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

The insured owned a housing complex, for which it purchased a broad-form, all-risk policy of insurance from Sovereign-General Insuance Co. between 1993 and 2003. The Complex was built in 1977 and within two years there were reports of water leaking into some apartments via vents and light fixtures. These problems continued and a persistent mould problem developed. The mould problem was addressed on an ongoing basis with bleach treatments and by replacing damaged drywall and carpeting as necessary. No insurance claims were made with respect to this damage.

In 2001, it was discovered that some of the mould was toxigenic and further investigation revealed that the toxigenic mould originated from a “mould amplification site” within the building. Mould remediation and elimination of conditions leading to mould propagation, such as replacement of doors and windows, was recommended. Following further investigation, the insured submitted two proofs of loss in late 2002, for $8,585 and $646,000 respectively. The insurer denied coverage of both proofs of loss, on the basis that the build-up of humidity causing the mould growth was not the result of a risk or peril; and exclusions against latent defect or improper design and seepage of water or dampness of atmosphere applied. The insurer also stated that the insured had failed to report the loss on a timely basis. The insured subsequently started this action. 

At trial, the judge determined that the evidence established that there was seepage of water through doors or windows, that there was the entrance of rain, snow or sleet through doors or windows, and that there was dampness of atmosphere in the Complex, all of which contributed to excess humidity and moisture within the units of the Complex. He also determined that moisture was an essential ingredient for the development of mould. However, because the evidence established that mould would not inevitably result from moisture or humidity problems, the trial judge was unable to conclude that the excessive moisture was a direct or indirect cause triggering the appearance of the mould. On that basis he concluded that the loss was not excluded under the policy.

On appeal, the Court found that the trial judge had erred in his interpretation and application of the exclusion clause. The Court noted that the use of the phrase "directly or indirectly" generally connotes that both the direct and consequential losses of an event are captured. Thus, as long as the evidence indicated that mould was a direct or consequential result of the seepage, rain, and humidity, then the exclusion clauses would apply, absent other issues. In this case, the evidence, as found by the trial judge, was clear that the seepage, rain, and humidity present in the Complex led to the moisture and humidity conditions which were so conducive to mould growth. Even if the mould was the result of concurrent causes, the use of the phrase "directly or indirectly caused" in the exclusion clauses, allowed the exclusion clauses to apply. Therefore, even though the evidence indicated that the right temperature, adequate food, and mould spores needed to be present, the evidence also established that moisture was a prerequisite for mould growth.

It was clear that the seepage, rain and humidity problems within the Complex contributed at least indirectly to the growth of mould within the Complex and consequently, the exclusion clauses applied. In the result, the Court allowed the appeal, holding that the insurer was not liable to the insured to cover the costs of mould remediation and prevention.

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

The Plaintiff's boat was insured by the Defendant insurance company. As a result of a collision, the boat was destroyed. The Plaintiff claimed $38,439 plus pre-judgment interest pursuant to the policy. The Defendant Insurer denied coverage on the grounds the driver of the boat was impaired, and in the alternative that the accident was caused by an illegal or an intentional act of the driver.

This motion was brought as a result of the Plaintiff wishing the Defendant to produce a knowledgeable person pursuant to the Manitoba Rules of Court. While the Plaintiff did not designate a specific person for the Defendant to produce, he suggested that the insurance adjuster retained by the Defendant to investigate the claim could be the local knowledgeable representative . The Defendant Insurer argued that there was no suitable local representative and that it wished to bring a knowledgeable representative from Coast Underwriters Limited in Vancouver.

The Defendant maintained that it had no offices in Manitoba and it conducted no business in Manitoba. The Defendant's managing general agent was Coast Underwriters Limited in Vancouver, who issued the policy in question from its Vancouver office. It also submitted that the policy was brought to Coast Underwriters by the Winnipeg office of Marsh Canada, an insurance broker.

The Insurer was licensed under the Manitoba Insurance Act, and section 22(2) outlines who will be deemed an insurer carrying on business within the province. The Court held that the Defendant met several of the criteria for carrying on business in the province contained within s. 22 of the Insurance Act. The judge went on to say that it would be inconsistent with the intent of the Insurance Act to allow the Defendant to sell insurance in Manitoba and then to behave as a disconnected stranger when an insured seeks indemnity.

The judge held that the term "residence" was a flexible term to be interpreted in the context of a case, and that in conjunction with the Manitoba Insurance Act he was persuaded that the Defendant resided in the province of Manitoba for the purposes of the Rules of Court. Accordingly, no conduct money needed to be paid.

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

In 1977 the Plaintiff, Minox, constructed a complex of condominiums which were rented out to tenants. Within two years of completing construction the building experienced humidity problems and mould began to occur in some of the units. In 2001 it was determined that some of the mould was toxigenic.

In 1993 Sovereign General Insurance Company issued a policy of insurance which was maintained by Minox up to and including 2003. In 2002 Minox filed two proofs of loss relating to damage caused by toxigenic and other mould in the complex. Sovereign denied the policy on the basis that mould was not a risk covered by the policy, as it was not fortuitous. It also claimed that the loss was excluded under the policy and that the loss did not occur during the policy period.

The court found that the damage caused by mould is a risk covered under the policy. It rejected Sovereign's argument that mould is a condition resulting from the normal use and occupation of the property, and therefore not a risk or peril. It found that although it is highly likely that mould will develop due to moisture problems, it is not certain or inevitable. The court pointed to the fact that less than half of the units in the complex had occurrences of mould. Therefore, it found that the growth of mould, either toxigenic or non-toxigenic, was a fortuitous event and therefore a risk covered under the policy.

The court then went on to consider whether mould was excluded under the policy. It found that the exclusions relating to "seepage, leaking or influx of water etc.", "entrance of rain, sleet snow through windows, skylights or other similar wall or roof openings etc.", "dampness, dryness or atmosphere, changes of temperature etc." and "wear and tear, gradual deterioration, latent defect, inherent vice, faulty or improper workmanship etc." all did not apply to exclude coverage. It pointed out that the policy contained no exclusion specifically relating to loss or damage caused directly or indirectly by mould and that such exclusion clauses are not uncommon in the industry. Therefore, coverage for mould damage was found not to be excluded under the policy.

The court also looked at whether the loss or damage occurred within the policy period. Sovereign argued that the date of occurrence of the alleged loss was the date on which moisture first resulted in mould. Therefore, damage was present long before Sovereign became the insurer on risk. Minox argued that damage arose with the discovery and identification of the toxigenic mould which, they state, was in 2001. The court agreed that there was no evidence of serious health complaints relating to mould prior to 2001. Therefore, a reasonable inference to be drawn was that, absent any serious health complaints which are generally associated with the presence of toxigenic mould, mould did not exist prior to 2001. The court therefore found that the damage occurred during the policy period.

The court also dealt with the issue of whether Sovereign had waived its right to rely on the exclusions by its failure to make inquiries as to the condition of the building. It stated that the principle enunciated in Canadian Indemnity Co. v. Johns-Manville Co., [1990] 2 S.C.R. 549, does not go so far as to create a duty on the insurer to require an application or do conduct an inspection. Therefore, the most that could be said is that Sovereign deprived itself of the opportunity to deny coverage initially or to include a mould exclusion by its failure to conduct a visual inspection either prior to extending insurance to Minox or during any of the renewal years.

The court therefore held that the damages suffered by Minox were recoverable under the policy.

This case was originally summarized by Natasha D. Morley and edited by David W. Pilley.

Lumsden had been working as a physiotherapy aide for Manitoba since 1985. Lumsden ceased working in 2002 due to various medical conditions, including Raynaud's phenomenon, back pain, and depression. Manitoba refused to pay disability benefits under its long term disability income plan. At trial, the Judge found that Lumsden suffered from a continuing decline and deterioration in health from 1995. The Trial Judge accepted the evidence of Lumsden's family physician and from various specialists consulted by the physician and found that Lumsden was not able to work when he left his employment in 2002. The Trial Judge found that by 2003, Lumsden was unable to perform his own occupation and by 2004, was totally disabled. The Trial Judge awarded Lumsden damages of $45,000 for mental distress due to Manitoba's failure to pay him disability benefits to which he was entitled. Manitoba appealed this decision, arguing that the Trial Judge erred in finding that Lumsden was totally disabled and in awarding damages for mental distress.

The Manitoba Court of Appeal allowed the appeal in part. The Court of Appeal held that the Trial Judge did not commit a reversible error in finding that Lumsden and his family physician were credible. There was no evidence after December 2003 from any source that Lumsden might be capable of working. The Court found that the test for disability in relation to employment was an individualized one, combining elements of both the objective and subjective. The Reasons of the Trial Judge were sufficient to support the findings. The Trial Judge did not solely rely upon Lumsden's subjective perception, but extensively reviewed the medical evidence and found it to be reliable and supportive of the claim for total disability.

With respect to the appeal concerning the damages for mental distress, both Parties agreed that the Trial Judge correctly relied upon the leading decision of the Supreme Court of Canada in Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30. There was no suggestion that the Trial Judge was not entitled, as a matter of law, to award damages for mental distress when dealing with "peace of mind" contracts, such as disability insurance, where the parties reasonably contemplated at the time of the contract that a breach in certain circumstances would cause a plaintiff mental distress. However, the Court applied a practical "sensible and realistic" approach in determining the appropriate award under this heading. The Court found that using the award in Fidler as a benchmark, the award of damages of $45,000 was neither "sensible" nor "realistic". Instead, a more appropriate award was $25,000.

In the result, Manitoba's appeal was dismissed except for the reduction in damages awarded for mental distress from $45,000 to $25,000.

This case was originally summarized by Jonathan D. Meadows and originally edited by David W. Pilley.

The appellant was convicted criminally of arson and arson related offences in respect of an explosion and fire that destroyed his property.  He sued his insurer, the respondent, for indemnity under his insurance policy and the respondent sued the appellant for the amount it had been required to pay a mortgagee pursuant to a standard mortgage clause in the insurance contract.  Both actions were heard by chambers motion and in both case the respondent insurer was granted summary judgment on the basis that the appellant had not demonstrated that there was a genuine issue for trial and that the certificate of the appellant’s criminal conviction established a prima facie case for success by the respondent in each trial.

The appellant argued that his denial that he had anything to do with the explosion and fire established a genuine issue for trial.  The Court of Appeal disagreed, holding that while the appellant’s denial may raise a credibility issue, more was required to raise a genuine issue for trial.  The appellant’s bare denial did not raise sufficient evidence to overcome the prima facie case established by the certificate of his criminal conviction.

This case was originally summarized by jhavelaar@harpergrey.com and originally edited by dpilley@harpergrey.com

The plaintiff sustained injuries in a helicopter crash.  He sued the helicopter company and another person and negotiated a settlement to his claim for damages.  The plaintiff requested Manitoba Health’s consent to the settlement and offered Manitoba Health approximately $55,000.00 to satisfy its subrogated claim for accident-related hospital and medical expenses which had been paid on behalf of the plaintiff.  Manitoba Health refused the settlement and opted instead to pursue the helicopter company in a separate action, which was ultimately settled for $70,000.00.  As a result, the plaintiff sued Manitoba Health for breach of duty.  The primary issue was whether Manitoba Health owed the plaintiff a duty of care and if so, the precise nature of the duty.

The court reviewed whether Manitoba Health owed the plaintiff a contractual or fiduciary duty of care under the Health Insurance Services Act, C.C.S.M. c. H 35, and concluded that it did not.  The court further determined that while Manitoba Health owed the plaintiff a private law duty of care to comply with statutory obligations and to deal with the plaintiff’s claim fairly, expeditiously and in accordance with established guidelines and policies, Manitoba Health had discharged that duty.  Finally, the court considered whether the plaintiff had suffered undue hardship as a result of Manitoba Health’s conduct, and concluded that he had not.  As a result, the plaintiff’s claim was dismissed.

This case was originally summarized by jhavelaar@harpergrey.com and originally edited by dpilley@harpergrey.com

The Insured had been receiving income replacement indemnity ("IRI") benefits since 1996 as a result of injuries she suffered in a 1994 car accident.  In 2006, a senior case manager with the Provincial Motor Vehicle Insurer reconsidered the 1996 decision after reviewing information that the Insurer received in 2000 from the Insured's Canada Pension Plan ("CPP") disability benefit file.  The case manager determined that the Insured had not been capable of holding employment at the time of the accident in light of a pre-existing disability and that she therefore did not qualify for income replacement benefits in accordance with the section 105 of the Manitoba Public Insurance Act (the "Act").  This section provides that a victim who is regularly incapable, before the accident, of holding employment for any reason except age is not entitled to an income replacement indemnity or a retirement income.

The Commission allowed the Insured's appeal from the case manager's decision and ordered the Insurer to reinstate her IRI benefits from the date of their termination.  The Commission's ruling was based on four separate grounds.  First, that there was no new information upon which the decision to terminate benefits had been made.  Second, that the Insurer had not exercised due diligence in obtaining the new information and, as a result, could not rely on this information to decide the Insured's entitlement to benefits.  Third, the Insurer’s reconsideration of the 1996 decision was untimely because the Insurer had only 60 days from the date of the case manager's decision to correct an error pursuant to Section 171(2) of the Act.  Fourth, the case manager for the Provincial Motor Vehicle Insurer had correctly considered section 105 in deciding the Insured's entitlement to benefits in 1996. 

The Insurer was granted leave to appeal the Commission's decision on two questions of law, these being whether the Commission had erred in its interpretation of Section 171(2) of the Act or whether the Commission erred when it found that the principles set out in Palmer et al. v. The Queen, [1980] 1 S.C.R 759 apply to a Section 171(1) consideration of new information.

The Manitoba Court of Appeal noted that the Commission's finding that there had been no error by the case manager in 1996 was sufficient on its own to resolve the dispute and that the appeal based on the approved questions of law was therefore moot.  The Court of Appeal nonetheless went on to exercise its discretion and address the issues raised by the approved questions.

On the first issue of law, the Court of Appeal found for the Insurer, finding that the Commission had erred in its intepretation of section 171(2) by reading in a 60-day time limit on the Insurer for correction of errors made by a case manager.  The Court of Appeal held that section 171(2) should be read to give the Insurer the authority to correct errors in certain circumstances provided that the decision being reconsidered is not the subject of review or appeal, as the words of that section clearly state.  On the second issue of law, the Court of Appeal found for the Commission and found that it had not erred in applying the principles for "fresh evidence" from R. v. Palmer, this being that the information must be relevant and decisive to the issue and the claimant must not be prejudiced by a lack of due diligence on the part of the Insurer in bringing the information forward, to the section 171(1) consideration.  The Court of Appeal noted that the Palmer principles offer logical and reasonable considerations when exercising discretion under section 171(1) to make a fresh decision because of new information, whether that exercise of discretion is by the Insurer in the first instance, or by the Commission on hearing of an appeal.

This case was originally summarized by sdavies@harpergrey.com and originally edited by dpilley@harpergrey.com

A small commercial aircraft crashed near Winnipeg killing the pilot and three passengers.  The estates of the deceased passengers commenced an action against the estate of the deceased pilot, the owners of the aircraft, and  Zaporzan, who was responsible for the maintenance of the aircraft.  The aircraft owners and the estate of the deceased pilot cross-claimed against Zaporzan alleging negligence. 

British Aviation defended the owners, as well as the estate of the pilot, but refused to defend Zaporzan either as a named defendant, or in relation to the cross claims.

Under the policy, both the pilot and the owners were named insureds.  Clause 20 of the policy, entitled "Persons Insured", extends coverage to persons that provide maintenance on the aircraft under the permission of the owners.  This coverage did not extend to parties who were in the business of repairing or maintaining aircraft.  At all material times, Zaporzan was a certified aircraft maintenance engineer, but was not working in that capacity.  He worked for the government of Manitoba as a quality assurance manager and training coordinator.  Zaporzan and the owners entered into a barter agreement where Zaporzan would maintain the aircrafts in exchange for flying time.  British Aviation argued this relationship meant Zaporzan was in the business of maintaining and repairing aircraft.  The court rejected this in part because "business" was not a defined term in the policy.

Since Zaporzan then fell under the definition of persons insured pursuant to clause 20 of the policy, the allegation of negligence, which falls within the scope of the policy issued by British Aviation, triggered its duty to defend Zaporzan.  The court held British Aviation was free to retain counsel of its choice for Zaporzan.

This case was originally summarized by nmacdonald@harpergrey.com and originally edited by dpilley@harpergrey.com

The applicant sought a declaration that a Commercial General Liability (“CGL”) policy written in favour of the applicant triggered the defendant insurance company’s duty to defend in respect of an underlying personal injury action.  The applicant had been sued in respect of injuries the plaintiff in the underlying action alleges he sustained while operating a courtesy snowmobile the applicant lent him while the applicant was repairing the plaintiff’s snowmobile.  The applicant also had a garage policy under the Manitoba Public Insurance (“MPI”) automobile insurance scheme.  MPI had refused to defend the applicant in respect of the underlying action on the basis of an exclusion clause.  The CGL policy contained an exclusion clause in respect of bodily injury sustained as a result of ownership, use or operation of a motor vehicle.

The applicant argued that the substance of the underlying action was an allegation of negligent repair of the courtesy snowmobile, and did not arise out of the ownership, use or operation of a motor vehicle.  The respondent insurer argued that the substance of the underlying action arose out the ownership, use or operation of a motor vehicle, and thus was excluded by the CGL policy, and that there was therefore no duty to defend.

The court held that there were no allegations in the underlying action that could reasonably stand alone as a ground for recovery outside of the use, operation or ownership of a motor vehicle and that the authorities establish that maintenance and repair of a motor vehicle fall within the ambit of use, operation or ownership of that motor vehicle.  Accordingly, the court found that the substance of the underlying action was excluded by the CGL policy and therefore the underlying action did not trigger the defendant insurer’s duty to defend.

This case was originally summarized by jhavellar@harpergrey.com and originally edited by dpilley@harpergrey.com

Krzysik's husband, son, mother-in-law and niece were killed in a car accident in August, 2002. Krzysik was not involved in the accident. Prior to the accident, Krzysik was an active working woman. After the accident she was diagnosed with severe depression and had not been able to work. Krzysik's other son filed an application for her, seeking benefits due to her inability to work. The application was denied by the Commission because Krzysik did not meet the statutory definition of accident victim.  Krzysik appealed this decision to the Court of Appeal. 

The Court of Appeal held that the Commission correctly interpreted the statute in rendering its decision. The contra- proferentum principle did not apply where the drafter was the legislature, not an insurer. There was no ambiguity in the wording of the statute. The Court held that as Krzysik was not in the accident, she was not a victim of the accident and therefore not entitled to income replacement indemnity benefits under the statute.

In the result, Krzysik's appeal was dismissed.

This case was originally summarized by Jonathan Meadows and edited by David Pilley.