In the case of Butterfield v Intact Insurance Company[1], the Ontario Court of Appeal addressed an insurer's duty to defend and an intentional and criminal act exclusion in the context of a negligence claim against an insured. The Court of Appeal had to decide whether the application judge erred in finding that an intentional and criminal act exclusion applied such that the insured was not entitled to a defence.
The Court of Appeal upheld the application judge's decision, agreeing that the negligence claim was derivative of an intentional tort, and that the policy's intentional and criminal act exclusion clearly applied.
Background facts
The applicant, Butterfield, suffered a psychotic episode at a Waterloo firearms store and stabbed the storeowner. The police charged Butterfield with aggravated assault, but Butterfield was found not criminally responsible as he did not know what he was doing was morally wrong.
The storeowner sued Butterfield in negligence. The storeowner alleged that Butterfield was negligent by applying for a firearms licence and attending a firearms store, and that it was reasonably foreseeable that Butterfield may have harmed someone while purchasing or possessing a firearm.
Butterfield had a condominium unit owner's policy that included standard third party liability insurance up to a limit of $2 million.
The policy contained a standard intentional/criminal acts exclusion that read:
"We do not insure claims arising from…bodily injury or property damaged caused by any intentional or criminal act or failure to act by…any person insured by this policy."
Butterfield's insurer denied coverage based on the intentional/criminal acts exclusion. Butterfield brought an application seeking a declaration that his insurer owed him a duty to defend the storeowner's negligence action.
On July 13, 2022, Justice Braid of the Ontario Superior Court of Justice held that the insurer did not have a duty to defend or indemnify Butterfield.
Butterfield appealed Justice Braid's decision to the Ontario Court of Appeal.
Understanding the law behind the decision
A fundamental principle of insurance law is that policies ordinarily only cover fortuitous or contingent losses.[2] This is because insurance usually only makes economic sense where the losses covered are unforeseen or accidental. Allowing coverage for intentional or foreseen acts destroys the ability of insurers to spread risk rationally.[3] Further, if people could insure intentional and foreseen acts they may be encouraged to injure or be reckless about injuring others or their property.[4] This principle is known as the "fortuity principle."
A homeowner's or similar liability insurance policy entitles the insured to have their insurer indemnify them against liabilities falling within coverage. Consequently, the insurer has a duty to defend the insured against claims potentially giving rise to liability for the insured. However, the insurer's duty to defend only extends to claims that could potentially trigger indemnity under the policy.[5]
Determining whether a plaintiff's claim could trigger indemnity for the insured is a three-step process. First, a court must determine whether the claim is properly pleaded and what the true nature of the claim is.
Second, the court considers whether any of the plaintiff's claims are derivative in nature. For example, if a negligence claim is based on the same harm as an intentional tort, it is said to be derivative.
Third, the court decides whether any of the properly pleaded, non-derivative claims could trigger indemnity under the policy, and accordingly, trigger the insurer's duty to defend.[6]
An insured has the burden of proof of establishing that a claim falls within coverage. Conversely, the insurer holds the burden of proof to establish that an exclusionary clause removes a claim from coverage.[7]
Justice Braid's decision
Justice Braid found that the storeowner's negligence claim was based on the same harm as an intentional tort of assault.[8] Butterfield may have been negligent, but there was no link between negligence and the storeowner's damages without the intentional tort. The true nature of the claim was based on an intentional tort. Justice Braid then considered whether the claim was excluded by an exclusion clause in the policy.[9]
Justice Braid found that the claim was excluded by the intentional and criminal act exclusion. Though Mr. Butterfield was not criminally responsible, he did commit a criminal act that caused the storeowner's damages.[10] Further, Butterfield's act was intentional. Butterfield did not appreciate that what he was doing was morally wrong, but it was clear that he intended to stab and harm the storeowner.[11]
Ultimately, the insurer proved that the exclusionary clauses applied to exclude coverage. Justice Braid dismissed the application.[12]
Why the Court of Appeal agreed
The Court of Appeal upheld Justice Braid's decision. Justice Braid did not err in finding that the negligence claim was derivative to an intentional tort, and that the true nature of the claim was for an intentional tort. Justice Braid was correct in holding that she was not bound by the labels used in the storeowner's claim.
Rather, the task was to determine the actual gravamen and substance of the complaint.[13] Justice Braid was entitled to conclude that Butterfield intended to harm the storeowner, even though he was suffering from a psychotic episode and unable to appreciate that this actions were morally wrong.
Key takeaways
The key takeaways from this decision are:
- The Court of Appeal has reaffirmed the principle that liability insurers do not have to defend or indemnify their insureds against negligence claims that are derivative of intentional torts such as assault and battery.
- An act or failure to act that causes damage or injury by a policyholder living with mental illness is still intentional if the policyholder understands the nature and consequences of their act or failure to act.
- Criminal act exclusions apply to acts of policyholders even if the policyholder is found to be not criminally responsible for their crimes.
[1] Butterfield v Intact Insurance Company, 2023 ONCA 246
[2] Ontario Society for the Prevention of Cruelty to Animals v Sovereign General Insurance Company, 2015 ONCA 702 at para 43.
[3] John C Yang, The Fortuity Principle: Understnading the Fundamentals Underlying the Laws of Insurance, Insurance Law, 2005: Understanding the ABCs (New York, NY: Practicing Law Institute, 2005).
[4] Non-Marine Underwriters, Lloyd's London v Scalera, 2000 SCC 24 at paras 68-69.
[5] Non-Marine Underwriters, Lloyd's London v Scalera, 2000 SCC 24 at para 49.
[6]Non-Marine Underwriters, Lloyd's London v Scalera, 2000 SCC 24 at para 50-52.
[7]Ledcor Construction Ltd v Northbridge Indemnity Insurance Co, 2016 SCC 37 at para 52.
[8] Butterfield v Intact Insurance Company, 2022 ONSC 4060 at para 17. Respectively, we submit that the storeowner's claim is better characterized as the tort of battery rather than the tort of assault, though battery often occurs near-simultaneously as assault. Assault is the intentional creation of the apprehension of imminent harmful or offensive contact, even if contact never actually occurs. It is similar to the criminal offence of uttering threats. On the other hand, battery involves the infliction of unlawful force on another person, which must involve physical contact. It is similar to the criminal offence of assault. See RT v Lowe, 2021 BCSC 590 at paras 47-48, and Linden et al, Canadian Tort Law, 12th ed (Toronto: LexisNexis, 2022) at § 2.03 and 2.04.
[9] Butterfield v Intact Insurance Company, 2022 ONSC 4060 at paras 17-18.
[10] Butterfield v Intact Insurance Company, 2022 ONSC 4060 at para 35.
[11] Butterfield v Intact Insurance Company, 2022 ONSC 4060 at para 46.
[12] Butterfield v Intact Insurance Company, 2022 ONSC 4060 at para 48.
[13] Butterfield v Intact Insurance Company, 2023 ONCA 246 at para 10.