Keywords: duty to defend, exclusion clause, ambiguous wording, insured, bullying
Synopsis: The respondents, D.E. and L.E., had a homeowner’s insurance policy that included liability coverage if their personal actions caused unintentional bodily injury or property damage. They became the subject of a lawsuit where the principal claim was their daughter and two other girls, all Grade 8 students, bullied and threatened a fellow student, resulting in physical and psychological injuries. The claim was rooted in negligence, namely, their failure to control their daughter.
D.E. and L.E. requested Unifund (appellant) defend and indemnify them pursuant to their insurance policy. The appellant refused, relying on two exclusion clauses contained in the policy:
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.
D.E. and L.E. successfully brought an application in the Ontario Superior Court of Justice seeking a declaration that Unifund had a duty to defend and indemnify them in the underlying action. Unifund appealed. The principal issue on appeal was whether either of the two exclusion clauses saved Unifund from having to defend and indemnify D.E. and L.E. in the underlying action.
In the companion appeal TD Home and Auto Insurance Company, the application judge expressly adopted the reasons of the trial judge in Unifund and declared the insurance company had a duty to defend and indemnify the parents of the child bullied in accordance with their policy.
In two unanimous decisions of the Ontario Court of Appeal, Justice MacPherson allowed the appeals, set aside the judgments of the application judges, and declared both insurance company appellants did not have to defend or indemnify the respondents in the underlying actions.
Importance: Justice MacPherson began his analysis by outlining the three-part test for interpreting insurance policies in the context of the duty to defend and duty to indemnify found in Non-Marine Underwriter, Lloyd’s of London v. Scalera, 2000 SCC 24:
- should determine which of the plaintiff’s legal allegations are properly pleaded;
- should determine if any claims are entirely derivative in nature; and
- must decide whether any of the properly pleaded, non-derivative claims could potentially trigger the insurer’s duty to defend.
Justice MacPherson found the first two criteria were easily met, so focused his analysis on the third criteria, specifically, whether the properly pleaded, non-derivative claims triggered the insurer’s duty to defend. The parent’s conduct that provoked the lawsuit was described as “failed to investigate”, “failed to take steps to remedy”, “failed to take reasonable care to prevent”, “failed to take disciplinary action” and “failed to discharge their duty to prevent the continuous physical and psychological harassment.”
According to Justice MacPherson, it was clear the plaintiff’s claim was grounded in negligence – with negligence defined as “failure to take proper care over something.” Justice MacPherson then examined the wording of the exclusion clause. He dismissed the trial judge’s finding of ambiguity owing to the lack of “express language” addressing whether “negligent failure to prevent physical abuse or molestation” was a covered ground under the exclusion clause. He agreed with the reasoning of Justice Mesbur in a similar case (D.J.F. v. B.L., 2008 CanLII 39786 (ON SC)) where it was held the defendant’s actions brought the claim squarely within the exclusion clause the insurance company relied on and likened it to the case at bar.
Ultimately, Justice MacPherson ruled the exclusion clause was clear on its face and it applied to the lawsuit as pleaded against D.E. and L.E. He allowed the appeal, set aside the judgment of the application judge, and declared Unifund did not have a duty to defend or indemnify the respondents in the underlying action.
Of note, the companion appeal (TD Home and Auto Insurance Company) included the minor daughter as a named party in the style of cause (whereas Unifund did not). Applying the reasoning in Meadows v. Meloche Monnex Insurance Brokers Inc., 2010 ONCA 394, Justice MacPherson found the insurer had no duty to defend the minor. The same order in Unifund was given in TD Home and Auto Insurance Company (with the exception of costs).
Unless further appealed, these cases are of precedent-setting effect – namely, that neither children accused of bullying nor their parents can rely on standard homeowners’ insurance coverage for any damages or costs resulting from such behaviour.
Counsel for the Respondent (Appellant) Unifund Assurance Company: Mark O’Donnell and Mark Barrett (O’Donnell, Robertson & Sanfilippo, Toronto)
Counsel for the Applicants (Respondents) D.E. and L.E.: Vusumzi Msi (Msi,Vusumzi, Professional Corporation, Richmond Hill)
Counsel for the Respondent (Appellant) TD Home and Auto Insurance Company: Marc Isaacs and Cameron Grant (Isaacs & Co., Toronto)
Counsel for the Applicants (Respondents) C.S., J.G. and M.G. (by her litigation guardian J.G.): Esmaeil Mehrabi (Mehrabi Law Office, Toronto)
(And if you’re paying attention, all the way to the bottom, two Mark’s and one Marc on for the Respondents— would’ve been fun in appeal prep room—”Hey Marc, you want to argue this point?”)