C.A. Says “Intentional or Criminal Act” Policy Exclusion Does Not Require Criminal AND Intentional Act

UPDATE: On August 23, 2007, the Supreme Court of Canada dismissed with costs an application for leave to appeal this decision.

The original post follows.

In Eichmanis v. Wawanesa, the Court of Appeal has clarified the intepretation to be placed on exclusions in insurance policies for “intention or criminal acts” and has made it clear that this phrase really involves two separate exclusions: “intentional act” and “criminal act”.

The Court also clarified the meaning of s. 118 of the Insurance Act. That section reads as follows:

Unless the contract otherwise provides, a contravention of any criminal or other law in force in Ontario or elsewhere does not, by that fact alone, render unenforceable a claim for indemnity under a contract of insurance except where the contravention is committed by the insured or by another person with the consent of the insured, with intent to bring about loss or damage, but in the case of a contract of life insurance this section applies only to disability insurance undertaken as part of the contract.

In this case, one boy (“Ryan P.”) shot another (“Ryan E.”), seriously injuring him. Ryan P. had pleaded guilty to a charge of criminal negligence causing bodily harm, contrary to s. 221 of the Criminal Code.

At the trial of the civil action, Ryan E. was found 25% contributorily negligent and damages of $800,000 were awarded against Ryan P. and his father.

That judgment was not satisfied and accordingly, the plaintiffs sued two insurers, contending that one or both insured Ryan E. (One company insured the youth’s mother and the other insured his aunt and uncle.)

In the decision appealed from, Madam Justice Helen Pierce had found that Ryan P. was insured under his aunt and uncle’s homeowner’s insurance policy with Wawanesa. She then had to consider whether the plaintiff’s injury had been “caused by any intentional or criminal act”, as there was an exclusion to that effect in Wawanesa’s policy. She concluded that s. 118 of the Insurance Act [quoted above] meant that for the criminal act exclusion to apply, the insured’s conduct would have to be both criminal and with an intention to caues injury. She concluded that criminal negligence “is a subset of negligence” but did not involve the mens rea to engage the exclusion and so, the exclusion did not apply in this case.

The Court of Appeal disagreed, saying that the criminal act exclusion applies to all criminal acts, not just those committed with intent to cause injury.

The Court also held that s. 118 of the Insurance Act did not alter that result, because of the opening phrase of that section: “Unless the contract otherwise provides”. Wawanesa’s contract did provide otherwise and so, s. 118 did not prevent the criminal act exclusion from applying. The trial judge had erred in concluding that s. 118 limited the operation of the criminal act exclusion in Wawanesa’s policy.

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