A failure to act exclusion clause will be interpreted narrowly and may not apply to allegations of negligence
An appeal by an insured from the dismissal of the third party claim against his insurance company and from a finding that his insurance company was not required to defend him. The appeal was allowed.
Durham District School Board v. Grodesky,  O.J. No. 1829, April 27, 2012, Ontario Court of Appeal, R.J. Sharpe, R.A. Blair and R.G. Juriansz JJ.A.
The appellant was sued by the school board for damage that his son had allegedly caused by starting a fire in a school. The appellant advanced a third party claim against his insurer, ING, pursuant to his homeowner’s policy.
ING brought a motion for a determination that it was not obliged to defend the appellant and also sought to dismiss the third party claim. ING relied upon an exclusion clause in the policy with respect to property damage “caused by any intentional or criminal act or failure to act…”
The motions judge found that the school board’s claim against the appellant fell within the “failure to act” exclusion as the statement of claim had alleged that appellant “failed to act in terms of providing/enforcing a curfew, supervising, disciplining and instilling a respect for private and public property.” The judge held that ING had no duty to defend the appellant and dismissed the third party claim.
The Court of Appeal allowed the appeal and found that the claim was not excluded by the policy. ING was obliged to defend the appellant. Reading the exclusion clause to exclude an intentional or criminal act, and any failure to act, largely negates insurance coverage for negligence as most harms resulting from negligence can be characterized as a failure to act. This would render the insurance coverage provided by the policy as useless.
The school board’s claim was in negligence. Though the negligence claim caused the same harm as the intentional tort committed by the son in setting the fire, it is a distinct claim. It is not derivative of the intentional tort and should not be subsumed under the intentional tort for the purposes of applying the exclusion clause.