Canadian Underwriter

Fort Mac bowling alley covered for water damage despite flood exclusion

March 1, 2022   by David Gambrill

Bowling. Lucky strike.

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A Fort McMurray, Alta., bowling alley is entitled to coverage for water damage sustained in the April 2020 flooding, despite its insurance policy containing a clear flood exclusion.

The Alberta Court of Queen’s Bench found Intact included a coverage extension in the policy, under the heading, “Other Water Damage,” that overrode the policy exclusion for flood.

The policy extension includes cover for damage caused by “seepage, leakage or influx of water derived from natural sources through basement walls, doors, windows or other openings, foundations, basement floors, sidewalks or sidewalk lights, unless concurrently and directly caused by an insured peril not otherwise excluded in this form.”

According to Intact’s commercial property policy, excluded perils include: “Flood in whole or in part by flood, including ‘surface water,’ waves, tides, tidal waves, tsunamis, or the breaking out or overflow of any natural or artificial body of water.”

Intact argued the wording in the “excluded perils” section of the policy was clear enough – flood is excluded. But the court found the policy has to be read as a whole: the wording of the extension and the exclusion were in conflict, and therefore ambiguous.

“While it is correct that the policy contains a clear exclusion for the act of a flood, there is ambiguity between the exclusion of coverage as a result of a flood and the express inclusion of coverage for loss or damage caused by seepage, leakage or influx of water derived from natural sources thorough basement walls, doors, windows or other openings, foundations, basement floors…that is found in paragraph 61 of [the policy extension],” Alberta Court of Queen’s Bench Justice Susan Richardson wrote in a decision released Monday.

Richardson noted the extension was written in such a way that it “unambiguously eliminates the exclusion, and thereby reinstates coverage for building and/or contents damage by “Other Water Damage.”

The court noted the insurer did not use the same language for “flood” in the extension as it did in the exclusion, which the court interpreted as intentional.

“The exclusion for flood damage relates to a narrower event than the grant of coverage captured by the [extension’s] paragraph 2.3.1; Other Water Damage,” Richardson wrote. “Principles of contract interpretation lead to the conclusion that the defendant meant to include this distinction. So, the flood exclusion is a narrower exclusion than the more expansive grant of coverage for other water damage [in the extension].”

As such, the bowling alley is covered for damage under the policy’s extension, the court found.

“The Statement of Agreed Facts attests to the fact that the act that caused the damage was the influx of water into the insured premises as a result of water overflowing the banks of the Clearwater River,” Richardson writes.

“While colloquially this event could be described as a flood, the specific action that resulted in the damage to the premises, pursuant to the Statement of Agreed Facts, was the influx of water into the premises through various openings in the walks and doors in the leased premises and through openings in walls between the leased premises and the adjoining unit and underground parkade.”


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