COURT OF APPEAL FOR ONTARIO  
CITATION: EPCOR Electricity Distribution Ontario Inc. v. Municipal Electric  
Association Reciprocal Insurance Exchange, 2022 ONCA 514  
DATE: 20220706  
DOCKET: C69740  
Strathy C.J.O., Sossin and Favreau JJ.A.  
BETWEEN  
EPCOR Electricity Distribution Ontario Inc. and Edwin Houghton  
Applicants (Respondents)  
and  
Municipal Electric Association Reciprocal Insurance Exchange  
Respondent (Appellant)  
Alan Mark and Kirby Cohen, for the appellant  
William Scott and Gabrielle Schachter, for the respondents  
Heard: May 19, 2022  
On appeal from the judgment of Justice Mohan Sharma of the Superior Court of  
Justice, dated July 16, 2021, with reasons reported at 2021 ONSC 5033, and from  
the costs order, dated July 16, 2021, with reasons reported at 2021 ONSC 5680.  
Strathy C.J.O.:  
A.  
OVERVIEW  
[1] This appeal involves a dispute between an insurer and its insureds concerning  
the interpretation of a comprehensive liability insurance policy.  
Page: 2  
[2] The respondents sought coverage from the appellant for legal costs incurred  
in two proceedings. The application judge found in their favour. The appellant  
appeals from that finding. For the following reasons, I would allow the appeal in  
part and vary the judgment below.  
B.  
THE PARTIES  
[3] The appellant, Municipal Electric Association Reciprocal Insurance Exchange  
(“MEARIE”), is an insurance reciprocal. Its subscribers are electricity distribution  
utilities in Ontario. In 2018, MEARIE issued the Comprehensive Liability Insurance  
Policy (the “Policy”) at issue in this appeal.  
[4] The respondent, EPCOR Electricity Distribution Ontario Inc. (“EPCOR”), is an  
electricity distributor that provides electrical supply to municipalities. It operated  
the utility company that supplied power to the Town of Collingwood  
(“Collingwood”). EPCOR was insured under the Policy.  
[5] The respondent, Edwin Houghton (“Mr. Houghton”), is the former President  
and CEO of the utility company acquired by EPCOR. He is also the former acting  
Chief Administrative Officer of Collingwood. As an officer of EPCOR’s  
predecessor, he was also insured under the Policy.  
Page: 3  
C.  
BACKGROUND FACTS  
The Share Sale Transaction  
[6] Prior to 2012, Collingwood was the sole shareholder of a local electrical utility,  
then known as Collingwood Utility Services Corporation. Mr. Houghton was the  
President and CEO of the utility. In March 2012, Collingwood sold 50% of its shares  
to PowerStream Holdings Inc. After the sale, the utility became Collus  
PowerStream Corporation (“CPS”) and Mr. Houghton continued to serve as its  
President and CEO from 2012 until 2016. In 2018, EPCOR Utilities Inc. indirectly  
acquired 100% of the shares of CPS, and CPS changed its name to EPCOR.  
[7] Between April 2012 and 2013, Mr. Houghton also served as Collingwood’s  
acting Chief Administrative Officer. He maintained his position as President and  
CEO of the utility during this time.  
[8] In June 2013, the Collingwood Town Council approved the use of funds from  
the sale of the utility to upgrade certain recreational facilities, including an arena  
and a pool. Mr. Houghton supported this decision in his capacity as acting Chief  
Administrative Officer.  
[9] Beginning in 2013, public concerns were raised about Collingwood’s sale of  
shares in the utility and the disbursement of the sale proceeds. In 2014, the Ontario  
Provincial Police began investigating the allocation and expenditure of funds from  
the sale, but no criminal charges were laid.  
Page: 4  
[10] In June 2016, Mr. Houghton resigned from his position at CPS. Other officers  
resigned around the same time.  
The Public Inquiry  
[11] In February 2018, in response to the public concerns about the sale of the  
utility, Collingwood passed a resolution requesting a public judicial inquiry under s.  
274(1) of the Municipal Act, 2001, S.O. 2001, c. 25 (the “Inquiry”). In April 2018,  
Associate Chief Justice Frank Marrocco was designated the Commissioner of the  
Inquiry.  
[12] The scope of the Inquiry was “to inquire into … any matter related to a  
supposed malfeasance, breach of trust, or other misconduct” by any involved  
person. The terms of reference included “investigation and inquiry into all relevant  
circumstances pertaining to the [share sale transaction]” and “investigation and  
inquiry into the relationships, if any, between the existing and former elected and  
administrative representatives of the Town of Collingwood, Collingwood Utility  
Services Corporation and PowerStream Inc.”.  
Mr. Houghton’s Participation  
[13] Mr. Houghton applied to participate in the Inquiry, given his role in the share  
sale transaction, his prior role as President and CEO of the utility, and as  
Collingwood’s former acting Chief Administrative Officer. He was granted standing,  
given his “substantial and direct interest” in the issues that would be addressed in  
Page: 5  
the Inquiry. He was also granted procedural rights, including advance notice of  
proposed evidence, the opportunity to suggest and cross-examine witnesses, and  
the right to make closing submissions.  
[14] On May 31, 2019, counsel for the Inquiry sent a “conduct letter” to Mr.  
Houghton’s lawyer advising that the Inquiry might make “a finding of misconduct”  
against his client.  
[15] Mr. Houghton participated in two phases of the Inquiry. By the end of his  
involvement in the process in October 2019, he had incurred $591,115.31 in legal  
fees.  
MEARIE Denies Coverage to Mr. Houghton  
[16] On July 10, 2018, Mr. Houghton’s counsel wrote to MEARIE, requesting that  
it fund Mr. Houghton’s participation in the Inquiry and asking for confirmation of the  
nature of the insurance available to Mr. Houghton and for copies of the relevant  
policies.  
[17] On August 20, 2018, counsel for MEARIE advised it would deny coverage,  
stating that there was “no claim against Mr. Houghton to which any policy of  
insurance issued by MEARIE responds” and “no coverage under any such policy  
for legal fees incurred by Mr. Houghton in connection with representation before  
the Inquiry.” The letter did not set out the relevant terms of the Policy, referred to  
below, nor did it explain why MEARIE had determined that there was no coverage.  
Page: 6  
It is not apparent that the Policy was sent to Mr. Houghton’s counsel in response  
to his request.  
EPCOR Denies Indemnity to Mr. Houghton  
[18] On August 9, 2018, Mr. Houghton’s counsel wrote to EPCOR seeking  
indemnity for Mr. Houghton’s legal expenses. Section 7.01(1) of EPCOR’s  
corporate bylaws (the “Bylaw”) provided that the corporation would indemnify  
directors and officers against, among other things, costs and expenses reasonably  
incurred in respect to any civil, criminal or administrative actions or proceedings to  
which the individual was made a party by reason of having been a director or officer  
of the corporation.  
[19] By letter dated September 20, 2018, EPCOR’s counsel responded that the  
Inquiry did not fall within the scope of the Bylaw because there was no risk of a  
finding against Mr. Houghton, a judgment or penalty being ordered against him, or  
a settlement being paid on his behalf.  
Mr. Houghton’s Application Against EPCOR  
[20] In July 2019, after the completion of the first phase of the Inquiry, Mr.  
Houghton commenced an application in the Superior Court of Justice claiming  
indemnity from EPCOR for his incurred and anticipated legal costs. By this time,  
Mr. Houghton had received formal notice from the Inquiry that his conduct was  
under scrutiny and that there might be findings of misconduct made against him.  
Page: 7  
[21] On September 16, 2019, Koehnen J. held that EPCOR was required to  
indemnify Mr. Houghton for his legal costs pursuant to the Bylaw. He found that it  
was “clear from the outset” that the Inquiry was a “proceeding” contemplated by  
the Bylaw, given the potential for findings of misconduct against Mr. Houghton.  
[22] EPCOR was thus ordered to advance funds for Mr. Houghton’s legal  
expenses for the remainder of the Inquiry. Costs related to the earlier part of the  
Inquiry were to be determined at a future date. EPCOR and Mr. Houghton later  
reached a settlement of his legal expenses, relating both to the Inquiry and his  
application for coverage under the Bylaw.  
MEARIE Denies Coverage to EPCOR  
[23] EPCOR’s counsel initially wrote to MEARIE on August 6, 2019, requesting  
coverage for its own legal expenses in responding to the Bylaw application  
commenced by Mr. Houghton. On August 15, 2019, MEARIE denied coverage to  
EPCOR on two bases: first, that the application had incorrectly named EPCOR,  
and the incorrectly named party was not an Insured; and second, that the exclusion  
found in art. 3.19 of the Policy excluded coverage. Article 3.19 excludes coverage  
where an Insured is subject to a “[c]laim for expenditures, compensation, damages  
or any other amounts that are payable pursuant to statute or regulation” (emphasis  
added). MEARIE’s position was that the exclusion applied because the application  
against EPCOR had been commenced under s. 136(5) of the Business  
Page: 8  
Corporations Act, R.S.O. 1990, c. B.16, and rr. 14.05(3)(d) and (h) of the Rules of  
Civil Procedure, R.R.O. 1990, Reg. 194.  
[24] After this denial, EPCOR’s counsel provided MEARIE with further  
documentation, including the order of Koehnen J. directing that EPCOR indemnify  
Mr. Houghton, in which EPCOR was a correctly named party and clearly an  
Insured.  
[25] On October 8, 2019, EPCOR’s counsel proposed to MEARIE that it would  
attempt to settle with Mr. Houghton. EPCOR’s counsel sought a response on two  
issues: (i) EPCOR’s outstanding claim for indemnity for its own legal expenses  
under the Policy; and (ii) whether EPCOR had MEARIE’s consent to settle Mr.  
Houghton’s application.  
[26] On October 17, 2019, MEARIE restated its position denying coverage and  
that Mr. Houghton’s claims against EPCOR did not engage the Policy. Accordingly,  
MEARIE took no position on the settlement.  
Settlement Agreement & Assignment Between EPCOR and Mr. Houghton  
[27] Pursuant to a settlement agreement dated December 6, 2019, EPCOR paid  
Mr. Houghton $400,000 for his costs for the Inquiry and $75,000 for his costs for  
the Bylaw application. EPCOR’s position is that the settlement reflects a balance  
between Mr. Houghton’s Inquiry costs, which amounted to $591,115.31, and his  
Page: 9  
legal costs on the application, which amounted to $117,008.40. EPCOR itself  
incurred $215,000 in legal costs defending itself on the application.  
[28] EPCOR also settled with its excess insurer, Liberty Mutual Insurance  
Company (“Liberty”), in the amount of $112,500, representing partial indemnity for  
the amount that EPCOR had paid to Mr. Houghton for his Inquiry costs. As part of  
that settlement, EPCOR has an obligation to reimburse Liberty if it is made whole  
by MEARIE.  
[29] As part of the settlement agreement between EPCOR and Mr. Houghton, Mr.  
Houghton agreed to assign to EPCOR all claims which he might have against  
MEARIE or Liberty.  
[30] In November 2020, EPCOR and Mr. Houghton brought an application against  
MEARIE in the Superior Court of Justice, seeking declaratory orders for coverage  
under the Policy.  
D.  
THE POLICY  
[31] Before addressing the decision below granting EPCOR’s application against  
MEARIE, it is useful to set out an overview of the Policy and its most relevant  
provisions.  
[32] The Policy insured EPCOR as an additional named insured and also covered  
any officer or director or employee while performing duties for an additional named  
insured. Mr. Houghton was therefore an Insured under the Policy.  
Page: 10  
[33] Section 1 of the Policy provided eight different coverages, including such  
matters as bodily injury liability, property damage liability, and environmental  
impairment liability.  
[34] The two coverages called into play in this appeal are “Coverage E”, Directors  
and Officers and Errors and Omissions Liability, and “Coverage G”, Legal  
Expenses.  
[35] Coverage E insured liabilities arising from “Wrongful Acts” of the Insured:  
COVERAGE E – DIRECTORS AND OFFICERS AND  
ERRORS AND OMISSIONS LIABILITY  
To pay on behalf of the Insured all sums which the  
Insured shall become legally obligated to pay as  
compensatory damages arising out of Operations  
Covered, for any Claim made against the Insured  
because of a Wrongful Act, provided that the Claim is first  
made against the Insured during the Policy Period or  
Other Notice of Claim First Received by the Insured  
occurred during the Policy Period and provided that  
coverage is not provided by Coverages A.1, A.2, B, C or  
D. [Emphasis added.]  
[36] A “Wrongful Act” was defined in the Policy as “any actual or alleged error,  
misstatement, misleading statement, act, omission or neglect” of the Insured, but  
“does not include any matter claimed against an Insured arising out of breach of  
contract, negotiation of a contract, tenders for contracts, selection and/or awarding  
of a contract or failure to proceed with a contract.”  
[37] Coverage G insured against certain legal expenses:  
Page: 11  
COVERAGE G – LEGAL EXPENSES  
To pay on behalf of the Insured costs or expenses  
incurred in the defence of a proceeding brought against  
the Insured during the Policy Period under any statute  
enacted by the Parliament of Canada or the Legislature  
of the Province of Ontario, except the Highway Traffic Act  
or the Acts referred to in Coverage F hereof, provided  
that:  
a) the Reciprocal has been notified promptly in writing of  
the commencement of such proceeding under such  
Statute;  
b) the Reciprocal has approved the selection of counsel  
to defend such proceeding;  
c) the Reciprocal has approved the nature and amount of  
the costs and expenses incurred in the defence of such  
proceeding;  
d) should the Insured be found, in such proceeding, to be  
guilty of any offence by final judicial judgment or order  
from which no appeal may be taken, or in respect of  
which all time periods for appealing have passed without  
any appeal having been taken the Insured shall repay the  
Reciprocal all costs or expenses paid hereunder; and  
e) [the limit of liability, which under Endorsement No. 5 of  
the Policy, was increased to $1 million, as of January 1,  
2018.]  
[Emphasis added.]  
[38] Section 2 of the Policy contained additional insuring agreements in relation to  
some of the coverages. These included defence costs and expenses incurred by  
the Insured in defending a suit or other proceeding that was insured under certain  
coverage, including Coverage E. It also covered costs assessed against the  
Insured in any such proceeding. This additional coverage did not apply to  
Page: 12  
Coverage G, which provided specific, stand-alone coverage for costs or expenses  
incurred in the defence of a “proceeding” brought under a statute. The relevant  
language of s. 2 of the Policy was as follows:  
2.0 ADDITIONAL INSURING AGREEMENTS  
With respect to Claims or suits alleging liability and  
seeking damages, costs or expenses which are covered  
under Coverages A.1, A.2, B, C, D and E under Insuring  
Agreements 1.1 to 1.6, inclusive, hereof, and which are  
not excluded under sections 3.1 to 3.28, inclusive,  
hereof, the Reciprocal shall:  
2.1 DEFENCE – SETTLEMENT  
Subject to Section 8.5 of this policy, defend any Claim,  
suit or other proceeding against the Insured alleging  
liability and seeking compensatory damages on account  
thereof, even if such Claim, suit or other proceeding is  
groundless, false or fraudulent, or where the Reciprocal  
is prevented by law or otherwise from defending the  
Insured as aforesaid, the Reciprocal will reimburse the  
Insured for defence costs and expenses which have  
been incurred with the consent of the Reciprocal.  
…
2.3 SUITS COSTS, INTEREST EXPENSES  
2.3.1 Pay all expenses incurred by the Reciprocal and all  
costs assessed against the Insured in any suit or  
proceeding that do not exceed the Limit of Liability of this  
policy.  
[39] Section 3 of the Policy contained various exclusions from coverage. MEARIE  
relies on two exclusions. First, the “Willful or Intentional Acts Exclusion” in art. 3.11,  
which stipulated that the Policy did not apply “[t]o any Claims for damages, losses  
or injury to any person or property where it was the intention of any Insured to  
Page: 13  
cause damage, loss or injury to such person or property or where damage, loss or  
injury resulted from acts by or on behalf of any Insured which were intended to  
cause damage, loss or injury.” Second, the “Non-Compensatory Damages  
Exclusion” in art. 3.19, which made clear the Policy did not apply “[t]o any fines or  
penalties, or to punitive or exemplary damages or to any Claim for expenditures,  
compensation or damages that are payable pursuant to statute or regulation.”  
[40] Section 6 contained definitions for various terms, including “Claim”, “Insured”,  
and “Wrongful Act”.  
E.  
DECISION BELOW  
Coverage G  
[41] After summarizing the principles applicable to the interpretation of insurance  
policies, set out in the decision of this court in Le Treport Wedding & Convention  
Centre Ltd. v. Co-operators General Insurance Company, 2020 ONCA 487, 151  
O.R. (3d) 663, at para. 19, leave to appeal refused, [2020] S.C.C.A. No. 333, the  
application judge first considered whether Mr. Houghton was entitled to recovery  
of his legal expenses under Coverage G, noting that this determination would  
frame the balance of the issues. He observed that the only issue in dispute was  
whether Mr. Houghton’s costs of participation in the Inquiry were “costs or  
expenses incurred in the defence of a proceeding brought against the Insured”,  
within the meaning of Coverage G.  
Page: 14  
[42] The application judge found that Coverage G was unambiguous and covered  
the legal expenses incurred by Mr. Houghton in defending his interests at the  
Inquiry – a proceeding in which a finding of misconduct could have been made  
against him. He referred to Markevich v. Canada, 2003 SCC 9, [2003] 1 S.C.R. 94,  
in which the Supreme Court observed, at para. 24, that “[a]lthough the word  
‘proceeding’ is often used in the context of an action in court, its definition is more  
expansive.”  
[43] The application judge rejected MEARIE’s argument that “proceeding” in  
Coverage G was meant to limit its operation to criminal or quasi-criminal  
proceedings. The Inquiry had been struck under the Municipal Act and it was  
therefore a proceeding under a statute.  
[44] The application judge also rejected MEARIE’s argument that subparagraph  
(d) of Coverage G, which required repayment of defence costs “should the Insured  
be found, in such proceeding, to be guilty of any offence” restricted the scope of  
coverage to proceedings in which a finding of guilt could be made. He found that  
this proviso only became operative after the insurer had paid the legal expenses  
and “cannot be interpreted as pre-condition to entitlement of legal expenses in  
defence of a proceeding in the first place.”  
Page: 15  
[45] He concluded, at paras. 92-93, that even if there were ambiguity in Coverage  
G, it would be commercially unreasonable to interpret the language as excluding  
public inquiries:  
To the extent there is ambiguity, I find that the  
commercial realities of public utility providers in Ontario  
and their insurer are such that it would have been a  
reasonable expectation of the parties that legal costs  
related to an Inquiry of this nature would be covered  
under the Policy. Public utilities, due to their public  
nature, are not infrequently the subject of public inquiries.  
When the acts or omissions of directors and officers of  
public utilities garner public attention or criticism, as  
occurred in this case, governments often call inquiries to  
investigate and address those concerns. Since such  
public inquiries are not uncommon, it would be  
commercially unreasonable to interpret the Policy as not  
covering the legal expenses involved in responding to  
them. In other words, it would not result in a windfall to  
the insurer or an unanticipated recovery to the insured to  
interpret [C]overage G as including legal expenses  
incurred in responding to an inquiry such as the one in  
this case.  
For these reasons, I find that Coverage G is not  
ambiguous and that it does cover legal expenses arising  
from participation in a public inquiry in which a finding of  
misconduct may be made against an Insured covered by  
the Policy. To the extent there is any ambiguity, the  
commercial realities of this type of insurance contract  
favour an interpretation where the reasonable  
expectations of the parties would have these legal  
expenses covered. If I am wrong in this conclusion, and  
the insurance contract is ambiguous and cannot be  
resolved, contra proferentem requires an interpretation  
against the Insurer.  
[46] Finally, the application judge turned to MEARIE’s submission that although  
there was no applicable exclusion in the Policy, Mr. Houghton had suffered no loss  
Page: 16  
because he had been reimbursed for his legal expenses by EPCOR. The  
application judge rejected this argument as “circular”, found that it ignored the  
events that unfolded and “improperly assigns insured risks to EPCOR who was not  
the insurer.”  
[47] As to the sequence of events, the application judge noted that Mr. Houghton  
was entitled to be indemnified by MEARIE pursuant to Coverage G, he had made  
a request that was denied, and his legal expenses were an insurable loss for which  
MEARIE was contractually liable. The fact that Mr. Houghton obtained  
compensation from EPCOR after MEARIE denied coverage was irrelevant to  
MEARIE’s responsibility as an insurer, which was to make Mr. Houghton whole.  
[48] The application judge observed, however, that Mr. Houghton was not entitled  
to a windfall due to the events that unfolded after MEARIE denied coverage: Mr.  
Houghton had assigned his claim to EPCOR. Accordingly, he turned to  
consideration of the impact of the settlement agreement between EPCOR and Mr.  
Houghton, whether EPCOR was entitled to indemnity under Coverage E, and the  
effect of EPCOR’s payment of $475,000 to Mr. Houghton.  
Coverage E  
[49] As noted above, Coverage E provided insurance for “all sums which the  
Insured shall become legally obligated to pay as compensatory damages arising  
Page: 17  
out of Operations Covered, for any Claim made against the Insured because of a  
Wrongful Act”.  
[50] The application judge accepted EPCOR’s argument that its denial of  
indemnity to Mr. Houghton under the Bylaw was an “error” and a “Wrongful Act”  
within the meaning of Coverage E. He rejected MEARIE’s submissions that  
EPCOR’s obligation to indemnify Mr. Houghton arose under the Bylaw and s. 136  
of Ontario’s Business Corporations Act, and that if the denial of indemnity were a  
Wrongful Act, it would convert an uninsured obligation into an insured obligation  
by “the simple artifice of denying the obligation and thus forcing the counterparty  
to sue.” MEARIE had argued that “insurance is intended to provide coverage for  
errors or accidents”, not for the Insured’s failure to honour its legal obligations. The  
application judge rejected those arguments, including MEARIE’s submission that  
the “Willful or Intentional Acts Exclusion” in art. 3.11 of the Policy should apply,  
and concluded the following, at para. 117:  
Moreover, in my view, it is not appropriate to consider  
Coverage E in a vacuum without regard to MEARIE’s  
obligation under Coverage G. As I concluded in the  
previous section, MEARIE was required to indemnify Mr.  
Houghton for his legal expenses arising from the Inquiry  
under Coverage G. These are the same expenses that  
EPCOR is also claiming under Coverage E. There is no  
concern that EPCOR, as the insured, is converting an  
uninsurable loss into an insurable loss when MEARIE  
had a duty to indemnify Mr. Houghton for his legal  
expenses in the first instance. In other words, these legal  
expenses were always an insurable loss for which  
Page: 18  
MEARIE was always responsible; there has been no  
conversion of an uninsurable loss.  
[51] He also rejected MEARIE’s submission that the claim was excluded by art.  
3.19 of the Policy, which excluded recovery for “any fines or penalties”, “punitive  
or exemplary damages”, or any claim “for expenditures, compensation or damages  
that are payable pursuant to statute or regulation.” He found that Koehnen J.’s  
decision that EPCOR was required to pay Mr. Houghton’s legal expenses was  
based on the Bylaw and not on statute or regulation, and therefore, those  
expenses were not excluded from coverage.  
F.  
ISSUES ON APPEAL  
[52] The submissions of the parties, discussed below, raise the following issues:  
(a) the applicable standard of review;  
(b) the relevant interpretive principles;  
(c) the interpretation of Coverage G;  
(d) the interpretation of Coverage E;  
(e) the quantum recoverable under EPCOR’s claim  
as assignee; and  
(f)  
the costs appeal.  
[53] I will address the parties’ submissions in the “Analysis” section that follows.  
Page: 19  
G.  
ANALYSIS  
(a) The standard of review  
[54] The parties agree that the Policy is a contract of adhesion, and a correctness  
standard of review applies to its interpretation: Ledcor Construction Ltd. v.  
Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, at paras.  
24, 46. The standard form applies to all policy holders, there is no significant factual  
matrix to assist the interpretation process, and the interpretation will have  
precedential value.  
[55] I agree with the parties’ submission concerning the standard of review. That  
said, Ledcor makes it clear that “factors such as the purpose of the contract, the  
nature of the relationship it creates, and the market or industry in which it operates”  
are appropriate considerations in the interpretation of a standard form contract:  
Ledcor, at para. 31. These are generally not fact specific and will usually be the  
same for all parties to the contract.  
(b) Principles of interpretation  
[56] The principles of interpretation applicable to insurance policies are not in  
dispute and can be briefly summarized.  
[57] The first principle is that when the language of the policy is unambiguous,  
the court should give effect to the clear language, reading the insurance contract  
as a whole: Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada,  
Page: 20  
2010 SCC 33, [2010] 2 S.C.R. 245, at para. 22, referring to Non-Marine  
Underwriters, Lloyd’s of London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551, at  
para. 71.  
[58] The instruction that the contract must be read as a whole is frequently  
expressed but equally frequently ignored by both insurers and insureds as they  
focus on the coverage or exclusion at issue. Insurance policies, like the one at  
issue in this appeal, often contain multiple, sometimes overlapping coverages,  
exclusions, conditions, and endorsements. Reading the policy as a whole informs  
the exercise of ascertaining the intention of the parties. Reading the policy as a  
whole, and searching for harmony rather than discord, is often helpful in reconciling  
apparent ambiguities or inconsistencies.  
[59] Where the language of the policy is ambiguous – where the meaning is not  
clear, and there are competing reasonable interpretations – the general rules of  
contract interpretation come into play. Courts can give preference to an  
interpretation that is consistent with the reasonable expectations of the parties, as  
long as that interpretation is supported by the language of the policy: Progressive  
Homes, at para. 23. Courts should avoid an interpretation that would give an  
unrealistic result or that would not have been in the contemplation of the parties  
when the contract was made: Progressive Homes, at para. 23; Ledcor, at para. 78.  
Page: 21  
[60] When these rules of construction fail to resolve the ambiguity, the court will  
construe the policy contra proferentem, against the insurer. This gives rise to the  
principle that coverage provisions are to be interpreted broadly and exclusions are  
to be construed narrowly: Progressive Homes, at para. 24; Scalera, at para. 70.  
[61] With these principles in mind, I turn to the interpretation of the coverages at  
issue. I begin with Coverage G, rather than Coverage E, where the appellant  
begins, because in my view the former is largely determinative of the outcome of  
the appeal.  
(c)  
The interpretation of Coverage G  
[62] Coverage G contained an undertaking by MEARIE to pay the Insured’s costs  
or expenses in defence of a “proceeding” brought “against the Insured … under  
any statute”. The appellant submits that the trial judge erred in finding that  
Coverage G insured Mr. Houghton’s costs of participating in the Inquiry.  
[63] The appellant conceded in oral argument that the Inquiry was a  
“proceeding”. This is supported by the case law, which indicates that “proceeding”  
has a very wide meaning: Markevich, at para. 24. Had MEARIE wished to restrict  
the scope of the coverage, there was a thesaurus of more restrictive terms  
available: “action”, “suit”, “charge”, “prosecution” or “claim”, to mention a few.  
Indeed, some of the additional insuring agreements contained in s. 2 of the Policy  
use the expression “Claim, suit or other proceeding”, which suggests that  
Page: 22  
“proceeding” was intended to have a broad meaning, encompassing more than  
these restrictive terms.  
[64] The appellant makes three submissions, however. First, it submits that the  
Inquiry was not “a proceeding brought against the Insured … under any statute”  
(emphasis added). Second, it submits that the “clawback” provision in  
subparagraph (d) of Coverage G, which provides that any costs paid by the insurer  
must be repaid if the Insured is found “guilty of any offence”, indicates that only the  
costs of proceedings of a criminal nature are within the scope of Coverage G.  
Finally, the appellant contrasts the language of an excess Directors and Officers  
Liability policy, purchased by EPCOR from Liberty. It submits that had the parties  
intended to contract for such coverage in the MEARIE Policy, they would have  
included similar language as exists in the Liberty policy.  
[65] The application judge rejected the first two submissions. He noted that  
although the Inquiry was not directed solely at Mr. Houghton, the conduct letter  
issued by the Inquiry stated that it might make findings of misconduct against Mr.  
Houghton, and Collingwood’s resolution and the Inquiry’s terms of reference made  
it clear that his conduct was a focus of the Inquiry. The extensive procedural  
fairness given to Mr. Houghton at the Inquiry was similar to that afforded to a litigant  
in a criminal or quasi-criminal proceeding. The Inquiry was established under the  
Municipal Act and clearly met the requirement of “a proceeding … under any  
statute.”  
Page: 23  
[66] As to the second submission, the application judge found that the use of the  
term “guilty” in subparagraph (d) of Coverage G was not determinative because  
even in criminal and quasi-criminal proceedings there could be findings other than  
guilt. In any event, he said, the provision only operated after the insurer had paid  
legal expenses to the insured “and cannot be interpreted as pre-condition to  
entitlement of legal expenses in defence of a proceeding in the first place.”  
[67] I am in substantial agreement with the reasons of the application judge that  
the Inquiry was a “proceeding” falling within Coverage G. Having regard to the wide  
meaning of “proceeding”, the fact that the Inquiry sent the conduct letter to Mr.  
Houghton, and that he had reputational interests and potentially civil or criminal  
liability at stake following the Inquiry, I agree that the Inquiry constituted under the  
Municipal Act fell within the broad language of a “proceeding brought against the  
insured … under any statute” (emphasis added). The Municipal Act plainly fell  
within the term “any statute”.  
[68] I would also reject the appellant’s submission with respect to the “clawback”  
clause, G(d), but for slightly different reasons than the application judge. While that  
clause would apply to “proceedings” in which a finding of guilt was an outcome, it  
cannot be read as limiting the broad scope of Coverage G to only such  
proceedings. It would have taken more express language to limit the scope of “a  
proceeding … under any statute” to apply only to proceedings in which a finding of  
guilt could be an outcome.  
Page: 24  
[69] The appellant’s third submission points to the policy of excess insurance  
obtained by EPCOR from Liberty, which provided that a “claim” would include a  
“formal inquiry, investigation, commission or hearing conducted or appointed  
pursuant to statute.” It submits that if the parties to the Policy had intended to  
contract for such coverage, they would have used similar language.  
[70] I reject that submission. In the first place, a contract between EPCOR and  
another insurer is irrelevant to the interpretation of the Policy. In the second place,  
all of the expressions used in the Liberty policy (“formal inquiry, investigation,  
commission or hearing conducted or appointed pursuant to statute”) can properly  
be described as “proceedings”. The use of the broad term “proceeding” in the  
Policy clearly includes a public inquiry and made more specific language  
unnecessary.  
[71] For the sake of completeness, although the points were not raised in relation  
to Coverage G, the exclusions for willful or intentional acts (art. 3.11) and non-  
compensatory damages (art. 3.19) quite obviously have no application.  
[72] Finally, I fully agree with the application judge’s observations with respect to  
the role of the reasonable expectations of the parties in the interpretation of the  
Policy, to the extent there was ambiguity. It bears noting that the Policy is one of  
reciprocal insurance, contemplated by Part XIII of the Insurance Act, R.S.O. 1990,  
c. I.8. It is underwritten by the Municipal Electric Association Reciprocal Insurance  
Page: 25  
Exchange. Although there is no evidence before us concerning the operation of  
that entity, it can be inferred that it consists of operators of municipal electric  
facilities, like EPCOR, which collectively insure and reinsure their risks. It makes  
complete sense that they would expect to insure themselves, their officers, and  
directors against risks that were particular to their industry – namely, the costs of  
public inquiries under the Municipal Act. The commercial realities behind this type  
of insurance contract properly informed the application judge’s findings concerning  
the reasonable expectations of the parties.  
[73] In the result, I would affirm the application judge’s conclusion that MEARIE  
had an obligation to indemnify Mr. Houghton for his Inquiry costs. As I will explain,  
as the assignee of Mr. Houghton’s claim against MEARIE, EPCOR is entitled to  
enforce that claim to its full extent, without reduction for the amounts paid by  
EPCOR pursuant to the Bylaw.  
[74] I turn to EPCOR’s claim under Coverage E.  
(d) The interpretation of Coverage E  
[75] The claim under Coverage E related to the amount EPCOR paid to Mr.  
Houghton for his legal costs of the Inquiry, pursuant to the Bylaw, and the legal  
costs incurred by both EPCOR and Mr. Houghton in relation to Mr. Houghton’s  
application under the Bylaw. To some extent, therefore, there was an overlap with  
the claim under Coverage G for indemnity for Mr. Houghton’s costs of the Inquiry.  
Page: 26  
[76] The application judge determined that EPCOR’s decision not to indemnify  
Mr. Houghton for his legal costs was an “error” and, as such, it was a “Wrongful  
Act” as that term was defined in the Policy. It did not fall within either the exclusion  
for willful or intentional acts (art. 3.11) or the exclusion of non-compensatory  
damages (art. 3.19). The amounts were payable because of the Bylaw, not based  
on a statute or regulation. In the result, he found that EPCOR was entitled to  
indemnity from MEARIE under Coverage E of the Policy for the amount that  
EPCOR paid to Mr. Houghton to settle his legal costs arising from the Inquiry.  
[77] The application judge also determined that EPCOR was entitled to coverage  
for its own legal costs in defending Mr. Houghton’s application and for Mr.  
Houghton’s legal costs of bringing the application.  
[78] Respectfully, the application judge’s interpretation of Coverage E was plainly  
wrong.  
[79] The Bylaw provided that EPCOR would indemnify a director or officer  
“against all costs, charges and expenses, including an amount paid to settle an  
action or satisfy a judgment, reasonably incurred by him in respect of any civil,  
criminal or administrative action or proceeding to which he is made a party by  
reason of being or having been a director or officer of the Corporation”. It contained  
a proviso that the director or officer must have been acting honestly and in good  
faith with a view to the best interests of the corporation.  
Page: 27  
[80] In the application brought by Mr. Houghton for indemnity from EPCOR for  
his legal fees, Koehnen J. found that it was “clear from the outset” that the Inquiry  
fell within the term “proceeding” in the Bylaw. He ordered EPCOR to advance Mr.  
Houghton’s legal fees for Part II of the Inquiry, subject to an obligation to repay the  
fees if he were ultimately found not to have acted honestly, in good faith and in the  
best interests of the corporation. Although Koehnen J. found that Mr. Houghton  
was entitled to indemnity for his legal fees for Part I of the Inquiry, he said that he  
would determine at a later date whether those fees were reasonable.  
[81] The upshot was that under the Bylaw as interpreted by Koehnen J., Mr.  
Houghton had a legal entitlement to payment of his Inquiry costs by EPCOR,  
subject only to meeting the conditions of acting honestly, in good faith and in the  
best interests of the corporation.  
[82] Had EPCOR indemnified Mr. Houghton for his Inquiry costs, as it was legally  
bound to do, it would have had no claim to recover those costs from MEARIE under  
the Policy, because the Policy did not insure EPCOR for the performance of its  
legal obligations.  
[83] Under the application judge’s analysis, however, EPCOR’s refusal to  
perform its legal obligation was a “Wrongful Act”, which resulted in a “Claim” by  
Mr. Houghton.  
Page: 28  
[84] This interpretation turned an uninsured liability (EPCOR’s obligation to  
indemnify a corporate officer under the Bylaw) into an insured liability solely  
because EPCOR refused to honour its obligation. Had EPCOR fulfilled its  
obligation, and indemnified Mr. Houghton at the outset, it would have had no claim  
under Coverage E for something that was simply a cost of doing business. But  
under the application judge’s interpretation, EPCOR was better off to refuse to  
perform its legal obligation because it could then recover its costs from the insurer,  
based on its own “Wrongful Act”.  
[85] This runs contrary to the underlying economic rationale for insurance, as  
expressed by the Supreme Court of Canada in Scalera, at para. 68. Quoting from  
Craig Brown and Julio Menezes, Insurance Law in Canada, 2nd ed. (Scarborough:  
Carswell, 1991), at pp. 125-26, Iacobucci J. noted that “[i]nsurance is a mechanism  
for transferring fortuitous contingent risks.” It follows, then, that a policy generally  
does not cover losses that arise from the inherent nature of the subject matter  
insured; nor does it cover losses that are intentionally caused by the insured.  
[86] EPCOR’s responsibility for Mr. Houghton’s legal costs was not the result of  
a fortuity. It was the natural and intended consequence of EPCOR’s legal  
obligation imposed by the Bylaw.  
Page: 29  
[87] The issue can also be considered as one of causation. EPCOR’s liability to  
Mr. Houghton was not caused by a “Wrongful Act”, within the meaning of the  
Policy. It was caused by the operation of the Bylaw.  
[88] As there was plainly no coverage under “Coverage E” for Mr. Houghton’s  
claim under the Bylaw, there is also no coverage for EPCOR’s costs of defending  
that claim. Section 2 of the Policy only insures the cost of defending claims that  
are covered by the Policy.  
[89] For these reasons, I would set aside the judgment to the extent it reflects  
the application judge’s determination that EPCOR’s claim was insured under  
Coverage E.  
[90] That does not end the matter, however, as it is necessary to resolve the  
quantum recoverable by EPCOR as the assignee of Mr. Houghton’s claim.  
(e) The quantum recoverable under EPCOR’s claim as assignee  
[91] Paragraph 1 of the Superior Court’s formal judgment provided that EPCOR  
was entitled to indemnity from MEARIE under the Policy for $215,000, for the costs  
it incurred in defending Mr. Houghton’s application under the Bylaw. Paragraph 2  
provided that EPCOR was also entitled to indemnity for the $475,000 it paid to Mr.  
Houghton under the settlement, for a total of $690,000.  
[92] Paragraph 3 of the judgment provided that Mr. Houghton was entitled to  
indemnity from MEARIE for the sum of $591,115.31, for the legal costs he incurred  
Page: 30  
in the Inquiry. However, paragraph 4 of the judgment provided that this sum was  
not payable by MEARIE because it would result in overcompensation.  
[93] The appellant submits that Mr. Houghton’s recovery should be limited to his  
actual loss, namely $191,115.31, representing the difference between what he  
received from EPCOR as indemnity for his Inquiry costs ($400,000) and his total  
legal fees of $591,115.31.  
[94] I do not accept that submission. When Mr. Houghton settled the Bylaw  
application with EPCOR, he assigned his claim against MEARIE to EPCOR.  
EPCOR therefore stands in his shoes and can advance the full amount of his claim  
against MEARIE: see Douglas v. Stan Fergusson Fuels Ltd., 2018 ONCA 192, 139  
O.R. (3d) 721, at para. 81, leave to appeal refused, [2018] S.C.C.A. No. 141,  
referring to John Birds, Ben Lynch and Simon Milnes, MacGillivray on Insurance  
Law, 13th ed. (London: Thomson Reuters (Professional) UK Ltd., 2015), at para.  
24-011. The point is that an assignee’s entitlement to recovery is distinct from that  
of an insurer acting in subrogation.  
[95] EPCOR is therefore entitled to recover $591,115.31 from MEARIE.  
[96] There is no overcompensation or double recovery because I conclude that  
EPCOR had no claim for indemnity under the Policy for the amounts it paid Mr.  
Houghton pursuant to the Bylaw or for its costs of the Bylaw proceedings.  
Page: 31  
[97] I do not accept MEARIE’s submission that this result is precluded because  
EPCOR failed to cross-appeal. The judgment found that Mr. Houghton was entitled  
to indemnity for his legal costs. EPCOR, as his assignee, is entitled to enforce and  
collect the judgment.  
(f)  
The costs appeal  
[98] In the court below, the respondents had claimed costs of $291,052.22 on a  
full indemnity basis. The application judge found that this amount was  
unreasonable and unfair to the unsuccessful party. He found that the respondents  
were entitled to “reasonable costs incurred in enforcing their right to coverage on  
a full indemnity basis.” He awarded costs of $140,000, all-inclusive.  
[99] It is not clear to me why the application judge used the words “on a full  
indemnity basis”, both in his reasons and in the judgment. The costs ultimately  
awarded were less than half the amount claimed on a full indemnity basis. In  
reducing the costs claimed, the application judge noted that several lawyers, with  
high hourly rates, had worked on the file and that it would be unfair to pass on all  
those charges to the unsuccessful party.  
[100] I am not persuaded that the award of costs reflects an error in principle or  
that it is unreasonable. In awarding enhanced costs, the application judge cited to  
authority of this court that, to use his words, “where an insurer denies coverage  
and the insured is successful in its claim for indemnity under the insurance policy,  
Page: 32  
then the insured is entitled to full indemnity costs”: referring to Godonoaga  
(Litigation guardian of) v. Khatambakhsh (2000), 50 O.R. (3d) 417 (C.A.), at para.  
4; M.(E.) v. Reed (2003), 49 C.C.L.I. (3d) 57 (Ont. C.A.), at paras. 22, 24, leave to  
appeal refused, [2003] S.C.C.A. No. 334.  
[101] The insurer’s response to Mr. Houghton’s request for coverage was to  
bluntly state that there was no coverage. It did not explain why there was no  
coverage. It did not set out the provisions of the Policy it relied upon. I agree with  
the application judge’s observation that the appellant’s reasons for its initial denial  
of coverage were “vague”. Further reasons were not provided until days before the  
hearing. As the application judge noted, this was inconsistent with the obligations  
of an insurer to an insured, and “[a]n insured should not be left in the unenviable  
position of not fully appreciating why an insurer is denying coverage, and only  
receiving a detailed and full rationale days before a court hearing.”  
[102] I am in complete agreement with these observations.  
[103] Even if the application judge awarded “full indemnity” costs, and I am not  
convinced that he did, there was a firm basis for the award and the amount was  
reasonable in all the circumstances.  
[104] I would therefore dismiss the costs appeal.  
Page: 33  
H.  
DISPOSITION  
[105] For these reasons, I would allow the appeal, in part, and set aside  
paragraphs 1, 2 and 4 of the judgment. I would vary paragraph 3 of the judgment,  
by adding at the end, “such sum to be paid, together with any applicable  
prejudgment and post-judgment interest, to EPCOR as Houghton’s assignee.”  
[106] There were no submissions as to costs. If the parties are unable to agree on  
costs, they may make written submissions, addressed to the panel in care of the  
Registry. The appellant shall file and serve its submissions within 15 days of the  
release of these reasons. The respondents shall have 15 days to respond. The  
submissions shall not exceed five double-spaced pages, excluding costs outlines  
and other appendices.  
Released: July 6, 2022 “G.R.S.”  
“George R. Strathy C.J.O.”  
“I agree. Sossin J.A.”  
“I agree. L. Favreau J.A.”  


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