I have previoulsy commented on Leo Deluca v. Lombard, [2008] O.J. No. 1230, an insurance coverage case arising out of the hydro blackout in 2003. In that case, the motion judge denied indemnity under an All Risks policy on the basis of two exclusion clauses. However, in Caneast Foods v. Lombard, [2008] O.J. No. 1811, the Ontario Court of Appeal, interpreting the same two exclusions, came to the opposite conclusion. In Caneast, the hydro blackout caused the spoilage of a substantial quantity of the Plaintiff’s goods. The first exclusion clause excluded losses caused by changes in temperature. However, the clause contained an exception which stated that if the loss was caused directly by a peril insured and not otherwise excluded, then the exclusion did not apply. Since this was an All Risks policy, the blackout was a peril insured. As well, hydro blackouts were not expressly excluded in the policy. Hence, the Court of Appeal affirmed the motion judge’s decision that the exclusion did not apply. The motion judge’s decision in Leo Deluca only gives an excerpt of the change in temperature exclusion clause, but since both cases involved the same insurer, it would be surprising if the exclusion wordings were not similar. The second exclusion dealt with losses caused by mechanical or electrical breakdown or derangement. Unlike in Leo Deluca, the Court of Appeal held that this exclusion only applied to an internal problem in a machine, and not when the machine fails to operate due to an interruption in its power supply. In fact, the Court of Appeal remarked that the motion judge in Leo Deluca had erred in his interpretation.

Raj K. Datt

In Boliden Ltd. v. Liberty Mutual Insurance Co., [2008] O.J. No. 1438, Liberty issued a liability policy to Boliden, which included coverage for its directors and officers. During the coverage period, the directors and officers were indemnified by Boliden for defence costs they incurred in connection with class actions brought against them by shareholders for prospectus misrepresentation. The class actions were commenced in the wake of an environmental disaster at a zinc mine in Spain that was owned by a Boliden subsidiary. Liberty denied coverage under the policy based on a pollution exclusion clause. The class actions settled, and Boliden brought an action against Liberty to recover its defence costs and applied for summary judgment. The motion judge found that the pollution exclusion clause applied to some but not all of the losses arising from the allegations of misrepresentation by the directors and officers. He awarded judgment in favour of Boliden for 80 per cent of the defence costs.

On appeal, Liberty argued that the class action represented a single claim for failing to disclose information in the prospectus about the dam deficiencies, which deficiencies involved the threat of the seepage or escape of pollutants. The class action, it submitted, was therefore a claim in respect of a pollution loss and the exclusion clause applied. The Court of Appeal rejected this argument. It upheld the motion judge’s finding that the pollution exclusion clause excluded pollution-related losses, not pollution-related claims. The clause was ambiguous concerning whether it applied to pollution related claims, and hence this was to be resolved in favour of the insured. The interesting part of the decision is the Appeal court’s rejection of Liberty’s characterization of the class action. The class actions, looked at broadly, essentially arose out of losses sustained from the escape of pollutants. However, the Court of Appeal agreed with the motion judge’s approach of looking at whether or not the pollution exclusion clause applied to each of the specific allegations in the claim.

Raj K. Datt

Leo Deluca v. Lombard, [2008] O.J. No. 1230, is an interesting insurance coverage case arising out of the infamous hydro blackout in Aug. ‘03. The Plaintiffs commenced the claim as a class action, and sought coverage under an All Risks CGL policy. The Plaintiffs sought damages for the loss of their stock and for business interruption. Lombard denied coverage on the basis of two exclusions: damage caused by (1) changes of temperature or (2) mechanical or eletrical breakdown or derangement in or on the premises. The court held that both exclusions applied, and hence the action was dismissed. The court rejected the Plainitffs’ argument that clause (1) was restricted to only atmospheric changes in temperature.  It also rejected the argument that clause (2) only applied to when the Plaintiffs’ equipment itself did not work properly. The equipment itself was not faulty, and in fact continued working once power was restored. The court found that clause (2) applied regardless of the cause of the breakdown (i.e. external or internal).

The court’s decision demonstrates the point that although this was an All Risks policy, a fact that is sometimes used to justify a stricter reading of an exclusion clause, the court will endeavor to enforce the plain meaning of policy wording.    

Raj K. Datt

RioCan Real Estate Investment Trust v. Lombard Insurance Co., [2008] O.J. No. 1449, concerns whether an insurer has a duty to defend claims which are partly excluded under the policy. RioCan operated two malls and had been sued in two separate actions for injuries sustained from falls on ice or snow in the mall parking lots. RioCan had hired a winter maintenance contractor to remove the snow and salt in the lots, and required the contractor to add RioCan as an additional insured in the contractor’s policy with Lombard. This was done and the policy covered RioCan for the negligence of the contractor only, and not for RioCan’s negligence. The Statements of Claim in the actions alleged (a) that RioCan did not have an adequate system of inspection in place, and (b) it failed to clear the lots of snow and ice. Allegation (a) dealt solely with RioCan’s actions, whereas (b) dealt with actions which could be attributed to the contractor. Thus, RioCan was partly covered by the Lombard policy.

However, Lombard argued against coverage on the basis that it would be placed in an impossible position if it were obliged to defend the conflicting allegations. For example, in order to properly defend the claim for negligence against the contractor, it may plead and argue at trial that the contractor did fulfil its duties under the contract but that certain actions or omissions of RioCan were negligent or was in breach of its statutory obligations. To the extent that the claim against RioCan was factually based on the scope of work of the contractor, Lombard could defend by raising the obligations of RioCan as an occupier. It would be in the financial interest of Lombard to allege that any fault found falls outside the scope of work of the contractor. In this way Lombard would not be obliged to indemnify RioCan. If Lombard was responsible to defend RioCan on all the claims, it would be working against its own interest. Lombard relied upon D’Cruz v. B.P. Landscaping Ltd., [2007] O.J. No. 2704, a case with very similar facts to RioCan’s. In D’Cruz, the court held that the insurer did not have to defend the property owner as to order otherwise would require the insurer to defend the property owner for its own alleged acts of negligence. Further, since the insurer was already defending the contractor, it was not necessary for the insurer to also defend the property owner for neligligence arising from the contractor. 

The court in RioCan distinguished D’Cruz on the basis that the court did not have the benefit of the Ont. C.A. decision of Appin Realty Corp. v. Economical Mutual Insurance Co., [2008] O.J. No. 436. The potential conflict highlighted by Lombard could be dealt with, for example, by RioCan retaining its own separate counsel and paid for by Lombard. Accordingly, the court found that Lombard did owe RioCan a duty to defend and had to defend it against the “entire claim”. The court’s decision in RioCan  may raise some concern for insurers as it is debatable whether others in the insurance pool should be taxed with providing defences for matters which may clearly be outside the scope of the policy. As well, an insurer may understandably be reluctant to sign a”blank cheque” and cover whatever costs are borne by whatever lawyer is retained, no matter how expensive. These concerns were highlighted by the Supreme Court of Canada in Nichols v. American Home Assurance Co., [1990] 1 S.C.R. 801, where it was held that the practice should be for the insurer to defend only those claims which potentially fall under the policy, while calling upon the insured to obtain independent counsel with respect to those which clearly fall outside its terms.

Raj K. Datt

In CUMIS General Insurance Co. v. 1319273 Ontario Ltd. (c.o.b. Done Right Roofing), [2008] O.J. No. 1268, a motorcyclist was struck by a ladder when it flew off a Done Right truck, causing injuries. The motorcyclist sued, claiming that Done Right’s employees had negligently stored the ladder on the truck. Done Right sought coverage under a CGL policy with CUMIS. However, CUMIS denied a duty to defend on the basis of two exclusions: (1) bodily injury arising out of the ownership, use or operation by Done Right of any automobile; (2) bodily injury with respect to which any motor vehicle liability policy is required by law to be in effect. The application judge agreed with CUMIS and held that exclusion #2 applied.

Before the Court of Appeal, Done Right conceded that the case law under s. 239 of the Ontario Insurance Act had established that the the loading and storage of a ladder on a truck comes within the scope of the “use or operation” of a truck. Instead, it sought to avoid exclusion #2 by arguing that it defeated its reasonable expectations. The Court disagreed. Done Right sought to avoid the application of exclusion #1 by arguing that it did not expressly exclude the loading of an automobile. It pointed to watercraft and aircraft exclusions in the policy which did expressly exclude “loading or unloading”. Done Right’s argument was based on the implied exclusion maxim, which states that the express mention of one thing means the exclusion of others not expressly mentioned. It was an interesting argument given that this maxim is typically applied in cases of statutory interpretation. The application judge found the argument to be “attractive” (though moot given the application of exclusion #2), and rejected CUMIS’s argument that the maxim could not be applied to exclusion clauses in an insurance policy. However, the Court of Appeal did not agree that the maxim was of any assistance to Done Right. It held that it was unnecessary for exclusion #1 to expressly exclude loading or unloading since the case law was clear that this waswithin the scope of the “use or operation” of a truck anyway. This could not be said for boats or airplanes. However, it appears that the Court of Appeal accepted that the implied exclusion maxim could, in general, be used to interpret exclusion clauses contained in insurance policies.

Raj K. Datt

Appin Realty Corp. v. Economical Mutual Insurance Co., [2008] O.J. No. 436, is an interesting decision by the Ontario Court of Appeal dealing with the age old issue of an insurer’s duty to defend. The insured had been sued for bodily injury arising from exposure to mould and/or bacteria. The insurer relied upon an exclusion clause which excluded coverage for bodily injury caused by mould. The motions judge found that the exclusion did not apply since bacteria was a non-excluded peril and had been plead by the plaintiff. On appeal, the insurer argued that the presence of the word “alleged” in the exclusion absolved the insurer of a duty to defend, even though a non-excluded peril was also alleged. The effect of this interpretation would be that the insurer would have a duty to indemnify (if, after a trial, it was proven that the injury was caused solely by bacteria), but its duty to defend would not be triggered.

This was an interesting argument given, as remarked by the Court of Appeal, it stands on its head the general proposition that the duty to defend is broader than the duty to indemnify. The key to the insurer’s argument was the existence of concurrent exclusion language, which precluded coverage even if there were any contemporaneous causes. The Court of Appeal ultimately rejected the argument since on another possible interpretation, the clause could be taken to mean that wherever injury from mould is alleged in a claim, even if it is ultimately established that the injury arose solely from a covered peril, such as bacteria, the claim would exclude both the duty to defend and the duty to indemnify. This would extend the exclusion to otherwise non-excluded perils. However, the Court of Appeal did leave the door open for an insurer to make its duty to defend more narrow than its duty to indemnify, though this would require more clear and less ambiguous language.

Raj K. Datt

In Lloyd’s Underwriters v. Dominion of Canada General Insurance Company, [2008] O.J. No. 877 (ON SCJ), the court was asked to determine the applicable limitation period for a loss transfer indemnity claim concerning accident benefits which were paid prior to the enactment of the Limitations Act, 2002, S.O. 2002, c. 24. Lloyd’s sought to overturn the decision of the Arbitrator who concluded that the applicable limitation period was 6 years. Lloyd’s argued that the applicable period was 2 years, pursuant to s. 206(1) of the Highway Traffic Act, R.S.O. 1990, c. H.8, which would have reduced the claim by approximately $185K. The court upheld the Arbitrator’s decision, and stated thaton a plain reading of s. 206, Dominion’s claim was not a claim “for the recovery of damages occasioned by a motor vehicle”. Instead, it was a claim for indemnity based on a purely statutory obligation (s. 275(1) of the Ontario Insurance Act). Dominion’s right to indemnity arose not by virtue of any principle of common law or insurance law, but by virtue of the statutory right of indemnity. A claim for indemnity is not a claim for damages.

Raj K. Datt