William Kennedy First Applicant And: Susan Kennedy Second Applicant And: Intact Insurance Company/Intact Compagnie D'Assurance Respondent, 2023 NLSC 7

court crest IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR GENERAL DIVISION Citation : Kennedy v. Intact Insurance Company , 2023 NLSC 7 Date : January 13, 202 3 Docket : 202101G6442 Between: William Kennedy First Applicant And: Susan Kennedy Second Applicant And: Intact Insurance Company/Intact Compagnie D'Assurance Respondent Before: Justice Robert P. Stack Place of Hearing: St. John’s, Newfoundland and Labrador Date of Hearing: November 28, 2022

Summary: The Applicants sought an Order declaring that the Respondent has a duty to defend them pursuant to a contract of insurance to which they are the parties. In particular, the applicant homeowners sought an order requiring the Respondent to provide a legal defence for the Applicants in an action brought against them arising out of a slip and fall by a person attending at the insured premises to patronize a business run by a third party.

The Court ordered that the Respondent has a duty to defend the Applicants. It held that there was at least a possibility that the Applicants could be held liable for the slip and fall in their personal capacities, irrespective of the third party business. Furthermore, it was held that the Respondent had not established that the loss fell within the business pursuits exclusion under the insurance policy. The Applicants were awarded costs on a full indemnity basis. Appearances: Colin D. Feltham and Patrick Cameron Appearing on behalf of the Applicants Douglas B.

Skinner Appearing on behalf of the Respondent Authorities Cited: CASES CONSIDERED: Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co. , 2016 SCC 37 ; Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada , 2010 SCC 33 ; Martin v. Royal and Sun Alliance Co. of Canada , 2013 BCSC 2047 ; Aviva Insurance Company v. Intact Insurance Company , 2018 ONSC 238 ; Non-Marine Underwriters, Lloyd’s London v. Scalera , 2000 SCC 24 ; Zheng v. John Galon Insurance Services Ltd., 2016 SKPC 90 ; Keizer v. Portage LaPrairie Mutual Insurance Co. , 2013 NSSC 118 ; LeBreton v.

Simcoe & Erie General Insurance Co., [1989] N.B.J. No. 1044, 18 A.C.W.S. (3d) 647 (N.B.Q.B.) ; Lombard General Insurance Company of Canada v. Crosbie Industrial Services Ltd. , 2006 NLCA 55 REASONS FOR JUDGMENT Stack, J. : INTRODUCTION [ 1 ] The Applicants seek an Order declaring that the Respondent has a duty to defend them pursuant to a contract of insurance to which they are the parties. In particular, the Applicants seek an order requiring the Respondent to provide a legal defence for the Applicants in an action brought against the Applicants in the Court, being action styled 201901G4681.

For the reasons that follow, I have decided that the Respondent has a duty to defend the Applicants in that action. [ 2 ] Kimberley Lake, as Plaintiff in the action styled 201901G4681 (the “Plaintiff’s Claim”), claims against the Applicants, as First and Second Defendants, and Judith Kennedy, as Third Defendant, for damages allegedly suffered arising out of an accident at the Applicants’ residence.

Specifically, the Plaintiff alleges that they suffered a slip and fall at 37 Neils Line Extension, in Conception Bay South, in the province (the “Premises”), while bringing their son to a counselling session with the Third Defendant. In the Statement of Claim, the Plaintiff alleges that they fell over a step on the Premises and that the Defendants breached their respective duties to ensure that the step was safe for use, to inspect the Premises, and to provide a warning or notice of the step. [ 3 ] The applicant spouses own and reside at the Premises.

The Respondent insured the Premises pursuant to a home insurance policy (the “Policy”). The Policy includes personal liability coverage and stipulates that the Respondent will provide a defence for the Applicants to any claim brought against the Applicants for damages for unintentional bodily injury or property damage arising out of the Applicants’ personal actions or their ownership, use or occupancy of the Premises.

[ 4 ] The Applicants notified the Respondent of the Plaintiff’s Claim and requested that the Respondent appoint legal counsel to defend them against it. The Respondent advised the Applicants that no coverage is available under the Policy and that it will not defend the Plaintiff’s Claim on their behalf.

The Respondent’s position is: Judith Kennedy is not an “insured” as defined in the Policy; the claim falls under a Policy exclusion related to business use; and the Plaintiff’s Claim relates to a business operated by Judith Kennedy that is not covered by the Home Based Business Extension under the Policy. issues [ 5 ] The ultimate issue is whether the Policy requires the Respondent to defend the Plaintiff’s Claim on behalf of the Applicants. [ 6 ] To address the issue, four questions must be answered: a.

Does the nature of the Plaintiff’s Claim mean that there may be coverage under the Policy irrespective of the questions around the business operated from the Premises by Judith Kennedy? b. Is the claim excluded by the Policy’s business pursuits exclusion? c. Does the Policy’s Home Based Business Extension cover the claim? d. Was there an undisclosed material change in risk that vitiated the Policy? the policy [ 7 ] The Policy is a typical owner-occupied home insurance policy.

The named insureds are William Kennedy and Susan Walsh (for the purposes of this decision, I assume that Susan Walsh is now or is also known as Susan Kennedy). They are the “Insured” under the Policy. Also falling under the definition of Insured are, while living in the same household: a. The spouse of an Insured; b. The relatives of either; and c. Any person under 21 in their care. [ 8 ] The Policy provides insurance for personal liability in

Section II, Coverage E – Personal Liability Coverage, where it states: We will pay all sums which you become legally liable to pay as compensatory damages because of unintentional bodily injury or property damage arising out of: 1. your personal actions anywhere in the world; 2. your ownership, use or occupancy of the premises defined in

Section II. [ 9 ]

Section II of the Policy defines “Premises” as “all premises where the person(

s) named as Insured on the Coverage

Summary page, or his or her spouse, maintains a residence […].” [ 10 ] By Coverage E - Personal Liability, the Policy states, “if any claim is made against you for which you are insured under the Coverage E we will defend you, even if the claim is groundless, false, or fraudulent.” [ 11 ] The Policy contains an exclusion clause in Exclusions –

Section II, which states that the Respondent does not insure “business pursuits or any business use of the premises except as provided under ‘Business and Business Property’ in

Section II.” [ 12 ] A Home Based Business Extension provides exceptions to the business use exclusion: AGREEMENT This form extends the insurance provided by your principal dwelling policy to cover the business conducted from your home and operated by you, or a member of your family residing in the same household as you.

This extension is subject to all the terms, limitations, exclusions and conditions of your principal dwelling policy, except as amended by this form. You have this coverage only if “Home Based Business Extension” and an amount of insurance are shown on your Coverage

Summary page. [ 13 ] It is in light of the foregoing Policy language and the applicable law that I must adjudicate this dispute. the law Insurance contract construction [ 14 ] The Supreme Court of Canada issued a landmark insurance coverage decision in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co. , 2016 SCC 37 . Together with the earlier decision in Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada , 2010 SCC 33 , Ledcor outlines a framework for the

interpretation of insurance contracts and exclusion clauses: a. Where policy language is unambiguous, it must be given effect, reading the insurance contract as a whole; b. General rules of contract

interpretation can be used to resolve any ambiguities; c. Policy

interpretation should be consistent with the realistic expectations of the parties, considering the commercial context; d. Policies should be interpreted consistent with other, similar policies; e. Any remaining ambiguity can be resolved by applying contra proferentem - interpreting the policy against the insurer; f. Coverage provisions are interpreted broadly, and exclusion clauses narrowly; g. The insured has the initial onus to establish coverage; h. The onus shifts to the insurer to establish the application of any exclusion clause; and i.

The onus then shifts back to the insured to establish any exception to an exclusion clause. The duty to defend [ 15 ] A determination as to whether the Respondent is required to indemnify the Applicants for any damages awarded by the Plaintiff’s claim is not before me. At this point, the only issue is whether the Respondent has an obligation to defend the Plaintiff’s Claim on their behalf. [ 16 ] There is a low threshold for the duty to defend in the context of insurance contracts.

The Supreme Court of Canada stated in Progressive Homes , at paragraph 19: An insurer is required to defend a claim where the facts alleged in the pleadings, if proven to be true, would require the insurer to indemnify the insured for the claim […] It is irrelevant whether the allegations in the pleadings can be proven in evidence, that is to say, the duty to defend is not dependent on the insured actually being liable and the insurer actually being required to indemnify. What is required is the mere possibility that a claim falls within the insurance policy.

Where it is clear that the claim falls outside the policy, either because it does not come within the initial grant of coverage or is excluded by an exclusion clause, there will be no duty to defend […]. [ 17 ] I must determine whether it is clear that the claim falls outside the policy, either because it does not come within the initial grant of coverage or is excluded by an exclusion clause to which there is no contractual exception.

In each such instance, there would be no duty to defend. analysis Have the Applicants established coverage under the policy? [ 18 ] I find no ambiguity in the language of the Policy that is the subject of this application. Therefore, according to Ledcor , the policy language must be given effect, reading the contract as a whole. [ 19 ] The onus is on the Applicants to establish that the Plaintiff’s Claim falls within the Policy.

I am satisfied that it does, at least for the purpose of triggering the duty to defend. [ 20 ] Notwithstanding my decision in favour of the Applicants, based upon the Statement of Claim and the facts before me, I find that Judith Kennedy is not an Insured under the Policy definition. They are not a named insured and there is no suggestion that they live at the Premises. However, that does not end the matter.

The Applicants are being sued in their own rights as the owners and occupiers of the Premises for failing to make them reasonably safe, with that failure causing the accident and damages suffered by the Plaintiff. Is there at least a mere possibility that the Plaintiff’s Claim falls within the Policy? I have concluded that there is. [ 21 ] In Martin v. Royal and Sun Alliance Co. of Canada , 2013 BCSC 2047 , the court considered an action arising from a fire at an airport hangar. The insured was one of the directors and officers of the company that owned the building. The Court went on to find a duty to defend:

17. The plaintiffs specifically allege negligence of Mr. Martin in his own capacity, separate from and in addition to the alleged liability of the companies. They do not limit the claim against Mr. Martin to actions in the course of his duties as a director and officer of the companies. Although the particulars alleged against Mr. Martin are almost identical to the particulars alleged against the companies, they are also broad enough, in the absence of further particulars, to include conduct by Mr. Martin outside of his corporate duties and for which the corporate defendants may not be liable.

For example, they would include Mr. Martin's use of the business premises for personal activities unrelated to the business. 18. The issue on this application is not what the plaintiffs may ultimately be able to prove. It is only whether the pleadings raise the possibility of a claim falling within the insurance coverage . I find that they do and the insurer's duty to defend is triggered. [Emphasis added.] [ 22 ] In Aviva Insurance Company v.

Intact Insurance Company , 2018 ONSC 238 , the insured hosted a "jam session" for their musician friends, outside of business hours, in a commercial unit occupied by the insured’s engineering firm. The insured was sued in both their corporate and personal capacities. Aviva, who provided insurance coverage to the business but no personal coverage, provided the defence. Following settlement, Aviva brought an action against Intact, the holder of the personal policy, to recover a portion of the settlement as they claimed Intact owed a duty to defend their insured in their personal capacity.

Intact attempted to rely on the same exclusion clause as is present in this case to deny coverage. At paragraphs 49 and 50, the court points to the fact that the insured was sued in both personal and corporate capacities and found that Intact owed a duty to defend their insured in their personal capacity, while Aviva owed a duty to defend the insured in their corporate capacity. [ 23 ] I am satisfied that, based upon how the Plaintiff’s Claim is framed, there is at least a possibility that the Applicants could be found liable.

This is notwithstanding that the Plaintiff was at the Premises for the purposes of Judith Kennedy’s business. This is not a case where the insured had both a personal and a business interest that was insured as in both Martin and Aviva . The Applicants are sued only as homeowners.

The Plaintiff’s Claim, as pleaded, could possibly result in liability for the Applicants irrespective of the fact that the Plaintiff attended at the Premises to patronize the business of Judith Kennedy. [ 24 ] The Plaintiff’s Claim does not particularize how liability is to be differentiated between the homeowners and the operator of the business. The nature of the relationship between the Applicants and Judith Kennedy is not set out.

Although the Plaintiff pleads that they were at the Premises to avail of therapy services provided by Judith Kennedy, it is not claimed that the ensuing damages arise out of the provision of those services as such. Nor is the claim against the Applicants predicated on the supply of therapy or other services but, rather, is based in negligence relating to the steps, their condition, maintenance, and inspection. [ 25 ] I conclude that there is at least a possibility of personal jeopardy for the Applicants irrespective of the involvement of Judith Kennedy.

Subject to an exclusion in the Policy for which there is no exception, the Respondent would have a duty to defend. Is the Plaintiff’s Claim excluded under the policy wording? [ 26 ] I have concluded above that irrespective of the business conducted by Judith Kennedy from the Premises at the time of the accident, there is a possibility of liability of the Applicants such as to require the Respondent to defend the Plaintiff’s Claim on their behalf.

If that were not the case, and if Judith Kennedy’s business involvement could affect the duty to defend, does the business exclusion clause in the Policy exclude the Plaintiff’s Claim? That clause states that the Respondent does not insure “business pursuits or any business use of the premises except as provided under ‘Business and Business Property’ in

Section II.” As we have seen from Ledcor , the onus is on the Respondent to establish that the exclusion applies.

I have concluded that it has not met that onus. [ 27 ] “Business” is defined in the Policy as “any continuous or regular pursuit undertaken for financial gain including a trade, profession, occupation or agricultural operations.” The Plaintiff pleads: that the Premises were known as JK Consulting & Therapeutic Services (paragraph 1); that Judith Kennedy, as owner of that enterprise, occupied the Premises (paragraph 4); and, that the Plaintiff attended the Premises at the invitation of Judith Kennedy with their son who was attending therapy (paragraph 6).

On its face, therefore, it appears that Judith Kennedy was operating a business from the Premises, at least at the time of the Plaintiff’s accident. [ 28 ] As we saw from Ledcor , however, the exclusion will be construed narrowly (see also, Non-Marine Underwriters, Lloyd’s London v. Scalera , 2000 SCC 24 , at paragraph 70 ). Therefore, the Respondent must establish that Judith Kennedy’s business met the definition of “business” in the Policy exclusion.

Specifically, has the Respondent established that the business conducted from the Premises by Judith Kennedy that day was “continuous or regular” as required by the Policy wording? I find that they have not. [ 29 ] There was no evidence adduced as to how often or in what manner Judith Kennedy conducted business from the Premises. Consequently, I have no evidence upon which I can find that the business they conducted there was continuous or regular. That day may have been an isolated event such as not to engage the exclusion.

Consequently, even if the nature of the claim is based upon the business of Judith Kennedy, such that the exclusion could apply, the Respondent has not met its onus of establishing that it does. i s there an exception to the exclusion ? [ 30 ] The Applicants argue that even if the business exclusion might otherwise apply, then the Home Business Extension provides the necessary coverage. Although not necessary for my consideration because of my findings above, I cannot agree with this submission.

Here, again, the onus is on the Applicants. [ 31 ] I agree with the Respondent that the Home Based Business Extension under the Policy extends insurance as an exception to the business exclusion clause, but only for the disclosed businesses conducted from the Premises and operated by the Applicants. It does not cover any business conducted or operated by Judith Kennedy, notwithstanding how that business might be complementary to a business

captured by the extension. It is because the Applicants have been sued in their personal capacities that there is an obligation upon theRespondent to defend under the Policy, not because the business of Judith Kennedy is covered by the extension. Material change [32] The Respondent acknowledges that the Home Business Extension permits two businesses to be operated from the Premises bythe Applicants. It submits, however, that because of the Applicants’ failure to disclose Judith Kennedy’s business, this amounts to amaterial change in risk to the Policy.

Such an undisclosed material risk, says the Respondent, vitiates the Policy, including the duty todefend. [33] Specifically, the Respondent submits that no coverage was contracted for a third home-based business run from the Premises,even on an occasional basis. The Respondent cited cases where there was no business cover at all and an incident arose as a result of thebusiness operation (Zheng v. John Galon Insurance Services Ltd., 2016 SKPC 90, at para. 42; Keizer v. Portage LaPrairie MutualInsurance Co., 2013 NSSC 118, at para. 68; and, LeBreton v. Simcoe & Erie General Insurance Co., [1989] N.B.J.

No. 1044, 18A.C.W.S. (3d) 647 (N.B.Q.B.), at para. 22). In each instance, the applicable court denied coverage. The Respondent says that becausethe Applicants contracted for coverage for two businesses, and failed to advise the Respondent of the third, they should therefore facethe same result. [34] I find that the Respondent has not met the onus of demonstrating that if there was a change in risk, it was material. We haveseen that the Respondent has not established that Judith Kennedy operated a business from the Premises within the meaning of thePolicy, in the sense of it being continuous or regular.

It has not been proven, therefore, that the business use by Judith Kennedy was“material.” Consequently, the Respondent has not established that there was an undisclosed material change of risk that vitiated thePolicy. costs [35] The Applicants submit that if I find that the Respondent has a duty to defend the Plaintiff’s Claim on their behalf, then theyshould be awarded costs on a full indemnity basis. The Respondent submits that costs should be in the cause.

I agree with the Applicants. [36] The awarding of costs where an insurer was found to owe a duty to defend their insured was discussed in Lombard GeneralInsurance Company of Canada v.

Crosbie Industrial Services Ltd., 2006 NLCA 55, per Welsh, J.A.: 74 While I was directed by counsel to very little relevant judicial authority, I am satisfied that, in the absence of a clear indication tothe contrary in the insurance contract, the insured is entitled to full indemnity of its costs related to enforcing the insurer's duty to defend.The insurer's obligation with respect to costs in this context is broadly stated in [M. (E.) v. Reed (2003), (ON CA),171 O.A.C. 145 (ONCA) (leave to appeal refused [2003] S.C.C.A. No. 334)] (paragraphs 22 to 24 quoted above).

A review of theinsurance contract in that case […] reveals no provision in the contract that directly relates, or could be construed as indirectly relating, tocosts incurred by the insured enforcing the duty to defend. In other words, the court's imposition of the requirement to pay solicitor andclient costs for the third party proceedings does not arise from a specific provision in the insurance contract. Rather, it arises from theunique nature of that contract.

As stated by the Ontario Court of Appeal in Reed, an order for solicitor and client costs in this context"constitutes an exception to the usual rule that solicitor-and-client costs will not be awarded except in unusual circumstances" (paragraph22). […] 75 I have not been directed to any authority that would lead me to a conclusion in this case different from that reached by the OntarioCourt of Appeal in Reed. It follows that Crosbie Industrial is entitled to full indemnity for expenses it incurred in enforcing LombardInsurance's duty to defend it against Ultramar's claim.

Accordingly, Crosbie Industrial is entitled to its costs in respect of the

summarytrial, the costs application and this appeal on a solicitor and client basis. [37] The Respondent has not offered any compelling reason why I should not follow Lombard in this case. Therefore, as wasordered in Lombard, the Applicants shall have their costs on a solicitor and client basis. _____________________________ Robert P. Stack Justice