In contemporary Canadian society, a multitude of different living arrangements exist as a result of increased divorce rates, the return of adult children to the home, extended family residing together, and the rise of maintaining residences abroad. If the fluctuating nature of residents in a home is not adequately contemplated by an insurance policy, this can lead to coverage disagreements between the insurer and the insured.
The BC Court of Appeal in Royal & SunAlliance Insurance Company of Canada v. Araujo, 2013 BCCA 324, looked at one such case involving a child whose divorced parents maintained a shared custody living arrangement. The child’s mother maintained his primary residence, but he stayed with his father at the paternal grandparents’ house between two and three times per month for one night, usually from Friday evening to Saturday morning.
The residence in issue was insured by Royal & SunAlliance. The grandparents owned and lived in the home and were the named insureds under the insurance policy. Their two adult sons (one of which is the child’s father) also lived in the home on a full-time basis.
In the early morning hours of Saturday, August 14, 2004, the insured home was firebombed by arsonists. The child was injured, suffering serious burns as a result of the ensuing fire. Ultimately, the child sued his grandparents, his father and his uncle for damages, alleging they were negligent in not knowing such an attack would occur, following a more minor incident the night before.
The insurer sought a declaration that it was not obligated to defend the action, taking the position that the child was an unnamed insured in the policy. As an unnamed insured, his claim was excluded from coverage.
The court reviewed the following policy wording:
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:
- your personal actions anywhere in the world
- your ownership, use or occupancy of the premises defined in Section II.
We do not insure claims made against you arising from …
- bodily injury to you or to any person residing in your household other than a residence employee;
The word “you” is given the same meaning as that defined in Section I:
You or Your means the person(s) named as Insured on the Coverage Summary page and, while living in the same household:
- his or her spouse;
- the relatives of either;
- any person under 21 in their care;
[Emphasis added by trial judge.]
The trial judge followed the approach taken by the Court of Appeals of Indiana in Indiana Farmers Mutual Ins. Co. v Imel, 817 N.E. 2d 299 (2004) (Ind. CA), which stated as follows:
… in order to be a resident… we consider the following elements: 1) whether the claimant maintained a physical presence in the insured’s home; 2) whether he had the subjective intent to reside there; and 3) the nature of his access to the insured’s home and its contents.
In Royal & SunAlliance Insurance Company of Canada v. Araujo, the child did not maintain a physical presence in his grandparents’ home as he had no room of his own and kept none of his possessions there (he routinely slept on the living room sofa during these overnight visits). He did not have the subjective intent to reside there, and his access to the home was dependent on those who lived there on a continuous basis (for example, he did not have a key or the security alarm code to the home). Although his visits were of a certain frequency, the court did not find that approach to be particularly compelling in determining residency status.
Ultimately, the Court of Appeal upheld the trial judge’s decision, finding that the child was not a resident of the home and, therefore, he did not satisfy the definition of “you” under the exclusion clause. He was a “true third party who was in no position to assess the risk of a fire bombing incident taking place” and, therefore, the insurer had a duty to defend the other parties in the action.