1422253 Ontario Limited O/A Esso Fourth Avenue Gas Bar v. Coachman Insurance Company

[Indexed as: 1422253 Ontario Ltd. v. Coachman Insurance Co.]

Ontario Reports

Ontario Superior Court of Justice, Divisional Court, Matlow, Linhares de Sousa and R.D. Gordon JJ.

October 2, 2013

117 O.R. (3d) 635 | 2013 ONSC 5740

Case Summary

Insurance — All-risk insurance — Insured suffering business interruption loss as result of cracked fill-pipe to underground fuel storage tank at its gas station — Insured suing insurer after insurer denied coverage for those losses under all-risks insurance policy — Trial judge erring in granting insurer's motion for non-suit — Insured adducing sufficient evidence that crack in pipe was not something one would expect to arise in ordinary course of business to survive non-suit motion — Insured not required to prove exact cause of cracked pipe in order to determine if event was expected to occur in ordinary course of business.

The plaintiff suffered losses as a result of a cracked fill-pipe to an underground fuel storage tank at its gas station. It was insured by the defendant under an all-risks policy. The defendant paid for the loss related to water-contaminated fuel but refused to pay for damage to the fuel pumps or for business interruption loss. The plaintiff sued the defendant. The very experienced contractor who performed the repair work testified that he had never seen a fill-pipe cracked in the way he observed in this case, and the principal of the appellant, who had 17 years' experience working in or owning gas stations, testified that he had never experienced a broken fill-pipe. At the conclusion of the plaintiff's case, the defendant moved successfully for non-suit. The plaintiff appealed.

Held, the appeal should be allowed.

The trial judge erred in finding that the plaintiff was required to establish that the loss in question was the result of a fortuitous event, not an inevitable event. The fact that a loss is inevitable does not mean that its occurrence is in the ordinary course of business. The plaintiff adduced sufficient evidence that the crack was not something one would expect to arise in the ordinary course of business to survive a non-suit motion. The precise cause of the cracked pipe did not have to be proven in order to determine if the event was expected to occur in the ordinary course of business.

Cases referred to

1422253 Ontario Ltd. v. Coachman Insurance Co., August 3, 2012, Maddalena J. (S.C.J.); Brennan v. Economical Mutual Insurance Co. (2000), 2000 22709 (ON SC), 51 O.R. (3d) 326, [2000] O.J. No. 4531, [2000] O.T.C. 828, 24 C.C.L.I. (3d) 56, [2001] I.L.R. I-3907, 101 A.C.W.S. (3d) 804 (S.C.J.); FL Receivables Trust 2002-A (Administrator of) v. Cobrand Foods Ltd. (2007), 85 O.R. (3d) 561, [2007] O.J. No. 2297, 2007 ONCA 425, 46 C.P.C. (6th) 23, 158 A.C.W.S. (3d) 792; Goderich Elevators Ltd. v. Royal Insurance Co. (1999), 1999 3196 (ON CA), 42 O.R. (3d) 577, [1999] O.J. No. 341, 169 D.L.R. (4th) 763, 117 O.A.C. 323, 8 C.C.L.I. (3d) 35, [1999] I.L.R. I-3680, 86 A.C.W.S. (3d) 190 (C.A.); Liu v. Toronto (City) Police Services Board, [2005] O.J. No. 2492, 140 A.C.W.S. (3d) 72 (Div. Ct.)

APPEAL by the plaintiff from a non-suit. [page636]

Christopher A. Richard, for plaintiff (appellant).

Robert S. Franklin, for defendant (respondent).

The judgment of the court was delivered by

R.D. GORDON J.: —

Overview

[1] This is an appeal by the plaintiff, 1422253 Ontario Limited, operating as Esso Fourth Avenue Gas Bar, from the order of Justice Maddalena dated August 3, 2012, granting a motion made by the defendant for non-suit and costs.

Background

[2] The appellant owned and operated a gas station in St. Catharines and, in December of 2007, was insured under an "all-risks" policy of insurance issued by the respondent. More particularly, the policy insured stock and equipment against "All risks of direct physical loss or damage from any external cause."

[3] On December 6, 2007, it was discovered that the fill-pipe to an underground fuel storage tank had cracked, allowing water to contaminate the fuel. This contamination rendered the fuel unusable, led to damage to the fuel pumps and resulted in the interruption of the appellant's normal business activities. The fuel tank and pipe had been pressure tested in January 2006. The tank was regularly inspected for water and, as of December 5, 2007, had never shown signs of contamination. The difficulty on December 6 was discovered only when several cars broke down after filling up with gas at the station.

[4] Herman Heikoop, a contractor with over 30 years' experience in the repair of gas pumps and tanks, was contacted and, after excavating down to the tank, determined there to be a crack in the fill-pipe, which is a pipe leading to the storage tank and through which gas is pumped from a tanker truck into the storage tank. The crack was about one inch long and one-quarter inch wide. The pipe exhibited surface rust but was otherwise in good condition. Heikoop completed the necessary repairs and disposed of the damaged pipe, thereby rendering unavailable for examination by the respondent. He testified that he had never seen a fill-pipe cracked in the way he observed in this case.

[5] The principal of the appellant, who had 17 years of experience working in or owning gas stations, testified that he had never experienced a broken fill-pipe.

[6] The appellant submitted loss claims to the respondent. The respondent paid for the loss related to the contaminated fuel but [page637] not the pumps or the business interruption loss. The appellant subsequently commenced an action for the unpaid damages which were agreed upon at $32,356.43.

[7] At the conclusion of the appellant's case at trial, the respondent brought a motion for non-suit which the trial judge granted.

The Decision of the Trial Judge

[8] The trial judge gave oral reasons for her decision and identified the central issue in the motion as whether the appellant had provided prima facie proof that the loss was fortuitous so as to fall within the parameters of the all-risks coverage in the policy. She reviewed the evidence and determined that, although there was evidence that a loss had occurred, there was no evidence that the loss was the result of a fortuitous event which she defined as "a happening by chance rather than by design". She held that there must be some evidence to connect the cracked fill-pipe to a fortuitous event and not some other cause and that, in the circumstances of this case, the required connection could be made only on the basis of expert evidence.

The Applicable Law

Standard of review

[9] An appeal of a trial judge's ruling on a non-suit motion raises a question of law and, accordingly, the appropriate standard of review is correctness (see Liu v. Toronto (City) Police Services Board, [2005] O.J. No. 2492, 140 A.C.W.S. (3d) 72 (Div. Ct.)).

The legal test on a motion for non-suit

[10] When a motion for non-suit is brought, the moving party must satisfy the trial judge that the evidence presented by the plaintiff is such that no jury, acting judicially, could find in favour of the plaintiff. In making this assessment, the judge must assume the evidence to be true and where there is evidence capable of giving rise to competing inferences the judge must assign to that evidence the meaning most favourable to the plaintiff (see FL Receivables Trust 2002-A (Administrator of) v. Cobrand Foods Ltd. (2007), 2007 ONCA 425, 85 O.R. (3d) 561, [2007] O.J. No. 2297 (C.A.)).

[11] As pertains to this case, for the respondent to be successful on its motion for non-suit, the trial judge had to be satisfied that the appellant failed to adduce some evidence that the damage it had suffered was from an external cause. On review of the case law, the trial judge interpreted this to mean the loss had to [page638] be fortuitous in the sense of happening by chance and not some other cause, as opposed to being inevitable. She recognized that the appellant was not bound to prove the exact nature of the accident which caused the loss.

Analysis

[12] An all-risks policy is meant to insure against all risks except as may otherwise be specifically excluded in the policy. But to be clear, it is meant to insure against risks, not certainties, and accordingly, the policy in this instance required that the damage arise from an external cause. That is to say, the policy does not insure against losses which are deliberately caused by an insured and it does not insure against losses which are expected to arise in the ordinary course of the insured's business such as from ordinary wear and tear and depreciation. It is in this context that such a loss is said to be fortuitous (see Brennan v. Economical Mutual Insurance Co. (2000), 2000 22709 (ON SC), 51 O.R. (3d) 326, [2000] O.J. No. 4531 (S.C.J.)).

[13] There being no suggestion in this case that the insured had deliberately caused the loss, the trial judge held that the appellant was required to establish that the loss in question was the result of a fortuitous event, not an inevitable event. With respect, it is our view this was a misapplication of the test. Just because a loss is inevitable does not mean its occurrence is in the ordinary course of the insured's business. For example, although a fill-pipe may be expected to deteriorate or corrode over time such that its eventual failure is inevitable, its failure, even if due to such corrosion, may not be expected in the ordinary course of business if the pipe has been regularly inspected, has been functioning properly and is reasonably new, as is the case on the facts before us.

[14] Accordingly, the question for the trial judge was not whether there was evidence before her upon which she could find the break not to have been inevitable but whether the break in the pipe was not something one would expect to arise in the ordinary course of business.

[15] Was there, then, any evidence that the break was not an event which could arise in the ordinary course of the plaintiff's business? In our view, there was. That evidence includes the following:

(1) the evidence of the contractor that in 34 years of business in fuel tank and pump repair, he had never before seen fill-pipe rust out or break in this manner;

(2) the evidence of the principal of the appellant that he had never experienced a broken fill-pipe in his 17 years in the [page639] business and that he had the pipes tested in January of 2006 and received a report that was satisfactory;

(3) the break occurred during business hours and required the immediate shut down of the gas supply operation;

(4) the respondent, in its letter to the appellant dated May 9, 2008, denied coverage on the basis of a policy exclusion related to damage from freezing. By inference, this would constitute an admission by the respondent that the loss would be covered by the policy but for the exclusion.

[16] Although one might argue that any one of these factors standing alone may be insufficient to make out the appellant's case, considered together, there can be little doubt that there was sufficient evidence to survive the respondent's motion for non-suit.

[17] Although the trial judge recognized that the exact cause of the loss was not required for recovery under an all-risks policy, the test she formulated effectively held the insured to that high standard. Indeed, she went so far as to require expert evidence to connect the cracked pipe to a fortuitous event and not some other cause. In our view, the precise cause of the cracked pipe is not required to be proven in order to determine if the event was expected to occur in the ordinary course of business.

[18] This issue was touched upon by the Ontario Court of Appeal in the case of Goderich Elevators Ltd. v. Royal Insurance Co. (1999), 1999 3196 (ON CA), 42 O.R. (3d) 577, [1999] O.J. No. 341 (C.A.). In that case, Goderich was the owner and operator of grain elevators in which it warehoused grain for others. On the occasion in question, the quality of the grain it had stored was downgraded due to the discovery of "heated grain". The result was a significant financial loss. Goderich took action against its all-risk insurer to recover the loss. Although the evidence at trial fell short of providing a precise explanation for what caused the excessive presence of heated grain in the shipment, judgment was granted nonetheless. In its review of the matter, the Court of Appeal said the following [at para. 15]:

In my opinion, although the cause remains unknown, the fact that grain became "heated" while in the care and control of Goderich is exactly the kind of "fortuitous event" that triggers the coverage of this all risks policy. Something happened which resulted in damage to the grain. The answer to the appellants' assertion that this conclusion would extend coverage to the normal day-to-day business risks of warehousing is that the Goderich plant manager, with over forty years of experience in the business, had never before had a cargo of grain downgraded as occurred here. [page640]

[19] The same analysis is apt in the case before us. Although the cause remains unknown, that the fill-pipe cracked allowing water into the storage tank is exactly the kind of fortuitous event that triggers the coverage of the all-risks policy. Something happened which caused the fill-pipe to crack, thereby allowing water into the tank and subsequent damage. Allowing the claim would not serve to extend coverage to normal day-to-day business risks of a gas station as both the contractor and the principal of the appellant testified that they had never before seen a fill-pipe damaged in this manner.

[20] For these reasons, we conclude that the trial judge erred when she granted the respondent's motion for non-suit.

The Appropriate Remedy

[21] Having concluded that the appeal must succeed, there remains for consideration what the appropriate disposition ought to be. Ordinarily, where an appellate court reverses a decision to grant a non-suit in a judge-alone trial, a new trial is ordered (see FL Receivables Trust 2002-A (Administrator of) v. Cobrand Foods Ltd., supra). However, given the amount in issue and the completeness of the evidentiary record, counsel have asked this court to decide the matter on its merits.

[22] The issue for determination becomes whether, based on the evidence led at trial, it is more likely than not that the loss sustained by the appellant was not in the ordinary course of business and was not deliberately caused by the insured.

[23] Clearly, the loss was not caused by the deliberate acts of the appellant. Just as clearly, based upon the evidence of the principal of the appellant and the contractor and the factors noted above, this was not a loss that could be expected in the ordinary course of business of the appellant. It was truly a fortuitous event. There was no evidence to the contrary.

Conclusion

[24] The appeal is allowed. The order of the trial judge is set aside and, in its place, judgment is to issue in favour of the appellant for damages in the amount of $32,356.43. In accordance with the agreement of counsel, costs of $7,500 are awarded in favour of the appellant.

Appeal allowed.

End of Document