Southside Muay Thai Academy Corp. v. Aviva Insurance Company of Canada

[Indexed as: Southside Muay Thai Academy Corp. v. Aviva Insurance Co. of Canada]

Ontario Reports

Court of Appeal for Ontario

Benotto, Zarnett and Thorburn JJ.A.

June 16, 2020

151 O.R. (3d) 123 | 2020 ONCA 385

Case Summary

Insurance law — Insurers — Duties — Duty to defend — Appeal by insurer from decision finding that it had a duty to defend the respondent in an action commenced by a student on the respondent's kickboxing team alleging she was sexually assaulted by the respondent's co-owner and employee while on a return fight after a competition allowed — Respondent's commercial general liability policy with the appellant excluded claims that arose directly or indirectly from abuse — The only claim or action set out in the statement of [page124] claim arose from the incident on the flight which was excluded from coverage under the policy.

Appeal by the insurer from a decision finding that it had a duty to defend the respondent in an action commenced by a student on the respondent's kickboxing team alleging she was sexually assaulted by the respondent's co-owner and employee while on a return fight after a competition. The respondent's commercial general liability policy with the appellant covered claims for compensatory damages for bodily injury or property damage except for claims that arose directly or indirectly from abuse. The application judge found the appellant had no duty to defend the respondent against the claim that it was negligent for failing to supervise the plaintiff and ensure she was safe while on the flight, he held the respondent had a duty to defend the claim due to the allegation in the statement of claim that the respondent was negligent in its failure to supervise the plaintiff, to ensure she was safe while on their premises and under their care and control.

Held, the appeal should be allowed.

The only claim or action set out in the statement of claim arose from the incident on the flight. While coverage was to be interpreted broadly and exclusion clauses narrowly, there was no claim for damages resulting from the respondent's negligence other than the claim arising from this one incident which was excluded from coverage under the policy. There was no ambiguity in the exclusion clause and thus no reason to invoke the concept of contra proferentum to the exclusion clause.

Cases referred to

Balanyk v. University of Toronto, 1999 14918 (ON SC), [1999] O.J. No. 2162, 1 C.P.R. (4th) 300 (S.C.J.); Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., [2016] 2 S.C.R. 23, [2016] S.C.J. No. 37, 2016 SCC 37, [2016] 10 W.W.R. 419, [2016] I.L.R. para. I-5917, 54 B.L.R. (5th) 1, 59 C.C.L.I. (5th) 173, 487 N.R. 1, 56 C.L.R. (4th) 1, 404 D.L.R. (4th) 258, 19 Admin. L.R. (6th) 1; Norman v. Thunder Bay Regional Health Sciences Centre, [2015] O.J. No. 3582, 2015 ONSC 3252, 74 C.P.C. (7th) 184 (S.C.J.)

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 25.06

APPEAL from the order of Sossin J., [2019] O.J. No. 5486, 2019 ONSC 6086.

Elizabeth Bowker and Avi Sharabi, for appellant Aviva Insurance Company of Canada.

Daniel S. Freudman, for respondent Southside Muay Thai Academy Corp.

BY THE COURT: --

Overview

[1] The appellant, Aviva Insurance Company of Canada ("Aviva"), claims it has no duty to defend the action commenced by P.F. against the respondent Southside Muay Thai Academy Corp. ("Southside").

[2] P.F. was a minor athlete and student of the Southside kickboxing team. Southside was responsible for supervising her while she was in [page125] their care. Raul Fontalvo was the co-owner and employee of Southside.

[3] P.F. claims she was sexually assaulted by Fontalvo on May 1, 2017 while she and Fontalvo were on a return flight from Thailand after a kickboxing competition. She started an action against Southside and Fontalvo for damages.

[4] On September 7, 2018, Fontalvo was found guilty of sexual assault and sexual interference with a minor with whom he was in a position of trust and authority. The convictions arose from the incident on May 1, 2017.

The Claim

[5] The statement of claim provides that,

On or about May 1, 2017, while on a flight back to Canada from Thailand, the Plaintiff was sexually assaulted by the Defendant Fontalvo, which is the subject matter of this action.

(Emphasis added)

[6] The plaintiff further alleges that:

15. The Defendant, Southside Muay Thai Academy, owed a duty of care to the Plaintiff. The Defendant, Southside Muay Thai Academy breached that duty of care by failing to supervise and protect the Plaintiff from harm, when they knew or ought to have known that there was a risk of danger or harm to the Plaintiff at the hands of Fontalvo.

16. The Plaintiff states Southside Muay Thai Academy 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.

17. The Plaintiff further states that Southside Muay Thai Academy failed to supervise Fontalvo during the course of his work and failed to recognize Fontalvo's inappropriate behaviour towards the Plaintiff. Further, the Southside Muay Thai Academy was negligent in its failure to intervene and prevent that behaviour from recurring and worsening in severity.

18. The Plaintiff states Southside Muay Thai Academy failed to adequately, or at all, ensure its employees were suitable for employment around children and failed to perform the necessary background checks for their employees.

19. The Plaintiff states the actions of the Defendants constitute reckless and/or intentional infliction of emotional distress for which she is seeking damages.

(Emphasis added)

The Insurance Policy

[7] The appellant, Aviva, is Southside's insurer. The Aviva Commercial General Liability policy covers claims for compensatory damages for bodily injury or property damage except for claims that arise directly or indirectly from abuse.

[8] The relevant terms of the policy read as follows: [page126]

We will pay those sums that the insured becomes legally obligated to pay as "compensatory damages" because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "action" seeing those "compensatory damages". However, we will have no duty to defend the insured against any "action" seeking "compensatory damages" for "bodily injury" or "property damage" to which this insurance does not apply. . .

[9] TheForm 5211110 Abuse Exclusion, which forms part of the policy, provides that

This insurance does not apply to:

Abuse

a. 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".

b. 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".

c. Claims or "actions" alleging knowledge by an insured of, or failure to report, the alleged "abuse" to the appropriate authority(ies).

[10] The limit of liability under the policy is $2 million.

[11] The policy also has a separation of coverage clause:

12. Separation of Insured's Cross-Liability

Except with respect to the Limits of Insurance, and any rights or duties specifically assigned in this Coverage Form to the first Named Insured, this insurance applies;

a. As if each Named Insured were the only Named Insured; and b. Separately to each insured against whom claim is made or "action" is brought.

[12] Southside brought an application seeking defence of the claim and coverage from Aviva. Aviva denied coverage and advised Southside that

Raul Fontalvo was an employee at the time of the alleged offence and is an insured under the policy. As per the exclusion cited above, coverage is removed for any claims arising directly or indirectly out of abuse committed or alleged to have been committed by an insured. This includes vicarious liability and claims of negligence against Southside Muay Thai Academy as they arise out of abuse.

[13] Southside contests the denial of coverage.

The Decision of the Application Judge

[14] The application judge held that the separation of coverage clause in the policy did not assist Southside's position, and that Aviva has no duty to defend Southside against the claim that Southside was negligent for failing to supervise the plaintiff and ensure she was safe while on the flight from Thailand on May 1, 2017. [page127]

[15] He correctly held that this claim falls within the policy exclusion because it arises directly or indirectly from an act of alleged abuse. The parties take no issue with this finding.

[16] However, the application judge held [at paras. 30-31] that Aviva has a duty to defend the claim due to the allegation in para. 16 of the 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 . . .." because

This allegation includes the broader question of Southside's supervision of the plaintiff while the plaintiff was on Southside's premises in Ontario, and under their care in contexts beyond the flight on May 1, 2017. At a minimum, this allegation in the claim creates the possibility of Southside's liability for breaching a duty of care in situations not arising directly or indirectly from the alleged abuse.

Given the application of contra proferentem in the context of interpreting insurance policies, where coverage is to be interpreted broadly, and exclusion clauses are to be interpreted narrowly (see, for example, Progressive Homes at para. 24), I find that the specific allegation against Southside for its negligent supervision of the plaintiff in settings that may extend beyond the May 1, 2017 flight, is not caught by the Abuse exclusion, and therefore would be covered by Aviva's policy.

Analysis and Conclusion

[17] The standard of review applicable to the interpretation of a standard form insurance contract is correctness: Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., [2016] 2 S.C.R. 23, [2016] S.C.J. No. 37, 2016 SCC 37, at para. 46.

[18] The wording of the policy exclusion is clear and unambiguous. All "claims or actions arising directly or indirectly from abuse" and or claims or actions based on "supervision or retention of any person alleged to have committed abuse" are excluded from coverage.

[19] A claim or action is the assertion of a right that is, as yet, unproven.

[20] Southside agrees that the policy exclusion applies to the claim for failure to supervise arising from the incident on May 1, 2017 "since the alleged abuse took place on the said flight and therefore any claims arising from such abuse would be excluded from coverage": Respondent's factum, para. 9.

[21] The question is whether the statement of claim makes any (a) claim other than the claim arising from the sexual abuse, and if so, (b) whether that claim(s) is covered by the policy.

[22] Southside claims "it is possible" that para. 16 of the statement of claim includes not only the failure to supervise the plaintiff while she was on the flight on May 1 but other claims for failure to ensure the plaintiff's safety while in Southside's care and control. Southside claims at para. 11 of its factum on this appeal that

Perhaps the Plaintiff's safety was compromised through Southside improperly training her or permitting her access to defective gym equipment; it is neither [page128] appropriate nor necessary to speculate on particulars at this early stage since the mere possibility of a claim falling within coverage will trigger the duty to defend.

[23] Rule 25.06 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, provides that, "Every pleading shall contain a concise statement of the material facts on which the party relies for the claim or defence, but not the evidence by which those facts are to be proved": see, also, Balanyk v. University of Toronto, 1999 14918 (ON SC), [1999] O.J. No. 2162, 1 C.P.R. (4th) 300 (S.C.J.), at para. 29; and Norman v. Thunder Bay Regional Health Sciences Centre, [2015] O.J. No. 3582, 2015 ONSC 3252 (S.C.J.).

[24] The only claim or action set out in the Statement of Claim arises from the May 1 incident. The material facts in support of the action are as follows:

10. On or about May 1, 2017, while on a flight back to Canada from Thailand, the Plaintiff was sexually assaulted by the Defendant Fontalvo, which is the subject matter of this action.

11. The defendant Fontalvo did sexually assault the plaintiff the particulars of which are described herein.

[25] "The subject matter of this action" is the sexual abuse.

[26] Moreover, the damages claimed as set out in paras. 23 through 26 of the statement of claim, are all damages arising from the sexual assault.

[27] Any claim arising from the sexual abuse is clearly excluded from coverage under the policy.

[28] Therefore, while we agree with the application judge that coverage is to be interpreted broadly and exclusion clauses narrowly, there is no claim for damages resulting from Southside's negligence other than the claim arising from the subject matter of this action, that is, the May 1, 2017 incident.

[29] Since there is no claim or action in the statement of claim other than the claim arising from the sexual abuse that took place on May 1, 2017, which is excluded from coverage under the policy, there is no need to assess whether those claims would be covered by the policy.

[30] We reject Southside's alternative argument that the separation of coverage clause leads to a different result. We agree with the application judge that it has no bearing in this case.

[31] As such, Aviva has no duty to defend this claim. There is no ambiguity in the exclusion clause and thus no reason to invoke the concept of contra proferentum to the exclusion clause.

[32] For these reasons, the appeal is allowed.

[33] On the agreement of both parties, costs to the successful party, Aviva in the amount of $22,000, which sum includes costs below and costs of this appeal.

Appeal allowed.

End of Document