Consider the words of the claim when contemplating coverage

Where the only claim set out in a Statement of Claim is for an excluded loss, the insurer does not have a duty to defend

Insurance law – Commercial general liability insurance – Duty to defend – Exclusions – Contra proferentum rule – Interpretation of policy – Insurer – Rights, duties and liabilities – Practice – Leave to appeal

Southside Muay Thai Academy Corp. v. Aviva Insurance Company of Canada, [2020] O.J. No. 2658, 2020 ONCA 385, Ontario Court of Appeal, June 16, 2020, M.L. Benotto, B. Zarnett and J.A. Thorburn JJ.A.

The insurer, Aviva Insurance Company of Canada, appealed an order requiring it to defend its insured, Southside Muay Thai Academy Corp. The underlying action involved a claim for damages against the insured arising from a sexual assault. The plaintiff in the underlying action was a student at the insured’s academy, who claimed that a co-owner and employee of Southside, Raul Fontalvo, assaulted her on a flight home from a kickboxing competition. Mr. Fontalvo was found guilty criminally of sexual assault and sexual interference with a minor whom he was in a position of trust and authority with.

The plaintiff filed a civil claim seeking damages from Mr. Fontalvo and the insured and, among other things, alleged the insured failed to supervise the plaintiff and ensure she was safe while under its care and control, and failed to supervise Mr. Fontalvo and was negligent for failing to intervene. The insurer denied it owed a duty to defend or indemnify on the basis that the claim was for abuse, and that the policy’s Abuse Exclusion form (the “Exclusion”) applied to negate coverage.

On the insured’s application that the insurer had a duty to defend it, the application judge held that the claim fell within the Exclusion because it arose directly or indirectly from abuse. However, the court ordered that there was a duty to defend because the plaintiff alleged the insured failed to supervise and keep the plaintiff safe while under its care and control, and that this allegation could capture situations beyond only the abuse that occurred on the flight. The application judge applied the doctrine of contra proferentum and found that this specific allegation was not caught by the Exclusion and therefore the duty to defend was triggered.  Aviva appealed.

The Court of Appeal considered the statement of claim and concluded that the sole claim arose from the incident on the flight, and that the only damages sought related to the abuse claim.  As the Exclusion was clear and unambiguous, there was no reason to invoke contra proferentum to the Exclusion.  As it was not possible that any claim for damages was unrelated to the abuse, the Exclusion applied and the appeal was allowed.

This case was digested by Mark A. McPhee, and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please contact Mark A. McPhee at mmcphee@harpergrey.com.

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