Insured alleges breach of duties to indemnify and defend against claim for injury caused by fire
The Alberta Court of King’s Bench excluded the insured plaintiffs from liability coverage under an insurance policy upon applying the criminal act exclusion in a case involving injury arising from a fire caused by the production of cannabis oil.
In McGregor v Wawanesa Mutual Insurance Company, 2025 ABKB 227, the two plaintiffs owned a detached garage on Pinemill Road in northeast Calgary. The defendant insurance company insured the property under a personal insurance policy.
On Oct. 6, 2017, the first plaintiff was making cannabis oil in the garage and using butane in the process. The plaintiffs did not inform the insurer that they planned to produce cannabis oil there, even though such production was illegal in 2017. The making of cannabis oil caused a fire, which damaged the garage and injured the first plaintiff and two visitors that day.
In April 2019, the first plaintiff pleaded guilty to two criminal charges. He admitted to causing a fire resulting in bodily harm to himself and two others under s. 436(1) of the Criminal Code and unlawfully possessing over one gram of cannabis, a controlled substance under s. 4(1) of the Controlled Drugs and Substances Act, 1996. He received a 24-month sentence.
One of the injured visitors filed a claim for bodily injury and related damages. The plaintiffs requested coverage under the policy for the insurer to defend and indemnify them in this claim. The insurer defended them in the injury claim.
In March 2021, the plaintiffs filed an action against the insurer. They asked for liability coverage under s. II of the policy, which outlined the liability coverage and exclusions.
The insurer applied for a summary trial and requested dismissal of the action. They said the plaintiffs were not entitled to coverage under the policy since exclusion 6 of s. II excluded from indemnity any claims arising from bodily injury or property damage caused by the insured’s criminal acts.
The Court of King’s Bench of Alberta allowed the insurer’s action. First, the court noted that the parties agreed this matter was suitable for summary trial.
Second, the court ruled that the plaintiffs could not access liability coverage under s. II of the policy because the criminal act exclusion applied.
The court noted that s. 533(2) of Alberta’s Insurance Act, 2000, entitled an insured to indemnity in a case arising from a criminal act lacking intention to cause loss or damage. The provision gave the insurer the right to provide otherwise in the insurance contract and exclude claims for indemnity for loss caused by intentional or unintentional criminal acts.
The court found that the defendant insurer exercised that right through exclusion 6 in s. II in the policy. The court said the policy clearly excluded an insured’s act causing injury if it was either an intentional or criminal act.
Though the policy did not require the insured to intend to cause the injury for the exclusion to apply, the court explained the policy required the criminal act to cause the injury for the exclusion to relieve the insurer from its obligation to indemnify the insured.
The court noted that the first plaintiff admitted he caused a fire in the garage that caused bodily harm to himself and two others under s. 436(1) of the Criminal Code. Given this admission, the court concluded that this case had the facts needed to trigger the exclusion and relieve the insurer of its obligation to indemnify the plaintiffs.
The court found R.E. v. Wawanesa Mutual Insurance Company, 2007 ONCA 92, the most relevant case cited and considered its reasoning persuasive. In that case, the Ontario Court of Appeal addressed the criminal act exclusion and decided that the exclusion clearly excluded bodily injury or property damage caused by the insured’s intentional act, criminal act, or failure to act.
Next, the court determined that it did not need to address whether a misrepresentation or failure to disclose a material change in risk voided the liability coverage since it already found the criminal act exclusion applicable in this case.
Lastly, the court tackled the issue of whether the plaintiffs were entitled to coverage under s. I of the policy regarding property. The court noted that the plaintiffs withdrew their property claim and arguments regarding relief from forfeiture under s. 520 of the Insurance Act and advised they would amend their pleadings accordingly.
