1599624 Ontario Limited v. Lloyd's Underwriters, 2008 ONCA 435

CITATION: 1599624 Ontario Limited v. Lloyd's Underwriters, 2008 ONCA 435

DATE: 20080603

DOCKET: C47601

COURT OF APPEAL FOR ONTARIO

MacPHERSON, CRONK and WATT JJ.A.

BETWEEN:

1599624 ONTARIO LIMITED

Respondent (Plaintiff)

and

LLOYD’S UNDERWRITERS

Appellant (Defendant)

and

H K INSURANCE BROKERS LIMITED

Respondent (Defendant)

COUNSEL:

M. Gordon Hearn, for the appellant

Eric O. Gionet, for the respondent 1599624 Ontario Limited

Chris Stribopoulos, for the respondent H K Insurance Brokers Limited

Heard and released orally: May 23, 2008

On appeal from the judgment of Justice R. MacKinnon of the Superior Court of Justice dated July 25, 2007.

ENDORSEMENT

[1] The dispute in this case concerns the proper interpretation of a coverage exclusion clause in an all risks insurance policy issued by the appellant insurer to the respondent marina. The appellant relies on the exclusion clause to assert that the policy does not respond to the marina’s losses arising from damage to a forklift on the marina’s premises caused by a disgruntled former employee of the marina.

[2] The trial judge concluded that the exclusion clause in question is unclear and ambiguous, that it must be interpreted narrowly in accordance with well-established principles of construction applicable to insurance policies, and that the contra proferentem rule was triggered in this case. He also found that the invocation of the exclusion clause in the circumstances of this case would be contrary to the reasonable expectations of the ordinary person. In the result, he held that coverage for the claimed loss was provided by the policy of insurance issued to the marina and that the insurer could not rely on the exclusion clause to deny the insured’s recovery for the damaged forklift.

[3] We agree for the following reasons.

[4] The appellant acknowledges that the forklift is covered by s. 2 of the policy, which provides coverage “against physical loss of or physical damage to” the “buildings & contents” specified in s. 2 of the Certificate of Insurance issued to the marina. The definition of “Contents” under the policy includes “machinery” and “trade equipment”. Section 2 of the Certificate of Insurance provides that the coverage under s. 2 of the policy relating to “Buildings & Contents” includes “Equipment” to a limit of $150,000.

[5] The exclusion clause in issue, s. 2.3.3 of the policy, reads as follows:

You are not insured under this section 2 against loss or damage caused by any of the following EXCLUDED CAUSES: … theft, malicious damage or any attempted theft of or attempted malicious damage to property unless such property is contained in a securely locked building or compound and there are visible signs of forcible and violent entry to or exit from such building or compound. [Emphasis in original.]

Thus, the exclusion refers to “property”. It makes no reference to “buildings”, “contents” or “equipment”.

[6] In our view, the exclusion clause is ambiguous in at least three respects.

[7] First, the term “property” is not defined in the exclusion or elsewhere in the policy. It is therefore unclear whether, for the purpose of the exclusion, “equipment” in the nature of a forklift was intended to come within the scope of the term “property”.

[8] While the appellant argues that the word “property” as used in the exclusion of necessity must refer to “contents” as that term is defined in the policy, s. 2 contains several exclusions including, for example, an exclusion for “property in transit”: see s. 2.2.1. Many of the items included in the definition of “Contents” under the policy cannot constitute “property in transit”. Thus, contrary to the appellant’s argument, the term “property” in the exclusions cannot simply mean “Contents” as that term is used in the grant of coverage under s. 2.

[9] We observe in this connection that it would have been a simple drafting matter for the policy to state that, for the purpose of the s. 2.3.3 exclusion, the word “property” includes all “equipment”. Yet, this language does not appear in the policy.

[10] Second, the s. 2.3.3 exclusion contains an exception for “property” that is “contained in a securely locked building or compound”, but the exclusion contains no language indicating when the “property” that is subject to the exclusion must be secured in a locked building or compound so as to trigger the exception to the exclusion.

[11] Finally, this all risks policy also contained a specific coverage provision relating to “handling equipment”: see s. 3.1. The marina did not elect this coverage in this case. Nonetheless, reading the s. 2.3.3 exclusion in the context of s. 2 as a whole and the policy in its entirety, the interplay between s. 3.1 and s. 2.3.3 is unclear and unspecified.

[12] Given all these circumstances, we agree with the trial judge that the exclusion in question is ambiguous and, on a narrow construction, should not be read to exclude the marina’s indemnification claim in respect of the forklift. This is dispositive of the liability issue on appeal.

[13] The respondent marina acknowledges that the damages awarded by the trial judge should have been limited to the amount of $50,000, plus interest, as permitted by the simplified rules under which this case proceeded. We agree.

[14] For the reasons given, the appeal is allowed, in part, by amending paragraph 1 of the trial judgment to delete the words “sum of $58,095.79” and substituting in their stead the words “sum of $50,000”. In all other respects, the appeal is dismissed. The respondents are entitled to their costs of the appeal fixed, as agreed by counsel, in the amount of $5,000 each, inclusive of disbursements and G.S.T.

“J.C. MacPherson J.A.”

“E.A. Cronk J.A.”

“David Watt J.A.”