Ontario court upholds exclusions in all-risk commercial policy in hydro blackout case

The Ontario Superior Court has held up two exclusions in an “all-risks” commercial policy, according to which Lombard General Insurance denied coverage for a business interruption claim made by companies that lost frozen food after a power blackout.
Leo Deluca Enterprises Ltd. and Koolini’s Italian Cuisini Inc. brought a claim against Lombard after a 2003 hydro blackout.
The companies claimed a loss of Cdn$50,000 for the loss of frozen food and Cdn$4,600 for business interruption, after Koolini’s was closed for one day following the blackout.
Lombard denied the claim, noting two exclusions in the commercial insurance policy.
Paragraph 7(b)(5) of the policy “does not insure against loss or damage caused directly or indirectlybychanges in temperature.”
The second exclusion, in Paragraph 7(b)(4) of the policy, “does not insure against loss or damage caused directly or indirectlybymechanical or electrical breakdown or derangement in or on the premises.”
The plaintiffs argued the temperature change exclusion was limited to natural events and did not include temperature changes due to equipment failure (i.e. due to power failure).
The court rejected this argument, noting the Supreme Court did not restrict such an exclusion to natural events.
Also, the plaintiffs argued the “derangement” exclusion applied only to some defect intrinsic to the equipment. It did not, in other words, exclude all situations in which the equipment did not act normally (i.e. loss of power during a hydro failure).
Again, the court rejected the argument, noting previous case law in which the interpretation of the word derangement contained “no suggestion that coverage is limited to derangement occasioned by any particular cause or causes.”