This case concerned coverage under a motor vehicle policy for damage to a car caused by a fire. The fire started as a result of the driver spinning the rear tires recklessly, which led to the rear axle of the car breaking. Heat then built up in the tire wells, starting a fire. The Insurance Corporation of British Columbia ("ICBC") denied coverage as the insurance policy did not cover mechanical "loss or damage" such as the breaking of an axle.
The Court of Appeal allowed the appeal on the basis that the term "loss or damage" in an exception to an exclusion had a narrower meaning than the same term in the exclusion itself. Although there was an exclusion for mechanical damage, there was an exception if the loss or damage claimed for was caused by "fire". As the insured was not claiming for the breaking of the axle (the "mechanical damage"), but rather the damage caused by the fire, there was an exception to the exclusion clause.
Swailes v. Insurance Corp. of British Columbia  B.C.J. No. 319, March 2, 2011, British Columbia Court of Appeal, L.S.G. Finch C.J.B.C., M.E. Saunders and K.E. Neilson JJ.A.
The appellant insured leased a vehicle that he insured under a comprehensive policy with the respondent insurer, the Insurance Corporation of British Columbia. The insured's vehicle was destroyed by fire and ICBC denied coverage under the policy. The insured brought an action for indemnity and replacement cost of the vehicle and at trial the action was dismissed. The trial decision is summarized at HARP/2009-083,  B.C.J. No. 1928.
The insured's policy of insurance was for "comprehensive coverage", which included coverage for loss or damage caused by fire, theft, and malicious mischief, among other risks. ICBC denied coverage pursuant to s.132(1) of the Insurance (Vehicle) Regulation, which provides:
The corporation is not liable to indemnify any person under comprehensive or collision coverage for loss or damage
(a) to tires,
(b) consisting of, or caused by, mechanical fracture, failure or breakdown of any part of a motor vehicle, or
(c) caused by
(ii) explosion within the combustion chamber,
(iv) freezing, or
(v) wear and tear,
unless the loss or damage is coincidental with other loss or damage for which indemnity is provided under comprehensive or collision coverage or is caused by fire, theft or malicious mischief.
At trial it was found that plaintiff had spun the tires of the vehicle excessively, causing a build up of heat in the rear fender wells and also causing the left rear axle to snap. The damage to the rear axle immobilized the vehicle, which caused the heat to build up in the fender wells to the point where the rubber tire residue, plastic, and fibreglass materials in both wheel wells ignited, causing the fire. The trial judge held that it was the mechanical damage to the rear axle which immobilized the plaintiff's vehicle, creating the condition which caused the heat to build up in the rear fender wells to the point where ignition occurred.
The trial judge considered the exclusion provided by s.132(1)(b) and the exception to that exclusion, and held that the words "or is caused by fire, theft or malicious mischief" referred to the same types of "loss or damage" specifically enumerated in subsections 132 (1)(a), (b), and (c), with the result that any loss or damage coming within s.132(1)(b) would be excluded unless that loss was coincidental with other loss or damage for which indemnity was provided or was caused by fire, theft, or malicious mischief. The trial judge concluded that coverage for the loss was excluded because the fire was caused by the mechanical failure of the left rear axle and this mechanical failure was an excluded loss which was neither coincidental with the fire loss nor caused by fire, theft, or malicious mischief.
On appeal, the Court held that the trial judge had erred in defining the term "loss or damage" in the exception to s.132 too narrowly, by restricting it to the types of damage in s.132(1)(a), (b) and (c). The Court noted that the term "loss or damage" in the introductory words of s.132 was clearly intended to refer to loss or damage generally for which an insured claimed indemnification, and to restrict the interpretation of loss or damage in the exception to the types of damage specified in s.132(1)(a), (b) and (c) would lead to an unacceptable inconsistency.
The Court concluded that the meaning of the provision was clear. If the loss or damage was caused by mechanical failure, failure or breakdown, the exclusion will ordinarily apply, unless that loss or damage was caused by fire. In this case, the exception operated to bring the loss back within coverage, in spite of the finding that the fire was caused by a mechanical failure, which would have otherwise operated to exclude coverage. The Court noted that this interpretation of the exception was consistent with the comprehensive coverage as defined in s.1 of the Regulation, which included a loss or damage arising from fire, theft, or malicious mischief. The intent of the exception in s.132(1) was to preserve that coverage in cases where the exclusion would otherwise apply.
In the result, the Court held that the loss was covered and allowed the appeal.
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