B.C. judge rules in favour of commercial property insurers over pollution arising from fire

A British Columbia court dismissed this week a civil claim against eight commercial property insurers by a policyholder that sought coverage for pollution cleanup arising from a fire.

In July, 2010 a fire damaged The Stewart Centre commercial complex in Kelowna. The owner and property policyholder was Whitworth Holdings Ltd. One tenant, Univar Canada Ltd., is a wholesaler of chemicals including fertilizers, pesticides and herbicides.

“As a consequence of the Fire, chemicals escaped from Univar’s premises, causing pollution damage,” according to background information provided with the Sept. 9, 2014 decision, by Madam Justice Wendy Harris of the Supreme Court of British Columbia.

Whitworth’s property policy was written by: AXA Pacific Insurance Company; Grain Insurance and Guarantee Company; Lloyd’s Underwriters; Intact Insurance Company; Economical Mutual Insurance Company; Gore Mutual Insurance Company; Scottish & York Insurance Co. Limited; Canadian Northern Shield Insurance Company and The Wawanesa Mutual Insurance Company.

The policy included an exclusion for “direct or indirect, damage, cost or expense arising out of the clean-up, removal, containment, treatment, detoxification, decontamination, stabilization, neutralization, or remediation resulting from any actual, alleged, potential, or threatened spill, discharge, emission, dispersal, seepage, leakage, migration, release, or escape of pollutants.”

That exclusion did not apply “to physical loss or damage, to the property insured, caused directly by an insured peril, rupture of pipes or breakage of apparatus, not otherwise excluded elsewhere” in the property policy. That policy also had a clause extending pollution coverage to a maximum of $25,000 for cleanup, under certain conditions.

Whitworth got nearly $5.2 million in cheques from the insurers from its property claims but the insurers told Whitworth that “any amount payable for pollution clean-up on the property to $25,000, and any third party liability claims for pollution are excluded.”

Whitworth contended “that the proximate cause of all pollution damage was an insured peril, fire, triggering the Exception to the Pollution Exclusion Clause,” Justice Harris wrote. “Referencing the plain meaning of the Exception, the plaintiff argues that the on-premises pollution damage was ’caused directly by an insured peril’ because, but for the Fire occurring, the pollutants would have never escaped.”

Whitworth had argued the exception to the exclusion clause operates as a “limit masquerading as an extension of coverage.”

But the insurers argued that “an exception does not create coverage, but brings an otherwise excluded claim back within coverage where the claim falls within the initial grant of coverage in the first place.”

So the exception clause, the insurers contended, “operates to ensure that there is still coverage for the fire damage, but it does not create coverage for the clean-up of pollutants escaping from the property where there is no direct damage caused by fire, such as escaped pollutants that contaminate non-fire damaged parts of the property such as the soil.”

Justice Harris agreed with the defendants’ interpretation.