Court File and Parties
COURT FILE NO.: CV-19-620743
DATE: 2019-10-21
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: SOUTHSIDE MUAY THAI ACADEMY CORPORATION, Applicant
AND:
AVIVA INSURANCE COMPANY OF CANADA, Respondent
BEFORE: Sossin J.
COUNSEL: Daniel Freudman, Counsel for the Applicant
Elizabeth Bowker and Avi Sharabi, Counsel for the Respondent
HEARD: September 18, 2019
REASONS FOR JUDGMENT
OVERVIEW
[1] This case raises the question of whether an exclusion in a company’s insurance policy for “abuse” covers a range of allegations of wrongdoing against the company employing the person responsible for the alleged abusive conduct.
[2] The applicant, Southside Muay Thai Academy (“Southside”) is a kickboxing gym operating in Ontario.
[3] Southside is a defendant in a suit, along with one of its employees, Raul Andres Rojas Fontalvo (“Fontalvo”), brought by the plaintiff P.F. By Her Litigation Guardian M.L. (the “action”)
[4] The respondent insurance company, Aviva Insurance Company of Canada (“Aviva”) issued a commercial insurance policy (the “policy”) to Southside, under which Aviva has a duty to defend and indemnify the insured against certain claims and subject to specified exclusions.
[5] Aviva denied coverage relating to the action on the basis that the claims are excluded under the policy. Southside brings this application to establish that Aviva’s policy covers at least some of the claims in the action, which triggers its duty to defend and indemnify.
[6] For the reasons below, Southside’s application is granted, in part. I find that Aviva owes a duty to defend Southside based on its policy.
FACTS
[7] The statement of claim in the action against Southside and Fontalvo (the “claim”) alleges that on May 1, 2017, while on a flight back from Thailand following a training trip, Fontalvo touched the plaintiff in a sexual manner without her consent.
[8] The claim seeks damages of $1,000,000.
[9] In addition to seeking damages for Fontalvo’s alleged assault, the claim also specifies allegations against Southside. Paragraphs 15-19 of the claim allege:
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.
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.
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.
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.
The Plaintiff states the actions of the Defendants constitute reckless and/or intentional infliction of emotional distress for which she is seeking damages.
[10] Aviva’s policy was renewed on January 24, 2017, and offered up to $2,000,000 in commercial general liability coverage.
[11] On November 30, 2018, after being provided the statement of claim in the action, Aviva advised that it was denying coverage. The basis for the denial is the Form 5211110 Abuse Exclusion, which forms part of the policy (the “Abuse exclusion”), and reads:
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).
[12] Aviva’s letter of denial states:
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.
[14] Southside’s delivery of its statement of defence in the action is being held in abeyance, with the consent of the plaintiff, pending the outcome of this application.
ANALYSIS
[15] The test for the duty to defend at law is not in dispute in this application. The parties agree that if the claim allege facts which, if proven, would require the insurer to indemnify for the claim, then the insurer is required to provide a defence. This obligation arises even if there is the mere possibility that a claim covered by the policy may succeed; Nichols v. American Home Assurance Co. 1990 CanLII 144 (SCC), [1990] 1 S.C.R. 801 (“Nichols”) at p.810.
[16] Put differently, the duty to defend will arise wherever on a reasonable reading of the pleadings, a claim within coverage of a policy can be inferred; Halifax Insurance Co. of Canada v. Innopex Ltd. 2004 CanLII 33465 (ON CA) (“Halifax Insurance”) at para. 1.
[17] In this case, Southside takes the position that the broad allegations of wrongdoing against it in the claim give rise to the duty to defend notwithstanding the language in the Abuse exclusion because of another provision in the policy which separates the liability of Southside and Fontalvo. This “separation clause” reads:
- 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.
[18] Southside argues that other cases where such a separation clause exists have resulted in findings of a duty to defend For example, in Godonoaga (Guardian of) v. Khatambakhsh, 2000 CanLII 5737 (ON CA) (“Godonoaga”) at para 18-22, the Ontario Court of Appeal held that a similar separation clause resulted in the application of the policy both to students alleged to have engaged in an assault of a child and to the parents of the students alleged to be negligent in not preventing the alleged assault. In Godonoaga, Finlayson J.A. held that the negligence claim was not a derivative claim to the intentional torts (at para. 28),
The allegations of negligence constitute a separate tort and are directed against different parties. The alleged perpetrators of the assault do not claim they are entitled to a defence under the policy. The facts that support the negligence claim depend on the fact of the assault only to the extent that it is a consequence of the negligence.
[19] Southside also relies on Snaak v. Dominion of Canada General Insurance Co., 2002 CanLII 44897 (ON CA) (“Snaak”). Snaak also involved a schoolyard altercation following which both the alleged student perpetrators and their parents were sued. The relevant policy at issue in that case contained the following exclusion clause:
This policy does not apply to – 10. Intentional or Criminal Acts, meaning bodily injury or property damage resulting from: - an intentional or criminal act by any person or any named insured who is insured by this policy…”
[20] The Ontario Court of Appeal held that while the insurance policy did not cover the alleged conduct of the students which involved intentional torts, the policy was ambiguous as to whether it extended to the actions of the parents in light of the separation clause, and that this ambiguity should be resolved in favour of the insured, resulting in coverage.
[21] Therefore, in this case, where Southside is not alleged to have been responsible for the abuse of the plaintiff, but rather for failing to discharge other duties which it owed, Southside relies on Godonoaga and Snaak for the proposition that its liability should be separate from Fontalvo. In other words, the policy should be read to remove the allegations against Fontalvo and any derivative liability from those allegations, and focus only on whether the allegations against Southside, considered on their own, fall within the Abuse exclusion.
[22] In Belair Direct v. Shoup, 2012 CanLII 98690 (ON SC) (“Shoup”), this Court considered the scope of an exclusion clause in a policy which stated, “We do not insure claims arising from: … 6. Bodily injury or property damage by any intentional or criminal act or failure to act by: a) any person insured by this policy…” In that case, there was also a separation clause in the policy, which led Morgan J. to the following conclusion:
[12] … The existence of a separate coverage clause in the present case verifies that the insureds are covered individually and that their coverage, and exclusions, must be assessed individually. As Finlayson J.A. said in Godanoaga, supra, at para. 20, where there likewise was a separate coverage clause, “a proper interpretation of the policy is that the parents and the two children are each separately insured to the face value of the policy … They [i.e. the parents] are sued in negligence, which is not an excluded claim, and the fact that the pleadings allege intentional assaults by their children does not disentitle them to coverage.” (Emphasis added.)
[23] Aviva accepts that the separation clause results in the severability of interests between Southside and Fontalvo, but submits that all the allegations against Southside fall within the scope of the Abuse exclusion, as they arise directly or indirectly from the abuse.
[24] In Godonoaga, Snaak and Snoup, the exclusion clauses focused on intentional acts while the allegations against the parties challenging denials of coverage were in negligence. In this case, however, the Abuse exclusion addresses negligence by excluding “claims or “actions” arising directly or indirectly from “abuse” committed or alleged to have been committed by an insured.
[25] I agree that the wording of the Abuse exclusion in Aviva’s policy with Southside is clearer and more expansive than the exclusions in the policies at issue in the other cases set out above on which Southside relies.
[26] The conclusion that negligence falls within the scope of the Abuse exclusion also is supported by the broad meaning given the term “arising from” in other insurance contexts by the Supreme Court of Canada; see Amos v. Insurance Corp. of British Columbia, 1995 CanLII 66 (SCC), [1995] 3 SCR 405 at 417-18.
[27] In this case, I do not find the wording of the Abuse exclusion ambiguous. As Justice Rothstein held in Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, [2010] 2 SCR 245, 2010 SCC 33 (“Progressive Homes”) (at para. 22):
[22] The primary interpretive principle is that when the language of the policy is unambiguous, the court should give effect to clear language, reading the contract as a whole (Scalera, at para. 71).
[23] Where the language of the insurance policy is ambiguous, the courts rely on general rules of contract construction (Consolidated‑Bathurst, at pp. 900-902). For example, courts should prefer interpretations that are consistent with the reasonable expectations of the parties (Gibbens, at para. 26; Scalera, at para. 71; Consolidated-Bathurst, at p. 901), so long as such an interpretation can be supported by the text of the policy. Courts should avoid interpretations that would give rise to an unrealistic result or that would not have been in the contemplation of the parties at the time the policy was concluded (Scalera, at para. 71; Consolidated-Bathurst, at p. 901). Courts should also strive to ensure that similar insurance policies are construed consistently (Gibbens, at para. 27). These rules of construction are applied to resolve ambiguity. They do not operate to create ambiguity where there is none in the first place. (Emphasis added.)
[28] In my view, in light of the scope of the Abuse exclusion in this case, all the claims in the statement of claim against Southside for negligence in relation to Fontalvo’s actions on the flight from Thailand fall within the Abuse exclusion, as they arise directly or indirectly from the alleged abuse. The separation clause in the policy does not alter the scope of the Abuse exclusion.
[29] In her claim, however, the plaintiff also alleges (at para. 16) that, “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.”
[30] This allegation includes Southside’s negligence with respect to the alleged abuse by Fontalvo on the flight from Thailand, which would be caught by the Abuse exclusion, but it is not limited to those events. 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.
[31] 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.
[32] As a result, and pursuant to the standard set out in Nichols that the possibility of coverage of even a portion of a claim is sufficient to attract the duty to defend, I find that Aviva does owe a duty to defend Southside in this claim.
[33] Southside also seeks a declaration that Aviva indemnify them against all covered claims in the action. Such an order is premature. As the Court of Appeal stated in Halifax Insurance (at para. 38), “The time to determine the insurer's duty to indemnify, if at all, is at the conclusion of the underlying litigation.”
[34] Southside is entitled to its costs on a partial indemnity scale. Aviva will pay costs to Southside of $6,000, all inclusive, within 30 days of this judgment.
Sossin J.
Date: October 21, 2019