The 2008 decision of the Alberta Court of Queen's Bench in Engel Estate v. Aviva Insurance Company of Canada, 2008 ABQB 645 ("Engel Estate") is an interesting discussion of both U.S. and Canadian case law on "All Risks" property coverage. Perhaps most interesting is the fact that the Alberta Court of Queen's Bench distinguished Canadian cases and elected to follow U.S. case law in determining that a settlement exclusion in an all risks policy did not exclude non-natural causes of settlement.
The decision can be found at http://www.canlii.org/en/ab/abqb/doc/2008/2008abqb645/2008abqb645.html.
The plaintiff owned commercial property located in Calgary. It sought a declaration that it was entitled to coverage and indemnity from Aviva Insurance Company of Canada ("Aviva") under an all risks policy for damages to its commercial property. The damage to the property occurred during construction work on an adjacent property.
The construction included excavation, pile driving and shoring work. Prior to this construction, the plaintiff had received an indemnity from the developer of the adjacent property. However, as a result of the construction work, significant damage to the building occurred. Eventually the structural stability, safety and physical integrity of the plaintiff's building was threatened by this damage. The plaintiff sought coverage from Aviva under an all risks policy.
Aviva denied coverage based on an exclusion that dealt with earth movement and settlement. The exclusion specifically excluded "settling, expansion, contraction, moving, shifting or cracking unless concurrently and directly caused by a peril not otherwise excluded…" (the "Settlement Exclusion").
Justice Hawco noted that there was general agreement that the property damage to the plaintiff's building occurred as a result of settlement. There was also general agreement that the settlement occurred due to the adjacent construction. The issue was whether or not this "non-natural" settlement qualified as "settling" under the Settlement Exclusion.
Justice Hawco undertook an examination of American decisions that dealt with similar settlement exclusions. The courts in those decisions concluded that the natural meaning of words such as "settling, expansion, contraction, moving, shifting or cracking" referred to a slow process resulting from the condition of the ground or building. It did not refer to a non-natural or third party cause of the settlement. American authorities generally held that when the settling occurred from an accidental cause and happened abruptly or unexpectedly, then that settlement the was not the sort of "settling" to which the policy language in an all risk policy referred. Based upon these American authorities, the damage to the plaintiff's case in this instance would not qualify as "settling" pursuant to the Settlement Exclusion.
Justice Hawco then reviewed Canadian decisions which considered settlement exclusions. Canadian cases, including two appeal decisions, were quite different and generally excluded property damage regardless of whether the cause was natural or non-natural.
Justice Hawco concluded that settlement by non-natural causes is not excluded by the Settlement Exclusion.
Justice Hawco stated explicitly that he preferred the reasoning in the American cases which limits "settlement" to "settlement which results from natural causes". He distinguished the Canadian cases reviewed on the basis that they considered different policy language. In particular, the policies under consideration in most of those Canadian decisions referred to a type of damage rather than a cause of damage. As a result, Justice Hawco found that the property damage in this case was covered by the Aviva policy.