In West Van Holdings Ltd. v. Economical Mutual Insurance Co., 2017 BCSC 2397, the insureds, West Van Holdings Ltd. and West Van Lions Gate Cleaners Ltd. (the “Insureds”) brought an action against Economical Mutual Insurance Company and Intact Insurance Company (the “Insurers”) seeking a declaration that the Insurers had a duty to defend the Insureds.
In 2014, a notice of civil claim was filed in 8549737 Canada Inc. and 8428450 Canada Inc. v. West Van Holdings Ltd. and West Van Lions Gate Cleaners Ltd., S140879 (the “Underlying Action”) where the Insureds were sued for damages allegedly due to the migration of contamination from property owned and used by them, to adjacent lands.
In the Underlying Action, the plaintiffs alleged that over time the lands had been used for dry-cleaning and automotive repair businesses. The plaintiffs alleged that dry‑cleaning chemicals and petroleum products were “used, kept, disposed of, handled, or treated on the lands in a manner that caused or allowed the contaminants to be discharged or deposited into, or to escape and enter the soils and groundwater” of the adjacent property.
The plaintiffs in the Underlying Action pleaded negligence, nuisance, liability under the rule in Ryland’s v. Fletcher and asserted a statutory cause of action under the Environmental Management Act (the “Act”). The Insureds filed a response to civil claim alleging that the contamination was caused by acts or omission of previous owners and/or users.
Section 45(1) of the Act deems current owners or operators of a contaminated site as persons who are responsible for remediation, unless they can bring themselves within one of the exceptions delineated under section 46(1). Pursuant to section 47(1) of the Act, a person who is deemed responsible for remediation is absolutely, retroactively and jointly and separately liable to any person or government body for reasonably incurred costs of remediation of the contaminated site, whether incurred on or off the contaminated site.
The issue at the hearing was whether the Insurers owed a duty to defend the claims made against the Insureds in the Underlying Action.
For the years 1998 – 2012, the Insurers provided commercial general liability insurance to the Insureds.
Intact’s 1998 –1999 environmental liability clause stipulated that coverage was not available for damage to property arising out of the “actual … discharge … release or escape of pollutants”, “[a]t or from premises owned, rented or occupied by an Insured …”.
Intact’s 1999 – 2000 pollution liability clause stipulated that coverage was not available for damage to property “arising out of the actual, alleged, potential or threatened spill, discharge, emission, seepage, leakage, migrations, release or escape of pollutants”, “[a]t or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to any, Insured…”.
Economical’s 2002 – 2003 pollution liability clause excluded coverage for damage to property arising out of the “actual, alleged or threatened discharge, dispersal, release or escape of pollutants”, as well as any loss or expense “arising out of” a direction or request to “clean up” pollutants by government.
Intact’s original and successive policy as well as Economical’s policy were silent on the issue of concurrent liability, contributory liability or retroactive liability.
Duty to Defend
The Insureds alleged that under the insurance policies, which had somewhat varied wording over the years, the Insurers agreed to pay all monies that the Insureds become legally obligated to pay as compensatory damages arising out of property damage brought about by an occurrence. The Insureds’ position in the action against the Insurers was that once the policies are read as a whole, the potential for lability arising out of the Underlying Action fall within the scope of coverage. Further, the “scope and application” of the environmental liability and pollution liability exclusions did not preclude coverage for all the Underlying Actions’ contemplated sources of liability. Specifically, the Insureds argued that they were potentially liable not only for damages resulting from their alleged acts or omissions, but because of the Act for damages arising from the acts or omissions of predecessor owners and/or users of the lands.
The Insureds argued that such claims are not clearly and unambiguously excluded by the exclusion clauses. Further, the Insureds argued that the scope of coverage for both policies must be construed broadly and the exclusion clauses should be given a narrow interpretation, contra proferentem against the Insurers.
The Insurers relying on the exclusion clauses in their respective policies argued that at all material times, the policies specifically excluded coverage for pollution and environmental lability. Further, that they “clearly and unambiguously” preclude coverage within the specific context of this case. They also argued that the Underlying Action against the Insureds did not allege contamination resulting from retroactive, concurrent or contributing causes.
Even though the insurance policies contained environmental and pollution exclusion clauses, the Court held that the Insurers still had a duty to defend the Insureds against an action arising from soil contamination.
The Court found that because the Insureds are alleged to be persons responsible for remediation under the Act, there is a possibility that the Insureds could be held liable for pollution caused by previous landowners/users. Further, the exclusion clauses did not specifically exclude coverage for compensation, including remediation costs, arising from pollutants that may have been used before the Insureds owned and/or operated on the subject land, and for which the Insureds may be liable in some form because of deemed responsibility under the Act. As such, both policies were ambiguous.
It is of note that in arriving at its decision that the environmental and pollution exclusion clauses were ambiguous, the Court considered these clauses within the context of the entirety of the policies and other exclusion clauses including asbestos, nuclear energy hazards, and fungi exclusion clauses, which specifically dealt with the issues of concurrent, contributory and retroactive liability. As an example, the Court considered Economical’s fungi exclusion clause which explicitly stated that it applied “regardless of the cause of the loss or damage, other causes of the injury, damage … or whether other causes acted concurrently or in any sequence …”.
This decision highlights the importance of having exclusion clauses that are broader in their wording, clear and unambiguous, and specific with respect to both concurrent and retroactive liability. This decision has been appealed to the BC Court of Appeal. Keep an eye out for the appeal decision and we will report on that at that time.