Intentional Torts of Employees: Are Employers Covered or Not?

The Defence Research Institute, a U.S.-based association of insurance counsel, publishes a monthly magazine entitled "For the Defence" which occasionally presents articles by prominent Canadian insurance lawyers.  The most recent edition of the magazine has published an article by Clark Wilson LLP's Neo Tuytel, a copy of which follows. 

As previously reported (Points North, August, 2000), the Supreme Court of Canada has recently followed the lead of most United States courts in denying liability insurance coverage to alleged perpetrators of sexual assaults.  In its reasons in Scalera and Sansalone (2000 SCC 24 & 25), the Court referred to U.S. caselaw, including holdings denying coverage for allegations of negligence which are “derivative” of an intentional sexual assualt. The narrow issue addressed in this article is whether Canadian jurisprudence would support a denial of coverage where, for example, an employer is alleged to be vicariously liable for a sexual or other assault perpetrated by one of its employees.  Specifically, is such liability “derivative” of an intentional tort, and therefore excluded?

In a word, the answer is “no”; at least not yet.

Two of our leading appellate courts have considered similar issues, one before and the other after the Supreme Court’s reasons on no coverage for perpetrators of May 3, 2000.

The decisions of the British Columbia and Ontario (roughly equivalent to California and New York) Courts of Appeal both concerned non-sexual assaults.  In Bluebird Cabs Ltd. v. Guardian Insurance Co., [1999] B.C.J. No. 694, two taxi drivers were alleged to have assaulted persons (presumably customers), on two separate occasions.  The drivers were sued, and the cab company was alleged to be vicariously liable.  In Godonoaga v. Khatambakhsh, [2000] O.J. No. 2172, a minor was assaulted by a group of students.  The mother of one student sent another of her sons to join the assault.  When the infant plaintiff was carried to his home, the two students’ father followed, and interfered with the calling of an ambulance.  In addition to the two brothers, their parents were sued, among other matters, for negligence in raising their children without proper respect for others.

And you thought Canada was such a peaceful country!

Each trial judge upheld denials of coverage to the employer and parents, respectively, but both Courts of Appeal reversed.  In Godonoaga, the Ontario Court of Appeal directly addressed the Supreme Court’s comments on “derivative” liability in Scalera and Sansalone.  The Godonoaga court acknowledged that the Supreme Court’s use of the term “derivative” was “problematic”.  However,

“the sons could readily be held liable for assault and the action in negligence against their parents dismissed.  In this sense the liability of the parents is not derivative of the claims against their sons and cannot constitute a reason for denying them coverage and a defence.”

By logical extension, the same reasoning should apply to claims against an employer for (ex.) negligent hiring, training or supervision of an employee (i.e. such allegations would be covered, but an alleged assault by an employee would be excluded).  But what of ‘pure’ vicarious liability?

Bluebird was decided before Scalera and Sansalone, but squarely addressed coverage for vicarious liability.  The B.C. Court of Appeal noted that (unlike in Godonoaga) there was no allegation of negligence by the non-perpetrator defendant, and then considered the “extremely rich” body of academic literature on vicarious liability.  The Court noted that

“it is not the act of the wrongdoer which is attributed to the employer, nor is it the fault or blame of the wrongdoer that is attributed.  It is the victim’s remedy against the wrongdoer, namely liability for the wrong, which is attributed.”

“In such a case, at least, where the act that triggers liability is a wrongful and unauthorized action [ex. assaulting a customer] in carrying out an authorized task [ex. driving a taxi], it would be extremely unreasonable to attribute the unauthorized acts to the employer or to attribute the fault for the unauthorized acts to the employer.  Surely, the correct view is that it is only the liability itself which is attributed from the wrongdoing employee to the non-blameworthy employer.”

The Godonoaga court went even further on this point.  There, the policy excluded “Bodily Injury or Property Damage caused intentionally by or at your direction or resulting from your criminal acts or omissions.”  Following prior Ontario Court of Appeal authority, the Court held that such wording was, at best, ambiguous, and therefore had the same effect as the “Separation of Insureds” clause in Bluebird.

The Godonoaga court did one more thing of note.  It had regard to the direct recourse provisions of the essentially uniform Insurance Acts in Canada, whereby an injured party can pursue the insurer of a tortfeasor against whom judgement has been obtained, if the tortfeasor fails to satisfy the judgement.  Specifically, the court considered the statutory provision that any such claim would be “subject to the same equities [ex. any exclusion clauses] as the insurer would have if the judgement had been satisfied.”

The court then stated that it,

“[could] not accept the proposition that [the victim’s mother, and litigation guardian] would be disentitled from recovering a judgement in negligence against the parents of the boys who injured her son because her claim is derivative of her son’s claim against the boys themselves.”

All in all, as the Bluebird court noted, it is irrelevant to coverage for an employer or other non-perpetrator that the acts or injuries in question were expected or intended by someone else.  The Godonoaga court has since distinguished Scalera and Sansalone, limiting the Supreme Court’s comments on “derivative” claims to the facts of those cases, neither of which involved claims against employers, parents, or other non-perpetrators of sexual assaults.

For a comprehensive discussion of these issues, you are invited to review the paper Sexual Misconduct Claims :  A Primer for Insurers on Liability and Coverage Issues Involving Sexual Assault, Abuse, and Harassment.

Visitors can read previous editions of the bulletin and other  case law important to the Insurance Industry by visiting the  Clark Wilson LLP website at http://www.cwilson.com/insurance,  and linking to the "Recent Case Law Review" section.