Scott v. Wawanesa Mutual Insurance Co., [1989] 1 S.C.R. 1445
Cecil Scott and Femmie Scott Appellants
v.
Wawanesa Mutual Insurance Company Respondent
indexed as: scott v. wawanesa mutual insurance co.
File No.: 20161.
1988: December 15; 1989: June 8.
Present: Dickson C.J. and McIntyre, Lamer, Wilson, La Forest, L'Heureux‑Dubé and Sopinka JJ.
on appeal from the court of appeal for british columbia
Insurance -- Fire insurance -- Exception clause: loss or damage caused by criminal or wilful act of insured excluded -- Minor living at home deliberately setting fire to parents' home -- Whether minor falling within the definition of insured under insurance policy -- Whether insurer liable.
Appellants' home was damaged by a fire deliberately set by their 15‑year‑old son without their knowledge or complicity. At the time, the appellants were the holders of a homeowner's insurance policy with the respondent. Respondent denied appellants' insurance claim on the ground that the loss occurred through the "wilful act . . . of the Insured" within the meaning of an exclusion clause in the insurance policy. The word "Insured" in the policy includes "the Named Insured" and "if residents of his household, his spouse, the relative of either, and any person under the age of 21 in the care of an Insured". At first instance, the chambers judge held that the definition of "Insured" did not include appellants' son. The judge found that the son's interest was separate from that of his parents and, because of this, the exclusion clause was inapplicable to their claim. The Court of Appeal reversed the judgment.
Held (Dickson C.J. and La Forest and Sopinka JJ. dissenting): The appeal should be dismissed.
Per McIntyre, Lamer, Wilson and L'Heureux‑Dubé JJ.: When the wording of a contract is unambiguous, the courts should not give it a meaning different from that which is expressed by its clear terms, unless the contract is unreasonable or has an effect contrary to the intention of the parties. In the present case, the terms of the insurance policy are perfectly clear. The policy excludes liability of the insurer for damage caused by the criminal or wilful acts of the insured, or of his minor children living in the home. Given the facts of the case and the definition of "Insured" contained in the policy, the damages suffered by the appellants were clearly excluded from coverage.
Further, the insurable interests of the parents and of the child in this case were inseparably connected and the misconduct of one was sufficient to contaminate the whole insurance policy. The son's interest was not limited to his personal possessions. He had a direct relationship to the family home and its contents, since they were his source of accommodation and support. He benefitted from the existence of the family home and, as a dependent living there, he suffered a direct prejudice when it was destroyed by fire.
Per Dickson C.J. and La Forest and Sopinka JJ. (dissenting): The exclusion from coverage caused by the wrongful act or omission of an insured applies only to the insured responsible for the act or omission and does not apply to an innocent insured. "Insured" in the exclusion clause means the person who is making a claim under the policy where, as here, more than one person is insured.
In construing an insurance policy, the courts must be guided by the reasonable expectation and purpose of an ordinary person in entering such contract, and the language employed in the policy is to be given its ordinary meaning, such as the average policy holder of ordinary intelligence, as well as the insurer, would attach to it. In this case, the appellants did not take out fire insurance to insure their son's possessions: they insured to protect their house. It is thus both unrealistic and unreasonable to assume that the named insured would view the indemnification obligation of the insurer as joint because their son's possessions were included. These were only marginal to the transaction. Where the term "Insured" is defined so as to extend to others than the named insured, that definition should not be construed so as to restrict or limit the coverage enjoyed by the named insured. Rather, it is intended to extend coverage. In the absence of clear and precise language in the policy to the contrary, the obligation of the insurer of a fire insurance policy which covers the interests of more than one person, should be considered several as to each of them. Here, there was no clear language in the policy to the effect that the insurer considered its obligations joint. Where the language of the policy is ambiguous, the contra proferentem doctrine should be applied to construe the language in a manner favourable to the insured.
In any event, the exclusion clause did not apply to the appellants' claim. Respondent's contention that the insurable interests of parents and child in the whole of the property were inseparably connected was untenable. The son's interest was distinct and separate from that of the parents. He was not insured for the value of the house; his insurable interest was limited to the value of his possessions.
Cases Cited
By L'Heureux‑Dubé J.
Followed: Wiens v. Fireman's Fund Insurance Co. of Canada, [1981] I.L.R. {PP} 1‑1423; not followed: Rankin v. North Waterloo Farmers Mutual Insurance Co. (1979), 100 D.L.R. (3d) 564; referred to: P. Samuel & Co. v. Dumas, [1924] A.C. 431; Guarantee Co. of North America v. Aqua‑Land Exploration Ltd., [1966] S.C.R. 133; Kosmopoulos v. Constitution Insurance Co., [1987] 1 S.C.R. 2.
By La Forest J. (dissenting)
Rankin v. North Waterloo Farmers Mutual Insurance Co. (1979), 100 D.L.R. (3d) 564; Wiens v. Fireman's Fund Insurance Co. of Canada, [1981] I.L.R. {PP} 1‑1423; P. Samuel & Co. v. Dumas, [1924] A.C. 431; Kosmopoulos v. Constitution Insurance Co. of Canada (1983), 149 D.L.R. (3d) 77, aff'd on broader grounds [1987] 1 S.C.R. 2; Higgins v. Orion Insurance Co., [1985] I.L.R. {PP} 1‑1886; Murdock v. Commercial Union Assurance Co. (1980), 30 Nfld. & P.E.I.R. 311; Walsh v. Canadian General Insurance Co. (1988), 70 Nfld. & P.E.I.R. 89; Barraclough v. Royal Insurance Co. of Canada, [1986] I.L.R. {PP} 1‑2016; Siountres v. United States Fire Insurance & Reliance Insurance Co., [1982] I.L.R. {PP} 1‑1484; Hedtcke v. Sentry Insurance Co., 326 N.W.2d 727 (1982); Consolidated‑Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., [1980] 1 S.C.R. 888; Morgan v. Greater New York Taxpayers Mut. Ins. Ass'n., 112 N.E.2d 273 (1953); Moraweitz v. Moraweitz (1986), 18 C.C.L.I. 108; Thornton v. Shoe Lane Parking Ltd., [1971] 1 All E.R. 686.
Authors Cited
Corbin, Arthur Linton. Corbin on Contracts: A Comprehensive Treatise on the Rules of Contract Law, vol. 4. St. Paul, Minn.: West Publishing Co., 1951.
MacGillivray on Insurance Law, vol. 1, 5th ed. By Denis Browne. London: Sweet & Maxwell Ltd., 1961.
Ninth Decennial Digest Part 2: American Digest System 1981‑1986, vol. 26. St. Paul, Minn.: West Publishing Co., 1988.
Rendall, James A. Annotation (1984), 8 C.C.L.I. 216.
Rendall, James A. Annotation (1986), 25 C.C.L.I. 217.
West's General Digest, Seventh Series. St. Paul, Minn.: West Publishing Co., 1986.
APPEAL from a judgment of the British Columbia Court of Appeal (1986), 6 B.C.L.R. (2d) 56, 30 D.L.R. (4th) 414, [1986] 6 W.W.R. 428, 25 C.C.L.I. 216, [1986] I.L.R. {PP} 1‑2110, setting aside an order of Wood J. (1984), 58 B.C.L.R. 6, 13 D.L.R. (4th) 752, [1984] 5 W.W.R. 691, 8 C.C.L.I. 216. Appeal dismissed, Dickson C.J. and La Forest and Sopinka JJ. dissenting.
S. Dev Dley, for the appellants.
Harvey J. Grey, Q.C., for the respondent.
//La Forest J.//
The reasons of Dickson C.J. and La Forest and Sopinka JJ. were delivered by
LA FOREST J. (dissenting) --
Facts
The appellants, Mr. and Mrs. Scott, took out a fire insurance policy on their dwelling with the respondent insurer. As is usual with these "homeowner's" policies, the protection of the policy extended to the relatives and to any other residents of the household under 21. This was done by defining "Insured" to include these persons. The "Definitions" section provided as follows:
DEFINITIONS
. . .
(a)INSURED: The unqualified word "Insured" includes (1) the Named Insured, and (2) if residents of his household, his spouse, the relatives of either, and any other person under the age of 21 in the care of an Insured.
The Scotts' 15-year-old son Charles was thus an insured and his personal property was covered by the policy by virtue of the following clause:
COVERAGE C -‑ PERSONAL PROPERTY:
(1)On Premises -‑ This Policy insures personal property, whether required to be specifically mentioned by any applicable Statutory Conditions of the Policy or not, usual or incidental to the occupancy of the premises as a dwelling, owned, worn or used by an Insured, while on the Principal Residence Premises, or at the option of the Named Insured, personal property owned by others, while on the portion of the premises occupied by the Insured.
On March 29, 1983, the dwelling was damaged by a fire which was deliberately set by the son, Charles Scott, acting alone. The appellants filed a proof of loss, but the respondent insurer denied coverage relying on the following clause:
LOSSES EXCLUDED
This Policy does not insure:
. . .
(d)loss or damage caused by a criminal or wilful act or omission of the Insured or of any person whose property is insured hereunder;
Charles Scott, the insurer stated, was an insured under this provision by virtue of the definition earlier quoted; thus, it maintained, it was absolved from liability.
Judicial History
Mr. and Mrs. Scott brought action and were successful before Wood J. at trial: (1984), 58 B.C.L.R. 6. Wood J. did not deny that the son was an insured. He held, however, that he had a separate interest and a separate obligation. He followed the Ontario Court of Appeal decision in the similar case of Rankin v. North Waterloo Farmers Mutual Insurance Co. (1979), 100 D.L.R. (3d) 564 (Ont. C.A.), which heavily relied on United States authority to which I shall return. Wood J., like the Ontario Court of Appeal in Rankin, also relied on the well-known dictum of Viscount Cave in P. Samuel & Co. v. Dumas, [1924] A.C. 431, where the rights of a mortgagor and mortgagee were discussed before the advent of the modern mortgage clause. That dictum in relevant part reads as follows (at pp. 445-46):
It may well be that, when two persons are jointly insured and their interests are inseparably connected so that a loss or gain necessarily affects them both, the misconduct of one is sufficient to contaminate the whole insurance: Phillips on Marine Insurance, vol. i., {SS} 235. But in this case there is no difficulty in separating the interest of the mortgagee from that of the owner; and if the mortgagee should recover on the policy, the owner will not be advantaged, as the insurers will be subrogated as against him to the rights of the mortgagee. In such a case the "assured" referred to in s. 55, sub-s. 2, is the particular assured to whom it is sought to make the insurer liable. In my opinion, therefore, this contention also fails. [Emphasis added.]
Wood J.'s judgment was reversed by the British Columbia Court of Appeal: (1986), 6 B.C.L.R. (2d) 56. Macdonald J.A., speaking for that court, refused to follow the Rankin case, preferring instead the decision in Wiens v. Fireman's Fund Insurance Co. of Canada, [1981] I.L.R. {PP} 1-1423 (B.C.S.C.) In the latter case, Chief Justice McEachern had declined to follow Rankin which he found in any event to be distinguishable. There the fire had been deliberately started by the wife who had an occupier's and user's, and perhaps a proprietary interest. However, the court in the present case found the son had been deprived of an interest to use and occupy the family home that was inseparable from that of his parents, an interest it found comparable to that of a shareholder, citing Kosmopoulos v. Constitution Insurance Co. of Canada (1983), 149 D.L.R. (3d) 77, since aff'd on broader grounds: [1987] 1 S.C.R. 2. The Court of Appeal also distinguished Higgins v. Orion Insurance Co., [1985] I.L.R. {PP} 1-1886 (Ont. C.A.), which, like Rankin, had followed modern American authorities in holding that the peril there was not expressly excluded from the policy.
Fundamentally, though, the Court of Appeal's approach was succinctly summarized in the last paragraph of Macdonald J.A.'s judgment as follows (at p. 62):
It is unnecessary to decide whether the indemnification obligation is joint or several. The exclusionary clause is unambiguous. Assuming the position more favourable to the respondents, that it is several, the exclusionary clause bars recovery where the loss is caused by a wilful act of the insured. This clause is therefore fatal to the respondents' claim.
The Issue
There can be no gainsaying the insurer's proposition that the Scotts' son was an insured. His property was covered by the policy. That, however, is not the issue. The issue is whether the exclusion from coverage caused by the wrongful act or omission of an insured applies only to the insured responsible for the act or omission or whether it applies not only to that insured but also to an innocent insured. The answer to this question cannot be determined by a simple logical exercise like that outlined by the Court of Appeal. It requires interpretation, a task, as will be seen, not so much dictated by adamantine logic as by reference to divergent public policies underlying the clause. That issue, as we shall see, is related to the issue whether the insurer's indemnification obligation is joint or several. That, too, is a matter of interpretation. As Corbin puts it: "The question whether two or more promisors have promised a single undivided performance, or have each promised a limited and separate performance, is wholly a problem of interpretation"; see Corbin on Contracts (1951), vol. 4, {SS} 926, at p. 704.
Strong conflicting lines of authority clearly attest to the fact that the interpretation of the exclusionary clause is far from clear and unambiguous. The Ontario Court of Appeal and Newfoundland trial courts have held that the exclusion applies only to the wrongdoer; see Rankin, supra; Higgins, supra; Murdock v. Commercial Union Assurance Co. (1980), 30 Nfld. & P.E.I.R. 311 (Nfld. S.C.T.D.); Walsh v. Canadian General Insurance Co. (1988), 70 Nfld. & P.E.I.R. 89 (Nfld. S.C.T.D.) The British Columbia courts, on the other hand, have now taken the view that the wrongdoing of one insured also excludes recovery of the others; see, in addition to this case, Wiens, supra; see also Barraclough v. Royal Insurance Co. of Canada, [1986] I.L.R. {PP} 1-2016 (Ont. S.C.); Siountres v. United States Fire Insurance & Reliance Insurance Co., [1982] I.L.R. {PP} 1-1484 (Ont. S.C.) A similar division of opinion exists in the United States where the cases are legion, though by far the predominant view nowadays is that only the wrongdoer is excluded, as will be apparent from the decisions referred to in the Ninth Decennial Digest, which contains decisions for the period from 1981 to 1986, vol. 26, 9th D Pt 2--429, and in the monthly continuation of the Digest, the volumes of West's General Digest again under "Insurance" at key number 429.
The Two Approaches
The decisions of the trial judge and the Court of Appeal, then, are representative of two divergent streams of jurisprudence dealing with the problem posed when an innocent insured seeks to recover for a loss occasioned by the wrongful act of a co-insured. The most common scenario in the case reports, and one that decidedly does not serve as an encomium to matrimonial bliss, sees husband or wife burn down the matrimonial home. One of these decisions, the leading case of Hedtcke v. Sentry Insurance Co., 326 N.W.2d 727 (Wis. 1982), provides the most comprehensive and probing summary of the two judicial responses to the problem.
As noted by Abrahamson J. in Hedtcke, the approach at one time was to make recovery depend upon whether the interests of the co-insured were joint or several. Where interests were held to be joint, the misconduct of one insured was considered the misconduct of the other, and neither could recover under the policy. As noted, a minority of state courts still follow that approach. This line of authority is premised on several considerations of public policy. Chief among them is the principle that a wrongdoer must not be allowed to profit, be it directly or indirectly, from his act. Abrahamson J. also cited the desire to deter crime and to avoid fraud against insurers. I agree with James A. Rendall's comment that the latter considerations are "not very persuasive"; see an Annotation to Wood J.'s judgment in the present case (1984), 8 C.C.L.I. 216.
The modern approach, followed in Hedtcke, focusses, first and foremost, on the contract of insurance. The result is made to depend upon whether "the insureds have promised the same performance, or a separate performance as to each, that is, whether each insured has promised that all insured parties will use `reasonable means' to preserve the property, or whether each has promised that he or she will protect the property" (see Hedtcke, at p. 739). This depends on the language of the policy.
This approach, however, takes as its starting point the "fundamental principle of individual responsibility for wrongdoing" (Hedtcke, at p. 740). Consequently in the interpretation of the insurance contract the courts have held that, absent unambiguous provisions to the contrary, a reasonable person, unversed in the niceties of insurance law, would expect that his individual interest in the policy was covered by a policy which named him without qualification as one of the persons insured. Thus the reasonable person, though he or she might not choose to express it in these terms, would view the obligations of the insurer as several as to each of the parties involved.
The modern approach does not lose sight of the fundamental rule that a wrongdoer should not profit by his act. It attempts, however, to avoid the harshness that must necessarily follow when the sins of the guilty are visited on the innocent. That harshness is well expressed by Abrahamson J. in the following passage in Hedtcke, at p. 740:
Contrary to our basic notions of fair play and justice, the Bellman rule punishes the innocent victim. An absolute bar to recovery by an innocent insured is particularly harsh in a case in which the arson appears to be retribution against the innocent insured. Having lost the property, the innocent insured is victimized once again by the denial of the proceeds forthcoming under the fire insurance policy.
Accordingly, the focus is on tailoring "the recovery permitted the innocent insured to guard against the possibility that the arsonist might receive financial benefit as a result of the arson" (Hedtcke, at p. 740). The modern approach, as noted earlier, is today accepted in the vast majority of decisions on the point.
The Modern Approach
I am firmly of the view that the modern approach's primary focus on the meaning of the insurance contract is to be preferred to the old approach which is principally undergirded by public policy considerations extraneous to the contract. The modern approach seems to me to be entirely consonant with this Court's approach to the interpretation of insurance contracts. The guidelines for the interpretation of insurance contracts set out by this Court in Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., [1980] 1 S.C.R. 888, provide an appropriate starting point for this analysis. In that case, Estey J. had this to say at p. 901:
Even apart from the doctrine of contra proferentem as it may be applied in the construction of contracts, the normal rules of construction lead a court to search for an interpretation which, from the whole of the contract, would appear to promote or advance the true intent of the parties at the time of entry into the contract. Consequently, literal meaning should not be applied where to do so would bring about an unrealistic result or a result which would not be contemplated in the commercial atmosphere in which the insurance was contracted. Where words may bear two constructions, the more reasonable one, that which produces a fair result, must certainly be taken as the interpretation which would promote the intention of the parties. Similarly, an interpretation which defeats the intentions of the parties and their objective in entering into the commercial transaction in the first place should be discarded in favour of an interpretation of the policy which promotes a sensible commercial result. [Emphasis added.]
Though Estey J. was speaking in the context of a commercial contract of insurance, the same reasoning would apply here. In other words, in construing an insurance policy, the courts must be guided by the reasonable expectation and purpose of an ordinary person in entering such contract, and the language employed in the policy is to be given its ordinary meaning, such as the average policy holder of ordinary intelligence, as well as the insurer, would attach to it; see Morgan v. Greater New York Taxpayers Mut. Ins. Ass'n., 112 N.E.2d 273 (N.Y.C.A. 1953).
Bearing the above principles in mind, I shall now attempt to assess whether the indemnification obligation in the policy here is joint or several. In my view, the latter is the case. As I see it, reasonable persons, unversed in the niceties of insurance law, would, in purchasing fire insurance, expect that a policy naming them as an insured without qualification would insure them to the extent of their interest. Moreover, reasonable persons would expect that they would lose the right to recover for their own willful destruction. But the same persons would find it an anomalous result if informed that they stood to lose all if their spouse burned down their house. The following responses would be forthcoming: "I had nothing to do with that act of arson so why am I being punished for it? My 50 per cent interest in the house belongs to me. I could have taken out my own insurance policy on my interest; in that case if my spouse burnt down the house I was protected. Why should my getting paid depend on whether there is one policy or two? If it had been made clear to me, why would I have ever agreed to take out a `joint' policy? I only stood to lose."
If this logic is sound, it has definite application to the facts of this case. The Scotts did not take out fire insurance to insure their son's possessions: they insured to protect their house. It is both unrealistic and unreasonable to assume that the named insured would view the indemnification obligation of the insurer as joint because their son's possessions were included. These were only marginal to the transaction.
It is true, as the respondent insurer contends, that the appellants by the terms of the policy had exclusive control over who was to be co-insured. As it puts it in its factum:
They had the right, without seeking the Respondent's permission or paying an additional premium, to admit others into their insurance, thereby providing them with a right against the Respondent for indemnity against third party liability, personal property damage and additional living expense claims. It is not unreasonable to require that, having opted to exercise this right to create co-insureds, they must take the burden of their co-insured's acts.
While this, I suppose, may be technically correct, it does not take into account the realities of the situation. The clause is a standard one in a homeowner's policy. It is scarcely believable that an ordinary insured would ever consider the possibility to which the respondent alludes. Besides, the respondent misses a vital point. If it were made clear to an insured in the position of the appellants that the insurer would admit whom the insured asked, but on the implied condition that the indemnification obligation assumed was joint and not several, no one would choose to exercise the option. It would be absurd to do so in the case under appeal; it would amount to saying: "I will insure my son's possessions. The `X' dollars I will recover for them if the house burns down by accident more than makes up for the fact that if he burns my house down I will recover nothing at all."
A more realistic interpretation of the indemnification obligation is that where the definition of "Insured" is defined so as to extend to others than the named insured, that definition should not be construed so as to restrict or limit the coverage enjoyed by the named insured. If the policy in this case is interpreted in this manner, it would reflect the result contemplated in the commercial atmosphere in which the insurance was contracted. This issue was discussed in Morgan v. Greater New York Taxpayers Mut. Ins. Ass'n., supra, dealing with the cognate situation involving an owner's public liability policy which contained an exclusion clause similar to the one in question here. The following observations of Conway J., at p. 275, are apposite:
But that argument, based upon the "Definitions" section, cannot withstand analysis. Defendant, we think, seeks to turn to its own advantage a provision of the policy intended to benefit, not to prejudice, the named assured. The "Definitions" section, by assigning a broad meaning to the term "Assured", extends coverage to various persons in addition to the named assured. That section which might be termed an "additional assured" provision serves as an inducement to purchase insurance to one contemplating taking out a liability policy, by affording coverage, without added premium, to others in addition to the applicant. To hold that such a provision, purporting as it does to broaden coverage by extending it to additional assureds, works a reduction in the coverage which would be afforded to the named assured in the absence of such provision is not in harmony with the true, beneficial purpose of the provision. In Wenig v. Glens Falls Indem. Co., 294 N.Y. 195 at page 201, 61 N.E.2d 442, at page 445, we discussed a somewhat similar provision and said (Lehman, Ch. J.): "The liability of the insurance company upon its promise to insure the `named assured' is neither extended nor limited by the fact that under the terms of the policy it assumed an obligation also to insure the `additional assured' against liability for damages for which he might become liable." [Emphasis added. Italics in original.]
Clearly, an insurer might choose to contract on the basis that it considered its indemnification obligation joint with regard to both the named insured and other insured. But in offering to contract on such terms, it would be incumbent on an insurer to manifest this intention in the very clearest of language. This is because a person entering such a contract would be agreeing to assume vicarious liability for the criminal conduct of another. This, it is fair to say, is fundamentally at odds with the expectation of the reasonable person when buying fire insurance. He or she insures on the assumption that his or her undivided interest is protected. That is the whole point of taking out insurance.
As mentioned earlier, the Court of Appeal in this case rejected the approach in Higgins, supra. In my respectful view, however, the Ontario Court of Appeal, in giving its imprimatur to the "modern approach" in that case, was correct to hold at p. 7255 that: "The terms of the policy itself . . . should be of more significance to the resolution of whether the innocent co-insured may recover than the form of ownership of the property." And as regards policy terms, I think it was also right in holding that: "where a fire insurance policy covers the interests of more than one person, the obligation of the insurer, in the absence of clear and precise language in the policy to the contrary, should be considered several as to each of them".
In this case, there is no clear language to the effect that the insurer considered its obligations joint. A putative insured might conceivably arrive at this conclusion after a careful reading of the contract as a whole, and after considered reflection of the import, when read together, of the "Definitions" section and one of the eight sections of the "Losses Excluded" provision. But it is unfair to expect of a purchaser that he be sensitive to such subtleties of interpretation.
Similarly, the exclusion clause cited above falls short of this requirement of clear and precise language. Given that the word "the" qualifies the word "Insured" in the exemption clause, I think that the Ontario Court of Appeal was correct to interpret the clause as meaning only that when the coverage of the policy as to a particular insured is at issue, and that insured committed a "criminal or wilful act" then as to that insured coverage is avoided: "`Insured' in the exception clause means, where as here more than one person is insured, the person who is making a claim under the policy" (Rankin, supra, at p. 570); see also the further Annotation of James A. Rendall on the Court of Appeal decision who generally shares the views I have advanced; see (1986), 25 C.C.L.I. 217.
To summarize on this point, while it is true that the exemption clause as worded can be made to bear the interpretation urged by the respondent, the language is far from clear; in a word, it is ambiguous. In the face of this ambiguity, the Ontario Court of Appeal in Rankin applied the contra proferentem doctrine and construed the language in a manner favourable to the insured. In my opinion, they were correct to do so. Policies of insurance are prepared by the insurers and in doing so they not unnaturally are minded to protect their own interests. To avoid the consequent injustices that may ensue to an insured, courts have long insisted that any ambiguity be resolved in favour of the insured. And where, as is the case here, the ambiguity bears on a clause that stands significantly to defeat the objective of the purchaser in buying insurance, the case for application of the doctrine is compelling. A clause intended to achieve the purpose argued for by the insurer would, in my view, have to be drawn so as to bring it clearly to the attention of the insured.
It may not be necessary to go the length of having the clause "printed in red ink with a red hand pointing to it" to use the expression of Lord Denning, M.R., in Thornton v. Shoe Lane Parking Ltd., [1971] 1 All E.R. 686, at p. 690, but its alleged purpose should be clearly brought home to the ordinary insured. That the insurer knows just how to do this is evident from one of the clauses used by the insurer to define the different perils for which it provides coverage under the policy. The heading entitled "VANDALISM OR MALICIOUS ACTS" reads in relevant part:
13. VANDALISM OR MALICIOUS ACTS: There is no liability for loss or damage
. . .
(c)caused by the Insured's spouse or any member of the same household.
By virtue of having itself defined "FIRE OR LIGHTNING" as a separate and distinct peril, the insurer must have concluded that the incident in question in the present case was not covered by clause 13 for it did not rely upon or even mention it in its argument. Nevertheless I note that the very clear words of exception used in clause 13 serve only to underscore the ambiguity that permeates the "losses excluded" clause on which the insurer does rely, and thereby to strengthen the case for construing that clause in a manner favourable to the insured.
The Old Approach
The foregoing is sufficient to dispose of this appeal, and as I have already stated, I think the modern approach is the proper one to take in the resolution of cases like the present. However, even if I were disposed to accept the appropriateness of the old approach, I would still reach the same conclusion on the facts of this case.
A clear application of the old approach is to be found in Wiens, supra. In Wiens, a wife whose relations with her husband were strained burned down the matrimonial home. The husband, who was in no way implicated in her actions, sued to recover under their fire insurance policy for the loss he had suffered. The court looked to the nature of the interests of the spouses and, finding that they were not totally separate interests, held for the insurer. As an alternative basis for the decision, the court applied rigorous logic in construing the exclusion clause and held that since the wife was an insured within the meaning of the policy, the policy was voided by her dishonest act. This alternative approach was that adopted by the Court of Appeal in the present case.
It is interesting to note that in Wiens the British Columbia Court of Appeal declined to follow Rankin, supra, in which the Ontario Court of Appeal held that an insured could recover on facts that were on all fours with the present case: an infant son had set a fire which the insurer declined to cover, setting up an exclusion clause identical to the one relied on here. In Rankin, the court in Wiens stated (at p. 445), "the exception clause, which is the same as in this case, did not apply to the claims of the named insured and his wife because the son was separately insured for his own effects, and he had no interest in the house or contents".
The question of the son's interest figured prominently in argument before the Court of Appeal in the present case. The insurer seeking to distinguish Rankin submitted that the Ontario Court of Appeal in that case had overlooked the true nature of the son's interest. That submission was summarized by the court as follows (at pp. 59-60):
Residing as he did with the respondents, the son had occupation, use and enjoyment of the family home and its contents. He would benefit from the continued existence of that property. Generally, anyone who is so situated that he will suffer loss as a proximate result of damage to or destruction of property has an insurable interest in it. The precise nature of the interest is immaterial. Any interest in property whether legal, equitable or beneficial, however slight, is insurable. Charles Scott's interest in the family home and its contents is similar in many respects to the interests of a husband in his wife's property.
I cannot accept this submission. It seems disingenuous on the part of the insurer to submit that the interest of the infant son is inseparable from that of the parents. The long line of cases in which the result turns on whether interests are joint or several presumably deal, it may be safely conjectured, with named insured: i.e., those parties to the contract who would each have a right to share in, or be named as a payee for the loss of the family home. It is when these conditions prevail that it is appropriate to speak of individual and "inseparably connected" interests in the whole of the property insured.
But here the infant Charles Scott was not insured for the value of the house; his insurable interest was limited to the value of his possessions. True, he had, as the respondents submit, a moral certainty of benefit from the home and its continued existence, but it is unclear how this translates into a joint or undivided interest in the whole of the property; see in this context Moraweitz v. Moraweitz (1986), 18 C.C.L.I. 108 (Ont. C.A.) The comparison the respondents tried to make between this situation and that of the shareholder in Kosmopoulos v. Constitution Insurance Co. of Canada, supra, is completely untenable.
The extravagance of the respondent insurer's proposition becomes clear if one speculates on its reaction if a fire had destroyed the house and the insurer, on agreeing to indemnify the named insured, had been presented with a claim by the infant son to the effect that he should be treated pari passu with the named insured with regard to the value of the whole property. The insurer would have beyond question answered this claim with the irrefragable observation: "But you are not jointly insured and your interests are not inseparably connected to those of the named insured as far as the whole property is concerned. Your interest is separate and limited to the value of your possessions. You may only recover for them." It is not credible to posit that the son's interests be separate in one context, and joint and inseparably connected in another.
Thus the fact that the son might have an interest in the family home becomes irrelevant. He simply did not insure that interest. Nor is he deriving any benefit from the family home that he would not otherwise have enjoyed. Apart from this, to sacrifice the interests of the parents ‑‑ the major interest under the policy ‑‑ to the desire to punish their child for his wrongful act would be nothing short of draconian. The desire to prevent wrongdoing by an insured should not be allowed to extend to the punishment of the innocent. The insurer cannot be totally unmindful of this. They did not modify the clause following the Rankin case, supra, as one would have expected them to do had they thought this was the proper approach.
In conclusion on this point, even were this Court prepared to eschew the modern approach and to hold that the form of ownership of the property was determinative of the question whether the act of one insured be imputed to an innocent co-insured, the interest of the infant should not be viewed as inseparably connected with those of the named insured.
Conclusion
I would allow the appeal, set aside the judgment of the Court of Appeal and restore the judgment at trial with costs throughout.
//L'Heureux-Dubé J.//
The judgment of McIntyre, Lamer, Wilson and L'Heureux-Dubé JJ. was delivered by
L'HEUREUX-DUBÉ J. -- The appellants were the holders of a valid and in force insurance policy with the respondent insurance company. On March 29, 1983, Charles Scott, the fifteen-year-old son of appellant Cecil Scott, deliberately set fire to the insured premises. The appellants, who were not in any way implicated in the setting of the fire, filed a Proof of Loss with the respondent company. Their insurance claim was denied.
The clause of the insurance policy which is at issue in this case reads as follows:
LOSSES EXCLUDED
This policy does not insure:
. . .
(d)loss or damage caused by a criminal or wilful act or omission of the Insured or of any person whose property is insured hereunder;
The policy defines the "Insured" in the following manner:
The unqualified word "Insured" includes (1) The Named Insured, (2) if residents of his household, his spouse, the relatives of either, and any other person under the age of 21 in the care of an Insured.
The issue in this case is whether Charles Scott, the son of appellant Cecil Scott, is included within this definition of the "Insured", such that the loss incurred is excluded from compensation by the above cited exception clause.
At first instance, the chambers judge held that the definition of "Insured" did not include Charles Scott: (1984), 58 B.C.L.R. 6. Wood J. found that the loss suffered by the appellants affected their joint interest in the home and its contents. This loss, according to Wood J. was "clearly distinct and separable from any loss which their son may have suffered in the same fire." Because of these separate interests, the loss suffered by the appellants was not affected by the exception clause in the policy.
In reaching his conclusions, Wood J. relied upon the judgment of the Ontario Court of Appeal in Rankin v. North Waterloo Farmers Mutual Insurance Co. (1979), 100 D.L.R. (3d) 564. The clauses at issue in the policy in Rankin were identical to those in this case. In Rankin, Weatherston J.A., writing for the Court, held at p. 570:
Applying the principles above stated, it is my opinion that the word "Insured" in the exception clause means, where as here more than one person is insured, the person who is making a claim under the policy. In the present case, the son was separately insured for his own personal effects, but had no interest in the house or the contents owned by the appellants for which loss was proved. The appellants are not affected, in respect of their interests, by the wrongful act of their son.
The Court of Appeal in Rankin arrived at this conclusion by relying upon the obiter dictum of Viscount Cave in P. Samuel & Co. v. Dumas, [1924] A.C. 431 (H.L.) In discussing whether the interest of a mortgagee was defeated by the wrongful act of an owner, Viscount Cave observed, at pp. 445-46:
It may well be that, when two persons are jointly insured and their interests are inseparably connected so that a loss or gain necessarily affects them both, the misconduct of one is sufficient to contaminate the whole insurance: Phillips on Marine Insurance, vol. i., {SS} 235. But in this case there is no difficulty in separating the interest of the mortgagee from that of the owner; and if the mortgagee should recover on the policy, the owner will not be advantaged, as the insurers will be subrogated as against him to the rights of the mortgagee. In such a case the "assured" referred to in s. 55. sub-s. 2, is the particular assured to whom it is sought to make the insurer liable.
Wood J. relied heavily upon this dictum. He gave it the following interpretation at p. 10:
. . . where more than one person was the beneficiary under a policy of insurance and the insured interests of each were separate and distinct, a proper construction of such an exception provision has the result that the wrongful act of one will not serve to defeat a claim for indemnification brought by the others who had no complicity in that wrongful act.
Wood J. also discussed the case of Wiens v. Fireman's Fund Insurance Co. of Canada, [1981] I.L.R. {PP} 1-1423. In that case, a fire was started by the wife of the insured owner of the damaged house. McEachern C.J. of the British Columbia Supreme Court declined to follow Rankin, supra. He held that the wife had an occupier's and a user's interest in the home and an ownership interest in some of the damaged property. As such, the loss was excluded by the clause in the contract. Wood J. distinguished this case on the facts. He found that in Rankin the interests of the son and his parents were separate and distinct, while in Wiens, the court had found the interests of the husband and wife to be inseparable.
The Court of Appeal of British Columbia (1986), 6 B.C.L.R. (2d) 56 reversed the decision of Wood J. It is the appeal from this reversal which is before us.
In my view, the terms of the insurance policy are perfectly clear and unambiguous. The policy does not cover the type of risk which occasioned this loss. Such risk was specifically excluded. The wording of the exclusion clause for the purposes of the present case is unambiguous, as is the definition of "Insured". I am in complete agreement with the statement of Macdonald J.A., writing for the Court of Appeal, at p. 62, that:
In the case at bar the policy does not insure "loss or damage caused by a criminal or wilful act or omission of the Insured or of any person whose property is insured hereunder". Clearly Charles Scott falls within the definition of "Insured" which I quoted earlier. He was a resident of the household and a relative of a named insured. And he was an "other person under the age of 21 in the care of an Insured".
It is unnecessary to decide whether the indemnification obligation is joint or several. The exclusionary clause is unambiguous. Assuming the position more favourable to the respondents [here appellants], that it is several, the exclusionary clause bars recovery where the loss is caused by a wilful act of the insured. This clause is therefore fatal to the respondent's [here appellant] claim. Rankin is right in point. The exclusion clause in that case was in the same language as provision (d). It follows that, in my opinion, Rankin should not be followed.
In this particular case, the plain meaning of the clause at issue is given additional support by another term of the policy itself:
PERILS INSURED AGAINST
The Insurance provided by Section I of this Policy is against direct loss or damage caused by the following perils, as defined and limited:
. . .
13. VANDALISM OR MALICIOUS ACTS: There is no liability for loss or damage
. . .
(c)caused by the Insured's spouse or any member of the same household.
It is clear that the policy does not cover damage caused to the insured premises by either the insured or by members of his household.
The appellants have placed great emphasis upon the contention that the infant Charles Scott had an insurable interest only in his own property and not in the remainder of the family home and its contents. Their argument is based upon the premise that an "Insured" must have an insurable interest. According to the appellants, if the interest of Charles Scott is not the same as theirs, then Charles Scott is not an "Insured" for the purposes of the appellants' claim, regardless of the wording of the contract definition.
In their factum, the appellants rely on the definition of insurable interest found in Guarantee Co. of North America v. Aqua-Land Exploration Ltd., [1966] S.C.R. 133. In Aqua-Land, this Court adopted, at p. 140, the following statement on what constituted an insurable interest from MacGillivray on Insurance Law (5th ed. 1961), vol. 1:
Insurable interest in property is not confined to the absolute legal ownership. Generally, any person who is so situated that he will suffer loss as the proximate result of damage to or destruction of the property has an insurable interest in it. But there must be some direct relationship to the property itself, for otherwise the interest is too remote and therefore not insurable.
A broader definition of insurable interest has subsequently been formulated by Wilson J., for the majority of this Court, in Kosmopoulos v. Constitution Insurance Co., [1987] 1 S.C.R. 2, where she writes, at p. 30:
To "have a moral certainty of advantage or benefit, but for those risks or dangers", or "to be so circumstanced with respect to [the subject matter of the insurance] as to have benefit from its existence, prejudice from its destruction" is to have an insurable interest in it.
In my view, even if we were to accept the more narrow definition suggested by the appellants, it would be impossible to say that the insurable interest of the infant Charles Scott was limited to his personal possessions. He had a direct relationship to the family home and its contents, since they were his source of accommodation and support. To apply the analysis in Kosmopolous, supra, Charles Scott had occupation, use and enjoyment of the family home. He received a benefit from its existence. As a dependent living in that home, he suffered a direct prejudice when it was destroyed by fire. The interests of parent and child in this case, to borrow the words of Viscount Cave in his dictum in Dumas, supra, "are inseparably connected so that a loss or gain necessarily affects them both, the misconduct of one is sufficient to contaminate the whole insurance".
Were I convinced that a different interpretation would advance the true intent of the parties, I would gladly subscribe to it. However, when the wording of a contract is unambiguous, as in my view it is in this case, courts should not give it a meaning different from that which is expressed by its clear terms, unless the contract is unreasonable or has an effect contrary to the intention of the parties. In the present case, the policy of insurance excludes liability of the insurer for damage caused by the criminal or wilful acts of the insured. The definition of "Insured" clearly includes the minor children living in the home. It may well be that insurance companies do not wish to pay for the delinquency of teenagers within the home. I do not see how they could word their policy to exclude such a risk other than by the precise terms used in this policy.
Given the facts of the case, the exclusion clause, and the definition of insured contained in the policy, the damages suffered by the appellants in this case are clearly excluded. I cannot think of any words which could more clearly exclude coverage in these circumstances than those used in the policy.
In the result, I would dismiss the appeal with costs.
Appeal dismissed with costs, DICKSON C.J. and LA FOREST and SOPINKA JJ. dissenting.
Solicitors for the appellants: Mair Janowsky Blair, Kamloops.
Solicitors for the respondent: Harper, Grey, Easton & Company, Vancouver.