Why Aviva Canada does not have to defend this sexual abuse lawsuit

Aviva Insurance Company of Canada has won an appeal in a coverage dispute arising from a teenaged kickboxer who is suing her gym after being sexually abused by an employee.

The kickboxer was 14 years old on May 1, 2017 when she was flying back to Canada from Thailand after a kickboxing competition. She was allegedly touched in a sexual manner without her consent by the gym employee on the plane.

She is suing the Southside Muay Thai Academy Corp. and its co-owner and employee. The employee has since been found guilty — in a separate criminal proceeding — of sexual interference with a minor. Allegations of negligent supervision against Southside Muay Thai Academy have not been proven in court.

Southside Muay Thai Academy had a commercial general liability policy with Aviva, which denied coverage in the lawsuit because the CGL policy has an exclusion for abuse.

Despite the exclusion, Justice Lorne Sossin of the Ontario Superior Court of Justice initially ruled in 2019 that Aviva still has to defend the corporation. But that ruling was overturned by the Court of Appeal for Ontario in Southside Muay Thai Academy Corp. v. Aviva Insurance Company of Canada, released June 16, 2020.

As it stands, Aviva does not have to defend the academy and the academy now owes Aviva $22,000 in legal costs.

The abuse exclusion in Aviva’s CGL policy means coverage does not apply to:

• Claims or “actions” arising directly or indirectly from “abuse” committed or alleged to have been committed by an insured, including the transmission of disease arising out of any act of “abuse”.
• Claims or “actions” based on your practices of “employee” hiring, acceptance of “volunteer workers” or supervision or retention of any person alleged to have committed “abuse”.
• Claims or “actions” alleging knowledge by an insured of, or failure to report, the alleged “abuse” to the appropriate authority(ies).

Despite that exclusionary language, the academy pointed to the allegation, in the underlying lawsuit, that the academy was negligent in its failure to supervise the plaintiff, ensure she was safe while on their premises and under their care and control, in particular on the flight from Thailand on or about May 1, 2017.

This allegation “includes the broader question of Southside’s supervision of the plaintiff while the plaintiff was on Southside’s premises in Ontario, and under their care in contexts beyond the flight on May 1, 2017,” Justice Sossin wrote in his original ruling against Aviva. “At a minimum, this allegation in the claim creates the possibility of Southside’s liability for breaching a duty of care in situations not arising directly or indirectly from the alleged abuse.”

But the Court of Appeal for Ontario countered that the “subject matter” of the underlying lawsuit is sexual abuse, and the “material fact” on which the lawsuit is based is the sexual abuse that occurred on the airplane.

“There is no claim for damages resulting from Southside’s negligence other than the claim arising from the subject matter of this action, that is, the May 1, 2017 incident,” the appeal court wrote in its unanimous ruling.