Dominion of Canada General Insurance Company v. Hannam

Date: 20130524 Docket: 11/24, 11/25 & 11/26 Citation: Dominion of Canada General Insurance Company v. Hannam, 2013 NLCA 37 IN THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR COURT OF APPEAL BETWEEN: THE DOMINION OF CANADA GENERAL INSURANCE COMPANY APPELLANT (11/24, 11/25, 11/26) AND: LARRY HANNAM RESPONDENT (11/24, 11/25, 11/26) AND: LONA HANNAM RESPONDENT (11/24) AND: JORDAN HANNAM, an infant, by his Guardian ad litem, the REGISTRAR OF THE SUPREME COURT OF NEWFOUNDLAND AND LABRADOR RESPONDENT (11/25, 11/26) AND: RICHARD FLYNN AND JOYCE SQUIRES RESPONDENTS (11/24, 11/25) AND: KAYLA SQUIRES RESPONDENT (11/25, 11/26) AND: TANYA PENDER , an infant, by her Guardian ad litem, SUZANNE PENDER RESPONDENT (11/24, 11/25, 11/26) AND: SUZANNE PENDER RESPONDENT (11/25) AND: UNIFUND ASSURANCE COMPANY INTERVENOR (11/24, 11/25, 11/26) Page: 2 AND: CITY SAND AND GRAVEL LIMITED RESPONDENT (11/25) Coram: Green C.J.N.L., Welsh and Harrington JJ.A. Court Appealed From: Supreme Court of Newfoundland and Labrador Trial Division (G) 200901T3773, 200901T0889 & 200801T4163 Appeal Heard: October 16 & 17, 2012 Judgment Rendered: May 24, 2013 Reasons for Judgment by Harrington J.A. Concurred in by Green C.J.N.L. and Welsh J.A. Counsel for the Appellant: Stephen J. May Counsel for Tanya Pender: Glenda C. Best Q.C. Counsel for Jordan Hannam: Sarah Learmonth Counsel for Larry Hannam and Lona Hannam: F. Geoffrey Aylward Q.C. Counsel for Kayla Squires, Richard Flynn and Joyce Squires: No Appearance Counsel for City Sand and Gravel Limited: Gerry Fleming Counsel for the Intervenor: Terry G. Rowe Q.C. Harrington J.A.: Introduction [1] This appeal arises from the decision of an applications judge that the Dominion of Canada General Insurance Company (“Dominion”) has a duty to defend Larry, Lona and Jordan Hannam in three proceedings which gave rise to the applications by Dominion. [2] For the reasons which follow I would allow the appeal in part by finding that Dominion does not have a duty to defend Larry Hannam in any of the proceedings but owes a duty to defend Lona and Jordan Hannam. Page: 3 Background [3] Larry and Lona Hannam are the parents of Jordan Hannam, a teenager (the “Hannams”). Larry Hannam bought a broad-form homeowner’s insurance policy (the “Policy”) from Dominion that covered the Hannam family household. [4] The pleadings allege that Jordan was operating Larry Hannam’s all- terrain vehicle (“ATV”) with his father’s consent. Jordan is alleged to have loaned the ATV to a teenage friend, Kayla Squires. She is alleged to have allowed her teenage friend, Tanya Pender, to ride as a passenger on the ATV within the confines of a commercially operated gravel pit on the outskirts of St. John’s. Ms. Squires is alleged to have lost control of the ATV, which struck a rock-crushing machine, resulting in serious personal injuries to Tanya Pender. The ATV was not insured under the Hannams’ motor vehicle insurance coverage. [5] Three proceedings were commenced on behalf of Ms. Pender against: (i) the Hannams, (ii) Kayla Squires and her parents, and (iii) the owner of the gravel pit, City Sand and Gravel Limited (“City Sand”). Two of the actions were consolidated. [6] The applications judge set out the following background to the two applications by Dominion: [3] The Dominion of Canada General Insurance Company (“Dominion”) provides homeowner’s insurance to the Hannams under a policy assigned number 0396561, (the “Policy”), which was in effect as of October 1, 2006. Dominion was granted leave to intervene in the three actions and it filed two applications in which it seeks from the court a determination of whether Dominion has a duty to defend Larry Hannam, Lona Hannam and/or Jordan Hannam in any of these actions. In its first application, filed July 21, 2009, Dominion seeks a declaration under Rule 38.01(1)(a) of the Rules of Supreme Court, 1986, S.N.L. 1986, c.42, Sch. D that it does not have a duty to defend Jordan Hannam and Larry Hannam in action 2008 01T 4163. In its second application, filed July 15, 2010, Dominion seeks a declaration under Rule 38.01(1)(a) that it does not have a duty to defend Larry Hannam or Lona Hannam in action 2009 01T 3773; and, further, that it does not have a duty to defend Jordan Hannam or Larry Hannam against the third party claim in action 2009 01T 0889. [4] A consolidation order was made in June 2010, in which it was ordered that action 2008 01T 4163 be consolidated with action 2009 01T 3773 and, further, that these proceedings shall be heard with proceedings in action 2009 01T 0889. The two “duty to defend” applications were, therefore, heard together. Page: 4 [7] The consolidation order affects two proceedings commenced on behalf of Tanya Pender directly against the Hannams. In the first proceeding, Tanya Pender claims (1) that, as the owner of the ATV, Larry Hannam is vicariously liable by statute for the negligent operation of the ATV ultimately causing her injuries; and (2) that both Larry and Lona Hannam are liable for negligence in failing to supervise their son, Jordan. The second proceeding claims that Kayla Squires negligently drove the ATV with the knowledge and consent of both Larry Hannam, the ATV owner, and Jordan, his son. [8] The third proceeding arises from Tanya Pender’s claim against City Sand in negligence for permitting dangerous use of the ATV on its property. City Sand has claimed indemnity from the Hannams based on the allegation of negligence made against them in the other two proceedings. The claim for indemnity by City Sand gives rise to the second of the two applications by Dominion for a determination of whether it has any duty to defend the Hannams. [9] Dominion Insurance intervened in the three actions with leave. It now argues that it has no duty to defend the Hannams under the terms of the Policy, which states that it “does not apply to … the ownership, use or operation, by you or on your behalf, of motorized vehicles except as provided for in special conditions 3 and 4”. [10] Following the decision of the applications judge, Unifund Assurance Company (“Unifund”) subsequently sought and obtained standing as an intervenor in all three proceedings. It provided broad-form homeowners’ insurance to the parents of Kayla Squires. It was not a party to the proceedings at the time Dominion filed its applications to which this appeal relates. It was joined as a third party following the hearing of Dominion’s applications but before the decision appealed was rendered. [11] The applications judge dismissed Dominion’s applications and ordered that Dominion pay party-and-party costs to all parties to the applications. Decision of Applications Judge [12] The applications judge set out the key provisions of the policy together with certain relevant agreed facts: Page: 5 [13] In this case, the Policy is a broad homeowner’s insurance policy issued by Dominion to Larry Hannam. Included in the Policy is personal liability coverage for each of Larry Hannam, Jordan Hannam and Lona Hannam. [14] With respect to personal liability coverage, the Policy states as follows, at page 7: E. Personal Liability Coverage E applies separately, as follows: 1. Personal Liability We will pay on your behalf all sums you become legally liable to pay as compensation for loss because of bodily injury or property damage. Scope of coverage includes but is not limited to:  your personal activities,  your ownership, use or occupancy of premises,  animals or pets you own or in your care,  bodily injury to your residence employees, or  legal liability of others, in relation to the premises, which you assume in writing. [15] Dominion has not disputed that the claims in all three actions fall within this initial grant of coverage. [16] The Policy defines “you” and “your” under the heading “Who is Insured”, as follows: By the terms “you” and “your” used in this Policy we mean:  the person(s) named as Insured on the Declaration Page, and if a permanent resident of the same household,  his or her spouse,  the children of either,  the relatives of either, Page: 6  any person under age 21 in their care. [17] Larry Hannam is identified as the “named insured” on the declaration page of the Policy; Lona Hannam is covered under the Policy as Larry Hannam’s spouse, and Jordan Hannam is covered as their child. [18] The Policy contains the following exclusion at pages 8 and 9: This policy does not apply to Under Coverages E, F, G and H … 12. THE OWNERSHIP, USE OR OPERATION, by you or on your behalf, of … b) Motorized Vehicles, except as provided for in Special Conditions 3 and 4 of Section II; … [20] Special Condition 4 of Section II states: 4. Motorized Vehicles You Do Not Own You are insured against claims arising out of your use or operation of any motorized  land vehicle,  amphibious vehicle, or  air-cushion vehicle which you do not own, provided  it is designed for use principally off public roads, and  it is not used for business or organized racing. You are not insured for damage to the vehicle itself. … Page: 7 [22] There is no dispute that Larry Hannam is the owner of the ATV involved in the accident and that he did not purchase an ATV insurance policy. Dominion conceded that an ATV is a motorized land vehicle principally designed for use off public roads. Dominion has not disputed that coverage under the Policy is extended to all the Hannams. Further, as stated, there is no dispute that the claims fall within the initial grant of coverage. However, Dominion’s position in each of its applications is that the exclusion clause applies and that special condition 4 does not extend coverage to Larry Hannam or Lona Hannam or Jordan Hannam; and, therefore, that there is no duty to defend any of the Hannams in any of the three actions. [13] Dominion’s primary submission was that the ownership-use-or- operation exclusion applied because all pleaded negligent acts or omissions asserted against the Hannams arose from the “ownership, use and operation” of the ATV. The applications judge rejected this argument, finding that the pleaded tortious wrong of “negligent supervision” against the father, Larry Hannam, is “based on responsibility or control over the acts of another person”, citing Cella (Litigation Guardian of) v. McLean (1997), 148 D.L.R. (4th) 560 (Ont. C.A.) at para. 12, and “not a claim based on an act of control over the ATV”. The applications judge saw the proper focus to be whether the Hannams owed a duty to the injured party, Tanya Pender, and concluded that it was not necessary to make a determination on whether there was an aspect of control of the ATV by Larry Hannam, the named insured, or someone on his behalf. She emphasized that it was Kayla Squires, the young female, “who allegedly exercised control of the ATV at the time of the accident through her ‘use’ or ‘operation’ of the ATV”. The applications judge elaborated at paragraph 73: [73] I adopt the reasoning in Cella and find that the claim of negligent supervision against Larry Hannam is a claim based on “responsibility or control over the acts of another person” (Cella, paragraph 12); it is not a claim based on an act of control over the ATV. It requires a determination of whether a duty of care was owed by Larry Hannam to the Plaintiff; it does not require a determination of whether there was an aspect of control of the ATV by him, or on his behalf. Indeed, as stated, it was Kayla Squires who allegedly exercised control of the ATV at the time of the accident through her “use” or “operation” of the ATV; such “use” or “operation” was not claimed as being by, or on behalf of, Larry Hannam. I conclude that the claim of negligent supervision against Larry Hannam does not fall within the exclusion clause of the Policy. It is not a claim based on the “ownership, use or operation” of the ATV by, or on behalf of, Larry Hannam. For the same reasons, I conclude that the claim of negligent supervision against Lona Hannam is not a claim falling within the exclusion clause. Page: 8 [14] Having made the finding that Dominion owed a duty to defend based on her finding that the exclusion clause relating to “ownership, use and operation” did not apply, the applications judge found that it was unnecessary to consider the wording of Special Condition 4 of the Policy. [15] Special Condition 4, headed “Motorized Vehicles You Do Not Own”, is a coverage provision. The terms “you” and “your” are defined to include not only the named insured, Larry Hannam, but also “his spouse”, Lona Hannam and “the children of either”, in this case, Jordan Hannam. Special Condition No. 4 provides that “you are insured against claims arising out of your use or operation of any motorized land vehicle … which you do not own, provided it is designed for use principally off public roads”. Dominion acknowledged that the ATV falls into the category of “motorized vehicle” operating “off public roads”, but otherwise disputes whether this clause would engage a duty to defend any of the Hannams in these proceedings. Issues [16] The appellant’s list of issues is as follows: Does Dominion have a duty to defend either or both of Larry Hannam and Jordan Hannam in Tanya Penders’ secondary claim that Kayla Squires’ negligent driving occurred with the knowledge and consent of Larry and Jordon Hannam? In determining that issue, the following issues will have to be determined: (i) Does the Statement of Claim contain averments constituting a claim in negligence against Larry Hannam and/or Jordan Hannam? (ii) Do the averments contained in the Statement of Claim pertaining to Larry Hannam and Jordan Hannam transferring possession and control of the ATV to Kayla Squires describe a use of the ATV so as to fall within the Exclusion? (iii) Are the averments in the Statement of Claim pertaining to Larry Hannam and Jordan Hannam transferring possession and control of the ATV to Kayla Squires derivative of use or ownership of the ATV so as to fall within the Exclusion? Does Dominion have a duty to defend either or both of Larry Hannam and Jordan Hannam in [City Sand’s indemnity claim] 2011 01H 0025? In determining that issue, the following issues will have to be determined: (i) Does the City Sand and Gravel Claim constitute a claim in negligence against Larry Hannam and Jordan Hannam? Page: 9 (ii) Does the allegation contained in the City Sand and Gravel Claim pertaining to Larry Hannam and Jordon Hannam transferring possession and control of the ATV to Kayla Squires constitute a use by Larry Hannam and Jordan Hannam of the ATV so as to fall within the exclusion? (iii) Are the averments in sub-paragraphs 11(a), (b), (c) and (e) of the City Sand and Gravel Claim derivative of the use or ownership of the ATV so as to fall within the Exclusion and in the case of sub- paragraph 11(d), is the averment derivative of an intentional act so that it falls within another exclusion to the Personal Liability Coverage? Does Dominion have a duty to defend either or both of Larry and Lona Hannam respecting Tanya Pender’s primary claim that Larry Hannam as the ATV owner is vicariously liable for the negligence of Jordan by law and Larry and Lona Hannam are liable for negligence of their son? In determining that issue, it will have to be determined whether the averments made against each of them in the Statement of Claim are derivative of use or ownership of the ATV. Should Kayla Squires, Richard Flynn and Joyce Squires have been awarded costs in the Court below? ANALYSIS 1. General Principles [17] The applications judge recognized that there is a different legal analysis for assessing whether an insured has a duty to defend as opposed to a duty to indemnify. The applications judge correctly outlined the principles to be applied in determining whether an insurer has a duty to defend: [5] The Supreme Court of Canada recently summarized the law pertaining to an insurer’s duty to defend in Progressive Homes Ltd. v. Lombard General Insurance Company of Canada, [2010] S.C.J. No. 33. Justice Rothstein therein referred to the low threshold to invoke the duty to defend: all that is required is the “mere possibility that a claim falls within the insurance policy”. When determining whether such a possibility exists, the true nature of the claim must be discerned based on the pleadings. Justice Rothstein summarized this law at paragraphs 19 and 20 of his decision in which he stated as follows: 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 (Nichols v. American Home Assurance Co., [1990] 1 S.C.R. 801, at pp. 810-11; Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49, [2001] 2 S.C.R. 699, at para. 28; Jesuit Fathers of Upper Page: 10 Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at paras. 54-55). 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 (see Nichols, at p. 810; Monenco, at para. 29). In examining the pleadings to determine whether the claims fall within the scope of coverage, the parties to the insurance contract are not bound by the labels selected by the plaintiff (Non-Marine Underwriters, Lloyd's of London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551, at paras. 79 and 81). The use or absence of a particular term will not determine whether the duty to defend arises. What is determinative is the true nature or the substance of the claim (Scalera, at para. 79; Monenco, at para. 35; Nichols, at p. 810). [6] When examining pleadings for the purpose of determining the true nature of the claim, the court must not engage in a process of assessing the merits of a claim: Monenco Ltd. v. Commonwealth Insurance Co., 2001 S.C.C. 49, at paragraph 34. Rather, the pleadings are to be given very broad latitude; the court may, where reasonable, draw inferences when determining whether a claim is covered by an insurance policy. Justice Iaccobucci stated this in Monenco, at paragraph 31, as follows: Where pleadings are not framed with sufficient precision to determine whether the claims are covered by a policy, the insurer's obligation to defend will be triggered where, on a reasonable reading of the pleadings, a claim within coverage can be inferred. This principle is congruent with the broader tenets underlying the construction of insurance contracts, namely the contra proferentem rule, and the principle that coverage provisions should be construed broadly, while exclusion clauses should receive a narrow interpretation. In Opron Maritimes, supra, the New Brunswick Court of Appeal conveyed these principles by stating at para. 15 that, "[a]ny doubt as to whether the pleadings bring the incident within the coverage of the policy ought to be resolved in favour of the insured". Moreover, in Nichols, McLachlin J. stated at p. 812: I conclude that considerations related to insurance law and practice, as well as the authorities, overwhelmingly support the view that the duty to defend should, unless the contract of insurance indicates otherwise, be confined to the defence of claims which may be argued to fall under the policy. That said, the widest Page: 11 latitude should be given to the allegations in the pleadings in determining whether they raise a claim within the Policy. [7] While wide latitude is allowed with respect to the pleadings, a court must not engage in a quixotic perusal of the pleadings; rather, a court must be realistic in its review thereof and of the insurance policy. Justice Iaccobucci further stated this at paragraph 32 of Monenco as follows: As G. Hilliker writes in Liability Insurance Law in Canada (3rd ed. 2001), at p. 72, some courts have interpreted the foregoing passage as saying that if there is any possibility that the claim falls within liability coverage, the insurer must defend. However, Hilliker also maintains that courts must not engage in "a fanciful reading of the statement of claim merely for the purpose of requiring the insurer to defend". He notes that it is only where there is genuine ambiguity or doubt that the duty to defend must be resolved in favour of the insured party. This principle is articulated in a broader fashion by Andal and Donnelly, who state that "the widest latitude should be given to the allegations in the pleadings in determining whether they raise a claim within the Policy". (See R. V. Andal and T. Donnelly, "Liability Insurance" in C. Brown, Insurance Law in Canada (loose-leaf ed.), vol. 2, at p. 18-13.) INTERPRETATION OF INSURANCE POLICIES [8] In Progressive Homes, Justice Rothstein summarized three interpretative principles to be employed when interpreting the terms of an insurance contract. First, if the language of a policy is clear and unambiguous, effect is to be given to such language; at paragraph 22, Justice Rothstein stated: The primary interpretative principle is that when the language of the policy is unambiguous, the court should give effect to clear language, reading the contract as a whole (Scalera, at para. 71). [9] Second, if the language of a policy is ambiguous, then the court must initially resort to rules regarding the construction of contracts and endeavour to resolve the ambiguity. In Progressive Homes, at paragraph 23, Justice Rothstein indicated that this includes the consideration of an interpretation consistent with the reasonable expectations of the parties, as well as of the language of the policy. Further, this excludes interpretations which were not in the reasonable contemplation of the parties at the time at which the policy was entered; and also, this excludes interpretations leading to unrealistic consequences. Further, Justice Rothstein stated that similar insurance policies should be construed in the same manner. Page: 12 [10] Third, if, after engaging the rules of construction the court remains unable to resolve the ambiguity, then resort should be made to the contra proferentem rule. [11] The contra proferentem rule is a rule of construction which has, as its impetus, the resolution of the inequality in bargaining powers existing when parties enter insurance contracts. This rule of construction requires that ambiguities in insurance contracts be construed against the insurer. The Supreme Court of Canada has elaborated that a corollary of the contra proferentem rule is that insurance coverage provisions are to be broadly interpreted, and exclusion clauses are to be narrowly interpreted (Monenco, paragraph 31). [12] The onus is on the insured to establish that the pleadings fall within the initial grant of coverage (Progressive Homes, at paragraph 29); the onus is on the insurer to establish that the exclusion clause precludes coverage (Progressive Homes, at paragraph 51). [18] An additional governing principle affecting whether a duty to defend may exist is tied to the pleadings of the party who seeks defence by an insurer and ultimately indemnity from liability. This principle engages the “pleadings rule”. [19] In Monenco Ltd. v. Commonwealth Insurance Co., 2001 SCC 49, [2001] 2 S.C.R. 699, Iacobucci J. wrote: [28] Whether an insurer is bound to defend a particular claim has been conventionally addressed by relying on the allegations made in the pleadings filed against the insured, usually in the form of a statement of claim. If the pleadings allege facts which, if true, would require the insurer to indemnify the insured for the claim, then the insurer is obliged to provide a defence. This remains so even though the actual facts may differ from the allegations pleaded. The “pleadings rule” was articulated by the British Columbia Supreme Court in Bacon v. McBride (1984), 5 C.C.L.I. 146, where Wallace J. stated, at p. 151: The pleadings govern the duty to defend - not the insurer's view of the validity or nature of the claim or by the possible outcome of the litigation. If the claim alleges a state of facts which, if proven, would fall within the coverage of the policy the insurer is obliged to defend the suit regardless of the truth or falsity of such allegations. If the allegations do not come within the policy coverage the insurer has no such obligation. ... [29] This reasoning was subsequently adopted by this Court in Nichols v. American Home Assurance Co., [1990] 1 S.C.R. 801, where McLachlin J. (as she then was) indicated that general principles regarding the construction of insurance contracts support the conclusion that the duty to defend arises where the pleadings raise claims which would be payable under the agreement to indemnify in the Page: 13 insurance contract. McLachlin J. also referred to the ruling in Opron Maritimes Construction Ltd. v. Canadian Indemnity Co. (1986), 73 N.B.R. (2d) 389 (C.A.), leave to appeal refused by this Court, [1987] 1 S.C.R. xi, for the proposition that, where it is clear from the pleadings that a suit falls outside policy coverage by reason of an exclusion clause, the duty to defend does not arise. McLachlin J. further noted that it is not necessary to prove that the obligation to indemnify will in fact arise in order to trigger the duty to defend. The mere possibility that a claim falling within the policy may succeed will suffice. In this sense, the insurer’s duty to defend is broader than the duty to indemnify (Nichols, supra, at p. 810). (Emphasis in original.) [20] The decision in Monenco at paragraph 35 holds that an inquiry as to the “substance” or “true nature” of the claims requires that: … the factual allegations set out therein must be considered in their entirety to determine whether they could possibly support the plaintiff’s legal claims. 2. The Ownership, Use or Operation Exclusion [21] I have concluded that the applications judge erred in rejecting the insurer’s submission that the “ownership, use or operation” exclusion is applicable. [22] The applications judge found that use or operation of the ATV was not alleged as being that of Larry Hannam or on his behalf. She concluded that “the claim of negligent supervision” against Larry Hannam did not come within the exclusion as it was not a derivative of his ownership, use or operation of his ATV. The same reasoning applied to Lona Hannam. The applications judge held that there was a possibility that the Hannams could be liable for “negligent supervision” or failure to act, which conduct would be sufficiently remote from any acts or omissions of Larry Hannam so as not to be derived from his ownership, use and operation of the ATV. [23] With respect, I do not agree with this reasoning. The Court is required to assess the substance and not the form of the pleadings when assessing whether a duty to defend exists (see Monenco at paragraph 34). [24] In Non-Marine Underwriters, Lloyds of London v. Scalera, 2000 SCC 24, [2000] 1 S.C.R. 551, Iacobucci J. outlined the proper analytical method to determine a duty: Page: 14 [49] An insurance company’s duty to defend is related to its duty to indemnify. A homeowner’s insurance policy entitles the holder to have the insurer indemnify any liability falling within the policy’s terms. Since the insurance company will be paying these costs, it has also developed the right — now a duty — to conduct the defence of such claims. However, the duty to defend is not so great that it is presumed to be independent of the duty to indemnify. Absent express language to the contrary, the duty to defend extends only to claims that could potentially trigger indemnity under the policy. Therefore if an insurance policy, like the one in this case, excludes liability arising from intentionally caused injuries, there will be no duty to defend intentional torts. [50] Determining whether or not a given claim could trigger indemnity is a three-step process. First, a court should determine which of the plaintiff’s legal allegations are properly pleaded. In doing so, courts are not bound by the legal labels chosen by the plaintiff. A plaintiff cannot change an intentional tort into a negligent one simply by choice of words, or vice versa. Therefore, when ascertaining the scope of the duty to defend, a court must look beyond the choice of labels, and examine the substance of the allegations contained in the pleadings. This does not involve deciding whether the claims have any merit; all a court must do is decide, based on the pleadings, the true nature of the claims. [51] At the second stage, having determined what claims are properly pleaded, the court should determine if any claims are entirely derivative in nature. The duty to defend will not be triggered simply because a claim can be cast in terms of both negligence and intentional tort. If the alleged negligence is based on the same harm as the intentional tort, it will not allow the insured to avoid the exclusion clause for intentionally caused injuries. [52] Finally, at the third stage the court must decide whether any of the properly pleaded, non-derivative claims could potentially trigger the insurer’s duty to defend. … (Emphasis added.) [25] Further at paragraph 85 Iacobucci J. wrote: … [A] court construing an insurer’s duty to defend must decide whether the harm allegedly inflicted by the negligent conduct is derivative of that caused by the intentional conduct. In this context, a claim for negligence will not be derivative if the underlying elements of the negligence and of the intentional tort are sufficiently disparate to render the two claims unrelated. If both the negligence and intentional tort claims arise from the same actions and cause the same harm, the negligence claim is derivative, and it will be subsumed into the intentional tort for the purposes of the exclusion clause analysis. If, on the other hand, neither claim is derivative, the claim of negligence will survive and the duty to defend will apply. … Page: 15 [26] Here the applications judge was determining whether the alleged conduct of the Hannams, particularly that of the named insured Larry Hannam and his son Jordan, constituted negligent acts or omissions in relation to the conduct of Kayla Squires, which could be “sufficiently disparate” that they could not be found to be derived from the “ownership, use and operation” of the ATV. The pleaded torts against the Hannams allege negligent supervision of Jordan Hannam by his parents and ultimately with respect to the actions of Kayla Squires, the alleged operator of the ATV at the time of the collision. Vicarious liability of Larry Hannam is pleaded by virtue of his ownership of the ATV. The pleadings also allege negligent operation of the ATV by Jordan Hannam, particularly in giving a young and inexperienced driver, Ms. Squires, permission to operate the ATV. [27] The difficulty for the Respondents here is that the claims against the Hannam parents are rooted in the allegation of negligent supervision or entrustment of the ATV and in their son’s negligent entrustment or permission to operate to another inexperienced operator. All of this conduct is inextricably linked to the use or operation of the ATV. The applications judge placed great weight on the legal analysis in Cella v. McLean for her finding of a duty to defend. In Cella the plaintiff alleged that the defendant, a passenger in a motor vehicle he did not own, was guilty of contributory negligence in failing to prevent the inebriated driver from operating his vehicle while impaired and further by failing to take steps to prevent the driver from consuming alcohol prior to the accident. The homeowner’s policy wording in Cella is similar to Dominion’s policy. [28] In Cella, the applications judge found a continuous chain of causation between the use or operation of the motor vehicle and the injuries suffered by a passenger in a third-party vehicle as the result of a collision, except for the allegation that the passenger had failed to take steps to prevent the driver from consuming alcohol before operating his vehicle. The allegations against the passenger were found to be beyond the use or operation of the vehicle “because they related to the passenger having failed to take positive steps to prevent the driver from drinking before driving his vehicle”. The applications judge found a duty to defend owed by the homeowner’s insurer on the basis that the alleged negligence by the passenger did not relate to “use or operation” of the motor vehicle. [29] The Ontario Court of Appeal noted that the insurer had acknowledged that the claim against the passenger was a recognized form of negligent entrustment or negligent supervision of a motor vehicle, which could give Page: 16 rise to legal liability. Further such tortious acts had been held to have arisen out of ownership, use or operation within the type of exclusion clause under consideration in these proceedings. However, the Court found that the American and Canadian jurisprudence which applied the exclusion found no duty to defend on the basis that “some element of control by the insured over the instrument which caused the injury, namely, the automobile” was being exercised. [30] The Court also found that the Canadian case law was consistent in its approach. It made reference to the case of Fraser v. Co-operators Insurance Assn. (1986), 54 O.R. (2d) 579 (CA), where a passenger opened a car door into a path of a passing bicyclist. The Court of Appeal, reversing the lower court, found there was no coverage under the homeowner’s liability coverage because the damage was caused by the passenger’s use of the vehicle. [31] In Cella, the Ontario Court of Appeal focused on the allegations against the passenger related to his responsibility or control over “the acts of another person”, i.e. the intoxicated driver, without suggesting that the passenger had any control over the vehicle driven by that person. Put another way, the Court found that liability did not depend on any aspect of control in relation to the use or operation of the vehicle by the passenger. [32] Without regard to this distinction in Cella, the applications judge relied upon its analytical approach to support the proposition that the actions of Jordan Hannam and Kayla Squires were sufficiently remote from the ownership, use or operation of the ATV by the Hannams that the exclusion in Dominion’s policy would not apply. [33] However, the case law has recognized that potential liability for negligent entrustment or negligent supervision with respect to the ownership, use or operation of motor vehicles owned within a family household falls within the general exclusions in similar homeowner’s liability insurance provisions. Dominion insures the Hannams named as defendants in the proceedings. The allegations against them arise out of ownership, use or operation of Larry Hannam’s ATV. Larry Hannam is alleged to be liable for permitting his young son Jordan to operate the ATV and for failing to supervise and prevent use by other young persons such as Kayla Squires. Jordan Hannam is alleged to have negligently permitted a young, inexperienced female friend to operate the ATV. All the tortious acts that are pleaded on the basis of the liability of the Hannams to the injured Page: 17 plaintiff are clearly connected to the ownership, use and operation of the ATV. [34] The decision in Cella was distinguished in a decision involving similar facts to those at issue on these appeals in Silverthorne v. Gore Mutual Insurance (2001), 52 O.R. (3d) 560 (CA). Christopher Silverthorne received his mother’s permission to drive her vehicle. However, without his mother’s permission, Mr. Silverthorne allowed a female friend to drive the vehicle which collided with another vehicle and injured a third party. Mrs. Silverthorne and the woman who drove the vehicle without the owner’s permission were sued. The claim against Mrs. Silverthorne was dismissed because she had not given consent to the driver. The driver was uninsured under the Silverthorne automobile insurance policy. [35] The injured party sued her own automobile insurer, relying on the uninsured motorist coverage under the Ontario insurance legislation. The insurer defended this action and made a third-party claim against the driver and Christopher Silverthorne alleging that the driver of his mother’s vehicle was “an unlicensed, inexperienced and incompetent driver … who ought not to have been in control of a motor vehicle”. It was alleged by the homeowner’s liability insurer that Mr. Silverthorne ought to have known that the female driver was “unlicensed, inexperienced and incapable” of the safe operation of the Silverthorne’s vehicle and further that Mr. Silverthorne had “negligently entrusted the custody, use and operation of his mother’s vehicle to an unqualified and inexperienced driver and thus knew or ought to have known that his actions would expose the innocent third party to injury.” [36] Christopher Silverthorne alleged that he was entitled to a defence of the third-party claim under his parents’ policy. The insurer acknowledged that Mr. Silverthorne was an insured under the policy, but contended that “personal liability” coverage did not extend to “claims made against you arising from … the ownership, use or operation of any motorized vehicle”. [37] The parties in Silverthorne accepted the following principle summarized in the Cella decision at page 331: … Liability for a negligent act or omission will be imposed in situations where there is a sufficient relationship between the injured party and another person which makes it reasonable to conclude that the other person owed a duty towards the injured party and should have known that he would be injured. This liability does not depend on any aspect of control in relation to the vehicle. … Page: 18 [38] While the parties also acknowledged that the facts in Cella were different, they disagreed over whether those differences led to a different result regarding the insurer’s duty to defend. Doherty J.A., writing for the Ontario Court of Appeal, held that the differences did compel a different result. He listed the relevant differences at paragraph 17: Mr. Silverthorne, unlike the defendant in Cella, had possession and control of the vehicle by virtue of the consent given to him by his mother, the owner. In the exercise of that control, he permitted Ms. Bachelor to operate the motor vehicle. Mr. Silverthorne was in control of the vehicle and he chose to exercise that control by putting the vehicle to a particular use, that is, the operation of the vehicle by Ms. Bachelor. [39] While noting that in Cella “the defendant was not the owner of the car, had no connection to the owner, and no connection to the vehicle save that he was a passenger in the vehicle”, Doherty J.A. concluded that the allegations related to the use of the motor vehicle by Mrs. Silverthorne. The insurer was held to have no duty to defend. The Court also rejected the argument that there was an ambiguity in the policy wording that ought to be resolved in favour of the insured. He found no ambiguity with respect to the word “use” as it appeared in the exclusion, which is substantively similar to that found in the Dominion policy at issue here. The applications judge here acknowledged at paragraph 39 that the Ontario Court of Appeal in Silverthorne had found that all of the allegations pleaded in the statement of claim related to the use of the motor vehicle by the owner’s son and “identified the insured’s act of permitting someone else to operate a vehicle as a ‘use’.” [40] Counsel for Tanya Pender relies on the decision in Williams v. Pictou County Farmers’ Mutual Fire Insurance Company, 2001 NSCA 33, 191 N.S.R. (2d) 390, which upheld an interlocutory decision finding a duty to defend insured parents and their daughter under the liability coverage of a homeowner’s policy. There the insured’s under-age daughter allowed her friend to drive an unregistered and uninsured motorcycle acquired from her uncle. The motorcycle was crossing a public highway when it struck a third party vehicle. [41] The teenager’s father, as guardian of the injured child, claimed against her teenage friend and her parents alleging negligence in the operation of the motorcycle by her friend and negligent supervision by her friend’s parents. The Court of Appeal upheld the decision of the applications judge that the Page: 19 claim of negligent supervision was separate from any matter of ownership, use or operation, especially since it was alleged that the father of the injured girl had specifically directed that his daughter was not permitted to ride her friend’s motorcycle. [42] The Court upheld the duty to defend of the insurer. It found that the claim of negligent supervision by Mr. and Mrs. Williams “is not based directly, or necessarily, upon the ownership, maintenance operation or use of a motor vehicle, and no such basis for that claim … is alleged in the statement of claim” (see paragraph 15). [43] The Respondents rely on the decisions in Williams and Cella for the proposition that negligent supervision can be a ground for liability on a stand-alone basis and not be held derivative of ownership, use and operation of the ATV. However, these decisions are distinguishable. In Williams the focus of the claim of negligent supervision centred on the allegation that a parent of a youth injured on the Williams’ daughter’s motorcycle had given specific instructions to the girl’s father that their child was not to operate that vehicle. This allegation was treated by the court as being distinct, i.e. failure to act by the father separate from a claim arising out of the ownership, use or operation of the motorcycle which the father did not own. [44] In Cella, the alleged failure of the passenger in the vehicle to control the behaviour of its inebriated driver was held to involve allegations of negligent acts or omissions that could lead to a finding that the passenger owed a duty of care to an injured party separate from any aspect of control of the motor vehicle. [45] The factual circumstances in Williams are clearly distinguishable from those which are at issue here. The Nova Scotia Court of Appeal concluded its reasons by stating that the applications judge “properly identified negligent supervision as a cause of action arguably separate from any motor vehicle liability claim, particularly in light of the allegation of the specific instructions by Katherine’s father to Lisa’s father” (emphasis added). Further, the facts as pleaded confirmed no ownership interest in the motorcycle by the parents who were the insureds on the homeowner’s policy under consideration. [46] The applications judge noted at paragraph 40 of her reasons that counsel for Larry Hannam had submitted that the word “use” was incorrectly interpreted in Silverthorne and that its “use” relates to the manner in which a Page: 20 vehicle is utilized not to the grant of permission to another person to use the vehicle. [47] The applications judge relied upon an interpretation by the Court in Stevenson v. Reliance Petroleum Limited, [1956] S.C.R. 936, of the phrase “use and operation” in the context of an automobile policy covering a petroleum tank truck that leaked gasoline, leading to a fire. The word “use” was defined in the context of “human direction and utilization of the means”, and this was held to be equivalent to “operation”, which in turn results from “ordinary and well-known activities to which automobiles are put”. [48] With respect, this decision relied upon by the applications judge to reject the application of the ownership-use-or-operation exclusion in these proceedings was decided in an entirely different context and is not applicable. [49] The decisions of the Court in Stevenson and Amos v. Insurance Corporation of British Columbia, [1995] 3 S.C.R. 405, relied upon by the applications judge, involved the interpretation of the phrases “use or operation” or “arising out of the ownership, use or operation of a vehicle” in the coverage provisions of automobile liability policies. In these cases, the focus was on the nature of the vehicles insured and their use or operation at the time of loss to determine whether liability coverage existed for third- party claims. The analysis was centered on the “ordinary and well known activities” that would be reasonably connected to the nature and purpose of the vehicles insured. [50] The applications judge accepted a submission by counsel for Larry Hannam that the “use” as defined in Stevenson could not include “the act of permitting another to operate a vehicle” but was in fact referring only “to the function to which the vehicle was put at the time of the accident”. The applications judge reasoned that to conclude otherwise would be inconsistent with the “purpose” test formulated in Stevenson, which ties the matter of coverage under automobile liability coverage to “the ordinary and well known activities to which automobiles are put”. [51] While the analysis of the term “use” in Stevenson is relevant within the context of automobile liability coverage, it is not applicable with regard to the meaning of “use” in the exclusion found in the Hannams’ personal liability coverage under their homeowner’s policy with Dominion. Page: 21 [52] The applications judge concluded that “use” in this case is linked to actions of Kayla Squires, the operator of the Hannam ATV, in an off-road gravel pit, constituting “an ordinary and well known activity for ATV use”. She concluded that the word “use”, following the reasoning in Stevenson, did not include the act of Jordan Hannam giving consent to a third party (Kayla Squires) to use his ATV and did not apply to use by Larry Hannam. With respect, I do not agree with this analysis. [53] The ATV is acknowledged in this case to be an off-road vehicle. However, it may be registered and insured for motor vehicle liability protection whether it is operated on a highway or off-road. The Hannams chose not to insure the ATV as a motor vehicle. It is acknowledged that the absence of such coverage with respect to the ownership and operation of ATVs or other vehicles for off-highway use is not unusual. There is a live issue in these proceedings as to the application of the provincial legislation governing the ownership and operation of all-terrain vehicles which need not be dealt with here. [54] The applications judge failed to consider that the actions of the insureds themselves in the context of the wording of the Policy exclusions, as opposed to the types of uses to which the ATV could be put, being the nature of the inquiry in Stevenson, is the proper analytical approach. It was the owner who granted permission to his son to drive the ATV, both being insured under the definition of “Who is Insured by the Policy”. Jordan, an insured, gave consent to an inexperienced driver who allegedly drove the ATV into a rock crushing machine. All of these activities clearly arose from the ownership, operation or use of a motor vehicle within the plain meaning of the words of the exclusion clause. That is the substance of the claims pleaded against the Hannams. The reasoning of the Ontario Court of Appeal in Silverthorne is applicable here along with the extensive Canadian and American jurisprudence dealing with the proper interpretation of a policy exclusion similar to that found in the Dominion policy. [55] Dominion has established that the true nature of the claims against the Hannams arise out of the ownership, use or operation of the ATV. Classification of the claim as negligent supervision, entrustment or transfer simply masks the fact that these claims would not have been commenced but for the alleged negligent use and operation of the ATV by the Hannams. The exclusion clause of the policy applies and Dominion has no duty to defend the Hannams subject to consideration of the possible application of Special Condition 4 of the Policy. Page: 22 3. Special Condition 4 – Coverage Clause [56] The applications judge did not find it necessary to consider the second issue of whether Dominion owed any of the Hannams a duty to defend under Special Condition No. 4 of the Policy under the heading “Coverages Applicable”. This condition must be considered in light of the above finding that the “ownership, use or operation” exclusion does apply. [57] The general personal liability provisions of the Policy provide coverage for “all sums you become legally liable to pay as compensation for loss because of bodily injury”. The subsection entitled Scope of Coverage “includes … your personal activities”. Special Condition No. 4 is entitled “Motorized Vehicles You Do Not Own” and provides liability coverage as follows: You are insured against claims arising out of your use or operation of any motorized land vehicle … which you do not own provided it is designed for use principally off public roads … You are not insured for damage to the vehicle itself. [58] The Policy definition entitled “Who is Insured” reads in material part that the term “you” means: The person(s) named as insured … and if a permanent resident of the same household, ● his or her spouse ● the children of either … [59] Larry Hannam is the named insured and the owner of the ATV. The exclusion clause respecting “the ownership, use or operation by you or on your behalf of Motorized Vehicles” already discussed in these reasons specifically refers to the exceptions set out in Special Conditions 3 and 4 which are found in the section entitled “Coverage Applicable” in the Policy. Special Condition 3 headed “Motorized Vehicles You Own”, provides coverage against claims arising out of ownership, use or operation of a limited class of motorized vehicles listed as “lawn mowers, snow blowers, farm or garden-type tractors or implements, golf carts, or wheelchairs”. [60] Of particular relevance here is the interpretation of the word “you” in Special Condition 4. The Hannams argue that it is to be interpreted in the Page: 23 singular. Dominion argues that the word is to be interpreted collectively to include all the Hannams in the household who fall within the definition. Its submission is based upon the notion that the coverage section can only apply to vehicles that are not owned by a party or any of the household members identified in the definition of the word “you” in the policy. [61] The Hannams rely on the principles that coverage clauses are to be liberally construed in favour of the insured and that any ambiguity is to be construed against the insurer. Further, the Hannams assert that the threshold test regarding whether a duty to defend arises is one of “mere possibility” when determining if coverage could apply to the circumstance here where Jordan Hannam could be legally liable for negligently permitting an inexperienced driver, Kayla Squires, to operate the ATV which he did not own. A similar analysis may apply to the existence of a duty to defend Lona Hannam, when the pleadings allege that Jordan was negligently supervised by her with respect to the possession and operation of his father’s ATV. The Hannams submit that the express wording of Special Condition 4 gives rise to the possibility of separate coverage for Jordan and Lona Hannam given that the definition of “you” or “your” could recognize them as insureds with respect to liability relating to the operation of a motorized vehicle that they did not own. [62] Similar issues arose in Cleworth v. Zackariuk (1987), 34 D.L.R. (4th) 722 (BCCA), which involved the interpretation of a homeowner’s personal liability policy issued to the Zackariuks, a married couple, the named insureds. The decision arose from a personal injury claim commenced by two claimants who were injured in the collision of two snowmobiles on a frozen lake. The insureds’ 16-year-old son had been driving one of the snowmobiles which was owned by his parents. [63] The Zackariuks issued a third-party claim for indemnity from their homeowners’ insurer in the event that the claimants were successful. The trial judge found the son negligent and that his negligence was the sole cause of the accident but found that the parents were not vicariously liable because they had not given permission to their son to operate their snowmobile. Nevertheless, the insurer was found liable to indemnify the son under the policy. [64] The wording of the Zackariuks’ policy provided that coverage did not apply “2.(a) to the ownership, use or operation by or on behalf of an insured of any automobile [agreed by the parties to include a snowmobile] … Page: 24 except … (ii) in respect of any automobile, not owned by the insured, designed for use principally off public roads …”. “Insured” was defined to include, “The Named Insured; (2) If residents in the household, his spouse, the relatives of either, and any other person under the age of 21 in the care of an insured.” [65] The trial judge analyzed the language of the policy as follows at page 38: …the real question is the meaning to be given to the word “Insured” as used in exclusion 2.(a) and in exception (ii) to that exclusion. The insurer relies on the definition found in the policy and argues that all possible ownership combinations are thus covered by the exclusion, notwithstanding exception (ii). In other words, the coverage does not apply to the use by any of the insured of a snowmobile owned by the insured. I do not agree. Such argument ignores the grammatical significance of the articles “an” and “the” which precede the word “Insured” as it is found in the exclusion provision and in the exception to the exclusion provision. Coverage E. does not apply to the use by an insured (which by virtue of the definition would include the parents and any relatives living in the parents’ household) of any snowmobile, except when such snowmobile is not owned by the insured. In my view, “the insured” as used in exception (ii) must refer back to the same individual whose use of the snowmobile is otherwise excluded from coverage under exclusion 2.(a). Thus, if A, B, C and D are all insured under the policy, coverage E. will not apply to the use by A of a snowmobile owned by A, but that coverage would not be affected if the snowmobile used by A was owned by B, C or D. For the exclusion provision to have the scope attributed to it by the insurer, the article “an” or the adjective “any” would have to have been used in place of the article “the” immediately before the word “Insured” in exception (ii). [66] The trial judge held that the phrase “the insured” is the exception to the exclusion 2. [67] Accordingly, clause (a) applied only to the son, his parents being the owners of the snowmobile. Before the Court of Appeal, counsel for the insurer critized the reasoning of the trial judge as “absurd” on the basis that the “named insured would not have coverage for injuries caused in operating his own snowmobile”, while his son would be covered. Further, counsel submitted that the trial judge’s reasons ignored the definition of “Insured” which included the named insured together with residents of the household including a spouse and relations of either the insured or the spouse. Page: 25 [68] The Court unanimously rejected the insurer’s submission. Esson J.A. concurred in the result but added further reasons which addressed a line of argument similar to that raised by Dominion here that the words “you” and “your” in Special Condition No. 4 and the identification of “Who is Insured” in the household must be viewed in the collective sense with respect to claims “arising out of your use or operation of any motorized land vehicle … which you do not own”. Although the policy wording in the Zackariuk policy used the definite article “the” and the indefinite article “an” before the word “insured”, the same issue was engaged as to whether a member of the household who did not own the vehicle involved in an accident would be entitled to indemnity for tortious acts associated with its operation. [69] The difficulty for the insurer here, as it was for the insurer in Zackariuk, is that the facts as pleaded contemplate a possible finding of liability against Jordan Hannam for negligence in the operation of the ATV, including his negligence in transferring possession to an inexperienced driver, and against Lona Hannam for negligent supervision of her son with respect to the use and operation of her husband’s ATV. [70] However, the wording of the policy’s personal liability coverage changed with the use of the terms “you” and “your” to delineate to whom coverage may apply. The definitions of “you” and “your” are capable of being read individually or collectively given the multitude of factual scenarios that may give rise to the existence or absence of this form of liability coverage. [71] In Fitzgerald v. Co-operators Insurance Co., 2003 NSSC 129, 214 NSR (2d) 358, Moir J. provided a helpful analysis of homeowner’s personal liability coverage where an ATV owned by the named insured was operated by a teenage child and member of the household. The parents of Michael Fitzgerald sought an order compelling their insurer to defend them in a proceeding commenced by two claimants seeking damage for personal injuries sustained in a collision between the Fitzgerald’s ATV operated by their son and another ATV operated by one of the two claimants. The claim included an allegation that the parents of Michael Fitzgerald owed a duty of care to supervise their twelve-year-old son when he was using the ATV and that their failure to do so was a contributing cause of the collision. [72] A complicating factor for the applications judge in Fitzgerald was the fact that the original statement of claim alleged that the teenage son was the owner of the ATV but an amended statement of claim added a paragraph Page: 26 alleging in the alternative that the father, one of the named insured, was the owner. The applications judge identified the “true nature of the claim” as being: (i) the son’s alleged negligence in operating the ATV; (ii) an allegation against his parents of negligent supervision; and (iii) an allegation against the father of negligent maintenance. [73] Turning to his consideration of the exceptions or special conditions in the Co-operators insurance policy providing for specific coverages for certain vehicles the insured owns or does not own, the applications judge described the submission of counsel for the insurer that the word “your” has only a collective meaning being that “the coverage is for vehicles owned by none of the insureds. It does not extend to the family ATV.” [74] Moir J. discussed whether the word “your” could have different meanings in different sections of the Co-operators policy at paragraph 18: … Sometimes it will be the singular you in either of two senses: “one of you” or “any of you”. Other times it will be the collective, all of you. This is a sensible approach although different meanings for the same word are usually avoided in contracts and statutes. However, the opposite is also arguable. [75] Moir J. then set out a helpful analysis of the use of “your” in coverage exceptions similar to those being considered here. At paragraph 19 he wrote: In English, the second person pronouns are inherently ambiguous because the same word and sound signify different meanings: the second person singular or the second person plural. Contractual intent is at its most fictional with adhesion contacts. Desirable though it is to have contracts that are more inviting to read, it is certainly arguable that the insurer cannot provide a policy that uses the inherently ambiguous second person pronoun and expect the courts to call the pronoun singular or plural according to the insurer’s interest in keeping homeowner liability and motor vehicle coverages separate. By virtue of the definition, whenever the policy says “you” the policy speaks at once to Mr. Fitzgerald, Ms. Fitzgerald, their son, any other relatives living in their home, any other child under their care, residence employees, persons who bear liability for watercraft or animals owned by “you”, “your” legal representatives and insureds living in the house after “your death”. One does not address such a group by saying “On the topic of vehicles you do not own” but meaning, “On the topic of vehicles not owned by any of you”. Because of the inherent ambiguity, “vehicles not owned by you” could mean vehicles not owned by any insured or vehicles not owned by the insured seeking indemnification and “your use or operation” could mean use or operation by any insured or use or operation by the insured seeking indemnification. It all depends on where the policy is speaking of a singular Page: 27 insured and where the policy is speaking of the plural you. A most reasonable conclusion could be that contra proferentem resolves the question in favour of the broadest coverage. [76] Moir J. concluded that, if the father was shown to be the owner of the ATV, then a duty to defend him would not arise, but that there may be a duty to defend the owner’s teenage son. [77] The Saskatchewan Court of Appeal commented on the analysis in Fitzgerald v. Co-operators Insurance in Wawanesa Mutual Insurance Co. v. Hewson, 2004 SKCA 112, [2005] 1 W.W.R. 205. At paragraph 20, Sherstobitoff J.A. identified “the indiscriminate use of the word “your” in a situation where the term was defined by the policy as including a broad group, but was used in contexts where not all of the defined group were intended”. Reference was also made to the comments of Catzman J.A. in Sheppard v. Co-operator’s General Insurance Co. (1997), 33 O.R. (3d) 362 (Ont. C.A.) at p. 367: These inconsistent usages of the words “you” and “your” in the Co-operators policy suggest that it cannot be safely assumed that the word “your” in the coverage clause has its defined, extended meaning wherever it appears. The Court also cited with approval the analysis of Moir J. in Fitzgerald in upholding the trial judge’s finding that a duty to defend existed. [78] A similar result obtains in the instant case. The facts as pleaded are based on negligent entrustment by Larry Hannam of the ATV to his son leading to Kayla Squires’ alleged possession and subsequent negligent use and operation of the ATV. In the process, Jordan Hannam is alleged to have given permission to an underaged and inexperienced Kayla Squires to operate the ATV. The language of Special Condition No. 4 gives rise to the possibility of coverage for Jordan Hannam as well as Lona Hannam regarding negligent entrustment to and supervision of Kayla Squires in the use and operation of the ATV which they did not own. [79] There is no uncertainty with respect to the coverage issue here as it affects Larry Hannam. As owner of the ATV, there is no possibility of coverage under Special Condition No. 4, and he is bound by the “ownership, use or operation” exclusion. Page: 28 Costs [80] Regarding costs, the applications judge ordered: [80] Dominion submitted that, if unsuccessful, costs should be in the cause pending final disposition. I am not persuaded by this position. The issue was whether Dominion had a duty to defend the Hannams and I have found a duty exists in all three actions. Dominion was not successful in its applications. It is therefore further ordered that the party and party costs of both applications, to be taxed, are awarded against Dominion in favour of each of the parties. [81] That order must be assessed in light of the principle of general application regarding costs in a matter involving an insurer’s duty to defend an insured against a claim. The issue is discussed in Ultramar Ltd. v. Rancur Petroleum Services Ltd., 2006 NLCA 55, 260 Nfld. & P.E.I.R. 96. Welsh J.A., for the Court, wrote, in summary: [74] While I was directed by counsel to very little relevant judicial authority, I am satisfied that, in the absence of a clear indication to the 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 the Reed decision [(2003), 171 O.A.C. 145 (C.A.), (leave to appeal refused [2003] S.C.C.A. No. 334)] (paragraphs 22 to 24 quoted above.). A review of the insurance contract in that case … reveals no provision in the contract that directly relates, or could be construed as indirectly relating, to costs incurred by the insured enforcing the duty to defend. In other words, the court’s imposition of the requirement to pay solicitor and client costs for the third party proceedings does not arise from a specific provision in the insurance contract. Rather, it arises from the unique 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” (paragraph 22). … [82] Applying this law, it follows that Lona and Jordan Hannam are entitled to their costs, regarding the third party proceedings brought by Dominion, on a solicitor and client basis. In my view, in the circumstances, Dominion’s successful application in respect of the duty to defend Larry Hannam does not alter this conclusion. For purposes of the duty to defend application, Larry and Lona Hannam were represented by one counsel who made submissions that treat the Hannams, for the most part, as a unit. Accordingly, I would make one order as to costs on their behalf regardless of the determination that Dominion has no duty to defend Larry Hannam. In the result, I would order that Larry and Lona Hannam, represented by one Page: 29 counsel, and Jordan Hannam, represented by separate counsel, are entitled to their costs of the third party proceedings in this Court and in the Court below on a solicitor and client basis. [83] As to the other parties, including the intervenor, Unifund Assurance, I would order them to bear their own costs in this Court and in the Court below. The essence of the application and appeal related to the duty of Dominion to defend the Hannams. There is no basis on which to order that Dominion or the Hannams should be responsible for costs incurred by others participating essentially as intervenors on that specific issue. Summary and Disposition [84] In the result, Dominion has a duty to defend the claims against Lona and Jordan Hannam, but no duty to defend the claims against Larry Hannam. [85] Accordingly, I would allow the appeal in part. Nonetheless, I would order Dominion to pay the solicitor and client costs of the Hannams in respect of the third party proceedings in both this Court and in the Court below. I would order the other parties and the intervenor to bear their own costs in both this Court and in the Court below. ________________________________ M. F. Harrington J.A. I Concur: ______________________________ J. D. Green C.J.N.L. I Concur: ______________________________ B. G. Welsh J.A.