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Insurance - Specific Terms (2). Construction Distribution & Supply Company Inc. v. Continental Casualty Company (CNA Insurance) ['pollution']
In Construction Distribution & Supply Company Inc. v. Continental Casualty Company (CNA Insurance) (Ont CA, 2024) the Ontario Court of Appeal considered the insurance meaning of 'pollution', which requires an element of escape of some substance:[4] The application judge found that “the commonly understood definition of pollution is the escape of an irritant or contaminant into the natural environment that causes damages related to the clean-up of the contamination, and the costs of investigating, testing, and monitoring the contamination.” In other words, he said, “an ‘irritant or contaminant’ does not become ‘pollution’ unless the substance enters the natural environment, and there is a requirement to investigate, test and clean-up the substance.”
[5] The appellant argues that the application judge construed the exclusion too narrowly, as applying only where an irritant or contaminant is released into the natural environment.
[6] The appellant’s position is that the pollution exclusion does not capture damage caused by a negligent act or omission in the course of regular business activities that incidentally involves pollution if the insured’s business does not normally involve a pollution risk. However, the appellant argues that the exclusion clause applies in this case because the respondents were storing a large volume of liquid chlorine, which it says is a pollutant, and the damage caused by the liquid chlorine to the adjoining business is therefore a form of pollution. Further, the appellant claims that the pollution was not incidental to the respondents’ business because it arose from a known risk of pollution associated with the storage of liquid chlorine. The appellant says that the true nature of the claim is accordingly a claim for damages arising out of a form of pollution.
[7] We do not agree.
[8] The application judge’s finding that the exclusion clause does not apply in this case is supported by the purpose of the insurance and the respondents’ reasonable expectations. The claim in this case is essentially a claim for damages arising out of the respondents’ alleged negligence in the course of conducting their regular business – the very sort of claim that the respondents were entitled to think would be covered by the policy, unless their regular business activities included an inherent risk of pollution. In this case, while liquid chlorine can cause damage if spilled, its storage for the purpose of resale does not comprise an inherent risk of pollution nor, more importantly, does Highland Furniture’s claim, upon which the coverage assessment is to be based, plead the existence of such a risk. The application judge’s finding is consistent with this court’s decisions in Zurich Insurance Co. v. 686234 Ontario Ltd., 2002 CanLII 33365 (ON CA), 62 O.R. (3d) 447, (C.A.) and Hemlow Estate v. Co-operators General Insurance Company, 2021 ONSC 664, aff’d 2021 ONCA 908, 160 O.R. (3d) 467. This is not a case like ING Insurance Company of Canada v. Miracle, 2011 ONCA 321, 105 O.R. (3d) 241, in which the respondent was engaged in an activity (storing gasoline in underground containers) that carried a well-known risk of pollution. Moreover, unlike Highland Furniture’s claim, the claim in that case was for damage to the natural environment, contamination of the soil, and costs of investigating and rectifying the lands. . Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada
In Loblaw Companies Limited v. Royal & Sun Alliance Insurance Company of Canada (Ont CA, 2024) the Court of Appeal considered an insurer appeal of a complex interlocutory application to declare 'duties to defend' and if so, the allocation of legal expenses between defendants, in five merged opioid class actions against several retailers, each with multiple insurers.
Here the court considers the meaning of the term "risk insured" (aka 'peril insured'):(vi) Defence costs are not a peril in the nature of an insured risk
[111] Sixth, I reject the respondents’ submission that the duty to defend the Class Actions is a “risk insured” by the appellants, such that the Primary Insurers have overlapping duties. As Denis Boivin notes in Insurance Law, 2nd ed. (Toronto: Irwin Law, 2015), at p. 28, the concept of “risk” involves two variables: the object of the insurance and the insured peril. The insured object is the person or thing covered by the insurance while the insured peril is the unanticipated occurrence that causes the loss, or as he describes it, the danger that has materialized. Barbara Billingsley, in General Principles of Canadian Insurance Law, 3rd ed. (Toronto: LexisNexis Canada Inc., 2020), at p. 17, similarly characterizes “risk” as the cause of loss or peril.
[112] In my view, defence costs are not a danger or peril in the nature of an insured risk. The relevant peril for which the respondents sought insurance under most of the primary policies was their unintentional infliction of “bodily injury”. That is the harm that is causing the respondents to incur losses. Defence costs are a consequence of that peril, not the peril itself.
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