When will an expanding plume of heating oil be considered an imminent peril? The Nova Scotia Court of Appeal recently confronted this slippery question while interpreting a residential insurance policy.1
In Garden View Restaurant Ltd. v. Portage La Prairie Mutual Insurance, the sole shareholder of a small business, Garden View Restaurant Ltd., owned a small residential building in Dartmouth. He discovered in 2011 that a copper pipe connecting an outside heating oil tank had been vandalized, allowing oil to escape onto the property.
Garden View quickly hired an environmental consultant who directed the removal of the contaminated soil and assessed the extent of the contamination. When the work was complete, Garden View submitted a claim to its insurer, Portage La Prairie, for the costs of the remediation. The insurer refused to pay anything beyond an initial $10,000 that had been paid under an extension for the clean-up of pollutants.
The court of first instance2 agreed with the insurer. There was no damage to "insured property" as defined under the policy and the doctrine of imminent peril did not apply. Garden View appealed.
The Court of Appeal agreed with the application judge that, when the policy was read as a whole and with a view to giving effect to its clear language, the only reasonable interpretation was that the definition of "Building" did not include the soil beneath the structure.3 Accordingly, contamination of the soil on the property was not compensable as it did not fall within the definition of insured property.
The Court then considered whether the doctrine of imminent peril applied in the circumstances. The doctrine allows for an insured to recover costs incurred in taking preventative action to avoid damage to insured property by a peril covered under a policy. In this case, Garden View argued that the remediation costs ought to be paid as the remediation work had prevented gas vapours from entering the basement of the residential building – damages it argued would be covered under the policy.
To recover under the doctrine of imminent peril, the insured must show that: (a) there is a peril of the type covered by the policy, and (b) that the danger is inevitable. In other words, the insured must prove that unless it did something immediately, damage that would have been covered by the policy would have resulted.
- A contemplated peril
Addressing the first requirement, the Court identified the relevant peril as hydrocarbon vapours entering the building. However, the applications judge had concluded that she did not need to determine whether this type of damage would be covered by the policy because she had found that Garden View could not meet the second half of the test (as described below). The Court held that this was not an appealable error.
- An inevitable danger
Garden View argued that it was "more likely than not" that insured property would be damaged had the remediation work not been completed and so the doctrine ought to apply. The Court rejected this proposition and confirmed that the doctrine will only apply when it is proven on a balance of probabilities that the peril and damage is inevitable. The Court noted that there are sound public policy reasons for this requirement, including that "insurers will not be obliged to pay and insureds will not be paid – other than in cases in which damages are a virtual certainty."
The Court also confirmed that the peril must be imminent or likely to occur at any moment. Garden View pointed to expert evidence that, it said, indicated that oil vapours would enter the building at some point after the spill. The Court found the expert evidence to be ambiguous: it was far from clear when vapours would enter the building, if at all. In the absence of compelling evidence, the peril was not imminent.
In addition, the Court of Appeal held that the reason an insured takes preventative measures is relevant to the imminent peril analysis. For the doctrine to apply, the imminent peril must be apparent, such that it would prompt a prudent person to take action. However, in this case, Garden View's evidence was that it had undertaken the clean up to avoid the increased costs of remediation which would result if neighbouring properties were contaminated and not because of the risk of vapours entering its building. Without saying so directly, the Court implies that the alleged peril could not have been apparent, given that the remediation was primarily motivated by other objectives.
Take away points
The doctrine of imminent peril is rarely applied but has potentially significant implications for both insurers and insureds. The doctrine is clearly of interest in cases of environmental spills where the migration of contaminants may be inevitable but still slow enough to intercept.
As the Garden View decision makes clear, however, a court will take a close look at the evidence in support of the insured's position that there was an imminent peril present before deciding whether the doctrine applies. Before making a claim, an insured, acting prudently, should first consider whether the peril is covered by the policy and then be prepared to persuade the insurer, possibly with expert evidence, that the damage was genuinely inevitable.
Conversely, when faced with a claim under the doctrine, an insurer ought to closely examine the insured's motivations in incurring the expenses. Garden View suggests that the doctrine may not apply where costs are incurred primarily for addressing a concern other than protecting insured property.