Our office acted for the insured in what is, so far as we can determine, the first decision to consider whether a duty to defend was owed by an insurer whose policy wording included an “anti-concurrent causation” provision.
The ruling was made by Mr. Justice Stanley Kershman in Appin Realty Corporation Limited v. Economical Mutual Insurance Company. The case is not reported, so a PDF of the reasons appears above. A notice of appeal to the Court of Appeal was recently served by Economical Mutual (“EMI”).
What the heck is an “anti-concurrent causation clause”, you ask? Well, if you’ve read anything about the litigation surrounding the Hurricane Katrina insurance claims, you might have run across it. However, not much has been heard about it in this country.
Cast your mind back to Derksen v. 539938 Ontario Ltd., a 2001 decision of the Supreme Court of Canada. Several children in a school bus had been injured and one had been killed when a steel base plate flew off a contractor’s truck. The Supreme Court concluded that both an auto policy and a CGL policy had been triggered because the accident had been the result of two concurrent causes: failure to clean up the work site properly when loading the steel plate on the truck and failure to ensure that the truck could be driven safely.
This principle of “concurrent causation” is an unsettling one for insurers. The concern is that a liability coverage could be triggered even though a covered cause operates together (concurrently with) one or more other causes that are not covered.
To combat this situation, the industry has come up with policy wording that is aimed at preventing a recurrence of the Derksen outcome: the “anti-concurrent causation clause”.
In the Appin Realty case, Appin owned an apartment building. It was sued by a former superintendent, who lived in the building. The plaintiff alleged that he became ill as a result of “toxic mould and bacteria” in his rental unit and he sued Appin for damages in the amount of $500,000.
Appin tendered the defence of the action to its liability insurer, EMI . The insurer refused to undertake the defence, relying on an exclusion relating to “fungi and fungal derivatives”. Appin took issue with the denial, contending that the exclusion did not apply to injury caused by “bacteria”, since a “bacterium” is not the same as “fungus”, “spore” or “mould”. (“Fungi” and “mould” were defined in the policy. The definition included a comprehensive list of terms, including “spores”, but not “bacteria”.)
Appin brought this application for a declaration that EMI owed it a duty to defend and that it was entitled to be defended, at EMI’s expense, by its own counsel. Justice Kershman granted the relief sought.
EMI argued that no duty to defend was owed because the plaintiff’s claim was excluded by a “fungi and fungal derivatives” exclusion in its policy. Although that exclusion did not mention “bacteria”, EMI said that because the exclusion contained “anti-concurrent causation” wording, the allegations relating to “bacteria” were also excluded.
EMI submitted that in Derksen, “the Supreme Court of Canada acknowledges that EMI is permitted to draft its Policy to provide that if a loss is allegedly produced by an excluded peril (mould), the duty to defined will be ousted, even if the loss is alleged to be caused by another, covered peril”. The relevant passage from the Derksen case is this:
[A]nother compelling reason for rejecting the presumptive proposition advocated by the appellants is the fact that insurers have language available to them that would remove all ambiguity from the meaning of an exclusion clause in the event of concurrent causes. This can be accomplished by the insurer clearly specifying that if a loss is produced by an excluded peril, all coverage is ousted despite the fact that the loss may also have been caused by another, covered peril. Examples from case law indicate that insurers have in fact successfully used enforceable exculpatory language. [para. 48]
EMI’s “anti-concurrent causation” clause in this case was worded rather broadly: “This exclusion applies regardless of the cause of the loss or damage, other causes of the injury, damage, expense or costs or whether other causes acted concurrently or in any sequence to produce the injury, damage, expenses or costs”.
This is perhaps not the ideal language to test in the Court of Appeal. Look closely at what the first part of the exclusion says: it purports to apply, regardless of the cause of the loss or damage. So, it appears that even if the cause of the injury has nothing to do with fungi or fungal derivatives, the exclusion applies.
More typical anti-concurrent causation wording can be found, for example, in a leading American case, T.H.E. Insurance Co. v. Charles Boyer Children’s Trust 455 F.Supp.2d 284 (M.D.Pa.,2006):
We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss. [Emphasis added]
This sort of language makes it clear that for the anti-concurrent causation clause to operate, an excluded cause must “contribute concurrently” with some other cause.
In Appin, Justice Kershman noted that EMI had admitted that “‘bacteria’ appears nowhere in the definition of ‘fungi’ or ‘spores’ but argues that it also has no duty to defend bodily injury claims arising from bacteria as a result of [its anti-concurrent causation clause]”. His Honour then referred to the Derksen decision and in particular, to the Supreme Court’s observations about the ability of insurers to limit their liability through the use of anti-concurrent causation language. He observed that the Derksen court had also stressed the traditional factors governing the interpretation of insurance policies:
- The contra proferentem rule;
- The principle that coverage provisions should be construed broadly and exclusion clauses narrowly; and
- The desirability, at least where the policy is ambiguous, of giving effect to the reasonable expectations of the parties.
Applying those principles to this case, His Honour ruled that “this policy wording as drafted is not broad enough to capture bacteria on its own. The narrow construction principle ensures that exclusion language cannot be used to exclude all coverage [of] anything, regardless of its relation to mould”. [para. 13]
Selection of counsel
In addition to holding that EMI owed a duty to defend, Justice Kershman rejected EMI’s argument that, if it was required to defend, it was entitled to do so though counsel selected by it. His Honour held that Appin was entitled to a defence through its own counsel, at EMI’s expense. He referred to the leading case in Ontario, the Court of Appeal’s decision in Brockton (Municipality) v. Frank Cowan Co., for the proposition that “the right to control the defence of an action, including the appointment of counsel, is not absolute.” He went on to hold that because EMI had denied Appin’s claim and continued to do so, “there would be, at least, a perception of conflict if Appin was required to be defended by EMI’s counsel. Appin should be permitted to retain appropriate counsel of its choice”.
Practitioners in the field of insurance law in Ontario will be interested in the Court of Appeal’s views about both aspects of Justice Kershman’s decision. We will report on the outcome.