Court File and Parties

Court File No.: CV-15-543015 Date: 2019-01-10 Superior Court of Justice – Ontario

Re: LA ROSE BAKERY 2000 INC., Plaintiff And: INTACT INSURANCE COMPANY and UNITY REALTY & INSURANCE INC., Defendants

Before: LEDERER J.

Counsel: Mauro Marchioni, Counsel, for the Plaintiff Jeffrey R. Goit, Counsel, for the Defendant, Intact Insurance Company No one appearing for the Defendant, Unity Realty & Insurance Inc.

Heard: December 12, 2018

Endorsement

[1] This is a motion for summary judgment.

[2] The plaintiff operates a commercial bakery. It leases premises in a shopping plaza. On December 22, 2013, a winter ice storm impacted the Toronto region. It caused a loss of power to several areas of the city including the shopping plaza where the plaintiff bakery was located. Toronto Hydro has confirmed that the power outage to the bakery (and the plaza) occurred from December 22, 2013 to December 25, 2013. There was no physical damage to the plaza or to the bakery as a result of the storm. No repairs to any buildings or structures were needed. The power was restored without any intervention on the part of the owner of the plaza or the plaintiff.

[3] The bakery was insured by the defendant Intact Insurance Company. The applicable policy was subject to various terms, conditions, exclusions and limitations as contained in the policy.

[4] Following the ice storm and resulting loss of power, the plaintiff made a claim under the policy. It is the position of the defendant, Intact Insurance Company, that the policy does not cover the losses for which the claim is made. The plaintiff, the bakery commenced this action. It seeks damages in the amount of $75,000 for loss of inventory and stock spoilage and $150,000 for business interruption.

[5] The motion is brought on behalf of the defendant, Intact Insurance Company. Counsel for Intact submitted that it is plain and obvious that the action cannot succeed; that the policy does not provide coverage for the loss and damages claimed. It is said that a plain reading of the policy set against the established facts makes clear that there is no issue requiring a trial.

[6] The policy dealing with damage to stock or inventory begins:

ITEM - STOCK SPOILAGE

Insurance is extended to cover physical loss of or damage to “stock” on the “premises” caused by dampness or dryness of atmosphere or change of temperature. The dampness or dryness of atmosphere or change of temperature must be the direct result of (a) or (b) below.

[7] Nothing was said, but there appears to be no contest to the proposition that the plaintiff suffered damage to stock stored, kept or present on the premises during the time of the power outage. The issue that remains is whether this damage was the direct result of the circumstances outlined in the two paragraphs that follow. The first of these states:

(a) Physical loss of or damage to “building” or “equipment”, including supply or transmission lines and pipes and their connections furnishing “services”, on the “premises”. The physical loss or damage must directly result from an insured peril. The part of the “building” or of the “equipment” that sustains loss or damage must be used for refrigerating, cooling, humidifying, dehumidifying, heating or for generating or converting power.

[8] Intact Insurance Company does not rely on this subparagraph. Inquiries made of Toronto Hydro (the supplier of electricity) and the owner of the plaza make clear and confirm that there was no physical damage to the building or any equipment that resulted in the damage to the stock.

[9] The second of the two subparagraphs which describe causes of the “dampness or dryness of atmosphere or change of temperature” that would be covered by the policy states:

(b) Interruption to the supply of “services” to the “premises”. The interruption must be caused by physical loss of or damage to apparatus that generates or supplies such “services” to the “premises”. The physical loss or damage must directly result from an insured peril. The apparatus that sustains loss or damage must be located on or within 25 kilometers of the “premises”.

[10] This clause raises the prospect that the claim could be insured. It may be, as already noted, that the interruption to the electrical service did not result from damage to apparatus located on the premises. The question that remains is whether or not the cause of the interruption was damage to apparatus located off the premises but within 25 kilometers. Toronto Hydro advised that the power outage was a result of adverse weather and extreme freezing rain which caused two feeder lines to fail. The feeders supply power to the transformer and the secondary lines that feed the premises of the bakery. No statement was made or position taken as to which of them was the immediate cause of the power outage, whether the policy covered this as damage to “apparatus” or where these failures took place (was either or both of them was “within 25 kilometers of the premises”). It does not matter. None of these considerations are the source of the refusal of coverage. Rather it is the exclusions that follow that are the foundation for the denial:

This coverage does not cover loss or damage resulting from partial or total interruption to the supply of “services” arising from:

(i) Loss or damage to any electrical transmission lines or distribution lines or their supporting structures, except for those located on the “premises”; (ii) Lack of sufficient capacity; or (iii) Intentional reduction in supply.

[11] It is the first of these exclusions which applies. It was the loss or damage to “electrical transmission lines or distribution lines” that are not located on the “premises” which resulted in the “stock spoilage” for which the plaintiff seeks coverage. By this clause, in the policy, coverage is not provided for the damage that occurred. It bears noting that “services” as used in the policy is defined:

As used in this coverage “services” means electricity, water, gas or steam.

[12] Accordingly, it seems, if the damage had been caused by an interruption to the supply of water, gas or steam, where there was sufficient capacity, no “intentional reduction in supply” and the “apparatus” was on or within 25 kilometers of the bakery, coverage would have been available. As it is, it was not and there is no genuine issue for trial.

[13] A similar analysis can be undertaken in relation to the claim for business interruption. The relevant policy begins:

PREMISES SERVICES INTERRUPTION

Profits and/or Rental Income (Broad Form) is extended to include loss arising from the interruption of business resulting from the direct physical loss of or damage to property that is located within 25 kilometers of the “Premises”, from an insured peril under this policy. Such property must be used to generate or supply “services” to the premises.

[14] Lost profits are insured, albeit with the same territorial limitation as in subparagraph (b) above dealing with stock spoilage. It must be damage to property used to supply the service, subject to the limitation that the property must be within 25 kilometers of the premises where the business is located. The issue of the location of the damage to the feeder lines and the applicable transmission lines comes up again. Were they the location of damage that resulted in the loss and if so, were they within 25 kilometers of the bakery? As with the policy regarding “stock spoilage” it does not matter. The policy in respect of business interruption continues:

This coverage only applies to loss, as insured by the Profits and/or Rental Income (Broad Form) coverage provided by this policy, due to “service interruption”.

[15] There was a service interruption. The policy, in its concluding points defines “services” and “service interruption:

As used in this coverage

“services” means electricity, water, gas or steam

“service interruption” means loss of “services” for a period exceeding 24 consecutive hours

[16] Thus, it would seem that coverage is to be provided for an interruption to the business, albeit when the interruption extends beyond 24 hours, where the loss is as a result of a power outage. However, as with stock spoilage there is an exclusion:

This coverage does not cover loss, as insured by the Profits and/or Rental Income (Broad Form) coverage provided by this policy, during the first 24 consecutive hours of loss of “services” or directly or indirectly arising from:

(i) Loss or damage to electrical transmission lines or distribution lines or their supporting structures; (ii) Loss or reduction of “services” due to lack of sufficient capacity; or (iii) An intentional reduction in the supply of “services”.

[17] It is the first of the three subparagraphs that is pertinent. Where it is damage to electrical transmission lines that are the cause of the power outage and the resulting business interruption the exclusion applies; there is no coverage. In this case the exclusion does apply.

[18] The motion is granted. The action as against Intact Insurance Company is dismissed.

[19] Costs, as agreed to by the parties, payable by the plaintiff, to Intact Insurance Company, $7,500.00.

[20] I wish to make one final observation. It will be apparent from the style of cause that Intact Insurance Company is not the only defendant to this action. La Rose Bakery 2000 Inc. (the plaintiff) also sues Unity Realty & Insurance Inc. That defendant is the insurance broker through which the plaintiff purchased the insurance policy in issue. In the event that there is no coverage, it is alleged, that Unity Realty & Insurance Inc. failed to provide the coverage that would have applied in the circumstances and that it was instructed to provide for. As part of its defence, that defendant could (and apparently does) rely on the proposition that coverage was available or, in the alternative, that Intact Insurance Company Inc. understood it was to provide such coverage. Insofar as it intends to rely on coverage being available, Unity Realty & Insurance Inc. had an interest in this motion. When the parties first appeared, the motion was adjourned to ensure that Unity Realty & Insurance Inc. was advised and provided with the opportunity to appear. It chose not to. Among the arguments made on behalf of the plaintiff, in opposition to the motion for summary judgement, was the prospect of an inconsistent determination on this issue forthcoming from any subsequent trial directed against Unity Realty & Insurance Inc.

[21] As I see it, Unity Realty & Insurance Inc. had every opportunity to participate and specifically chose not to. While, acknowledging that any final determination as to the implications of the failure to appear must be left to the trial judge or any appeal court that may be requested to consider this endorsement, some consideration will have to be given to the prospect that having been given the opportunity to appear and having failed to take it up, Unity Realty & Insurance Inc. cannot now claim to have been prejudiced by the findings made on this motion. To my mind that would be an appropriate result.

Lederer J. Date: January 10, 2019