Insurance law\u2019s treatment of innocent co-insureds has troubled courts for some time.\u00a0 Up until this year, an insurer in Ontario, and many other Canadian provinces and territories, could deny a claim for recovery by an innocent insured if the loss was caused by an intentional or criminal act of a person who was also insured under the policy.\u00a0 Courts often raised concerns about how the wording of policy exclusions raised fairness issues in respect of innocent co-insureds and the reasonable expectations of people who jointly purchase insurance policies.<\/p>\n
In April, 2018 Ontario\u2019s\u00a0Insurance Act<\/em>\u00a0 R.S.O. 1990 c. I-18, was amended to add section 129.1 to permit recovery by innocent persons when another person insured under the same policy commits an intentional or criminal act.<\/p>\n The purpose of this paper and presentation is to discuss the change in the law: where we were and where we now are.<\/p>\n <\/p>\n Scott v. Wawanesa Mutual Insurance Co<\/em><\/strong><\/p>\n The 1989 decision of the Supreme Court of Canada,\u00a0Scott\u00a0<\/em>v.\u00a0Wawanesa Mutual Insurance Co<\/em>.[1]<\/a> was for many years the leading authority on this issue. \u00a0The Scott family jointly owned a home which was damaged by a fire intentionally set by their 15-year old son.\u00a0 There was no issue that the fire was set without the Scott\u2019s knowledge or complicity. \u00a0The son fell within the definition of \u2018insured\u2019 under the policy because the definition included residents of the household who were relatives of a named insured or other persons under the age of 21 in the care of an insured. The insurer, Wawanesa, denied coverage for the loss due to the following exclusion contained in the policy:<\/p>\n \u00a0This Policy does not insure:<\/em><\/p>\n \u00a0\u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0 \u00a0\u00a0 \u00a0 . . .<\/em><\/p>\n (d) loss or damage caused by a criminal or wilful act or omission of the Insured or of any person whose property is insured hereunder;<\/em><\/p>\n The Scotts brought an action against Wawanesa for indemnity under their homeowner\u2019s policy and were successful at trial where it was held that the loss arising from their joint interest in the home and its contents casued by the fire was \u201c\u2026distinct and separable from any loss which their son may have suffered in the same fire.[2]<\/a>\u201d Thus, their joint loss was not excluded from coverage.<\/p>\n Wawanesa successfully appealed the decision to the British Columbia Court of Appeal.[3]<\/a><\/a> The Court of Appeal found that it was unnecessary to decide whether the indemnification obligation was joint or several as the exclusion was unambiguous: the son was an insured under the policy and the loss was caused by a wilful act of someone who was an insured. The exclusion therefore applied and barred any recovery for the parents.<\/a>[4]<\/a><\/p>\n The Scotts appealed the decision to the Supreme Court of Canada where the majority of a divided Supreme Court upheld the British Columbia Court of Appeal\u2019s decision:<\/p>\n In my view, the terms of the insurance policy are perfectly clear and unambiguous.\u00a0 The policy does not cover the type of risk which occasioned this loss.\u00a0 Such risk was specifically excluded.\u00a0\u00a0 The wording of the exclusion clause for the purposes of the present case is unambiguous, as is the definition of \u201cInsured\u201d.\u00a0 I am in complete agreement with the statement of Macdonald J.A., writing for the Court of Appeal, at p. 62, that:<\/p>\n In the case at bar the policy does not insure \u201closs or damage caused by a criminal or wilful act or omission of the Insured or of any person whose property is insured hereunder\u201d.\u00a0 Clearly Charles Scott falls within the definition of \u201cInsured\u201d which I quoted earlier.\u00a0 He was a resident of the household and a relative of a named insured.\u00a0 And he was an \u201cother person under the age of 21 in the care of an Insured\u201d.[5]<\/a><\/p>\n La Forest J. wrote the dissenting decision in which he highlighted the unjust results that the exclusion produced:<\/p>\n As I see it, reasonable persons, unversed in the niceties of insurance law, would, in purchasing fire insurance, expect that a policy naming them as an insured without qualification would insure them to the extent of their interest.\u00a0 Moreover, reasonable persons would expect that they would lose the right to recover for their own willful destruction.\u00a0 But the same persons would find it an anomalous result if informed that they stood to lose all if their spouse burned down their house.\u00a0 The following responses would be forthcoming:\u00a0 \u201cI had nothing to do with that act of arson so why am I being punished for it?\u00a0 My 50 per cent interest in the house belongs to me.\u00a0 I could have taken out my own insurance policy on my interest; in that case if my spouse burnt down the house I was protected.\u00a0 Why should my getting paid depend on whether there is one policy or two?\u00a0 If it had been made clear to me, why would I have ever agreed to take out a `joint\u2019 policy?\u00a0 I only stood to lose.\u201d[6]<\/a><\/p>\n La Forest J. stressed that whether an insurer\u2019s indemnification obligation was joint or several was an issue that had to be determined and in answering the question, he felt that a \u2018modern approach\u2019 should be utilized. A modern approach would consider reasonable expectations and not \u201close sight of the fundamental rule that a wrongdoer should not profit from his act. It attempts however to avoid the harshness that must necessarily follow when the sins of the guilty are visited on the innocent.\u201d[7]<\/a><\/p>\n This dissenting opinion brought attention to a perceived need to protect innocent insureds from similar outcomes to that of the Scott family. However, the courts were bound to follow the majority decision and deny coverage when the exclusion applied.<\/p>\n Poon v. Gordon<\/em><\/strong><\/p>\n In\u00a0Poon v. Gordon<\/em>\u00a0[8]<\/a>, the Gordon family was insured under a homeowners policy issued by General Accident Assurance Company of Canada (\u201cGeneral Accident\u201d).\u00a0 On May 5 1995, an explosion occurred at their home and David Gordon was convicted of 43 criminal offences related to the explosion, including arson with an intent to defraud his insurer.\u00a0 His wife, Dora Gordon was not convicted of any offence.<\/p>\n The Gordons faced claims from neighbours who sustained property damage caused by the explosion.\u00a0 One of the neighbours was Mr. Poon. \u00a0General Accident refused to defend the Gordons on the basis that it could not possibly be required to pay indemnity for the damages; and, therefore, did not owe them a duty to defend the claim.\u00a0 General Accident relied on the following exclusion:<\/p>\n Loss or Damage Not Insured<\/em> a)\u00a0 any person insured by this policy; \u2026 \u00a0<\/em><\/p>\n The Gordons added General Accident as a Third Party to the action and the insurer brought a summary judgment motion based on the exclusion.\u00a0 The Court held that the clause was unambiguous and there was no defence obligation.\u00a0 Specifically, the court held:<\/p>\n In my opinion the language of the exclusion relied on is clear and unambiguous.\u00a0 Quite simply, it can only mean that Mrs.\u00a0Gordon, although an insured by operation of the definition sections in the policy of insurance, is bound by the \u201cmisconduct\u201d of her spouse\u2026[9]<\/a><\/p>\n Summary judgment was granted resulting in no coverage to Mrs. Gordon due to her spouse\u2019s conduct in intentionally causing the loss. \u00a0The Court of Appeal affirmed the decision.<\/p>\n Torchia v. Royal Insurance Company of Canada<\/em><\/strong><\/p>\n In\u00a0Torchia\u00a0<\/em>v. Royal Insurance Company of Canada<\/em>\u00a0[10]<\/a> a fire destroyed the home of Mrs. Torchia. \u00a0She was the sole owner of the home but her husband lived in the home with her and was an insured under her homeowner\u2019s policy. On February 28, 1997 the home was destroyed by a fire and her husband was subsequently convicted of arson with the intent to defraud the insurer. The insurer refused to pay Mrs. Torchia\u2019s claim. \u00a0An action was commenced against the insurer and the insurer brought a summary judgment motion based on the exclusion clause which said:<\/p>\n We do not insure loss or damage:<\/em>\u00a0\u00a0<\/em><\/p>\n . . . . .<\/em>\u00a0\u00a0<\/em><\/p>\n 3. resulting from the intentional or criminal acts of, or the failure to act by,<\/em><\/p>\n (a) any person insured by this policy, or<\/em>\u00a0\u00a0<\/em><\/p>\n (b) any other person at the direction of any person insured by this policy.<\/em><\/p>\n The Court granted summary judgment finding that the exclusionary clause was unambiguous. \u00a0Justice Sanderson however did reluctantly express \u201csympathy for a wife who is innocent of her husband\u2019s crime.[11]<\/a><\/p>\n The decision was appealed to and affirmed by the Ontario Court of Appeal which upheld the exclusion clause as clear and unambiguous.[12]<\/a>\u00a0An application to appeal to the Supreme Court of Canada was dismissed.[13]<\/a><\/p>\n Soczek v. Allstate Insurance Co<\/em><\/strong><\/p>\n The 2017 decision of\u00a0Soczek\u00a0<\/em>v.\u00a0Allstate Insurance Co<\/em>.[14]<\/a> prompted legislatures to take a harder look at exclusions which preclude coverage for an \u2018innocent\u2019 co-insured in Ontario. \u00a0In that case, the plaintiff\u2019s husband poured gasoline on her, lit her on fire and burned down their house in an attempt to kill her. The plaintiff survived but suffered grievous injuries.\u00a0 Her husband was convicted of attempted murder.<\/p>\n In addition to the physical injuries suffered by the plaintiff, the home she co-owned with her spouse sustained damage. However, her claim to her insurer for indemnity with respect to the property loss was denied due to a standard intentional or criminal act exclusion clause in the policy, which said:<\/p>\n We do not insure loss or damage\u2026<\/em><\/p>\n 21. Resulting from any intentional or criminal act or failure to act by:<\/em><\/p>\n (a) Any person insured by this policy\u2026<\/em><\/p>\n 29. Due to vandalism or malicious act caused by you or any resident of your household.<\/em><\/p>\n She sued Allstate for indemnity under the policy and Allstate brought a motion for summary judgment based on the exclusion.<\/p>\n The Court granted summary judgment finding that the unambiguous intentional or criminal act exclusion in her homeowners\u2019 policy applied and the plaintiff could not recover for the property loss caused by her husband because he was insured under the policy.<\/p>\n While Allstate was successful on its summary judgment motion, Justice Morgan chose to criticize the insurer for enforcing the exclusion given the circumstances of the cases and in light of other provinces taking steps to protect innocent co-insureds from such terms:<\/p>\n It is impossible for Allstate to deny that the Plaintiff did not cause the damage to the property and is, in any ordinary understanding of the phrase, an innocent party. With this in mind, it would of course be within Allstate\u2019s discretion to interpret the exclusionary clause in the policy in a way that would exclude Soczek, but not the Plaintiff, from a claim. However, the company is standing strictly on what it sees as its rights under the contract of insurance.[15]<\/a><\/p>\n Justice Morgan found that based the majority of the Supreme Court of Canada\u2019s\u00a0interpretation of such exclusions in\u00a0Scott<\/em>, his Honour had little choice but to apply the clause in Allstate\u2019s favour here, granting summary judgment. He however went on to express his disapproval for the clause and the insurer\u2019s enforcement of such a clause:<\/p>\n \u2026Given my dismissal of the claim, in most contexts I would say that Allstate, as the successful party, is entitled to costs. Much as Allstate\u2019s counsel has made a successful legal argument, however, it must be said that Allstate\u2019s corporate conduct is less than admirable. At least since the publication of the Scott decision in 1989, with its strongly worded criticism by Justice La Forest, Allstate has been aware that its exclusionary clause, while technically legal, is unfair to its innocent customers.<\/p>\n Several provinces have intervened to protect innocent co-insureds and have legislated this type of exclusionary clause out of existence. And yet, Allstate continues to capitalize on it in those jurisdictions that have not seen fit to extend legislative protection to an innocent consumer such as the Plaintiff. This case graphically illustrates the compounding of injuries which Allstate\u2019s policy imposes on victims of domestic violence.<\/p>\n \u2026The fixing of costs is a discretionary decision under section 131 of the Courts of Justice Act. That discretion is generally to be exercised in accordance with the factors listed in Rule 57.01. That said, the Court of Appeal has directed that as an overriding concern courts should consider what is \u201cfair and reasonable\u201d in fixing costs, and that in doing so to take into account the prevailing policy of access to justice:\u00a0Boucher v Public Accountants Council<\/em>\u00a0(Ontario) (2004), 71 OR (3d) 291 (Ont CA), at paras 26, 37.<\/p>\n \u2026The Plaintiff has suffered enormously through no fault of her own. Although the legal interpretation of the exclusionary clause is against her, the questions of fairness and fundamental decency raised by Justice La Forest in his dissent in Scott are fair questions which a litigant in the Plaintiff\u2019s position cannot be blamed for raising. I will accordingly exercise my discretion to dispense with costs.[16]<\/a>\u00a0<\/strong><\/p>\n <\/p>\n Implementation of Section 129.1 of the Insurance Act<\/strong><\/p>\n Shortly after the\u00a0Soczek<\/em>\u00a0decision, the\u00a0Stronger, Fairer, Ontario Act<\/em>\u00a0(Budget Measures) 2017 received Royal Assent and included amendments to Ontario\u2019s\u00a0Insurance Act<\/em>\u00a0[17]<\/a> (the \u201cAct\u201d) to provide increased protection for innocent co-insureds by prohibiting insurers from denying their claims for property damage when they did not commit the intentional or criminal act.<\/p>\n This amendment is now contained in section 129.1 of the\u00a0Act<\/em>\u00a0and has been in force since April 30, 2018[18]<\/a>:<\/p>\n Recovery by innocent persons<\/em><\/strong><\/p>\n 129.1\u00a0<\/em><\/strong>(1) If a contract contains a term or condition excluding coverage for loss or damage to property caused by a criminal or intentional act or omission of an insured or any other person, the exclusion applies only to the claim of a person,<\/em><\/p>\n (a) whose act or omission caused the loss or damage;<\/em><\/p>\n (b) who abetted or colluded in the act or omission;<\/em><\/p>\n (c) who,<\/em><\/p>\n (i) consented to the act or omission, and<\/em><\/p>\n (ii) knew or ought to have known that the act or omission would cause the loss or damage; or<\/em><\/p>\n (d) who is in a class prescribed by the regulations.<\/em><\/p>\n Recovery limited to proportionate interest<\/em><\/strong><\/p>\n (2) Nothing in subsection (1) allows a person whose property is insured under the contract to recover more than the person\u2019s proportionate interest in the lost or damaged property.<\/em><\/p>\n Compliance with prescribed requirements<\/em><\/strong><\/p>\n (3) A person whose coverage under a contract would be excluded but for subsection (1) must comply with the requirements prescribed by the regulations.<\/em><\/p>\n S. 129.1 of the Act prevents insurers from denying coverage to innocent insureds based on the wilful or criminal acts of their co-insureds or \u201cany other person.\u201d It however limits the recoverability to the innocent co-insured\u2019s proportionate interest in the property.<\/p>\n In addition, pursuant to its associated regulation[19]<\/a>, innocent insureds must cooperate with the insurer in the investigation of the loss or damage, must submit to an examination under oath if requested by the insurer and must produce for examination at such reasonable place and time as is designated by the insurer all documents in the person\u2019s possession or control that relate to the loss or damage, and those documents required to be produced under the contract. \u00a0Accordingly, the regulation puts in place a mechanism for the insurer to still adequately investigate the claimant\u2019s proportionate interest in the property destroyed; and, whether they abetted or colluded in the act, consented to the act or knew or ought to have known of the act.<\/p>\n The regulation also prescribes the class of persons that a criminal or intentional act exclusion would still apply to as allpersons other than natural persons.[20]<\/a><\/p>\n When adjusting a first-party claim for property damage made by an \u2018innocent\u2019 co-insured, insurers obviously can no longer deny indemnity.\u00a0 However, insurers are only obliged to pay the innocent insured\u2019s \u2018proportionate interest\u2019 in the lost or damaged property.\u00a0 This may not always be immediately easy to do.<\/p>\n Insurers continue to retain the right to fully investigate a claim to ensure the \u2018innocent\u2019 insured did not: abet, collude or consent to the act or omission; and, that they knew or ought to have known the act or omission would cause the damage.<\/p>\n Section 129.1 does not provide any instructions on how to determine the \u2018innocent\u2019 insured\u2019s proportionate interest.\u00a0 However, this is likely to be a fact-specific inquiry in each case.\u00a0 For example: when a spouse intentionally destroys the family home the ownership of the home is likely to be equal.\u00a0 However, the contents are probably something where 100% ownership can be proved by the \u2018innocent\u2019 co-insured for at least some items: engagement ring, gifts, etc.\u00a0Other items will likely be jointly owned: i.e. food, household supplies, etc.\u00a0 Carefully establishing the scope of the claim and then evaluating it will be critical in analyzing the \u2018proportionate\u2019 interest of the co-insured.<\/p>\n In claims where a significant amount of property is damaged an examination under oath pursuant to the policy conditions can help to inform on what the proportionate interest is.<\/p>\n [1]<\/a> [1989] 1 SCR 1445<\/p>\n [2]<\/a>\u00a0Scott v. Wawanesa Mutual Insurance Co<\/em>., 1984 CanLII 331 (BC SC)at para 9.<\/p>\n [3]<\/a>\u00a0Scott v. Wawanesa Mut. Ins. Co<\/em>., 1986 CanLII 968 (BC CA)<\/p>\n [4]<\/a>\u00a0Ibid<\/em>\u00a0at para 15.<\/p>\n [5]<\/a>\u00a0Scott v. Wawanesa Mutual Insurance Co\u00a0<\/em>\u00a0[1989] 1 SCR 1445 at p. 1465(L\u2019Heureux-Dub\u00e9 J.)<\/em><\/p>\n [6]<\/a>\u00a0Ibid\u00a0<\/em>\u00a0at p 1455<\/p>\n [7]<\/a>\u00a0Ibid\u00a0<\/em>\u00a0at p 1453<\/p>\n [8]<\/a>\u00a0Poon v. Gordon\u00a0<\/em>[2002] O.J. Np. 498 (Ont S.C.J.) affirmed [2002] O.J. No. 3663 (Ont. C.A.)<\/p>\n [9]<\/a>\u00a0Poon v. Gordon\u00a0<\/em>at para 9<\/p>\n [10]<\/a>\u00a0Torchia v. Royal Insurance Company of Canada\u00a0<\/em>\u00a02003 CanLII 19344(ON SC), affirmed 2004 CanLII 13879 (ON CA)<\/p>\n [11]<\/a>\u00a0Torchia v. Royal Insurance Company of Canada\u00a0<\/em>\u00a02003 CanLII 19344(ON SC) at para 24.<\/p>\n [12]<\/a>\u00a0Torchia v. Royal Insurance Company of Canada\u00a0<\/em>\u00a02004 CanLII 13879 (ON CA)<\/p>\n [13]<\/a>\u00a0Torchia v. Royal & SunAlliance Insurance Company of Canada<\/em>\u00a0,\u00a0<\/em>\u00a0Docket 30577; leave to appeal to the Supreme Court of Canada was dismissed with costs, February 3, 2005.<\/p>\n [14]<\/a>\u00a0Soczek v. Allstate Insurance Co.,\u00a0<\/em>2017 ONSC 2262<\/p>\n [15]<\/a>\u00a0Soczek v. Allstate Insurance Co.\u00a0<\/em>at para 9.<\/p>\n [16]<\/a>\u00a0Soczek v. Allstate Insurance Co.,\u00a0<\/em>at paras 42-45<\/p>\n [17]<\/a> R.S.O. 1990, c I.8<\/p>\n [18]<\/a> Many other Canadian provinces are implementing, or have implemented, similar legislation.<\/p>\n [19]<\/a>\u00a0Ontario Regulation\u00a0<\/em>\u00a0264\/18, s. 2: Insurance Contracts \u2013 Recovery By Innocent Persons<\/p>\nA. Pre-amendment State of the Law\u00a0<\/em><\/h3>\n
\nYou are not insured against claims for bodily injury to or damages to the property of others, . . .
\n5.\u00a0\u00a0 \u00a0caused intentionally by you, at your direction, or by or through any criminal act or failure to act by:<\/em><\/p>\nB. Aftermath of\u00a0Soczek<\/em><\/h3>\n
<\/h3>\n
Take-Away Points<\/h3>\n
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