Court of Appeal Discusses Coverage Exclusions in Homeowner’s Insurance Policy - Bawden v. Wawanesa Mutual Insurance Company, 2013 ONCA 717

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This recent decision of the Ontario Court of Appeal contains an interesting discussion regarding the applicability of a coverage exclusion found within many standard homeowner’s insurance policies—the exclusion of claims involving bodily harm to a resident of an insured person’s household.

Following a motor vehicle accident in 2003 where a young girl was struck and injured by a passing motorist, an action for damages was commenced against both the motorist and the owner of the vehicle. The action was defended and a third party claim was commenced against the girl’s parents for contribution and indemnity because of their negligence in failing to properly instruct and supervise their daughter.

The parents held a homeowners’ insurance policy issued by the Wawanesa Mutual Insurance Company.  When Wawanesa declined to defend them on the third party claim, the parents commenced an application seeking a declaration that the insurer was obliged to do so. 

The critical coverage provision in the Wawanesa policy was as follows:

You are insured for claims made or actions brought against you for:

(1)   Personal Liability: bodily injury or property damage arising out of your personal activities anywhere in the world.

The critical exclusion provision was the following:

Exclusions: you are not insured for claims made or actions brought against you for: …

(3) bodily injury to you or to any person residing in your household other than a residence employee. 

Wawanesa took the position that the exclusion clause removed all claims for bodily injury by the insured and those residing in their household from the general coverage for claims against the insured for bodily injury.  In other words, Wawanesa argued that it covered bodily injury claims against its insureds unless a member of the insured person’s household was the one who sustained bodily injury. 

At first instance, the application judge rejected the argument put forward by Wawanesa and granted the parents’ application.  The application judge concluded that the third party claim brought against the parents was covered by the Wawanesa policy and, more particularly, that the third party claim was not excluded from coverage.

The Court of Appeal dismissed Wawanesa’s appeal and confirmed that the third party claim against the parents was not excluded from coverage. The Court, endorsing the reasoning of the application judge, confirmed that provisions granting coverage in an insurance policy must be interpreted broadly. Read in this way, the provision granting coverage for bodily injury arising out of an insureds’ personal activities anywhere in the world clearly encompassed the third party claim for contribution and indemnity.

The Court of Appeal went on to confirm that clauses purporting to exclude coverage are to be construed narrowly.  On this basis, the Court concluded that the exclusion for claims made for bodily injury to an insured or any person residing in an insureds’ household could not encompass the third party claim brought against the parents in this case. The third party claim was not a claim on behalf of the injured plaintiff who resided in the household of the insureds. Rather, it was a claim by a non-resident of the insureds’ household for contribution and indemnity arising out of negligent supervision by the insureds.

In its analysis, the Court of Appeal confirmed that the words arising out of in the grant of coverage and the word for in the coverage exclusion were not interchangeable. The former was considered to be much broader than the latter. Further, the Court noted that it appeared that Wawanesa deliberately chose to exclude only claims for bodily injury to an insured or any person residing in an insureds’ household rather than all claims arising out of the activities of an insured resulting in bodily injury to any such individuals.

The Court also reasoned that interpreting the insurance policy in this manner was more faithful to the policy objective underlying the presence of this exclusion within policies providing liability coverage to homeowners. Specifically, the Court explained that this particular exclusion is designed to remove from coverage those claims that raise a risk of collusion between the claimant and the insured. In this particular case, it was held that the risk of collusion between members of the same household was simply not present where an unrelated third party had claimed over against the parents of an injured plaintiff.  Interpreting the policy so as to grant coverage would recognize an insurer's intent to protect against collusion between and among family members while not depriving family members of insurance protection for indirect claims involving bodily injury to a member of the insured person’s household. 

This decision should be a reminder to counsel that coverage will not automatically be excluded in situations where a claim is brought against an insured in relation to bodily injury sustained by a member of his/her household. In this respect, guides to interpretation can continue to be found in the wording of the applicable policy and the purposes underlying the exclusion clause in issue.