A “mechanical or electrical breakdown or derangement” exclusion in an insurance policy refers to an internal problem or defect in a machine, not an external interruption in the machine’s power supply. As such damage resulting from a loss of power was covered by the CGL policy. The trial judge noted that the equipment did not stop because of an inernal breakdown, but beause of a power outage - in effect the blackout pulled the plug on the machine. The Globe and Mail wrote an interesting article on the trial decision, which notes that the decision allowed a picklemaker to get out of a 4 year old pickle.
Caneast Foods Ltd. v. Lombard General Insurance Co. of Canada  O.J. No. 1811 Ontario Court of Appeal M. Rosenberg, S. Borins and G.J. Epstein JJ.A. May 9, 2008
A regional power outage interrupted the respondent’s electrical supply for twenty-seven hours resulting in spoilage of a large quantity of the respondent’s pickles and cucumbers. The appellant insurance company had attempted to deny the respondent’s insurance claim, relying on two exclusion clauses that precluded recovery based on “change of temperature” and “mechanical or electrical breakdown or derangement.” On a motion for summary judgment the motions judge held that the two exclusion clauses did not apply. The insurance company appealed that decision.
On appeal, the appellant conceded that it could not rely on the “change of temperature” exclusion because of the decision of the Ontario Court of Appeal in 94325 Ontario Inc. v. Commonwealth Insurance Co. (2006). 81 O.R. (3d) 399 (C.A.). However, the appellant argued that coverage should be denied based on the “mechanical or electrical breakdown or derangement” exclusion. The Court of Appeal held that the motions judge had reached the correct result in holding that the exclusion did not apply. The Court of Appeal summarized the principles applied in reaching this conclusion, at para. 24:
“breakdown” and “derangement” refer to an internal problem or defect in a machine, and not the machine’s failure to operate due to an interruption to its power supply caused by a regional blackout. Caneast’s refrigeration did not stop because of some internal defect; it stopped because the power to it was cut off. Moreover, I agree with the motion judge that had Lombard intended to exclude blackouts from the perils covered by the policy, it would have been a simple matter to do so.