Non-Marine Underwriters, Lloyd's of London v. Scalera
2000 Supreme Court of Canada
In 1996, a plaintiff brought a civil action against five B.C. Transit bus drivers, including the
appellant, arising out of various alleged sexual assaults between 1988 and 1992. The allegations
included battery, negligent battery, negligent misrepresentation and breach of fiduciary duty. The
appellant owned a homeowner's insurance policy issued by the respondent insurer. The policy
provided coverage for "compensatory damage because of bodily injury" arising from the
insured's personal actions, excepting "bodily injury or property damage caused by any intentional
or criminal act". The British Columbia Supreme Court dismissed the respondent's request for a
declaration that it not be required to defend the appellant against the plaintiff's claims. The Court
of Appeal allowed the respondent's appeal.
Held: The appeal should be dismissed.
This appeal raises the novel question of whether an insurance company has a duty to defend the
holder of a homeowner's insurance policy against a civil sexual assault suit. This appeal concerns
the insurance implications of a series of allegedly non-consensual sexual touchings. For ease of
reference, I will use the term "sexual assault" to refer in general to any allegation of non-
consensual sexual touching. An insurance company's duty to defend is related to its duty to
indemnify. A homeowner's insurance policy entitles the holder to have the insurer indemnify any
liability falling within the policy's terms. Since the insurance company will be paying these
costs, it has also developed the right -- now a duty -- to conduct the defence of such claims.
However, the duty to defend is not so great that it is presumed to be independent of the duty to
indemnify. Absent express language to the contrary, the duty to defend extends only to claims
that could potentially trigger indemnity under the policy. Therefore if an insurance policy, like
the one in this case, excludes liability arising from intentionally caused injuries, there will be no
duty to defend intentional torts.
The appellant owned a homeowner's insurance policy issued by the respondent. The relevant
provisions of that policy are as follows:
Personal Liability: We will pay all sums which you become legally liable to pay as
compensatory damage because of bodily injury or property damage.
You are insured for claims made against you arising from: Personal Liability -- legal
liability arising out of your personal actions anywhere in the world. We will defend, by
counsel of our choice, any suit against you alleging bodily injury or property damage and
seeking compensatory damages, even if it is groundless, false or fraudulent. We reserve
the right to investigate, negotiate and settle any claim or suit if we decide this is
You are not insured for claims arising from:
(5) bodily injury or property damage caused by any intentional or criminal act or failure
to act. To prove a claim for sexual battery, the plaintiff will have to establish that the defendant
intentionally inflicted a harmful or offensive touching on her. In the context of sexual battery,
"harmful or offensive" is equivalent to non-consensual. The same facts that prove the sexual
battery also necessarily prove an intent to injure, and therefore the exclusion clause should apply.
If, on the other hand, the plaintiff cannot establish non-consent, then the plaintiff's action would
have no chance of success, there would be no possibility of a claim for indemnity, and the duty
to defend would not arise.
General Principles of Insurance Contract Interpretation
To begin with, I should like to discuss briefly several principles that are relevant to the
interpretation of the insurance policy in question. While these principles are merely interpretive
aids that cannot decide any issues by themselves, they are nonetheless helpful when interpreting
provisions of an insurance contract.
Insurance is a mechanism for transferring fortuitous contingent risks. Losses that are neither
fortuitous nor contingent cannot economically be transferred because the premium would have to
be greater than the value of the subject matter in order to provide for marketing and adjusting
costs and a profit for the insurer. It follows, therefore, that even where the literal working of a
policy might appear to cover certain losses, it does not, in fact, do so if (1) the loss is from the
inherent nature of the subject matter being insured, or (2) it results from the intentional actions of
In other words, insurance usually makes economic sense only where the losses covered are
unforeseen or accidental. This economic rationale takes on a public policy flavour where, as
here, the acts for which the insured is seeking coverage are socially harmful. It may be
undesirable to encourage people to injure others intentionally by indemnifying them from the
civil consequences. On the other hand, denying coverage has the undesirable effect of precluding
recovery against a judgment-proof defendant, thus perhaps discouraging sexual assault victims
from bringing claims.
Where a contract is unambiguous, a court should give effect to the clear language, reading the
contract as a whole. Where there is ambiguity, this Court has noted "the desirability . . . of giving
effect to the reasonable expectations of the parties". 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. Said another way, the courts should be loath to support a construction which
would either enable the insurer to pocket the premium without risk or the insured to achieve a
recovery which could neither be sensibly sought nor anticipated at the time of the contract.
(i)The Linkage Between the Duties to Indemnify and to Defend.
General principles relating to the construction of insurance contracts support the conclusion that
the duty to defend arises only where the pleadings raise claims which would be payable under
the agreement to indemnify in the insurance contract. Where it is clear from the pleadings that
the suit falls outside of the coverage of the policy by reason of an exclusion clause, the duty to
defend has been held not to arise. At the same time, it is not necessary to prove that the
obligation to indemnify will in fact arise in order to trigger the duty to defend. The mere possibility that a claim within the policy may succeed suffices. In this sense, as noted earlier, the
duty to defend is broader than the duty to indemnify. Absent specific language to the contrary,
the duty to defend is broader than the duty to indemnify only in so far as it extends to groundless,
false, or fraudulent claims.
(ii)The Relevance of the Pleadings
The pleadings govern the duty to defend -- not the insurer's view of the validity or nature of the
claim or by the possible outcome of the litigation. If the claim alleges a state of facts which, if
proven, would fall within the coverage of the policy the insurer is obliged to defend the suit
regardless of the truth or falsity of such allegations. At the same time, it is not necessary to prove
that the obligation to indemnify will in fact arise in order to trigger the duty to defend. The mere
possibility that a claim within the policy may succeed suffices. Furthermore, the duty to
indemnify against the costs of an action and to defend does not depend on the judgment obtained
in the action. The existence of the duty to defend depends on the nature of the claim made, not
on the judgment that results from the claim. The duty to defend is normally much broader than
the duty to indemnify against a judgment
This does not, however, mean that the parties to an insurance contract are to be bound by the
plaintiff's choice of labels, and thus defenceless against inaccurate or manipulative pleadings.
Nichols only held that, having determined the nature of the claim, an insured need not further
prove that the claim would succeed. This is just common sense, since otherwise an insured
would have to prove he is actually liable in order to get an insurer to defend a liability claim. In
my view, the correct approach in the circumstances of this case is to ask if the allegations,
properly construed, sound in intentional tort. If they do, the plaintiff's use of the word
"negligence" will not be controlling. In civil actions for damages that result from an act of child
sexual molestation, an insurer will be relieved from its duty to defend and to indemnify its
insured if the perpetrator is insured under a policy in which there is contained an intentional act
exclusion provision. The fact that the allegations in that complaint are described in terms of
"negligence" is of no consequence. A plaintiff, by describing his or her cat to be a dog, cannot
simply by that descriptive designation cause the cat to bark.
A court must therefore look beyond the labels used by the plaintiff, and determine the true nature
of the claim pleaded. It is important to emphasize that at this stage a court must not attempt to
determine the merit of any of the plaintiff's claims. Instead, it should simply determine whether,
assuming the verity of all of the plaintiff's factual allegations, the pleadings could possibly
support the plaintiff's legal allegations.
Having construed the pleadings, there may be properly pleaded allegations of both intentional
and non-intentional tort. When faced with this situation, a court construing an insurer's duty to
defend must decide whether the harm allegedly inflicted by the ne