Household Exclusion Clause did not apply to Exclude Indirect, Third Party Claim

The insurer’s appeal from a decision that the insurer had a duty to defend a third party claim issued against the insureds in a personal injury action was dismissed. The third party claim fell within the general coverage provision, and the wording of the household exclusion clause did not apply to exclude an indirect, third party claim from coverage.

Bawden v. Wawanesa Mutual Insurance Co., [2013] O.J. No. 5385, November 26, 2013, Ontario Court of Appeal, D.H. Doherty, S.T. Goudge and P.D. Lauwers JJ.A.

An infant was struck by a motor vehicle while riding her bicycle.  By way of her litigation guardian and parent, the infant brought a bodily injury claim against the owner and driver of the vehicle.  In turn, the owner and driver brought a third party claim against the infant’s parents, the Bawdens, alleging negligence in training and supervising the infant.

The insurer relied on the household exclusion clause to deny coverage to the Bawdens. The Bawdens obtained a declaration that, pursuant to their homeowner’s policy of insurance, their insurer had a duty to defend the action against them.  The insurer appealed.

The appellate court’s analysis focused on the specific wording contained in the subject policy.  The general insuring clause in the policy reads as follows:

You are insured for claims made or actions brought against you for:

1)        Personal Liability: bodily injury or property damage arising out of your personal activities anywhere in the world.

The critical household exclusion clause in the policy reads as follows:

Exclusions: You are not insured for claims made or actions brought against you for:

…

(3)        bodily injury to you or to any person residing in your household other than a residence employee.

Guided by principles that coverage provisions are to be construed broadly while exclusions are to be construed narrowly, the court did not view the use of “arising out of” in the general insuring clause and the use of “for” in the exclusion clause as interchangeable. The court found that in drafting the policy, the insurer was aware of the subtle distinction between these phrases since it used both of these phrases in other exclusion clauses.

Moreover, the court held that use of the “arising out of” wording meant that coverage applied to all bodily injury claims arising out of the insureds’ activities, including direct and indirect claims against them, the latter type of claim including a third party claim.

The court concluded that the wording of the exclusion clause, when compared to the wording of the grant of coverage and in the context of the policy as a whole, was consistent with an intent to exclude only direct claims between or among family members and to leave coverage for indirect claims by third parties against household members intact.

The court also considered the policy reasons for making the distinction between direct and indirect claims in this context. Such exclusion clauses are intended to prevent collusive claims by members of the insureds’ family and members of the household. With indirect claims, there is less of a chance of this being so.

Accordingly, the household exclusion clause did not apply to the third party claim and the insurer had a duty to defend the third party defendants.

This case was digested by Kora V. Paciorek and edited by David W. Pilley of Harper Grey LLP.

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