OSHAWA COURT FILE NO.: CV-18-2919-00
DATE: 20190227
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Pembridge Insurance Company of Canada
Applicant
– and –
John Chu, Dennis G.K. Chu, and Dominion Insurance
Defendants/Respondents
Todd McCarthy and Richard Campbell for the Applicant
Thomas Donnelly and Joyce Tam for the Defendant/Respondent Dominion Insurance
No one appearing for John Chu and Dennis G.K. Chu
HEARD: November 16, 2018
Reasons for decision
DE SA J.
Overview
[1] This Application concerns a question of coverage with respect to whether or not a defence and indemnity are owed to the insured, Dennis Chu, under a home insurance policy.
[2] The Applicant, Pembridge Insurance Company of Canada (“Pembridge”), seeks an Order declaring that the Defendant, Dennis Chu, is not entitled to a defence nor indemnity under the home insurance policy in place with Pembridge on October 8, 2013 (hereinafter the “Homeowner’s Policy” or the “Pembridge Policy”) insofar as the Third Party Claim under Action No. CV-13-475467-00A1 at Toronto (the “Toronto Action”) is concerned, and an Order that the Respondent, Dominion, be bound by the determination of coverage as between the Applicant and Respondents. According to Pembridge, the claims arise from the use or operation of a motor vehicle (the “vehicle”), and accordingly, are excluded under the terms of the Homeowner’s Policy.
[3] Dominion Insurance (“Dominion”) resists the application. According to Dominion, while many of the allegations against Dennis Chu clearly involve the use or operation of the vehicle, one of the allegations does not and thus triggers Pembridge’s duty to defend. In particular, the allegation that Dennis Chu exited his vehicle, hit the plaintiff’s vehicle, and threatened the occupants of the plaintiff’s vehicle does not arise out of Dennis Chu’s use or operation of the vehicle.
[4] Given these allegations in the Third Party Claim, Dominion argues that Dennis Chu may have to seek coverage under both policies (homeowner and auto), and accordingly, this determination should be left for trial.
[5] I disagree with Dominion. In my view, the conduct identified in the Third Party Claim arises out of the ownership, use or operation of a motor vehicle. Accordingly, the Homeowner’s Policy clearly excludes coverage for the conduct in the Third Party Claim. I will grant the declaration sought by Pembridge. The reasons for my decision are outlined below.
Summary of Facts
The Third Party Claim
[6] The injured plaintiff in the underlying litigation is Tate Moran. She was a minor at the time of the accident and was a passenger in the vehicle. On October 9, 2008, Ms. Moran’s vehicle was struck by a vehicle driven by the defendant, Mr. Fabrizi.
[7] On March 5, 2013, Ms. Moran issued a claim against Mr. Fabrizi (and others) alleging that on October 9, 2008, she sustained injuries when Mr. Fabrizi’s vehicle proceeded through a red light as she attempted to make a right turn and struck her vehicle.
[8] On December 18, 2013, Mr. Fabrizi defended the claim and denied liability by filing a statement of defence. On December 10, 2014, Mr. Fabrizi issued a third party claim against Dennis Chu (the “Third Party Claim”). The Third Party Claim alleges that Dennis Chu caused or contributed to the accident by operating his vehicle negligently. Amongst other allegations, the claim asserts that Dennis Chu: 1) travelled at an excessive rate of speed, 2) failed to apply his brakes properly, 3) operated with defective brakes, 4) did not keep a proper lookout, and 5) drove his vehicle into the path of an oncoming vehicle.
[9] One of the allegations in the claim also asserts that Dennis Chu:
threatened the Defendant (Mr. Fabrizi) and the passenger in the Defendant’s vehicle with violence by getting out of the Third Party vehicle, yelling at them and hitting the window and other parts of the Defendant’s vehicle and other gestures causing the occupants of the Defendant’s vehicle to fear for their lives.
[10] Dennis Chu admits that he was driving the vehicle, but denies all the other allegations including the claim that he contributed to the accident.
The Dispute between the Insurers
[11] Pembridge is the insurer of John Chu under the Pembridge Policy. Dennis Chu is the son of John Chu who was living at home at the time of the loss and therefore is entitled to insured status under the Pembridge Policy.
[12] Section II of the Pembridge Policy provides that Pembridge will pay all sums which the insured becomes legally liable to pay as compensatory damages because of bodily injury or property damages. While Section II of the Pembridge Policy clearly provides for very broad coverage, it does contain a number of exclusions. Of particular relevance is the exclusion in relation to the ownership, use or operation of a motor vehicle. The Pembridge Policy provides that the insured is not covered for claims “arising from”:
a. The ownership, use or operation of any motorized vehicle, trailer or watercraft, except those specifically insured in the policy.
[13] The vehicle at issue here was not insured under the Pembridge Policy.
[14] The Pembridge Policy also has an exception for bodily injury or property damage caused by any intentional or criminal acts or failure to act on the part of the insured.
[15] Pembridge takes the position that Dennis Chu is not entitled to a defence or indemnity under the Pembridge Policy given these exclusions. According to Pembridge, the allegations in this case clearly arise from the ownership, use or operation of a motorized vehicle, and accordingly, the Pembridge Policy clearly excludes coverage.
[16] Dominion, as the auto carrier for Dennis Chu, has accepted a duty to defend to the extent that the allegations arise out of the use, ownership or operation of a motor vehicle under Section 239(1)(a) of the Insurance Act, R.S.O. 1990, c I.8. Dominion has reserved its rights, however, with respect to liability not arising out of Mr. Chu’s ownership, use or operation of the vehicle.
[17] Dominion argues that its obligations to Dennis Chu under the automobile insurance policy do not excuse Pembridge from its own obligations. Liability (and the duty to defend) may also be shared between insurers.
[18] Dominion takes the position that Dennis Chu may be able to seek coverage under both policies (homeowner and auto), and accordingly, this court should not limit the nature of the coverage available to the insured by excusing Pembridge from the litigation. Provided that both insurers (Pembridge and Dominion) could potentially be held liable, Dominion takes the position that this determination should be left for trial.
Analysis
General Principles
[19] The “duty to defend” refers to an insurer’s obligation to retain and pay for a lawyer to defend a claim against the insured. As discussed in more detail below, the duty to defend is based on the facts pleaded against the insured. The court assumes that the pleaded facts are true. Monenco Ltd. v. Commonwealth Insurance Co., [2001] 2 S.C.R. 699, [2001] S.C.J. No. 50, 2001 SCC 49, at para. 28. If there is a “mere possibility” that the pleaded facts might be covered by the policy, then the insurer has a duty to defend. See Nichols v. American Home Assurance Co., 1990 144 (SCC), [1990] 1 S.C.R. 801, [1990] S.C.J. No. 33, at p. 810 S.C.R., and Tedford v. TD Insurance Meloche Monnex, 2012 ONCA 429. It is the potential of insurer liability that gives rise to the duty to defend. Non-Marine Underwriters, Lloyd's of London v. Scalera, [2000] 1 SCR 551, 2000 SCC 24. As the Supreme Court explained in Scalera, supra, at para. 49:
An insurance company’s duty to defend is related to its duty to indemnify. A homeowner’s insurance policy entitles the holder to have the insurer indemnify any liability falling within the policy’s terms. Since the insurance company will be paying these costs, it has also developed the right -- now a duty -- to conduct the defence of such claims. However, the duty to defend is not so great that it is presumed to be independent of the duty to indemnify. Absent express language to the contrary, the duty to defend extends only to claims that could potentially trigger indemnity under the policy. [^1]
[20] Determining whether or not a given claim could trigger indemnity is a three-step process. The Court explained in Scalera, at paras. 50-52:
When ascertaining the scope of the duty to defend, the court must look beyond the labels used by the plaintiff to ascertain the "substance" and "true nature" of the claims. It must determine whether the factual allegations, if true, could possibly support the plaintiff's legal claims: Monenco, at paras. 34-35; Scalera.
At the second stage, having determined what claims are properly pleaded, the court should determine if any claims are entirely derivative in nature. For example, the duty to defend will not be triggered simply because a claim can be cast in terms of both negligence and intentional tort. In other words, if the alleged negligence is based on the same harm as the intentional tort, it will not allow the insured to avoid the exclusion clause for intentionally caused injuries.
At third stage the court must decide whether any of the properly pleaded, non-derivative claims could potentially trigger the insurer’s duty to defend. If there are no properly pleaded claims that, even if successful, could potentially trigger indemnity, the insurer has no duty to defend.
[21] If the pleadings are not sufficiently precise to determine whether the claims would be covered by the policy, "the insurer's obligation to defend will be triggered where, on a reasonable reading of the pleadings, a claim within coverage can be inferred": Monenco, at para. 31. Extrinsic evidence that has been explicitly referred to in the pleadings may be considered to determine the substance and true nature of the allegations: Monenco, at para. 36; see 1540039 Ontario Ltd. v. Farmers' Mutual Insurance Co. (Lindsay) (2012), 110 O.R. (3d) 116, [2012] O.J. No. 1380, 2012 ONCA 210.
[22] In determining whether the policy would cover the claim, the usual principles governing the construction of insurance contracts apply, namely, the contra proferentem rule and the principle that coverage clauses should be construed broadly and exclusion clauses narrowly: Monenco, at para. 31; Scalera, at para. 70. As well, the desirability, where the policy is ambiguous, of giving effect to the reasonable expectations of the parties: Scalera, at para. 71.
[23] A judge hearing an insurance coverage application is precluded from fact-finding on matters at issue in the underlying tort litigation. In other words, a coverage application is not to be converted into “a trial within a trial”; Cooper v. Farmers’ Mutual Insurance Co. (2002), 2002 44938 (ON CA), 59 O.R. (3d) 417 at paras. 8-14 (C.A.). The question is one of potential liability, not ultimate liability.
Application to the Facts of the Case
[24] In this case, the relevant exclusion provision in the Homeowner’s Policy provides that coverage is excluded for claims arising from the ownership, use, or operation of a vehicle. Again, the relevant provision provides:
You are not insured for claims made against you arising from:
The ownership, use or operation of any motorized vehicles, trailer or watercraft, except those insured in this policy.
[25] According to Pembridge, the allegations in this case clearly arise from the ownership, use or operation of a motorized vehicle, and accordingly, the exclusion clause in the Homeowner’s Policy clearly excludes coverage in this case.
[26] Pembridge relies heavily on the case of Lefor (Guardian of) v. McClure, 2000 5735 (ON CA) in support of its position. In Lefor, the defendant was insured under a standard motor vehicle policy that provided for indemnity for loss or damages "arising from the ownership or directly or indirectly from the use or operation" of her automobile. She parked on the street opposite her mother's residence, where she intended to leave her children for the evening. Leaving the engine running, she started to take the children across the road. Her daughter ran out into the path of an oncoming vehicle and suffered physical injuries. The insurer refused to defend and indemnify the defendant and third party proceedings were taken by her claiming declarations that the insurer was required to defend the main action and to indemnify her with respect to her daughter's claim. The insurer brought a motion for summary judgment dismissing the third party action. The motions judge dismissed the motion and granted a declaration that the accident occurred at least indirectly from the use of the insured's motor vehicle. The insurer appealed.
[27] The Court of Appeal dismissed the appeal finding the motions judge correctly concluded that the accident arose from the ownership, or directly or indirectly from the use or operation of the defendant's motor vehicle. The Court of Appeal found that stopping vehicles to pick up and drop off passengers is an ordinary and well-known aspect of the use and operation of an automobile. The accident occurred as a result of the use of the defendant's vehicle as a means of conveying passengers from one place to another. [^2]
[28] Dominion disagrees that Lefor is applicable. Dominion argues that it is well-established that, in the construction of insurance contracts, coverage provisions should be construed broadly and exclusion clauses narrowly. Derksen v. 539938 Ontario Ltd., 2001 SCC 72, [2001] 3 S.C.R. 398 at para. 51 and 52. See also Djepic v. Kuburovic (2006), 2006 578 (ON CA), 80 O.R. (3d) 21 at para. 25 (Ont. C.A.). Scalera, supra, at para. 70. The case of Lefor dealt with a coverage issue, not an exclusion provision. Accordingly, Dominion submits that the case of Lefor is of limited assistance on the issue of exclusion.
[29] Dominion also argues that the wording used in the Pembridge exclusion clause is not as broad as the wording that was used in the policy in Lefor. In Lefor, the provision referenced claims “arising from the ownership or directly or indirectly from the use or operation”. The Pembridge Policy makes no specific reference to “directly or indirectly” in the specific exclusionary provision. See Djepic v. Kuburovic (2006), 2006 578 (ON CA), 80 O.R. (3d) 21 at para. 25 (Ont. C.A.) at paras. 38–42.
[30] I agree that traditionally the provisions providing coverage in private policies of insurance are interpreted broadly in favour of the insured, and exclusions interpreted strictly and narrowly against the insurer: Brown and Menezes, C. Brown & J. Menezes, Insurance Law in Canada, vol. 1, looseleaf (Toronto: Carswell, 2002, at p. 131). Amos v. Insurance Corp. of British Columbia, 1995 66 (SCC), [1995] 3 S.C.R. 405 at para. 16; Indemnity Insurance Co. v. Excel Cleaning Service, 1954 9 (SCC), [1954] S.C.R. 169.[^3]
[31] The jurisprudence makes clear that since insurance contracts are essentially adhesionary, the standard practice is to construe ambiguities against the insurer: Brissette Estate v. Westbury Life Insurance Co., 1992 32 (SCC).
[32] In this case, however, regardless of how the exclusion clause is interpreted, one of the insurers will be providing coverage to the insured in relation to the insured’s actions after exiting the vehicle, and the other will not. If I were to interpret the exclusion clause more broadly, this would leave Dominion responsible for following through with the coverage. If I were to interpret the provision more narrowly, this would make Pembridge liable for the conduct.
[33] As between Dominion and Pembridge, in light of the jurisprudence, it is more appropriate for Dominion to provide coverage in this case. In my view, both the Insurance Act and the surrounding jurisprudence would support coverage by Dominion.
[34] For example, section 239(1) of the Insurance Act specifically provides that automobile policies provide coverage for loss or damage caused “directly or indirectly” in the course of operation of a vehicle. Section 239(1) provides:
239 (1) Subject to section 240, every contract evidenced by an owner’s policy insures the person named therein, and every other person who with the named person’s consent drives, or is an occupant of, an automobile owned by the insured named in the contract and within the description or definition thereof in the contract, against liability imposed by law upon the insured named in the contract or that other person for loss or damage,
(a) arising from the ownership or directly or indirectly from the use or operation of any such automobile; and
(b) resulting from bodily injury to or the death of any person and damage to property. R.S.O. 1990, c. I.8, s. 239 (1).
[35] In Amos v. Insurance Corp. of British Columbia, supra, the Supreme Court interpreted “arising out of” in the context of s. 79(1) (in Part VII) of the Revised Regulation (1984) under the Insurance (Motor Vehicle) Act, B.C. Reg. 447/83, as amended, in the following way (at para. 21):
The phrase "arising out of" is broader than "caused by", and must be interpreted in a more liberal manner.
… the words "arising out of" have been viewed as words of much broader significance than "caused by", and have been said to mean "originating from", "having its origin in", "growing out of" or "flowing from", or, in short, "incident to" or "having connection with" the use of the automobile.
[36] What becomes clear is that “arising out of” or “arising from” the use or operation of a vehicle has been very broadly construed in the jurisprudence.[^4] Even if there is a finding that Dennis Chu got out of the vehicle and yelled at Mr. Fabrizi and banged on the windows of the car, in my view, those facts would still be considered “incident” to the use or operation of a vehicle.
[37] Dominion argues that even if it has the obligation to provide coverage for these actions, its obligations to Dennis Chu under the automobile insurance policy do not excuse Pembridge from its own obligations. Liability may also be shared between insurers. Dominion takes the position that Dennis Chu may be able to seek coverage under both policies (homeowner and auto), and accordingly, this court should not limit the nature of the coverage available to the insured by excusing Pembridge from the litigation.
[38] I agree with Dominion that if coverage was available under both policies, the issue of indemnification should be deferred to trial. However, the Pembridge Policy makes clear that liability flowing from the use or operation of a motor vehicle is excluded or not covered by the Pembridge Policy. Accordingly, a finding that the relevant claims in the pleadings against Dennis Chu arise from the ownership, use or operation of a motor vehicle necessarily excludes coverage by the Pembridge Policy.
[39] In my view, Dennis Chu would have no reasonable expectation of receiving coverage under both policies (homeowner and auto).[^5] While the jurisprudence clearly leans towards providing coverage, a policy should not be construed towards providing coverage where coverage was never contemplated: Amos v. Insurance Corp. of British Columbia, 1995 66 (SCC), [1995] 3 S.C.R. 405, 127 D.L.R. (4th) 618. The goal is giving effect to the reasonable expectations of the parties: Scalera, at para. 71. See also Russo v. John Doe, (2009) 2009 ONCA 305, 95 O.R. (3d) 138 (C.A.). Djepic v. Kuburovic (2006), 2006 578 (ON CA), 80 O.R. (3d) 21. Estey J. stated the point succinctly in Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 10 (SCC), [1980] 1 S.C.R. 888, at pp. 901-2:
… the courts should be loath to support a construction which would either enable the insurer to pocket the premium without risk or the insured to achieve a recovery which could neither be sensibly sought nor anticipated at the time of the contract.
[40] There is also no reason why the trial judge would be in a better position to make this determination. This determination can be made by reviewing the specific policy and the pleadings: Cooper v. Farmers’ Mutual Insurance Co., 2002 CarswellOnt 1676 (Ont. C.A.) at para. 9. To defer this determination until the end of trial unnecessarily leaves both Dominion and Pembridge involved throughout the course of the litigation. In my view, deferring the issue in this case would not be timely or cost effective. See Hryniak v. Mauldin, 2014 CSC 7, [2014] 1 R.C.S. 87 at para. 50.
[41] Dominion also warns that to excuse Pembridge from the litigation at this early stage may leave Dennis Chu without coverage altogether. The Supreme Court of Canada has established a two-part test for determining whether a claim arises out of the use or operation of a vehicle:
(a) First, whether the motor vehicle was being used as a motor vehicle and not for some other purpose; and,
(b) Second, whether the chain of causation linking the injuries to the use and operation of the motor vehicle, which is shown to be more than simply fortuitous or “but for”, is unbroken.[^6]
See Amos v. Insurance Corp. of British Columbia, supra.
[42] According to Dominion, numerous courts have held that road rage incidents do not arise out of the use or operation of the vehicle because the insured breaks the chain of causation when the insured leaves the vehicle. Dominion relies on the comments in Trench v. Erskine, (2006), 244 N.S.R. (2d)) 55 at paras. 36-27:
The court further found, in applying the second part of the test, that there was not a sufficient nexus between the assault and the use or operation of the plaintiff’s vehicle to satisfy the causal relationship requirement. Rather, the connection between the assault and use or operation of the automobile was considered to be merely incidental. In the result, there was found to be neither a duty to defend nor to indemnify the plaintiff.
The trial judge, Marshall J., concluded his reasons for judgment by noting that there are proper public policy considerations which also applied, namely, that one should not reasonably expect to be indemnified for the results of road rage perpetrated toward another motorist, particularly where one has left one’s vehicle and carried out an intentional act of aggression: Tench v. Erskine (2006), 2006 NSSC 115, 244 N.S.R. (2d) 55 at para. 31-33. [Emphasis added]
[43] I do not see how this concern will arise given my determination here. I am finding that as between Pembridge and Dominion, Dominion will be required to provide the requisite coverage. Dennis Chu’s actions after exiting the vehicle is now deemed to be incident to the ownership, use or operation of a vehicle. This finding should not be revisited by the trial judge.
[44] I also do not see how the risk that Dominion may not be obliged to indemnify because of a finding of “wilful conduct” on the part of Dennis Chu would create potential liability on the part of Pembridge. In such circumstances, the same policy reasons for excluding the automobile insurer’s obligation to indemnify for wilful conduct would apply in the context of the homeowner insurance.
[45] In any event, under Section II (Liability coverage), the Homeowner’s Policy explicitly provides that loss or damage arising from intentional or criminal acts are not covered. As explained in Scalera at para. 49:
Absent express language to the contrary, the duty to defend extends only to claims that could potentially trigger indemnity under the policy. Therefore if an insurance policy, like the one in this case, excludes liability arising from intentionally caused injuries, there will be no duty to defend intentional torts.
[46] In my view, given the exclusionary provisions in the Pembridge Policy, there are no properly pleaded claims that could trigger potential indemnity on the part of Pembridge.
[47] Accordingly, I grant the requested declaration that the Defendants are not entitled to a defence nor indemnity under the Homeowner’s Policy in place with Pembridge Insurance Company of Canada on October 8, 2013 insofar as the Third Party Claim under Action No. CV-13-475467-00A1 at Toronto is concerned, and that Dominion be bound by the determination of coverage as between the Applicant and Respondents.
[48] The parties shall each bear their own costs on the motion.
Justice C.F. de Sa
Released: February 27, 2019
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Penbridge Insurance Company of Canada
Applicant
-and-
John Chu, Dennis G.K. Chu, and Dominion Insurance
Defendants/Respondents
REASONS FOR DECISION
Justice C.F. de Sa
Released: February 27, 2019
[^1] In Nichols v. American Home Assurance Co., 1990 144 (SCC), [1990] 1 S.C.R. 801 at 810-11, McLachlin J. also provided two policy reasons for restricting the duty to defend to circumstances where the insurer may be liable under the terms of the policy. First, if one goes beyond the obligations in the contract, the insurer would have to pay defence costs for claims outside the policy’s scope. This raised “policy questions of whether others in the insurance pool should be taxed with providing defences for matters outside the purview of the policy”: Nichols, supra, at pp. 811-12. Second, an independent duty to defend raises conflict of interest problems. If the insurer is defending claims for which it owes no duty to indemnify, there is a strong incentive simply to settle the claim as quickly as possible. At the very least, the insurer has an incentive to try to prove only that the insured is liable for claims falling outside coverage.
[^2] Interestingly, the case of Law, Union & Rock Insurance Co. v. Moore's Taxi Ltd., 1959 81 (SCC), [1960] S.C.R. 80, appears to approach facts very similar to those in Lefor, supra, quite differently. From a review of the case in conjunction with Lefor, it is very clear that the courts do interpret policies towards coverage.
[^3] Dominion also argues that is well-established that, in the construction of insurance contracts, coverage provisions should be construed broadly and exclusion clauses narrowly. Derksen v. 539938 Ontario Ltd., 2001 SCC 72, [2001] 3 S.C.R. 398 at paras. 51 and 52. See also Djepic v. Kuburovic (2006), 2006 578 (ON CA), 80 O.R. (3d) 21 at para. 25 (Ont. C.A.). Scalera, supra, at para. 70. Accordingly, Dominion submits that the case of Lefor is of limited assistance on the issue of exclusion. The case of Lefor dealt with a coverage issue, not an exclusion provision.
[^4] See Stevenson v. Reliance Petroleum Ltd., 1956 27 (SCC), [1956] S.C.R. 936, and Law, Union & Rock Insurance Co. v. Moore's Taxi Ltd., 1959 81 (SCC), [1960] S.C.R. 80.
[^5] See Stevenson v. Reliance Petroleum Ltd., supra.
[^6] The leading case interpreting the phrase "arises out of the ownership, use or operation of a vehicle" is Amos v. Insurance Corp. of British Columbia, 1995 66 (SCC), [1995] 3 S.C.R. 405, 127 D.L.R. (4th) 618, wherein Major J. formulated this two-part test, at para. 17.