Court sides with insurer in multi-million-dollar spat over sublimits

B.C.’s Supreme Court has upheld an insurer’s insistence that a mining company’s business interruption losses were subject to a $10-millon sublimit and not to the full policy limit of $250 million.

That said, the court did not agree with the insurer that the same $10-million sublimit applied to both the physical damage to a tailings disposal factory (TDF) and the consequent business interruption losses. It found that a separate $10-million sublimit applied to the “time element” (business interruption) loss, in addition to a $10-million sublimit for the property damage.

“I find that the policy is not ambiguous, and that it provides for a CAD10,000,000 limit on physical loss and damage to the TDF, and an additional CAD10,000,000 limit on time element losses arising from the loss and damage of the TDF,” B.C. Supreme Court Justice Wendy Baker wrote for the court.

In 2014, the TDF failed at the Mount Polley Mine, owned by Imperial Metals Corporation. This resulted in a shutdown of the mine. Imperial argued the failure caused consequential economic losses, described as business interruption or “time element” losses.

Factory Mutual Insurance Company promptly paid $10 million under the terms of its policy with Imperial, without requiring proof of loss, and without fully measuring the insured loss.

Imperial sued Factory, arguing the time element loss should have been subject to the larger $250 million coverage for all insured loss or damage in an earth movement occurrence, and not just the $10-million sublimit for physical damage to the TDF.

The declarations page of the policy says the insurer’s maximum limits of liability in any occurrence, “including any insured TIME ELEMENT loss,” will not exceed the policy limit of CAD$315 million, subject to sublimits further identified in the policy. These sublimits appear in a detailed schedule under the heading, ‘Applicable Limits of Liability/Time Limits.’

Under the heading of claims preparation costs for “earth movement,” for example, the sublimits include “CAD250,000,000 in the aggregate during any policy year but not to exceed the following limits in the aggregate during any policy year.” Also, they include “CAD10,000,000 for TAILINGS DISPOSAL FACILITIES.”

Elsewhere in the schedule, the sublimit for “SERVICE INTERRUPTION PROPERTY DAMAGE and SERVICE INTERRUPTION TIME ELEMENT combined” is $10 million, and a separate $10-million sublimit is listed for tailings disposal facilities.

Imperial argued the $250-million sublimit applied because its business interruption damages were caused by earth movement. The court disagreed, saying the $10-million sublimit applied because the damages were caused by the physical damage to the TDF.

“Time element losses [contained in the policy] are expressly subject to the applicable limit of liability that applies to the insured physical loss or damage,” the court ruled.  “Imperial argues that the sublimit is CAD250,000,000, based on its submission that the insured physical loss or damage in the time element limits statement is the earth movement occurrence. I have rejected that submission. I find that the applicable limit of liability is the CAD10,000,000 limit which applies to the physical loss or damage to the TDF.”