December 7, 2020 by Greg Meckbach
A Supreme Court of Canada decision released Thursday means Intact Insurance has to defend two lawsuits against a client that operates a cold storage warehouse.
Clauson Cold & Cooler Ltd. had a “Commercial Edge Express Plus” policy with Intact.
In 2015 and 2016, some of the goods in Clauson’s warehouse allegedly thawed. Those goods included pet food belonging to one customer and vegetables belonging to another customer.
Clauson was sued by one of those customers in 2016 and by the other customer in 2017. Among the allegations in those two lawsuits, which have not been proven in court, are that the products were lost while under Clauson’s care, custody and control.
Intact disputed Clauson’s liability claim seeking coverage for the lawsuits.
The Commercial Edge Express Plus policy, which Intact wrote for Clauson, has more than 20 different forms, riders and endorsements. Among them are a commercial general liability (CGL) form, two equipment breakdown forms (one “consequential” and the other “comprehensive”), and a warehouse form.
Only the CGL and warehouse forms contain “duty to defend” language.
Intact said the warehouse form does cover Clauson for third-party liability coverage, but not under the circumstances leading to the lawsuits against Clauson. Intact cited two exclusions in the warehouse form. One exclusion is for liability for mechanical or electrical breakdown. The other exclusion is for liability for loss or damage cause by or resulting from extremes or changes of temperature.
Clauson took Intact to court in Alberta. In 2017, Master James Farrington of the Alberta Court of Queen’s Bench ruled that Intact has a duty to defend the lawsuits against Clauson arising from alleged thawing. That ruling was upheld in 2018 by Justice Nancy Dilts of the Court of Queen’s Bench, and again in Intact Insurance Company v Clauson Cold & Cooler Ltd., released Apr. 28, 2020 by the Court of Appeal for Alberta.
Intact applied for leave to appeal the Supreme Court of Canada, which announced Dec. 3, 2020 it will not hear an appeal from the insurer.
Key to the Alberta appeal court ruling was how the term “policy” in the wording in the CGL form applied to Intact’s duty to defend. The CGL form states:
“With respect to the insurance afforded by the other terms of this Policy, the Insurer agrees … to defend in the name of and on behalf of the Insured, claims, suits or other proceedings that may at any time be instituted against the Insured for any accident or “occurrence” covered by this Policy …”
In that wording, the term “policy” means the entire Commercial Edge Express Plus policy – including the dozens of forms and endorsements – and not just the CGL form, Justice Dilts of the Court of Queen’s Bench wrote.
As a result, the duty to defend not only applies to the CGL form but also to the equipment breakdown forms. Intact argued that the Equipment Breakdown Comprehensive and Equipment Breakdown Consequential Forms provide only first party property insurance, meaning that they only let Clauson claim for its own loss, not for third-party claims.
“While I agree that as a matter of theory, it is illogical that a duty to defend an insured could arise under a first party property Form, the Court is not bound by the titles to the Forms, nor by what might be the usual or expected nature of the Forms. Instead, the Court must be guided by the words of the Forms themselves,” Justice Dilts wrote in her 2018 ruling.
The three Alberta appeal court judges hearing Intact’s appeal agreed.
The Equipment Breakdown Comprehensive Form covers loss of “Specified Property of others which the Insured shall become obligated to pay by reason of the liability of the Insured for such loss …provided such loss is due to spoilage from lack of . . . refrigeration, resulting solely from an ‘Accident’, as defined, to an Object insured under [the Equipment Breakdown Comprehensive Form], which ‘Object’ is in use or connected ready for use.”
This means the equipment breakdown comprehensive form covers “losses experienced by a third party (and for which Clauson shall become obligated to pay) for products under refrigeration at the Clauson warehouse when that loss is due to spoilage from lack of refrigeration resulting solely from an accident,” Justice Dilts wrote in her 2018 ruling.
Feature image via iStock.com/AleksandarGeorgiev
Absent knowledge to the contrary, it appears the dog food company and the vegetable owner stored their products without first party insurance. Had they done that, and with specific breakdown insurance, this matter could have been between insurers, one subrogating against the other, and leaving the storage customers to get on with their lives. That way, it may also have established primary and excess payers. Why no legal comment on the broker side? Did anyone read the contracts? Bud Abbott and Lou Costello’s ‘Who’s on First” may not have been solely directed at baseball. Even then.