British Columbia Insurance Blog : Canada Insurance Lawyer & Attorney : Michael Thomas of Harper Grey Law Firm : British Columbia, Vancouver

The Claimant was the owner of an apartment building and leased the apartments to individual lessees pursuant to 99 year leases. A water leak from the Defendant’s apartment caused damage to several apartments. At issue was whether the Defendant was liable to pay the cost of repairs, as this amount was less than the deductible under the insurance which the Claimant was required to obtain pursuant to the terms of the lease and which otherwise would have covered the loss had the cost of repair exceeded the deductible.

Under the terms of the lease, the Defendant was obligated to repair and maintain her suite, except with respect to damage insured against by the Claimant. The Claimant was required to keep the building insured against loss or damage caused by certain risks and, in compliance with that obligation, had purchased an “all risk” policy, which included the risk of flood. The Claimant argued that since the cost of repairs could not be recovered under the insurance policy, the loss was not an insured loss and therefore, the Defendant was liable for the cost of repairs.

The Court relied on Lincoln Canada Services LP v. First Gulf Design Build Inc., [2007] O.J. No. 4167, in which it was held that:

34.       …Once a party has agreed to obtain insurance, the amount of that deductible is a matter between the party and its insurer and should not change the allocation of risk as between the parties to the lease. Many factors affect the amount of the deductible and the other party should not be in a position of having its exposure fluctuate depending on the size of the deductible.

35.       To hold otherwise would create great uncertainty for a landlord or tenant. It would never really know what its exposure for a negligent act might be. It would always need to know what the deductible was in the other party's insurance policy. That would not accord with commercial reality. Once the parties have agreed on insurance for a specified loss, the matter should end there.

The Court concluded that the covenant to insure in a lease is determinative unless some other provision modifies the covenant. If the risk of a loss falling within the deductible is to be passed to a lessee who causes the loss, this must be set out in express wording in the lease. The lease in this case did not include a term requiring the tenant to insure nor was there a term setting out the circumstances under which the risk of a deductible amount would pass substantially or wholly to a particular lessee.

In the result, the Court held that even if the damage was caused by the negligence of the Defendant, the damage was caused by a risk that the Claimant had covenanted to insure against under the terms of lease. Absent express provisions of the lease, the Defendant could not be held liable to indemnify the Claimant for the cost of repairs falling within the insurance deductible.

This case was digested by Emily M. Williamson and edited by David W. Pilley of Harper Grey LLP.

Economical Mutual Insurance Company ("Economical") applied for a declaration that Aviva Insurance Company of Canada ("Aviva") was obliged to participate in the defence of claims made by three infant plaintiffs against Surinder Singh Rattan who was alleged to be liable for negligence as a social host.  Aviva was the insurer of the strata corporation where Rattan resided.  Rattan had a homeowner’s policy of insurance with Economical.  At issue was whether Rattan was an insured under the strata corporation’s policy with Aviva.

Economical took the position that Rattan was an insured by virtue of s. 150 and s. 155 of the Strata Property Act, S.B.C. 1998, c. 43 (“SPA”).  The SPA requires the strata corporation to obtain and maintain liability insurance to insure the strata corporation against liability for property damage and bodily injury.

The Court held that the strata corporation’s policy did not afford Rattan coverage except in respect of any business conducted by him and in respect of any liability he may have in his capacity as a stockholder in the strata corporation.  As neither constituted the basis for the claims against Rattan, Aviva had no duty to defend or to participate in the defence of any of the three actions brought against him.

This case was digested by Kim Yee and edited by David W. Pilley of Harper Grey LLP.

The Insured sought indemnity under a property insurance policy.  The Insured and the Insurer disagreed on whether various provisions of the policy and a Statement of Values signed by the Insured, but not expressly incorporated into the policy, limited the recovery of the Insured.  The Insured sought a declaration that it was owed the unpaid balance of its claim.

The Insured filled out the Statement of Values after it had already applied for insurance.  Effectively, the Statement of Values assigned value to the property insured by the policy.  The Insurer sought to limit its liability to the Insured based on this Statement of Values.  Ultimately, the Court found that the Statement of Values was not part of the contract and therefore, the Insurer's liability to the Insured would be determined by reference to the policy.  In the result, the Insured was successful.

This case was digested by Cameron B. Elder and edited by David W. Pilley of Harper Grey LLP.

This case concerned a property insurance policy.  The action was brought by the Estate of the Insured, who was murdered by her estranged husband.  He then set fire to the house the Insured owned, which had been their family home where he had been residing since she moved out, and then killed himself.

The insurance policy contained an exclusion of coverage for intentional acts of an insured.  The Insured's husband was an Insured under the policy and the intentional act exclusion meant that the Insured's Estate was denied coverage.  A claim against the Insurer by the Insured's Estate was eventually settled for approximately 50% of the value of the home.  The Insured's Estate then brought an action in negligence against the Insured's broker seeking damages for the loss in insurance coverage represented by the insured value of the home less the settlement proceeds.

The theory of the Estate of the Insured was that the Defendant broker should have identified to the Insured that she might have a change in her insurance needs because she was the owner of a home that she was no longer living in due to her separation from her husband.  The Insured's Estate argued that the defendant should have explained to the Insured that the Intentional Act exclusion in her policy would exclude coverage for her if the loss was due to an intentional act by her husband.  It argued that if this gap in coverage had been explained to the Insured, and alternative coverage pointed out, she likely would have changed her insurance coverage.

It was not disputed that the defendant owed the Insurer a duty of care.  The Court found that the defendant had breached the duty of care it owed the Insured.  The Court held that once the defendant learned that the Insured had moved out of the family home, and given that the Insured had directly contacted the defendant to obtain her own tenant's insurance, the defendant had a duty to canvass with the Insured whether or not she had a change in her insurance needs.  At that time, and on subsequent occasions when the defendant dealt with the Insured, the defendant should have made inquiries about her separation from her husband, advised her that her homeowner's policy did not cover her if her husband or another tenant intentionally damaged the property, and advised her that she could instead obtain rental dwelling insurance that would not exclude damage caused by intentional acts of tenants.  The Court found that had the defendant fulfilled its duty of care, the Insured would likely have replaced her homeowner's policy with a rental dwelling policy.  The defendant's breach of its duty of care caused the Insured's Estate to suffer an uninsured loss.  It was reasonably foreseeable that if the defendant failed to advise the Insured of the gap in coverage under her homeowner's policy and of the availability of substitute coverage that any loss falling within the gap of coverage would not be covered and the Insured (or her Estate) would suffer damages.

This case was digested by Cameron B. Elder and edited by David W. Pilley of Harper Grey LLP.

The issue before the Court was whether one of two parties had a duty to defend the Insured.  The Insured was in the business of providing motorcycle lessons to students.  It had a commercial insurance policy with Lloyd's Underwriters and third-party liability policies with ICBC covering its motorcycles and other vehicles.

The issue arose out of a claim advanced by a Ms. Robertson against the Insured.  In the statement of claim filed by Ms. Robertson, she alleged that while participating in a motorcycle course that was offered by the Insured, she fell and sustained injury while pushing the motorcycle of another student at the instruction and behest of the Insured.  She alleged that the accident was caused or contributed to by the negligence of the Insured.

ICBC argued that the injury claims did not arise out of the use or operation of a vehicle by the Insured and as a result, it had no duty to defend.  Lloyd's conceded for the purposes of the petition that the underlying action alleged that bodily injury was caused by an occurrence which would come within the policy's coverage, but argued that the policy's automobile exclusions operated to exclude coverage.

The Court found that the essence of Ms. Robertson’s claim against the Insured was that she fell and was injured when pushing a motorcycle as part of a motorcycle training course which was offered by the Insured for remuneration.  The Court concluded that it was an ordinary and well-known use of a motor vehicle to use it for instruction in the operation of a vehicle. In addition, the judge noted that it was not unusual to see a motocyclist pushing a motorcycle and training students on how to push a motorcycle was therefore part of the training provided by the school.  Thus, the Court held that ICBC had a duty to defend and Lloyd's did not.

This case was digested by Cameron B. Elder and edited by David W. Pilley of Harper Grey LLP.

The insured had an automobile insurance "storage policy" with Insurance Corporation of British Columiba ("ICBC"), insuring the vehicle against a number of risks, including theft, but only if the vehicle was stored. The vehicle was stolen from a privately owned lot where it was parked. The lot was available for use by customers of Kal Tire and TCJ Auto Group. The lot had 200 spaces marked on an asphalt surface. The insured vehicle was parked in one of the spaces. The lot was not gated and there were no signs posted indicating any parking restrictions. There were four public entranceways to the lot from adjoining streets and a laneway.

The insurance policy did not apply to vehicles parked on a "highway". The question before the court was therefore whether the insured vehicle was parked on a "highway" when it was stolen. The term "highway" is not specifically defined in the Insurance (Vehicle) Act or Regulations. But Part 1 defines "highway" to mean "a highway as defiend in the Motor Vehicle Act". The insured argued that the definition in Part 1 only applied to the three types of compulsory insurance coverages and not optional coverages such as a storage policy. It further argued that as the term was not otherwise defined, it should be given its plain ordinary meaning. The insurer argued, and the court agreed, that the certificate of insurance stated on its face that "except as otherwise provided…all terms, including definitions, of the Insurance (Motor Vehicle) Act and Regulations apply to this policy." Further, paragraph 2.2. of Division 2 of the Policy stated: "Unless otherwise defined in this policy, words and phrases used in this policy have the meanings given to them by sections 1 and 1.1 of the Insurance (Vehicle) Act…and apply to this policy even if in the context of the Act or Regulation they apply only to universal compulsory insurance." The court found the section to be dispositive of the insured's argument.

Having found that the definition of "highway" in the Motor Vehicle Act applied to the storage policy, the court went on to examine whether the area where the insured vehicle was parked at the time of the loss fell within the definition.The definition of "highway" in the Motor Vehicle Act includes: (a) every highway within the meaning of the Transportation Act; (b) every road, street, lane or right of way designed or intended for or used by the general public for the passage of vehicles, and (c) every private place or passageway to which the public, for the purposes of the parking or servicing of vehicles, has access or is invited. The court found that the parking lot was a "highway". Although it was a private place, in that it was privately owned, it was not used exclusively for parking for customers. There were no signs restricting parking to customers of the business. The area was not gated. The court found that the owner of the lot where the vehicle was kept clearly intended the public to have access to any of the marked parking stalls. The fact that the public had unresticted access to the area where the vehicle was parked changed the nature of the risk that the insurer was insuring. The court found that there was therefore no coverage under the policy.

This case was digested by Natasha D. Morley and edited by David W. Pilley of Harper Grey LLP. 

Insureds, Mr. and Mrs. McRae, owned a business, Triack Resources Ltd. ("Triack"). They insured several vehciles leased by Triack with ICBC.  When a claim was made for damage to their 2006 Kenworth tractor, ICBC denied coverage on the basis that there was a material misprepresentation in the application for coverage relating to the intended use of the vehcile and the proper class rate. This was because the vehcile was insured as a class rate 120 (vehicle desinated and used for delivery and dumping of materials) instead of class rate 114 (vehicle used for the delivery of logs).

Prior to 2006, Triack's business was 95% logging. However, in the spring of 2006, Triack began to transition into a wood wasting company. Mr. McRae was aware that he required a higher class rate (114) if a vehicle was to be covered for hauling logs as well as other materials. He had previosly insured a 1992 Kenworth tractor, for the purpose of "delivery of logs", at class rate 114. However, in 2006, Mrs. McRae attended at the insurance broker to purchase insurance for a newly purchased 2006 Kenworth tractor.  The vehicle was only insured as a class rate 120. At trial the insureds admitted that although it was used primarily for dumping materials, the tractor was also used sometimes (less than 10%) for hauling logs.

ICBC argued that by using the tractor for hauling logs, Triack was operating it for a use contrary to "delivering and dumping materials" and thereby breaching s. 55(2)(a) of the Revised Regulation (1984) under the Insurance (Motor Vehicle) Act, and forfeiting its coverage pursuant to s. 19(1) of the Insurance (Motor Vehicle) Act.  The insured argued that the description "vehicle designated and used for delivering and dumping materials" was wide enough to to encompass hauling and delivering of logs and that if ICBC meant to exclude the hauling and delivery of logs from "delivering and dumping materials" , it should have said so. The court, however, looked at the policy as a whole, including the schedule of Vehicle Rate Classes. Since there was a separate rate class for "vehicles used for delivery of logs", the court found that the the phrase "delivering and dumping materials" did not include the hauling and delivery of logs.

The court then went on to determine whether the insurance broker had been negligent in arranging coverage or giving advice to the insureds. It found that the evidence supported a finding that Mrs. McRae told the broker that the truck would be used for dumping. Further, the court found that it was reasonable for the broker to accept that the truck was only used for dumping, even though other vehciles in the fleet were also insured for logging purposes. The broker was aware that the area of the business was changing and the broker's focus was not on the overall business but on the particular vehicle being insured.  On a balance of probabilities, the court found that the broker had not been negligent in the provision of its services.  

This case was digested by Natasha D. Morley and edited by David W. Pilley of Harper Grey LLP.

The insured, a manufacturer of plastic packaging, supplied defective packaging to one of its customers, a vendor of manure and soil products.  The packaging had been printed specifically for the customer’s use in packaging its products for sale to a certain purchaser.  The packaging was defective in that the ink used to print the labelling ran, making it illegible.  The product was not damaged, but had to be repackaged.  In the process of re-packaging, approximately 10% of the product was lost.

The insured’s customer claimed against it for losses related to the costs directly associated with packaging different product for sale to meet its contractual obligations, removing the raw materials from the defective packaging, disposing of the defective packaging, and for the loss of approximately 10% of the product during the salvaging process.  The insured reported the loss and the customer’s claim against it to the defendant insurer around the time the problem arose in early February 2008.  The insurer denied coverage under the insured’s commercial general liability policy in early May 2008.  In September of 2008, the insured settled the claim for the total amount being claimed.  The insured subsequently brought this action claiming indemnity pursuant to its commercial general liability policy.  The insurer defended the action on the basis that the damage did not constitute “property damage” within the meaning of the policy, that there was no accident or occurrence within the meaning of the policy, and if there was an occurrence resulting in property damage, coverage was nonetheless excluded under the policy.

The insured brought an application for summary judgment.  With respect to property damage, the insured argued that there was physical damage to its customer’s raw product in so far as 10% of that product could not be salvaged.  It further argued that its defective packaging had been incorporated into its customer’s end-product, the packaged soil and manure, and that there was physical damage to that product because it was rendered useless for its intended purpose.  It submitted that where the installation or incorporation of the insured’s defective component causes physical damage to a third party’s property, the cost of repairing the damage caused by the defective component is recoverable or, if property damage will only be incurred during the repair or replacement of the defective component, the cost of repair or replacement, other than the value of the defective component and the cost of the new component, will be recoverable.  The insurer submitted that the concept of incorporation applied to determine whether the property of a third party had suffered damage and that this was not a case where the use of the insured’s product changed the essential nature of the product said to be damaged.

The court concluded that though the finished product, the bagged manure and soil, was no longer suitable for its intended purpose once the defect in the packaging was discovered, the manure and soil contained in the packaging was nevertheless undamaged and could be separated from it.  The additional expense incurred by the insured’s customer to package replacement soil products in order to fulfill its contractual obligations were costs that resulted from the insured’s defective work product rather than any physical injury to the bagged soil products.  These costs constituted economic loss flowing from the insured’s supply of the defective packaging.  The cost of removing the product from the defective packaging, disposing of the defective packaging, and re-packaging the original product were also economic loss flowing from the insured’s supply of the defective packaging.  However, the permanent loss and disposal of 10% of the customer’s product during the salvaging process did amount to physical destruction of tangible property within the meaning of the policy and constituted property damage.

The judge further concluded that the property damage was due to an accident or occurrence.  The defect in the packaging was the failure of the ink used to print the packaging when it was exposed to moisture, causing it to run and rendering parts of the printed label illegible.  The judge concluded that the failure of the ink when exposed to moisture was neither expected nor intended by the insured and as this resulted in property damage to 10% of the customer’s product, it therefore constituted an “occurrence” within the meaning of the policy.  The insurer argued that there was no occurrence with respect to the product lost in the salvaging process because the customer made a deliberate decision to dispose of that product during salvage.  The judge rejected that submission on the basis that the occurrence was the failure of the ink, rather than the subsequent business decision of the customer to limit its salvaging process to the cost effective recovery of its raw material and accept that some product would be lost or discarded in the salvaging operation.

The insurer also submitted that two exclusions applied to limit coverage.  The judge found that while the own work/products exclusion and the work done by or on behalf of an insured exclusion would apply to exclude all of the insured’s claims flowing from its own defective work or work product, these exclusions did not apply to exclude coverage relating to physical injury, destruction, or loss of use of the insured’s customer’s product.  The insurer further attempted to argue that the exclusion for claims arising from loss of use of tangible property that had not been physically injured or destroyed resulting from the failure of the insured’s products applied to exclude coverage.  The judge held that this exclusion clause applied only in circumstances where the loss of use of property did not involve physical injury to tangible property and that in this case the 10% of the customer’s product had been physically removed and eliminated from the customer’s inventory as a result of the salvage process and amounted to physical destruction and therefore the exclusion did not apply.

In the result, it was found that the insured was entitled to indemnification but only with respect to the cost associated with the loss of 10% of its customer’s product as a result of the salvaging process.

This case was originally summarized by Emily M. Williamson and edited by David W. Pilley of Harper Grey LLP.

The Plaintiff brought an action against the Insurance Corporation of British Columbia ("ICBC") under s.24(1) of the Insurance (Motor Vehicle) Act, R.S.B.C. 1996, c. 231 ("Act").  She claimed for damages for injuries she sustained when her purse was snatched by an unidentified passenger in a vehicle driving by.  Section 24(1) creates a statutory cause of action against ICBC for damage which arises out of the use or operation of a vehicle by an unidentified vehicle owner or driver.

ICBC unsuccessfully brought an 18A application to have the plaintiff’s claim dismissed.  ICBC appealed that decision and the Court of Appeal considered whether (i) the intentional acts of assault and conversion came within the ambit of s. 24(1) of the Act; (ii) the motor vehicle in question was being used as a motor vehicle, and not for some other purpose; and (iii) the use or operation of the motor vehicle caused the Plaintiff's injuries and loss.

The appeal was dismissed.  Section 24 of the Act is not restricted to cases in which the cause of action is based in negligence; intentional acts are not excluded from ambit of the section.  The vehicle was being used as a motor vehicle despite the fact that it was being used to effect a criminal purpose.  The Court agreed with the judge’s conclusion that there was a continuous chain of causation stretching between the use of the motor vehicle and the injuries sustained by the Plaintiff.

This case was originally summarized by Kim Yee and originally edited by David Pilley of Harper Grey LLP.

South Caribbean Supplies ("South Caribbean") sued Keith Hart Holdings ("Keith Hart") for damages to poles that were being transported from New Westminster to the Yukon Territories.  The poles, valued at $18,000 were damaged in an accident to the extent that they were of no value for the purpose they were intended. South Caribbean had to purchase other poles to replace the lost ones.  Keith Hart was not able to transport the new poles, so South Caribbean paid a third party $41,000 to carry the replacement poles and demanded from Keith Hart those costs and the cost of the replacement poles ($20,000). Keith Hart refused to pay either amount.

Keith Hart held a policy with Intact Insurance Company ("Intact"), which stated in part that the policy did not cover liability or expense for delay, loss of market or loss of use or any other indirect or consequential loss of any kind.

Intact sought a declaration that this policy required it to only provide a defence to the action with respect to direct damage and not for any liability for damages relating to consequential damage.  Burnyeat J. stated that it was clear that at least some of what was claimed by South Caribbean was covered by the policy and that it was necessary for Intact to defend those claims. However, Intact could not call upon Keith Hart to obtain its own independent counsel with respect to claims that potentially fell outside of the policy.

Keith Hart was not entitled to be represented by separate counsel in court in the action commenced by South Caribbean.  Citing Nicholls v. American Home Assurance Co., [1990] 1 S.C.R. 801, Burnyeat J. noted that while it was not necessary to prove that the obligation to indemnify will in fact arise in order to trigger the duty to defend, there was still a duty on Intact to defend the entire action of South Caribbean.  Parties would be subject to an assessment after the action was concluded with respect to costs which were payable by Intact and costs which were payable by Keith Hart.

Burnyeat J. also stated that it was not clear at this stage whether the costs of transporting replacement poles would be determined as being a direct physical loss, or whether an exclusion for liability or expense or any other indirect or consequential kind of loss would apply. The Judge, citing Black's Law Dictionary, noted that direct damages are damages that follow immediately upon the act done.  Damages which arise naturally or ordinarily from breach of contract; are damages which, in the ordinary course of human experience, can be expected to result from breach.  Here it may well be that the trier of fact will conclude that additional carriage charges would be incurred whether or not Keith Hart could undertake the carriage of the replacement poles because such costs would be within the reasonable contemplation of South Caribbean and Keith Hart.  This would ultimately be the determination of the trial judge, and as such the petition of Intact Insurance was dismissed.

This case was originally summarized by Neil J. MacDonald and originally edited by David Pilley.