Insurance law – Homeowner’s insurance – Commercial general liability insurance – Multiple policies – Apportionment and contribution of claim – Coverage – Interpretation of policy – Duty to defend – Exclusions – Business exclusion
Borthwick v. Lombard Insurance,  O.J. No. 4029, 2015 ONSC 4845, Ontario Superior Court of Justice, July 31, 2015, A.D. Grace J.
William Douglas was injured and became a paraplegic when he was struck by a recently felled tree. Mr. Douglas was cutting trees with the insured at Fox Hollow Farm. One of the trees became caught in the branches of another and fell on Mr. Douglas while the two men were attempting to separate them.
Mr. Douglas commenced an action against the insured, L.B. Woodshavings and Farm Equipment and Fox Hollow Farm. The statement of claim alleged that the insured was the owner, employee and/or agent of L.B. Woodshavings and Farm Equipment. The statement of claim alleged the insured was negligent for participating in a tree cutting operation knowing that he and Mr. Douglas lacked the training, qualifications and equipment to do so and entering into a joint venture with Mr. Douglas when he knew or ought to have known that they lacked the experience, training and equipment to conduct the venture safely. The statement of claim alleged L.B. Woodshavings and Farm Equipment was negligent for failing to ensure that the working area of its employees/agents was safe.
Two insurance policies were in force at the time of the incident. Northbridge Personal Insurance Corporation issued a comprehensive homeowner’s policy to the insured and Economical Mutual Insurance Company issued a commercial general liability policy to the insured. The insured filed an application for a determination of whether Northbridge and/or Economical were obliged to defend the action on the insured’s behalf.
The insured provided an affidavit describing his relationship with Mr. Douglas, the accident and the events preceding it. Economical also filed an affidavit of a commercial property and casualty underwriter. The parties did not object to the introduction of the affidavits and the court, with some hesitation, considered all of the evidence on the application.
Northbridge’s comprehensive homeowner’s policy contained the following exclusion:
We do not insure claims arising from:
6. “business” pursuits or any “business” use of the “premises”, except as provided under SPECIAL LIMITATIONS…
The word “business” was defined as “any full time, part‑time or occasional pursuit undertaken for financial gain including a trade, profession or occupation”. The insured owned and operated L.B. Woodshavings and Farm Equipment which supplied wood shavings for the bedding of horses and other animals.
The insured deposed as follows regarding his relationship with Mr. Douglas:
I employed Bill Douglas to complete work for L.B. Wood Shavings in the past, but he was not an employee of L.B. Wood Shavings. Mr. Douglas would work on occasion, when work was available for him. Mr. Douglas completed duties such as running material through the hammer or shaver, delivering products, promoting the business and product sales. Mr. Douglas was not paid hourly for his work. As the business was not very profitable, we divided the profits of the business between us.
The insured learned of an individual who wanted trees removed from a property called Fox Hollow Farm and it was agreed that Mr. Douglas and the insured would remove the surplus trees. The insured determined that the logs would be too large for the mulching machine used to manufacture wood shavings. As a result, the insured and Mr. Douglas agreed to make beams out of the lumber and to split the net proceeds equally between them.
The insured took the position the tree cutting activity was a one‑time event which did not fit the definition of a business. The court rejected this argument and found that the tree cutting activity was an occasional pursuit undertaken for financial gain that fell within the definition of “business”. Accordingly, exclusion clause 6 was applicable and Northbridge did not owe the insured a duty to defend.
Economical argued that it did not have a duty to defend the insured because (1) the tree cutting operations were not within the risks Economical agreed to cover and (2) the insured was involved in a joint venture or partnership which was not a form of business organization that was covered by the policy.
The affidavit provided by Economical’s underwriter stated that Economical only agreed to insure L.B. Wood Shavings and Farm Supplies’ wood shavings manufacturing operations and not tree cutting. Economical based this argument primarily on the declarations page which stated “wood shavings manufacturing” under the words “Commercial General Liability”. The court distinguished Intact Insurance Co. v. Virdi,  O.J. No. 1748 and found that the policy wording did not limit the conduct of the business insured to any particular activity. As a result, Economical’s argument that the tree cutting operations were not within the covered risks was rejected.
In the alternative, Economical argued that the insured was involved in a joint venture or partnership which was not a form of business organization covered by the policy. The court found that the statement of claim alleged that the insured was involved in three different legal relationships: a joint venture, employer/employee and agent/principal. The court found that it could not determine what form of business organization was involved in cutting down trees at Fox Hollow Farm. As a result, it was possible that the claim fell within the coverage afforded by the policy and Economical had an obligation to defend the insured.
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