IN THE SUPREME COURT OF BRITISH COLUMBIA

Date: 20140530

Docket: 44474

Registry:
Kamloops

Between:

Linda Hardie

Plaintiff

And

Kamloops Towne
Lodge Ltd.

Defendant

And

Forster
Restaurants Kamloops Ltd. and

Great
Canadian Railtour Company Ltd.

Third
Parties

Before:
The Honourable Mr. Justice Armstrong

Reasons for Judgment

Overview

[1]            
These reasons for judgment address an application for a declaration that
the third party, Forster Restaurants Kamloops Ltd. (“Forster”) is obliged to
defend the applicant, Kamloops Towne Lodge Ltd. (“Kamloops”), in the
plaintiff’s damages claim against it. Kamloops seeks indemnity for any damages
and costs associated with the claim, including the settlement.

[2]            
Kamloops owns a full service hotel in Kamloops, BC. Forster provides
food and beverage services in the hotel and manages the facilities under a
lease agreement with Kamloops (“Lease”), The Lease defines Forster’s role
related to the restaurant, room service, lounge, banquet and dinner theatre
facilities located in the hotel (“Facilities”).

[3]            
The Lease contains an indemnification and save harmless clause (“the
indemnity clause”) that protects Kamloops if it becomes a party to any claim or
suit, by reason of any act of or omission of Forster or, by any reason of any
act occurring on the Facilities except for Kamloops’s wilful or negligent act. If
the Lease’s indemnification clause is triggered, Forster must indemnify
Kamloops for defending and/or settling the claim and pay all of its related
costs.

[4]            
On July 31, 2008, the plaintiff fell and injured herself in the
Facilities’ restaurant area where Forster was providing dinner services. And on
June 30, 2010, the plaintiff commenced an action against Kamloops. The matter
has since settled.

[5]            
Despite Kamloops repeatedly requesting Forster to indemnify it, Forster
has not.

[6]            
I am granting the application because the Lease’s indemnification clause
was triggered. Forster must indemnify Kamloops against the settlement, costs
and expenses, including solicitors’ fees, court costs and other expenses of the
litigation.

Facts

[7]            
In 1992, Forster began managing the Facilities restaurant, lounge and
banquet facilities under a lease agreement, and it has provided food and
beverage vending services in the Facilities since.

[8]            
On March 23, 2000, the parties agreed to a new agreement that reiterated
the management and services terms and the indemnification clause. It allowed
Forster to use the premises for theatre entertainment. Some of the Lease’s pertinent
terms, inter alia, are:

a.       Forster
would have exclusive use of the Facilities to provide food and beverage
services within the Facilities during the Lease term;

b.       Forster
would provide management of and supervise the food and beverage services;

c.       Forster
would pay all utilities and pay for maintaining the service elevator;

d.       Forster
would maintain and repair the fixed and mobile equipment in the restaurant,
lounge, and banquet facilities;

e.       Forster would provide
all advertising promotions, displays and signage;

f.        Forster
would pay all restaurant, lounge, and banquet facilities’ electrical and energy
costs, and it would permit Kamloops access to inspect the Facilities at all
reasonable times; and,

g.       Forster
would obtain liability insurance of at least $1 million and include Kamloops as
a co-insured on all insurance policies.

[9]            
Kamloops agreed, inter alia, to:

a.       supply
and give Forster exclusive use of the equipment described in appendix “B";

b.       provide use of the
service elevator; and,

c.       renovate
the dinner theater basement, including installing bathrooms/showers and finishing
or otherwise decorating the stage area.

[10]        
Section 4.1 of the Lease required Forster to maintain a comprehensive
general liability insurance coverage naming Kamloops as co-insured. Forster’s
commercial general liability policy (“CGL Policy”) included Kamloops as a
co-insured with the following endorsement:

The following are added as additional insured but only with
respect to liability arising out of the operations of the named insured.

[11]        
Under the Lease, Forster was entitled to use of the Facilities’ dinner theater
for a minimum of 120 days at a rent of $30,000 per year; they could use the
theatre for more than 120 days for additional daily rent.

[12]        
In 2006 Forster made an agreement with the third-party, Great Canadian
Railtour Company Ltd. (“Great Canadian”) to provide unrestricted access to the
dinner theatre in the hotel premises and cater meals to Great Canadian’s
customers.

[13]        
On July 31, 2008, the plaintiff was attending a dinner theater at the Facilities
operated by the third-party, Great Canadian under the agreement with Forster. Forster
had placed a dessert buffet on a table near the elevated tier and the plaintiff
fell when negotiating around the table. She suffered injuries, including a
fractured wrist.

[14]        
On June 30, 2010, the plaintiff commenced action against the defendant,
and on August 11, 2010, she filed an amended Notice of Civil Claim; it includes
the following allegations about her July 31, 2008 fall at the Kamloops hotel:

3.         At
times material hereto the Defendant, Kamloops Towne Lodge Ltd., operates a
hotel and convention center at 1250 Rogers Way, in the city of Kamloops, in the
Province of British Columbia, commonly called the "Best Western Forster’s Convention
Center"

4.         The Defendant
was the occupier of the Property. The Property is a "premises" within
the meaning of the Occupiers Liability Act R.S.B.C. 1996, C. 337, by
virtue of the Defendant’s physical possession and ownership of the Property.

5.         On or
about the 31^st day of July, 2008, the Plaintiff was a customer and
guest at the property when she suffered a fall in one of the meeting roomsluncheon
rooms of the Property when she walked around a table after visiting a buffet
and fell off the edge of a raised tier. The raised tier was hidden as a result
of the same carpeting being used on the upper and lower tier.

7.         The fall
was caused solely by the negligence of the Defendant and the Plaintiff pleads
the provisions of the Occupiers Liability Act, R.S.B.C. 1996, c. 337.
Particulars of negligence of the Defendants are as follows:

(a)        in
failing to take any care, or the alternative, any reasonable care, to ensure
that the Plaintiff would be reasonably safe in using the premises, and in
particular and walking around the area where the buffet table was set up for
guests of the premises owned and operated by the Defendant;

(b)        exposing
the Plaintiff to a risk of damage or injury from failing to clearly mark a
change in height on the floor where guests were expected to walk;

(c)        in
failing to take any measure, or in the alternative, any adequate measures,
whether by way of examination, inspection, or test or otherwise, to ensure that
the premises where the buffet was located were not dangerous to use;

(d)        in
failing to effect, and adhere to, a reasonable and comprehensive maintenance
and safety program including, but not limited to, the inspection of the
premises where the buffet was set up to ensure that there was no tripping
hazard or risk to guests;

(e)        in
failing to take any, or any reasonable care, to ensure the Plaintiff would be
reasonably safe from risk of harm when using the premises owned and operated by
the Defendant, thereby exposing the Plaintiff to the risk of injury as a result
of failing to affix a barrier or clearly marking the split-level on the floor,
which the Defendant either knew or ought to of known that posed a potential
risk;

(f)         in
failing to give the Plaintiff any warning, or the alternative, any adequate
warning of the dangers conditions of the floors on and around the buffet area
where the Plaintiff was walking; and

(g)        in
failing to discharge the common duty of care to the Plaintiff in breach of the Occupiers
Liability Act, supra.

[15]        
Kamloops responded to the amended Notice of Civil Claim and alleged that
Forster and/or Great Canadian occupied the premises under its Lease with
Forster.

[16]        
Kamloops also filed third party proceedings against Forster. In
Forster’s response, it alleges that Kamloops, the plaintiff and Great Canadian
were each negligent. Kamloops alleged that Forster and Great Canadian failed to
inspect and maintain the premises, to warn the plaintiff of defects/dangers to
users of the Facilities, and used the Facilities in an unsafe manner that
exposed the plaintiff to risk.

[17]        
On October 9, 2013, the plaintiff, Forster and Kamloops settled the plaintiff’s
action for damages.

[18]        
This r. 9-7 application is for a summary determination of the
defendants’ claim that Forster pay the costs of investigating the circumstances
connected with the action, the legal fees expended for defending the action,
and the settlement cost. Kamloops also requests special costs.

[19]        
Kamloops relies on the indemnity clause in the Lease as follows:

14.1     FRK
covenants and agrees that in the event KTL shall become a party to any claim,
demand or penalty or become a party to any suit or other judicial or ministry
to proceeding by reason of any act or omission of FRK, or those for whom FRK
is in law responsible hereunder, or by reason of any act occurring on the
Facilities save and except the willful or negligent act of KTL, FRK shall indemnify
and save KPL harmless against all judgments, settlements, penalties, costs
and expenses, including solicitor’s fees, court costs and other expenses of
litigation or other judicial or administrative proceeding incurred by or
imposed upon KTL in connection with the investigation or defence relating to
such claim or litigation or administrative proceeding and, at the election of
KPL, FRK shall also defend KTL at FRK’s sole cost and expense.

[Emphasis added.]

[20]        
The indemnification clause is clear: read in sequence, the clause makes
Forster responsible to Kamloops if a claim or suit was made by reason of any
one of following: (1) Forster’s act or omission; (2) an act or omission by
those for whom Forster is legally responsible, or (3) any other acts occurring
on the Facilities except if Kamloops willfully or negligently committed the
act. If the Lease’s indemnification clause is triggered, Forster must indemnify
Kamloops for defending and/or settling the claim and pay all of its related
costs.

[21]        
In September 2011, Kamloops’s counsel requested that Forster assume
defence of the plaintiff’s claim required under the Lease. Forster disagreed
with Kamloops’s interpretation of the Lease and declined to defend the action.

Parties’ Submissions

Kamloops

[22]        
Kamloops argues that proper analysis includes considering the temporal,
spatial and legal aspects to the plaintiff’s claim as it relates to Forster’s
operations.

[23]        
Kamloops contends that Forster had exclusive control over the area where
the plaintiff suffered her injury. Forster placed the food on the table and was
responsible for directing the patrons’ movement in the restaurant. In other
words, Forster possessed and exclusively controlled the area around the buffet
table when the plaintiff was injured and Forster’s act or omission must have
caused or contributed to the plaintiff’s injuries.

[24]        
Kamloops argued its application, in part on the basis that the plaintiff’s
claim arose out of Forster’s operations at the Facilities and Forster had
insured against the specific risk of injuries to guests arising out of its
operations. Kamloops contends that these factors should have triggered coverage
and the duty to defend under Forster’s policy. In addition, the Lease triggered
an obligation to defend and indemnify it from the plaintiff’s claim.

[25]        
Kamloops referred to Vernon Vipers Hockey Club v. Canadian Recreation
Excellence (Vernon) Corporation, 2012 BCCA 291 [Vernon]; Williams
(Guardian ad litem of) v. B.C. Conference of the Mennonite Brethren Churches,
2010 BCSC 791; Waterloo (City) v. Economical Mutual Insurance Co.,
[2006] O.J. No. 5252 (Sup. Ct.) [Waterloo]; Board of S.D. 79 v.
Oppenheim, 2003 BCSC 1303 [Oppenheim]; Potvin v. Canadian Museum
of Nature, [2003] O.J. No. 2020 (Sup. Ct.) [Potvin].

Forster

[26]        
Forster contends it is not legally obligated to defend Kamloops pursuant
to the CGL Policy because liability for the plaintiff’s fall did not arise out
of Forster’s operations of providing food and beverage services, operating the
dinner theater or from any failure to maintain the premises in clean condition
and good repair.

[27]        
Forster argues that the allegations in the amended Notice of Civil Claim
are directed at Kamloops and centered on its obligation to ensure the Facilities
were safe. The plaintiff pled that her injury was caused by Kamloops’s
negligence and breach of its duty under the Occupiers Liability Act and none
of the allegations relate specifically to Forster’s operations of providing
food and beverages.

[28]        
The plaintiff alleged Kamloops failed to warn, failed to maintain the
premises, failed to direct patrons away from a dangerous area, and failed to
put up a barrier to prevent the plaintiff from walking on the carpet where she
fell. The plaintiff focused her claim solely on Kamloops as the cause of her
injury and ignored any involvement of Forster.

[29]        
Kamloops was responsible for designing and constructing the Facilities,
including fixing the table close to where the plaintiff fell, and thus the
“arising out of” clause in the CGL Policy is not triggered.

[30]        
Forster listed its submissions concerning the basis and authorities that
will inform the Court as to its liability under the Lease:

a.       the
words “arising out of the insured’s operations" require a causation
element greater than the “but for” test. There should be an unbroken chain of
causation extant that is more than incidental or fortuitous: Vernon;

b.       to
succeed Kamloops must demonstrate a sufficient connection between the liability
for the injury and the dining buffet operations or failure to maintain the Facilities
in good repair; absent such a connection, allegations against Kamloops or other
occupiers do not have any connection with Forster’s operations: Waterloo;
and,

c.       more
than a temporal connection between Forster’s activity and Kamloops must exist
to engage the indemnity clause and pass the consequences of Kamloops’s
negligence to Forster. The plaintiff did not allege that Forster’s operations
or services, including food provided, or any negligent act of Forster’s
employee’s caused or contributed to the injury; there was an insufficient
connection between the injury and Forster’s activity: Potvin.

d.       the
cause of the fall was the negligent design or construction of the floor/tier
platform by Kamloops and Kamloops could not contract out of its occupier’s
liability duty.

e.       the
Lease did not express an intent to transfer all of Kamloops’s negligence as
occupier to Forester due to the term “any act or omission” and the indemnity
clause should be construed narrowly.

[31]        
Forster argues that the injury resulted from Kamloops’s negligent design
and/or the Facilities construction, including placing and fixing the table in a
place where patrons risked danger.

[32]        
Forster argues its use of the dinner theatre was limited to 120 days per
year. During the 245 day balance, Kamloops had sole possession and control of
that area. Forster contends that because all of the plaintiff’s allegations in
the claim are directed at Kamloops no act or omission on its part was the
reason Kamloops was made a party to the plaintiff’s claim. The injury did not
arise out of the plaintiff’s consumption of food or beverages or the delivery
of food or beverage to her and Forster argues that the plaintiff’s allegation
of failure to warn does not implicate it because the loss did not “arise out of
its operations", namely providing food and beverages.

[33]        
Forster argues that it would be wrong to require it to indemnify
Kamloops for costs that arose out of its own negligence. It argues that the
term “arising out of the named insured’s operations" in a policy
endorsement requires a causation element that is more than “the but for"
test. An unbroken chain of causation in a connection that is more clearly
incidental or fortuitous is required to activate Forster’s duty to defend and
indemnify.

[34]        
Forster argued that Liu and Williams are distinguishable
on the facts and that Potvin is apposite to this case. Potvin
rests on the principle that in the absence of a clear expression of intent to
transfer all the occupiers negligence liability to a renter is found, the
indemnity will apply only to negligence with a causal connection to the renters
activity.

[35]        
Finally, Forster argues that if it is liable, special costs should not
be awarded because its conduct was reasonable in the circumstances. Forster
argues it responded to Kamloops’s request that it assume the defence and indemnify
Kamloops in a timely manner, and nothing in their conduct invites a special
costs order.

Analysis

[36]        
The evidence establishes that the plaintiff’s injuries occurred near a
table fixed to the Facilities’ floor. The parties agree that the fall occurred
when the plaintiff was collecting food from the buffet table and lost her
footing due to a defect in the floor or carpet. The plaintiff’s injury is
clearly connected to her movement while obtaining food at the buffet table.

[37]        
Kamloops contends that the location where the plaintiff fell was within
Forster’s exclusive control, at least for the purposes of managing patrons.
Kamloops permitted Forster to create the layout by which the plaintiff
collected food from the table. Forster earned its profit from the patrons entering
into the Facilities and Forster promised to defend claims from patrons against
Kamloops if they arose:

a.       ”by reason of any act
or omission” of Forster;

b.       “by
reason of any act or omission” of any individual for whom Forster is legally responsible
hereunder; or,

b.       “by
reason of any act occurring on the Facilities save and except the willful or
negligent act of” Kamloops.

[38]        
Therefore, three situations will impose obligations on Forster to defend
Kamloops and compensate for applicable costs and expenses under the Lease.

[39]        
The three parts of the indemnity clause must be construed as follows.

[40]        
Regarding the first and second situations if an act or omission of
Forster (or anyone it is legally responsible for) was the reason Kamloops was
named in the pleadings, then Forster must indemnify Kamloops. The plaintiff’s
pleadings must be examined to ascertain if the claim alleges Forster’s acts or
omissions are the reason for the suit against Kamloops.

[41]        
Regarding the third situation, if any other act occurs on the Facilities
that results in a claim where Kamloops is named, Forster must indemnify
Kamloops unless Kamloops was willful or negligent.

[42]        
In this case, the question is whether the reason Kamloops is a party to
the suit is, by reason of the plaintiff’s allegations in the amended Notice of
Civil Claim because of an act or omission by Forster. If it is, then the claim triggers
the indemnity clause. If allegations against Kamloops arise from one of the first
two situations, Forster must indemnify Kamloops. If the third scenario is the
reason for the claim then Kamloops is deprived of a defence and indemnity. I
find that the plaintiff’s amended Notice of Civil Claim contains allegations
implicating Kamloops by reason of the first situation – i.e., Forster’s acts or
omissions – so Forster must indemnify Kamloops.

[43]        
Forster obtained public liability insurance in addition to other
policies. Kamloops was a co-insured on this policy. There was no suggestion in
argument that Kamloops was obliged to pursue a remedy against the insurer
rather than invoking the parts of the Lease requiring Forster to defend and
indemnify Kamloops directly. Although it appeared that Kamloops may have had a
direct cause of action against the insurer, I was not informed that Kamloops
made any claim as a co-insured. This application concerned Kamloops against
Forster and not against Forster’s insurer: Forster premised its rejection of
its indemnity obligation on the insurance policy that named Kamloops as a
co-insured. Each of the authorities Forster’s counsel cited referred to
insurance policies containing similar language. Counsel argued that the
obligation to indemnify and defend arises “only in respect of liability arising
out of the named insured’s operations”: see Great Atlantic & Pacific Co.
of Canada Ltd. v. Economical Mutual Insurance Co., 2013 ONSC 7200 at para. 2;
Vernon at para. 5; Williams at para. 9; Liu v. Chu,
2009 BCSC 753 at para. 75; Harris v. Memorial Boys’ and Girls’ Club
Inc., [2008] O.J. No. 2750 at para. 8 (Sup. Ct.); Oppenheim at
para. 5.

[44]        
The arguments on the “arising out of” clause and the insurance policy
were helpful in understanding this application, the focal point is the indemnification
clause from the March 23, 2000 Lease. The indemnification clause does not
contain the phrase “arising out of” nor does it address liability arising out
of Forster’s operations. Kamloops’s claim does not mention the co-insurance
agreement nor does it engage the “insurance” coverage referred to in the Lease.
Neither aspects of their relationship are at issue on this application.

[45]        
This application is limited to considerations pertaining to the
indemnification clause, and that outcome is not contingent on the insurance
section of the Lease. The issue is not whether the plaintiff’s claim arises out
of Forster’s operations; rather the issue is whether Kamloops became a party to
the litigation by reason of Forster acting, or failing to act, in a way that
falls within the scope of the Lease’s indemnity clause. To restate what I said
earlier for clarity, Forster promised to defend claims against Kamloops in three
situations:

a.       “by reason of any act
or omission” of Forster;

b.       “by
reason of any act or omission” of any individual for whom Forster is legally responsible
hereunder; or,

b.       “by
reason of any act occurring on the Facilities save and except the willful or
negligent act of” Kamloops.

[46]        
The analysis focuses on whether the plaintiff’s pleadings allege facts
that reasonably implicate (1) Forster’s actions or omissions as causing or
contributing to her injuries or (2) any act occurring on the Facilities
(according to the March 23, 2000 Lease, Appendix A, the Facilities includes the
entire 1250 Rogers Way property) causing or contributing to her injuries except
for Kamloops’s willful or negligent conduct.

[47]        
Both situations are triggered in this case. I will address both.

[48]        
Regarding the first situation, the application of the indemnification
clause depends on whether the pleadings address facts that might point to
Forster’s acts or omissions as reasons the claim was made against Kamloops. If
the pleadings include facts that, if true, would require an insurer to provide
a defence, it does not matter that the actual facts may differ from the
pleadings. The mere possibility that the claim falls within the policy will be
sufficient: Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49,
[2001] 2 SCR 699 [Monenco] at para. 29-35.

[49]        
In my view, the Monenco analysis is apposite to this case. If the
plaintiff’s claim against Kamloops might have been made by reason of Forster’s
impugned acts, then Forster’s duty to indemnify and defend is activated.

[50]        
It is obvious that Forster was catering the food delivery part of the
dinner theatre event when the plaintiff was hurt. In light of the many years it
had operated in the hotel, it likely possessed the means and experience to
identify risks to its patrons, even if those risks were created by a negligent
design or construction. It could have protected its patrons from a dangerous
situation.

[51]        
To engage Forster’s liability to defend and indemnify Kamloops, an act
or omission was required. The pleadings alleged, among other things, a failure
to warn and a failure to take steps to mark the change in the height of the
floor, and failing to affix a barrier marking the split-level on the floor. In
other words, Forster omitted to do several things that might have prevented the
plaintiff’s fall.

[52]        
I find that the allegation that Kamloops failed to warn, failed to
maintain, failed to direct patrons away from a dangerous area, and failed to
put up a barrier to prevent the plaintiff walking on the carpet where she fell,
etc. are actions that Forster might have reasonably undertaken specifically,
ensuring the Facilities were safe for its patrons. In this regard, Forster’s
failure to act constituted “an omission” to act to protect its patrons from
falling in and near the buffet.

[53]        
Moreover, in argument, Forster’s counsel acknowledged that, if Forster
was aware of other patrons falling on that part of the floor, it would have
owed patrons a common law duty to warn them of the risk created by the buffet’s
uneven surface. Obviously, Forster, having been in possession of the Facilities
for many years, should have been aware of the danger around the buffet table.

[54]        
Therefore, the duty to defend was triggered because the true nature of
the plaintiff’s claim was, in part, based on an alleged breach of Forster’s
duty to warn and its negligence in not managing the flow or location of patrons
using the dinner theatre and dining facilities.

[55]        
Regarding the second situation, if Forster’s act or omission were not involved
in the plaintiff’s injuries, her fall was an action that occurred on the
Facilities. In those circumstances, Forster argues it was Kamloops’s negligence
that caused the injury and therefore it was not liable.

[56]        
Indeed, Forster’s counsel argued that all of the plaintiff’s claims
relate entirely to Kamloops’s negligence because Forster did not have exclusive
right to make changes to the structure or Facilities that could cause or
eliminate the risk of the plaintiff’s injury. Kamloops could enter the premises
at any time and make changes or repairs without Forster’s permission. The
plaintiff raised no cleanliness or tidiness issues, so on that basis, Forster
asserts it was solely Kamloops’s negligent design and maintenance that caused
the plaintiff’s injury.

[57]        
It was not contested that the plaintiff fell because of a structural or
surface problem at the buffet table. Although Kamloops may have been negligent
or in breach of its duty under the Occupier Liability Act, the claim
included allegations that implicitly related to Forster’s breach of duty of
care, and therefore the Lease required Forster to indemnify and defend Kamloops
notwithstanding that Kamloops may be negligent.

[58]        
In fact, the indemnification clause itself supports this conclusion.
Read grammatically, the clause makes Forster responsible to Kamloops if a claim
was made by reason of any one the following: (1) Forster’s act or omission; (2)
an act or omission by those for whom Forster is legally responsible, or (3) any
other acts occurring on the Facilities except if Kamloops willfully or
negligently committed the act.

[59]        
Reading the indemnification grammatically, the “except” only
applies to the third situation. So in effect, Forster’s negligent act or
omission coupled with Kamloops’s possible negligence does not vitiate Forster’s
obligation to indemnify Kamloops. Forster’s indemnity obligation would only be vitiated
if: (1) Forster (or anyone who it is legally responsible for) was not liable
for an act or omission and (2) an act that occurred on the Facilities was
caused by a willful or negligent act of Kamloops.

[60]        
Potvin was not as helpful as argued by Forster. That case dealt
with a lease indemnification clause that used the phrase “arise out of or in
connection with the entry onto and use of the museums facilities". There,
the court cautioned against permitting a landlord to pass on its occupiers
liability to a tenant without close scrutiny. The decision turned on the principle
that a temporal connection alone was insufficient to establish liability for a
claim that “arises out of or in connection with entry onto and use…”

[61]        
I do accept Forster’s argument that the indemnity clause should be
construed narrowly and should not permit prevent Kamloops from the protection
of the clause by requiring Forster to indemnify notwithstanding that its
failure to construct the platform differently. Forster was always in a position
to keep patrons away from the danger and could have prevented the injury.
Forster assumed that responsibility when it took control of the area.

[62]        
On this case’s facts, I am satisfied the plaintiff’s claim against
Kamloops was made by reason of the first of these three situations described in
the indemnification clause and Kamloops’s possible negligence does not vitiate
Forster’s obligation. Forster was obliged to defend and indemnify Kamloops, and
it failed to do so.

Arising Out of Cases/The Insurance Cases

[63]        
If this case dealt with the insurance policy and was premised on an
“arising out of” clause, I would not have acceded to Forster’s contention;
Kamloops would have been entitled to a defence and indemnification as
co-insured under the policy.

[64]        
The parties referred to Vernon in which the Court of Appeal
reviewed many of the decisions counsel relied on, including Monenco, Oppenheim,
etc.

[65]        
And at para. 26 of Vernon, the Court summarized the
interpretation principles as follows:

·      
courts should broadly construe insurance contract provisions that
provide coverage;

·      
courts should resolve ambiguity in the insured’s favour;

·      
courts should construe insurance contracts contra proferentem
because the insurer chooses the language; and

·      
courts should narrowly construe insurance contracts’ provisions
excluding or limiting coverage.

[66]        
In Vernon, a hockey team used a recreational
facility owned by the District of North Okanagan (“District”). The hockey club
obtained a policy of insurance that included the District as “additional insured’s”.

[67]        
A club patron left the building and as he was walking away from the rink
injured himself. He sued the District and no others. In turn, the District
issued third-party proceedings against the hockey club and insurer. It made a
claim for defence and indemnity under the policy endorsement adding them as
additional insured’s because the policy used the phrase “in respect of
liability arising out of the named insured’s operations”. The District argued
that the patron’s injuries arose out of the hockey club operations. The hockey
club and insurer applied for declarations that they were not obligated to
defend or indemnify the District; the trial judge agreed.

[68]        
The case turned on the meaning of “arising out of", and the Court
of Appeal considered the “but for” test in the process of interpreting the
phrase “arising out of". The Court held that use of “arising out of”
imposed a closer causal connection between the claim and the insured’s
operations than a simple “but for test". At para. 52 the Court said:

52.       I
conclude that the contractual term “arising out of the Named Insured’s
operations” … imposes a causal requirement greater than a simple “but for”
test. Borrowing from the cases discussed above, the phrase “arising out of”
should be construed as requiring “an unbroken chain of causation” and a
connection that is more than “merely incidental or fortuitous.”

[69]        
The Court reviewed the term “operations". And at para. 54 it
said:

54.       In
my view “operations” is a word of sufficiently broad meaning as to include the
creation of a situation, or circumstance, that is connected in some way to the
alleged liability. It does not necessarily imply an active role by the
named insured in creation of the liability event. Operations can include the
occupation and use of premises or other “passive” conduct that might not be
included within the meaning of the word “activities”, as the latter term was
used in Saanich.

[Emphasis in original.]

[70]        
On this basis, the Court rejected that the District’s liability arose
out of the hockey club operation. While the club patron clearly met a “but for”
test, he was outside the rink and walking off the property when his injury
happened. His injury was merely incidental to his attendance at the hockey
club’s operation and the hockey club had no obligation to defend or indemnify
the District.

[71]        
On the facts of this case, more a simple “but for” test is met. The
plaintiff’s slip and fall was more than merely incidental or fortuitous to
Forster’s operations; it arose out of her attendance to dine and be entertained.
In Vernon the Court said the phrase “arising out of” in the context of
an insurance contract required a closer causal nexus than a simple “but
for" test.

[72]        
In Vernon at para 54 the Court described the word: “operations”
as sufficiently broad to include creation of a situation, or circumstance that
is connected in some way to the alleged liability.

[73]        
In this case, Forster was clearly playing an active role in catering the
food and beverage services on the evening of the plaintiff’s fall. Indeed, it
was directly connected to Forster use, supervision, and maintenance of Kamloops’s
Facilities: the plaintiff was on the Facilities for a purpose connected to
Forster’s operations of providing food, beverage service and entertainment, and
she lost her footing in the very area where patrons were invited to collect
food; the area was used and controlled by Forster at the time. Forster’s
control extended, at least, to the fact it could have: redirected patrons away
from the dangerous area, prohibited passage over the area, and warned the
plaintiff about the danger.

[74]        
Although these comments on the insurance agreement are not binding, I
would have granted the application if Kamloops had pursued a claim under the
insurance policy. However, the application is granted only for the reasons that
the indemnity clause operates in Kamloops’s favour.

Conclusion

[75]        
Kamloops’s application is granted.

[76]        
Forster must indemnify Kamloops against the settlement, costs and
expenses, including solicitor’ fees, court costs and other litigation expenses.
Kamloops’s entitlement to indemnity for costs shall be assessed as special
costs subject to their right to a review of those costs under the Legal Profession
Act: see Oppenheim at para. 25.

[77]        
Kamloops will have its costs of this application at Scale B.

The
Honourable Mr. Justice Armstrong