Canadian Underwriter

Pollution exclusion doesn’t apply to negligence case, court rules

January 6, 2022   by David Gambrill

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An insurer’s duty to defend in a pollution exclusion case will depend on the cause of action, the Ontario Court of Appeal has ruled.

For example, a pollution exclusion did not apply in a recent negligence lawsuit against a contractor who caused damage to a commercial building following a fatal chemical release. But the exclusion might apply in cases where pollution caused damage to the natural environment requiring remediation costs.

“In this case, it is alleged that Mr. [John] Hemlow acted in a negligent manner when he opened a valve and allowed…ammonia to escape,” the Ontario Court of Appeal ruled in Hemlow Estate v. Co-operators General Insurance Company, released Dec. 20, 2021. “His alleged negligence caused damage to the property of Rich Products.”

The Appeal Court thus dismissed an appeal by The Co-operators, which argued that it should not have to defend the Hemlow Estate against the negligence claim because of a “Total Pollution Exclusion” in its policy. The allegation of negligence in the central case has not been proven in court.

The total pollution exclusion states that the insurer would not pay for any “‘bodily injury’ or ‘property damage’ or ‘personal injury’ arising out of the actual, alleged, potential or threatened spill discharge, emission, dispersal, seepage, leakage, migration, release or escape of ‘pollutants.’”

In a different part of the policy, the word ‘pollutants’ is defined as: “any solid, liquid, gaseous or thermal irritant or contaminant including smoke, odours, vapour, soot, fumes, acids, alkalis, chemicals and waste.”

Because of the pollution exclusion, The Co-operators argued it did not have a duty to defend Hemlow, an independent mechanical contractor who was killed in a workplace accident that also caused extensive property damage at Rich Products of Canada, the location where he was working.

Court documents show that in 2015, Rich Products retained Wear-Check, a company specializing in equipment oil and filter analysis, to sample and analyze the mechanical and refrigeration systems at its processing facility. Wear-Check subcontracted with Hemlow to carry out the sampling and analysis work.

During the course of his work, Hemlow opened a valve to a pipe containing pressurized ammonia. The resulting ammonia exposure killed Hemlow and caused significant damage to the Rich Products property.

Rich Products sued Wear-Check and the Estate of John Hemlow for negligence, nuisance, and breach of contract. The Ontario Court for Appeal found The Co-operators had a duty to defend the case, despite its policy’s total pollution exclusion.

“It is [Hemlow’s] alleged negligence that is at the core of the claim pleaded by Rich Products,” the Appeal Court ruled. “A claim arising from negligence is precisely the type of claim for which parties obtain CGL [commercial general liability] policies. It is the type of risk that Mr. Hemlow sought coverage for. The fact that the damage causing substance was a pollutant does not change the nature of the claim [i.e. a negligence claim]. It also must not be allowed to distract from the proper interpretation of the CGL policy nor obscure or distort the conclusion as to whether a duty to defend arises.”

In making this distinction, the court found the exclusion’s validity would depend on the type of legal action. For example, the exclusion might apply in cases where the cause of action involved pollution of the natural environment.

“Such a claim fits entirely within the historical purpose of the pollution exclusion, which [is] ‘to preclude coverage for the cost of government-mandated environmental cleanup under existing and emerging legislation making polluters responsible for damage to the natural environment,’” the court ruled.


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