November 28, 2013 by Canadian Underwriter
The Court of Appeal for Ontario ruled this week against Wawanesa Mutual Insurance Company, upholding an earlier ruling declaring that the carrier has a duty to defend a homeowner’s insurance client being sued in a third party claim over a traffic accident that injured their daughter — despite a clause in the policy excluding claims for bodily injury to others in the household.
On Tuesday, the appeal court upheld a ruling in March against Wawanesa, which had cited the landmark Supreme Court of Canada decision in Progressive Homes vs Lombard General Insurance over the duty to defend liability policyholders.
In August 2003, Kelly Bawden, then 8, was struck and injured by a vehicle while riding her bicycle along a sidewalk in Toronto, according to Ontario court records.
The vehicle was driven by Joyce Wilson and owned by Randall Wilson. Kelly Bawden’s parents, David and Elizabeth Bawden, sued the Wilsons.
The Wilsons “issued third party claims against Elizabeth and David, alleging that any damages Kelly may have suffered were caused or contributed to by Elizabeth and David’s negligence in failing to properly instruct and supervise Kelly,” according to background information provided with a March 2013 decision by Madam Justice Mary Sanderson of the Ontario Superior Court of Justice.
The Bawdens’ homeowner carrier, Wawanesa, had refused to provide a defence to the Wilsons’ third-party claim against the Bawdens. They sought a court order requiring Wawanesa to defend the claim “and to indemnify them for any amounts they may be held liable to pay to the Wilsons in the Third Party action.”
In a decision released March 22, Justice Sanderson found that Wawanesa has a duty to defend.
Wawanesa appealed Justice Sanderson’s ruling, but in a decision released Nov. 26, the Court of Appeal for Ontario upheld Justice Sanderson’s ruling.
The homeowners’ policy that Wawanesa wrote for the Bawdens covered them “for claims made or actions brought against” them for personal liability — which, the policy stipulated, includes “bodily injury or property damage arising out of your personal activities anywhere in the world.”
In arguing it did not have a duty to defend, Wawanesa relied on an exclusion that states: “You are not insured for claims made or actions brought against you for … bodily injury to you or to any person residing in your household other than a residence employee.”
Wawanesa contended that exclusion “removes all claims for bodily injury by the insured and those residing in their household from the general coverage for claims against the insured for bodily injury,” the Court of Appeal noted.
But the use of the wording “arising out of” was missing from that exclusion clause, Justice Sanderson noted earlier this year.
“I have noted the repeated use of ‘arising out of’ language in other exclusion clauses in the same Policy,” she wrote. “The exclusion did not contain the words ‘directly or indirectly.’ It appears from its use of differing wording in the coverage provision and exclusion clause that Wawanesa may not have intended the words in the exclusion to have the same scope and meaning as the words used in the grant of coverage.”
The three judges who heard the appeal noted they could not “improve upon” Justice Sanderson’s analysis.
“We do not view ‘arising out of’ and ‘for’ as interchangeable terms in these two provisions,” wrote Mr. Justice Stephen Goudge, Mr. Justice Peter Lauwers and Mr. Justice David Doherty of the Court of Appeal for Ontario. “Indeed it appears that (Wawanesa) did not do so either. Looking at the entirety of the exclusion clause, (Wawanesa) appears to have deliberately used the term ‘for’ in the exclusion clause at issue, but the term ‘arising out of’ in a number of other specific exclusion provisions. There appears to be a careful differentiation on the part of the appellant in the use of those two terms.”
The appeal court noted the clause excluding coverage for bodily injury to other people living in the policyholder’s home “serves the policy objective .. of removing from coverage those claims that raise a risk of collusion between the claimant and the insured.”
But such an exclusion “only catches claims by a family member directly against the insured,” the Court of Appeal noted. “Such claims among family members clearly raise a risk of collusion that is simply not present in this third party claim by the Wilsons” against the Bawdens.
In ruling against Wawanesa, Justice Sanderson had cited a Supreme Court of Canada decision, issued in September, 2010, ruling that Lombard General Insurance Co. of Canada had a duty to defend construction general contactors Progressive Homes Ltd. under a commercial general liability policy.
In Progressive Homes, the highest court in the land “has held that coverage provisions are to be interpreted broadly, exclusion clauses narrowly,” Justice Sanderson wrote last March in the Bawden decision.
Progressive Homes had been sued by the British Columbia Housing Management Commission, which alleged negligence and breach of contract after some buildings were damaged by water leakage. In 2007, a B.C. Supreme Court judge had ruled that Lombard did not have a duty to defend. That ruling was upheld by the B.C. Court of Appeal in 2009 but overturned in 2010 by the Supreme Court of Canada.
“Because the threshold for the duty to defend is only the possibility of coverage, Lombard must show that an exclusion clearly and unambiguously excludes coverage,” wrote Mr. Justice Marshall Rothstein on behalf of the Supreme Court of Canada in its unanimous ruling in Progressive Homes.
In the Bawden case, Justice Sanderson noted that in Progressive Holmes, “the Supreme Court of Canada held that an insured does not actually have to be found liable and the insurer does not actually have to be required to indemnify the insured for a duty to defend to exist. All that is required to trigger the duty to defend is the possibility that the claim might fall within the insurance policy.”