An Ontario court recently found that a personal injury claim by a daughter against her mother was covered by homeowner's insurance. The two lived together and the policy contained an exclusion for claims arising from injury to "any person residing in [the] household". However, the court concluded that the daughter was a tenant under the policy and therefore the exclusion did not apply. In the absence of explicit terms, the court concluded that the insured had a reasonable expectation of coverage for claims made by a tenant, even if that tenant was a family member.
Traders General Insurance Company v Elizabeth Gibson(1) involved Betty Gibson (born 22 July 1949) who, except for a 10-month period, lived at her mother's property until 2016. Since high school graduation, Betty Gibson paid rent to her mother, Elizabeth Gibson, and they shared daily living tasks as well as various maintenance and upkeep costs.
On 31 March 2014 an accident occurred when Betty Gibson and her mother were waiting for a taxi to take them to medical appointments. Her mother was sweeping the porch and when the taxi arrived, she reached to give Betty Gibson the broom. At the time, Betty Gibson was stood on the porch. When Betty Gibson leaned over to get the broom, she fell from the porch and the railing went down with her. As a result, she sustained bodily injuries and sued her mother, the contractor, his company and a neighbour.
Traders General Insurance Company brought a coverage application in the course of trial for a declaration that it did not have to defend or indemnify Elizabeth Gibson.
The mother's homeowner policy provided personal liability protection, which included coverage for compensatory damages due to unintentional bodily injury arising out of her ownership, use or occupancy of the premises. However, the policy included the following exclusion:
We do not ensure claims made against you arising from: 5. Bodily injury to you or any person residing in your household other than a residence employee.(2)
Traders relied on the household exclusion and argued that because Betty Gibson had been residing at her mother's household when the accident had occurred, coverage for a defence and indemnity against Betty Gibson's action was excluded.
During its analysis, the court decided that the household exclusion's purpose was to prevent potential collusion between the insured and family members residing within a household. Although they were family members occupying the same residence, Elizabeth Gibson argued that Betty Gibson had either been a residence employee or a tenant and thus her claims against Elizabeth Gibson were not subject to the household exclusion.
Elizabeth Gibson relied on two arguments on this application. First, she argued that Betty Gibson had been a resident employee, retained to perform household services or duties in exchange for a low monthly rent. As quoted above, the household exclusion relied on by Traders contained an explicit exception for claims made by residence employees.
Elizabeth Gibson's policy defined 'residence employees' as follows:
'Residence Employee' means a person employed by you to perform duties in connection with the maintenance or use of the premises. This includes persons who perform household or domestic services or duties of a similar nature for you. This does not include contractors or sub-contractors. It also does not cover persons while performing duties in connection with your business.(3)
The court found that Betty Gibson could not be considered a residence employee as there had been no employer and employee relationship between her and Elizabeth Gibson, nor had there been a family business.
Further, the court noted that Betty Gibson had had no schedule or list of duties; rather, she had full discretion over the services or duties that she would perform (eg, when her health had been poor, she had not completed any tasks).
Alternatively, Elizabeth Gibson argued that Betty Gibson had been a tenant and thus her claims against Elizabeth Gibson should be covered under the Traders policy. Traders argued that the household exclusion applied.
As noted above, the court had already decided that the household exclusion's purpose was only to protect insurers from collusion between family members who were residing together. Although Betty Gibson and Elizabeth Gibson were family, the evidence was clear that Betty Gibson had been paying a fixed rent since 1994. Faced with this genuine tenancy between family, the court was tasked with deciding whether the household exclusion still applied due to Betty Gibson's tenancy.
Noting the general rules for insurance policy construction, including that coverage terms be interpreted broadly and exclusion clauses be interpreted narrowly, the court considered the parties' intentions when the policy had been issued. The court held that:
I am of the view that it had to have been in the reasonable contemplation of the parties that the owner may have rented a room to a tenant for remuneration, and that the owner may call upon that policy if a tenant were injured on the property, as the policy was obtained for the express purpose of providing liability coverage in respect of the ownership, use and occupancy of the property… [I]t would have been in the mind of Elizabeth when she first purchased the policy of insurance that she would be covered for liability for accidents occurring in the home for tenants. The opposite conclusion would be contrary to the reasonable expectations of Elizabeth and to the ordinary person as to the coverage purchased. Therefore, in my view, if Betty were a tenant, then her injury would be covered by the Traders policy of insurance.(4)
This conclusion follows the general rule that coverage grant be interpreted broadly. Because the policy provided coverage for all injury arising from the ownership, use and occupancy of the premises, it was reasonable to conclude this term covered injury to tenants – with a tenancy being an ordinary use of the premises. By extension, the court concluded that this interpretation would accord with Elizabeth Gibson's reasonable expectations when purchasing the Traders policy.
While the court did not explicitly address the household exclusion in its analysis, the above conclusion also follows the general rule that exclusion clauses are to be interpreted narrowly. Because the court decided that the household exclusion had the narrow purpose of avoiding collusion between family members, it follows that the exclusion ought not to apply to claims made by genuine tenants, even if those tenants are family.
To determine whether Betty Gibson was truly a tenant, in the absence of a definition of 'tenants' in the policy, the court established two criteria:
- the person must occupy the property in question; and
- there must be an exchange of consideration that allows the tenant to occupy the property.(5)
In this case, the court found that both requirements had been satisfied.(6) As such, the court dismissed the application, concluding that Betty Gibson was a tenant and her claims against Elizabeth Gibson were covered under the Traders policy. The court ordered that Traders continue to defend Elizabeth Gibson and indemnify her, if required.
This case serves as a reminder that a policyholder's intentions when purchasing insurance can be critically important. These intentions can inform the interpretation of a policy in the face of ambiguity. While an exclusion applying to "any person residing in your household" could have been interpreted to include any tenants, the court relied on the parties' intentions to support a narrow view of that exclusion. As such, the court refused to extend a vaguely worded exclusion to deny coverage to a policyholder who – in the court's contemplation – would have reasonably expected coverage for claims of bodily injury by tenants under the policy.
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