Fridays with Rogers Partners
At our weekly meeting, Emmanuel Couture-Tremblay discussed the recent decision of the Court of Appeal for Ontario in Ontario v. St. Paul Fire and Marine Insurance Company, 2023 ONCA 173.
This appeal arose from a coverage application, in which the appellant, His Majesty the King in the Right of Ontario, sought a declaration that its liability insurer, St. Paul Fire and Marine Insurance Company, had a duty to defend it in an underlying class action proceeding.
On June 29, 2017, a $300,000,000 class action claim was commenced against Ontario for delays in the operation of the bail release system. In this underlying action, the plaintiff sought damages on behalf of those who, between January 1, 2000, and “the present”, were arrested and then detained for more than 24 hours prior to receiving a bail hearing.
St. Paul issued two general liability commercial policies to Ontario during the period in question. The First Policy included coverage of $20,000,000 for each “occurrence” from March 31, 1998, to March 31, 2003. Under the Second Policy, which operated from March 31, 2003, to March 31, 2005, Ontario was self-insured for the first $5,000,000, while St. Paul provided insurance of $15,000,000 for each “occurrence” in excess of the first $5,000,000.
On November 25, 2021, the application judge dismissed Ontario’s application seeking a declaration that St. Paul had a duty to defend it in the underlying class action, finding that St. Paul did not have a duty to defend under either policy.
The First Policy included coverage for damages because of Bodily Injury and Personal Injury. In both cases, the damages had to be “caused by an accident or occurrence”. The application judge held that the harms were expected from Ontario’s standpoint, such that the damages were not “caused by an accident or occurrence”. There was therefore no duty to defend arising out of the First Policy.
Unlike the First Policy, the Second Policy did not only cover damages “caused by an accident or occurrence.” It only required that the compensatory damages claimed were “caused by an Occurrence during the Policy Period.” However, the definition of “Occurrence” in the Second Policy, as it related to bodily injury, required that the resultant bodily injury must be “neither expected nor intended from the standpoint of the Insured.” Thus, the application judge found that the Second Policy did not cover the claim either, for the same reasons as those pertaining to the First Policy.
A. Did the application judge fail to apply the possibility of coverage test?
B. Did the application judge err in considering extrinsic evidence?
C. Did the application judge err in identifying the true nature of the claim?
D. Did the application judge err in finding the negligence claims to be derivative?
E. Did the application judge err in failing to apply the nullification doctrine?
F. Did the application judge err in interpreting the coverage for an Occurrence under the Second Policy?
G. Did the application judge err in failing to apply the fortuity principle?
H. Did the application judge err in concluding that the application was premature?
Only the arguments relating to ground of appeal F were accepted by the Court of Appeal.
The Court of Appeal noted that the application judge was correct in that the claims in the underlying action included Personal Injury claims, within the meaning of the First Policy. The enumerated acts within the Personal Injury definition in the First Policy include “wrongful detention”, and the underlying class action claim was full of these allegations.
Although “wrongful detention” is not a recognized intentional tort, coverage granting terms should be given their plain and ordinary meaning, follow the purpose of the policy, and be interpreted broadly. The plain and ordinary meaning of “wrongful detention” would include detentions in institutional settings that do not comply with the Criminal Code, or that are unreasonably extended contrary to the Charter. The purpose of the policy was to extend coverage to Ontario for situations where it has wrongfully detained persons in its correctional facilities.
The definition of Personal Injury in the Second Policy also included “wrongful detention”. However, in the Second Policy, Personal Injury coverage for an Occurrence is not subject to the limiting phrase, “neither expected nor intended from the standpoint of the Insured”. That limitation applies only to Bodily Injury claims.
Given that the claim alleged wrongful detention, and given that the coverage for Personal Injury caused by an Occurrence was not limited to damages that were “neither expected nor intended from the standpoint of the Insured”, there was a reasonable possibility of coverage under the Second Policy for the damages claimed in the underlying action.
The application judge therefore erred in failing to recognize a reasonable possibility of coverage under the Second Policy for the damages claimed in the underlying action.
Bodily Injury was defined in both policies by reference to the kind of injury claimed, including “nervous shock, mental suffering, mental injury, mental anguish including death”. But Personal Injury was defined by enumerating the wrongful acts done, such as “false arrest, malicious prosecution, wilful or wrongful detention or imprisonment”. Since there was no limitation provided in the Personal Injury definition of the kinds of injuries that could be claimed, even damages for physical and psychological injury would fall within the Personal Injury coverage of the policies.
Where a CGL policy is intended to exclude damages for physical and psychological injury from Personal Injury claims, the definition of Personal Injury explicitly states, “other than bodily injury”. The policies in this case did not include those words or any similar limitation. The application judge therefore erred in treating the underlying claims as Bodily Injury claims for the purpose of determining coverage under the policies.
However, in the end, the application judge’s error in interpreting the Occurrence provision of the Second Policy did not affect her decision to deny Ontario’s application for a declaration, because she was correct in finding that the application for a declaration was premature as Ontario’s $5,000,000 (inclusive of defence costs) self-insured retention had to be exhausted before St. Paul’s duty to defend could be triggered under the Second Policy, which had not yet occurred.
The application judge was correct in finding that St. Paul owed no duty to defend under the First Policy or the Second Policy. The appeal was dismissed.