Judge Critiques Exclusion Clause in Homeowner Policy

April 20, 2017 | Evan Bawks, Helen D.K. Friedman

A recent Ontario Superior Court decision may prompt legislative changes with respect to intentional damage exclusion clauses in homeowner policies in Ontario. In Soczek v. Allstate Insurance Co., 2017 ONSC 2262, Morgan J. addressed whether a standard form exclusionary clause which excluded coverage for loss or damage resulting from an intentional or criminal act by any person insured by a homeowner policy applied to the plaintiff’s claim for compensatory damages as a result of a house fire set by her husband.  These exclusionary clauses tend to be standard in Ontario homeowner policies.

The claim arose from a house fire set by the plaintiff’s abusive husband who burned down their house when he poured gasoline on the plaintiff and lit her on fire in an attempt to kill her. The plaintiff’s husband was convicted of attempted murder and was sentenced to a 12-year prison sentence. Substantial damage was done to the home as a result.

The plaintiff took the position that their homeowner policy should respond and provide coverage for the property damage to the house. The insurer relied on the standard form intentional act exclusion in the policy on the basis that the co-insured had intentionally caused the criminal act which resulted in damage to the property.  The plaintiff argued applying the exclusion clause in these circumstances would be unfair.  Particularly, the plaintiff submitted the purpose of the exclusion was to prevent insured persons from benefitting from their own intentional wrongdoing.  In these circumstances, the plaintiff argued she was not the wrongdoer, but the victim of the wrongdoer.

At the summary judgment motion, Morgan J. considered the Supreme Court of Canada’s decision in Scott v. Wawanesa Mutual Insurance Co., 1989 CanLII 105 (SCC) which addressed identical policy wording. In particular, he examined both the majority and the dissenting opinions in Scott. While Morgan J. seemed to find that Justice La Forest’s dissenting opinion in Scott was persuasive, ultimately he found that the majority opinion from Justice L’Heureux-Dubé applied in these circumstances. The majority in Scott found that “the risk of loss occasioned by an intentional act of a co-insured” did trigger the exclusion clause.  In Scott, the wording of the exclusion clause was found to be unambiguous such that the exclusion clause “attracts no contra preferentum or any special interpretative rule pushing towards any application of the exclusion clause other than that what is plain on its face.”

Given the decision in Scott, Morgan J. ruled in favour of the insurer and granted summary judgment against the plaintiff. Throughout the decision however and often in obiter, Morgan J. was critical of the application of the exclusion in the plaintiff’s circumstances.  He cited Justice La Forest’s dissent in Scott that triggering the exclusionary clause in these circumstances would be unfair.  From Scott:

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. Moreover, reasonable persons would expect that they would lose the right to recover for their own wilful destruction. 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.

Additionally, Justice Morgan noted:

Ontario has not followed the lead taken by other provinces in remedying a fundamental inequity that exists in many insurance policies.  The standard form of inclusion clause at issue in the present case is virtually the same clause that was at issue three decades ago in Scott.

Justice Morgan commented for “similar reasons of basic economic fairness to an innocent party”, the Alberta, British Columbia and Quebec provincial legislatures had enacted statutes to prevent this type of exclusionary clause in policies of insurance from applying to innocent parties. For instance, section 35 of BC’s Insurance Act, RSBC 2012, c 1, Part 2, provides that:

Recovery by innocent persons

35  (1) Despite section 5, 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

(a) whose act or omission caused the loss or damage,

(b) who abetted or colluded in the act or omission,

(c) who

(i) consented to the act or omission, and

(ii) knew or ought to have known that the act or omission would cause the loss or damage, or

(d) who is in a class prescribed by regulation.

The Alberta Insurance Act, RSA 2000, c I-3, contains virtually identical language at section 541. Such remedial legislation in Ontario would have allowed coverage for the plaintiff’s claim in Soczek.

While these exclusion clauses still apply in Ontario to situations where a single co-insured to a policy intentionally or criminally caused the act that led to the loss in question, the Ontario Legislature may see fit to respond given the tragic nature of this case and the comments from Morgan J.  Possible amendments would be similar in language to those of Alberta and British Columbia, which would allow innocent co-insureds to recover under an insurance policy despite the criminal wrongdoing of another co-insured.  Such amendments would accord with the ‘reasonable expectations’ of reasonable persons purchasing property insurance.

Update, April 25, 2017: As advised, legislative changes may be coming. An Ontario Liberal MPP has said that he expects to introduce a private members’ bill aimed at bringing Ontario in line with BC, Alberta, and Quebec. The bill could possibly pass by June 2017. We will have further updates on the Miller Thomson Insurance Blog as these changes develop.


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