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Insurer has no duty to defend or indemnify under homeowners insurance policyholders named in bullying lawsuit: Ontario appeal court


June 26, 2015   by Canadian Underwriter


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The Court of Appeal for Ontario has ruled that Unifund Assurance Company does not have a duty to defend or indemnify under a homeowners insurance policy costs stemming from the bullying of a Grade 8 student, which caused physical and psychological injuries, by fellow students.

The homeowners were denied on the basis that the claims fell outside of the policy’s scope of coverage

Heard May 21, 2015, the unanimous decision earlier this month by Justice James MacPherson of the Court of Appeal for Ontario overturns the September 11, 2014 ruling by Justice David Stinson of the Superior Court of Justice.

The case turns on the homeowners insurance policy of D.E. and L.E. – the parents of a girl alleged to have been involved in bullying a fellow student – with Unifund Assurance Company, which includes liability coverage if their personal actions cause unintentional bodily injury or property damage.

“D.E. and L.E. are defendants in a lawsuit where the anchor claim is that their daughter and two other girls, all Grade 8 students, bullied a fellow student, causing her physical and psychological injuries,” notes the unanimous ruling earlier this month. “The claim against D.E. and L.E. sounds in negligence, namely, their failure to control their daughter,” Justice MacPherson writes.

The homeowners requested that Unifund defend and indemnify them pursuant to the insurance policy, but were denied on the basis that the claims made in the action fall outside the policy’s scope of coverage. D.E. and L.E. then sought a declaration that the insurer had a duty to defend and indemnify them in the underlying action. Ontario’s Superior Court of Justice agreed last September.

In response, Unifund appealed, the principal issue of appeal being whether either of two exclusion clauses in the insurance policy saves the insurer from having to defend and indemnify D.E. and L.E. in the underlying action.

“I would allow the appeal, set aside the judgment of the application judge, and declare that Unifund does not have a duty to defend or indemnify D.E. and L.E. in the underlying action,” Justice MacPherson writes in the appeal court ruling. “Unifund is entitled to its costs of the appeal fixed at $15,000, inclusive of disbursements and applicable taxes.”

Related: Cyberbullying as a Tort

His ruling notes that D.E. and L.E. and their minor daughter, R.E., are three of the 13 defendants in the underlying action commenced in June 2012 by N.R. and her daughter, K.S. “The action alleges that the parents of the three girls, including D.E. and L.E., were negligent in that they, inter alia, knew or ought to have known that the minor defendants were bullying K.S. and failed to investigate, failed to take steps to remedy the bullying, failed to take reasonable care to prevent the bullying and harassment of K.S. by the minor defendants of which they were aware, failed to take disciplinary action against the minor defendants, and failed to discharge their duty to prevent the continuous physical and psychological harassment by the minor defendants for whom they are responsible in law,” the appeal court ruling states.

In its appeal, Unifund principally relied on two policy exclusions. One exclusion (under Section 6) states that the insurer does not insure claims arising from bodily injury or property damage caused by an intentional or criminal act or failure to act by: (a) any person insured by this policy; or (b) any other person at the direction of any person insured by this policy.

The second exclusion (under Section 7) relates to (a) sexual, physical, psychological or emotional abuse, molestation or harassment, including corporal punishment by, at the direction of, or with the knowledge of any person insured by this policy; or (b) failure of any person insured by this policy to take steps to prevent sexual, physical, psychological or emotional abuse, molestation or harassment or corporal punishment.

D.E. and L.E. appealed to Ontario’s Superior Court of Justice, in which Justice Stinson found the elements of the intentional tort claim against the applicants’ daughter, and the negligence claim against the applicants, are entirely distinct.

The court determined the negligence claim is not derivative of the intentional tort claim. “Since there is no allegation that the applicants’ acts were intentional, coverage should not be excluded on this ground,” Justice Stinson wrote.

Uniform appealed the decision to Ontario’s appeal court on seven grounds

He further determined the exclusion language “should be limited to intentional failure to take steps to prevent physical abuse or molestation; i.e. where the insured intentionally fails to act and thus permits the offensive conduct to continue. The exclusion should not extend, however, to situations where that failure arose through negligence.”

Uniform appealed the decision to the Court of Appeal for Ontario on seven grounds, including if Justice Stinson prematurely found a duty to indemnify and if he erred in finding certain parts of the exclusions ambiguous.

Citing the language in the amended statement of claim, Justice MacPherson writes that parents (including D.E. and L.E.) are said to have “failed to investigate”, “failed to take steps to remedy”, “failed to take reasonable care to prevent”, “failed to take disciplinary action” and “failed to discharge their duty to prevent the continuous physical and psychological harassment.”

“It is obvious from this language that the plaintiffs’ claim against D.E. and L.E. is a negligence claim,” Justice MacPherson notes.

He also points to the exclusion clause 7(b): failure of any person insured by this policy to take steps to prevent sexual, physical, psychological or emotional abuse, molestation or harassment or corporal punishment.

Related: Personal lines insurers encouraged to consider policy exclusions related to cyber-bullying and “electronic aggression”

“I do not see any ambiguity in the wording of this clause. The first word of the clause is ‘failure’ which is the core of the definition of ‘negligence’. ‘Failure’ is also the centrepiece in the Amended Statement of Claim of each allegation against the parents D.E. and L.E.,” Justice MacPherson writes.

“I do not accept the analysis leading to a conclusion of ambiguity. Exclusion clause 7(b) is clear on its face and it applies to the lawsuit as pleaded against D.E. and L.E. in the Amended Statement of Claim,” the justice adds.

The companion ruling, C.S. v. TD Home and Auto Insurance Company, also involved on appeal from the order of Justice Kevin Whitaker of the Superior Court of Justice, dated December 9, 2014. “The principal parties in the two cases (parents), the underlying action relating to alleged bullying and harassme
nt by their minor daughters, and the relevant insurance policies are identical.”

“For the reasons in Unifund, I conclude that the application judge erred in his interpretation of exclusion clause 7(b) of the insurance policy. The appellant does not have a duty to defend and indemnify the respondent parents in the underlying action,” Justice MacPherson writes.

“I would allow the appeal, set aside the order of the application judge, and declare that TD Home and Auto Insurance Company does not have a duty to defend or indemnify C.S., J.G. and M.G. in the underlying action.”