Canada: Defence & Indemnity - April 2017

Last Updated: May 10 2017
Article by Field LLP

An Analysis of Insurance Case Law and Legislation


A. The Alberta Court of Appeal reiterated that policies cover insured perils but not pre-existing deficiencies in the property that are not caused by the peril, but only discovered as a result of the peril, such as building by-law compliance.

852819 Alberta Ltd v Sovereign General Insurance Company, 2017 ABCA 76

I. Facts and Issues

The insured's building suffered ice damage and the Defendant insurer paid to have the damaged portions of the roof repaired. Subsequently, a building inspector advised the insured that the entire roof structure had to be changed because it was not compliant with the building code. The roof had not been compliant with the building code before the loss. The insured had the roof brought up to code at a cost of $527,497.46. It sought indemnity for this from the insurer. After a summary trial, the trial judge held for the insured and awarded it the indemnity. The insurer appealed.

II. HELD: For the insurer; appeal allowed and claim dismissed.

1. The Court noted that the trial judge had not had the benefit of the Court of Appeal's decision in Roth v. Economical Mutual Insurance Company, 2016 ABCA 399 [briefed in the February 2017 edition of Defence & Indemnity]. The Court re-iterated its conclusion in that case to the effect that an insurance policy does not cover losses (such as lack of building code compliance) that are not caused by the loss, but are only discovered because of the loss:

[8] In Roth at para 23, this Court decided that:

It cannot reasonably be suggested that either the insurer or insured would have anticipated recovery for pre-existing deficiencies in a building where the peril insured against . . . did not actually create the bylaw issue. Extending coverage in such cases would require that the insurer determine in each case whether the property complied with all relevant bylaws, as it would be responsible for the costs of remedying any and all deficiencies unearthed as part of subsequent damage insured against. Quite apart from the fact that this would be practically impossible in most cases, it would also effectively turn an insurer into a guarantor of construction defects and building code violations. Insurance indemnifies against risk whereas requiring an insurer to be responsible for hidden damage pre-existing the fortuitous event in question is more in the nature of a warranty: University of Saskatchewan v Fireman's Fund Insurance Co. of Canada (1997), 1997 CanLII 9789 (SK CA), [1998] 5 WWR 276 (Sask CA) at paras 36-37. This cannot be reasonably expected of an insurer.

Here the non-compliant roof may have been discovered as a result of the damage caused by the insured peril, but the damage was not caused by that peril.

[9] For the same reasons as given in Roth, in our view the appellants are not obliged to indemnify the respondent for the $527,497.46 incurred to upgrade the entire roof of its building because this cost is not from "a loss resulting from an insured peril." The structural deficiency involving the undamaged portion of the building's roof did not come about as a result of the ice damage.

B. Where a claimant pleads an intentional act as negligence, in the context of an exclusion clause for intentional acts, the claim for negligence may be considered to be "derivative" of the intentional tort and thus excluded by the exclusion clause.

Reeb v. Guarantee Co. of North America, 2016 ONSC 7511 per Bondy, J.

I. Facts and Issues

This case considered an application brought by Ryan Reeb (hereinafter referred to as "Ryan") seeking a declaration that he is insured under two policies of insurance. The first (the "Guarantee policy") was a policy issued to his father Tim Reeb ("Tim") by the respondent Guarantee Company of North America ("Guarantee"). The second (the "Co-operators policy") was issued to Tim's second wife, Theresa Curry-Reeb ("Theresa"), by the respondent Co-operators.

The underlying action involved a claim by James Riley ("James") that he was injured on February 25, 2007 at his parent's home in Ontario, by Ryan. James and Ryan had been playing at James' house. They were both 14 years of age. James' mother had received a call and, as a result, left on an errand, leaving James and Ryan in the house alone. They were playing a game using "BB guns". Ryan fired a pellet which struck James in his left eye, leaving James blind in that eye.

The respondent insurers conceded that Ryan met the definition of "insured person" in both policies. The issue was whether the insurers could avoid coverage pursuant to the "intentional act" exclusions in their respective policies.

The Guarantee policy exclusion clause provided as follows:

You are not insured for claims arising from:

. . .

(5) bodily injury or property damage caused by any intentional or criminal act or failure to act by

  1. any person insured by this policy; or
  2. any other person at the direction of any person insured by this policy

The "Legal Liability" section of the Co-operators policy provided:

We will pay all sums which you become legally responsible to pay as compensatory damages because of unintentional bodily injury or property damage up to the limit of insurance stated on the Certificate of Insurance. You are insured for legal liability arising out of your personal actions any in the world.

The Co-operators policy also stated:

You are not insured for claims made against you arising from:

  • bodily injury or property damage caused intentionally by you or at your direction or resulting from your criminal acts or omissions.

II. HELD: For the Defendant; the damages resulting from the negligence pleaded were entirely derived from the intentional shooting and, accordingly, were subsumed for purposes of the exclusion clause.

1. The Court found that the torts plead by the Plaintiff in the pleadings were in substance an intentional tort and not negligence.

  1. The Court first noted at that "an insurer is required to defend a claim where the facts alleged in the pleadings, if proven to be true, would require the insurer to indemnify the insured for the claim" (para. 12). See: Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 S.C.R. 245 (S.C.C.), at para. 19."
  2. The Court then noted (at para. 13) that "the duty to defend, however, extends only to claims that could potentially trigger indemnity under the policy absent any language to the contrary: see Non-Marine Underwriters, Lloyd's London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551 (S.C.C.), at para. 49."
  3. The Court held that "in considering whether a claim could potentially trigger indemnity under the policy, however, the court must look beyond the labels used by the plaintiff in the pleadings to ascertain the "substance" and "true nature" of the claims. See: Tedford v. TD Insurance Meloche Monnex, 2012 ONCA 429, 112 O.R. (3d) 144 (Ont. C.A.), at para. 14; Monenco, at paras. 34-35; Scalera, at para. 79."

    1. That is because "a plaintiff may draft a statement of claim in a way that seeks to turn intention into negligence in order to gain access to an insurer's deep pockets. See: Non-Marine Underwriters, Lloyd's London v. Scalera, at para. 84; and E. S. Pryor, "The Stories We Tell: Intentional Harm and the Quest for Insurance Funding" (1997) 75 Tex. L. Rev. 1721 (S.C.C.), at p. 1735."
    2. At paras. 50-52 of the decision in Scalera, the Supreme Court sets out a three-stage process to determine whether or not a particular claim could trigger indemnity. The Court summarized those three steps as follows:

      "First, the 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.

      At the second stage, 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 harm as the intentional tort, it will not allow the insured to avoid the exclusion clause for intentionally caused injuries.

      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."
  4. The Court held (at para. 29): I find at the first stage that the applicant's legal allegations are not properly pleaded. I say that because the labels used by the applicant are consistent only with negligence while the evidence supports an intentional act. The pleadings are silent as to Ryan having intentionally pointed the gun in James' direction and intentionally firing the handgun with the intention of hitting and injuring James.
  5. The Court held (at para. 31) that "at the second stage, if the alleged negligence is based on the same harm as an intentional tort, it will not allow the insured to avoid the exclusion clause for intentionally caused injuries."
  6. Ryan's counsel argued that the injuries that would result from shooting James with a pellet in a place other than his eye would "not rise to the level" of the injuries sustained when the pellet struck James' eye. Ryan's counsel maintained that the intended "minor transient injuries" are not the same as "serious and permanent injuries to his eye." As a result, applicants counsel argued that although the act was intended, the consequences were not. However, the Court found that the distinction between shooting James in the eye and shooting him in some other body part to be a distinction without consequence.

    1. "The first reason is that "if a tort is intended, it will not matter that the result was more harmful than the actor should, or even could have foreseen." See: Scalera, at para. 99; A. M. Linden, Canadian Tort Law, 6th ed. (1997), at p. 45; Bettel v. Yim (1978), 20 O.R. (2d) 617 (Ont. Co. Ct.), at p. 628."
    2. "The second reason is because there is no effective distinction between an exclusion clause which covers "intentional acts" and one which covers "intentional injuries". See: Buchanan v. GAN Canada Insurance Co. 22 (Ont. C.A.) . . . 2000 CanLII 5756; and Sansalone v. Wawanesa Mutual Insurance Co., 2000 SCC 25, [2000] 1 S.C.R. 627 (S.C.C.) . Where the tort was intended, it doesn't matter if the result was more harmful than intended. See: GAN, at para. 20 and Bettel v. Yim, at p. 628."
    3. "The third reason is because in his examination of November 11, 2016, Ryan acknowledges at question 105 that "if you shot someone in the face or eye you could seriously injure them." He agreed and added that, as a result, he himself was not allowed to own guns of any kind. In other words, Ryan knew what was at stake when he pulled the trigger with the gun pointed in James' direction."
  7. Concluding, the Court stated that "the damages resulting from the negligence pleaded were entirely derived from the intentional shooting and, accordingly, were subsumed for purposes of the exclusion clause. In other words, the harm which resulted from that intentional shooting was the same harm upon which the claims in negligence are based. See: Scalera, at paras. 85 and 130. It follows that even if the plaintiff is successful at trial, the respondents will have no duty to indemnify because of the exclusion clause for intentional acts."

2. The Court found that the case law relied upon by the applicant did not address the core issue of the exclusion clause for intentional conduct. The Court held that each of the cases were distinguishable.

  1. Some cases, such as Sovereign, consider the fortuity principle. The fortuity principle aids in precluding coverage for harm caused by an intentional act where the insured intended to inflict the actual harm complained about by the plaintiff. In other words, it is not enough that the act be intended, but there also must be an intention to inflict the actual harm which results. See: Sovereign, at para. 48; Liberty Mutual Insurance Co. v. Hollinger Inc. (2004), 236 D.L.R. (4th) 635 (Ont. C.A.), at paras. 18-19. A fortuitous loss is one that is neither intentional nor inevitable. The Court further provided:

    1. "The fortuity principle does not preclude coverage for an intentional act with unintended consequences. Rather, it precludes coverage for an intended act with intended consequences." See: Sovereign, at para. 48. In this case we have an intended act, the firing of the gun, with an intended consequence: some level of injury to James. Believing Ryan's evidence, it was the level of injury that was unintended. However, I reiterate that where a tort is intended, it does not matter if the result was more harmful than intended. See: GAN, at para. 20."
    2. "In Sovereign, the Ontario Court of Appeal found that the application judge did not err in finding that the insurer had a duty to defend, notwithstanding the harm was caused by the insured's intentional act. Sovereign is clearly distinguishable, however, because in Sovereign, the court found that although "malicious prosecution involves intentional conduct", the policy specifically provided coverage for "malicious prosecution". See: Sovereign, at para. 63."
  2. The Court noted (at para. 43 - 48) as follows:

    1. 43 In several of the applicant's cases there were evidentiary voids at the time the motion was brought. In other words, the motion was premature for evidentiary reasons. As an example, at paras. 16-18 of the decision in Simone v. Economical Mutual Insurance Co., 2013 ONSC 3223, 23 C.C.L.I. (5th) 115 (Ont. S.C.J.), it is clear that there is an evidentiary void as to the issue of a negligence claim which might advance with merit. As a result, it was too early in the process to determine if the negligence allegations would be determined to be a derivative of the intentional assault.

      44 Similarly, the decision in F. (R.D.) (Litigation Guardian of) v. Co-operators General Insurance Co., 2003 MBQB 190, 176 Man. R. (2d) 316 (Man. Q.B.), involves a fire that was intentionally lit. Kaiser J., however, was unable to establish on the available evidence whether there was an intention to damage property, nor did the pleadings allege such an intention. The court concluded that it was entirely conceivable that the fire had been intentionally lit but negligently allowed to spread and cause damage. Again, it was too early in the proceedings to establish whether there was an intention to damage property. I reiterate that in the case before me, there was an intention to injure.

      45 In other cases put forth by the applicant there was no suggestion whatsoever of an intent to injure. As an example, in Savage v. Belecque, 2012 ONCA 426, 111 O.R. (3d) 309 (Ont. C.A.), the plaintiff was held by someone inside an automobile, pulled for some distance, and then fell. The driver of the car then violently reversed the vehicle not realizing the plaintiff had fallen behind it. The plaintiff was injured in the process. In that case, there was no suggestion that there was any intent to injure, as was the case here.

      46 Similarly in Gamblin v. O'Donnell, 2001 NBCA 109, 244 N.B.R. (2d) 102 (N.B. C.A.), a hunter in one hunting party fired at a truck belonging to another hunting party. The bullet struck the plaintiff, who was a passenger in that truck, in the head. Again, there was a finding that the defendant had no intention to injure the plaintiff. In the case before me, the intent to injure is admitted.

      47 In Mitsios v. Aviva Insurance Co. of Canada (2008), 89 O.R. (3d) 556 (Ont. S.C.J.), one employee, the plaintiff, sprayed the other, the defendant, with water. The defendant placed the plaintiff in a headlock. The plaintiff lost his balance and was injured. Again, although the headlock itself was intentional, there was no intent to injure. I reiterate Ryan's acknowledgment of the intent to injure.

      48 In other cases it was clear that although the action was intended, the consequences were not. For example, in Stats v. Mutual of Omaha Insurance Co., [1978] 2 S.C.R. 1153 (S.C.C.), the court considered the issue of whether the death of Helen Kathleen Brennan in a motor vehicle accident occurred from "accidental bodily injuries" as a result of the vehicle in which she was riding striking a building. The autopsy of Ms. Brown, who was driving the car, indicated that she was "grossly impaired". The trial judge concluded that Ms. Brown "voluntarily undertook to drive while in her impaired condition" and ruled that the collision was not accidental. The Supreme Court found that it was. That case is clearly distinguishable in that there was no suggestion that Ms. Brown had deliberately driven the car into the building. I reiterate that in the case before me, Ryan intended to both shoot and injure James.

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