Exclusion under the Condominium Unit Owners Policy for Criminal and Intentional Actions

Published on: August 2022 | What's Trending

Close up of fist denoting anger

Would an insured’s psychotic episode, resulting in a stabbing, warrant coverage for a negligence claim brought by the victim of the stabbing?

In Butterfield v Intact Insurance Company, 2022 ONSC 4060, the Superior Court of Justice confirmed that an insurer correctly denied coverage under the exclusionary clause of an insurance policy to its insured who suffered a psychotic episode and stabbed another person.

The Facts

The Applicant, Brett Butterfield (“B”) attended at a firearms store in 2019. He experienced a deluded belief that the store owner had murdered his friend, causing him to stab the store owner.

B was charged with aggravated assault but was declared Not Criminally Responsible (“NCR”) on account of his schizophrenia.

The store owner sued B, alleging that B was negligent in visiting the store and applying for a firearms license while lucid, when it was reasonably foreseeable that he would injure someone (the “Claim”).

The Respondent, Intact Insurance Company (“Intact”), insured B pursuant to a Condominium Unit Owners Policy (“the Policy”). The Policy contained exclusions for coverage.

As in most policies, the exclusion stated that Intact does not insure claims arising from bodily injury or property damage caused by any intentional or criminal act by any person insured by the policy.

Intact denied coverage to B, stating that the knife attack was both an intentional act and a criminal act, for which no coverage would be afforded under the policy.

B commenced an application for coverage (“the Application”).

There was no dispute that the Claim fell within the policy of insurance. The issue in dispute was whether the exclusions applied in this instance, given the pleading and the actions of B.

The Court’s Reasoning

The True Nature of the Claim

In considering an exclusion clause, the Court discussed that it was not bound by the labels used in the Statement of Claim. The Court reasoned that it must examine the substance of the allegations contained in the pleadings to determine the true nature of the claims.

B took the position that the Claim was grounded in negligence and that at the time of the incident, he lacked the intent to commit an intentional tort. Furthermore, he argued the Statement of Claim did not refer to intentional or criminal acts and was solely based on negligence. Therefore, he contended that Intact had a duty to defend him.

The Court, however, saw things differently:

The damages suffered by Mr. Carr clearly flow from the attack. A plaintiff cannot convert the intentional tort of assault into an action in negligence solely to ensure that the defendant’s insurer will provide the necessary ‘deep pocket’ to make a judgment recoverable. The negligence claim is derivative of an intentional tort, which is the true nature of the claim (emphasis added).

The Court then considered whether the intentional tort of assault was captured by the exclusion clause in the insurance policy.

Whether B’s actions were criminal

Under the policy, the term “criminal act” is unambiguous and implies any breach of the Criminal CodeThe wording of the exclusion allows the insurer to exclude indemnification for damages caused by a breach of the criminal law, notwithstanding an intent to cause the injury or a lack thereof.

At the criminal trial, the Ontario Court of Justice (“OCJ”) found that the insured committed the act that constitutes the offence and made a finding of NCR due to a mental disorder.

Accordingly, for the purposes of the Application, it was acknowledged that the insured committed the criminal act and the Ontario Court of Justice found that he committed the criminal act.

Therefore, it was concluded that the damages claimed in the action were caused by a criminal act of B.

Whether B’s actions were intentional

While B did not understand that his act was morally wrong, his actions intended to harm or kill the store owner – he went to retrieve the hunting knife, went back to the store, and then stabbed the store owner.

Thus, in analysing the insured’s actions, it was concluded that there was an intentional component and therefore, it was deemed an intentional act.

Duty to Defend?

As the knife attack was held to be both an intentional act and criminal act, it was concluded that the exclusionary clauses applied and there was no duty to defend or indemnify B in this Claim.

Takeaway

This decision provides a useful analysis of the steps required to determine coverage, especially in challenging fact scenarios.

It is likely that insurers will see more of these types of Claims going forward, given that the components of negligence and the intentional tort of assault are not always distinct. Insurers should be cautious that a Plaintiff may frame a claim in intentional torts as a claim in negligence to access the deep pockets of insurers. However, where a claim in negligence arises out of the same harm as an intentional tort, the exclusion clause may be triggered.

Insurers should be aware that in determining coverage, the Court is not bound by the language used in the pleadings but can apply its own interpretation, given the fact scenarios and issues before it.