practice, on this aspect of the Decision.  It just strikes me – as I expect it might strike many who have had the experience of actually going through the Tarion conciliation inspection and assessment process – that to call Tarion’s internal decision making process “judicial” is inaccurate and diminishes truly judicial decision making.  Just because an animal has a bill, webbed feet, and lays eggs, doesn’t necessarily mean it is a platypus.

Two recent Court Decisions affirming that the Ontario New Home Warranty Plan is for the protection of new home buyers

The courts in Ontario have held, on a number of occasions, that the Ontario New Home Warranties Plan Act (“ONHWPA”) is legislation established to protect and provide additional remedies to buyers of new homes.  These Decisions have normally arisen in the context of disputes between homeowners on one side and their builder and Tarion on the other.  Two interesting Decisions recently came down from the Ontario Court of Appeal that have, albeit in a completely different context, affirmed that the ONHWPA is remedial, consumer protection legislation. The first of these Decisions is Tarion Warranty Corporation v. Boros, 2011 ONCA 374 (CanLII) (leave to appeal to the Supreme Court of Canada refused) and the second is Tarion Warranty Corporation v. Kozy, 2011 ONCA 795 (CanLII).  In both cases, the issue before the Court of Appeal was whether the homebuilders were “builders” under the ONHWPA such that they were caught by the registration (and other) requirements of the legislation.

From a residential builder’s perspective, these cases are primarily of significance because there is now clear and strong authority that the ONHWPA can’t be circumvented or avoided by simply leaving a small portion of construction out of the contract for the buyer to complete.

From a homeowner’s perspective, there are two noteworthy things about these cases:

  1. I believe that this is the first time the Ontario Court of Appeal has so clearly and unequivocally affirmed that the ONHWPA is remedial consumer protection legislation and that it is to be interpreted broadly and liberally as such; and
  2. Under the circumstances of these cases, it appears to have been Tarion, not new homeowners, arguing for this purposive, broad, and liberal interpretation of the ONHWPA.

It will be very interesting to see what the courts do with this purposive, broad, and liberal interpretation of the ONHWPA (and Tarion’s corresponding purpose and obligations) when a good case comes along within which to test and question how Tarion assesses and handles homeowners’ claims regarding deficiencies and “unauthorized substitutions”.  Having read many, many License Appeal Tribunal and court Decisions, I’ve yet to see one that gives a comprehensive and satisfactory treatment on this important aspect of the warranty.

Tarion providing protection to Ontario’s new homebuyers?

I watched an interesting little piece on CTV’s W5 last night that dealt with several Ontario homeowners’ difficulties surrounding the heating systems installed in their new homes and their frustration in dealing with Tarion.  Click here for a link to the online article on the same piece.

Tarion provides and administers Ontario’s mandatory new home warranty program under the Ontario New Home Warranties Plan Act (“ONHWPA”) and its regulations.   Based on the W5 story and others I’ve seen, Tarion still seems to be really struggling with the concept that the ONHWPA is consumer protection legislation and that, as such, protecting homeowners is Tarion’s primary (if not sole) mandate.  There have been at least a couple of cases decided by the Ontario Courts where the Court has expressly stated that the ONHWPA is consumer protection legislation and yet the piece on W5 is just the most recent of many, many stories and articles in the media telling a very similar story.  The message – even when delivered by the Courts – just doesn’t seem to be getting through.

I’m skeptical by nature and, a few years ago, I might have chalked these media stories about problems with Tarion up to whiny homeowners and/or overzealous reporters.  However, as the purchaser of two (consecutive) new homes in the last four years, I’ve had the personal displeasure of tangling with Tarion not once, but twice.  I won’t bore you with the details but I will tell you that, with both houses, I had several substantial and legitimate deficiencies that Tarion deemed “Not Warranted”.  If you’ve ever received a Warranty Assessment Report from Tarion, you will be entirely too familiar with these two words.  I’ve been litigating construction deficiency claims for more than a decade and I have a pretty good sense for what should be covered by a warranty and what probably isn’t.  Tarion knew I was a construction lawyer and I was still treated by Tarion as though I had no idea what I was talking about and would just placidly accept its patently wrong decisions.  It was a real eye-opener and I remember feeling extremely sympathetic to folks that are trying in vain to get help from Tarion and don’t have the skills or resources to take Tarion to task when it determines some of their very legitimate complaints to be “Not Warranted”.

Seeing this W5 story has renewed my interest in trying to help to educate homeowners and I will, in the near future, post some information here that Ontario homeowners dealing with Tarion might find helpful.