The duty to defend in the face of exclusions: Allegations of intentional acts and the use or operation of vehicles

May 20, 2020 | Sean McGarry

On May 7, 2020, the Supreme Court of Canada denied leave to appeal from a notable decision of the Ontario Court of Appeal on an insurer’s duty to defend.

In Pembridge Insurance Company of Canada v. Chu,[1] the defendant, Fabrizi, drove through a red light, causing an accident. Shortly before the accident, he was involved in an incident with Chu, who exited his vehicle and threatened Fabrizi, hitting his car. Fabrizi issued a third party claim against Chu in which he alleged the negligent operation of Chu’s vehicle and the threatening actions are what caused Fabrizi to flee and drive through the red light.

Pembridge insured the home in which Chu resided. Dominion was Chu’s motor vehicle insurer. Dominion acknowledged it had a duty to defend Chu. Pembridge brought an application for a declaration that it owed no duty to defend in relation to the threats and assault allegations.

The Pembridge policy insured Chu for “legal liability arising out of [his] personal actions anywhere” but contained an exclusion for claims arising from “the ownership, use or operation of any motorized vehicle” and for “intentional or criminal acts”. The application judge found that both exclusions applied on the basis of the pleadings. This finding was overturned on appeal.

The Court of Appeal noted there was an argument available that the chain of causation between Chu’s use of his motor vehicle and his subsequent actions was broken. He was standing outside of his car when the alleged threats and assault took place, and when Fabrizi fled and drove through the intersection. On this basis, the alleged threats and assault did not arise out of the use or operation of a motorized vehicle.

The duty to defend arises from the allegations in the pleadings. The allegations of threats and assault were sufficient to trigger the duty to defend under the Pembridge policy.

The exclusion in relation to the use of a motor vehicle did not apply because, narrowly construed, Chun was not using his vehicle at the time of the accident. The Court noted that the policy did not use the phrase “directly or indirectly” to modify “use or operation”. If it had, then there may have been room for the argument that the exclusion applied.

Similarly, the intentional acts exclusion did not necessarily apply as Chu was not alleged to have intended to harm Fabrizi. It was again “not clear” from the pleadings that the actions attributable to Chu would be sufficient to trigger the exclusion. In the absence of clarity, the exclusion did not apply.

The Court of Appeal therefore held that Pembridge must share the defence of Chu with Dominion. The application for leave to appeal to the Supreme Court of Canada was dismissed, so that the decision of the Court of Appeal is the last word on the issue in this case.

The ruling at the appellate level did not extend to the obligation to indemnify, which will be determined at a later date.

This decision is another instance of a very narrow interpretation of exclusions combined with a broad reading of pleadings to trigger the duty to defend.

[1] 2019 ONCA 904


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