



COURT OF APPEAL FOR ONTARIO

CITATION: Unifund Assurance Company v. D.E., 2015 ONCA 423

DATE: 20150611

DOCKET: C59471

MacPherson, Cronk and Gillese JJ.A.

BETWEEN

Unifund Assurance Company

Respondent (Appellant)

and

D.E. and L.E.

Applicants (Respondents)

Mark M. ODonnell and Mark W. Barrett, for the appellant

Vusumzi Msi, for the respondents

Heard: May 21, 2015

On appeal from the judgment of Justice David G. Stinson
    of the Superior Court of Justice, dated September 11, 2014.

MacPherson
    J.A.:

A.

Overview

[1]

D.E. and L.E. have a homeowners insurance policy with Unifund Assurance
    Company. The policy includes liability coverage if their personal actions cause
    unintentional bodily injury or property damage.

[2]

D.E. and L.E. are defendants in a lawsuit where the anchor claim is that
    their daughter and two other girls, all Grade 8 students, bullied a fellow
    student, causing her physical and psychological injuries. The claim against
    D.E. and L.E. sounds in negligence, namely, their failure to control their
    daughter.

[3]

D.E. and L.E. requested that Unifund defend and indemnify them pursuant
    to the insurance policy. Unifund refused, relying principally on two exclusion
    clauses in the policy.

[4]

D.E. and L.E. brought an application seeking a declaration that Unifund
    had a duty to defend and indemnify them in the underlying action. They were
    successful. In a judgment dated September 11, 2014, the application judge declared
    that [Unifund] has a duty to defend and indemnify [D.E. and L.E.] in relation
    to the claims made against them in the action.

[5]

Unifund appeals. The principal issue on the appeal is whether either of
    two exclusion clauses in the insurance policy saves Unifund from having to
    defend and indemnify D.E. and L.E. in the underlying action.

B.

Facts

(1)

The parties and events

[6]

D.E. and L.E. are a married couple residing together in Toronto with
    their minor daughter, R.E.  They are three of the 13 defendants in the
    underlying action commenced in June 2012 by N.R. and her daughter K.S.

[7]

K.S. and R.E. were Grade 8 classmates at a school operated by the
    Toronto Catholic District School Board. The Statement of Claim initially named
    as defendants R.E. and two other Grade 8 classmates, the TCDSB, and several of
    its employees, including two principals and two vice-principals. The Statement
    of Claim was subsequently amended to add as defendants the parents of the three
    Grade 8 girls, including D.E. and L.E.

[8]

The foundation of the lawsuit is an allegation that R.E. and the other
    two minors bullied, threatened and physically assaulted their classmate K.S.

[9]

The action alleges that the parents of the three girls, including D.E.
    and L.E., were negligent in that they,
inter alia
, knew or ought to
    have known that the minor defendants were bullying K.S. and failed to
    investigate, failed to take steps to remedy the bullying, failed to take
    reasonable care to prevent the bullying and harassment of K.S. by the minor
    defendants of which they were aware, failed to take disciplinary action against
    the minor defendants, and failed to discharge their duty to prevent the
    continuous physical and psychological harassment by the minor defendants for
    whom they are responsible in law.

[10]

D.E.
    and L.E., relying on their homeowners insurance policy, asked Unifund to
    provide a defence to the lawsuit. Unifund declined on the basis that the claims
    made in the action fall outside the policys scope of coverage.

[11]

The
    key provisions of the insurance policy are:

SECTION
    II  Liability Coverage

Coverage
    E  Personal Liability

This is the part of the policy you look to for protection if
    you are sued. We will pay all sums which you become legally liable to pay as
    compensatory damages because of unintentional bodily injury or property damage
    arising out of:

1. your personal actions anywhere in the world.

Exclusions
     SECTION II

We do not insure claims arising from:

6. bodily injury or property damage caused by an intentional or
    criminal act or failure to act by:

(a) any person insured by this policy; or

(b) any other person at the direction of any person insured by
    this policy;

7.(a) sexual, physical, psychological or emotional abuse,
    molestation or harassment, including corporal punishment by, at the direction
    of, or with the knowledge of any person insured by this policy; or

(b) failure of any person insured by this policy to take steps
    to prevent sexual, physical, psychological or emotional abuse, molestation or
    harassment or corporal punishment.

[12]

When
    Unifund declined coverage, D.E. and L.E. brought an application in the Superior
    Court of Justice.

(2)

The decision

[13]

With
    respect to exclusion clause 6, Unifund contended that the claim against the
    parents in negligence flowed from or was derivative of the claim against their
    daughter arising out of her intentional conduct of assault, threatening and
    bullying; accordingly, exclusion clause 6 applied.

[14]

Relying
    on this courts decision in
Durham District School Board v. Grodesky
,
    2012 ONCA 270, the application judge rejected this argument. He said, at para.
    21:

In my view, the analysis of Juriansz J.A. is applicable to the
    case at bar. The elements of the intentional tort claim against the applicants
    daughter, and the negligence claim against the applicants, are entirely
    distinct. Liability is sought to be imposed against the applicants on the basis
    that the harm to the plaintiffs was caused by their negligent conduct in
    failing to investigate the bullying, in failing to take steps to remedy it and
    in failing to take reasonable care to prevent it. The negligence claim is thus
not
derivative of the intentional tort claim. Since
    there is no allegation that the applicants acts were intentional, coverage
    should not be excluded on this ground.                                                                               [Emphasis
    in original.]

[15]

The
    application judge also rejected Unifunds claim that exclusion clause 7(b)
    precluded coverage for the lawsuit brought against D.E. and L.E.  He reasoned,
    at paras. 23 and 24:

In Clause 6, the exclusion clause that proceeds Clause 7, the
    Policy exempts from coverage claims for bodily injury or property damage
    caused by an intentional or criminal act or failure to act. By contrast,
    Clause 7(b) is silent on whether that exclusion applies to only intentional or
    unintentional failure to take steps to prevent physical abuse or harassment.
    Had the insurer intended to exclude liability for both intentional and
    negligent failure to prevent physical abuse or molestation, it could have
    included express language to this effect. Arguably, especially in light of the
    previous use of the concept of intentional acts in Clause 6, Clause 7(b) is
    ambiguous.

Applying the concept of
contra proferentem
, and, as
    well, the principle that exclusion clauses are to be interpreted narrowly, I
    conclude that the proper construction of Clause 7(b) is that it should be
    limited to intentional failure to take steps to prevent physical abuse or
    molestation; i.e. where the insured intentionally fails to act and thus permits
    the offensive conduct to continue. The exclusion should not extend, however, to
    situations where that failure arose through negligence.

[16]

Unifund
    appeals.

C.

Issues

[17]

The
    appellant advances seven grounds of appeal, framed as questions:

(1)

Did Stinson J. prematurely find a
    duty to indemnify?

(2)

Is R.E. a person insured by the
    policy?

(3)

Did Stinson J. err in finding
    exclusion 6(a) ambiguous?

(4)

Does exclusion 7(a) apply to
    entirely exclude the claim?

(5)

Did Stinson J. err in finding
    exclusion 7(b) is ambiguous?

(6)

Did Stinson J. err in finding that
    the word Intentional in exclusion 6 modifies the phrase failure to act, or
    in failing to consider whether the phrase does so?

(7)

Did Stinson J. err by failing to
    consider that the pleading in the Underlying Action alleges the
    applicants/respondents knew or were aware that R.E. was bullying the minor
    plaintiff?

D.

Analysis

[18]

In
Non-Marine Underwriter, Lloyds of London v. Scalera
, 2000 SCC 24,
    Iacobucci J. set out a three-part test for interpreting insurance policies in
    the context of the duty to defend and duty to indemnify. He said, at paras.
    50-52:

Determining whether or not a given claim could trigger
    indemnity is a three-step process. First, a court should determine which of the
    plaintiffs legal allegations are properly pleaded. In doing so, courts are not
    bound by the legal labels chosen by the plaintiff. A plaintiff cannot change an
    intentional tort into a negligent one simply by choice of words, or vice versa.
    Therefore, when ascertaining the scope of the duty to defend, a court must look
    beyond the choice of labels, and examine the substance of the allegations
    contained in the pleadings. This does not involve deciding whether the claims
    have any merit; all a court must do is decide, based on the pleadings, the true
    nature of the claims.

At the second stage, having determined what claims are properly
    pleaded, the court should determine if any claims are entirely derivative in
    nature. The duty to defend will not be triggered simply because a claim can be
    cast in terms of both negligence and intentional tort. If the alleged
    negligence is based on the same intentional tort, it will not allow the insured
    to avoid the exclusion clause for intentionally caused injuries.

Finally, at the third stage the court must decide whether any
    of the properly pleaded, non-derivative claims could potentially trigger the
    insurers duty to defend.

[19]

On
    the first step, there is no question that the plaintiffs claim against D.E.
    and L.E. is properly pleaded.

[20]

On
    the second step, the application judge did not err by concluding that the
    plaintiffs claims against D.E. and L.E. were not derivative of the intentional
    tort claim against their daughter R.E. In my view, the application judge
    properly applied this courts decision in
Durham District School Board v.
    Grodesky
.

[21]

That
    leaves the third step: do the properly pleaded, non-derivative claims trigger
    the insurers duty to defend? In order to answer this question, it is necessary
    to consider the words of the Statement of Claim and the coverage and exclusion
    clauses of the insurance policy, all read together.

[22]

I
    begin with the Amended Statement of Claim. The conduct of D.E. and L.E. (and
    other parents) that provokes the plaintiffs lawsuit against them is described
    as failed to investigate, failed to take steps to remedy, failed to take
    reasonable care to prevent, failed to take disciplinary action and failed
    to discharge their duty to prevent the continuous physical and psychological
    harassment.

[23]

It
    is obvious from this language that the plaintiffs claim against D.E. and L.E.
    is a negligence claim.
The New Oxford Dictionary of English
(Clarendon
    Press: Oxford, 1998) defines negligence as failure to take proper care over
    something (p.1240). The claims in the Amended Statement of Claim come
    four-square within this definition of negligence.

[24]

Against
    this backdrop of the language of the Amended Statement of Claim and the dictionary
    definition of negligence, I turn to exclusion clause  7(b) which precludes
    coverage for:

7.(b) failure of any person insured by this policy to take
    steps to prevent sexual, physical, psychological or emotional abuse,
    molestation or harassment or corporal punishment.

[25]

I
    do not see any ambiguity in the wording of this clause. The first word of the
    clause is failure which is the core of the definition of negligence. Failure
    is also the centrepiece in the Amended Statement of Claim of each allegation
    against the parents D.E. and L.E.

[26]

Indeed,
    the overlap between the wording of the s. 7(b) exclusion clause and the wording
    employed in the Amended Statement of Claim is significantly broader than just
    the word failure. The wording of exclusion clause 7(b) includes failure to
    take steps to prevent physical, psychological or emotional harassment. The
    wording of the Amended Statement of Claim includes failed to take steps to
    prevent physical and psychological harassment.

[27]

The
    application judge found ambiguity in exclusion clause 7(b) because of its
    silence about whether it applied to negligent failure to prevent physical
    abuse or molestation and suggested that, if this were intended, the clause
    could have included express language to this effect. In light of my analysis
    above of the dictionary definition of negligence and the wording of exclusion
    clause 7(b), I do not accept the analysis leading to a conclusion of ambiguity.
    Exclusion clause 7(b) is clear on its face and it applies to the lawsuit as
    pleaded against D.E. and L.E. in the Amended Statement of Claim.

[28]

I
    observe that my analysis and conclusion are consistent with those of Mesbur J.
    in a similar case,
D.J.F. v. B.L.
, 2008 CanLII 39786 (ONSC). In that
    case, the claim against the insured was that she negligently failed to properly
    supervise the infant plaintiff whom she was babysitting, and this resulted in
    the infant plaintiff being sexually assaulted by the other defendant. The
    insurance policy contained this exclusion clause:

ABUSE OR MOLESTATION, meaning any form of actual or threatened
    sexual, physical, psychological or emotional abuse or molestation, directly or
    indirectly, by: any person or any named insured who is insured by this policy
    failing to prevent such an activity from taking place.

[29]

The
    insurance company declined to provide a defence to its policy holder. It took
    the position that the essence of the claim against the defendant in the
    underlying action clearly brought it within the failing to prevent abuse or
    molestation exclusion. Mesbur J. agreed and said, at para. 10:

The pleading brings the claim squarely within the exclusion. If,
    at trial, it is found that Ms. B.L. failed to properly supervise the child, and
    that as a result the abuse happened, then that must be tantamount to a finding
    that she failed to prevent the abuse from happening. That finding would bring
    her actions squarely within the exclusion. Indeed, the only way that the claim
    can succeed is if the plaintiffs can show that by her actions, Ms. B.L. failed to
    prevent the abuse from happening. The policy excludes coverage for that very
    thing.

[30]

I
    agree with this reasoning. It leads to a similar result in this case with a
    similarly worded exclusion clause.

E.

Disposition

[31]

I
    would allow the appeal, set aside the judgment of the application judge, and
    declare that Unifund does not have a duty to defend or indemnify D.E. and L.E.
    in the underlying action.

[32]

Unifund
    is entitled to its costs of the appeal fixed at $15,000, inclusive of
    disbursements and applicable taxes.

Released: June 11, 2015 (J.C.M.)

J.C. MacPherson J.A.

I agree. E.A. Cronk J.A.

I agree.
E.E.
    Gillese J.A.


