Construction Distribution & Supply Company Inc. v Continental Casualty Company (CAN Insurance), 2014 ONCA 405
Reading Time: 3.5 minutes (approx.)
By: Krista Nasartschuk
The Ontario Court of Appeal upheld the decision of an Application judge with respect to his interpretation of the Applicant’s commercial insurance policy with the Respondents and his subsequent finding of a duty to defend.
The case involved an incident wherein liquid chlorine had leaked from the Applicant’s business, causing damage to an adjacent furniture store. The furniture store pursued an action against the Applicant, who then turned to its insurer, the Respondents, seeking indemnification and the provision of a defence.
The Respondent insurance company denied coverage and a defence on the basis of a pollution exclusion cause, stating that the Applicants were storing a large volume of liquid chlorine (a pollutant) and that the damage caused to the adjoining business was therefore a form of pollution.
The Application judge defined pollution as the escape of an irritant into the natural environment that causes damages related to the clean up of the contamination and the costs of investigating, testing and monitoring the contamination. The crux of his findings being that an irritant or contaminate does not become ‘pollution’ unless it enters the natural environment resulting in a requirement to clean up the substance.
The Ontario Court of Appeal agreed with the Application Judge’s findings and went on to state that the determination that the exclusion clause did not apply to the facts of the matter was supported by the purpose of the insurance and the Applicant’s reasonable expectations.
The Court of Appeal characterized the matter as a claim for damages arising from the Applicant’s negligence. Noting that, while chlorine may cause damage if spilled, it is not in and of itself an inherent risk of pollution. They further differentiated this matter from cases such as ING Insurance Company of Canada v Miracle, 2011 ONCA 321, 105, O.R., (3d) 241, pertaining to the underground storage of gasoline, which was deemed a ‘well-known’ risk of pollution.
In conclusion the Court of Appeal stated that the Application judge had correctly found that there was a least a ‘mere possibility’ that the claim against the respondent is covered by the policy – requiring the insurer to provide it’s insured a defence and ordering costs payable to the insured.
