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

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 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.

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 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.

Cole's claim against Aviva arose out of the leakage of furnace oil from an oil tank that was located outside the residential dwelling house of Cole but within the boundaries of her lot.  When Cole discovered the oil leak, she contacted Aviva which engaged Mr. Frank Power, the principal of an insurance adjusting firm known as Adjusters Incorporated Ltd. to adjust the claim.  Cole testified that Frank Power assured her that the oil spill would be completely cleaned up.  She maintained that he represented that any oil which had leaked out of her tank would be cleaned up, regardless of whether it remained on her premises or had flowed onto the property of neighbours.  This assurance was made to her despite the fact that her insurance policy with Aviva did not cover cleanup of her own property.

Some time subsequent to the oil spill, Cole decided to list her property for sale.  Cole's real estate agent was advised of the oil spill and advised Cole to obtain a clearance certificate from her insurance company certifying the spill had been cleaned up.  Cole was unable to obtain such a certificate as there remained some residual contamination from the oil spill.

In reviewing the policy, the court found that the oil spill caused property damage to the subsurface water which gave rise to a "legal liability" as contemplated by the Premises Liability section of the policy.  Therefore, Aviva was liable to compensate Cole for the clean up costs insofar as it related to remediating the contamination of the groundwater.  Aviva had taken steps to complete that clean up and, therefore, complied with the conditions of the policy.

Cole also claimed that she relied to her detriment upon the representations made by Frank Power on behalf of Aviva.  The court agreed that Frank Power negligently misrepresented to Cole that the spill would be "completely cleaned up" and that Cole suffered damage by reason of this misrepresentation in that she relied upon the work being completed and a clearance certificate being obtained and incurred expenses in making arrangements to purchase another property.  The court found that expenses incurred on the basis of these negligent misrepresentations included $500 on the loss in the sale of old appliances and U-Haul expenses of $305.  In the result, the plaintiff's claim for negligent misrepresentation against Aviva was allowed and the plaintiff was awarded $805.

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

This application related to proceedings that involved alleged wrongdoing that occurred in both 2000-2001 (the "2001 Misconduct") and 2002-2003 (the "2003 Misconduct") relating to actions of directors or officers of Nortel.  The Ontario Court of Appeal affirmed the Superior Court of Justice's determination that the 2001 Misconduct and the 2003 Misconduct did not involve the same or Interrelated Wrongful Acts and that the 2003 Misconduct occurred after the policy period of the 2001 Primary Directors' and Officers' insurance Policy (the "Policy").  This decision can be found at [2009] O.J. No. 2726 (Ont.C.A.).  The Court of Appeal also held that neither the allocation provision applicable to claims based on Securities Transactions nor the allocations provisions applicable to other types of claims applied to these proceedings.  In the absence of an applicable allocation provision, it was appropriate for Chubb to pay 50% of the defence costs incurred by Dunn and Beatty in these proceedings.  However, the Court of Appeal also found that the allocation provision in Endorsement 3 of the policy may be ambiguous and ordered a hearing to determine the proper interpretation of the Endorsement and indicated that extrinsic evidence related to the factual matrix and reasonable expectation of the parties should be gathered to assist in the interpretation of this Endorsement.

Chubb argued that Dunn and Beatty provided no extrinsic evidence that the parties intended any provision of the 2001 policy, including Endorsement 3, to extend coverage for claims based on the 2003 Misconduct that occurred after the expiration of the policy.  However, the court also noted that there was no evidence that the parties did not intend that coverage be so extended.  Therefore, the language of the policy had to be considered closely.  Endorsement 3 was intended to apply only "if Loss covered by this coverage section and loss not covered by the coverage section are incurred".  Chubb's position was that "Loss" is defined to mean those amounts that the insured becomes legally obligated to pay "on account of each Claim and for all Claims in each Policy Period…".  The court noted that the proceedings at issue did contain some allegations regarding the 2001 Misconduct which were interrelated to the allegations made in certain lawsuits brought while the Policy was in effect.  However, the within proceedings were not themselves Claims made in the Policy Period because the proceedings were brought after the Policy Period.  Accordingly, the within proceedings did not appear to involve both "Loss covered by this coverage section and loss not covered by this coverage section".

Dunn and Beatty were successful in their argument that the definition of Loss had to be considered in the context of the overall policy and the expansion of coverage caused by section 8 of the Policy which provided:

For the purposes of this coverage section, all Loss arising out of the same Wrongful Act and all Interrelated Wrongful Acts…shall be deemed one Loss, and such Loss shall be deemed to have originated in the earliest Policy Period in which a Claim is first made against any Insured Person alleging any such Wrongful Act or Interrelated Wrongful Acts.

Dunn and Beatty submitted that if you incorporated the narrow definition of Loss into the terms of the Policy and ignored the effect of section 8, there could never be coverage for Claims outside the Policy Period.  However, Chubb had previously acknowledged that section 8 did apply and did trigger some coverage for the within proceedings.  In doing so, the court held that Chubb acknowledged that the definition of Loss was modified by section 8 of the policy.  Given Chubb's admission pursuant to which it has been making payments on account of Loss, the court held that there was Loss in the within proceedings thereby triggering the allocation set out in Endorsement 3 (as there was also uncovered loss in the proceedings).  Endorsement 3 provided for 90% coverage of Defence Costs.

In the result, the court ordered that Chubb pay 90% of the defence costs of Dunn and Beatty to the policy limits.

This case was digested by Jonathan D. Meadows 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 Applicant was a Defendant in two actions that arose from property damage caused by asbestos contamination.  The Applicant sought a declaration that its Insurer was obliged to defend it.  The Applicant’s insurance policies contained an “Absolute Asbestos Exclusion Endorsement” which provided that the policy would not cover property damage, losses or expenses “caused by, resulting from or inconsequence of, or in any way involving asbestos, or materials containing asbestos in whatever for or quantity”.

In considering whether there was a duty to defend the Court looked beyond the labels contained in the Statements of Claim to determine the nature of the claim.  The Court noted that it must be determined whether the claims are entirely derivative in nature.  The duty to defend will not be engaged simply because the claim can be cast in terms of both negligence and an intentional tort.  It must be decided whether any of the properly pleaded non-derivative claims can potentially engage the indemnity provisions of the policy.

The Court ultimately concluded that the exclusion clause was clear and unambiguous.  Given that the exclusion clause applied, there was no duty to indemnify and therefore no duty to defend.  The Court distinguished the claims from the claim in Appin Realty Corp. v. Economical Mutual Insurance Co. (2008), 89 O.R. (3rd) 654 (Ont. C.A.) where it was found that there was a duty to defend.  In that case, the policy at issue had an exclusion clause relating to mould and the Plaintiff brought an action for damages arising from mould and bacteria.

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

Makowchik requested an order requiring RBC General Insurace Company ("RBC") to defend him in an action commenced against him by third party Beajan.  The issue was whether RBC had a duty to defend Makowchik and whether it had to pay for independent counsel engaged by Makowchik, if a duty to defend was established.

Makowchik asserted that the substance of Beajan's claim was that he was injured in an altercation in a bar either intentionally or negligently by Makowchik.  Negligence fell within the scope of the coverage of the policy.  RBC argued that the true nature of the pleadings, without any regards as to whether the claims had merit, had to be established and that the harm allegedly inflicted by the negligent conduct was derivative of that caused by the intentional conduct.  RBC argued that the negligence and the intentional tort arose from the same action and caused the same harm.

The judge found that the true nature of the pleadings were that Makowchik hit Beajan in the face with a glass, deliberately with full knowledge of his action thereby committing an intentional assault on Beajan.

RBC argued that Makowchik was covered against losses due to the compensatory claims of others for bodily injury which arise out of an accident or occurrence, and that the natural and probable consequences of a deliberate act cannot be said to have been caused by an accident.  RBC further argued that the policy expressly excluded claims for damages for bodily injury caused intentionally by the applicant at his direction or resulting from his criminal acts or omissions.  The judge agreed with the submissions of RBC and denied the application by Makowchik.  Since it was found that RBC did not have a duty to defend Makowchik, it was unnecessary to consider whether independent counsel should be appointed to defend Makowchik.

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