Unger (Litigation guardian of) v. Unger

Unger, by her Litigation Guardian Unger et al. v. Unger et al.; Co-Operators General Insurance Company, appellant [Indexed as: Unger (Litigation guardian of) v. Unger]

68 O.R. (3d) 257

[2003] O.J. No. 4587

Docket No. C39549

Court of Appeal for Ontario

O'Connor A.C.J.O., Catzman and Doherty JJ.A.

December 1, 2003

Insurance -- Insurer's obligation to defend -- Exclusion clauses -- Plaintiffs bringing action against insured and insured's employee/driver following motor vehicle accident -- Insurance policy excluding coverage for injuries resulting from use, ownership or operation of motor vehicle -- Allegations in statement of claim of negligent training or supervision of employee and negligent maintenance of automobile not amounting to cause of action separate and discrete from negligence in use, operation or ownership of insured's vehicle -- Claims excluded from coverage -- Insurer not having obligation to defend action.

The plaintiffs were passengers in an automobile that was in an accident with a truck driven by the defendant R, an employee of M. The truck was owned by M or his business, MPR. The plaintiffs sued the driver of their vehicle, R, M and MPR. At the relevant time, M and his employee were covered under an automobile insurance policy issued by P Co. MPR was also covered by a commercial general liability policy issued by C Co. P Co. accepted that it had a duty to defend at least some of the plaintiffs' claims. C Co. took the position that none of the claims fell within its coverage. P Co. brought a motion under Rule 21 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, to determine whether C Co. had a duty to defend any of the plaintiffs' claims. The motions judge found that part of the statement of claim alleged what he described as "negligent business conduct", and that these allegations were distinct from the allegations pertaining to the negligent use, ownership or operation of the M vehicle. The allegations in question were made against M and MPR in their capacity as employer of R, and included allegations that M and MPR were vicariously responsible as employer for the acts and omissions of R and that M and MPR failed to instruct R as to the safe and proper operation of a vehicle; failed to provide R with a vehicle that was safe and in good repair; failed to maintain the vehicle in a good state of repair; failed to select a more qualified person than R to drive the vehicle; failed to conduct periodic performance appraisals of R; failed to adopt measures to supervise and control R; and charged R with responsibilities which were beyond his capabilities and other similar allegations. While the C Co. policy excluded damages to persons or property arising out of the use, ownership or operation of a motor vehicle, it did not exclude damages arising out of negligent business practices allegations. The motions judge concluded that where a claim alleges concurrent causes, an insurer is obliged to defend if it is possible that any of the causes of action are covered by the insurer's policy. Consequently, according to the motions judge, C Co. had an obligation to defend. C Co. appealed.

Held, the appeal should be allowed.

The C Co. policy included two relevant exclusions: the first (para. 2(1)) excluded damages arising out of the ownership, use or operation of any automobile by or on behalf of M. The second (para. 2(2)) excluded liability under the C Co. policy where the damages were covered by the P Co. policy or would be covered but for the limits on that policy. An insurer has a duty to defend where on the facts as [page258] pleaded there is a possibility that one or more of the claims made against the insured are covered by the policy. It could not be seriously argued that P Co. did not have a duty to defend all of the plaintiffs' claims. There was at least the possibility that all of the claims resulted from the normal use of an automobile, and that there was a nexus between the plaintiffs' injuries and the operation or use of the vehicle. The conclusion that P Co. had a duty to defend all of the claims, however, did not mean that C Co. had no duty to defend any of the claims. If there was a possibility that any of the claims were captured by C Co.'s coverage, C Co. had a duty to defend those claims even if P Co. also had a duty to defend the same claims. The mere possibility that P Co.'s policy might cover all claims, while enough to engage P Co.'s duty to defend, did not trigger the exclusion from coverage in para. 2(2) of the C Co. policy. That exemption was triggered only if the claims were covered by P Co.'s policy.

Where there are two concurrent causes of action alleged in a statement of claim and one falls within the coverage of a policy, the insurer under that policy has a duty to defend that claim. When a court is required to determine whether a statement of claim alleges concurrent causes of action for the purposes of determining whether an insurer has a duty to defend, the court must accept the facts as pleaded. The court is not, however, required to accept the pleader's characterization of those facts or the descriptive labels used in the statement of claim. It is the substance and not the form of the pleadings which must govern the insurer's duty to defend. In substance, all of the allegations of negligence made in the statement of claim in this case alleged that the plaintiffs were injured as a result of the use, operation or ownership of the vehicle driven by R and owned by M or his business. The mere description of some of the acts of negligence as "negligent business practices" did not create a separate and distinct cause of action. Those allegations could assist the plaintiffs in establishing their claim only to the extent that they helped them demonstrate that the vehicle was being used or operated in a negligent fashion when the accident in which they were injured occurred. The allegation that M was vicariously liable for the conduct of his employee R did not allege a separate cause of action. The allegations of negligent repair and maintenance of the vehicle were referable to the use and operation of the vehicle and fell within the exclusion in para. 2(1) of the C Co. policy. The allegations that M was negligent in the way he hired, trained and supervised R and in entrusting the vehicle to R were not discrete causes of action. Were the plaintiffs to establish any of these allegations, but fail to establish that the vehicle was used or operated in a negligent manner at the time of the accident, they would not succeed in their claim. While allegations of negligent training, supervision and entrustment might be germane to whether M and/or R were negligent in the ownership, use or operation of a motor vehicle, they did not provide a stand alone ground for recovery by the plaintiffs. All of the allegations in the statement of claim involved allegations of negligence in the use, operation or ownership of M's motor vehicle. All of the allegations were covered by the P Co. insurance policy, and were excluded from coverage under the C Co. policy by the exclusions in paras. 2(1) and 2(2) of that policy.

APPEAL by the insurer from an order that the insurer had an obligation to defend an action against the insured.

Non-Marine Underwriters, Lloyd's of London v. Scalera, [2000] 1 S.C.R. 551, 2000 SCC 24, 75 B.C.L.R. (3d) 1, 185 D.L.R. (4th) 1, 253 N.R. 1, [2000] 5 W.W.R. 465, 50 C.C.L.T. (2d) 1, [2000] I.L.R. ÂI-3810 (sub nom. Scalera v. Lloyd's of London, Sansalone v. Wawanesa Mutual Insurance Co., Nonmarine Underwriters v. Scalera), apld Derksen v. 539938 Ontario Ltd., [2001] 3 S.C.R. 398, 2001 SCC 72, 205 D.L.R. (4th) 1, 273 N.R. 356, [2001] I.L.R. ÂI-4029, 15 M.V.R. (4th) 1, consd [page259] Other cases referred to Amos v. Insurance Corp. of British Columbia, 1995 66 (SCC), [1995] 3 S.C.R. 405, 10 B.C.L.R. (3d) 1, 127 D.L.R. (4th) 618, 186 N.R. 150, [1995] 9 W.W.R. 305, [1995] I.L.R. Â1-3232, 13 M.V.R. (3d) 302; Dominion of Canada General Insurance Co. v. AXA Insurance Co. of Canada (2003), 2003 34714 (ON SC), 65 O.R. (3d) 805, [2003] I.L.R. ÂI-4230, 41 M.V.R. (4th) 244, [2003] O.J. No. 2757 (QL) (S.C.J.); Lefor (Litigation guardian of) v. McClure (2000), 2000 5735 (ON CA), 49 O.R. (3d) 557, 189 D.L.R. (4th) 89, [2000] I.L.R. ÂI-3832, 4 M.V.R. (4th) 199 (C.A.); Monenco Ltd. v. Commonwealth Insurance Co., [2001] 2 S.C.R. 699, 2001 SCC 49, 97 B.C.L.R. (3d) 191, 204 D.L.R. (4th) 14, 274 N.R. 84, [2002] 2 W.W.R. 438, [2001] I.L.R. ÂI-3993; Nichols v. American Home Assurance Co., 1990 144 (SCC), [1990] 1 S.C.R. 801, 72 O.R. (2d) 799n, 39 O.A.C. 63, 68 D.L.R. (4th) 321, 107 N.R. 321, [1990] I.L.R. ÂI-2583; Oakley Transport v. Zurich Ins. Co., 648 N.E.2d 1099, 271 Ill. App. 3d. 716, 208 Ill. Dec. 177, 1995 Ill. App. LEXIS 237 (Ill. App. Ct. 5th Div. 1995); Perkull (Guardian ad litem of) v. Gilbert (1993), 1993 583 (BC SC), 86 B.C.L.R. (2d) 346, [1994] 3 W.W.R. 583, [1993] B.C.J. No. 1078 (QL) (S.C.); Southeastern Fire Ins. Co. v. Heard, 626 F. Supp. 476, 1985 U.S. Dist. LEXIS 18890 (ND Ga. 1985); Strickland v. Miller, [1998] I.L.R. ÂI-3602, [1998] O.J. No. 2762 (QL) (Gen. Div.); Trafalgar Insurance Co. of Canada v. Imperial Oil Ltd. (2001), 2001 21205 (ON CA), 57 O.R. (3d) 425, [2002] I.L.R. ÂI- 4064 (C.A.); Tutton v. Pickering (Town) (1999), 1999 1452 (ON CA), 46 O.R. (3d) 503, 183 D.L.R. (4th) 160, 48 M.V.R. (3d) 321, 8 M.P.L.R. (3d) 107 (C.A.), revg (1996), 1996 8014 (ON SC), 29 O.R. (3d) 539, 21 M.V.R. (3d) 228 (Gen. Div.) Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 21

Lawrence McRae, for appellant. Jerry O'Brien, for plaintiffs. Steve Schenke and Lisa Metselaar, for Pilot Insurance.

The judgment of the court was delivered by

DOHERTY J.A.: --

I

[1] The respondents (the "Ungers") were passengers in an automobile that was in an accident with a truck driven by the defendant, James Riccia, an employee of Darcy Matthews. The truck was owned by Matthews or his business, Matthews Pallet Recycling. The Ungers sued Isaac Unger, the driver of their vehicle, James Riccia, Darcy Matthews and Matthews Pallet Recycling. At the relevant time, Mr. Matthews and his employee were covered under an automobile insurance policy issued by Pilot Insurance Company ("Pilot"). Mr. Matthews' business was also covered by a commercial general liability policy (CGL) issued by Co-Operators General Insurance Company ("Co- Operators"). Pilot accepted [page260] that it had a duty to defend at least some of the claims brought by the Ungers. Co- Operators took the position that none of the claims fell within its coverage. Pilot brought a motion under Rule 21 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, to determine whether Co-Operators had a duty to defend any of the claims brought by the Ungers.

[2] The motion judge concluded that paras. 36-39 of the statement of claim alleged what he described as "negligent business conduct". He held that these allegations were distinct from the allegations pertaining to the negligent use, ownership or operation of the Matthews vehicle. Relying on Derksen v. 539938 Ontario Ltd., 2001 SCC 72, [2001] 3 S.C.R. 398, 205 D.L.R. (4th) 1, the motion judge concluded that where a claim alleges concurrent causes, an insurer is obliged to defend if it is possible that any of the causes of action are covered by the insurer's policy. The motion judge recognized that Co- Operators' policy excluded damages to persons or property arising out of the use, ownership or operation of a motor vehicle. The policy did not, however, exclude damages arising out of negligent business practices allegations. Consequently, according to the motion judge, Co-Operators was obligated to defend those allegations on behalf of Matthews and his business.

[3] I would allow the appeal. In my view, all of the allegations made in the statement of claim relate to the ownership, use or operation of the vehicle owned by Matthews and operated by his employee. The allegations fall within either or both of the exclusions from coverage relied on by Co- Operators and are, therefore, not covered by its policy. Co- Operators has no duty to defend.

II

[4] For the purposes of determining whether Co-Operators has a duty to defend, the factual allegations in the statement of claim are assumed to be true: Non-Marine Underwriters, Lloyd's of London v. Scalera, [2000] 1 S.C.R. 551, 2000 SCC 24, at para. 83. All of the allegations in the Ungers' statement of claim are founded in negligence. Paragraph 33 makes allegations against James Riccia as the vehicle operator, and paras. 34-35 make allegations against Matthews and his business in their capacity as the owner of the vehicle. For the purposes of this motion, the important allegations are set out in paras. 36-39. These contain allegations against Matthews and his business in their capacity as employer of the driver of the vehicle. As it was unclear whether the driver's employer was Matthews personally or his business Matthews Pallet Recycling, the Ungers made allegations against Matthews personally, in paras. 36-37 and repeated the same allegations [page261] against Matthews Pallet, in paras. 38-39. I need set out only paras. 36-37:

Independent of liability of the Defendant, Darcy Matthews, as owner of the Matthews' motor vehicle, the Plaintiffs allege that at the time of the striking and collision herein referred to, James Riccia was an employee of Darcy Matthews, acting within the course of such employment, and Darcy Matthews was vicariously responsible qua the employer of James Riccia, for the acts and omissions of the said James Riccia.

Independent of liability of Darcy Matthews as owner of the Matthews' motor vehicle, the Plaintiffs allege the following independent acts of neglect of Darcy Matthews as the employer of James Riccia, that caused or contributed to the accident which is the subject of this action, the particulars of which include:

(a) failing to instruct, inform and train the Defendant, James Riccia, as to the safe and proper manner in which the motor vehicle should have been operated;

(b) failing to provide the Defendant, James Riccia, with a motor vehicle that was in a safe condition and in a good and proper state of repair;

(c) failing to maintain the said motor vehicle in a good and proper state of repair;

(d) failing to select a more qualified person other than the Defendant, James Riccia, to operate the motor vehicle;

(e) failing to request, implement, consider and act on a periodic employee performance appraisals of the Defendant, James Riccia;

(f) failing to adopt measures to consider, supervise, control and satisfy themselves of James Riccia's capability to be charged with the responsibility of operating a motor vehicle given the manner in which the Defendant, James Riccia, had operated a vehicle on prior occasions;

(g) charging the Defendant, James Riccia, with responsibilities which were beyond his capabilities;

(h) allowing the Defendant, James Riccia, to perform responsibilities of which he was not capable;

(i) failing to find a position for the Defendant, James Riccia, in which his responsibilities would be limited to activities that would not expose others, such as the Plaintiffs, to risks of harm;

(j) allowing the Defendant, James Riccia, to drive a motor vehicle in a manner in which he exposed others, such as the Plaintiffs, to risks of harm;

(k) sending the Defendant, James Riccia, on a task without providing him with a driver who, unlike the Defendant, James Riccia, was a safe and responsible driver;

(l) failing to anticipate, or anticipate and prevent the conduct of the Defendant, James Riccia, referred to above;

(m) failing to ensure that James Riccia did not operate the Matthews' motor vehicle at night. [page262]

[5] The relevant parts of Pilot's automobile policy are set out below:

3.3 You or other insured persons may be legally responsible for the bodily injury to, or death of others, or for damage to the property of others as a result of owning, using or operating the automobile. In that case, we will make any payment on your or other insured persons' behalf that the law requires, up to the limits of the policy.

3.3.1 By accepting this policy you and other insured persons irrevocably appoint us to act on your or their behalf in any lawsuit against you or them in Canada, the United States of America or any other jurisdiction designated in the Statutory Accident Benefits Schedule arising out of the ownership, use or operation of the automobile.

If someone sues you or other insured persons by this Section for losses suffered in an automobile incident, we will provide a defence and cover the costs of that defence, including investigation costs. We will pay all legal costs the court assesses against you and other insured persons in the lawsuit we have defended.

If there is a judgment against you or other insured persons, we will pay any post-judgment interest owed on that part of the amount the court orders that falls within the liability limits of your policy.

We reserve the right to investigate, negotiate and settle any claim out of court if we choose.

(Emphasis added)

[6] The relevant parts of Co-Operators' CGL policy are set out below:

a. We will pay the sums that the insured becomes legally obligated to pay as compensatory damages because of bodily injury or property damage to which this insurance applies. No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under SUPPLEMENTARY PAYMENTS -- COVERAGES A, B AND D. This insurance applies only to "bodily injury" and "property damage" which occurs during the policy period. The "bodily injury" or "property damage" must be caused by an "occurrence" [See Note 1 at end of document]. The "occurrence" must take place in the coverage territory. We will have the right and duty to defend any action seeking those compensatory damages but:

1. The amount we will pay for compensatory damages is limited as described in SECTION III -- LIMITS OF INSURANCE; [page263]

2. We may investigate and settle any claim or "action" at our discretion; and

3. Our right and duty to defend end when we have used up the applicable limit of insurance in the payment of judgments or settlements under Coverages A, B or D or medical expenses under Coverage C.

2. This insurance does not apply to . . .

1. "Bodily injury" or "property damage" arising out of the ownership, use or operation by or on behalf of any insured of:

a) Any "automobile" . . .

2. "Bodily injury" or "property damage" with respect to which any motor vehicle liability policy is in effect or would be in effect but for its termination upon exhaustion of its limit of liability or is required by law to be in effect.

(Emphasis added)

[7] The Ungers' claims fall within the scope of Pilot's automobile policy if the accident in question resulted from the ordinary and well known activities to which automobiles are put, and if there was a nexus, although not necessarily a direct nexus, between the injuries suffered by the Ungers and the ownership, use or operation of the vehicle: Amos v. Insurance Corp. of British Columbia, 1995 66 (SCC), [1995] 3 S.C.R. 405, 127 D.L.R. (4th) 618, at paras. 17, 18; Lefor (Litigation guardian of) v. McClure (2000), 2000 5735 (ON CA), 49 O.R. (3d) 557, 189 D.L.R. (4th) 89 (C.A.), at p. 562 O.R.

[8] The coverage provision in the Co-Operators policy is broad and prima facie includes the allegations made by the Ungers. The coverage is, however, limited by several exclusion clauses. The first of the exclusion clauses (para. 2(1)) relevant to this case mirrors the scope of the coverage provided by the Pilot policy and excludes from the Co-Operators policy damages arising out of the ownership, use or operation of any automobile by or on behalf of Matthews. The second relevant exclusion clause (para. 2(2)) excludes liability under the Co-Operators policy where the damages are covered by the Pilot policy or would be covered but for the limits on that policy.

[9] An insurer has a duty to defend where on the facts as pleaded there is a possibility that one or more of the claims made against the insured are covered by the policy. Coverage is determined by reference to both the coverage provision in the policy and any exclusions from that coverage contained in the policy. Where, as in this case, the insurer relies on an exclusion clause to avoid any duty to defend, the onus is on the insurer to demonstrate that all of the claims made against the insured are clearly excluded from coverage by the exclusion clause or clauses relied on by the insurer: Non-Marine Underwriters, Lloyds of London v. Scalera, supra, at [page264] paras. 73-90; Nichols v. American Home Assurance Co., 1990 144 (SCC), [1990] 1 S.C.R. 801, 68 D.L.R. (4th) 321, at pp. 810-11 S.C.R.; Monenco Ltd. v. Commonwealth Insurance Co., [2001] 2 S.C.R. 699, 2001 SCC 49, at paras. 28-35; Trafalgar Insurance of Canada v. Imperial Oil Ltd. (2001), 2001 21205 (ON CA), 57 O.R. (3d) 425, [2002] I.L.R. ÂI- 4064 (C.A.).

[10] It cannot be seriously argued that Pilot does not have a duty to defend all of the claims made by the Ungers. There is certainly at least the possibility that all of the claims result from the normal use of an automobile, and that there is a nexus between the Ungers' injuries and the operation or use of the vehicle. The conclusion that Pilot has a duty to defend all of the claims however, does not mean that Co-Operators has no duty to defend any of the claims: Dominion of Canada General Insurance Co. v. AXA Insurance Co. of Canada (2003), 2003 34714 (ON SC), 65 O.R. (3d) 805, [2003] O.J. No. 2757 (QL) (S.C.J). If there is a possibility that any of the claims are captured by Co- Operators' coverage, Co-Operators has a duty to defend those claims even if Pilot also has a duty to defend the same claims. The mere possibility that Pilot's policy may cover all claims, while enough to engage Pilot's duty to defend, does not trigger the exclusion from coverage in para. 2(2) of the Co-Operators policy. That exemption is triggered only if the claims are covered by Pilot's policy.

III

[11] Counsel for Pilot contends that paras. 36-39 of the statement of claim alleged that Matthews (or his business) was negligent in the hiring, training and supervision of Riccia as well as in the entrustment of the vehicle to him. Counsel contends that these allegations establish a basis for Matthews' liability that is distinct from his liability as the owner, user or operator of the vehicle. Counsel relies on Derksen for the proposition that where there are two concurrent causes of action alleged in a statement of claim and one falls within the coverage of a policy, the insurer under that policy has a duty to defend that claim. These submissions accurately identify the principle in Derksen and were accepted by the motion judge.

[12] In Derksen, an employee of the defendant, while clearing a work site, placed a steel plate on the back of a truck in a manner which, according to the statement of claim, was negligent. The employee then drove the truck off the site. In the course of the journey, the plate fell off the truck and struck a bus killing one person and injuring three others. The defendant had an automobile policy and a commercial general liability policy. The latter policy contained an exclusion clause, like Co-Operator's policy, excluding liability "arising out of the ownership, use or operation [page265] of any automobile". The commercial general liability insurer contended that the single dominant cause of the loss was the driving of the vehicle with an insecure load and that consequently it had no duty to defend.

[13] The Supreme Court of Canada accepted the trial judge's finding that on the material before him, the placing of the plate on the back of the vehicle was part of the clean-up and not part of the loading or use of the vehicle. Based on that finding, the court accepted the motion judge's conclusion that the statement of claim pleaded that the accident resulted from two concurrent sources of causation, one being the operation of the vehicle and the other being the work site negligence in the placing of the plate on the back of the vehicle. Having determined that two concurrent causes of the damages were alleged, the court turned to the exclusion clauses in the commercial general liability policy. Major J. said, at para. 49:

Whether an exclusion clause applies in a particular case of concurrent causes is a matter of interpretation. This interpretation must be in accordance with the general principles of interpretation of insurance policies. . . .

[14] Major J. analyzed the exclusion clauses and found that neither excluded liability for a concurrent cause which did not relate to the use or operation of the automobile. He said, at para. 55:

The failure to properly clean up the work site was a concurrent cause and a risk that was covered by the CGL policy. It follows that the exclusion clause is in play but only in respect to that portion of the loss that is attributable to the auto-related cause. . . .

[15] The applicability of Derksen depends on whether in this case there can be said to be two concurrent but discrete claims advanced against Matthews, one of which is not covered by his automobile policy. In Derksen, the finding that the placing of the plate on the vehicle was not part of the loading process and, therefore, not related to the use or operation of the motor vehicle, was crucial. Given that finding, there was a possibility that the defendant could be found liable even though it engaged in no negligent conduct in the use or operation of the motor vehicle. For example, even if the collision between the bus and the truck was found to be entirely the fault of the driver of the bus, the defendant might still be liable in damages flowing from the negligent placing of the plate on the truck during the clean-up of the work site. That negligence, apart entirely from the operation or use of the vehicle, may well have contributed to the damages suffered by the plaintiffs in the accident.

[16] When a court is required to determine whether a statement of claim alleges concurrent causes of action for the purposes of determining whether an insurer has a duty to defend, the [page266] court must accept the facts as pleaded. The court is not, however, required to accept the pleader's characterization of those facts or the descriptive labels used in the statement of claim. It is the substance and not the form of the pleadings which must govern the insurer's duty to defend. As Iacobucci J. noted in Monenco, supra, at para. 34, an insurer's duty to defend cannot be put "at the mercy of the third-party pleader" [See Note 2 at end of document].

[17] In Scalera, supra, the Supreme Court of Canada had to analyze the statement of claim to determine whether, in substance, it alleged more than one cause of action. In that case, the plaintiff alleged that she was the victim of various sexual assaults over an extended period of time. In her pleadings, she alleged intentional torts, negligence and breach of fiduciary duty. The defendant looked to his homeowner's insurance policy for coverage. That policy excluded coverage for "bodily injury caused by any intentional or criminal act". The insurer argued that despite the references to negligence and breach of fiduciary duty in the statement of claim, all of the allegations were in substance allegations of intentional acts and, therefore, beyond the coverage offered in the homeowner's policy.

[18] Iacobucci J. described the required analysis of the pleadings at para. 85:

Having construed the pleadings, there may be properly pleaded allegations of both intentional and non-intentional tort. When faced with this situation, a court construing an insurer's duty to defend must decide whether the harm allegedly inflicted by the negligent conduct is derivative of that caused by the intentional conduct. In this context, a claim for negligence will not be derivative if the underlying elements of the negligence and of the intentional tort are sufficiently disparate to render the two claims unrelated. If both the negligence and intentional tort claims arise from the same actions and cause the same harm, the negligence claim is derivative, and it will be subsumed into the intentional tort for the purposes of the exclusion clause [in the insurance policy] analysis. If, on the other hand, neither claim is derivative, the claim of negligence will survive and the duty to defend will apply. . . . A claim should only be treated as "derivative" for the purposes of this analysis, if it is an ostensibly separate claim which nonetheless is clearly inseparable from a claim of intentional tort.

(Emphasis added)

[19] Iacobucci J. examined the statement of claim in some detail. He rejected the argument that some of the claims sounded [page267] in negligence, observing, at para. 128, that all of the allegations involve intentional sexual contact and were not allegations of a negligent failure to foresee a foreseeable risk of physical contact. Iacobucci J. also rejected the assertion that the allegations described as breaches of fiduciary duty gave rise to a discrete cause of action. He noted that on the facts as pleaded, any breach of fiduciary duty involved intentional tortious conduct and was therefore caught by the exclusion in the insurance policy. Iacobucci J. said, at para. 132:

The appellant was alleged to have intentionally seduced the plaintiff, and whether or not this can be characterized as a fiduciary duty claim, any injuries resulting therefrom were caused intentionally. The harm caused by any breach of fiduciary duty is identical to that caused by the sexual battery, and the claim is therefore subsumed, for the purposes of the exclusion clause [in the insurance policy] into the intentional battery.

(Emphasis added)

[20] Applying the approach described in Scalera, I conclude that in substance all of the allegations of negligence made in the statement of claim allege that the Ungers were injured as a result of the use, operation or ownership of the vehicle driven by Riccia and owned by Matthews or his business. The mere description of some of the acts of negligence as "negligent business practices" does not create a separate and discrete cause of action. Those allegations could assist the Ungers in establishing their claim only to the extent that they helped them demonstrate that the vehicle was being used or operated in a negligent fashion when the accident in which the Ungers were injured occurred.

[21] Paragraph 36 (and para. 38) alleges that Matthews is vicariously liable for the conduct of the driver of the vehicle, his [employee], Mr. Riccia. An allegation of vicarious liability does not allege a separate cause of action. As Finlayson J.A. explained in Tutton v. Pickering (Town) (1999), 1999 1452 (ON CA), 46 O.R. (3d) 503, 183 D.L.R. (4th) 160 (C.A.), at p. 508 O.R.:

The theory behind vicarious liability is that the tort of the employee is imputed to the employer and that the employer is therefore liable for the employee's unlawful action; it is not that the employer itself has committed any wrong.

[22] The allegation in para. 36 (and 38) depends on a finding that the driver was negligent and asserts that Matthews is responsible in law for that negligence. This claim arises out of the ownership, use or operation of an automobile on behalf of the insured Matthews and is excluded from Co-Operators coverage by para. 2(1) of the policy.

[23] Paras. 37(b) and 37(c) and the parallel allegations in paras. 39(b) and 39(c) allege negligent repair and maintenance of [page268] the vehicle. These allegations are referable to the use and operation of the vehicle and fall within the exclusion in para. 2(1) in the Co-Operators policy: Strickland v. Miller, [1998] I.L.R. ÂI-3602, [1998] O.J. No. 2762 (QL) (Gen. Div.).

[24] The remaining allegations in para. 37 allege that Matthews was negligent in the way he hired, trained and supervised his employee Mr. Riccia. They also contend that Matthews was negligent in entrusting the vehicle to Riccia. These allegations are not discrete causes of action in the sense identified in Derksen. Were the Ungers to establish any of these allegations, but fail to establish that the vehicle was used or operated in a negligent manner at the time of the accident, they would not succeed in their claim. While allegations of negligent training supervision and entrustment may well be germane to whether Matthews and/or his employee were negligent in the ownership, use or operation of the motor vehicle, they do not provide a stand alone ground for recovery by the Ungers.

[25] Mr. McRae, for Co-Operators, in his helpful submissions, referred the court to American authorities which have held that allegations of negligent supervision or entrustment of a vehicle are not discrete from allegations of negligent operation of the vehicle for the purposes of determining insurance coverage. Some of those American authorities were relied on by Hutchinson J. in Perkull (Guardian ad litem of) v. Gilbert, (1993), 1993 583 (BC SC), 86 B.C.L.R. (2d) 346, [1993] B.C.J. No. 1078 (QL) (S.C.). At para. 14, Hutchinson J. adopted the following passage from Southeastern Fire Ins. Co. v. Heard, 626 F. Supp. 476, 1985 U.S. Dist. LEXIS 18890 (ND Ga. 1985), at p. 480 F. Supp.:

The most well reasoned and convincing rationale for exclusion of negligent entrustment is an analysis of the tort itself. Negligent entrustment is composed both of the entruster's negligence in entrusting the instrumentality and the entrustee's negligent use of the instrumentality. Thus, the triggering element is negligent use of the item, for even if the entrustment was negligent, no cause of action could arise without an injury caused by negligent use of the item. Because negligent use is essential, negligent entrustment arises out of the use of a certain instrumentality. Thus the exclusion [in the insurance policy] applies. . . .

[26] American courts have reached the same conclusion with respect to negligent supervision. In Oakley Transport v. Zurich Ins. Co., 648 N.E.2d 1099, 271 Ill. App. 3d 716 (Ill. App. Ct. 5th Div. 1995), the court held, at para. 34:

The gravamen of negligent supervision is that one party (the supervisor) acted unreasonably in allowing another party (the supervisee) over whom he or she had a duty to control to commit some wrong against a third party. The supervisee's conduct which ultimately results in injuries cannot be viewed as [page269] an intervening act of negligence. Indeed, the negligence of the supervisor, is by definition, derivative of the negligence of the supervisee.

[27] I find the American authorities persuasive. They confirm my view that the allegations contained in the Ungers' statement of claim all involve allegations of negligence in the use, operation or ownership of the Matthews' motor vehicle. All of the allegations are covered by the Pilot Automobile Insurance policy. They are excluded from coverage under the Co-Operators policy by the exclusions in paras. 2(1) and 2(2) of that policy.

IV

[28] I would allow the appeal, set aside the order below and declare that Co-Operators is not obliged to defend Matthews or his business under the terms of its CGL policy.

[29] Co-Operators is entitled to its costs against Pilot on the motion and on the appeal. I would make no order as to costs for or against the Ungers. The motion judge fixed costs on the motion at $500. Co-Operators should have the costs of the motion in that amount. It should have its costs of the appeal fixed at $3,000.

Appeal allowed.

Notes

Note 1: "Occurrence" is a defined term in the policy and means "an accident including continuous or repeated exposure to substantially the same general harmful conditions".

Note 2: Iacobucci J's caution rings true in this case. Counsel for the Ungers candidly conceded in oral argument that paras. 36-39 of the statement of claim were added with a view to drawing Co-Operators into the action so as to avoid significant limitations on the infant Ungers' ability to recover damages under the Pilot automobile policy.