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Watercraft Exclusion Applies
Published in the September 2010 issue of Litigation Notes - View Article
An insured’s interpretation of an exception to a watercraft exclusion was found to make no commercial sense.
In August of 2007 Mr. Woodbury was towing his son on an inner tube behind his motorboat when the tube collided with another boat. Mr. Woodbury’s son was injured in the accident and sued Mr. Woodbury and the other boat driver. Mr. Woodbury had a homeowner’s policy of insurance with State Farm Fire and Casualty Company (“State Farm”) and he requested that State Farm defend the action on his behalf. State Farm denied coverage on the grounds that the policy did not cover liability arising from the accident.
The State Farm policy provided coverage for personal legal liability but contained an exclusion which provided:
“You are not insured for claims made against you arising from…the following:
a. the ownership, use or operation of any…watercraft, except those for which coverage is shown in this policy…”
The policy also contained the following exception to the exclusion:
“1. Watercraft You Own. You are insured against claims arising out of your ownership, use or operation of watercraft equipped with an outboard motor or motors of not more than 19 kW (25 H.P.) in total when used with or on a single watercraft. You are also insured if your watercraft has an inboard or inboard/outboard motor of not more than 38 kW (50 H.P.).
You are also insured for other watercraft not described above if it is 8 meters (26 feet) or less in length, provided it is not:
designed as an airboat, air cushion, or similar type of craft; or
a personal watercraft using a water jet pump powered by an internal combustion engine as the primary source of propulsion.
Should you acquire any motors or watercraft larger than those stated above after the effective date of this policy, your insurance will be extended automatically for a period of 30 days in order for you to notify us of the acquisition.”
Mr. Woodbury argued that the exception to the exclusion brought his boat back within coverage because it was under 26 feet in length. It was not one of the watercraft “described above” because it had 175 H.P. inboard motor.
The Court reviewed the principles relating to the interpretation of insurance contracts. Firstly an insurance contract, like any other contract, must be interpreted in a commercially sensible fashion, giving effect to the reasonable expectations of the parties at the time they entered into the policy. Secondly, coverage provisions should be construed broadly and exclusion clauses narrowly. Thirdly where there is an exception to the exclusion, the insured bears the burden of establishing that the exception applies. Finally, where ambiguity is found to exist in the wording of the policy, the wording is to be construed against the insured.
In this case the Court concluded that the interpretation urged by Mr. Woodbury would lead to a nonsensical result. It was the clear intention of the parties to provide limited coverage for certain types of watercraft under the policy. Mr. Woodbury’s interpretation would provide unlimited coverage to watercraft of under 26 feet in length, regardless of motor size, thereby rendering the limitation in the first paragraph meaningless. In the Court’s opinion the words “other watercraft not described above” in paragraph 2 of the exception must be interpreted to mean watercraft that are not powered by outboard motors, inboard motors or inboard/outboard motors.
The Court concluded that there was no coverage under the policy and State Farm had no duty to defend in respect of the claim.
Woodbury v. State Farm, 2010 ONSC 4202 (CanLII)