Fridays with Rogers Partners
At our weekly firm meeting, Michael Kryworuk discussed the recent decision in R.C. and J.M. v. Western Assurance Company, 2022 ONSC 100. This matter involved a duty to defend coverage application brought by the applicants, R.C. and J.M., seeking to have the respondent insurer, Western Assurance Company, defend them in an underlying action.
History of the Litigation:
The underlying action arose from the actions of A.C., the son of the applicants, who is alleged to have organized and perpetrated a schoolyard assault on an elementary school classmate that was uploaded to social media, and left the victim with relatively minor but lasting physical and mental injuries.
The victim of the assault sued the son, A.C., and his parents, R.C. and J.M., in the underlying action. The allegations of negligence against the parents included claims that the parents failed to inculcate their children with a sense of respect for others, they failed to properly monitor the social media and phone activities of their child, they were apprised of their son’s propensity for violence and took no or insufficient remedial steps, and they permitted their son to engage in recreational activities including video games that raised his propensity for violence.[1]
The applicants requested that Western Assurance defend them in the underlying action. The insurer denied any duty to defend due to the application of certain exclusions in the insurance policy.
Relevant Insurance Policy Provisions:
The applicant’s homeowner’s policy contained the following exclusions:
We do not insure claims arising from:
…
6. personal 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;
7.
a) sexual, physical, psychological, or emotional abuse, molestation or harassment, however, caused, including corporal punishment by, at the direction of, or with the knowledge of any person insured by this policy; or
7b) failure of any person insured by this policy to take steps to prevent sexual, physical, psychological or emotional abuse, molestation or harassment or corporal punishment, however, caused; [herein the “Abuse Exclusion”]
…
12. The distribution or display of data by means of an internet website, the internet, an intranet, extranet, or similar device or system designed or intended for electronic communication of data;
Data is defined in the policy to mean “representations of information or concepts in any form.”[2]
Position of the Parties:
It was the position of the applicants that while the insurer had no duty to defend their son in the underlying action, Western Assurance had an obligation to defend the parents because neither the “intentional acts” exclusions in 6a-7a nor the “failure to prevent” provisions in 7b applied to the negligence claims against the parents.
In contrast, it was the position of Western Assurance that both the “intentional acts” and “failure to prevent” exclusion clauses in the policy applied to exclude coverage for this claim.
The Legal Test:
Justice Muszynski began his analysis by examining the ONCA decision in Unifund Assurance Company v. E. (D.), 2015 ONCA 423.
The Ontario Court of Appeal in Unifund restated the three-part test from the earlier Supreme Court of Canada decision Non-Marine Underwriters, Lloyd’s London v. Scalera, 2000 SCC 24 that is used to interpret insurance policies in the context of the duty to defend.
The test is as follows:
“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….
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 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.”[3]
Analysis:
His Honour reviewed the decision in Unifund and determined that the facts of that case closely mirrored those in the present case.
The applicants in Unifund were the parents of an alleged bully, who also sought a declaration that their insurer was required to defend them in an action resulting from the bullying, harassment and assault committed by their daughter against a classmate.[4]
Applying the three-part test, the Court of Appeal in Unifund concluded that the underlying claim against the parents was properly pleaded. Furthermore, the Court of Appeal in Unifund rejected the insurer’s argument and confirmed that the negligence claims against the parents were not derivative of the intentional tort claims made against their daughter.
This was also consistent with another ONCA decision, Durham District School Board v Grodesky, 2012 ONCA 270. In that case, it was held that an insurer had a duty to defend the parents of an alleged teenage arsonist in an action against the parents alleging the parents failed to prevent the arson. There, the ONCA concluded “the elements of the intentional tort claim against the son and the negligence claim against the parents are entirely distinct. Therefore, the negligence claim against the parents was not derivative of the intentional tort claim against the son.[5]
However, the ONCA in Unifund, when considering the third step, concluded that the negligence claims against the parents in Unifund fell squarely within the ambit of the “failure to prevent” clauses of that policy. As such, the ONCA overturned the decision of the application judge and determined the insurer had no duty to defend.
In applying this analysis to the one at bar, Justice Muszynski determined that the negligence claims against the parents were not derivative of the intentional tort claims against the son.[6]
Furthermore, the “failure to prevent” clauses in the present policy closely mirrored those in the insurance policy from Unifund.
The applicants maintained that because the statement of claim in the underlying action did not include specific allegations that they failed to prevent “sexual, physical, psychological or emotional abuse, molestation or harassment or corporal punishment,”[7] the “failure to prevent” exclusion did not apply.[8]
However, His Honour rejected this argument, finding that the underlying claim alleged that the applicant’s son punched, kicked, dragged, prodded, heckled, goaded the plaintiff. This conduct was found to effectively amount to physical abuse and arguably harassment. Both physical abuse and harassment were specifically mentioned in the “failure to prevent” exclusion of the Western Assurance policy. [9]
His Honour also rejected the applicants’ argument that the “failure to prevent” exclusion required multiple acts or ongoing activity, as opposed to one discrete event, such as a schoolyard assault.[10]
As such, the Court found that the “failure to prevent” exclusions in section 7b of the applicant’s insurance policy applied, and that Western Assurance accordingly did not have a duty to defend the parents in the underlying claim.[11]
Decision:
In his decision, Justice Muszynski found that the insurer had no duty to defend the applicants in the underlying action, due to the application of the “failure to prevent” exclusions in section 7b of the Western Assurance policy.
Takeaway:
This decision primarily reaffirms earlier case law in how to properly assess the insurer’s duty to defend, particularly in the context of negligence claims against parents for intentional torts committed by their children.
First, courts must look beyond the legal labels of the underlying allegations, and look to their substance.
Second, courts must look to see whether the claims are truly derivative of one another.
And finally, the courts must examine whether there are any other terms or provisions in the insurance policy itself which would trigger (or exclude) a duty to defend.
[1] R.C. and J.M. v. Western Assurance Company, 2022 ONSC 100 (“Western”) at paras 2, 10.
[2] Ibid at para 11.
[3] Unifund Assurance Company v. D.E., 2015 ONCA 423 at para 18.
[4] Western, supra note 1, at para 21.
[5] Ibid, at para 23.
[6] Ibid, at paras 22-24.
[7] See clause 7b of the relevant policy mentioned at supra note 2.
[8] Ibid at para 26.
[9] Ibid at para 31.
[10] Ibid at para 32.
[11] Ibid at paras 34,36.