The Ontario Court of Appeal's decision last week in Hector v Piazza1 reminds insurers that they must pay careful attention to the wording of exclusionary clauses, which will be strictly construed against the insurer even where industry understanding of the purpose of a particular type of policy suggests a different result.
Piazza purchased and renovated an apartment building, then sold it to Hector. Hector later sued Piazza and others for negligent construction.
Piazza was insured under a Comprehensive General Liability (CGL) policy that applied to the property. The insurer denied coverage and any duty to defend based on a clause in the policy that excluded:
(h) property damage to
(1) property owned or occupied by or rented to the Insured, [...] [emphasis added]
Piazza named the insurer as a third party and brought a motion for an order against it declaring that it was obliged to defend him. The motions judge held that the wording of the exclusionary clause was ambiguous and, as a result, the insurer's duty to defend was triggered.
The sole issue on appeal was whether the motions judge correctly interpreted the exclusion in the CGL policy. If the word "owned" referred only to the past tense, the exclusion would apply, since the insured had clearly owned the property in the past. If, however, as held by the motions judge, the word "owned" could refer to the present or to the past tense, the policy could not be said to "clearly and unambiguously" exclude coverage,2 since the property was no longer owned by the insured at the time the claim arose.
The Court of Appeal held that grammatically, "owned" could refer to property that was currently owned or was previously owned by the insured.3 As a result, the policy did not clearly and unambiguously exclude coverage, and the duty to defend was triggered.
Although an insurer's duty to defend is often broader than its duty to indemnify, in that "the mere possibility that a claim falling within the policy may succeed will suffice" to trigger the duty,4 the decision in Hector v Piazza is relevant to both duties.
In drafting exclusionary clauses for CGL policies, if an insurer wishes to exclude coverage for property that is or has been owned or occupied or rented to the insured either in the present or in the past, it must state so explicitly. Hector v Piazza makes it clear that an insurer cannot rely on the argument that because a CGL policy is intended to insure against third-party liability and it is not intended to respond to first-party claims, an exclusion for property "owned" by the insured only has meaning if interpreted as referring to the past.5
The author wishes to thank Ms. Jenna Anne de Jong, articling student, for her help in preparing this legal update.
1. Hector v. Piazza, 2012 ONCA 26.
2. Ibid. at para. 11.
3. Ibid. at para. 15.
4. Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49,  2 S.C.R. 699 at para. 29.
5. Hector v. Piazza, supra note 1, para. 17-19.
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