Durham District School Board v Grodesky 2012 ONCA 270 (C.A.)
This appeal highlights the importance of carefully crafted exclusions in insurance policies.
In the underlying action, the school board alleged the appellants' son intentionally set fire to the school. The appellants were added as defendants based on allegations that they failed to impose a curfew and to supervise their son. Their insurance company refused to defend them based on the following exclusion in their home owner’s policy:
We do not insure your claims arising from (6) Bodily injury or property damage caused by any 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.
The motion judge held there was no duty to defend. He relied on G.P. v. D.J., 26 C.C.L.I. (3d) 76 (Ont. S.C.), a case interpreting the same exclusion clause, which held any tortious failure to act (not just an intentional or criminal one) triggered the exclusionary clause.
The Court of Appeal allowed the appeal. The exclusion clause could be read in two ways: 1) where the words “intentional” or “criminal” modify the phrase “act or failure to act”, or 2) excluding an intentional or criminal act, or any failure to act. Juriansz J.A. held the exclusion could have been read as excluding a mere negligent failure to act; however, such an interpretation would have the effect of excluding almost every negligence action, rendering coverage useless. He cited Non-Marine Underwriters, Lloyd’s of London v. Scalera,  1 S.C.R. 551, where the Supreme Court considered a similar clause and held that reading the clause to exclude negligent failures to act would lead to absurd consequences.
The Court also considered whether the negligence claim was derivative of the intentional tort claim in order to determine whether it was excluded by the clause. Juriansz J.A. held that the negligence claim was not derivative of the intentional tort claim as the elements alleged against the parents were distinct. As a result, the exclusion did not apply and the parents were entitled to a defence.