Dirty Business – Contamination Exclusion Clause Upheld

Ground contamination in residential property is not only an environmental concern, but is also an expensive issue for insurers in Canada. The contamination often results from a leak in a residential heating oil tank. When these leaks occur, home owners invariably make a claim against their home insurance, many of which policies contain various forms of contamination exclusion clauses. The issue that commonly arises is the definition of ‘contamination’ and what is actually excluded. Many policies attempt to define the term, but in doing so risk adding ambiguities into the policy.

A contamination exclusion clause was reviewed in Corbould v BCAA Insurance Corp., 2010 BCSC 1536, when the insured sought coverage for damage when an above ground residential fuel oil tank leaked hundreds of litres of oil. The relevant policy provision was:

We do not insure:

loss or damage caused by contamination or pollution, or the release, discharge or dispersal of contaminants or pollutants.

“Pollutants” means any solid, liquid, airborne, gaseous or thermal irritant or contaminate, including smoke, vapour, soot, fumes, acid, alkalis, chemicals and waste. Smoke, within this definition of Pollutants means, smoke caused from agricultural smudging or industrial operations.

The Court reviewed Canadian jurisprudence that had interpreted contamination exclusion clauses, and commented that the leading case on the question of the scope and application of a clause similar to the one in question arose out of a commercial general liability policy case: Zurich Insurance Co. v. 686234 Ontario Ltd.,(2002) 62 OR (3d) 447 (ONCA).

Much of the argument in Corbould was regarding ambiguity in the policy. Despite that several key terms, such as ‘contamination’, were not defined, the Court found the policy unambiguous. The Court recognized that the words of the exclusion clause should not be read hyperliterally to include things that might be said to be contamination or pollution but objectively could not have been considered by the parties to be intended to exclude coverage.

In interpreting the policy, the Court also discussed the reasonable expectations of the parties, quoting Justice McLachlin (as she then was):

I turn to the third relevant principle of construction, the reasonable expectations of the parties.  Without pronouncing on the reach of this doctrine, it is settled that where the policy is ambiguous, the courts should consider the reasonable expectations of the parties: Wigle v. Allstate Insurance Co. of Canada 1984 CanLII 45 (ON CA), (1984), 49 O.R. (2d) 101 (C.A.), leave to appeal to S.C.C. refused, [1985] 1 S.C.R. v.  The insured’s reasonable expectation is, at a minimum, that the insurance plan will provide coverage for legitimate claims on an ongoing basis. …

Ultimately, the Court did not have trouble finding that the oil spill was ‘contamination’ as contemplated by the exclusion clause.

While every case is decided on its own facts and merits, the well-reasoned decision in Courbold gives some certainty to the interpretation and validity of contamination exclusion clauses.

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