Clear Language Essential

In Bawden v. Wawanesa Mutual Insurance Co., Justice Mary Anne Sanderson of Ontario’s Superior Court of Justice found that a homeowners’ insurer had a duty to defend a contribution claim against the parents of a minor plaintiff who was injured by a motorist. While indicating that the decision was a difficult one to reach, Justice Sanderson held in March 2013 that a defence was available because the language of the “family member exclusion clause” did not clearly and unequivocally restrict the extent and scope of the coverage in the event of an indirect claim by a third party for contribution and indemnity.

The defendant motorist had sued the parents of the plaintiff for contribution and indemnity for their alleged failure to supervise their daughter in the operation of her bicycle. The parents subsequently sued Wawanesa Mutual Insurance Company when the insurer refused to defend them because of a policy exclusion in their homeowners’ policy.

The homeowner insureds submitted that “Coverage E” of the policy applied, which stated that the homeowners were insured for claims made against them for bodily injury arising out of their personal activities. They argued that Wawanesa, therefore, had a duty to defend them under the policy, unless the exclusion clause described below limited the scope of that coverage.

The policy contained the following exclusion:

You are not insured for claims made or actions brought against you for:

(3) bodily injury to you or to any person residing in your household other than a residence employee.

Wawanesa conceded that but for the fact that the insureds’ daughter resided in their household, the claims made against them would have been covered under the policy, as their training and supervision of their daughter in the use of her bicycle qualified as “personal activities.” 

CASES CITED

In Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, a ruling issued in 2010, the Supreme Court of Canada reiterated that coverage provisions are to be interpreted broadly and exclusion clauses narrowly. Furthermore, the focus should be on the language of the policy read as a whole.

In Bawden, Justice Sanderson found that in following these principles, the wording of the exclusion is consistent with an intent to exclude only direct claims between or among family members and to leave coverage for indirect claims by third parties against household members intact.

By contrast, in Quick v. MacKenzie, a 1997 ruling by the Court of Appeal for Ontario, the exclusion clause referred to claims made against the insureds arising from bodily injury to their daughter. The words “arising from” were used in both the coverage provision and the exclusion provision. Ontario’s appeal court found that the exclusion, therefore, clearly covered indirect claims.

In Bawden, the words “arising from” were left out of the exclusion. As such, the exclusion did not clearly cover indirect claims. Furthermore, unlike in Desormeaux v. Dominion of Canada General Insurance Co., handed down last year by the Ontario Superior Court of Justice, the wording of the exclusion clause did not clearly link the scope of the exclusion clause to the extent of coverage.

Justice Sanderson also considered the reasoning of the dissent in Rabas v. Claim Management Services, Inc., a ruling by the Court of Appeals of Wisconsin in 1996. The court stated the following:

“Although an exclusion properly aimed at contribution claims does not have to contain the word ‘indirect’ to be viable, the exclusion must contain some language which tells the reasonable insured that contribution claims are not covered.”

Justice Sanderson observed that there are policy reasons to warrant making a distinction between direct and indirect claims. In the 2004 decision, Wawanesa Mutual Insurance Co. v. Hewson, Saskatchewan’s Court of Appeal noted that exclusions clauses are intended to prevent collusive claims by members of the insured’s family and household.

In reviewing the policy as a whole, the court in Bawden noted that the words “arising out of” were repeatedly used in other exclusions. As such, in drafting the policy, Wawanesa was aware of the distinction between “arising out of… bodily injury” and “for bodily injury” because the insurer made that distinction repeatedly in many of the other exclusion clauses in the policy.

The court, therefore, found that the wording of the exclusion clause was consistent with an intent to exclude only direct claims, thereby preserving coverage for indirect claims. Justice Sanderson noted this interpretation recognizes “an insurer’s apparent intent to protect against collusion between and among family members, but would not in the absence of a clear intent to exclude indirect claims, not deprive [sic] family members of insurance protection for indirect claims for bodily injury arising from their actions brought against them by third parties.”

COMMENT

This case again demonstrates the importance of carefully selecting the language used in insurance policies. Insurers must prudently choose the language they employ when drafting policies to make sure that what is meant to be included and/or excluded is clear.

As can be seen from the contrasting wording between policies, and even within the policy at issue, discussed by Justice Sanderson in Bawden, litigation may ensue, leaving policies to be interpreted by the courts to the best of their abilities, which may not align with what the policy drafters ultimately intended.