Overview
In the case of Butterfield v. Intact Insurance Company, the Ontario Court of Appeal considered the issue of whether an insurer has a duty to defend an insured party that engaged in an intentional and criminal act when the claim against the former is brought in negligence.1 The Court of Appeal affirmed the decision from the Ontario Superior Court of Justice that the policy's intentional and criminal act exclusion clause applied such that the insurer did not have a duty to defend because the negligence claim was derivative of the intentional tort of assault.
Background
During the course of applying for a gun licence at a firearms store, and while suffering from a psychotic episode due to his schizophrenia, Mr. Butterfield stabbed the storeowner. Subsequent to the attack, the police charged Mr. Butterfield with aggravated assault but he was found not criminally responsible because he did not know that his conduct was morally wrong. The court found that Mr. Butterfield had an honest belief that he was defending himself and his family.
The storeowner then sued Mr. Butterfield in negligence. The claim alleged that it was negligent for Mr. Butterfield to attend the store and apply for a firearms licence. The storeowner alleged that it was reasonably foreseeable that Mr. Butterfield would harm someone while purchasing or possessing a firearm.
Mr. Butterfield held a condominium unit insurance policy that provided coverage for third party liability up to $2 million. The insurance policy included a standard intentional and criminal act exclusion clause, which stated, "We do not insure claims arising from.bodily injury or property damaged caused by any intentional or criminal act or failure to act by.any person insured by this policy." The insurer relied on the exclusion clause to avoid the defence and indemnity of Mr. Butterfield.
Mr. Butterfield brought a duty to defend application. On July 13, 2022, Justice Braid of the Ontario Superior Court of Justice held that the insurer was not required to defend or indemnify Mr. Butterfield. Mr. Butterfield appealed that decision.
The Court's Approach to interpreting insurance exclusion clauses
Insurance policies act as a mechanism to transfer fortuitous risks.2 As such, when examining an insurance policy to determine whether the insured is indemnified against liabilities, the court uses the principle of fortuity as an interpretive aid. This principle is grounded in the notion that, generally speaking, insurance only makes economic sense when losses are unforeseen or accidental.3 Specifically, enabling an insured party to be indemnified against liabilities arising from intentional acts would defeat the economic rationale of risk transfer. Excluding intentional acts from indemnification also prevents scenarios whereby individuals are indemnified from civil consequences arising from intentionally injuring others.4
The insurer's duty to defend
A homeowner's insurance policy provides the right to be indemnified in the event the insured is faced with liability within the scope of the policy's terms. As such, an insurer has a duty to defend claims that have the potential to impose liability on the insured. So long as the policy does not contain express language that removes the insurer's obligation to indemnify liabilities for specific claims against the insured, then the insurer has a duty to defend the insured.5
The court engages in a three-step process when determining whether a claim could trigger an insurer's obligation to indemnify and defend the insured. First, the court must determine the true nature of the claims and whether they are properly pled. To do so, the court examines the claims beyond the labels chosen by the plaintiff.6 If a plaintiff's pleadings are not sufficiently precise such that the court cannot determine, on a reasonable reading, whether the claim triggers an exclusion clause, then an insurer must exercise their duty to defend.7
The second step involves the court determining whether any of the claims are derivative in nature.8 For example, sometimes a claim can framed in both negligence and an intentional tort, such as assault and battery. The court will not permit an insured to avoid the exclusion clause because the action against them is framed in negligence if the alleged conduct is grounded in the same harm as the intentional tort.9 In such cases, the exclusion clause would apply thereby releasing the insurer's obligation to indemnify and defend the insured for intentionally caused injuries.10
At the third stage, the court must examine whether any of the non-derivative and properly pled claims could potentially trigger the insurer's duty to defend.11
Ontario superior court of justice decision
Justice Braid held that the insurer did not have a duty to defend or indemnify Mr. Butterfield. Justice Braid reasoned that the true nature of the claim was based on the intentional tort of assault.12 Next, Justice Braid found that the plaintiff's negligence claim was derivative of the intentional tort. The court found that the derivative nature of the negligence claim was rooted in the finding that although Mr. Butterfield may have been negligent in applying for the firearms permit, the only causal link between the negligence and the injuries, was the intentional tort of assault.13 In other words, the injuries suffered by the storeowner would not have occurred but-for the attack.
Justice Braid found that the act was both criminal and intentional with the effect of triggering the exclusion clause. Although Mr. Butterfield was not found criminally responsible for his attack on the storeowner, the act itself was criminal and caused the injuries.14 Second, Mr. Butterfield understood the physical nature and consequences of his conduct notwithstanding his inability to appreciate the moral wrong behind his attack.15 Specifically, Mr. Butterfield intended to stab and injure the storeowner.
Appeal Court Affirms Justice Braid's decision
The Court of Appeal upheld the decision that the insurer was not required to defend or indemnify Mr. Butterfield. The appeal court reasoned that Justice Braid did not err in looking beyond the negligence label crafted by the storeowner because the true nature of the claim was for an intentional tort. The Court of Appeal did not interfere with Justice Braid's finding that Mr. Butterfield intended to harm the storeowner even though his schizophrenia prevented him from appreciating that his actions were morally wrong. As such, the Court of Appeal agreed that the negligence claim was derivative to the intentional tort of assault. 16
Take away
The Ontario Court of Appeal reaffirmed the rule that insurers are permitted to rely on intentional and criminal act exclusion clauses when the claim against the insured is derivative of intentional torts, such as assault. In such cases, the insurer can legally avoid defending and indemnifying policyholders. It is important to note that criminal act exclusion clauses can apply to cases where the policyholder has been found not criminally responsible for their criminal conduct. Policyholders suffering from mental illness can still be found to have acted intentionally if they have caused injuries when acting or failing to act, so long as they understand the nature and consequences of their act or failure to act.
Footnotes
1. Butterfield v. Intact Insurance Company, 2023 ONCA 246 [Butterfield Appeal].
2. Craig Brown & Julio Menez, Insurance Law in Canada: A Treatise on the Principles of Indemnity Insurance as Applied in the Common Law Provinces of Canada, 2nd ed, (Toronto: Carswell, 1990) at pp 125-126.
3. Non-Marine Underwriters, Lloyd's of London v. Scalera, 2000 SCC 24 at paras 68-69 [Scalera].
4. Scalera, supra note 3 at para 69.
5. Scalera, supra note 3 at para 49.
6. Halifax Insurance Co. of Canada v. Innopex Ltd., 2004 CarswellOnt 4158 at para 34, [2004] OJ No 4178.
7. Monenco Ltd. v. Commonwealth Insurance Co., [2001] 2 SCR 699 at para 31, 2001 SCC 49.
8. Scalera, supra note 3 at para 51.
9. Godonoaga (Guardian of) v Khatambakhsh, [2000] 49 OR (3d) 22 (CA) at para 32, 2000 CarswellOnt 2020.
10. Scalera, supra note 3 at para 49.
11. Scalera, ibid at para 52.
12. Butterfield v. Intact Insurance Company, 2022 ONSC 4060 at para 18 [Butterfield].
13. Butterfield, ibid at para 17.
14. Butterfield, ibid at paras 32-35.
15. Butterfield, ibid at para 46.
16. Butterfield Appeal, supra note 1 at paras 10-11.
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