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Causation - Insurance Interpretation

. Sky Clean Energy Ltd. (Sky Solar (Canada) Ltd.) v. Economical Mutual Insurance Company

In Sky Clean Energy Ltd. (Sky Solar (Canada) Ltd.) v. Economical Mutual Insurance Company (Ont CA, 2020) the Court of Appeal noted that the law of causation has another existence within insurance contract interpretation:
(i) Interpreting “arising out of”

[78] Finch C.J.B.C. considered several leading Supreme Court decisions that interpreted the words “arising out of” and “arising from”, including: Amos v. Insurance Corp. of British Columbia, 1995 CanLII 66 (SCC), [1995] 3 S.C.R. 405; Lumbermens Mutual Casualty Co. v. Herbison, 2007 SCC 47, [2007] 3 S.C.R. 393; and Citadel General Assurance Co. v. Vytlingam, 2007 SCC 46, [2007] 3 S.C.R. 373. In those cases, the Supreme Court consistently interpreted “arising from” and “arising out of” to require more than a “but for” connection between the liability of the additional insured and the operations of the named insured. While a “but for” test is necessary, it is not sufficient. Specifically, there must be "an unbroken chain of causation” and a connection that is more than “merely incidental or fortuitous”. While those cases involved automobile insurance legislation, Finch C.J.B.C. determined that the words “arising from” and “arising out of” should be interpreted the same way when they appear in the context of insurance contracts, such as additional insured endorsements.

[79] To be clear, while the language of “but for” and “causation” originally emerged from the law of negligence, these concepts have since developed separately in the context of interpreting insurance coverage. In the field of negligence, the “but for” test of causation is used to determine whether the loss suffered occurred as a result of the wrongdoing of the defendant: Clements v. Clements, 2012 SCC 32, [2012] 2 S.C.R. 181. But in the insurance interpretation context, fault is not required for coverage to be engaged, unless specified in the policy. In fact, many insurance policies provide coverage for losses even when no party is identified as being at fault, as is the case here.

[80] I will now explain how these principles were developed and how they came to be applied in the context of interpreting insurance contracts.

[81] In Amos, the Supreme Court interpreted the scope of coverage provided by no-fault motor vehicle insurance, as set out in British Columbia’s insurance legislation. The legislation stipulated that insurance benefits would be paid for death or injury “caused by an accident that arises out of the ownership, use or operation of a vehicle” (emphasis added). The Supreme Court set out a two-part test for interpreting that provision, at para. 17:
1. Did the accident result from the ordinary and well-known activities to which automobiles are put?

2. Is there some nexus or causal relationship (not necessarily a direct or proximate causal relationship) between the appellant's injuries and the ownership, use or operation of his vehicle, or is the connection between the injuries and the ownership, use or operation of the vehicle merely incidental or fortuitous? [Underlining in original; italics added.]
[82] The Supreme Court then extended the principles set out in Amos to two subsequent companion cases involving automobile liability insurance: Herbison and Citadel. In these cases, the Supreme Court interpreted s. 239(1)(a) of the Ontario Insurance Act, R.S.O. 1990, c. I.8, which stipulates that motor vehicle insurance policies will cover loss or damage “arising from the ownership or directly or indirectly from the use or operation of any such automobile” (emphasis added).

[83] Again, the Supreme Court interpreted “arising from” to mean an unbroken chain of causation, which is more than merely incidental or fortuitous: Citadel, at para. 12; Herbison, at para. 12. In Citadel, the insured used his vehicle to transport a boulder onto a highway overpass, he then dropped the boulder onto oncoming traffic. The claimant was struck and injured. In Herbison, the insured drove his truck to a hunting site. On the way, he got out of the truck to shoot what he thought was a deer. Unfortunately, he shot another hunter, who sought indemnity from the driver’s insurer.

[84] In both cases, the Supreme Court found that the injuries did not arise from the operation of the vehicles. While the vehicles were necessary in the “but for” sense – neither insured would otherwise have been at the location of the accident – the injuries arose from other distinct acts. In Citadel, the injury arose from the insured throwing the boulder, and in Herbison, the injury resulted from the insured shooting into the distance.

[85] Given the Supreme Court’s consistent interpretation of “arising from” and “arising out of” in this line of authority, Finch C.J.B.C. concluded that these words should carry the same meaning, regardless of whether they appear in a statute or in a contract. He explained that “it would not further the objectives of certainty and consistency in the law if the terms ‘arising from’ or ‘arising out of’ were to carry different meanings in analogous circumstances”: at para. 42.[86] Finch C.J.B.C. went on to consider the diverging authorities in the United States, noting that some states found a “but for” link between the liability in question and the named insured’s operations to be sufficient, while others required a greater connection.

[87] Having considered both Canadian and American authorities, Finch C.J.B.C. concluded that the phrase “arising out of” imposes a greater requirement than a “but for” test; it “should be construed as requiring ‘an unbroken chain of causation’ and a connection that is more than ‘merely incidental or fortuitous’”: at para. 52.



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