B.C. Court of Appeal allows exclusion

British Columbia’s Court of Appeal has agreed with B.C.’s public auto insurer, ICBC, that a trial judge erred by failing to apply an exclusion under the Insurance (Motor Vehicle) Act for mechanical failure or breakdown of any part of a motor vehicle.
In Dawson Truck Repairs Ltd. v. Insurance Corporation of British Columbia (ICBC), a three-judge panel of the Court of Appeal ruled unanimously in favour of ICBC.
ICBC insured Dawson Truck Repair Ltd. under a “garage all-risk policy” that included coverage for loss and damage to customers’ vehicles.
During a road test, an engine Dawson had repaired malfunctioned, causing extensive damage to the truck. The top end of the engine completely ripped off, the transmission fell to the ground and the clutch assembly exploded through the floor of the cab of the vehicle.
Dawson rebuilt the engine for the owner and claimed indemnity from ICBC. The insurer paid only a portion, less a Cdn$300 deductible, because it contended the remainder of the damage was caused by mechanical failure or breakdown of a part of the truck and was excluded by s. 132 of the Insurance (Motor Vehicle) Act.
The trial judge concluded the engine over-sped because oil contaminated the air system of the truck’s turbocharger. This occurred not because of a mechanical failure, triggering the policy exclusion, the judge ruled, but because of the negligence of a Dawson employee, who failed to properly inspect and clean the air system. The judge concluded the policy exclusion did not apply, and awarded a net figure of Cdn$20,000.
“ICBC contends the judge erred by focusing on causation and ignoring the fact the exclusion also applies if the damage or loss consists of mechanical failure, fracture or breakdown,” Justice Edward Chiasson wrote on behalf of the Court of Appeal panel.
“It says the judge failed to consider the nature of the damage to the truck.”
Section 132(1)(b) is clear, he continued. “The fact that the engine damage was caused by the negligence of an employee does not per se determine the cause of the cab damage.”
Dawson cannot claim indemnity for the cab damage because it was caused by mechanical fracture, failure or breakdown. “The engine damage was not coincidental with other loss or damage for which indemnity is provided,” the appellate court ruled.