ONSC 1908 COURT FILE NO.: CV-22-0450-00 DATE: April 2, 2024
ONTARIO SUPERIOR COURT OF JUSTICE
B E T W E E N:
Venn et al. Self-Represented Plaintiffs
- and -
The Dominion of Canada General Insurance Christopher Morrison, for the Defendant Defendant
HEARD: January 31, 2024, at Thunder Bay, Ontario
R.S.J. W.D. Newton
Reasons For Judgment
Overview
[1] This is an application under r. 14.05(3)(d) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, for determination of rights that depend on the interpretation of a contract.
[2] The contract in question is an insurance contract between the plaintiffs and the defendant insurer.
[3] In December 2020 the water supply line on the plaintiffs’ property failed/ruptured. In turn, that failure/rupture allowed water to escape, causing a void beneath the outside sewer pipe which caused the sewer pipe to collapse.
[4] The plaintiffs incurred costs of just under $30,000 to replace the water supply line, to replace the outside sewer pipe, and to remediate the property.
[5] The plaintiffs claimed these costs from the insurer. The insurer denied coverage on the basis that damage caused by corrosion was excluded and that there was no coverage for water damage outside the dwelling.
[6] For the purpose of this application, it was conceded by the insurer that the failure/rupture of the water supply line was due to corrosion, caused or contributed to by the actions of the City of Thunder Bay [1] in adding sodium hydroxide to the municipal water supply, and was not due to naturally occurring corrosion.
The Policy
[7] The policy contains two relevant exclusions: damage caused by corrosion and damage caused by water.
[8] “Corrosion” is excluded under Exclusion (B) 6., which reads:
(B) Nor do we insure:
- Wear and Tear, deterioration, rust or corrosion, wet or dry rot, dampness or dryness of atmosphere, or extremes in temperature, except we will pay the resulting loss or damage by:
- fire explosion, or smoke (other than from agricultural smudging or industrial operations);
- glass breakage; or
- sudden and accidental water escape from a watermain, or air conditioning system, indoor plumbing, heating, or automatic fire protective sprinkler system, or household appliance, waterbed, aquarium. [Emphasis added.]
[9] Water is excluded under Exclusion (A) 2. of the policy which reads as follows:
(A) We do not insure against loss or damage caused by:
- Water, unless resulting from: (a) its sudden and accidental escape from an indoor: (i) plumbing, heating, or automatic fire protective sprinkler system; or (ii) household appliance, including any waterbed or aquarium; (b) its sudden and accidental entry inside the dwelling, except through basement walls or floors, from an: (i) air condition system; (ii) swimming pool or hot tub; or (iii) watermain or lawn or garden sprinkler system; (c) its sudden and accidental entry inside the dwelling from a roof or eavestrough but only where water is backing up and entering the dwelling due to roof ice dam; or (d) its entry inside the dwelling, except through basement walls or floors, as rain, sleet, snow or hail, through an opening that has been created suddenly and accidentally by a “Specified Peril.” [Emphasis added.]
Position of the Parties
[10] The plaintiffs argue that the damage to the water supply line was not caused by corrosion but by the actions of the City in adding sodium hydroxide to the water supply which resulted in corrosion, the failure of the supply line, the water escape, and then the collapse of the sewer pipe. The plaintiffs argue that “corrosion” is ambiguous and should be interpreted narrowly to mean naturally occurring corrosion.
[11] The insurer argues that water damages are only covered where the water leak either originates inside the dwelling or the water enters inside the dwelling under certain conditions and that the policy is clear that “corrosion” is not covered. The insurer argues that “corrosion” is not ambiguous and relies upon the recent decision of the Court of Appeal for Ontario in MDS Inc. v. Factory Mutual Insurance Company [2].
Discussion
[12] The case of MDS also involved an all-risk policy with a corrosion exclusion. The trial judge concluded that the term “corrosion” was ambiguous and that the corrosion exclusion should be interpreted as not applying to “unanticipated and fortuitous corrosion” and only applying to “non-fortuitous anticipated corrosion”. The Court of Appeal disagreed that the term “corrosion” was ambiguous.
[13] In MDS, the policy excluded:
- deterioration, depletion, rust, corrosion or erosion, wear and tear, inherent vice or latent defect.
[14] As in this case, “corrosion” was not defined.
[15] In concluding the term “corrosion” was not ambiguous, the Court of Appeal observed:
- standard form contracts of insurance should be interpreted consistently; [3]
- where the language of the disputed clause is unambiguous, effect should be given to the clear language of the policy read in the context of the policy as a whole; [4]
- the words of the contract are given their ordinary meaning, not the meaning they might be given by persons versed in insurance law; [5]
- a contractual provision is ambiguous if it is reasonably susceptible of more than one meaning; [6] and
- if the general rules of construction fail to resolve the ambiguity, courts will construe the contract contra proferentem, and interpret coverage provisions broadly and exclusion clauses narrowly; however, courts should not impute ambiguity where none exists. [7]
[16] Noting that Canadian courts had not squarely addressed the interpretation of the term “corrosion” in similar standard form all-risk policies of insurance, the Court of Appeal observed that American appellate courts have consistently held that the meaning of corrosion in standard form insurance policies includes corrosion, however brought about. [8] The Court of Appeal concluded that defining “corrosion” to include both anticipated and unanticipated corrosion is consistent with commercial reality, the clear terms of the policy, and the need to interpret standard form policies consistently and objectively.
[17] As guided by the Court of Appeal for Ontario, the term “corrosion” in this policy is unambiguous. It applies to corrosion however caused and the fact that the corrosion was caused or contributed to by the actions of the City in adding sodium hydroxide to the water supply does not change the fact that the damage was caused by corrosion.
[18] The exclusion applies and there is no coverage for damage to the water supply pipe. Similarly, as none of the water damage fits within the exceptions to the exclusion for water damage, there is no coverage for the damage to the sewer pipe and the resulting damage caused.
Costs
The insurer is entitled to its costs of this application. If sought, the defendant shall deliver its costs submissions limited to three pages plus costs outline plus any supporting authority. These submissions shall be received within 20 days from the date of this decision. The plaintiffs may deliver their cost submissions within 10 days thereafter, subject to the same limits. If no submissions are received within 20 days then costs will be deemed settled.
Released: April 2, 2024
Footnotes
[1] In an attempt to address issues, including lead in its water supply, the City added sodium hydroxide to its water supply. Raising the pH level of the water with sodium hydroxide can corrode copper pipes, causing pitting, and lead to pinhole leaks. See Stadnyk v. The Corporation of the City of Thunder Bay, 2023 ONSC 3920 at paras. 23 and 106.
[2] 2021 ONCA 594, leave to appeal refused, [2021] S.C.C.A. No. 382 (“MDS”).
[3] MDS at para. 39.
[4] MDS at para. 40.
[5] MDS at para. 42.
[6] MDS at para. 43.
[7] MDS at para. 45.
[8] MDS at para. 62.