As third party liability insurance is not intended to cover an insured for intentionally caused harm, liability policies, particularly homeowner's and commercial general liability policies, invariably have some form of an exclusion for intentional or criminal acts.

This is the case notwithstanding that some liability policies, particularly older CGL policies, also addressed the issue with a limitation in the insuring agreement that the property damage must be caused by an accident. With such policies then providing a definition of "accident" which precluded intentionally caused loss or damage. Similarly, early case law including Fenton v. J. Thorley & Co.,1 provided an interpretation of the word "accident" that was consistent with an intention to exclude intentionally caused harm:

" ... [T]he expression "accident" is used in the popular and ordinary sense of the word as denoting an unlooked-for mishap or an untoward event which is not expect or designed."2

Current examples of the exclusion for intentional or criminal acts include the following:

Intact Commercial General Liability Policy (based on IBC 2100 wording)

"2. This insurance does not apply to:

a. Expected or Intended Injury

Bodily Injury or Property Damage expected or intended from the standpoint of the insured. This exclusion does not apply to Bodily Injury resulting from the use of reasonable force to protect persons or property."

ING Homeowner's Policy

"We do not insure your claims arising from (6) Bodily injury or property damage caused by any 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;"

Interestingly, the standard CGL policy wording does not actually use the phrase "intentional or criminal acts" for what is the equivalent of the intentional and criminal acts exclusion. Rather the CGL policy references "bodily injury and property damage expected or intended from the standpoint of the insured". Clearly, it is reminiscent of language similar to that used by the House of Lords early in the last century.

Issues of the applicability of the intentional or criminal acts exclusion will arise in both the duty to defend context as well as with respect to the obligation to indemnify. As with any case that involves the interpretation of any aspect of an insurance policy knowledge of the basic principles of insurance law developed by the Supreme Court of Canada in such cases as Nichols v. American Home Assurance Co.3, Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co.4, Sansalone v. Wawanesa Mutual Insurance Co.5, Non-Marine Underwriters, Lloyd's of London v. Scalera6, Monenco Ltd. v. Commonwealth Insurance Co.7, Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada8, Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada9 and Ledcor Construction v. Northbridge Indemnity Insurance Co. 10 is essential.

Distinguishing the Intention to Commit an Act versus the Intention to Cause Harm

Because much of the law of negligence consists of the unforeseen consequences of intentional conduct, the author Gordon G. Hilliker, characterizes the intentional or criminal acts exclusion as the "intentional injury" exclusion. Negligence is covered, but intentional torts, generally, are not."11

Often it is necessary to distinguish between the intent to commit an act versus the intention to cause harm, or between intentional conduct versus intentional harm.

Hilliker cites the following example: a driver makes a right hand turn and strikes an unseen pedestrian in a crosswalk, causing the pedestrian to sustain injuries. The act of turning the vehicle is deliberate but there is no intent on the part of the driver to injure the pedestrian.

The leading case to establish that the exclusion clause must be read so as to require that the injuries be intentionally caused, in the sense that they are the product of an intentional tort and not negligence is that of Non-Marine Underwriters, Lloyd's of London v. Scalera.12

This decision addressed the question of whether the insurer had a duty to defend. In 1996, a plaintiff brought a civil action against five B.C. Transit bus drivers, including the appellant, arising out of various alleged sexual assaults that occurred between 1988 and 1992. The allegations included battery, negligent battery, negligent misrepresentation and breach of fiduciary duty. The appellant owned a homeowner's insurance policy issued by the respondent insurer. The policy provided coverage for "compensatory damage because of bodily injury" arising from the insured's personal actions, excepting "bodily injury or property damage caused by any intentional or criminal act". The Respondent insurer sought a declaration that it was not required to defend the appellant against the plaintiff's claims.

The British Columbia Supreme Court dismissed the Insurer's request for a declaration that it not be required to defend the appellant against the plaintiff's claims. The British Columbia Court of Appeal allowed the insurer's appeal and the Appellant homeowner appealed to the Supreme Court of Canada.

The Supreme Court of Canada held that the appeal should be dismissed. There were two separate judgments. One authored by McLachlin, J. (as she then was) and one by Iacobucci, J. Although the result was the same the majority decision (McLachlin, L'Heureux-Dubé, Gonthier and Binnie, JJ.) differed from the minority (Iacobucci, Major and Bastarache, JJ.) in connection with the minority's treatment of the tort of sexual battery.

In finding that the exclusion clause for intentional or criminal acts is to be read so as to require that the injuries be intentionally caused, Justice Iacobucci stated:

"There is no dispute in this case that the plaintiff's allegations fall within the general coverage provisions of the policy. All that is at stake is whether the exclusion clause applies. That clause states that the appellant is "not insured for claims arising from:

... bodily injury or property damage caused by any intentional or criminal act or failure to act" by the insured.

At the outset, the wording of this clause presents a threshold issue. The respondent argues that the clause requires only an intentional act, not an intent to injure. The majority below agreed with this interpretation. However, I agree with Finch J.A.'s dissent on this point. If the respondent were correct, almost any act of negligence could be excluded under this clause. After all, most every act of negligence can be traced back to an "intentional ... act or failure to act". As this Court made clear in Canadian Indemnity Co. v. Walkem Machinery & Equipment Ltd., [1976] 1 S.C.R. 309, "negligence is by far the most frequent source of exceptional liability which [an insured] has to contend with. Therefore, a policy which would not cover liability due to negligence could not properly be called "comprehensive"" (pp. 316-17). Consistent with this decision, the purpose of insurance, and the doctrine of reasonable expectations and contra proferentem referred to above, I believe the exclusion clause must be read to require that the injuries be intentionally caused, inthattheyaretheproductofanintentionaltortandnotofnegligence.

Our task, therefore, is to decide which of the plaintiff's legal allegations are properly pleaded, whether any of them are derivative, and whether any of the surviving claims evince an intention to injure, thus triggering the exclusion clause. To do this, it is necessary to understand precisely what the elements of the various torts alleged against the appellant are. If the elements of a tort claim require proof of conduct that also proves an intent to injure, there will be no duty to defend because any potentially successful claim would fall under the exclusion clause."13 (emphasis added)

Following Scalera, the state of the law was such that for the exclusion to apply, the injuries must have been intentionally caused, that is caused by an intentional tort. Injuries caused by negligence would not be excluded.

Then recently, in Ontario Society for the Prevention of Cruelty to Animals v. Sovereign General Insurance Co. the Ontario Court of Appeal held that, absent language in the insurance policy to the contrary, unintended consequences that arise from an intentional act are still fortuitous.14 OSPCA was an appeal concerning an insurer's duty to defend under two commercial general liability policies. There were three underlying actions that alleged claims against the OSPCA arise from intentional conduct, such as false arrest, false imprisonment, malicious prosecution and defamation. Specifically, the Court of Appeal stated:

"... Absent provisions in an agreement to the contrary, the critical issue when determining whether the fortuity principle aids in precluding coverage for harm caused by an intentional act is whether or not the insured intended to inflict the actual harm about which the plaintiff complains. An intended act may have unintended consequences. The fortuity principle does not preclude coverage for an intentional act with unintended consequences. Rather, it precludes coverage for an intentional act with intended consequences: see Hollinger (Liberty Mutual Insurance Co. v. Hollinger Inc.), at paras: 18-19." (emphasis added)

In OSPCA, the Court was asked to interpret the Personal Injury Liability and Personal and Advertising Injury Liability coverages of the CGL policy and not the coverages for bodily injury and property damage. For both policies under consideration, the coverage for personal injury liability was not occurrence based or accident based and the definitions of"personal injury" encompassed torts which involved intentional conduct, including malicious prosecution. The Court also noted that the elements of the tort of malicious prosecution must include a plea that the plaintiff incurred or suffered damage in consequence of the malicious prosecution, and hence by extending the Personal Injury Liability coverage to include malicious prosecution, the insurer provided coverage for actions that involved the deliberate infliction of harm15. Under the circumstances, there was no need to establish that the harm arising from the intentional tort was unintended or an unintended consequence.

OSPCA may be distinguishable based on the nature of the allegations in the underlying actions and the specific wording of the coverages under consideration by the Court.

In Savage v. Belecque16 the female plaintiff was injured as a result of a bizarre set of circumstances involving "horseplay" including the acceleration of a vehicle while the plaintiff, who was wearing ice-skates, was outside of the vehicle leaning in to ask for a cigarette, a fall in which she was uninjured, and then the driver of the vehicle deciding to execute a "high-speed doughnut" manoeuvre which then caused the vehicle to strike the plaintiff, resulting in the plaintiff sustaining serious bodily injuries. The driver subsequently testified that he had no intention to harm the plaintiff. The Court of Appeal upheld the motion judge's finding that there was no genuine issue for trial with respect to defendant's intention and the insurer had a duty to indemnify. The driver's conviction for careless driving did not give rise to any inference that he intended to harm the plaintiff.

Savage v. Belecque was an indemnity application and under these circumstance evidence of the defendant driver's lack of intention to harm the plaintiff was admissible. Had this been a duty to defend case determined solely based on pleadings, the result may have been different.

An example of a case of an intended act with intended consequences, for which there was no coverage is that of Reeb v. Guarantee Company17. The underlying action involved a claim by James that he was injured at his parent's home by the applicant/defendant, Ryan. On the date in question, James and Ryan were playing at James' house. They were both 14 years of age. James and Ryan were playing a game using BB guns. Ryan fired a pellet which struck James in his left eye which resulted in James losing the sight in that eye. There were two homeowner's policies. The application before the Court was brought by Ryan seeking a declaration that he was an insured under the two policies. The insuring agreements of both policies provided coverage for "unintentional bodily injury or property damage". Each of the policies had an exclusion clause for intentional or criminal acts.

The evidence introduced at the application indicated that Ryan and James had been playing a game where they intended to shoot each other with the BB guns. James' evidence was that there had been a "timeout" called in the game immediately before he was shot in the eye. As a result of the "timeout", both Ryan and James stood up and while they were both standing facing each other, Ryan shot point-blank at James' eyeball. According to James, Ryan was looking directly at him when he pulled the trigger. Ryan's evidence was that he did not intend to shoot James in the eye and that the injury to James was an accident. Ryan admitted at discovery that he had shot toward James, and that he was trying to hit James somewhere, though not specifically in the eye.

The Court concluded from the evidence on the application that Ryan acknowledged that he intended to fire the fateful shot, he acknowledged that he intended that the shot hit James, and he acknowledged that he intended that the shot injure James and cause "some level of pain". What Ryan denied was an intention to hit James in the eye, and an intention to injure him to the extent that he did.

The Court in dismissing Ryan's application concluded:

"... I cannot think of a more intentional sequence of events. The only thing denied by Ryan was the intention to cause the particular injury that had resulted from James being hit in the eye with the pellet rather than in some other body part."18

"I reiterate 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."19

"I find the distinction between shooting James in the eye and shooting him in some other body part to be a distinction without consequence. ..."20

"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." ..."21

"The second reason is because there is no effective distinction between an exclusion clause which covers "intentional acts" and one which covers "intentional injuries". ... Where the tort was intended, it doesn't matter if the result was more harmful than intended. ..."22

"... I find 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. ... 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."23 (emphasis added)

Distinguishing Intentional Acts and Derivative Negligence Claims

Again, the leading case is Non-Marine Underwriters, Lloyd's of London v. Scalera.24

With respect to the duty to defend, Justice Iacobucci reiterated the principle that "absent express language to the contrary, the duty to defend extends only to claims that could potentially trigger indemnity under the policy". He then outlined a three step process for determining if a duty to defend is triggered with any given claim:

"Determining whether or not a given clause could trigger indemnity is a three-step process. 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 harm as the 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. ..."25

Justice Iacobucci was careful to point out that bare assertions of claims of negligence, misrepresentation and breach of (fiduciary) duty are not sufficient to trigger the duty to defend. "Bare assertions alone cannot be determinative" and "What really matters is not the labels used by the plaintiff, but the true nature of the claim".26 And further: "In my view, the correct approach in the circumstances of the case is to ask if the allegations, properly construed, sound in intentional tort. If they do, the plaintiff's use of the word "negligence" will not be controlling. ...".27

Justice Iacobucci cautioned that a court must look beyond the labels used by the plaintiff in drafting a statement of claim, and determine the true nature of the claim pleaded. He then provided guidance as to the proper resolution of a duty to defend situation where the pleadings alleged both intentional and non-intentional torts:

"... Having construed the pleadings, there may be properly pleaded allegations of both intentional and non-intentional tort. When faced with this situation, a court construing an insurer's duty to defend must decide whether the harm allegedly inflicted by the negligent conduct is derivative of that caused by the intentional conduct. In this context, a claim for negligence will not be derivative if the underlying elements of the negligence and of the intentional tort are sufficiently disparate to render the two claims unrelated. If both the negligence and intentional tort claims arise from the same actions and cause the same harm, the negligence claim is derivative, and it will be subsumed into the intentional tort for the purposes of the exclusion clause analysis. If, on, the other hand, neither claim is derivative, the claim of negligence will survive and the duty to defend will apply. Parenthetically, I note that the foregoing should not preclude a duty to defend simply because the plaintiff has pleaded in the alternative. ...

The reasons for this conclusion are twofold. First, as discussed above, one must always remember that insurance is presumed to cover only negligence, not intentional injuries. Second, this approach will discourage manipulative pleadings by making it fruitless for plaintiffs to try to convert intentional torts into negligence, or vice versa. ..."28 (emphasis added)

And further Justice Iacobucci stated:

"... In the context of an insurance contract's intentional injury exclusion clause, the goal is to determine the gravamen of the complaint, and whether one can infer an intent to injure from that complaint. ..."29 (emphasis added)

As noted above in Reeb v. Guarantee Company (supra) the Court concluded that the legal allegations were not properly pleaded because all of the particulars pleaded in the underlying action were founded in negligence with no suggestion of an intentional tort. The labels used were consistent only with negligence while the evidence supported an intentional act. The damages resulting from the negligence pleaded were entirely derived from the intentional shooting. The harm which resulted from the intentional shooting was the same harm upon which the claims in negligence were based. The Court was clearly of the view citing Tedford v. TD Insurance Meloche Monnex30, Monenco31 and Scalera32 that this was an appropriate case to "look beyond the labels used by the plaintiff in the pleadings to ascertain the "substance" and "true nature" of the claims. It was the Court's conclusion that this was an example of a plaintiff drafting "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".33

Justice Iacobucci's directive to look beyond the labels used by a plaintiff in drafting a statement of claim was at issue in the case of Optimum Insurance Company Inc. v. Donovan34. Brandon Donovan hosted a party while his parents were away on holidays. At this party Brandon unintentionally shot and killed a guest and friend, Cody Gillespie. An action was commenced against Mr. Donovan and his parents. The Gillespie lawsuit was brought under the Survival of Actions Act and the Fatal Accidents Act. The Donovans presented the lawsuit to their insurer pursuant to a policy of homeowner's insurance and requested a defence. Optimum refused to defend and Mr. Donovan initiated third party proceedings seeking declaratory and other relief for Optimum's "arbitrary failure to comply with its duty to defend under the Policy." Optimum denied that it owed the alleged duty to defend. Optimum relied on the criminal act exclusion and urged the Court to look beyond the labels used by the plaintiff in the underlying action.

Both Optimum and the Donovans applied for the determination of a question before trial under Rule 23 of the Rules of Court. At the hearing Optimum acknowledged that Mr. Donovan did not intend to injure, let alone kill Mr. Gillespie and that but for the"criminal act" exclusion, Optimum would be required to defend. The Statement of Claim did not reference the Criminal Code of Canada nor any assertion that Mr. Gillespie's death arose from a criminal act committed by Mr. Donovan. Mr. Donovan had admitted at discovery to pleading guilty to a charge of manslaughter in connection with Mr. Gillespie's shooting death. Optimum argued for the admissibility of affidavit evidence to establish this guilty plea to a charge of manslaughter. Further, Optimum argued that, "in any event, the Statement of Claim against Mr. Donovan sets out a claim whose validity is umbilically tied to wrongful conduct that, as particularized, constitutes a criminal act within the meaning of the "criminal act" exclusion"35. Mr. Donovan argued that he had not been sued for any violation of criminal law but, rather, for civil negligence in the shooting death of Mr. Gillespie. He argued against the admission of the affidavit evidence and asserted that there were no allegations in the Statement of Claim to support or trigger the application of the criminal acts exclusion. The motion judge agreed with Mr. Donovan. Optimum appealed.

The New Brunswick Court of Appeal dismissed the appeal. The Court of Appeal concluded that the "proffered affidavit evidence was inadmissible by virtue of Rule 23.02 and the motion judge rightly erased from his mind the unsubstantiated allegation that Mr. Donovan pled guilty to a charge of manslaughter under s. 236 of the Criminal Code (manslaughter by criminal negligence)".36

On the question of the true nature of the claim advanced in the Statement of Claim, the Court of Appeal concluded:

"Under the Policy, which all agree is materially different from the policy under consideration in each of the cases mentioned in the Notice of Appeal (Gamblin v. O'Donnell, R.E. v. Wawanesa Mutual Insurance Co.: Eichmanis v. Wawanesa Mutual Insurance Co. (2007), 84 O.R. (3d) 668, [2007] O.J. No. 482 (QL), 2007 ONCA 92 and Non-Marine Underwriters, Lloyd's of London v. Scalera), Optimum undertakes to pay all sums which the insured becomes legally liable to pay as compensatory damages because of unintentional bodily injury arising out of the insured's"personal actions". Both intentional and unintentional actions are covered, so long as any resulting bodily injury was not intended. More precisely, coverage under the Policy extends, subject to any pertinent exclusion, to bodily injury arising from the insured's use of a firearm so long as he or she did not intend to cause any such injury. ...

Section 236 of the Criminal Code, the only statutory provision identified in Optimum's Notice of Motion, is not mentioned at all in the Amended Statement of Claim. Moreover, it is not alleged in that critical pleading that Mr. Donovan's death-causing conduct amounted to a marked and substantial departure from the standard of the reasonable person, the test for manslaughter by criminal negligence ... As the motion judge correctly observed, the only wrongful conduct attributed to Mr. Donovan in the Statement of Claim is negligence "in handling and brandishing loaded firearms in a reckless and unsafe manner" and in "[pointing] and firing a loaded firearm at Cody Gillespie, causing a fatal injury". Focusing exclusively on the Amended Statement of Claim, I am at a loss to understand how and where the motion judge committed reversible error in concluding Optimum failed to meet the onus of bringing the claim within the "criminal act" exclusion. ..."37

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1 [1903] A.C. 443 (H.L.)

2 Ibid at p. 448

3 [1990] 1 S.C.R. 801 ("Nichols")

4 [1993] 1 S.C.R. 252 ("Reid Crowther")

5 [2000] 1 S.C.R. 627, 2000 SCC 25 ("Sansalone")

6 [2000] 1 S.C.R. 551, 2000 SCC 24 ("Scalera")

7 [2001] 2 S.C.R. 699, 2001 SCC 49 ("Monenco")

8 [2006] 1 S.C.R. 744, 2006 SCC 21 ("Jesuit Fathers")

9 2010 SCC 33 ("Progressive Homes")

10 2016 SCC 37 ("Ledcor")

11 Liability Insurance Law in Canada, 5th edition at p. 277

12 Note 6

13 Ibid at paras. 91-92

14 2015 ONCA 702 ("OSPCA") at para. 48.

15 Ibid at para 64

16 (2012), 111 O.R. (3d) 309, 2012 ONCA 426

17 2016 ONSC 7511.

18 Ibid at para. 30.

19 Ibid at para. 31.

20 Ibid at para. 33.

21 Ibid at para. 34.

22 Ibid at para. 35.

23 Ibid at para. 37.

24 Note 6

25 Ibid at paras. 50-52

26 Ibid at para. 79

27 Ibid at para. 82

28 Ibid at para. 84

29 Ibid at para. 88

30 2012 ONCA 429, 112 O.R. (3d) 144.

31 Note 7.

32 Note 6.

33 Note 17 at para. 15.

34 2009 NBCA 6 (NBCA).

35 Ibid at para. 3.

36 Ibid at para. 33.

37 Ibid at paras. 38-39.

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.