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B.C. court rules in favour of insurer in dispute over coverage for revenue loss after evacuation order


December 6, 2013   by Canadian Underwriter


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A British Columbia recently ruled this week in favour of St. Paul Fire and Marine Insurance Company over a dispute on the scope of coverage of an “interruption by civil authority” clause in a commercial policy.

On July 18, 2009, an evacuation order was issued to residents near Kelowna due to forest fires. One affected property was Cove Lakeside Resort, a condominium complex which was insured for revenues loss by St. Paul Fire and Marine, which does business as Travelers Canada.

The policy that Travelers Canada wrote for Cove Lakeside Resort’s owners, Strata Plan KAS3058 and 0739152 B.C. Ltd., had an extension of coverage, under the heading “Interruption by Civil Authority,” which stated:

“We will pay your actual loss of revenue when a civil authority denies access to an insured location as a direct result of physical loss or damage by a covered cause of loss to property not at an insured location. We will pay for loss of revenue for up to four consecutive weeks while access to an insured location is denied.”

The Municipal District of West Kelowna lifted the evacuation order July 21, 2009, but after that “there were a significant number of cancelled bookings and empty suites among those available for rent at Cove Lakeside Resort,” according to court records.

“The plaintiffs filed a proof of loss for loss of rental income between July 19 and Aug. 31, 2009 in the amount of $463,287.50,” according to background provided with a Dec. 2, 2013 ruling by Madam Justice Margot L. Fleming of the Supreme Court of B.C. “The defendant denied coverage for losses that incurred after July 21, 2009.”

The policyholder argued that “each of the sentences in the civil authority clause has a different meaning and provides a separate grant of coverage,” Justice Fleming noted. But she disagreed, ruling that the policy “excludes coverage for subsequent or consequential losses that occur after access by a civil authority is no longer denied.”

Strata Plan KAS3058 argued that when reading the policy as a whole, “the coverage provided by the clause provides that the insured will be reimbursed for revenue losses suffered while access was denied and due to the impact of the denial of access.”

But St. Paul Fire and Marine countered that the second sentence in the extension clause “is directly related to and modifies the first” and the second sentence “clearly contemplates the requirement that there be a denial of access for coverage to continue and limits that coverage to a four week maximum.”

The policyholders asked the court to consider cases involving examples of policies that “expressly provided” more limited coverage.

“In response to the plaintiffs’ suggestion that the insurer could have used additional or different wording to add clarity to the clause, the defendant argues the plaintiffs are simply searching for or creating ambiguity where none exists,” Justice Fleming wrote. “I agree.”

She cited a September 2010 ruling by the Supreme Court of Canada in the case of Progressive Homes Ltd. vs Lombard General Insurance Co. of Canada. In that decision, the highest court in the land overturned a 2009 ruling by the B.C. Court of Appeal. The Supreme Court of Canada ruled that Lombard has a duty to defend Progressive Homes in a lawsuit alleging negligence and breach of contract after some buildings were damaged by water leakage.

“The primary interpretive principle is that when the language of the policy is unambiguous, the court should give effect to clear language, reading the contract as a whole,” Mr. Justice Marshall Rothstein wrote in 2010 on behalf of the Supreme Court of Canada in its unanimous ruling in Progressive Homes.

That principle was cited by Justice Fleming in her Dec. 2, 2013 ruling in favour of St. Paul Fire and Marine.

“It is apparent the drafters attempted to simplify the use of language,” she wrote of the policy. “In any event, considering the ordinary language of the clause as a whole and in its context, I find the second sentence clearly modifies the first and coverage is only provided for the loss of revenue that occurs when a civil authority denies access, and while it continues to do so, for up to a maximum period of four consecutive weeks.  Accordingly, I conclude the policy excludes coverage for subsequent or consequential losses that occur after access by a civil authority is no longer denied, in this case, after the evacuation order was lifted.”


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