Two recent decisions add to the jurisprudence considering the application of pollution exclusion clauses.
In Corbould vs. BCAA Insurance Corporation (November 1, 2010), the British Columbia Supreme Court considered a coverage suit arising from a leak out of a home heating fuel, aboveground storage tank into the soil surrounding the vacation home of the plaintiff. The plaintiff’s insurer denied coverage relying on the pollution exclusion, which excluded loss or damage caused by contamination or pollution, or the release, discharge or dispersal of contaminants or pollutants. Unlike recent Ontario decisions, this case concerned a claim for coverage under a first party property policy, and is the first case from a common law province to consider the application of an absolute pollution exclusion to an “all risks” residential insurance policy. The plaintiff relied on cases considering the application of the pollution exclusion in commercial general liability policies. In particular, the plaintiff relied on Zurich Insurance Co. vs. 686234 Ontario Ltd. (2002), where the Ontario Court of Appeal found that the pollution exclusion was intended to apply to active industrial pollution and did not apply to a leak of carbon monoxide from a home furnace. In that case, the court stated that the carbon monoxide was not released like a manufacturer discharges effluent, but was discharged or released as a result of negligence alleged in the underlying claims. The Court of Appeal concluded that the absolute pollution exclusion in the commercial general liability policy was not intended to exclude coverage for a leak resulting from a faulty home furnace.
However, in Corbould, the court concluded that the substantial oil leak onto the plaintiff’s property was caused by pollution and amounted to a release, discharge or dispersal of contaminants. The court stated that there was no ambiguity in the language of the exclusion and that applying the exclusion to deny coverage for the loss was consistent with the reasonable expectations of the parties. The court reasoned that if the exclusion did not cover a fuel spill or a leak of the tank onto the insured’s property, what might it cover? Further, it found that the application of the clause did not render the policy worthless since it would continue to cover other perils such as fire, wind damage, theft and vandalism.
Although not expressly stated in the Corbould decision, a distinction between the Corbould and Zurich cases is that the policy considered was a property policy and there were no allegations of negligence that could be relied on to trigger coverage and avoid the application of the exclusion.
The decision of the Ontario Superior Court in ING vs. Miracle (September 12, 2010), concerned an application for coverage arising from the leak of gasoline from a service station owned by Miracle onto third party property. Miracle, relying on the Zurich case, argued that the pollution exclusion clause applied to active industrial polluters and not to Miracle’s business because pollution was not a probable consequence of operating a service station. The court concluded that the facts in the Zurich decision were similar to those in Miracle. The court stated that Miracle did not release gasoline into the environment as a result of its business, that the alleged gas leak occurred as a result of Miracle’s negligence and that a reasonable policyholder would not have expected the exclusion to apply to a gas leak, but only to damage caused by industrial pollution. The Superior Court found that it was the negligence of Miracle in allowing gasoline to escape from its tank that had caused the damage that was the subject matter of the litigation.
While the court’s analysis in Miracle may be consistent with the result in Zurich, it further restricts the effectiveness of the absolute pollution exclusion in that it can be reasonably argued that gasoline leaks are a common occurrence in the operation of service stations. The Miracle decision is under appeal. Should the Ontario Court of Appeal provide written reasons, it may provide additional guidance as to the extent to which the application of the pollution exclusion may be restricted. The Zurich case, which considered a carbon monoxide leak from a home heating furnace was very unlike industrial pollution, while a leak from a commercial gas station, although pleaded as negligence, looks much more like industrial pollution, to which the exclusion is intended to apply.