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 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.

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.

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's wharf was damaged when struck by a vessel which was blown into it during high winds.  As attempts were made to move the vessel away from the wharf, a section of the wharf was torn off.  The Insured had an insurance policy which contained a "Windstorm or Hail" clause which excluded coverage for damage "directly or indirectly caused by…any of the following, whether driven by wind or due to windstorm or not:  snow-load, tidal wave, high water, overflow, flood, waterborne objects, waves, ice, land subsidence, landslip".

The Insured sought an order determining whether the damage to the wharf was excluded from insurance coverage.  The Court found that "waterborne object" for the purposes of the exclusion clause included a vessel.  As such, coverage under the policy was excluded.

This case was digested by Cameron B. Elder 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.

This was an appeal by an insurance company, Lloyd’s Underwriters, from a decision that it was the primary insurer with respect to defence costs incurred by two lawyers who were sued.  Goodman and Reeve, two lawyers at Cassels Brock, were sued in their capacity as directors of Markham General Insurance Company. Both Cassels Brock and Markham General had policies of insurance  covering directors' and officers' liability. Markham General had a directors' and officers' liability policy issued by AIG and American Home. Cassels Brock had an outside directorship liability policy issued by a Lloyd's syndicate.

The AIG policy expressly indicated that the insurer assumed no duty to defend. The Lloyd's policy contained a follow form clause that applied only where there was underlying insurance in which case the Lloyd's policy was to follow the terms of the underlying policy.  The judge hearing the application held that the follow form clause did not apply to the duty to defend and that that the Lloyds policy was the primary policy for the defence costs at issue.

The Court of Appeal dismissed the appeal.  The duty to defend is separate from a duty to indemnify.  A plain language reading of the policy reveals that the follow form provision relates to the indemnity coverage and has nothing to do with the duty to defend.  The AIG policy was clearly the primary policy and the Lloyd’s policy was excess insurance.  The duty to defend coverage in the Lloyd's policy is what is referred to as "drop down" coverage. Where there is no cover in the underlying insurance, the excess policy may provide cover to fill that gap. Where there is no underlying insurance or no duty to defend in the underlying policy, an excess insurer may well want to control or at least be represented in any litigation.  That does not convert the excess policy to a primary policy.  The follow form clause does not convert the duty to defend in the Lloyd's policy to a clause requiring only the reimbursement of defence costs.

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

The insured owned a home with a sealed fiberglass deck and a 12 seat hot-tub on the second level. The hot tub extended down into an enclosed room located on the first level of the home (the “hot tub room”). In or about the week of March 23, 2009, the insured shut off the hot tub motor and drained the water from the hot tub, as he noticed the tub was leaking. His evidence at trial was that he did not think he disconnected the hot water pipe. On March 29, 2009, the insured discovered that the pipes in the hot tub room had frozen and burst. The insured therefore made a claim to his insurer for the water damage. The claim was denied on the basis of the exclusion for “loss or damage…caused by freezing during the usual heating season…within an unheated portion of your dwelling…”

The insured gave evidence that the hot tub room itself was insulated with fiberglass insulation and Styrofoam. The hot tub water was heated by a heat exchanger and a pump heater, and was kept at 39-40 degrees Celsius at all times. The insured argued that the hot tub room was heated by the water in the hot tub room itself, the heat exchanger, pump heater and hot water pipes. When the hot tub pump and heater exchanger were operating, the air temperature in the hot tub room was about 20 degrees Celsius.

The insurer argued that, once the insured disconnected the power to the hot tub and drained it, the only source of heat in the “hot tub room” would have been eliminated. Therefore, they argued, at the time of the pipes freezing, the hot tub room was an “unheated room”.

The court first rejected the insured’s argument that the incident did not take place during the “usual heating season”. It took judicial notice of the fact that March 29, 2009 in Regina, Saskatchewan, was during the :usual heating season”. Next, the court addressed whether the damage took place in an “unheated portion of the dwelling. The court that found that, even after the hot tub was drained, the hot water line was still connected. Although there was clearly no, or inadequate, heat at the time the pipes froze, the court found this did not mean the room was an “unheated room”. The court compared it to the situation where a furnace fails. The court stated as follows: “In considering the intention of the parties, it is a reasonable interpretation that if the room in question, i.e. the hot tub room, were ordinarily heated, the fact that it was unheated at the time of the mishap would not be reason for the insurance coverage to be denied.” The court also rejected the insurer’s argument that the hot tub room was in an “unheated portion” of the dwelling because it was not connected to the home’s heating system and had no dedicated heating appliance of its own. The court found that the evidence was that the room was generally heated to 20 degrees Celsius and that there was nothing in the contract to indicate what the source of heat should be for it to be described as being “heated” or conversely “ unheated”.

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

The insureds were insured for damage to their dairy barn for the peril of a “windstorm", among other perils. On October 3, 2003, the insureds notified the insurer that their barn had been damaged by hurricane Juan. Upon receiving notice of the loss, the insurer hired an independent adjuster, who in turn hired a professional structural engineer to give his opinion on the damage to the barn and its cause. The insurer’s engineer concluded that “the structural condition of the building had not been affected by the passing of hurricane Juan”. The insureds also hired a structural engineer who found that the barn had, in fact, been damaged by hurricane Juan.

On April 6, 2004, The insureds provided the adjuster with three letters dealing with damage to the barn; one from each of the insured, Leaonard MacPhee, a carpenter, and Brian Chapman, also a carpenter. Both Mr. MacPhee and Mr. Chapman noted that they had witnessed the barn both prior to and after the hurricane and that there was no structural damage to the barn, that they noticed, prior to the hurricane. The insurer did not follow up with, or interview, any of these witnesses.

Prior to hurricane Juan, a safety survey report was conducted, indicating that the barn was in “good” repair and suitable for insurance coverage. This report was forwarded to the adjuster  by the insurer shortly after the claim was made. However, the insurer never forwarded the “post-Juan” survey report, which was conducted on June 1, 2004, to the adjuster. Further, the author of these reports, an investigator employed by the insurer, was never interviewed in connection to the claim.

On July 19, 2004, the insureds submitted their proof of loss and their claim was denied by the insurer. The insureds brought an action, which was heard before a civil jury. The jury awarded the insureds the full amount of their insurance coverage, together with punitive damages, in the amount of $55,000. The jury specifically made a finding of bad faith in relation to the coverage denial and found that the insurer’s conduct offended its sense of decency.

On appeal, the court found that on the facts of the case, the insurer’s failure to instruct its adjuster to follow up with the various witnesses, each of whom had first hand knowledge of the pre hurricane state of the barn, was tantamount to ignoring relevant evidence. The court also noted that several comments made in the adjusters report, showing disdain for the insureds’ counsel and expert, and making comments about the mounting costs to the insureds, indicated that the investigation was not undertaken in an unbiased and objective manner. Therefore, the court found that the evidence before the jury supported its finding of bad faith. A reasonable jury could have concluded that an award of punitive damages was rationally required to punish the insurer’s misconduct.

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

Rachel Noonan rented a Honda Civic from Choice Car and Truck Rental ("Choice").  At the time, she purchased optional insurance provided by Zurich Insurance ("Zurich") pursuant to a fleet insurance endorsement.  In November 2004, Ms. Noonan allegedly struck an individual with the Honda Civic.  That individual commenced an action against Ms. Noonan and Tracmount/Glojack Leasing ("Tracmount").  Zurich denied a duty to defend and indemnify Ms. Noonan or Tracmount on the basis that Choice did not have coverage for that particular car because Choice did not identify the Honda Civic in its monthly fleet report.  Choice leased the Honda Civic from Tracmount pursuant to a written lease.  The form of the lease obliged Choice to provide insurance.  As a precaution, Tracmount also maintained a contingent lessor's liability insurance policy with Lombard Canada Ltd. ("Lombard").  It was agreed as between Zurich and Lombard that if the Zurich insurance contract did not respond to the claim, the Lombard policy would respond to provide coverage.

Lombard applied to the court for a declaration that the Zurich policy covered the Honda Civic driven by Rachel Noonan.  The application was dismissed on a number of grounds including the fact that it did not appear that the vehicle was "described" and "specifically shown" on the certificate of insurance as required.  Lombard appealed this decision.

With respect to the standard of review, the court noted that to the extent that the interpretation of an insurance contract is purely a question of law, the appropriate standard is correctness, see Dunsmuir v. New Brunswick, [2008] 1 SCR 190.

In interpreting the insurance contract, the court noted that any insurance contract must be considered in the light of its purpose.  In the case at bar, the purpose of fleet insurance was not in dispute.  Fleet insurance provides coverage to the driver, a rental company and lessor for a fleet of cars.  The court recognized that rental cars in a fleet change frequently by reasons of addition and attrition.  The court further recognized that rather than reissuing a certificate of automobile insurance on a monthly basis to accommodate such a changeover, a fleet Endorsement substitutes a requirement for the filing of a monthly fleet report with the insurer.  In this case, the court held that the Endorsement adding fleet coverage to the policy did not use language of specificity and instead indicated coverage was based on the number of vehicles rather than the particulars of the specific cars in the fleet.  The court also found that Choice and Zurich had opted against two other choices for rate calculation printed on the form, receipts and mileage.  The parties clearly decided to assess the risk based on the number of cars in the fleet rather than the amount of rental income or rental mileage for the relevant month.  In the court's view, this choice also informed the interpretation of the words of the insurance contract.  The parties' deliberate decision on the plain language of the contract left no room for ambiguity.

In the result, the court allowed the appeal and granted a declaration that, as between Zurich and Lombard, the Zurich insurance contract provided coverage for the leased cars, the number of which Choice was obliged to report to Zurich in the monthly report described in the Endorsement.  The determination of whether Choice appropriately reported the number of leased cars was to be determined in further proceedings, if necessary.

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