1991 Installation of Fireplace Held to be ‘Accident’ Triggering Coverage for 2003 Fire Claim


[This post contains a correction at the end, dealing with the apportionment of contributions between the two policies. We had previously said that contribution by equal shares had been ordered; in fact, Power J. ordered proportionate contribution by policy limits. We are grateful to Jim Wilson, one of the counsel who argued the motion, for drawing this error to our attention. Jim’s comment appears below. However, we have retained, in the post, the reference to the Supreme Court of Canada’s decision in Family Insurance Corp. v. Lombard Canada Ltd., which seems to favour an “equal shares” approach. Jim?]

In Lanark Mutual Insurance Company v. Economical Mutual Insurance Company, Superior Court Justice Denis Power held that two insurers owed a duty to defend a contractor which had been sued for having installed a fireplace that malfunctioned and caused a fire. Both insurers (Lanark Mutual and Economical Mutual) had insured the contractor at different times. Both carriers had comprehensive general insurance policies for different policy periods, although neither could locate a complete copy of its policy. The insured had been sued as a result of a 2003 fire at a home at which it had installed a wood-burning stove in 1991.

Lanark undertook the defence of the claim and settled it for a global amount of $15,000, of which it contributed $5,000. (A co-defendant was responsible for the other $10,000.) Lanark then brought this application, seeking a declaration that Economical was obliged to contribute to the defence costs.

Lanark’s coverage was in force at the time of the fire in 2003. Although Economical could not find its policy, it appeared that it had been on the risk for a year in 1991-1992. Economical did, however, find and produce the declaration page, which referred to “Form No. 2089”. It also located a specimen copy of that form, which was entitled “Comprehensive General Liability Coverage Rider Attached To and Forming Part of This Policy–Additional Declarations”.  This rider obliged the insurer “to pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as compensatory damages because of “property damage caused by accident.” 

Justice Power noted that there was no definition of “accident” in the wording of the rider that Economical had found. He also accepted the submission of counsel for Lanark, who pointed out that Economical’s policy wording did not require that the property damage occur during the policy period. Economical argued that its policy was an “occurrence” one, but Justice Power held that this could not be confirmed by the policy wording that had been produced.

Counsel for Lanark further submitted, that “the Statement of Claim contains an allegation that the ‘accident’ which caused the property damage was the negligent installation of the furnace”. After reviewing the allegations that had been pleaded in the statement of claim against the insured,  Justice Power accepted this submission too and found that the “accident” triggering coverage had occurred during Economical’s 1991-1992 policy period, not at the time of the fire in 2003. (Lanark’s policy, unlike Economical’s, did contain wording which required that the “property damage” occur during the policy period, so its coverage was also triggered.)

Economical admitted, in the course of cross-examinations, that its present policy wording was “more or less consistent with” that of Lanark Mutual.

Justice Power said:

Accordingly, it is open to this Court to conclude that an “accident” includes continuous or repeated exposure to substantially the same general harmful conditions. This is exactly what is alleged in Mr. MacKinnon’s Statement of Claim to have happened. Mr. MacKinnon sued Hawley for compensatory damages because of property damage caused by an accident. This Court can, and should, conclude that Mr. MacKinnon’s property damage was possibly caused by an occurrence which transpired in 1991. Therefore, Economical had a duty to defend and indemnify its Insured.

In making this finding, Justice Power appears to have adopted a form of the “exposure” theory as to the event which triggered coverage. It does not appear that the statement of claim had alleged that any property damage had occurred during the Economical policy period (1991-92), but because Economical had not been able to establish that its policy was an occurrence one, this did not trouble Justice Power.

With respect to the apportionment of defence costs, the “other insurance” clause in the Lanark policy provided for equal contributions, if the other policy also allowed for this. If not, Lanark’s policy provided for pro rata contribution by limits. Since the Economical policy could not be found, Justice Power concluded that contribution by limits was the correct method. [Our original post erroneously stated that Power J. had found that contribution should be equal.]

(There was a 2002 Supreme Court of Canada decision, Family Insurance Corp. v. Lombard Canada Ltd., which endorsed a sharing mechanism whereby insurers with overlapping coverage would share equally until the policy with the lower limits is exhausted. The policy with the higher limits would then contribute the difference. In the case before Justice Power, given that the indemnity was so small, the limits of neither policy would have been threatened. Thus, Family v. Lombard would suggest that equal sharing might have been the correct approach.)


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