Insurance law – Commercial general liability insurance – Interpretation of policy – Exclusions – Pollution exclusions – Duty to defend – Appeals – Standard of review – Pleadings – Underlying action
Precision Plating Ltd. v. Axa Pacific Insurance Co.,  B.C.J. No. 1262, 2015 BCCA 277, British Columbia Court of Appeal, June 18, 2015, P.A. Kirkpatrick, N.J. Garson and D.C. Harris JJ.A.
Appeal by the insurer from a declaration that it was obliged to defend the insured under a CGL policy against third party claims arising from a fire at the insured’s premises. The insured stored vats of chemicals on its premises which it used in the course of its electroplating business. The fire activated the sprinkler system which caused the chemical vats to overflow. Diluted chemicals then spilled into and contaminated neighbouring properties. The issue on appeal was whether the pollution exclusion endorsement excluded damages caused by a release of pollutants which itself was partly caused by the fire.
The underlying judge found that the exclusion cause was ambiguous because the policy covered fire damage while the policy definition of pollution included damage from smoke or soot. Looking to the reasonable expectations of the parties, the underlying judge interpreted the exclusion clause as not excluding coverage for the escape of polluting substance caused by fire and found a duty to defend on the basis that the third party claims were at least in part claims for damage caused by fire.
The appeal court began by determining that the standard of review was correctness on the basis that the CGL policy in the case was a standard form policy contract in wide use in the insurance industry within Canada and the United States. The interpretation of such policies was of general importance beyond any particular dispute and of great precedential value. Thus, the court agreed with previous appellate level reasoning that the primary objective should be certainty.
The court concluded that the underlying judge had erred by asking the wrong question. Rather than asking whether the exclusion operated so as to exclude damage caused by fire, the judge should have looked to the alleged source of liability according to the pleadings. Importantly, the court found that the CGL policy did not cover a claim where liability associated with the release of pollutants is alleged, either as a sole or concurrent cause. As all of the pleadings alleged liability for the release of pollutants, either as a sole or concurrent cause of the loss, there was no possibility that the insurer would be obliged to indemnify the insured and there was therefore no duty to defend. The court allowed the appeal in favour of the insurer.
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