Although the insured’s claim for indemnification under a commercial general liability insurance policy for the cost of destroying a contaminated product sold by the insured to the third party was for a fortuitous loss, it did not fall within coverage as the insured did not prove the event that caused the contamination.

[2014] B.C.J. No. 284

2014 BCSC 263

British Columbia Supreme Court

J. Steeves J.

February 18, 2014

The plaintiff insured sought coverage under a commercial general liability insurance policy issued by the defendant insurer.

The insured purchased a product from a supplier and then sold it to a third party who intended to use it to make fish food. The product was subsequently discovered to be contaminated. The contamination occurred before the product was purchased by the plaintiff. The product could not be used by the third party to make fish food and had to be destroyed. The third party made a claim against the insured. The insured sought indemnification from the insurer for the cost of disposing the contaminated product.

Because the issue was of indemnity rather than the duty to defend, the standard of proof to be met by the plaintiff insured was to prove on a balance of probabilities that the claim came under the policy.

The unused contaminated product fell within the policy's definition of property damage as it qualified as a “[l]oss of use of tangible property that is not physically injured”.

Next, the court considered whether the loss was an “occurrence” under the policy. Because the plaintiff did not have knowledge of the contamination until after the product was sold to the third party, the damage was fortuitous. Turning to the specific meaning of “occurrence” or “accident”, the court observed that each presumed an event to have occurred. However, the evidence did not explain what event contaminated the product, and did not provide any basis upon which to infer how the contamination occurred. The court held that there was no coverage because the plaintiff had not proven the circumstances of the contamination.

In considering whether the loss was also excluded under the policy, the court held that the loss fell within the impaired property exclusion as well as the product recall exclusion.