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The Family Exclusion Clause: The Search for Ambiguity

The family exclusion clause is a universal feature in personal liability insurance policies, apart from automobile liability insurance. Simply put, claims arising from bodily injury to a member of the insured's household are not covered.

The standard terms of coverage provide that the insurer will pay for compensatory damages on behalf of the insured for all sums for which the insured shall become obligated to pay by reason of the liability imposed by law upon the insured arising out of bodily injury or property damage. A typical exclusion will read along the lines "that there is no coverage for claims arising from bodily injury to the insured or to any person residing in the insured's household other than a residence employee," the Family Exclusion Clause.

In such policies, no one would argue that one insured could sue another insured in the same household for bodily injuries. Problems of policy interpretation can arise, however, when claims are made by third parties with respect to bodily injury of a member of the household. For example, in an infant run down case, the defendant motorist will frequently make claims against the parents for negligent supervision. One can be forgiven for thinking that that this is a claim "arising from bodily injury to the insured or to any person residing in the insured's household," and thus excluded from coverage.

A contrary result was reached in the recent British Columbia case of Gill v. Ivanhoe Cambridge, 2016 BCSC 252. In Gill, the infant plaintiff was injured at a shopping mall when he fell through an opening in a glass partition near an escalator while under the supervision of his father. Action was taken on behalf of the infant against the occupiers and the companies responsible for the maintenance and repair of the escalator and related hazards. Several of the defendants brought third party claims against the child's father for negligent supervision. The father sought coverage for the third party claims from his insurer and the insured denied coverage based on the Family Exclusion Clause, the terms of which were as set out above: there is no coverage for claims arising from bodily injury to any person residing in the insured's household.

Notwithstanding contrary authority in other Canadian jurisdictions, the judge held the Family Exclusion Clause did not exclude the third party claims being made against the father and that the insurer was obligated to defend the insured. There were no binding authorities in British Columbia. The cases from other jurisdictions did not set out the whole of the policies under consideration and there was a risk in comparing specific clauses without access to either portions or the whole of those insurance policies. Thus, he engaged in a lengthy review of the wording in other exclusion clauses and concluded that "there is some ambiguity in the language of the Family Exclusion and, in particular, whether that exclusion, which is to be narrowly construed, shows a clear and unambiguous intent to bring such indirect or third party claims made against an insured for bodily injury to another insured."

Given the ambiguity, the judge held that he could seek to ascertain the insuring intent. The purpose, he held, was to avoid collusive claims. He was satisfied that "the Family Exclusion in the Policy, when considered in light of its intended purpose, and the language of the whole of the policy, does not extend to the third party claims that have been made against (the father). I further consider that extending the Family Exclusion, in the manner that (the insurer) proposes, would strip Mr. Gill of coverage that the Policy was intended to provide."

The insurer appealed. The appeal was heard by the British Columbia Court of Appeal on May 30, 2017. At the time of writing this paper, the decision was still pending. It is my respectful view, however, that the chambers judge fell into error in finding ambiguity where none existed and in applying the "intended purpose" of the clause where the evidence and authority for such was scant.

There is no dispute on the general principles of policy interpretation, and they can be briefly stated:

  • The primary interpretive principle is that when the language of the policy is unambiguous, the court should give effect to clear language, reading the contract as a whole.
  • When the language of the policy is ambiguous, the courts rely on general rules of contract construction.
  • The courts should prefer interpretations that are consistent with the reasonable expectations of the parties so long as such an interpretation can be supported by the text of the policy.
  • Courts should avoid interpretations that would give rise to an unrealistic result or that would not have been in the contemplations of the parties.
  • Courts should strive to ensure that similar policies are construed consistently.
  • These rules of construction are applied to resolve ambiguity. They do not operate to create ambiguity where there is none in the first place.
  • Where these rules fail to resolve ambiguity, court will construe the policy contra proferentum–against the insurer. Coverage provisions are interpreted broadly, and exclusion clauses narrowly.

Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33.

While the general principles of interpretation are easy enough to state, it is the application of these principles where problems arise. Frequently, judges struggle to find ambiguity where none should properly exist.

Similar exclusions have been considered in many cases over the years. The leading case was the twin appeals heard by the Ontario Court of Appeal in Sheppard v. Co-Operators General Insurance; Quick v. Mackenzie (1997) 33 O.R. (3d) 362. Both cases involved third party claims for negligent parental supervision where a child was injured. In Quick, the exclusion read the same as in the Gill case: "You are not insured for claims made against you arising from bodily injury to you or to any person residing in your household other than a residence employee." The Court held that the claim had its origin in the child's injury and thus fell squarely within the exclusion clause.

For almost twenty years, subsequent cases have consistently applied the above decisions: Desormeaux v. Dominion of Canada General Insurance Company, 2012 ONSC 3199; Bawden v. Wawanesa, 2013 ONCA 717; Allstate Insurance Company of Canada v. Aftab, 2015 ONCA 349. If the wordings in the exclusion clause used the wordings "arising from", it was safe to conclude that claims arising from bodily injury to a family member would be excluded from coverage. Such has been thrown into doubt by Gill which is the present law in British Columbia subject to appeal.

In finding ambiguity in Gill, the chambers judge examined the wording of exclusion clauses contained in the first party property insuring agreement and to very different exclusions contained elsewhere in the liability coverage. As counsel for the appellant put it in their factum: "With respect, the chambers judge (a) need not have been hunting for ambiguity given the clarity of the language, and (b) went too far afield in that hunt." I agree.

In Coast Capital Savings Credit Union v. Liberty International Underwriters, 2016 BCSC 655, Justice Kent noted that one might argue that "anti-concurrent causation" language might convey the broadest possible application of the exclusion clause in issue. "For example, the words "directly or indirectly or in any way based upon, arising from, related to or connected with the "(exclusion in issue) might possibly be broader than the mere words "based upon or arising from". But the existence of such language does not necessarily make the phrase "based upon or arising from" ambiguous. And in any event, the Progressive Homes case admonishes us not to "create ambiguity where there is none in the first place". He compared the insured's arguments on ambiguity as "nothing but semantic gymnastics designed to circumvent the plain meaning of the phrase and the obvious intent of the policy." This was the precise error made by the chambers judge in Gill.

This then leads us to the second critical error. Having found ambiguity, much of the chamber judge's analysis in Gill was based on the purpose of the Family Exclusion Clause. He held that the purpose was clear and that it had been considered on numerous occasions. Authority for this statement was taken from Appel v. Dominion of Canada General Insurance Co. (1997) 39 B.C.L.R. 113. He quoted from Appel as follows:

[46] ... the purpose of the exclusion clause in this Policy is to prevent named insured and family members "residing in the household" from making claims against each other. The perceived need for such protection may be the potential for collusive claims being advanced by such individuals.

However, this quotation is misleading as this was not actually the decision of the court. This was simply a suggestion from counsel in the absence of any evidence or authority with which the court saw no reason to disagree.

This suggestion from counsel, not questioned by the court, was then accepted by some courts as a fact or guiding precedent. It wasn't. In Wright v. Canadian Group Underwriters, 2002 BCCA 254, Justice Low, writing for the court commented on this point as follows, after citing Appel:

There is no wording in the policy that would suggest that the purpose of the exclusion is to prevent collusive claims. Whether the person who drafted the clause had that in mind is only speculation. I do not think the court can interpret the clause on the basis of whether the relationship between the injured person and the insured parties was of such a nature that it might increase the potential for a collusive false claim.

The chambers judge in Gill was not referred to Wright that noted that the "insuring intent" of the Family Exclusion Clause was mere speculation. Thus, the result in Gill 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.

We await the Court of Appeal decision in Gill with interest. It is my view that if you have to struggle too hard to deny coverage, you may be wrong. By the same token, if one has to struggle too hard to find ambiguity, one might question their conclusion. In Riordan v. Lombard, 2003 BCCA 267 at para. 20, the Court cited a line of authority against the strained search for ambiguity:

The language of an insurance policy will be held ambiguous only if it is more reasonably subject to more than one interpretation . . . If an ambiguity exists, the court construes the language against the insurer . . . However, the courts must "fastidiously guard against the invitation to 'create ambiguities' where none exist."