April 1, 2007 by Nicole N. Vaz
The Ontario Court of Appeal in February 2007 rendered a precedent-setting decision for all members of the insurance industry. The decision will have a significant impact not only on insurers and the way in which they draft exclusion clauses within their policies, but also on the way in which future cases involving criminal act exclusions are litigated and ultimately decided.
The tragic facts of this case involve three teenage boys – Ryan Prystay, Ryan Eichmanis and a friend – who were “playing” with a loaded gun owned by Prystay’s father. The gun went off suddenly and seriously wounded Ryan Eichmanis in the abdomen.
The precise sequence of events leading up to the gunshot is not clear. It is clear that Prystay pointed the shotgun at Eichmanis while boasting, “I could kill you both right now.” Both boys knew the gun was loaded and it discharged birdshot.
Prystay, the boy who pointed and discharged the gun, was in his father’s house at the time of the incident. In fact, he had been told to stay away from the house while his father was in a facility for substance-abuse rehabilitation. During this time, Prystay had been living with his uncle and aunt, but he broke back into his father’s house to “play” with his father’s guns.
Prystay subsequently pleaded guilty to a charge of criminal negligence causing bodily harm contrary to s. 219 of the Criminal Code and was convicted.
The victim of the shooting, Eichmanis, sued Prystay as well as Prystay’s father, aunt, uncle and mother. The Ontario Superior Court in 2003 awarded damages against Prystay and his father in the amount of Cdn$800,000. Neither Prystay nor his father had sufficient assets to pay the court’s award to Eichmanis; since neither were insured, Eichmanis commenced proceedings against The Wawanesa Mutual Insurance Company (“Wawanesa”), the home insurer of Prystay’s aunt and uncle. Wawanesa denied the claim on the bases that: (1) Prystay was not living in his aunt and uncle’s household; and (2) the policy did not cover injury caused by an intentional or criminal act.
In response to each of Wawanesa’s arguments, the Ontario Superior Court found that Prystay was in fact “living” with his aunt and uncle. Specifically, the court found that the quasi-parental nature of his temporary residence with them was sufficient to render him an “insured” under their policy with Wawanesa. Furthermore, notwithstanding Prystay’s criminal conviction, the Court found that the “intentional or criminal act” exclusion clause did not serve to relieve Wawanesa of coverage since Prystay had not intended to shoot Eichmanis. To be clear, pointing the firearm at Eichmanis was intentional, but the discharge of the gun was accidental.
The motion judge held that for the criminal act exclusion to apply, the insurers must demonstrate an intentional act plus the intent to injure. The motion judge relied on the wording in the governing legislation1 as limiting the scope of the exclusion under the policy to intentional criminal acts.
The Ontario Court of Appeal in February 2007 overturned this decision.2 The appellate court’s ruling has provided a level of certainty and clarity that insurers crave.
THE WAWANESA INSURANCE POLICY
Most standard homeowner policies in Canada contain an exclusion clause that is aimed at excluding the type of sanctioned conduct that was at issue in this case. The particular wording of the applicable exclusion clause in the Wawanesa insurance policy is as follows:
You are not insured for claims made or actions brought against you for:
…(9) bodily injury or property damage caused by any intentional or criminal act or failure to act by;
(a) any person insured by this policy…
The primary issue on appeal was whether coverage for Prystay’s wounding of Eichmanis was excluded because Prystay committed a criminal act. Concurrent with this issue is whether criminal negligence causing bodily harm is a “criminal act” within the meaning of the exclusion clause.
AN END TO THE DEBATE
In the past, there has been both legal and industry debate over whether an insurer was entitled to deny coverage when a criminal act was committed without intent to cause the resulting damage. The debate is now over: the Court of Appeal has ruled unequivocally that insurers are entitled to exclude coverage for liability arising out of a criminal act; moreover, intent is irrelevant.
First, the Court of Appeal held that the motion judge was incorrect in interpreting section 118 of the Insurance Act as a limitation on the criminal act exclusion in Wawanesa’s policy.
Section 118 states: “Unless the contract otherwise provides, a contravention of any criminal or other law in force in Ontario or elsewhere does not, by that fact alone, render unenforceable a claim for indemnity under a contract of insurance except where the contravention is committed by the insured, or by another person with the consent of the insured, with intent to bring about loss or damage…” The phrase “unless otherwise provided” still offers insurers the right to exclude coverage for injury caused by crime. In this case, Wawanesa’s policy did in fact “otherwise provide.”
Second, the court remarked that it could not imagine how the insurer could have worded its policy to exclude the risk of damage caused by a criminal act other than by the precise terms used in its policy.
The Wawanesa policy provided the insured with broad coverage for damages arising from any bodily injury or property damage arising out of his personal activities anywhere in the world, except where such damages are caused by an intentional act or by a criminal act.
Third, the Court acknowledged that, while the result of this appeal may appear to be harsh, where the language of a contract is unambiguous, courts should not give it a meaning different from that expressed in clear language, unless the contract is unreasonable or is contrary to the intention of the parties.
It was undisputed in this case that Prystay’s criminal act caused Eichmanis’ injury. Prystay acknowledged committing the criminal act by pleading guilty to a charge of criminal negligence causing bodily harm, a charge for which he was ultimately convicted.
Fourth, the court affirmed the language of the exclusion is disjunctive (i.e. takes the form of “either…or”). In other words, an act of an insured that causes injury is excluded when it is either an intentional act or a criminal act.
To find otherwise would be to render the phrase “criminal act” superfluous. An insurer intending to exclude only criminal acts where there is intent to cause injury could achieve the same result by simply excluding intentionally caused injuries. Accordingly, it was not necessary for Wawanesa to show that Prystay intended to cause injury.
Finally, the court found that within Canada the phrase “any criminal act” refers to any breach of the Criminal Code.3 The criminal act exclusion, then, does not exempt only certain categories of crime, i.e. crimes requiring intent. Furthermore, since Wawanesa’s policy covers the insured for its tortious acts anywhere in the world, Wawanesa could not have restricted the wording of the criminal act exclusion to breach of the Criminal Code.
The Court of Appeal thus allowed Wawanesa’s appeal and set aside the judgment of the motion judge.
WHAT TO CONSIDER IN DRAFTING YOUR NEXT HOMEOWNER’S POLICY:
Most homeowner policies include an intent-ional/criminal act exclusion clause of one form or another. The only guarantee that the Eichmanis analysis will serve as a precedent in future cases is if the policy in issue contains the identical exclusion clause or at least the core features thereof.
To be clear, if you want to exclude coverage for all criminal acts, regardless of the insured’s intent:
* clearly identify the conduct to be excluded as “criminal”;
* avoid other language – such as “illegal”, “unlawful” or “sanctioned” acts – that may fall outside of Eichmanis and open the door to alternative interpretation;
* use the disjunctive language found in Wawanesa’s exclusion clause; and
* avoid conjunctive language – i.e. the use of “and” – that would necessarily link the prerequisite conduct of the insured
The Court of Appeal’s interpretive analysis in Eichmanis will likely be applied to future interpretations of exclusion clauses, regardless of whether it is the “intentional”, “wilful” or “criminal” act of the insured that the insurer is attempting to exclude from coverage. Govern your drafting accordingly.
Nicole N. Vaz is a lawyer at Lerners LLP in Toronto. She practices primarily insurance defence and health law. Lerners represented The Wawanesa Mutual Insurance Company on the appeal. The Court of Appeal handed down its judgment on February 13, 2007.