Recently, the Ontario Court of Appeal released its decision in Unifund Assurance Company v. D.E., 2015 ONCA 423 (companion appeal: C.S. v. TD Home and Auto Insurance Company, 2015 ONCA 424). Briefly stated, the respondents, D.E. and L.E., had a homeowners’ insurance policy that allowed for liability coverage if their personal actions caused unintentional bodily injury or property damage.  D.E. and L.E. were sued in negligence as a result of allegations against their daughter for bullying and threatening another child.  The claim listed damages for physical and psychological injuries. D.E. and L.E. requested their insurance company to defend and indemnify them pursuant to the liability coverage, however, the insurance company refused based on two exclusion clauses:

Exclusions – SECTION II 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.

At the lower court, the respondents were successful in obtaining an order that the insurer had a duty to defend and indemnify them in the lawsuit.  However, on appeal, the Court of Appeal determined the insurance company did not have a duty to defend or indemnify the respondents. The Court of Appeal relied on the three part test to find a duty to defend and indemnify pursuant to an insurance policy, relied on in Non-Marine Underwriter, Lloyd’s of London v. Scalera, 2000 SCC 24 at paragraphs 50 to 54:

First, a court should determine which of the plaintiff’s legal allegations are properly pleaded. In doing so, courts are not bound by the legal labels chosen by the plaintiff. A plaintiff cannot change an intentional tort into a negligent one simply by choice of words, or vice versa. Therefore, when ascertaining the scope of the duty to defend, a court must look beyond the choice of labels, and examine the substance of the allegations contained in the pleadings. This does not involve deciding whether the claims have any merit; all a court must do is decide, based on the pleadings, the true nature of the claims. At the second stage, having determined what claims are properly pleaded, the court should determine if any claims are entirely derivative in nature. The duty to defend will not be triggered simply because a claim can be cast in terms of both negligence and intentional tort. If the alleged negligence is based on the same intentional tort, it will not allow the insured to avoid the exclusion clause for intentionally caused injuries. Finally, at the third stage the court must decide whether any of the properly pleaded, non-derivative claims could potentially trigger the insurer’s duty to defend.

The Court found the first two criteria were satisfied easily and moved to focus on the third criterion and, in particular, whether the properly pleaded, non-derivative claim, would trigger a duty to defend.  The Claim alleged respondents failed to investigate, remedy, and prevent their daughter’s conduct and that they failed to take disciplinary action and discharge their duty to prevent the harassment.  The Court determined there was no ambiguity in determining the plaintiff’s claim was brought in negligence such that the exclusion clause would apply. As bullying claims are becoming more and more common, this is an area important to the insurance industry and further decisions or appeals on similar matters will be of on-going interest.

About the author: Brittnee is an associate in the Regina office where she has specific interests in insurance law, health law, civil litigation, administrative law, labour and employment law, and professional discipline.

About McKercher LLP: McKercher LLP is one of Saskatchewan’s oldest, largest law firms with offices in Saskatoon and Regina. Our deep roots and client-first philosophy have made us a top ranked firm by Canadian Lawyer magazine (2011, 2013). Expertise, experience and capacity provide innovative solutions for our clients’ diverse legal issues and complex business transactions. This post is for information purposes only and should not be taken as legal opinions on any specific facts or circumstances.  Counsel should be consulted concerning your own situation and any specific legal questions you may have.