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An Update on the Family Member Exclusion Clause: The End of Russian Roulette in Policy Interpretation

In my paper, "The Family Exclusion Clause: The Search for Ambiguity", published in Expert Guides/Insurance and Reinsurance, London, UK, in August 2017, I commented on the British Columbia Supreme Court decision in Gill v. Ivanhoe Cambridge, 2016 BCSC 252. In the Supreme Court, the judge concluded that the standard Family Member Exclusion Clause was ambiguous and that it did not exclude third party claims against the insured. The clause in question read "that there is no coverage for claims arising from bodily injury to the insured or to any person residing in the insured's household."

This decision was contrary to established law from the Ontario Court of Appeal and it thus created great uncertainty in Canada on the proper interpretation of this clause, and perhaps to policy interpretation in general. I argued in my paper that this decision "arose not only from a misguided search for ambiguity, but from an analysis on the intended purpose of the clause which was based on speculation with no evidentiary basis." In so many words, this turned policy interpretation into a game of Russian Roulette, dependent on the idiosyncratic and subjective views of the judge rather than a principled and objective analysis based on decided authority.

In the Court of Appeal decision, pronounced October 17, 2017, a unanimous court held that the clause was not ambiguous and that the insured was not entitled to coverage for the third party claim against him for injury to his child (Economical Mutual Insurance Company v. Gill, 2017 BCCA 351). The principles of policy interpretation are well-established; the issue was the application of those principles. The Court said:

[28] Courts must be cautious against searching for or creating an ambiguity where none exists: Pacific Rim Nutrition Ltd. v. Guardian Insurance Co. of Canada (1998), 54 B.C.L.R. (3d) 111 at para. 22 (C.A.); Riordan v. Lombard Insurance Co., 2003 BCCA 267 at para. 20, 13 B.C.L.R. (4th) 335. "An ambiguity can be said to exist only where, on a fair reading of the agreement as a whole, two reasonable interpretations emerge such that it cannot be objectively said what agreement the parties made": Water Street Pictures Ltd. v. Forefront Releasing Inc., 2006 BCCA 459 at para. 26, 57 B.C.L.R. (4th) 212 (per Lowry J.A.).

The lower court had found that the exclusion was ambiguous as the words "directly or indirectly" had been used elsewhere in the policy. The Court went on to say this:

[30] In my view, there is no ambiguity. Rather, I agree with Economical that this clause excludes coverage for all claims arising from bodily injury to any person residing in Mr. Gill's household. The fact that the words "directly or indirectly" appear elsewhere in the policy does not give rise to uncertainty with respect to the meaning of the clause in issue. Additionally, as Mr. Gill acknowledges, the expressions "arising from" and "arising out of" have been held to mean the same thing: Collier v. Insurance Corp. of British Columbia (1995), 100 B.C.L.R. (2d) 201 at para. 48 (C.A.); Hauck v. Dominion of Canada General Insurance Co., 2005 ABCA 160 at paras. 22–26, 253 D.L.R. (4th) 634.

[31] Recently, in Sabean, Justice Karakatsanis said this in regard to interpreting an insurance policy:

[13] At the first step of the analysis for standard form contracts of insurance, the words used must be given their ordinary meaning, "as they would be understood by the average person applying for insurance, and not as they might be perceived by persons versed in the niceties of insurance law": Co-operators Life Insurance Co. v. Gibbens, 2009 SCC 59, [2009] 3 S.C.R. 605, at para. 21; see also Ledcor, at para. 27.

[32] An average person reading the policy would understand the family member exclusion to mean that an insured does not have coverage for any claims arising from bodily injury to a family member who resides in the insured's household. The absence of the words "directly or indirectly" would not cause such a person to find that clause ambiguous or to have doubts with respect to what is or is not excluded.
[33] As Justice Binnie noted in Co-Operators Life Insurance Co. v. Gibbens, 2009 SCC 59 at para. 27, [2009] 3 S.C.R. 605, under the heading "Continuity of Interpretation", courts are reluctant to depart from authoritative judicial precedents interpreting particular policy wording because "[c]ertainty and predictability are in the interests of both the insurance industry and their customers." Accordingly, the fact the Court of Appeal for Ontario in Sheppard interpreted a virtually identically worded exclusion clause as applying to third party claims militates in favour of reaching the same conclusion in the case at bar.

In conclusion, the Court held that the insured was not entitled to coverage for the third party claim presented. The fact that more words could have been added to the exclusion does not mean that the clear wording was ambiguous. This decision is now in line with authority throughout Canada. As stated in my previous article, The British Columbia Court of Appeal has previously said that "the courts must fastidiously guard against the invitation to create ambiguities where none exist." The Court of Appeal has upheld this principle and the game of Russian Roulette in policy interpretation has ended for the time being. This is in the interests of both the insurance industry and their customers.