“Derangement” In Exclusion Restricted to Internal Faults
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.