Aministrative tasks may not be excluded under a bodily injury clause, even if the result of the errors is to cause bodily injury.

Application by the insured for an order requiring the insurers to reimburse the costs incurred in successfully defending criminal charges. The insured argued the insurers wrongly denied the insured’s claim for indemnification of his legal expenses. The Court found that the exclusion relied upon by the insurers did not apply and ordered reimbursement for all legal costs.

Perrault v. Encon Insurance Managers Inc. [2011] O.J. No. 3566, June 30, 2011, Ontario Superior Court of Justice, S.E. Greer J.

The insured was the National Director of the Red Cross’ Blood Transfusion service in the 1980’s when Canada’s blood supply became infected with HIV and Hepatitis C. In 2002, the insured was criminally charged with common nuisance and criminal negligence causing bodily harm, arising out of his role with the Red Cross.

The Red Cross’ insurers denied coverage for the insured’s defence costs on the basis that the charges of criminal negligence and common nuisance arose out of or were attributable to bodily injury and accordingly were excluded under the “bodily injury” exclusion.

The insured was a physician and a member of the Canadian Medical Protective Association (the “CMPA”). The insured could not afford to fund his legal defence when the insurers denied coverage and the Red Cross refused to indemnify him and thus he sought the assistance of the CMPA. The CMPA agreed to assist the insured on the condition that the insured sign an assignment of his rights against, among others, the insurers, relating to the payment, reimbursement and/or indemnification for any costs and expenses, relating to the criminal charges.

After a 1 ½ year trial, the insured was fully acquitted and found judicially innocent. The CMPA and the insured then looked to the insurers for reimbursement. The insurer confirmed their previous denial of coverage, relying on the “bodily injury” exclusion.

The insurers took the position that the charges of criminal negligence causing bodily harm arose out of or were attributable to bodily injury as “bodily harm is an essential element of the offence, without proof of which the charge cannot be sustained”. With regard to the offence of common nuisance, the insurers took the position that both offences arose out of the identical set of circumstances and thus, the offence of common nuisance also arose from bodily harm, sickness or disease.

The Court found that the insurers breached the policy by denying the claim by the insured. At the material time, the insured’s role was managerial in nature and he was not involved in patient care. The Court held that the insured’s administrative tasks did not cause bodily injury:

In my view, to find that [the insured] Dr. Perrault’s administrative tasks caused bodily injury to anyone, would be contrary to the reasonable expectations of the ordinary person as to the coverage purchased. The ordinary person would assume that in order to cause “bodily injury” there would need to be a real injury caused to the body, whether physical or mental. If follows that no administrative task could fall into that category.

In essence, the Court found that a finding that the insured’s administrative tasks caused bodily injury to anyone was contrary to the reasonable expectation of the ordinary person as to the coverage purchased. Therefore, the “bodily injury” exclusion did not apply and the insured and his assignee, the CMPA, had a right under the policy to reimbursement for all legal costs.

This case was digested by Aaron D. Atkinson and edited by David W. Pilley of Harper Grey LLP. If you would like to discuss this case further, please feel free to contact them directly at aatkinson@harpergrey.com or dpilley@harpergrey.com or review their biographies at http://www.harpergrey.com.

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