Canadian Underwriter

How Intact and Economical won this pollution coverage dispute

April 10, 2019   by Greg Meckbach

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A court ruling against Economical and Intact over pollution exclusions in commercial general liability policies has been reversed.

As a result, the insurers do not have to defend a Vancouver area dry cleaner against a lawsuit filed by its neighbours alleging soil contamination.

Originally, British Columbia Supreme Court Justice Joyce DeWitt-Van Oosten ruled that Intact and Economical have a duty to defend West Van Holdings Ltd., the corporate owner of West Van Lions Gate Cleaners Ltd., which has operated a dry cleaners in Vancouver since 1976.

The ruling was overturned in West Van Holdings Ltd. v. Economical Mutual Insurance Company, released April 5 by the B.C. Court of Appeal.

West Van had commercial general liability with Intact Insurance Company from 1998 through 2002 and then with Economical Mutual Insurance Company until 2012. The policies had pollution exclusions, though with different wordings in different years.

In 2014, West Van was sued by owners of adjacent properties who alleged that dry-cleaning chemicals and petroleum products entered groundwater and soil. The allegations against West Van have not been proven in court.

In addition to suing for nuisance and negligence, the neighbouring property owners also claimed they had a statutory cause of action under the Environmental Management Act. That law imposes “absolute and retroactive liability” and “reaches back and brings historical events into a current owner or operator’s present-day risk of liability,” Justice DeWitt-Van Oosten wrote in her 2017 ruling.

The CGL policies written by Intact and Economical did not specifically exclude concurrent liability, contributory liability or retroactive liability for pollution causing “property damage” arising out of “occurrences” caused by an “independent third party,” Justice DeWitt-Van Oosten ruled.

But the lawsuit against West Van alleged that the contamination occurred while West Van owned or operated the land, Justice Richard Goepel wrote in the appeal court’s unanimous ruling.

The policies provided by Intact and Economical were not intended to cover events that took place a long time before those policies came into effect, Justice Goepel wrote.

The appeal court found that language in the Intact and Economical CGL policies operated to exclude the allegation made by the neighbouring property owners, which was that contaminants on West Van lands were  used, kept, disposed of, handled or treated in a manner that caused or allowed those contaminants to be discharged or deposited into, or to escape and enter the soils and groundwater of the neigbhouring lands.

The exclusion in Intact’s CGL policy in place in 1998-99 excluded bodily injury and property damage “arising out of the actual, alleged or threatened discharge, disposal, release or escape of pollutants” either at the insured’s premises or place where an insured or its contractors are working. It also excluded  “any loss, cost or expense arising out of any governmental direction or request that an insured test for, monitor, clean up, remove, contain, treat, detoxify or neutralize pollutants” and “fines, penalties, punitive or exemplary damages arising directly or indirectly out of the discharge, dispersal, release or escape of any pollutants.”

Intact used somewhat different wording in its exclusion in 1999 through 2002.

The Economical exclusion in effect from 2006 through 2012 excluded personal injury, bodily injury and property damage “arising out of the actual, alleged or threatened spill, discharge, emission, dispersal, seepage, leakage, migration, release or escape of pollutants.”

It goes on to say it applies both on-site and off-site and also excludes expenses arising out of a “request, demand, order or statutory or regulatory requirement that any insured or others test for, monitor, clean up. remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of pollutants.” Economical defined “pollutant” as any “solid, liquid, gaseous or thermal irritant or contaminant, including smoke, odour, vapour, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.”

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