Canadian Underwriter

Ontario Appeal Court muddies waters regarding homeowner coverage of innocent co-insureds

May 3, 2012   by Canadian Underwriter

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The Court of Appeal for Ontario has issued a ruling that may have muddied the waters concerning homeowner coverage of innocent co-insureds.

“There may now be coverage for an innocent co-insured who is alleged to have failed to act to prevent an intentional act, as long as that failure to act is not, in and of itself, intentional or criminal,” Dutton Brock LLP, a firm specializing in insurance law, notes in a May 3 bulletin. “If the innocent co-insured’s actions are not proven at trial to be intentional or criminal, indemnity will follow as well.”

The case at issue, Durham v. Grodesky v. ING, follows an incident in which a child was accused of setting fire to the contents of recycling bins at a school owned by Durham District School Board. The fire spread to the building, causing extensive property damage, notes the Apr. 27 ruling by the Court of Appeal for Ontario.

The parents were sued for their failure to prevent an intentional act by their son. They failed to properly and adequately supervise the boy, and knew or ought to have known he had a propensity for getting into mischief, the ruling says.

ING Insurance Company Canada (now Intact Insurance) denied coverage, prompting a response by the father to advance a third-party claim against ING for indemnification under his homeowner’s comprehensive form insurance policy.

The appeal court concluded ING had a duty to defend the father under the liability coverage of his homeowner’s policy. The phrase “failure to act” was modified by the preamble “intentional or criminal,” the bulletin points out.

In denying the claim, ING relied on an exclusion clause in the homeowner’s policy: “We do not insure your claims arising from (6) bodily injury or property damaged caused by any intentional or criminal act or failure to act by: (a) any person insured by this policy.”

Harms resulting from negligence can typically be characterized as a failure to act, the appeal court notes. “This would render the insurance coverage provided by the policy largely useless.”

The high court set aside the judgement with the appellants cost fixed at $3,500 as agreed by counsel.

The bulletin says the appeal decision appears to be at odds with an earlier decision by the court. In Thompson v. Warriner (2002), the appeal court held there is no coverage for an innocent co-insured under a policy’s liability insurance coverage where there is an exclusion that precludes coverage to all insureds for an intentional act by “any insured.”

The full ruling can be found at: