Pollution Exclusion Clause Applies to Some, Not All of Allegations
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.