Canada: Traders v. Gibson: Injury Claim Between Co-Habiting Family Covered By Homeowner's Policy Despite "Household Exclusion"

An Ontario court recently found that a personal injury claim, by a daughter against her mother, was covered by homeowner's insurance. The two lived together and the policy contained an exclusion for claims arising from injury to "any person residing in [the] household". However, the court concluded that the daughter was a "tenant" under the policy and therefore the exclusion did not apply. In the absence of explicit terms, the court concluded that the insured had a reasonable expectation of coverage for claims made by tenants, even if that tenant was a family member.

The Facts

Traders General Insurance Company v Elizabeth Gibson1 involved a daughter, Betty Gibson ("Betty"), born July 22, 1949, who, except for 10 months, lived at her mother's property her entire adulthood until 2016. Since high school graduation, Betty paid rent to her mother, Elizabeth Gibson ("Elizabeth"), and shared daily living tasks as well as various maintenance and upkeep costs with her.

An accident occurred on March 31, 2014 when Betty and her mother were waiting for a taxi to take them to medical appointments. Her mother was sweeping the porch and when the taxi arrived, reached to hand over the broom to Betty on the porch. When Betty leaned over to get the broom, she fell from the porch as the railing came down with her. As a result, she sustained bodily injuries and sued her mother, the contractor, his company, and a neighbor.

Traders General Insurance Company ("Traders") brought a coverage application in the course of trial for a declaration that it did not have to defend or indemnify Elizabeth.

Coverage

The mother's homeowner policy provided personal liability protection, which included coverage for compensatory damages due to unintentional bodily injury arising out of her "ownership, use or occupancy" of the premises. However, the policy included the following exclusion:

We do not ensure claims made against you arising from:

5. Bodily injury to you or any person residing in your household other than a residence employee.2 [emphasis added]

Traders relied on this exclusion (the "Household Exclusion") and argued that, because Betty "resided" at her mother's household at the time of the accident, coverage for a defence and indemnity against Betty's action was excluded.

During its analysis, the court decided that the Household Exclusion's purpose was to prevent potential collusion between the insured and family members residing within a household. Although they were family members occupying the same residence, Elizabeth argued that Betty was either a "residence employee" or a "tenant" and thus her claims against Elizabeth would not be subject to the Household Exclusion.

Residence Employee Argument

Elizabeth relied on two arguments on this application. First, she argued that Betty was a "resident employee" retained to perform household services or duties in exchange for a low monthly rent. As quoted above, the Household Exclusion relied on by Traders contained an explicit exception for claims made by "residence employees".

Elizabeth's policy defined "residence employees" as follows:

"Residence Employee" means a person employed by you to perform duties in connection with the maintenance or use of the premises. This includes persons who perform household or domestic services or duties of a similar nature for you. This does not include contractors or sub-contractors. It also does not cover persons while performing duties in connection with your business.3

The court found that Betty could not be considered a "residence employee" as there was no "employer and employee" relationship between her and Elizabeth, nor was there a "family business". Further, the court noted that Betty did not have a schedule or list of duties, and she had discretion over the services or duties she performed—for instance, when her health was poor she did no tasks at all.

Tenant Argument

Elizabeth argued, in the alternative, that Betty was a tenant and thus her claims against Elizabeth should be covered under the Traders policy. Traders argued that the Household Exclusion applied.

As noted above, the court had already decided that the purpose of the Household Exclusion was only to protect insurers from collusion between family members who were residing together. Here, although Betty and Elizabeth were family, the evidence was clear that Betty had been paying a fixed rent since 1994. Faced with this bona fides tenancy between family, the court was tasked with deciding whether the Household Exclusion still applied due to Betty's tenancy.

Noting the general rules for insurance policy construction, including that coverage terms be interpreted broadly and exclusion clauses be interpreted narrowly, the court considered the intentions of the parties at the time that the policy was issued. The court held that:

I am of the view that it had to have been in the reasonable contemplation of the parties that the owner may have rented a room to a tenant for remuneration, and that the owner may call upon that policy if a tenant were injured on the property, as the policy was obtained for the express purpose of providing liability coverage in respect of the ownership, use and occupancy of the property. ... [I]t would have been in the mind of Elizabeth when she first purchased the policy of insurance that she would be covered for liability for accidents occurring in the home for tenants. The opposite conclusion would be contrary to the reasonable expectations of Elizabeth and to the ordinary person as to the coverage purchased. Therefore, in my view, if Betty were a tenant, then her injury would be covered by the Traders policy of insurance.4 [emphasis added]

This conclusion follows the general rule that a coverage grant be interpreted broadly. Because the policy provided coverage for all injury arising from the "ownership, use and occupancy" of the premises, it was reasonable to conclude this term covered injury to "tenants" – with a tenancy being an ordinary "use" of the premises. By extension, the court concluded this interpretation would accord with Elizabeth's reasonable expectations when purchasing the Traders policy.

While the court did not explicitly address the Household Exclusion in its analysis, the above conclusion also follows the general rule that exclusion clauses are to be interpreted narrowly. Because the court decided that the Household Exclusion had the narrow purpose of avoiding collusion between family members, it follows that the exclusion ought not to apply to claims made by bona fides "tenants", even if those tenants are family.

To determine whether Betty was truly a "tenant, in the absence of a definition for "tenants" in the policy, the court established two criteria: (i) that the person occupy the property in question, and (ii) that there is an exchange of consideration that allows the tenant to occupy the property.5 The court found that, in this case, both requirements were satisfied.6 As such, the court dismissed the application, concluding that Betty was a "tenant" and her claims against Elizabeth were covered under the Traders policy. The court ordered that Traders continue to defend Elizabeth and indemnify her, if required.

Conclusion

This case serves as a reminder that policyholder intentions at the time of the purchase of insurance can be critically important. These intentions can inform the interpretation of a policy in the face of ambiguity. While an exclusion applying to "any person residing in your household" at the premises could have been interpreted to include any "tenants", the court relied on the intentions of the parties to support a narrow view of that exclusion. Here, the court refused to extend a vaguely worded exclusion to deny coverage to a policyholder who – in the court's contemplation – would have reasonably expected coverage for claims of bodily injury by "tenants" under the policy.

Footnotes

1. Traders General Insurance Company v Elizabeth Gibson, 2019 ONSC 1599, [Traders].

2. Traders at para 14. 

3. Traders at para 16. 

4. Traders at para 38.

5. Traders at para 39.

6. Traders at paras 40-41. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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