Executive Summary: Key Legal and Evidentiary Issues

• Denial of liability coverage hinged on interpretation of the “criminal act” exclusion in the insurance policy.

• Dispute centered on whether intent to cause harm is required for the criminal act exclusion to apply.

• Mr. McGregor’s guilty plea to criminal charges was central to the insurer’s denial of indemnity.

• Section 533(2) of the Insurance Act considered in determining enforceability of claims involving criminal acts.

• Plaintiffs failed to disclose cannabis oil production, raising issues of misrepresentation and material change in risk.

• Court found no ambiguity in the exclusion clause and upheld its application based on unintentional but criminal conduct.

Background facts
Clifford and Katrina McGregor owned a home with a detached garage on Pinemill Road in Calgary. The property was insured by Wawanesa Mutual Insurance Company under a personal insurance policy effective from August 17, 2017 to August 17, 2018.

On the evening of October 6, 2017, Clifford McGregor was producing cannabis oil in the garage using butane. A fire ignited during this process, resulting in damage to the garage and causing injuries to Mr. McGregor and two visitors, Christopher Coffin and Bryan McIntosh. The production of cannabis oil was illegal at that time. The sole and direct cause of the fire was the use of butane in the cannabis oil production.

Mr. McGregor pled guilty on April 8, 2019 to two criminal charges arising from the incident:

• Criminal negligence causing bodily harm under section 436(1) of the Criminal Code.

• Unlawful possession of cannabis over one gram under section 4(1) of the Controlled Drugs and Substances Act.

The agreed statement of facts included Mr. McGregor’s admission that he was producing hash oil using butane, which likely ignited due to a lit cigarette. He, Mr. Coffin, and Mr. McIntosh suffered burn injuries and were hospitalized.

Mr. Coffin later filed a lawsuit against the McGregors for bodily injury and related damages (Court of King’s Bench action number 1901-13245). Wawanesa initially agreed to defend the McGregors in that action under a reservation of rights.

On March 8, 2021, the McGregors filed a separate action against Wawanesa seeking property coverage under Section I and liability coverage under Section II of the policy. However, at the outset of the summary trial on March 6, 2025, the McGregors withdrew their property claim and their argument for relief from forfeiture under section 520 of the Insurance Act.

The policy provisions at issue
The dispute focused on the following clauses:

• Section I - Exclusion (20): excludes “loss or damage arising directly or indirectly from the...processing...of any drug or narcotic or illegal substance.”

• Section II - Exclusion (6): excludes claims for “bodily injury” or “property damage” caused by “any intentional or criminal act” by the insured.

The policy was also subject to statutory conditions under the Insurance Act, including provisions on misrepresentation (Condition 1) and material change in risk (Condition 4). Section 533(2) of the Insurance Act was also relevant, which permits denial of indemnity if a criminal act was committed with intent to cause loss or damage—unless the policy provides otherwise.

Judicial reasoning and legal analysis
The parties agreed the matter was appropriate for summary trial as there were no factual disputes. The McGregors argued that for the criminal act exclusion to apply, Wawanesa had to prove that Mr. McGregor intended to cause the fire or resulting harm. Wawanesa argued that intent was irrelevant and that the exclusion applied to any criminal act causing injury.

Justice Johnston agreed with Wawanesa. He found that the language of Section II - Exclusion (6) was unambiguous and excluded coverage for bodily injury caused by any criminal act, regardless of intent. He adopted the reasoning in prior cases, including Buttar, Kraiger, Wong Estate, Eichmanis, and Butterfield, where courts similarly held that exclusions for “criminal acts” apply regardless of intent to cause injury.

Justice Johnston emphasized that the exclusion was disjunctive: it excluded coverage for bodily injury caused by either an intentional act or a criminal act. The court found that Mr. McGregor’s guilty plea and admission that the fire was caused by his illegal production of cannabis oil were sufficient to trigger the exclusion.

Since the criminal act exclusion applied, the court did not need to rule on the insurer’s alternative arguments regarding misrepresentation or failure to report a material change in risk.

Outcome
The Court concluded that the criminal act exclusion applied and dismissed the McGregors’ claim. The Plaintiffs were not entitled to liability coverage under the policy.

Costs decision
In a subsequent decision dated June 10, 2025, Justice Johnston awarded costs to Wawanesa under Column 1 of Schedule C of the Rules of Court, along with reasonable disbursements. Although Wawanesa sought enhanced costs due to allegations of bad faith, the court found the matter was not complex, the plaintiffs acted in a cost-effective manner, and their claim was not frivolous. No costs were awarded for the costs application itself, as both parties had mixed success in their submissions.