Last Week’s Court Rulings from the Alberta Court of Queen’s Bench, Court of Appeal and SCC.
Edited by Steven Graham
2102908 Alberta Ltd. v Intact Insurance Company, 2022 ABQB 175
Insurance Policy | Contract Interpretation | Coverage | Contra Proferentem
On a desktop application with an Statement of Agreed Facts, the Justice was asked to determine a question of law: is the Plaintiff entitled to indemnity for property damage pursuant to the policy, or is the damage excluded by the Excluded Perils.
The circumstances of this matter arise from a claim made by the Plaintiff who operates a bowling alley in a leased premises. When a nearby river overflowed its banks, water entered the structure and caused substantial damage to the Plaintiff’s leased premises. While the Plaintiff argued that influx of water was a covered peril, the Defendant’s position was that loss or damage caused directly or indirectly by flood was a specifically excluded peril under the policy.
The Court set out the well-established framework for interpreting insurance policies:
[6] The determination of this question involves the interpretation of the insurance policy. The law on the interpretation of insurance policies is settled. Policies are to be read as a whole, giving effect to clear and unambiguous language. Once the insured establishes coverage, the onus shifts to the insurer to establish that one of the exclusions to coverage applies. Where language in the policy is ambiguous, courts should prefer an interpretation that is consistent with reasonable expectations and in the event of an ambiguity, courts shall construe the policy contra proferentem against the insurer, meaning coverage provisions are interpreted broadly and exclusion clauses are interpreted narrowly: Ledcor Construction Ltd. v Northbridge Indemnity Insurance Co., 2016 SCC 37, para 49-52.
The Court then looked at the various portions of the policy dealing with water damage through various means. The excluded perils specifically included damages caused by Flood, and also seepage, leakage, or influx of water from natural sources unless directly caused by an insured peril not otherwise excluded. There were then extensions of coverage which replaced the broad form provisions:
[12] The extension of coverage section contains the following: Section 3 – INDIVIDUAL EXTENSIONS. The preamble to this section contains the following:
Except for Extension…61. Seepage, Leakage or Influx of Water…the following Extensions of coverage apply in addition to the limit of insurance stated on the Declaration Page(s) for the Building Contents, or the Property of Every Description, and are subject to all conditions of the policy, up to an individual limit per occurrence as specified in the Summary of Coverages for this Section, unless stated otherwise on the Declaration Page(s).
[13] The Individual Extension 61 reads as follows:
SEEPAGE, LEAKAGE OR INFLUX OF WATER This Form is extended to cover loss or damage caused by seepage, leakage or influx of water derived from natural sources through basement walls, doors, windows or other openings, foundations, basement floors, sidewalks or sidewalk lights. This Extension deletes Exclusion 2.3.1. of the EXCLUDED PERILS Section of the Building and/or Contents – Broad Form.
The Court held that a concurrent reading of the broad form policy and extensions eliminates the exclusion and reinstates coverage for ‘other Water Damage’ by seepage, leakage, influx of water.
On the question or whether the exclusion applied, the Court noted ambiguity in the wording of the policy:
[17] […] While it is correct that the policy contains a clear exclusion for the act of a Flood, there is ambiguity between the exclusion of coverage as a result of a flood and the express inclusion of coverage for loss or damage caused by seepage, leakage or influx of water derived from natural sources thorough basement walls, doors, windows or other openings, foundations, basement floors… that is found in paragraph 61 of EP50.
The Court considered the root cause of the damage, and while the overflowing of the nearby river could by colloquially described as a flood, the specific event that caused the damage to the Plaintiff’s premises was the influx of water through various openings in the walls and doors:
[22] The “influx of water from natural sources” to use the language of paragraph 2.3.1, need not be a result of a flood. A heavy rainfall could be an event that is captured by the language of this section. So, the flood exclusion is more discreet since it would apply only to flood waters.
[23] However, on April 27, 2020, when water overflowed the banks of the Clearwater River and inundated the building resulting in an influx of water, the event, and the substance, and the manner of entry into premises are all captured by the language in the grant of coverage expressly provided by the elimination of the Other Water Damage exclusion, which elimination is found in paragraph 61 of form EP50.
The Court also rejected the Defendant’s argument that any ambiguity should result in the Broad Form policy taking precedence over any other parts of the policy:
[26] As I noted, the exclusion for flood damage relates to a narrower event than the grant of coverage captured by the paragraph 2.3.1; Other Water Damage. Principles of contract interpretation lead to the conclusion that the Defendant meant to include this distinction. So, the flood exclusion is a narrower exclusion than the more expansive grant of coverage for other water damage.
[27] I also agree with the Plaintiff when they assert that paragraph 61 is in conflict with the Excluded Perils: Flood in paragraph 2.2 of the Broad Form, the Policy should be interpreted contra proferentem against the Defendant, with the coverage clause interpreted broadly and the exclusion clause interpreted narrowly.
The Court further found that the Flood Exclusion was separate in the policy from coverage for “Other Water Damage”, and rejected the Defendant’s argument that the latter was subject to the former:
[28] The Defendant argues that the Extension in paragraph 61 was intended to be subject to the Flood Exclusion since paragraph 61 only deletes section 2.3.1: Other Water Damage. The Defendant also argues that Extension paragraph 61 was intended to be subject to the Flood Exclusion since the language used in the extension and in the Other Water Damage exclusion was identical. I disagree. The wording of the extension of coverage paragraph 61 is different from the wording in the Flood Exclusion. The differences include natural or artificial body of water for the Flood exclusion and water from natural sources for the Extension in paragraph 61. The Flood exclusion relates exclusively to the natural event of a flood while the Other Water Damage coverage is more expansive covering seepage, leakage and influx of water, with no limit to a natural event. As well, the Flood Exclusion contains no restrictions on the manner of entry of the water that causes damage, while the extension of coverage in paragraph 2.3.1, contains restrictions on the manner of entry of the water that caused the damage.
Accordingly, the Court found that the policy does provide coverage for the water damage and the Plaintiff was entitled to indemnification.