The Court of Appeal held that an arbitrator was correct in ruling that an insurer under a liability policy issued to the Board of School Trustees must indemnify the Board for costs it was “legally obligated to pay” for passing unconstitutional resolutions disapproving of books depicting children with same-sex parents. The definition of “wrongful act” under the policy was broad enough to cover the risk of damages for constitutional wrongs.

British Columbia v. Surrey School District No. 36, [2005] B.C.J. No. 364, British Columbia Court of Appeal

The issue raised by this appeal was whether an arbitrator had erred in ruling that the appellant, as the insurer under a liability policy issued to the respondent Board of School Trustees (the “Board”), was required to indemnify the Board in respect of legal fees and costs it was ordered to pay to the petitioners in the underlying action, Chamberlain v. Surrey School District No. 36, [2002] 4 SCR 710.

The petitioners had been successful in having two resolutions passed under the School Act with respect to the approval of “educational resource materials” for use by teachers in school classrooms quashed. The resolutions stated that resources from gay and lesbian groups were not approved for use and declined to approve three books depicting children with same-sex parents. This was challenged in the underlying action and, the Supreme Court of Canada ruled that in passing the resolutions, the Board had failed to act in accordance with the School Act.

Early on in the underlying action, the Board had requested that the Ministry of Education, as the insurer under its “Schools Protection Program” (“SPP”) policy, assume the Board’s defence. The Ministry denied the request on the ground that the claims against the School District were not covered by the policy. The Board and the Ministry proceeded to arbitration pursuant to the Commercial Arbitration Act. The arbitrator ruled that the Board was covered.

The Ministry then appealed to the Supreme Court of BC which upheld the arbitration award.

On appeal, the Ministry argued that the Chambers judge erred in concluding that the pleadings in the Chamberlain proceeding triggered an obligation to defend the petition on behalf of the Board. The Court of Appeal noted that under the SPP policy issued by the Ministry to the Board, s. 6 provided that liability incurred by the Board was covered under the Act for “all loss by reason of any wrongful act arising out of the performance of their duties on behalf of the School District.” The majority of the Court of Appeal held that the definition of “wrongful act” was broad enough to include the Board’s pursuant of policies with respect to school books that were eventually found by the Supreme Court of Canada to be erroneous. Further, the costs ordered to be paid by the Board to the Chamberlain petitioners constituted a “sum which the School District or Board of Trustees is legally obligated to pay as a result of liability arising out of a wrongful act.” However, the Board’s own legal fees were not covered, since the Board was obligated to pay them not “as a result of liability arising out of a wrongful act”, but as a result of retaining counsel to act on its behalf in the Chamberlain litigation.

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