COURT FILE AND PARTIES

COURT FILE NO.: CV-13-482624
DATE: 20131010

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: MISSISSAUGA MOTORS MART INC. and RAJINDER BRAICH, Applicants

AND:

SOVEREIGN GENERAL INSURANCE COMPANY, Respondent

BEFORE: Stinson J.

COUNSEL:
Eli D. Mogil, for the Applicants

Christopher N. Valente, for the Respondent

HEARD: October 7, 2013

ENDORSEMENT

[1] This is an insurance coverage dispute. It concerns a policy of insurance issued by the respondent ("Sovereign") to the applicant Mississauga Motors Mart Inc. ("MMM").

[2] MMM and its co-applicant (who is the indemnifier under the lease) have been sued by the landlord of the premises at which MMM formerly operated its used car business (the "Action"). The landlord's statement of claim in the Action alleges that a spill of waste oil occurred at the leased premises, causing significant damage to the property, resulting in clean up costs, repair costs and losses due to delay in re-leasing the premises upon the expiry of the MMM lease, while the repairs were effected. The spill and the damage to the landlord's property are alleged to have been occasioned by the defendants' (the applicants') "breach of contract and/or negligence" as particularized in the statement of claim.

[3] Sovereign has denied coverage under the policy. The applications seek a declaration that Sovereign owes a duty to defend the Action on their behalf.

[4] In this endorsement I intend to adopt and incorporate by reference certain portions of the factums filed by the parties. For ease of reference, therefore, I shall refer to "Applicants' Factum" (being the Factum of the Applicants for the application returnable October 7, 2013) and to the "Respondent's Factum” (being the Responding Party's factum bearing date October 1, 2013.

[5] For purposes of this endorsement I accept as accurate and adopt the summary of facts recited in the Applicants' Factum at paragraphs 11, 12, 13, 14, 15, 16, 17, 18, 19, 23, and 25. I further accept that the law is accurately summarized in the Applicants' Factum at paragraphs 30, 31, 32 and 33. I accept as well the legal principles recited in the Respondent's Factum at paragraphs 30, 31, 32, 33 and 34

[6] Various grounds supporting the existence or the denial of coverage were argued before me. For the record, I note that the applicants are not relying on any alleged waiver by Sovereign.

[7] While the policy contains a variety of exclusions, together with exceptions to those exclusions, the primary exclusion relied upon by Sovereign is the pollution exclusion found at pages 6 and 7 of the policy. It is a so-called "Common Exclusion" that is applicable to all relevant coverages contained in the policy. The relevant portions of that exclusion provide as follows [the words that appear in quotation marks are defined terms in the policy]:

This insurance does not apply to:

4. Pollution

(1) … "property damage" … arising out of the actual, … spill, … release or escape of "pollutants":

a. At or from any premises, site or location which is or was at any time … occupied by any insured, or rented or loaned to any insured. …

b. At or from any premises, site or location which is or was at any time used by or for any insured … for the handling, storage, disposal, processing or treatment of waste;

[8] The term "property damage" is defined to mean:

a. Physical injury to tangible property, including all resulting loss of use of that property;

The words "tangible property" are not defined in the policy.

[9] The applicants argue that the pollution exclusion does not apply in this case. They contend that the complaints raised in the statement of claim in the Action fall outside the scope of the definition of "property damage". They do so on two grounds. Firstly, because "property damage" is defined to mean "physical injury to tangible property", that does not include physical injury to real property. Where real property is intended to be included, the policy expressly references real property. Secondly, the applicants argue that the claim made by the landlord against them includes a claim for pure economic loss, being the loss suffered when the landlord was unable to re-let the premises promptly following the end of the tenant's lease, due to the impact of the spill. They point out that the policy defines "compensatory damages" as meaning "damages due for actual injury or economic loss". They argue that the pollution exclusion encompasses only "property damage" and makes no mention of "compensatory damages" being excluded from coverage. Hence, the argument continues, the landlord's claim for "compensatory damages" falls outside the exclusion and the policy must respond.

[10] By contrast, Sovereign argues that the pollution exclusion was intended to address the very type of claim being advanced in the Action, namely, a claim arising from the spill of a "pollutant". Waste oil, Sovereign argues, stored as alleged in the statement of claim and spilled onto the property that was the subject of the lease, qualifies as a "pollutant". All damages claimed in the Action flow from the spill of that "pollutant" onto the leased property. The result was "property damage", giving rise to the various heads of loss asserted in the Action. As such, the pollution exclusion is applicable.

[11] Dealing first with the argument that "property damage" does not include damage to real property, I find no ambiguity in the relevant provisions. "Property damage" is defined to mean "physical injury to tangible property". While "electronic data" is deemed not to be tangible property, no other type of property is excluded. I acknowledge that there is an express mention of "real property" in another definition section of the policy, but in my view, that does not exclude or limit the scope of the words tangible property. In my view, the words tangible property may fairly be interpreted to include both chattels and real property. Certainly, real property is tangible in that it is capable of being physically touched.

[12] It must be kept in mind that, when interpreting a policy, the court should avoid an interpretation that would not have been in the contemplation of the parties at the time the policy was concluded. There can be no doubt that the parties intended to exclude coverage for spills of "pollutants". As a matter of logic and common sense, spills of liquid "pollutants" (which are included in the definition of "pollutants") almost invariably occur on real property, whether inside buildings, in parking lots, roads, fields or elsewhere. In my view, it would be an unrealistically narrow interpretation of the term "property damage" to read it as excluding physical injury to real property arising from the spill of a liquid pollutant such as waste oil and confined merely to physical injury to chattels. Indeed, in my view, that would be a nonsensical and commercially unreasonable result.

[13] I therefore do not accept this submission.

[14] I turn now to the argument that the pollution is exclusion has no application to the claim for economic loss arising from the delay in re-leasing the premises by reason of the work necessary to remediate the spill. Once again, in my view, that is an unrealistically and overly narrow interpretation of the policy. First of all, this head of loss flows from the physical injury to the leased property. It is a consequence of the spill. This is expressly pleaded in paragraph 12 of the statement of claim.

[15] The applicants argue, however, that the exclusion does not apply to "compensatory damages". I believe that is a misreading of the definition sections of the policy. The basic insuring agreement states as follows:

We will pay those sums that the insured becomes legally obligated to pay as "compensatory damages" because of "bodily injury" or "property damage” to which this insurance applies. We have the right and duty to defend the insured against any "action" seeking those "compensatory damages".

[16] As I have noted, the term "compensatory damages" is defined to mean "damages due or awarded for actual injury or economic loss." It may thus be seen that the use of the term "compensatory damages" in the basic insuring agreement is a term referable to the sums of money that the insured may be obligated to pay, whether on account of actual injury or economic loss. By contrast, the term "property damage" is referable to the physical injury that may give rise to the obligation to pay "compensatory damages". The term "property damage" thus means the physical damage, while the term "compensatory damages" means the monetary compensation for the damage.

[17] Viewed in this light, one would not expect there to be an express reference to "compensatory damages" in the pollution exclusion. What is excluded, in my view, is "property damage" which would give rise to a claim for "compensatory damages", whether an account of actual injury or economic loss.

[18] Once again, taking into account the contemplation of the parties at the time the policy was concluded, in my view the only reasonable interpretation is that the insurer did not intend to obligate itself to indemnify the insured in relation to any liabilities for "compensatory damages" arising out of the spill of a "pollutant", regardless whether those damages were payable on account of actual injury or economic loss. All of the damages claimed by the landlord in the Action flow from "property damage" caused by the spill. In my view, all of the damage claims in the Action properly fall within the pollution exclusion in the policy.

[19] In the result, I agree with the position of Sovereign that the claim advanced by the landlord in the Action is not covered by the policy. As a consequence, the respondent is not required to defend the Action. The application is therefore dismissed.

[20] In relation to costs, if the parties cannot agree, they may make written submissions as follows:

(a) The respondent shall serve its bill of costs on the applicants, accompanied by written submissions within fifteen days of the release of these reasons.

(b) The applicants shall serve their response on the respondent within fifteen days thereafter.

(c) The respondent shall serve its reply, if any, within ten days thereafter.

(d) In all cases, the written submissions shall be limited to three pages, plus bills of costs. I expressly invite counsel for the applicants to submit the bill of costs they would have tendered on the respondent if they had been successful in resisting the motion.

(e) I direct that counsel for the respondent shall collect copies of all parties' submissions and arrange to have that package delivered to me in care of Judges' Administration, Room 170 at 361 University as soon as the final exchange of materials has been completed. To be clear, no materials should be filed individually: rather, counsel for the respondent will assemble a single package for delivery as described above.

Stinson J.

Date: October 10, 2013