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Insurance - Flood. Ontario Limited v. Dominion of Canada General Insurance Company
In Ontario Limited v. Dominion of Canada General Insurance Company (Ont CA, 2025) the Ontario Court of Appeal dismissed an appeal, here from an order of a "motion judge declaring that it was responsible for covering the water damage to the respondent’s property".
Here the court considers an useful insurance interpretation regarding 'pipes transecting walls':
[2] The insurance policy at issue had an exclusionary clause which excluded the appellant from covering property damage caused by the discharge of water from watermains, if the water entered the property through basement walls. A watermain burst occurred and caused water to flood into the property via a pipe that transected the basement wall. The appellant denied the respondent’s insurance claim, arguing that the exclusion clause applied because the water entered through the basement wall.
[3] The motion judge granted partial summary judgment to the respondent. He ruled that the exclusionary clause did not apply because the water entered through the pipe, not the wall. After initially stating that the term “wall” was ambiguous, he later determined that its plain meaning does not include a pipe. He reasoned that a wall is unlike a pipe because the former prevents fluids from entering the property, but the latter enables them to enter it. He also found that the pipe, while no longer in use at the time, had not been sealed or altered to make it part of the wall.
[4] We dismissed the appeal because the appellant has not met its burden to prove that the exclusion clause applies: Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, at para. 52.
[5] To begin with, we reject the appellant’s argument that the exclusionary clause unambiguously bars coverage: Ledcor, at para. 49. As the motion judge reasoned, walls and pipes serve conflicting functions. Walls “enclos[e]” and “protect[]” a property against the outside world: Canadian Oxford Dictionary, 2nd ed. (Don Mills: Oxford University Press, 2004), definition of “wall”. Pipes do the opposite. As “tube[s] … used to convey water” from place to place, they enable water to flow into or out of a property: Canadian Oxford Dictionary, definition of “pipe”. While a pipe can be sealed or otherwise altered so that it encloses and protects a property rather than permits entry to it, the motion judge found that did not happen here.
[6] Thus, the appellant’s position is in tension with the clause’s plain meaning. It includes within the wall an item, the pipe, that serves a contrary function. In contrast, the motion judge’s interpretation respects the wall’s distinct function of protecting and enclosing the property from the outside world.
[7] The general rules of contract construction also do not help the appellant: Ledcor, at para. 50. We reject its argument that the parties could not have reasonably expected that a pipe might transect the wall or that extending coverage produces an unrealistic result. Pipes sometimes do transect walls. It is reasonable and realistic to expect insurers to turn their minds to this possibility when drafting policies. Indeed, as the respondent submits, some insurers expressly exclude coverage for damage caused by water that enters through openings in walls, as in Lowe v. Security National Insurance Company, 2006 ABPC 249, at para. 4.
[8] Even if the text and general contract interpretation rules left any ambiguity, we would resolve it by applying the contra proferentem rule and interpreting the exclusionary clause narrowly and against the appellant: Ledcor, at para. 51. As the insurer who drafted the policy, it could have specifically addressed the entry of water through pipes. It must live with the consequences of an ambiguity that its failure to do so created: Co-operators Life Insurance Co. v. Gibbens, 2009 SCC 59, [2009] 3 S.C.R. 605, at para. 25.
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