Earlier this month, the B.C. Court of Appeal rendered its decision in West Van Holdings Ltd. v. Economical Mutual Insurance Company, 2019 BCCA 110 – a case which considered whether insurers can rely on certain exclusion clauses to deny or preclude coverage for environmental contamination and pollution claims.
The two insured entities, West Van Holdings Ltd. and West Van Lions Gate Dry Cleaners Ltd. (collectively, “West Van”), operated a dry cleaning business for more than forty years. In 2014, owners of an adjacent property sued West Van, alleging that petroleum products and dry-cleaning chemicals had migrated onto and contaminated their property as a result of West Van’s operations.
West Van’s insurers initially refused to defend the claim on the basis that their insurance policies contained exclusion clauses for pollution. The policies included coverage for “property damage” brought about by an “occurrence”, but specifically denied coverage for property damage arising from pollutants.
West Van argued that its insurers were legally obligated to defend the claim, and that the scope and application of the exclusion clauses did not preclude coverage. In support of this position, West Van suggested that it was exposed to retroactive liability, as the Environmental Management Act holds current owners and operators responsible for remediation caused by predecessor third parties who had previously owned the site. Since the insurance policies did not expressly exclude this type of retroactive liability, West Van submitted that its insurers were bound to defend the claim.
West Van was successful before the B.C. Supreme Court in December 2017, which found the exclusion clauses to be ambiguous due to their silence on issues of concurrent, contributory, and retroactive liability. Since there was a “mere possibility” that even one of the claims was not “clearly and unambiguously” excluded, the Supreme Court held that the insurers’ duty to defend was triggered.
The appeal was heard on November 6, 2018 and earlier this month, the B.C. Court of Appeal disagreed, finding that the insurers were not obligated to defend West Van. The Court of Appeal scrutinized the pleadings and noted that there was no mention of a predecessor third party in the Notice of Civil Claim and therefore, no possibility of West Van being exposed to retroactive liability. Further, the Court determined that the insurance policies only covered property damage which occurred during the relevant policy periods – they were not intended to cover events which took place long before they came into effect.
The Court of Appeal also did not find the exclusion clauses to be ambiguous. One clause excluded all claims “arising out of” the discharge of pollutants – wording that the Court viewed as broader than “caused by”. The clauses captured the entirety of the allegations pleaded in the Notice of Civil Claim and excluded those claims from coverage.
The Court of Appeal also reversed the Supreme Court’s decision to award special costs, finding that “an insurer facing a duty to defend claim should be treated no differently than any other litigant who may breach a contract”. Absent an insurer’s breach of its duty of good faith or other conduct worthy of rebuke, there was no basis for an award of special costs.
If you have any questions, please contact any member of our Commercial Litigation Group.
With thanks to articling student Sarah Hannigan for her assistance in drafting this article.
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