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Newfoundland appeal court rules insurer doesn’t have duty to defend in ATV accident case


May 31, 2013   by Canadian Underwriter


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The Newfoundland and Labrador Court of Appeal recently ruled that The Dominion General Insurance Company of Canada does not have a duty to defend a homeowner policyholder who is being sued in connection with an all-terrain vehicle accident.

Justice

However, The Dominion does have a duty to defend its policyholder’s wife and son because they do not own the ATV and are also named as defendants, the court ruled. 

Larry and Lona Hannam are the parents of Jordan Hannam, who is alleged to have loaned an ATV owned by his father to a teenage friend, Kayla Squires, who allegedly allowed Tanya Pender to ride as a passenger at a gravel pit on the outskirts of St. John’s.

Pender was allegedly injured, in October 2006, as a result of a collision with a rock crushing machine. She sued the Hannams and the gravel pit company, plus Squires and her parents.

The Dominion, which has intervener status in those lawsuits, essentially asked the court to rule it does not have a duty to defend the Hannams under their home policy. The ATV is not insured under the Hannams’ auto policy.

In September 2010, Madam Justice Valerie Marshall of the Supreme Court of Newfoundland and Labrador ruled The Dominion did owe a duty to defend, based on her finding that an exclusion clause in the homeowners contract, for “the ownership, use or operation, by you or on your behalf, of …. motorized vehicles,” did not apply in this case.

The Dominion appealed Judge Marshall’s decision and the Court of Appeal ruled partly in favour of the carrier on May 24, 2013.

In the homeowner policy The Dominion wrote for the Larry Hannam, the exclusion clause provided that he was insured for use or operation of vehicles he does not own. This exception to the vehicle exclusion applied as long those vehicles which he does not own are “designed for use principally off public roads.”

“Dominion’s primary submission was that the ownership-use-or-operation exclusion applied because all pleaded negligent acts or omissions asserted against the Hannams arose from the ‘ownership, use and operation’ of the ATV,” wrote Mr. Justice Michael Harrington on behalf of the provincial appeal court.

“The applications judge rejected this argument, finding that the pleaded tortious wrong of ‘negligent supervision’ against the father, Larry Hannam, is ‘based on responsibility or control over the acts of another person …'”

The other two judges who heard the case – Madam Justice Gale Welsh and Mr. Justice Derek Green – concurred with Judge Harrington’s ruling.

The ruling of both the lower court and appeal court cited numerous cases, including a Supreme Court of Canada decision in 2010 in favour of Progressive Homes Ltd., which argued Lombard General Insurance Co. of Canada had a duty to defend it in a lawsuit filed by the British Columbia Housing Management Commission.

The Supreme Court found, among other things, that Lombard had failed to prove that an exclusion clause for work performed “clearly and unambiguously” applies to all of B.C. Housing’s claims against Progressive so there was “a possibility of coverage.”

Quoting from Progressive Homes, Judge Marshall noted in the Hannam case that the duty to defend is triggered if there is a  “mere possibility that a claim falls within the insurance policy,” though the  “the true nature of the claim must be discerned based on the pleadings,” and the parties to the insurance contract “are not bound by the labels selected by the plaintiff. 

The Newfoundland appeal court found that Judge Marshall was correct in applying the Progressive Homes ruling but disagreed with Judge Marshall’s reasoning that a claim of negligent supervision against Larry Hannam is one that is “not to be derived” from his ownership of the ATV.

“The case law has recognized that potential liability for negligent entrustment or negligent supervision with respect to the ownership, use or operation of motor vehicles owned within a family household falls within the general exclusions in similar homeowner’s liability insurance provisions,” the Court of Appeal wrote.

“Larry Hannam is alleged to be liable for permitting his young son Jordan to operate the ATV and for failing to supervise and prevent use by other young persons such as Kayla Squires. Jordan Hannam is alleged to have negligently permitted a young, inexperienced female friend to operate the ATV.  All the tortious acts that are pleaded on the basis of the liability of the Hannams to the injured plaintiff are clearly connected to the ownership, use and operation of the ATV.”

However, in Larry Hannam’s homeowner policy with The Dominion, the term “you” also includes the policyholder’s spouse and children if they are permanent residents of the household.

“Dominion argues that the word is to be interpreted collectively to include all the Hannams in the household who fall within the definition,” the Court of Appeal wrote. “Its submission is based upon the notion that the coverage section can only apply to vehicles that are not owned by a party or any of the household members identified in the definition of the word ‘you’ in the policy.”

But the Court of Appeal found that in Larry Hannam’s homeowner policy, “the definitions of ‘you’ and ‘your’ are capable of being read individually or collectively given the multitude of factual scenarios that may give rise to the existence or absence of this form of liability coverage,” meaning this could provide for separate coverage for Larry Hannam’s wife and son “regarding negligent entrustment to and supervision of Kayla Squires in the use and operation of the ATV which they did not own.”

The Court of Appeal added that The Dominion has a duty to defend Lona and Jordan Hannam because Pender’s lawsuits “contemplate a possible finding of liability against Jordan Hannam for negligence in the operation of the ATV, including his negligence in transferring possession to an inexperienced driver, and against Lona Hannam for negligent supervision of her son with respect to the use and operation of her husband’s ATV.”


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