Canadian Underwriter

‘Surface water’ commercial coverage dispute could reach Supreme Court of Canada

November 11, 2020   by Greg Meckbach

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A $429,000 commercial property coverage dispute involving overflow from a body of water could reach Canada’s top court.

The Supreme Court of Canada announced Nov. 6 that the Co-operators wants to appeal Le Treport Wedding & Convention Centre Ltd. v. Co-operators General Insurance Company, released July 28, 2020 by the Court of Appeal for Ontario.

It all began with Canada’s fifth most-expensive insured catastrophe on July 8, 2013, when the western Greater Toronto area got about 90 mm of rain in an hour.

One of the affected properties was Le Treport, located in Mississauga, Ont., in a plaza on the northwest corner of Queensway and Stanfield Rd. About 600 metres to the east is Tonelli Creek, which flows south towards the Queensway and then underground south of the Queensway.

About half an hour after the rain started, water started flowing west along Queensway into the plaza parking lot and into the banquet hall through the doors. It was also coming in through the ceiling and up through floor drains, Justice Peter Lauwers wrote for the Court of Appeal for Ontario.

In a separate proceeding, an umpire assessed the loss at about $929,000, of which $593,000 was damage to the building and the remainder was loss of contents and furniture. The Co-operators only agreed to pay $500,000, which is the limit on the sewer backup coverage.

One result of the July 2020 Court of Appeal for Ontario decision is that The Co-operators has to pay an additional $429,000 in coverage – the difference between the $500,000 that the insurer already paid and the $929,000 in total losses assessed by the umpire.

Key to the dispute is that the flood exclusion in the underlying policy does not exactly mirror an optional flood endorsement that Le Treport bought. The exclusion includes the phrase “surface water” while the endorsement does not. According to the appeal court ruling, the overall effect of the flood endorsement is that it ousts the entire exclusion.

Originally in 2019, Justice Gray of the Superior Court of Justice found Le Treport is only covered for sewer backup and that the circumstances of the July 8, 2013, rain event do not trigger coverage on the flood endorsement.

The Court of Appeal for Ontario countered that Justice Gray erred in his finding that surface water is excluded. Instead, the appeal court reasoned that the endorsement should be read to completely eliminate the exclusion.

As it stands, the Co-operators has applied for leave to appeal. It will now be up to a panel of three Supreme Court of Canada judges to decide whether or not the top court will hear an appeal.

Part of the dispute was over how exactly the water got into the building.

At the lower court level, Justice Gray was not convinced on a balance of probabilities that water from Tonelli Creek “meaningfully contributed” to any of the water that flowed into the client’s premises. No expert evidence was called to that effect, and there was no evidence any other nearby body of water could have contributed to the flow of water, Gray ruled in 2019.

In overturning Gray’s ruling, the appeal court found that there was a “catastrophic failure of all water channelling features in the area,” Justice Lauwers wrote for the appeal court. “Had the creeks and the stormwater management system been able to handle the volume of water, there would be no case, but they were not.”


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