No Duty to Defend Parents of Alleged Bully

The Court of Appeal has held that an insurer does not have a duty to defend its insureds with respect to claims that they failed to prevent bullying.

In Unifund v. D.E., 2015 ONCA 423 (C.A.), the insurer refused to defend parents of an alleged bully.  In the underlying action, the plaintiff alleged that the parents' daughter had bullied her at school.  The allegations against the parents were that they knew or ought to have known about the bullying, and failed to investigate it, take steps to prevent it or take disciplinary action. The Unifund policy contained an exclusion which provided as follows:

We do not insure claims arising from:

6. 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;

7.(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.

The application judge held that the exclusion was limited to an intentional failure to prevent physical abuse rather than negligence.  The Court of Appeal allowed the appeal.  Justice MacPherson held that by using the word "failure" in the exclusion clause, it extended to negligence.  Unifund had no duty to defend or indemnify its insureds in the underlying action.

The Test to Determine Whether an Insured "Permitted" the Unauthorized use of a Motor Vehicle

A recent decision looked at the test to determine whether an insured permitted someone else to drive his vehicle when she was not authorized to do so.

In O’Connell v.Personal Insurance Co., (2014 ONSC 1469 (S.C.J.), the insured let his girlfriend borrow his motor vehicle. The insured’s girlfriend was involved in an accident. It turned out that the insured’s girlfriend only had a G1 license and therefore she was not authorized to drive alone or on a 400 series highway, where the accident occurred. The insured stated that he had assumed his girlfriend had a full license. At trial, the insured’s girlfriend testified that she had not told the plaintiff that she did not had have a full license because she was embarrassed. The insurer denied a defence and indemnity on the bases that the insured had breached statutory condition 4(1) of the Ontario Regulation 777/93 and section 1.4.5 of the OAP, by allowing someone else to drive his vehicle when they are not authorized to do so.

The court held that the insured had not “permitted” his girlfriend to drive when she was not authorized to do so. In reaching this conclusion, the court held that the test to determine whether an insured permitted the use of their vehicle by an unauthorized driver is whether the insured took all reasonable and prudent precautions to see that the statutory condition was not contravened. The court held that the insured knew his girlfriend had a driver`s license and it looked the same has his full G license, he had heard her anecdotes involving driving in the past and she had never told him that she only had a G1 license. Given this, the court held that the insured acted as reasonably and prudently as an average individual in similar circumstances, the statutory condition was not breached and the insurer was bound to defend and indemnify the insured.

Automatic Renewal Section of Policy Does Not Obligate Insurer to Renew

Does an "automatic renewal" section in a home owner's policy require the insurer to renew?  A recent decision says "no".

In Merei v. State Farm Fire and Casualty Company, 2014 ONSC 1960 (S.C.J.), the plaintiffs' home was destroyed by fire eight days after their home insurance policy was cancelled.  The insurer's underwriting department made the decision not to renew the policy after the plaintiffs made three claims and had a history of non-payment.  The policy contained the following clause:

Automatic Renewal – if the policy period is shown as 12 months, this policy will be renewed automatically subject to the premiums, rules and forms in effect for each succeeding policy period. If this policy is terminated, we will give you and the Mortgagee/Lienholder written notice in compliance with the policy provisions or as required by law.

The plaintiffs alleged that the "automatic renewal" section of their policy obligated the insurer to renew the policy as they were not in arrears, not in breach of any of the rules in the policy and had submitted all forms.

The Court disagreed, relying on the plain reading of the contract (and common sense).  Justice Carey held that the policy was intended to allow for a renewal of the policy when the policy has not been cancelled.  He stated, "It is contrary to all rules of interpretation and normal insurance practice to conclude the insurer intended that they could only cancel the policy if the policy was not in good standing". 

Duty to Defend - Extrinsic Evidence Not Permitted

In Liardi v. Riotrin Properties (Kingston) Inc., 2013 ONSC 7544 (S.C.J), the defendant, Future Shop, brought a motion for a declaration that Zurich had a duty to defend the underlying action.  The issues on the motion were whether the plaintiff's pleadings raised covered and non-covered claims, and whether extrinsic evidence could be admitted in enlarge or explain the pleadings.

In the main action, the plaintiff alleged he bought a television at Future Shop and was instructed to move his car to the back of the store to load it.  An employee was having difficulty lifting the television so the plaintiff got out of his car to assist.  He alleged he slipped on ice and fell as he was walking to the rear.  The allegations against Future Shop included that it failed to have adequate persons to load the television, knew a dangerous condition existed and failed to ameliorate it, failed to ensure the premises were properly salted/sanded, and failed to properly monitor the area.

The landlord, Riotrin, was responsible for common areas under the lease.  Future Shop was named as an additional insured on the landlord's policy with Zurich.

Zurich sought to introduce extrinsic evidence as to the way Future Shop operated its businesses, including policies with respect to loading merchandise into customers' cars.  Justice Tausendfreund refused to admit the evidence as it touched on matters at issue against Future Shop which might prejudice Future Shop or bring it into conflict with the insurer.

Justice Tausendfreund held there was a duty to defend.  The plaintiff fell on snow and ice in the parking lot and the reason he did so was not relevant.  The claim did not relate to the way Future Shop did business but rather to the condition of the parking lot.  

When deciding duty to defend motions, courts will look at the essence of a claim.  It may be difficult to show that certain parts do not require a defence unless there are clear claims that could stand on their own.

Claim for Contribution and Indemnity for Negligent Supervision Not Caught by Exclusion Clause

The Court of Appeal recently held that an insurer was obligated to defend a homeowner against a Third Party Claim alleging she failed to supervise her own daughter.


In Bawden v. Wawanesa Mutual Insurance Company, 2013 ONCA 717 (C.A.), eight year old Kelly Bawden was struck and injured by a motor vehicle driven by Joyce Wilson and owned by Randal Wilson in August 2003.

Kelly’s mother, Elizabeth Bawden, sued the Wilsons in her capacity as litigation guardian seeking damages on Kelly’s behalf. The Wilsons brought a third party claim against Elizabeth Bawden and Kelly’s father, David Bawden, claiming contribution and indemnity for failing to properly instruct and supervise their daughter.

The Bawdens held a homeowners’ insurance policy issued by Wawanesa Mutual Insurance Company. Wawanesa declined to defend them on the third party claim. The Bawdens brought an application for coverage. The application judge found in favour of the Bawdens. Wawanesa appealed to the Ontario Court of Appeal.

The critical coverage provision in the policy stated:

                You are insured for claims made or actions brought against you for:

1. personal Liability: bodily injury or property damage ­arising out of your personal activities anywhere in the world. [Emphasis added]

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

1. bodily injury to you or to any person residing in your household other than a residence employee. [Emphasis added]

Wawanesa argued that the exclusion clause removed all claims for bodily injury by the insured and those residing in their household. The Court of Appeal disagreed and the appeal was dismissed. 

The Court held that the coverage provision must be interpreted broadly and therefore clearly encompasses the third party claim which arises out of the insureds’ personal activities in negligently failing to supervise their daughter. 

Further, the Court held that the exclusion clause must be read narrowly. It cannot encompass the third party claim which is not a claim on behalf of Kelly for her injury, but a claim by the Wilsons against the Bawdens for contribution and indemnity.

Lastly, the Court considered the policy objectives of the exclusion clause. The exclusion clause removes from coverage those claims that raise a risk of collusion between family members. This risk is not present in this case in which the Wilsons have brought a third party claim against the insureds. 

Excess Insurance

Excess insurers may be interested in the recently reported decision of ACE INA Insurance v. Associated Electric & Gas Insurance Services Ltd., [2012] O.J. No. 6500 (S.C.J.).

ACE insured Toronto Hydro, which was sued over an explosion that occurred in the underground parking of a high-rise apartment building.  AEGIS was the excess insurer.  Although there was no explicit duty to defend under the AEGIS policy, ACE brought an application that AEGIS had a duty to pay defence costs pursuant to the doctrine of equitable contribution.

The AEGIS policy was an "indemnity policy" rather than a "liability policy".  Under its policy, AEGIS limited its indemnity obligation where there is other insurance, and limited its duty to indemnify to defence costs incurred by the insured, not those incurred by a third-party such as ACE.  Defence counsel had been appointed by ACE rather than the insured.  AEGIS's obligation was only to indemnify defence costs at the end of the litigation, where the costs were not covered by other insurance.    

Justice C.J. Brown rejected the argument that AEGIS had an equitable duty to contribute to defence costs despite the clear wording of the policy.  There is no equitable obligation to defend where an excess policy precludes a duty to defend.  In addition, a relevant factor was that any defence costs paid by AEGIS would reduce the policy limits available to the insured so there was potential prejudice to Toronto Hydro. 

Limitation Periods in Duty to Defend or Indemnify Cases

When does the limitation period begin to run in duty to defend or duty to indemnify cases?

In Georgian Downs Ltd. v. State Farm Fire and Casualty Co., 2013 ONSC 2110 (S.C.J.), the applicant sought an Order compelling State Farm to pay its defence costs.  Georgian was a defendant in a slip and fall action, and State Farm insured Georgian's winter maintenance contractor.  Georgian was added as an additional insured to the contractor's policy.  The underlying claim was ultimately settled on the basis of the contractor's admission of liability.

One of the issues was when the limitation period began to run.  Although counsel exchanged correspondence back and forth about defence costs, there was no clear and unequivocal denial of Georgian's request for defence costs.

Justice Mulligan held that "when there is an absence of a clear and unequivocal denial of a duty to defend or a duty to indemnify, a limitation period commences on the day of judgment or settlement."  Using such an interpretation promotes certainly, since it fixes a readily ascertainable date, rather than being dependent on subjective questions of discoverability.

Presumably, if the facts were different and State Farm had clearly denied the request to pay defence costs, the limitation period would have commenced at that time.

Insurer Obligated to Continue Paying Defence Costs

Jevco v. Malaviya,2013 ONSC 675 (S.C.J.).

Malaviya was insured under a Standard Automobile Policy (SAP) with Jevco for the minimum liability limit of $200,000.  He was sued following an accident in 2005. The insurer paid the limits of its policy, then sought a declaration that it had no continuing duty to indemnify or defend Malaviya.  The contentious issue on the application was whether Jevco was obliged to continue paying the insured’s defence costs.

Justice Morgan described the wording of the SAP as “muddled and contradictory”.  It failed to clearly answer whether the insured would pay the insured’s legal costs above and beyond the coverage limit.  On the other hand, s. 245(b) of the Insurance Act provides that the insurer shall bear the defence costs of a claim.  There is no limiting language in s. 245.  As a result, the insurer is obligated to continue paying defence costs of the insured, even when there is no further duty to indemnify. 

The  SAP may have to be modified in order to avoid this situation from arising in the future.