Gas Station Leak > Insurance Dispute > Coverage and Duty to Defend
Environmental pollution involving the escape of gasoline from a gas station, which subsequently harmed nearby businesses and landowners.
The insurer of the gas station sought to deny both a duty to defend and coverage, based upon a “pollution liability exclusion” clause.
The recent case of ING v. Miracle (2010 Ontario Superior Court of Justice) dealt with the analysis of whether the commercial general liability policy covering the offending gas station, Miracle, would apply to the lawsuit at hand. At a motion, the plaintiff in the action sought to maintain a duty to defend and coverage for the main defendant in the lawsuit. It was agreed that the occurrence fell within the policy; the issue was whether the pollution liability exclusion applied to deny coverage.
Madame Justice Pollack found that the insurer had a duty to defend:
[16] The most recent of the authorities referred to by ING is the Ontario Court of Appeal case of Zurich Insurance Company Co. v. 686234 Ontario Ltd., 2002 CarswellOnt 4019 (C.A.), leave to appeal dismissed at [2003] S.C.C.A. No. 33. In the Zurich case, the Ontario Court of Appeal held that it did find the American line of cases which consider the history of the exclusion clause, its environmental context, the purpose of a commercial general liability policy (“CGL”) and the objectively reasonable expectation of the parties, persuasive. The Court held that this line of American cases is more persuasive than the line of cases that literally interpret the exclusion.
[17] In that case, the Court considered whether to apply an exclusion barring coverage for claims arising from environmental pollution due to carbon monoxide poisoning from a faulty furnace. It considered the history of the exclusion, the purpose of the CGL insurance and the reasonable expectations of policy holders in acquiring the insurance. At paragraphs 9 and 10 of the decision, the Court of Appeal provides the following analysis:
“[9] The pollution liability exclusion, while attracting little judicial scrutiny in Canada, has received considerable attention in the United States: G. Hilliker, Liability Insurance Law in Canada, 3rd ed. (Markham: Butterworths, 2001) at 198. Indeed, in two survey articles American commentators have said that over the past two decades the exclusion has been the subject of extensive and heated litigation: T.K. Bick & L.G. Youngblood, “The Pollution Exclusion Saga Continues: Does it Apply to Indoor Release” (1997), 5 S.C. Envtl. L.J. 119; J.W. Stempel, “Reason and Pollution: Correctly Construing the ‘Absolute’ Exclusion in Context and in Accord With Its Purpose and Party Expectations” (1998), 34 Tort & Ins. L.J. 1.
[10] These articles, and the cases which they consider, focus on the positions taken by insurers and policyholders. Typically, insurers have urged a literal interpretation of the text of the exclusion to attempt to deny the sorts of claims traditionally covered under a basic CGL policy. Insurers have asserted that any liability claim against an insurer, whether it arises from a carbon monoxide leak from a faulty furnace or fumes from freshly applied paint, is excluded if it involves “vapour”, “fumes” or “chemicals”. Policyholders have urged that the exclusion be interpreted in the context of the policy and its purpose, the drafting history of the exclusion, its purpose from the perspective of the insurance industry, together with the objectively reasonable expectations of the parties. They assert that the exclusion was intended to exclude coverage for natural outdoor environmental pollution and not for routine occurrences that have received long-standing coverage under CGL policies simply because th e cause of the damage fits within a hyperliteral application of the text of the exclusion.”
[18] The Court held that in that case to apply the exclusion which was intended to bar claims arising from environmental pollution to carbon monoxide poisoning from a faulty furnace was to deny the history of the exclusion, the purpose of CGL Insurance and the reasonable expectations of policy holders.
[19] The Court further held that there was nothing in that case to suggest that the regular business activities of the insured placed it in the category of an active industrial polluter of the natural environment. The insured did not discharge or release carbon monoxide from its furnace as a manufacturer discharges effluent, overheated water, spent fuel, and the like into the natural environment. It was discharged or released as a result of the negligence alleged in the underlying claims which remained to be proved. The court stated that:
“[38] There is nothing in this case to suggest that the respondent’s regular business activities place it in the category of an active industrial polluter of the natural environment. Put simply, the respondent did not discharge or release carbon monoxide from its furnace as a manufacturer discharges effluent, overheated water, spent fuel and the like into the natural environment. It was discharged or released as a result of the negligence alleged in the underlying claims, which remains to be proved. As I have pointed out, the history of the exclusion demonstrates that it would produce an unfair and unintended result to conclude, in the context of a CGL policy, that defective machinery maintenance constitutes “pollution”, even when it gives rise to carbon monoxide poisoning. In this regard, it is necessary to understand that the exclusion focuses on the act of pollution, rather than the resulting personal injury or property damage.
[39] Accepting for the purpose of my conclusion that carbon monoxide is a “pollutant” within the meaning of the exclusion, although it is arguably clear in its plain and ordinary meaning, the exclusion is overly broad and subject to more than one compelling interpretation, as is evident from its construction by American courts. Given that the exclusion is capable of more than one reasonable interpretation, it is ambiguous and should be interpreted in favour of the respondent. The historical context of the exclusion suggests that its purpose is to bar coverage for damages arising from environmental pollution, and not the circumstances of this case in which a faulty furnace resulted in a leak of carbon monoxide. Based on the coverage provided by a CGL policy, a reasonable policyholder would expect that the policy insured the very risk that occurred in this case. A reasonable policyholder would, therefore, have understood the clause to exclude coverage for damage caused by certain forms of industrial pol lution, but not damages caused by the leakage of carbon monoxide from a faulty furnace. In my view, the policy provisions should be construed to give effect to the purpose for which the policy was acquired.”
[20] The Court in that case held that the insurer did have a duty to defend the underlying claims. The facts of this case are similar. The reasoning of the Court of Appeal is applicable. The insured did not release gasoline into the environment as a result of its business. It is alleged that the gas leak occurred as a result of Miracle’s negligence. As in the Zurich case, a reasonable policy holder would not have expected the exclusion would to apply to a gas leak, but to damage caused by industrial pollution.
[21] The AG also relies on the case of Hay Bay Genetics Inc. v. MacGregor Concrete Products (Beachburg) Ltd., [2003] O.J. No. 2049 (S.C.). In that case, a tank which was delivered to store pig manure leaked and an action for damages was taken against the supplier of the tank. The supplier had general liability policies. The insurers argued that the leakage was excluded from coverage pursuant to the pollution liability exclusion. It was held that in interpreting insurance policies, the Court should take into account the reasonable expectations of the parties. When considering the Zurich case, the judge held that the insured was not an “active industrial polluter” in the business of polluting the environment as a result of the nature of his business. Although pollution was a risk of business, it was not a probable consequence. The insurers were therefore found to have a duty to defend the insured.
[22] Similarly, in this case, following the Ontario Court of Appeal reasoning in the Zurich case, and the court’s analysis in the Hay Bay case, Miracle should not be considered to be an industrial polluter. It is the negligence of Miracle in allowing the gasoline to escape from its tank that has caused the damage that is the subject matter of the litigation. I agree with the submissions of the AG and SF and therefore find that on the above-noted legal analysis, the insurer does have a duty to defend. The Application for a declaration that ING has no duty to defend or indemnify is therefore denied.
Gregory Chang
Toronto Insurance Lawyer