Court File and Parties

Court File Nos.: CV-21-1190 & CV-21-1162 Date: 2022/03/16 Ontario Superior Court of Justice

Application Under Rule 14.05(3) of the Rules of Civil Procedure and s. 97 of the Courts of Justice Act, R.S.O., 1990, c. C.43 as amended.

Between:

Kin Canada, Applicant – and – Ecclesiastical Insurance Office Public Company Limited, Chubb Insurance Company of Canada, and Certain Non-Marine Underwriters o/a Lloyd’s Of London and Lloyd’s Canada, Respondents

And Between:

The Kinsmen Club of Oshawa, Applicant – and – Ecclesiastical Insurance Office Public Company Limited, Respondent

Counsel: James H. Bennett, for the Applicant Kin Canada James E. Dunn, for Ecclesiastical Insurance Elizabeth K Ackman & Vanessa De Sousa, for Certain Non-Marine Underwriters Vincent G. Burns, for The Kinsmen Club of Oshawa

Heard: March 2 & 3, 2022

Before: The Honourable Justice James W. Sloan

Reasons for Judgment

[1] Chubb Insurance Company of Canada has been let out of the action.

[2] The impetus for this application is a Statement of Claim brought by 1638385 Ontario Limited, the purchaser of certain property in Oshawa Ontario in 2005. It claims damages after it discovered two underground oil storage tanks (USTs) on the property in 2018.

[3] The defendants in that action are The Kinsman Club of Oshawa (KCO), Kin Canada (KC), Robert Antonini (the president of KCO) and D.G. Briddle & Associates Limited (property inspectors).

[4] KCO was the owner/vendor of the subject property, and the plaintiff alleges that Antonini made negligent representations in the agreement of purchase and sale (APS), and in a questionnaire before the sale was finalized. The plaintiff required the questionnaire for its effort to obtain a minor zoning variance for the subject property.

[5] KC had no ownership in, or control of the subject property or KCO and made no representations with respect to the sale, KC did not know the sale was taking place, was under no statutory obligation to remove or otherwise deal with the USTs, and for the purposes of this hearing did not receive any monies from the sale of the subject property, although the statement of claim alleges that it did receive money.

[6] Although there are no independent allegations of negligence against KC, the plaintiff alleges that KC, as the administrator of the National Association of Kinsman Clubs in Canada, is vicariously liable at common law and in equity for the actions of KCO, one of its member clubs.

[7] KC is a charitable organization and brings this application for a declaration, that one or both of the respondents have a duty to defend it, in the litigation arising out of the sale of property in Oshawa Ontario in 2005. The agreement of purchase and sale was entered into on November 5, 2004, and the transaction closed on April 1, 2005.

[8] The purchaser became aware of the first UST in 2018 and while removing it, discovered a second UST situated under the floor of the building.

[9] The two respondent insurance companies insured KC as follows:

a) Lloyd’s Commercial General Liability (CGL) policy, was in effect from February 1, 2005, until February 1, 2006. b) Ecclesiastical’s CGL policy was in effect from February 1, 2018, until February 1, 2019.

[10] KCO was insured under the above Ecclesiastical policy.

[11] At some time prior to November 5, 2004, the owner of the subject property (who was not identified) converted the heating system on the subject property to natural gas from oil, but did not decommission and remove the UST’s.

[12] Once a UST is no longer in use, the owner of the property is statutorily obligated to empty the UST and have it removed.

[13] The purchaser/plaintiff alleges:

a) KCO gave an express warranty in the agreement of purchase and sale that all environmental laws and regulations had been complied with. b) On December 17, 2004, Antonini the president and director of KCO, represented that he was “uncertain” as to whether there were any USTs on the property. c) The defendants are liable for negligent misrepresentation and negligent mismanagement. d) The plaintiffs have suffered damages including, the cost of removing the UST’s, remediating soil and groundwater and they claim a decrease in property value due to stigma.

[14] The plaintiff pleads, that complicated and expensive construction work will have to take place to remove the second UST, including shoring up the foundations, breaking the floor, at least temporarily shutting down businesses in the building and likely having to remediate soil and/or groundwater.

[15] The plaintiff claims hundreds of thousands of dollars in damages for the cost of removing both USTs, remediating soil and for a decrease in real estate value.

[16] The plaintiff pleads deliberate and/or negligent misrepresentation and negligent mismanagement.

[17] KC and KCO rely in part on the submissions made by each other.

[18] KCO’s submissions dealt with the Ecclesiastical policy while KC’s submissions dealt with both the Ecclesiastical and Lloyd’s policies.

Duty To Defend

[19] The parties agree that the duty to defend must be determined using the following principles:

1. The duty is determined based on the allegations made against the insured in the underlying pleadings and the terms of the insurance policy.
2. An insurer has a duty to defend if there is a “mere possibility” that the facts alleged in the pleadings, if proven to be true, would require the insurance company to indemnify the insured for the claim. There is a low threshold to establish a duty to defend, which arises when the underlying complaint alleges any facts it might fall within the coverage of the policy.
3. The duty to defend does not depend upon the insurer being required to indemnify the insured and is therefore considerably broader than the indemnity duty.
4. The court must look beyond the labels used by the plaintiff to determine the “true nature and substance” of the claim made against the insured.
5. In determining the duty to defend, the widest latitude is to be given to the allegations made against the insured in the underlying claim.
6. If the claim against the insured has not been pleaded with sufficient precision, the duty to defend is triggered where, on a reasonable reading of the pleading, coverage can be inferred.
7. The principles covering the interpretation of insurance contracts generally, such as the contra proferentem and the requirement to construe coverage clauses broadly and exclusion clauses narrowly, also apply to the duty to defend analysis.
8. The insured has an onus to show that the pleadings fall within the grant of coverage. If it does, the insurer has to show that the coverage is excluded.

Excerpts From the Insurance Policies

[20] The wording of both the Ecclesiastical and Lloyd’s policies are very similar.

[21] To fall within either one of the two CGL policies, the claim must allege “property damage” within the policy, that is caused by an “occurrence”.

[22] Both CGL policies include a “separation of insureds” clause as follows:

This Insurance shall apply in respect of any claim or action brought against any one Insured by any other Insured . The coverage shall apply in the same manner and to the same extent as though a separate policy had been issued to each insured. Any breach of a condition of this Insurance by any Insured shall not affect the protection given by this Insurance to any other Insured. The inclusion herein of more than one Insured shall not operate to increase the limits of liability under this Insurance.

[23] All counsel agree that the onus to prove exclusions is on the insurer.

The Ecclesiastical Policy

[24] The policy ran from February 1, 2018, until at least February 1, 2022.

[25] It was agreed between counsel for KCO and Ecclesiastical, that pursuant to the terms of the insurance policy there had been Property Damage and an Occurrence. That left the issue of the pollution exclusion clause and the timing of the occurrence for the court to deal with.

[26] The Ecclesiastical policy is an “occurrence” based policy and contains the following terms:

1. Insuring Agreement (a) The Insurer 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. The Insurer will have the right and duty to defend the Insured against any “action” seeking those “compensatory damages”. However, the Insurer will have no duty to defend the Insured against any “action” seeking “compensatory damages” for “bodily injury” or “property damage” to which this insurance does not apply. The Insurer may, at its discretion, investigate any “Occurrence” and settle any claim or “action” that may result. (b) This insurance applies to “bodily injury” and “property damage” only if:

1. The “bodily injury” or “property damage” is caused by an “Occurrence” that takes place in the “coverage territory”; and
2. The “bodily injury” or “property damage” occurs during the policy period; and
3. Prior to the policy period, no Insured listed under Paragraph 1. of Section II – Who Is An Insured and no “employee” authorized by the Insured to give or receive notice of an “Occurrence” or claim, knew that the “bodily injury” or “property damage” had occurred, in whole or in part. If such a listed Insured or authorized “employee” knew, prior to the policy period, that the “bodily injury” or “property damage” occurred, then any continuation, change or resumption of such “bodily injury” or “property damage” during or after the policy period will be deemed to have been known prior to the policy period. (c) “Bodily injury” or “property damage” which occurs during the policy period and was not, prior to the policy period, known to have occurred by any Insured … (d) “Bodily injury” or “property damage” will be deemed to have been known to have occurred at the earliest time when any Insured listed under Paragraph 1. of Section II – Who Is An Insured or any “employee” authorized by the Insured to give or receive notice of an “Occurrence” or claim:
4. Becomes aware by any other means of that “bodily injury” or “property damage” has occurred or has begun to occur.

[27] The pollution clause in the Ecclesiastical policy reads as follows:

This insurance does not apply to:

4. Pollution (1) “Bodily injury”, “property damage” or “personal and advertising injury” arising out of the actual, alleged or threatened spill, discharge, omission, dispersal, seepage, leakage, migration, release or escape of “pollutants”: (a) at or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured … (2) Any loss, cost or expense arising out of any: (a) request, demand, order or statutory or regulatory requirement that any Insured or others test for, monitor, clean up, remove, contain, detoxify or neutralize, or in any way respond to, or assess the effects of, “pollutants”, …

[28] In the Ecclesiastical insurance policy:

“Occurrence means an accident, including continuous or repeated exposure to substantially the same general harmful conditions. Property damage means: (a) physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it …”

[29] Pollutants are defined as:

“… Any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, odor, vapour, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.”

The Lloyd’s Policy

[30] The "Insuring Agreement” under the Lloyd’s policy provides:

The Insurer shall pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as compensatory damages because of bodily injury or property damage, to which the insurance applies, caused by an occurrence.

[31] The exclusions applicable to coverage for property damage liability, include the following:

2. This insurance does not apply to: (h) property damage: (1) to property owned or occupied by or rented to the insured, or, except with respect to the use of elevators, to property held by the insured, for-sale or entrusted to the insured for storage or safekeeping; (a) liability assumed by the insured under any contract or agreement except an incidental contract …

[32] In the Lloyd’s policy property damage means:

i. physical injury to tangible property which occurs during the policy period, including all resulting loss therefrom; or ii. loss of use of tangible property that is not physically injured or destroyed provided such loss of use occurs during the policy period.

[33] Occurrence is defined as:

… an accident, including continuous or repeated exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured.

[34] The Lloyd’s Policy includes the following common exclusions among others:

1. Pollution Liability (a) Bodily injury or property damage arising out of the actual, alleged, potential, or threatened spill, discharge, omission, disbursal, seepage, leakage, migration, release or escape of pollutants: (1) at or from any premises, site or location which is or was at the time, owned or occupied by, or rented or loaned to any insured; (b) Any loss, cost or expenses, arising out of any request, demand or order that any Insured or others test for, monitor, clean up, remove, contain, treat, detoxify, decontaminate, stabilize, remediate or neutralize or in any way respond to, or assess the effect of pollutants. “pollutants” means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, odor, vapour, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.

Submissions on behalf of KCO

When Did the Damage Occur?

[35] KCO takes issue with Ecclesiastical’s position that the damage occurred in 2005, 13 years before its policy was issued.

[36] KCO submitted that the policy does not state when an occurrence must take place.

[37] By analogy, it argued that a fire taking place in 2022, because of negligent wiring having been done in 2015, would be responded to by insurance.

[38] KCO submits that the timing of the damage does not matter, and it does not affect KCO’s right to coverage. Coverage under the policy depends on when the damage occurs, not the alleged wrongful act of the insured which gave rise to the claim.

[39] For this proposition KCO relies on the Ontario Court of Appeal case in Alie v. Bertrand & Frere Construction Co., 2002 CarswellOnt 4255 which at paragraph 140 states in part:

The conditions and timing of the trigger of any insurance policy to cover and respond to a loss are governed by the language of the policy. In this case, the policy language in the CGL third-party liability policies in issue will trigger coverage, from the timing point of view, when damage is suffered within the policy.

[40] KCO submits, that as in Alie, the damage here was suffered in 2018 upon the discovery of the first UST. At that time, the first UST was removed pursuant to the legislation. As a result, the property damage arising from the removal of the first UST occurred in 2018, while the policy was in effect.

[41] The discovery of the second UST also occurred in 2018 and along with that, the obligation to have it removed. The full extent of the damage, at least to the extent of having to remove a UST from under a building was a certainty. KCO relies in part on paragraph 123 of Alie which states:

“… In the context of long latent damage, which requires replacement rather than just repair, the damage is complete when it has progressed to the level where replacement is required because further deterioration without replacement is a certainty. Another way to describe the concept is a point at which the loss is no longer contingent.”

[42] KCO submits that Ecclesiastical is incorrect when they argue that the damage occurred in 2005 based on the legislative obligation to remove the UST because:

1. The Statement of Claim does not plead that the plaintiff suffered any damage in 2005.
2. The USTs were in the ground for an indeterminate amount of time and did not cause any damage by their mere presence.
3. There was no certainty of damage in 2005 just because the plaintiff became the owner of the property. By way of example, KCO argues, if the plaintiff sold the property in 2010 there would have been no property damage and no loss in value of the property.
4. There was no damage in 2005 and no one knew or suspected that there was any property damage in 2005.

[43] No timeframe is pleaded with respect to the contamination, therefore KCO submits, unless it is pleaded that no contamination took place in 2018, there is a possibility that it took place in 2018 while Ecclesiastical was on the risk.

[44] Based on the above reasoning, the onus shifts to Ecclesiastical, to prove any exclusions which might apply.

Pollution Exclusion

[45] KCO submits that this exclusion cannot apply to it, given its activity as a charity and further submits that even if it does apply, it does not apply to the entire claim.

[46] KCO relies on the case of Zurich Insurance Co. v. 686234 Ontario Ltd., 2002 CarswellOnt 4019, for their submission that the pollution exclusion was only intended to cover those entities whose “regular business activities place it in the category of an active industrial polluter of the natural environment”. (para. 13)

[47] KCO also relies upon the case ING Insurance Co. of Canada v. Miracle, 2011 ONCA 321. ING affirmed, that Zurich required the pollution exclusion to be interpreted based on “… a commonsense assessment of the insured’s business activity …”. (para. 21)

[48] KCO further relies on the case of Hemlow Estate v. Co-Operators General Insurance Company, 2021 ONCA 908. This case involved negligence by mechanical contractor resulting in the escape of ammonia gas. The court ordered the CGL insurer to defend its insured, in an action brought to recover property damage from an explosion.

[49] The underlying claim in Hemlow, which is similar to the case at bar, was framed in negligence and requested damages for out-of-pocket expenses, business losses and property damage.

[50] KCO submits it was and is a charity and that it does not carry on an active business remotely like those referred to in the previous cases.

[51] In the alternative, even if the Pollution Exclusion would include soil and groundwater contamination from leaking oil, the exclusion would not negate coverage for the other damages sought by the plaintiff including the cost of removing the USTs, building damage, and shutdown of leased businesses. These claims do not arise out of the discharge of pollutants and are therefore not subject to the pollution exclusion.

[52] In short, Ecclesiastical must convince the court that no coverage applies and since the test is a mere possibility that there is coverage, it cannot do so.

Submissions on behalf of KC

[53] KC submits both Ecclesiastical and Lloyd’s must defend it based on the allegations in the Statement of Claim. KC adopts the submissions of KCO with respect to Ecclesiastical, and also the insurance principles that apply to its dispute with Lloyd’s.

[54] KC is a named insured in both CGL policies which have essentially the same wording. Even if some exclusions might apply to KCO, they may not apply to KC.

[55] Since KC did not own the property and had no obligation to remove the USTs. It was not a party to the APS. The affidavit filed on behalf of KC has not been challenged.

[56] Both insurance policies have separation of insureds/cross liability clauses in them.

[57] KC submits that the allegations in the Statement of Claim must be given their widest latitude.

[58] The allegation that KCO was in breach of legislation, should be read as an allegation of negligence, that is, it may be evidence of negligence.

[59] KC submits that the case of Miersma v. Pembridge Insurance Co., 2005 CarswellOnt 5301, is on all fours with the case at bar. Therefore, negligent representation is “an occurrence” with respect to the Lloyd’s policy.

[60] The Statement of Claim does not say if there was leaking or if there was, when it occurred. The pleading does not state that there was evidence of leakage when the first UST was removed. Notwithstanding this, based on the Statement of Claim there is a mere possibility that there was leakage at any time before and including from 2005 to 2018 and beyond.

[61] The case of SCS Western Corp. v Dominion of Canada General Insurance Co., 1998 ABQB 152, concluded, that where leaking may have occurred over a three-year period, all three insurance companies who insured the property had a duty to defend the insured gas station.

[62] The court in the SCS Western case, concluded at paragraph 36:

“… at the duty to defend stage, one theory need not be chosen over the other, if on any theory coverage would apply.”

[63] Therefore, any insurance company insuring the risk between 2005 and 2018, would have a duty to defend. This includes Lloyd’s and Ecclesiastical.

[64] It is not the duty of the insured to bring in other potential insurance companies, although they can bring in other companies if so advised. (Loblaw Companies Limited v. Royal & Sun Alliance, 2022 ONSC 449)

[65] Based on the Statement of Claim, it can be argued:

1. The damage crystallized as soon as the property was purchased and the discovery of the USTs was merely a manifestation of the existing damage. This occurred within the Lloyd’s policy period. or
2. The purchaser’s regulatory obligation to remove the tank did not arise until the UST’s were discovered. This occurred within the Ecclesiastical policy period.

Pollution Exclusion

[66] KC agrees with the submissions made by KCO and further submits, that even if the pollution exclusion applies to KCO, it does not apply to KC which was an innocent co-insured.

[67] A main part of the claim has nothing to do with pollution and everything to do with the cost of decommissioning USTs pursuant to regulatory laws. It has nothing to do with property damage arising out of, “actual, alleged … or threatened spill … discharge …” of a pollutant.

[68] KC was not involved in any activity that carries a well-known risk of pollution. And had nothing to do with the subject property.

[69] Lloyd’s relies in part on the case of R. v. Kansa, 1994 CarswellOnt 320, where there was a pollution exclusion clause and the actual discharge of pollutants. The court found that the alleged negligence could not be divorced from the discharge of the pollutants and upheld the pollution exclusion clause. KC submits this case simply does not apply as there was no discharge of pollutants.

Owned Property Exclusion

[70] This exclusion does not say “all” insured and KC never owned, occupied or rented the subject property.

[71] Since the owned property exclusion was not raised by Ecclesiastical, no submissions were made by KCO with respect to it.

[72] This exclusion does not apply to KCO because they no longer owned the property and KC cannot be vicariously libel, if KCO is not liable.

[73] No cases were produced by the insurance companies, where coverage was denied to a non-owner.

Innocent Co-insured

[74] The terms “any insured” or “insured” are ambiguous where there is more than one insured. It does not matter if the act is criminal or intentional when there is an innocent insured.

[75] In Godonoaga v. Khatambakhsh, one child injured another child and the parents of the aggressor were sued for negligent supervision. The insurer took the position that the definition of you and your, meant all insureds however this position was rejected because it ignored the effect of the severability clause. At paragraph 18 the court stated:

I do not read the policy this way. It ignores the language in the “Coverages” section: “Each person is a separate insured but this does not increase the limit of the insurance”.

[76] Similarly in the case of Snaak (Litigation Guardian of) v. Dominion of Canada General Insurance Co., the Ontario Court of Appeal ruled that the phrase “any insured” does not mean all insured and ruled that the phrase was ambiguous and the insurer had a duty to defend. The court stated the following at para. 40 & 41:

40. In my view, the respondent’s adopted a similarly sound position in their factum. In the analysis which I found both useful and fair, they submitted that there were two reasonable interpretations of the exclusion clause:

41. On one hand, the word ”any” in the exclusion clause can be interpreted in the manner advanced by Dominion. The intentional act of any one insured will exclude coverage for all insureds. Under this interpretation, if there are twenty (20) individuals insured under the policy, the intentional act of one insured will exclude coverage for the nineteen (19) others, even if the other nineteen (19) others [sic] did not commit the intentional act.

42. On the other hand, the word “any” in the exclusion clause can be interpreted differently. The word “any” simply recognizes the fact that the insurance policy provides coverage to many individuals, and if any one of these individuals commits an intentional act, coverage will be denied, but only for that individual. Under this interpretation, if there are twenty (20) individuals insured under the policy, the intentional act of any one of the twenty (20) individuals will exclude coverage, but only for that individual, and not for the nineteen (19) others who have not committed the intentional act.

43. I agree with this analysis.

[77] KC submits, that the same reasoning applies to the pollution clause and since the policy does not say “all insured” and KC never owned or occupied the subject property the exclusion does not apply to it.

[78] In addition, KCO and KC do not carry on a business that is likely to cause pollution. Coverage would not be unfair and the reasonable expectation of both KCO and KC would be that they are covered against the allegations set out in the Statement of Claim. Therefore, both insurance companies have a duty to defend.

Submissions on behalf of Ecclesiastical

[79] Since the claims against KC are based on vicarious liability, which is a derivative claim, the fortunes of KC rise or fall with the fortunes of KCO. To put it another way, KC is only owed a duty to defend, if KCO is owed that duty.

[80] Ecclesiastical generally agrees with the legal principles involved, in determining whether or not an insurance company has a duty to defend.

[81] It submits, based on the case of Monenco Limited v. Commonwealth Insurance Company, 2001 SCC 49, [2001] 2 R.C.S. 699, where it is clear from the pleadings that the suit falls outside of the coverage of the policy by reason of an exclusion clause, the duty to defend will not arise.

29. … where it is clear from the pleadings that the suit falls outside of the coverage of the policy by reason of an exclusion clause, the duty to defend does not to arise. MacLachlan J. further noted that it is not necessary to prove that the obligation to indemnify will in fact arise in order to trigger the duty to defend. The mere possibility that a claim falling within the policy may succeed will suffice. In this sense the insurer’s duty is broader than the duty to indemnify. ( Nichols , supra at p. 810)

Pollution Exclusion Clause

[82] In general, the Statement of Claim, claims the following:

a) $300,000 (an estimate) to remove the second UST and remediate the soil, b) $50,000 to compensate for the cost of removing the first UST, c) $500,000 for the decrease in property value due to contamination, and d) $1,000,000 for negligent misrepresentation and/or negligent mismanagement,

[83] In general, the Statement of Claim alleges that:

a) KCO misrepresented the condition of the property when it warranted that all environmental laws and regulations had been complied with (para. 8) b) KCO did not comply with government regulations to empty and remove the tank (UST) and related piping and to determine if the surrounding soils were polluted and to remediate as necessary, when they changed the heating system from oil to natural gas. (para. 9) c) The soil and groundwater will likely require remediation. (para 12) d) The stigma of the pollution will continue to have a negative impact on the value of the property. (para. 23)

[84] The true nature of the plaintiff’s claim is environmental pollution. Regardless of whatever labels are set out in the Statement of Claim, everything is related to the USTs and contamination.

[85] The accident here, was KCO not removing the UST when it converted from oil to natural gas. While no date is alleged for the conversion, the claim alleges KCO owned the property on the date of conversion.

[86] The property damage is the presence of the UST in the ground at the time of sale or the time when it was required to be removed.

[87] The physical injury is the UST and allegation that it may have leaked.

[88] Although some damages such as the removal of the second UST may be covered, the true nature of the claim is still the pollution/contamination and the UST issues. Those claims cannot be separated.

[89] Ecclesiastical agrees with paragraph 39 of the Lloyd’s factum, where it submits, that the court must proceed on the basis that fuel oil has leaked, that there has been contamination, remediation will be necessary, environmental statutes have been breached and the property value reduced.

[90] KCO is caught by the pollution exclusion clause because it owned the subject property. KC is caught by the pollution exclusion clause because they fall within the definition of any insured.

[91] KCO is also caught by the pollution exclusion clause because the regulatory requirements for the decommissioning of USTs were in place when the conversion from oil to natural gas took place. KC is also caught by this exclusion, not only because KC is included in the phrase “any insured” but also because coverage for KC would also be excluded by the use of the word “others”.

[92] Ecclesiastical submits, that the Zurich Insurance Co. v. 686234 Ontario Ltd. case does not apply, because in Zurich the court concluded, that the pollution did not pollute the natural environment, only the interior of an apartment building. It further submits, that paragraph 38 of the Zurich case, where it talks about an “active industrial polluter of the natural environment” is obiter.

[93] The Zurich case is also different because:

a) It involved defective maintenance of a machine which caused the pollution, whereas in the case at bar, the pollution is in the ground. b) The exclusion clause was ambiguous. c) There was no legislation mandating furnace maintenance. d) It was entirely a tort action.

[94] ING Insurance Co. of Canada v. Miracle was decided nine years after Zurich. The insured ran a gas bar with a UST which leaked, allowing pollutants to seep onto neighbouring properties. The underlying claim was based in part on alleged breaches of government legislation and regulation.

[95] The court held that the pollution exclusion clause clearly extended to activities such as storing gasoline in the ground for resale at a gas bar that carried a known risk of pollution. (para. 23)

[96] In the case of Corbold v. BCCA Insurance Corp., 2010 BCSC 1536, [2010] B.C.J. 2125, the pollution exclusion was found to apply, where a residential outdoor oil storage tank leaked. The judge concluded that the exclusion clause had to have meaning and if it was not meant to cover a fuel spill or leak of the tank on the insured’s property, he queried, “what was it intended to cover?”. (para. 97)

[97] The court also stated the following at paragraph 95:

[95] … I am unable to find an ambiguity like that found in Zurich where the court found it to be ambiguous because the exclusion there focused on the act of pollution rather than on the resulting personal injury or property damage and because the historical context of the exclusion suggests that its purpose was to bar coverage for environmental pollution, not a faulty furnace that resulted in the leak of carbon monoxide.

[98] The Hemlow Estate v. Co-Operators General Insurance Company case is also distinguishable. It was based on breach of contract and negligence and did not arise out of pollution.

[99] While KCO was not an active industrial polluter, it was engaged in an activity that had a known risk of environmental damage.

[100] Therefore, ING applies where an entity discontinues using a UST and does not remove it from the ground. The risk of not decommissioning the UST, would present a well-known risk of pollution causing environmental damage.

Did The Damage Fall Within the Ecclesiastical Policy?

[101] In the case of University of Saskatchewan v. Fireman’s Fund Insurance Co., cladding was affixed to a building in 1960 using galvanized metal. In 1985, 25 years later, it was discovered that the galvanized metal had started to degrade from the start.

[102] The insurance policy insured against “all risks of physical loss or damage.” The Saskatchewan Court of Appeal rejected the manifestation trigger theory, stating that use of that theory would, “change the event upon which the indemnity is to be paid from “physical loss or damage” to “discovery of physical loss or damage.”

[103] The court went on to state paragraph 37:

[37] The manifestation theory would require the insurer to pay for loss and damage which occurred before it came on the risk, although there is no provision in the policy requiring such payment. That is not indemnity, but more in the nature of a warranty or guarantee of the condition of the building against hidden damage. It is not what the insurer promised to do.

[104] In the case at bar, the plaintiff pleads negligent misrepresentation in November 2004. Therefore, property damage for negligent misrepresentation occurred at the date of sale in April 2005. The negligent misrepresentation or mismanagement all occurred on or before April 2005.

[105] Ecclesiastical relies in part on the cases of Aitken v. Unifund Insurance Co., 2011 ONSC 1809, Poplawski v. McGrimmon, 2010 ONSC 108 and Randhawa v. Da Rosa, [2000] O.J. No. 3801, for the proposition that negligent misrepresentation occurs at the date of sale of the property.

[106] In the Randhawa case, the plaintiffs bought a house in 1988 and were given a warranty that it did not contain UFFI. Nine years later UFFI was discovered and a lawsuit ensued. The court concluded that the insurance policies covered damages for torts and since the true nature of the underlying claim was for breach of contract, there was no coverage and therefore no duty to defend.

[107] The underlying facts of the Aitken were similar to the Randhawa case. The issue there was whether the insurance policy in force at the time of sale had to respond. Because there were no exclusions, the court found that the policy in force on the date of sale had to respond. Ecclesiastical submits, based on this case the Lloyd’s insurance policy should respond.

[108] The Poplawski and Miersma cases also stands for the position that it is the insurance policy in force at the time of sale that must respond.

Submissions on behalf of Lloyd’s

[109] Lloyd’s raises four issues as follows:

1. Did the property damage occur in 2005 – 2006?
2. Does the pollution exclusion apply?
3. Does the owned property exclusion apply?
4. Has there been an occurrence?

[110] The general public would think discharging oil into the ground would qualify as pollution. If the pollution exclusion does not apply to these facts, when would it ever apply?

[111] The case at bar is extremely far away from a carbon monoxide leak or the escape of ammonia gas.

[112] Based on paragraph 23 of the Statement of Claim, the court must assume that oil has leaked from the USTs into the soil.

[113] Because it is pled, the court must assume that KC was a controlling mind of KCO and that it received some of the proceeds from the sale of the subject property.

[114] Actual pollution is pled in the Statement of Claim. Property damage must happen within the policy period, which in this case would be 2005.

[115] The pollution exclusion is much broader than just pollution. The exclusion also covers any type of cleanup or remediation.

[116] Certainly, most people when reading the pollution liability exclusion, would think that there would be no insurance coverage, if oil leaked from one of their USTs and contaminated the soil.

[117] Both KCO and KC are named insured. With respect to property damage, there has been no loss of use from 2005 to date.

[118] Based on Alie v. Bertrand & Frere Construction Co., the date of the occurrence is a question of fact. In the case at bar the damage would need to be damage to the plaintiff’s land and/or building not the UST.

[119] In the case of Canadian Northern Shield Insurance Co. v. Intact Insurance Co., 2015 BCSC 767, where the insured was engaged in activities over 46 years that materially contributed to a landslide, which occurred after the expiration of the policy, the court found there was no property damage within the policy period.

[120] In the case of Aviva Insurance Company of Canada v. Parrsboro Metal Fabricators Ltd., 2016 ONSC 8084, the court held that the Aviva did not have to undertake a defence, where the allegation was that the plaintiff’s tangible property was injured as a result of a fuel tank leak which occurred on a particular day, long after cessation of coverage under the policy. The court rejected using the date of manufacture of the oil tank as the date of occurrence.

[121] Lloyd’s submits that there is no allegation of injury or loss during the period of Lloyd’s policy. Lloyd’s further submits that the plaintiff’s regulatory obligation to remove the USTs did not arise until it discovered their existence in 2018 long after the expiration of the period of Lloyd’s insurance.

[122] The University of Saskatchewan v. Fireman’s Fund Insurance Co. case was commented on in Alie and there are later Ontario and Ontario Court of Appeal cases on the issues. Alie’s comments on the University of Saskatchewan case at paragraph 122 include:

1. There was only one potential insurer and one policy period to consider.
2. The only issue was whether the damage was complete before 1984 when the policy period commenced.

[123] In addition, the insurance in the University Saskatchewan case was a first party insurance policy which has very different wording from a CGL policy.

[124] Lloyd’s relies on the following paragraphs from Alie:

141 If the injury in fact is found to have occurred at the date of exposure to the hazard, at the date of manifestation of the damage, or on a continuous and progressive basis, one might refer to the application of the exposure, manifestation or continuous trigger theories as descriptive of the timing of the damage as it actually occurred. However, the most straightforward and accurate nomenclature in each case is injury in fact.

142 If the full extent of the damage has become a certainty at a point in time before it is discovered, the injury in fact has occurred by that point in time. Consequently, the fact that there may be further deterioration after that point does not trigger any policies in place after that point, because the damage is already complete. It will be a matter of evidence at the trial as to when the damage became complete. The point when the full extent of damage becomes known is the manifestation date. In this case, there was no evidence acceptable to the trial judge that the damage was complete before the experts did conclusive testing in 1992. Therefore that date was accepted as the date when the damage became complete.

[125] Lloyd’s therefore submits that the damage was not complete in 2005, but was in 2018.

[126] Lloyd’s also referred the court to paragraph 138 of the Alie v. Bertrand & Frere Construction Co. case which states:

138 The court’s analysis in Allstate is correct and also applies to this case, because here, the gradual deterioration of the concrete itself is not the damage that is covered by the policies. What is covered is the ongoing process of deterioration caused by the moisture’s effect on the defective concrete which, together with the initial defect caused by the inclusion of the fly ash, eventually made the foundations unsafe, thereby causing the damage to the houses. It is that process of ongoing deterioration culminating in the need for total replacement which is covered by the policies. As a result, all policies in effect from the beginning to the end of that process must respond to the loss.

[127] Therefore, in this case it is not the damage to the USTs, to which insurance might respond, but the damage to the land in 2018. The mere existence of the UST’s is not property damage.

[128] In the alternative, if the court were to conclude that the mere presence of USTs on the property constitute property damages for the purposes of CGL coverage, then the applicant is obligated to join as respondents, all of its insurers who were on risk between 2005 and 2018 and it has not done so.

[129] To state it another way, it is premature to allow the application to be determined without all necessary parties being joined, which would/could result in a multiplicity of proceedings and the possibility of inconsistent results. To bolster this proposition, they rely on the case of Loblaw Companies Limited v. Royal & Sun Alliance, 2022 ONSC 449.

[130] Lloyd’s further submits, that if there was ultimately a finding of any coverage under the Lloyd’s policy, the most Lloyd’s should be responsible for is a proportionate share of defence costs, calculated based on the years it was on risk, out of the 13 year period between 2005 and 2018.

Pollution Exclusion Clause

[131] Words are to be given their plain and ordinary meaning and here the wording could not be any clearer. Here we have a property which was damaged and “which was at the time … owned by … any insured.”

[132] The court must proceed on the understanding that the pleaded allegations are deemed to be capable of proof for the purposes of the duty to defend. Those allegations include, that fuel oil has leaked, soil and groundwater are contaminated, remediation is necessary, environmental statutes have been breached and the property value has been reduced by the stigma of environmental contamination.

[133] The facts in the ING Insurance Co. of Canada v. Miracle case are similar to the facts in the case at bar. The pollution exclusion clause is similar, contamination escaped from a UST and damage was caused to the natural environment. The Court of Appeal in ING rejected the same arguments being made by the applicants here.

[134] The Court of Appeal rejected the submission, that Zurich Insurance Co. v. 686234 Ontario Ltd. restricted the reach of the pollution exclusion to those who can be described as “active industrial polluters”.

[135] The insured in ING ran a gas bar. At paragraph 23 of the case the court stated:

[23] I do not accept the argument that the phrase “active industrial polluter of the natural environment” used in Zurich should be read as restricting the reach of the pollution exclusion clause to situations where the insured is engaged in an activity that necessarily results in pollution. Liability insurance is purchased to cover risks, not outcomes that are certain or inevitable. There is a general principle of insurance law that only fortuitous or contingent losses are covered by liability policies. … Accepting the argument that the pollution liability exclusion only applies to “active” industrial polluters -- those who are already excluded from ordinary liability insurance coverage by virtue of the fortuity principle -- would effectively denude the clause of any meeting. In my view, the exclusion clearly extended to activities, such as storing gasoline in the ground for resale at a gas bar that carried a known risk of pollution.

[136] The court went on at paragraph 32 to state, that the pollution liability exclusion was “neither ambiguous nor contrary to the parties’ reasonable expectations.”

[137] In the Hemlow Estate v. Co-Operators General Insurance Company case, the Ontario Court of Appeal concluded that the statement of claim did not make any mention of damage to the natural environment. The court in Hemlow contrasted that case with the ING Insurance Co. of Canada v. Miracle case stating the following:

[32] As will be apparent, the facts in the present case are very different from those in ING and thus properly lead to a different result.

[33] The damages sought in the Statement of Claim in ING were to cover the loss in value of the Plaintiff’s adjacent property, the cost of conducting an environmental assessment, and the cost of remediating the property – all because of the gas that leaked onto the Plaintiff’s property. Accordingly, the claim fits comfortably within the historical purpose of the pollution exclusion.

[34] The situation is very different in this appeal. In this case, what is sought by Rich Products is damages for “out-of-pocket expenses, business losses and property damage” (reasons at par. 21). In other words, the facts in this case, unlike ING, do not fit within the historical purpose of the pollution exclusion, which is to mitigate coverage for the cost of government mandated environmental cleanup: see Zürich at para. 13 and ING at para. 22. In this case there is no suggestion that any government mandated cleanup is in play.

[138] Lloyd submits, that the facts in ING align entirely with the facts in the case at bar and therefore the pollution exclusion should be found to apply.

[139] In both Zurich Insurance Co. v. 686234 Ontario Ltd. and Hemlow Estate v. Co-Operators General Insurance Company, the thrust of the case was not negligent conduct in the handling or potential discharge of a pollutant. In the case at bar, the main thrust is pollution from a leaking UST and the negligent conduct is the failure to follow government regulations to decommission the USTs.

[140] As in Hemlow, the applicants here were not looking for robust pollution protection because of the activities they engaged in, however their reasonable expectation when they bought the insurance, had to be, that damage resulting from the leakage of fuel oil from their USTs would not be covered.

[141] The court in Corbold v. BCCA Insurance Corp. upheld the pollution exclusion clause notwithstanding the homeowner of the fuel tank argued, he was an innocent homeowner not engaged in any business activities that could lead to pollution of the environment.

[142] The facts in Zurich Insurance Co. v. 686234 Ontario Ltd. are distinguishable from the case at bar because it concerned a carbon monoxide leak from a negligently maintained furnace.

[143] In the R. v. Kansa case, the Ontario Court of Appeal held that the regulatory negligence of the Crown was not an intervening act which took the damages outside the scope of the pollution exclusion clause. It found the negligent was merely incidental to the primary event of pollution. The regulatory negligence could do no more than exacerbate the damage, but at the end of the day there would be no loss without the pollution.

[144] The same is true of the allegations made against KC, the allegations of vicarious liability cannot be divorced from the discharge of the pollutants.

[145] The cases of Randhawa v. Da Rosa, Aitken v. Unifund Insurance Co. and Poplawski v. McGrimmon referred to by KCO all had very different wording and the damage had to occur in the policy period.

Owned Property Exclusion Clause

[146] The American cases referred to by the applicants had very different policy language. None of the American cases relied on by the applicant have been considered by any Canadian court with respect to the owned property exclusion.

[147] The Cross Liability Clause is specific and only applies to relieve against “any breach of a condition of this insurance”. Since there has been no breach of a condition by KCO there is nothing to relieve against.

[148] The Cross Liability provisions allow for an exclusion clause to be read individually for each insured. There is nothing in the wording of the Cross Liability Clause which would cause a reasonable insured to think that it could escape the consequences of the Pollution Exclusion Clause. If the Cross Liability Clause had that effect, the wording of the Pollution Liability Clause would be rendered meaningless. This could not have been the reasonable expectations of the parties at the time they purchased the Lloyd’s policy.

[149] In the case of Dmytrenko v. Vandenbor, [2007] O.J. No,4224, where a wife ran a daycare out of their residence and a child was injured, the court held the business exclusion also applied to the husband, notwithstanding his argument that the coverage under the policy was “several”. This case was brought in negligence.

[150] The student intentional assault cases are not of any assistance. The applicants have not produced any authority to support the proposition, that a pollution exclusion does not apply to all insureds.

[151] Vicarious liability is not a separate cause of action. In the Snaak (Litigation Guardian of) v. Dominion of Canada General Insurance Co. case, where there was an intentional tort committed by a child and the parents were sued in negligence, the court held that the exclusion clause for intentional acts did not apply to the parents and therefore they were entitled to coverage.

[152] Unlike the facts in Godonoaga v. Khatambakhsh and Snaak (Litigation Guardian of) v. Dominion of Canada General Insurance Co., the allegations against KIN do not give rise to a separate cause of action.

[153] In the case of Chrysanthis v. Shah, 2013 ONSC 1325, the owners of a property had collected insurance proceeds after a fire. When they sold the property, they misrepresented to the purchasers that there had never been a fire.

[154] Although the claim alleged misrepresentation, the court held the underlying facts were intentional and the insurance policy exclusion applied.

KCO in Reply

[155] The Chrysanthis v. Shah and Shaw cases are distinguishable because they were not misrepresentation cases, they were fraud cases.

[156] The wording in the Randhawa v. Da Rosa and Poplawski v. McGrimmon policies were very different from either the Ecclesiastical or Lloyd’s policy.

[157] It submits s. 2(a) of the pollution exclusion clause does not apply and cannot be relied on to exclude coverage here, because the Fuel Oil Code deals with the removal of USTs and not the matters set out in s. 2(a).

[158] The specific purpose for s. 2(a), is to allow the government to come in after there has been a pollution spill and issue orders with respect to its cleanup. KCO submits the case at bar deals with the cost of removing the USTs and building damage. There has never been a government order to clean up pollution in the natural environment.

[159] This case may or may not involve environmental pollution, but it is about more than that, in addition it seeks past, present and future property damage.

[160] One question for the court to decide, is whether or not there is a mere possibility of a duty to defend and there appears to be no doubt, based on the pleadings that construction repairs will be required.

KC in Reply

[161] This case is similar to the Alie v. Bertrand & Frere Construction Co. case because there is a continuing issue.

[162] While there is no doubt that ING pushes back from Zurich, in the case at bar there was no risky active business of selling gasoline to the public. Therefore, the insurance companies should not fund the applicants’ defence.

[163] Based on the charitable business run by KC, there was no reason for them to think that they needed more robust insurance with respect to pollution.

[164] The court does not know who owned the property when the heating system was converted from oil to natural gas.

[165] With respect to the vicarious liability issue, para. 21 of the Statement of Claim frames of the claim beyond just the issue of vicarious liability. The plaintiff claims that KC is liable at common law and in equity for the plaintiff’s damages. Therefore, there may very well be a separate cause of action.

[166] Snaak (Litigation Guardian of) v. Dominion of Canada General Insurance Co. and Godonoaga v. Khatambakhsh are distinguishable because they involved intentional actions.

[167] Unlike the Dmytrenko v. Vandenbor case, KC did not own the property.

[168] Unlike the Chrysanthis v. Shah case, actions by the insured were not intentional and no fraud is alleged. In the case at bar one of the allegations is based in negligent misrepresentation.

[169] The pleadings do not allege that the defendants intentionally left the USTs in the ground, possibly causing pollution, they have framed their action in negligence.

Reasons and Judgment

[170] The wording of insurance policies, by their nature are usually somewhat technical. Despite insurance industry attempts to make policies more readable for the average client, this court spent two full days listening to five knowledgeable insurance lawyers “slice and dice” policy wording and how a few words and phrases have been interpreted by the courts since approximately 1983.

[171] The main issue before the court is the pollution exclusion clause of both policies which fortunately, essentially contain the same wording.

Are the Terms “Named Insured” and “Insured” Ambiguous?

[172] Both applicants are named insureds under the Ecclesiastical policy and KC is a named insured under the Lloyd’s policy. The submission that the terms “any insured” and “insured”, in this case are ambiguous, and may not apply to one of the applicants, is a tortured interpretation of plain English.

[173] In this case we are only dealing with two insured. There is no allegation of criminal, fraudulent or purposeful conduct. Based on the facts of this case, I do not find that the terms “any insured” or “insured” are in any way ambiguous.

Does the Pollution Exclusion Clause Apply?

[174] It is obvious that the applicants did not engage in an activity that would place them in the category of, “an active industrial polluter of the natural environment.” The cost of insurance is based on a risk assessment. If the applicants had engaged in such an activity, the cost of their insurance would have been higher and likely substantially higher.

[175] The submission that the pollution exclusion in this case does not apply because the applicants were not engaged in environmentally risky business, makes no sense. The applicants were in no such a business; therefore, their reasonable understanding of the pollution clause could not lead to such an understanding or interpretation.

[176] Given the facts of this case the Hemlow Estate v. Co-Operators General Insurance Company case, where there was negligence by a mechanical contractor and the Zurich Insurance Co. v. 686234 Ontario Ltd. case where the applicant ran a retail gas bar are of no assistance. Here, as in hundreds of thousands of other buildings throughout Canada, heating systems were routinely converted from oil heat to gas heat as gas became available in almost all neighbourhoods.

[177] Notwithstanding the able arguments of the applicants, I find that a reasonable reading of the statement of claim has virtually everything to do with pollution. All of the monetary claims, arise out of the alleged pollution emanating from the buried USTs.

[178] Although the statement of claim seeks damages to decommission the USTs, and while in part, that is because of regulatory laws, the principal reason the plaintiff wants the USTs removed, is based on its allegation that the USTs are leaking and polluting the natural environment. That is pollution plain and simple. There is virtually no doubt that the regulatory laws, which compel owners to remove old no longer used USTs, were enacted to stop “old” UST’s from leaking pollutants into the natural environment.

[179] Even if there were no regulatory laws compelling an owner to remove and decommission old UST’s, the current owner of the subject property would still want the USTs removed and the polluted soil remediated. No property owner wants something underground on their property which is polluting their land and groundwater, and possibly migrating to neighbouring properties. This could potentially cause damage for which they may be liable.

[180] The pollution clauses essentially read as follows: (emphases added)

This insurance does not apply to:

4. Pollution (1) “Bodily injury”, “ property damage ” or “personal and advertising injury” arising out of the actual, alleged or threatened spill, discharge , omission, dispersal, seepage, leakage, migration, release or escape of ”pollutants”: (b) at or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured … (2) Any loss, cost or expense arising out of any: (a) request , demand , order or statutory or regulatory requirement that any Insured or others test for, monitor , clean up, remove , contain, detoxify or neutralize , or in any way respond to , or assess the effects of, “pollutants ”, …

[181] Pollutants are defined as:

“… Any solid, liquid , gaseous or thermal irritant or contaminant , including smoke, odor, vapour, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.

[182] This exclusion is written in everyday English, not in terminology only those in the insurance industry would understand. Payment for cleanup from pollution including cleanup based on a regulatory requirement is excluded.

[183] Therefore, as in the Monenco Limited v. Commonwealth Insurance Company case, I find that “it is clear from the pleadings that the suit falls outside the coverage of the policy by reason of the exclusion clause” and therefore “the duty to defend does not arise.”

[184] KCO is caught by the pollution exclusion clause because it owned the subject property and was a named insured. KC is caught by the pollution clause because, as a named insured, it falls within the definition of “any insured”.

[185] Although the applicants submit that the R. v. Kansa case does not apply because there was no discharge of pollutants, the allegation here is that there has been a discharge of pollutants which has impacted the soil and groundwater.

[186] In the event that this judgment is overturned, I would have found the following:

1. Based on the pleadings, the damage/occurrence is a continuing one and has been going since the property was converted to gas heat prior to 2005.
2. The Cross Liability provisions do not assist either applicant based on the court finding that the pollution exclusion clause applies to each of them.

[187] If the parties are unable to agree on costs, Ms. Ackman & Mr. Dunn shall forward their brief submissions on costs to me by March 23, 2022. Mr. Bennett & Mr. Burns shall forward their brief response to me by March 29, 2022. Ms. Ackman & Mr. Dunn shall then forward their reply, if any, to me by April 1, 2022. Cost submissions may be sent to my attention by email, care of Kitchener.Superior.Court@ontario.ca. Cost submissions, excluding bills of costs shall be limited to 5 pages using spacing of 1.5 and 12 pitch font.

J.W. Sloan, J. Released: March 16, 2022