Successful appeal of an application judge's determination that the appellant insurer had a duty to defend its insured under a homeowner's insurance policy. The insured's son was hit by a car while crossing the road after getting out her van. The driver of the car was sued and he filed a counterclaim against the insured alleging she failed to take reasonable steps to ensure her son's safety. The Court of Appeal found that the insured was not entitled to coverage from the insurer with respect to the counterclaim. The issue on appeal was governed by the decision of the Court of Appeal in Sheppard v. Co-Operators General Insurance Co.; Quick v. MacKenzie (1997), 33 O.R. (3d) 362.

[2015] O.J. No. 2516

2015 ONCA 349

Ontario Court of Appeal

G.R. Strathy C.J.O., H.S. LaForme and M.H. Tulloch JJ.A.

May 15, 2015

The insured's son was hit by a car while crossing the road after getting out her van. The insured commenced an action on behalf of her son against the driver of the car that hit him. The driver of the car counterclaimed against the insured for indemnification alleging she failed to take reasonable steps to ensure her son's safety.

The insured's auto insurer and her home insurer brought separate proceedings for declarations that they had no duty to defend the counterclaim or to provide coverage for damages. The applications were heard together and the application judge found that both insurers had a duty to defend the insured from the counterclaim.

The home insurer appealed asserting that coverage for the counterclaim was excluded by its policy because it was a claim "arising from" bodily injury to a person residing in the insured's household.

The relevant provisions of the home insurer's policy were as follows:

You are insured for claims made against you arising from:

1. Personal Liability -- Legal Liability arising out of your personal actions anywhere in the world.

(a) You are not insured for claims made against you arising from:

The ownership, use or operation of any motorized vehicle, trailer, or watercraft, except those insured in this policy;

...

EUR Bodily Injury to you or to any person residing in your household other than a residence employee.

The application judge referred to Sheppard and Quick but found that the exclusion had been more recently considered in Bawden v. Wawanesa Mutual Insurance Company, 2013 ONCA 717. The application judge found that in Bawden the Court determined that a narrow interpretation of the exclusion was consistent with the purpose of the clause, namely to remove from coverage claims that create a risk of collusion between the claimant and the insured family member. Thus, direct claims by a family member against the insured homeowner would be excluded, but indirect claims by a third party against the homeowner would not be excluded.

The Court of Appeal found that Bawden was distinguishable because the ambiguous language of the exclusion clause in Bawden was quite different from the clause in Sheppard and Quick and the case at issue. Here, as in Sheppard and Quick, both the coverage clause and the exclusion clause use the term "arising from". In Bawden, the use of the word "for" in the exclusion clause, rather than "arising out of" was found to limit the scope of the exclusion. Here, in contrast, there was symmetry between the coverage on the one hand and the exclusion from the scope of coverage on the other. As a result, the Court of Appeal found that the language in the insurer's policy, like the homeowner's policy in Sheppard and Quick, excluded coverage for the counterclaim because it "arises from" the injury to the insured's son. As a result, the appeal was allowed.