New CGL Exposure History Repeats

For the past 60 years, the “comprehensive general liability” (CGL) policy has provided coverage against the risk of accidentally caused property damage and bodily injury. At the same time, the “standard automobile” policy has become increasingly subject to statutory restrictions.

Subject to optional extensions of coverage (i.e., non-owned automobiles), the CGL policy is not intended to provide coverage for claims arising out of the use or operation of an automobile. Auto related perils are specifically excluded in the policy wording. By the same token, automobiles are used for some weird and wonderful things, and automobile insurers have sought to exclude risks that are against public policy or involve fact situations where the automobile was “coincidental” to the loss.

Interplay

The Supreme Court of Canada first considered the issues of the interplay of the general liability and auto policies in the landmark decision of Stevenson v. Reliance Petroleum Ltd. [1956] S.C.R. 936 This case is much cited as a precedent, and still makes interesting reading today, particularly the dissenting opinion of Mr. Justice Locke.

Reliance Petroleum was a fuel oil and gasoline delivery company in London, Ontario. While gasoline was being delivered from one of its tank trucks, fuel spilled as a result of the driver’s negligence. The gasoline caught fire, and there was extensive damage to the service station and surrounding premises. Reliance settled the claims, and then sought indemnity under two policies of insurance — the auto policy on the truck and the general liability policy on the business.

The Supreme Court of Canada saw the coverage argument in “either/or” terms. The automobile liability policy expressly insured against liability “arising from the ownership, use or operation” of the vehicle. The Court found that the loss clearly arose from the “use” of the tank truck within the meaning of the insuring clause. That included not only the transportation of the gasoline from Reliance Petroleum’s premises to the service station but also its delivery into the customers’ tanks.

The Court noted that the general liability policy specifically excluded “any claim arising or existing by reason of… any motor vehicle”. They interpreted this to be an exclusion of liability arising in any way from the ownership, use or operation of an automobile: precisely what was covered by the automobile policy.

Most importantly, the Supreme Court of Canada held that the exclusion extended to the finding that the truck driver had been negligent in not ascertaining the quantity of gasoline already in the tank before starting to deliver it, ruling that “this was merely a circumstance annexed to the act of delivery”.

Justice Rand articulated what has become known as the “purpose test” at p. 941 of the judgment: The expression “use or operation” would or should, in my opinion, convey to one reading it all accidents resulting from the ordinary and well-known activities to which automobiles are put, all accidents which the common judgment in ordinary language would attribute to the utilization of an automobile as a means of different forms of accommodation or service. It may be said that in these instances “use” and “operation” are equivalents: but the statute uses both words and meaning can be given to each in this manner where the “use” is that in fact of the automobile.

Justice Locke dissented in part. He was strongly of the opinion that the loss was covered in part by the general liability policy as well as the automobile policy. He suggested that the risk covered by the general liability policy was not defined by statute, and it should be construed contra proferentem in favor of the insured. He would have held that the liability for the negligent act of the driver fell squarely within the insuring clause of the general liability policy. In his opinion, it was not excluded by the automobile exclusion. Justice Locke was of the opinion that if the insurer had intended to exclude this risk it should have done so in clear and unambiguous terms.

Justice Locke went further, and suggested that the general liability insurer had committed a breach of contract in refusing to defend the litigation and pay the judgments up to the limits in the policy.

Accidental benefits

By the 1990s, most of the cases considered by the Supreme Court of Canada arose from first party claims seeking accident benefits from automobile insurers. The most famous of these decisions is Amos v. Insurance Corp. of British Columbia [1995] 3 S.C.R. 405. In this case, the insured was allegedly attacked by a gang while driving and seriously injured by gunshots while driving away. He was insured by the Insurance Corporation of British Columbia (ICBC) under a standard automobile insurance policy. Following the shooting, he applied under s. 79(1) of the revised regulation (1984) under the B.C. Insurance (Motor Vehicle) Act which provided for the payment of benefits “in respect of death or injury caused by an accident that arises out of the ownership, use or operation of a vehicle”.

The ICBC denied liability, arguing that the van was merely the site of the shooting and not causally connected. The Supreme Court of British Columbia dismissed the plaintiff’s action and the Court of Appeal upheld that judgment.

The Supreme Court of Canada allowed the appeal, ruling that the inclusion of the words “ownership” and “use” in s. 79(1) indicated a legislative intent to establish broader coverage than for incidents arising from the “operation” of a vehicle. The Court suggested that a two-part test, involving purpose and causal link, should be applied in these cases:

Did the accident result from the ordinary and well-known activities to which automobiles are put, and if so;

Was the relationship (not necessarily a direct or proximate causal relationship) between the appellant’s injuries and the ownership, use or operation of his vehicle, causal or was it merely incidental or fortuitous?

The Court held that the first part of the test had been met, since the plaintiff had been driving his van down a street. The Supreme Court of Canada opined that a direct or proximate causal connection is not required between the injuries suffered and the ownership, use or operation of a vehicle. The phrase “arising out of” is broader than “caused by”, and must be interpreted in a more liberal manner. The motor vehicle need not be the instrument of the injury to satisfy the causal connection requirement.

It also held that the insured’s vehicle was not merely the site of the shooting. The shooting was the direct result of the assailants’ failed attempt to gain entry to the appellant’s van and arose out of the insured’s ownership, use and operation of his vehicle. Whether or not the shooting was accidental was unimportant. The court held that no intervening act, independent of the ownership, use or operation of the vehicle, broke the chain of causation.

Accident v. incident

A similar result was achieved in Vijeyekumar et al. v. State Farm Mutual Automobile Insurance Company (1999) 44 O.R. (3d) 545 [1999] S.C.C.A. No. 438. In this case, the insured died of asphyxiation caused by carbon monoxide poisoning in what was almost unquestionably a suicide. He was found in his car in a closed garage. The car engine was running and a hose had been attached to the exhaust pipe and run through the trunk and rear seats of the car, coming to rest on the front console beside the deceased.

The deceased’s wife and daughter sued State Farm for death benefits under his automobile insurance policy. Under the standard automobile policy, death benefits were payable if an insured person “dies as a result of an accident”. “Accident” was defined to mean “an incident, in which, directly or indirectly, the use or operation of an automobile causes an impairment”.

State Farm denied coverage on the ground that suicide was not included in the meaning of the word “incident”, and that the deceased’s death did not result from the “use or operation” of his car. The trial judge agreed that the de
ceased had committed suicide but held that the insurer was required to pay death benefits because the suicide was covered by the definition of “accident”. The insurer appealed.

The appeal was dismissed by the Ontario Court of Appeal, and the Supreme Court of Canada subsequently denied motion for leave to appeal after a hearing on the merits. The Court noted that the “statutory accident benefits schedule” did not contain any express exclusion for death resulting from suicide. Whether the deceased’s death was an “accident” depended on the answers to two questions: whether “incident” included intentional occurrences such as suicide, and whether the deceased’s death was caused by the “use or operation” of his car.

The Court of Appeal ruled that the trial judge was correct in holding that the use of the word “incident” extended the meaning of “accident”. The deceased’s suicide was an “incident” within the definition of “accident” in the schedule. The Court applied the “Amos test” and found that the car was being operated even if it was merely sitting idle with its engine running. The causation requirement was satisfied by the fact that the use or operation of the motor vehicle had, in some manner, contributed to the death or injury. The Court extrapolated that since the running of the engine was an ordinary activity of a car, an ordinary activity of a car had been a contributing factor in the deceased’s death.

These dramatic extensions of what constitutes the “use or operation” of a motor vehicle, would ordinarily constitute good news for CGL insurers, following the “either/or” approach to coverage set out in Reliance Petroleum.

Which negligence?

The latest decision from the Supreme Court of Canada, Derksen v. 539938 Ontario Ltd. [2001] S.C.J. No. 27, however, constitutes a dramatic reappraisal of this approach. Derksen involved particularly tragic circumstances. During the cleanup of a work site, a Bell contractor left a steel base plate unsecured at the rear of his supply truck. As he drove the truck on the highway, the plate flew out of the truck and through the window of an oncoming school bus, killing one child and seriously injuring three others.

The plaintiffs alleged that the contractor had been negligent in cleaning up the work site as well as in the operation of the truck. The contractor was covered by an automobile insurance policy as well as a CGL policy and an excess policy.

The CGL carrier argued that the accident resulted from a single auto-related cause, which fell within the policy’s automobile exclusion. In the alternative, they submitted if there were two concurrent causes, the CGL policy did not afford coverage as one of the causes was auto-related and thereby excluded from coverage.

On the coverage application, the motions judge held that all three policies provided coverage and found two concurrent causes of the accident: negligent clean up of the work site, covered by the CGL policy, and negligent operation of the truck, covered by the automobile policy. The Motion Judge found that coverage under the automobile policy was limited by s. 267.1 of the Ontario Insurance Act to non-pecuniary damages, while the coverage under the CGL policy was restricted by the auto exclusion clause. He further ruled that the CGL policy insured against pecuniary and non-pecuniary losses not attributable to auto-related causes. The umbrella policy would be engaged up to its limits if there was a shortfall in either of the primary policies.

This decision was subsequently upheld by the Ontario Court of Appeal. The Supreme Court of Canada agreed that the accident was the result of two concurrent causes: the failure to safely clean up the work site and the failure to ensure that the truck could be operated safely. Neither cause was dominant since the accident would not have occurred but for either cause.

The work site negligence could not be characterized as merely being part of loading the supply truck. The court also held that the use of the truck could not be considered to be an independent intervening proximate cause, interrupting the chain of causation. The Supreme Court noted that s. 267.1 of the Insurance Act seemingly recognizes that there may be concurrent causes. In such circumstances, it is undesirable to attempt to decide which of two concurrent causes was the “proximate” cause. The Court went further, however, and stated that where there are concurrent causes, there is no presumption that all coverage is ousted if one of the concurrent causes is an excluded peril. If an insurer wished to oust coverage in such cases, it must expressly state that in the insurance policy.

Whether an exclusion clause applies in a particular case of concurrent causes is always a matter of interpretation.

Here, the CGL exclusion did not mean that coverage for an insured risk would be inoperative if an expressly excluded risk constituted an additional cause. The message sent by the Supreme Court of Canada in the Derksen decision is clear: if insurers wish to avoid liability for concurrent liability in auto related accidents, a new exclusion must be added to the standard form of the CGL policy. This was, of course the substance of the dissenting opinion in Reliance Petroleum, more than 40 years ago.

The case opens up a veritable floodgate of potential claims against CGL carriers, and it can be anticipated that additional allegations of failure to supervise or “non automobile” grounds of negligence will now be added in instances where an automobile policy restricts recovery or has insufficient limits.