Insurers had duty to defend insureds against claim for damages arising from alleged migration of contamination notwithstanding environmental and pollution liability exclusions in policies

13. February 2018 0

Insurers had duty to defend insureds against claim for damages arising from alleged migration of contamination notwithstanding environmental and pollution liability exclusions in policies.

Insurance law – Commercial general liability insurance – Pollution exclusions – Duty to defend – Costs – Special costs

West Van Holdings Ltd. v. Economical Mutual Insurance Co., [2017] B.C.J. No. 2670, 2017 BCSC 2397, British Columbia Supreme Court, December 29, 2017, DeWitt-Van Oosten J.

The insureds were sued for damages allegedly due to the migration of contamination from property owned and used by them to adjacent lands.

Two insurers provided commercial general liability insurance to the insureds. The insureds brought an action against the insurers seeking a declaration that the insurers had a duty to defend them in the lawsuit.  The insurers had denied any such obligation.

The insurers conceded that the claims advanced against the insureds fell within the initial grant of coverage; however, denied coverage on the basis of an “environmental liability” exclusion and a “pollution liability” exclusion.

In the action against the insureds, the plaintiffs alleged that over time the lands had been used for multiple purposes including a dry‑cleaning and automotive repair business. The plaintiffs alleged dry‑cleaning chemicals and petroleum products were used, kept, disposed of, handled, or treated on the lands in a manner that caused or allowed the contaminants to be discharged or deposited into, or to escape and enter the soils and groundwater of the adjacent property.

The insureds’ position in the action against the insurers was that the scope and application of the environmental and pollution liability clauses is limited and do not preclude coverage for all of the potential sources of liability alleged in the underlying action. In particular, the insureds argued that they were potentially liable, not only for damages resulting from their alleged acts or omissions, but because of the Environmental Management Act, for damages arising from the acts or omissions of predecessor owners and/or users of the lands.  The insureds argued that such claims are not clearly and unambiguously excluded by the environmental and pollution liability clauses.

The Court ultimately concluded that the environmental and pollution liability clauses did not clearly and unambiguously preclude coverage, finding there is a “mere possibility” of coverage for one or more claims and therefore the exclusions are ambiguous. Accordingly, the Court declared that the insurers had a duty to defend the insureds and to pay the costs of the action as special costs.

This case was digested by Cameron B. Elder, and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter.  If you would like to discuss this case further, please contact Cameron B. Elder at celder@harpergrey.com.

To stay current with the new case law and emerging legal issues in this area, subscribe here.