Criminal conduct exclusion upheld

TORONTO—In a decision that curtails a possible expansion in the scope of liability coverage, the Ontario Court of Appeal overturned a lower court ruling that invalidated a criminal conduct exclusion because there was no intent to commit a criminal act.

In R.E. vs. Wawanesa Mutual Insurance Co., the Court of Appeal ruled that a lower court judge incorrectly applied insurance legislation and previous court decisions regarding insurance policy exclusions.

Although the homeowner's policy in the case, which was issued by the Winnipeg, Manitoba-based insurer, specifically excluded coverage for bodily injury or property damage caused by any intentional or criminal act, the lower court judge ruled the Ontario Insurance Act and two Supreme Court of Canada decisions required the insurer to demonstrate intent to cause the injury to invoke the criminal conduct exclusion.

The act at the heart of the case was an accidental shooting of a teenage boy by his friend, who was handling a shotgun. The boy was shot in the abdomen and suffered serious permanent injuries. The friend who shot him pleaded guilty to criminal negligence causing bodily harm.

The Court of Appeal, though, said the Supreme Court decisions cited in the case were irrelevant because they only considered intentional act exclusions, not the criminal act exclusion that the insurer argued applied in this case. The court also said the lower court judge mistakenly ruled that criminal negligence was not a criminal act under the exclusion clause of Section 118 of Ontario's insurance act and incorrectly interpreted the section as a limitation on the criminal act exclusion in the policy.

The Court of Appeal decision means that both intent and the criminal act do not have to exist to trigger the exclusion, insurance lawyers said.

"On the law, the Court of Appeal made the right decision," said Paul Martin, a senior partner in the litigation group of Fasken Martineau in Toronto.

The ruling clarifies that when criminal conduct exclusions exist in insurance policies, a court's analysis is limited to whether the insured committed the criminal act that resulted in damage or injury, making the issue of intent irrelevant, said Kirk Boggs, a partner with Lerners L.L.P. in Toronto who represented the insurer. "It reaffirms the insurance companies' right to define the scope of coverage they provide to the public," he said.

The trial judge's decision raised concern among insurers because they thought that the wording of the criminal conduct exclusion was clear, said Wendy Roth, associate counsel for the Toronto-based Insurance Bureau of Canada, the national trade association of nongovernment property and casualty insurers in Canada.

If the lower court's decision had been upheld, "it would have sent us back to the drawing board to redraft something that was very clear," she said.

While the case involved a homeowner's policy, the ruling does have relevance for commercial general liability and other business insurance policies that have criminal conduct exclusions, insurance lawyers say. "I think the point for insurers is if they want to exclude coverage for criminal acts, they should feel some comfort in doing so, using the specific wording of this case," Mr. Boggs said.

R.E. vs. Wawanesa Mutual Insurance Co., 2007 ONCA 92.