Our first case this month deals with an exclusion clause in an all-risk policy. In this case, the court held that the inclusion of the phrase “caused directly or indirectly” in the exclusion clause connotes that both the direct and consequential losses of an event and damage resulting from concurrent causes are captured.
Our second case this month deals with the interpretation of an insurance contract that purports to exclude damage to buildings caused by settling. The court held that in this case, absent express language, the exclusion clause in question related only to settling caused by natural forces.
Minox Equities Ltd v. Sovereign General Insurance Co., 2010 MBCA 63
This was an appeal from a judgement which found The Sovereign General Insurance Company (“Sovereign”) liable to Minox Equities Limited under the terms of a broad-form, all-risk policy of insurance, to cover the costs of mould remediation and prevention to an apartment complex.
Sovereign had first issued the all-risk policy of insurance in 1993 and it was maintained by Minox up to and including 2003. In 2002, Minox filed two proofs of loss relating to damage caused by mould in the apartment complex. Sovereign denied the claim on the basis of an exclusion clause which provided that damage caused directly or indirectly by water was not covered.
The trial judge concluded that although moisture was an essential ingredient for the development of mould and there was evidence of seepage of water and excess humidity in the apartment complex, the evidence did not establish that mould would inevitably result from the moisture and humidity problem; other factors such as the right temperature, adequate food and mould spores were required for the growth of the mould. As a result, the trial judge was unable to conclude that the excessive moisture was a direct or indirect cause triggering the appearance of the mould. The trial judge further found that the growth of the mould was a fortuitous event and was therefore a risk covered by the policy.
On appeal, Justice Monnin held that the trial judge had applied the wrong test in concluding that the damage had to be inevitably caused by the seepage, rain or humidity in order for the exclusion clause to apply; such a test would lead to an absurd result. So long as the evidence indicated that mould was a direct or consequential result of the seepage, rain and humidity, the exclusion clause applied. In addition, the use of the phrase “directly or indirectly” in the exclusion clause included damage which resulted from concurrent causes.
Engle Estate v. Aviva Insurance Co. of Canada, 2010 ABCA 18.
This case resulted from damage to the insured’s building which was caused when the adjacent lot was excavated. The excavation resulted in settlement of the structural frame and floor slabs of the respondent’s buildings, causing cracks in the floors, walls and ceilings. The insured reported the matter to its insurer who denied the claim on the basis that the policy excluded loss or damage caused by earth movements and settlement.
The question before the court was whether the exclusion clause excluded coverage for damage or loss from settlement no matter the cause, or only damage or loss that occurred naturally.
In concluding that the exclusion did not apply to damage which resulted from non-natural causes, the court looked closely at the language of the exclusion as compared to other portions of the policy. The words in the exclusion which followed “settling” indicated that the clause was meant to exclude passive, gradual, naturally occurring events rather than those brought about by fortuitous events. In addition, the use of the phrase “caused directly or indirectly” was not intended to include fortuitous events as the same phrase had been used in other exclusions found within the policy where the exclusion specifically referenced the difference between natural and man-made causes.