Republished with permission from the Insurance Brokers Association of Alberta’s magazine – The Alberta Broker (November 2020)
An insurer’s duty to defend is governed by well-established legal principles summarized by the Supreme Court of Canada in Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada. [1]
An insurer has a duty to defend if a claimant’s allegations made against their insured would bring the claim within the wording of the insured’s insurance policy. The duty to defend is triggered by the “… mere possibility that a claim falls within an insurance policy”.[2]
The issue of whether an insurer had a duty to defend their insured was recently considered by the Ontario Superior Court and Ontario Court of Appeal in Southside Muay Thai Academy Corporation v. Aviva Insurance Company of Canada.[3]
The plaintiff was a minor and a kick boxing athlete. She alleged that on a flight home following a kick boxing competition in Thailand, an employee of Southside Muay Thai Academy (“Southside”) touched her sexually without her consent. The employee was found guilty of sexual assault and sexual interference with a minor with whom he was in a position of trust and authority.
At the relevant time, Southside had a commercial general liability policy of insurance with Aviva Insurance Company of Canada (“Aviva”). The policy provided coverage for bodily injury or property damage except for claims that arise directly or indirectly from abuse. The policy contained the following exclusion:
Abuse
- Claims or “actions” arising directly or indirectly from “abuse” committed or alleged to have been committed by an insured, including the transmission of disease arising out of any act of “abuse”.
- Claims or “actions” based on your practices of “employee” hiring, acceptance of “volunteer workers” or supervision or retention of any person alleged to have committed “abuse”.
- Claims or “actions” alleging knowledge by an insured of, or failure to report, the alleged “abuse” to the appropriate authority(ies).[4]
Southside brought an application seeking defence of the claim and coverage from Aviva. Aviva denied coverage based on the abuse exclusion contained in Southside’s insurance policy.
On the coverage application, the Ontario Superior Court held that the claim fell within the policy exclusion because it arose directly or indirectly from an act of alleged abuse. However, the application’s judge also held that Aviva owed a duty to defend Southside in response to the allegation in her Statement of Claim that Southside was “… negligent in its failure to supervise the Plaintiff, ensure she was safe while on their premises and under their care and control, in particular on the flight from Thailand on or about May 1, 2017”.[5]
Aviva appealed the decision to the Ontario Court of Appeal. The standard of review in relation to interpretation of a standard form insurance clause is correctness. In this Case, the Ontario Court of Appeal found that the wording of the policy was clear and unambiguous: all claims or actions related directly or indirectly to abuse or any claims based on supervision of any person alleged to have committed abuse were not covered.
The Ontario Court of Appeal held that the subject matter of this action was the sexual abuse suffered by the plaintiff. As any claim arising from sexual abuse is clearly excluded by the policy, the Court held that there was no claim for damages resulting from Southside’s negligence other than the claim arising from the abuse incident. As such, it was held that Aviva has no duty to defend the claim and the appeal was allowed.
This decision is a helpful reminder of how exclusion clauses affect whether an insurer has a duty to defend an insured or not. Even when claims appear to fall within the broad coverage provision of a policy, a clear and unambiguous exclusion will avoid coverage for claims that were not intended to be covered, such as abuse in this case. When assessing an insurer’s duty to defend in the face of clear exclusions, it is essential to take a step back to look at the allegations as a whole—despite their wording, do the allegations nevertheless fall within the scope of the exclusion? If so, the insurer’s duty to defend will not be triggered.
[1] Progressive Home Ltd. v. Lombard General Insurance Co. of Canada, [2010] 2 S.C.R. 245.
[2] Ibid at para. 19 (emphasis added).
[3] Southside Muay Thai Academy Corporation v. Aviva Insurance Company of Canada, 2019 ONSC 6086 [Southside SC], rev’d by Southside Muay Thai Academy Corporation v. Aviva Insurance Company of Canada, 2020 ONCA 385 [Southside CA].
[4] Southside CA, ibid at para. 9.
[5] Ibid at para. 6.
