Newsletter – May 2021

May 1, 2021

Newsletter – May 2021

Marijuana Exclusions, Legislative Amendments and Resin Extraction Explosions – Oh My!

By Elie Goldberg, DWF Toronto, Email: egoldberg@dolden.com; and
Chet Wydrzynski, DWF Toronto, Email: cwydrzynski@dolden.com

Lin v. Weng is a case about every residential landlord’s worst nightmare: Weng, a tenant, was operating a marijuana grow-op without the homeowner, Lin’s knowledge and caused an explosion that destroyed the home while extracting resin from marijuana.

Aviva, Lin’s insurer, rejected the property loss claim, relying on a Marijuana Exclusion (for “use of the property”) in the home insurance policy. Shortly after Lin commenced an action contesting the denial, Ontario’s Insurance Act was amended to include section 129.1, the purpose of which was to limit the ability of insurers to deny claims where loss or damage is sustained by innocent persons if caused by the act or omission of another person.

The amendment was passed after a 2017 case2 where the Plaintiff’s husband burned down their house when he poured gasoline and lit his wife on fire in an attempt to kill her. The husband was convicted of attempted murder. Allstate, the insurer, denied coverage based on an exclusion related to losses caused by any intentional or criminal act done by a person insured under the policy.

Ultimately, the Court in Lin held that Aviva’s denial was valid: the Marijuana Exclusion was applicable, and even if section 129.1 applied (in this case it did not as it could not be applied retrospectively to a substantive, contractual right) it would not have voided the exclusion.

In reaching this conclusion, the Court looked at the factually similar cases of Pietrangelo v. Gore Mutual Life Insurance Co. and Cartieri v. Saskatchewan Mutual Insurance Company. In both of those cases, exclusion clauses pertaining to marijuana use were upheld. The Court in Pietrangelo noted that the word “used” should be given a broad meaning, and that an insurer is entitled to exclude coverage based on a valid business concern. The Court reasoned: “if the effect of this ruling is that, in the future, landlords will be at greater risk for a specified class of losses of which they are innocent, if it means that landlords must become more diligent still in winnowing out those potential tenants who are a threat to abuse their tenancies, then so it shall have to be.” As long as an exclusion clause has a rational basis for its existence, there are “certain risks which insurers are entitled not to cover.”

The Court also accepted Aviva’s argument that section 129.1, if it was applicable, should apply only regarding its exclusion clause for criminal acts for innocent co-insureds. If section 129.1 rendered the Marijuana Exclusion null, it could likewise render exclusions for terrorism, war, and flood void, which would too greatly disturb the balance of risk between insureds and insurers.

Takeaway

This case confirms that insurers can continue to rely on exclusions for “use of the property”, including marijuana exclusions, regardless of section 129.1 of the Insurance Act and a lack of knowledge of the insured. It will be interesting to see how this amendment is interpreted and whether subsequent caselaw will expand its scope.

Best Practices aren’t a Matter for the Courts: Ambiguity and the Limits of “Commercial Reasonableness” in Policy Interpretation

By Jonathan Weisman, DWF Vancouver, Email: jweisman@dolden.com

The prospect of a policy without coverage limits made a recent B.C. Supreme Court decision: Surespan Structures Ltd a byword for careful underwriting practice. The trial judge’s finding of unlimited coverage made an appeal a certainty. And, in upholding the trial judgment, the British Columbia Court of Appeal has reemphasized the Courts’ limited power to consider the commercial realities of insurance when interpreting a policy.

The defendant insurer had issued a project-specific professional liability policy (the “Policy”) for the construction of two health care facilities. The plaintiff’s work on the project was defective, and it sought to recover its costs of remediation under a “Mitigation of Loss” coverage in the Policy. This Mitigation of Loss coverage had one peculiar feature: its wording did not indicate that it was subject to available policy limits.

The trial judge found that this head of coverage applied, and that it was unlimited. The insurer argued that the declaration page’s limit must apply, but the referenced limit did not describe the separate coverages. Moreover, the Policy’s language applied the limits to “CLAIMS made against the INSURED”, into which class, the judge concluded, costs of remedial work did not fall.

On appeal, the insurer advanced two main points. First, that the judge had been mistaken in separating the heads of coverage as he had. Properly read together with the Policy’s “Damages Coverage”, it was argued, the Mitigation of Loss coverage would clearly be subject to the Policy limit in the Damages Coverage wording. The two were “zippered together”, and should be read together to be properly understood.

The Court of Appeal rejected this suggestion. Reading the Policy as a whole did not require the two coverages to be read as a single grant. As the trial judge had concluded, the Mitigation of Loss coverage could apply in circumstances which would not trigger the Damages Coverage – nothing in the wording made the two interdependent. The Court went on to cite a suite of differences between the two coverages, from the deductible to the wordings, which barred treating them as one entity for interpretive purposes.

But the insurer made one further point: a contract to insure without limits defied commercial sense. Even if that interpretation could be applied to the wording, the insured could not have expected such a windfall, and the object of interpretation is to find the parties’ bargain.

The Court of Appeal agreed that commercial expectations of the parties could factor into the interpretation of an insurance policy, as could the need to avoid interpretations which would result in windfalls to one party or another. But the Court disagreed that commercial practice could save the insurer’s position.

Although commercial expectations could be considered in interpreting the Policy’s language, the primary consideration is the language itself. The insurer was not referring to commercial expectations to inform the interpretation of the Policy, but to transform it. Changing the effect of clear wording went beyond what consideration of commercial expectations could achieve.

Were the Policy’s wording ambiguous, the role played by commercial expectations might be greater. But clear wording could not be overturned, and the language, though troublesome, was not ambiguous. Moreover, the Court noted, in the absence of ambiguity, extrinsic evidence of commercial expectations could not be considered.

Finally, the subtext of the insurer’s submissions pointed at a different issue, identified by the trial judge: that there had likely been an underwriting error. The challenge before the Court, therefore, stemmed partly from trying to remedy an error through a strained interpretation rather than a plea of mistake and rectification.

If the Policy did not represent the parties’ true intentions, the courts could remedy that mistake. The Policy was negotiated at length between the parties, and no plea of mistake or error had been advanced at trial. Without that plea, the argument that the plain meaning of the Policy was commercially unreasonable fell flat.

Takeaway

Absent ambiguity, underwriters cannot rely on a Court to consider insurance practice when interpreting policy wordings. Clear, comprehensive, and carefully-vetted policy language is more important than ever.

Commercial expectations have a place in policy interpretation, but it is a minor one. There is a trend in cases more rigorously upholding a contract’s plain meaning, even where the result is harsh. The Supreme Court of Canada’s decision in Tercon insisted that, absent unusual circumstances, exclusions would be upheld even if they effectively denied one party the benefit of the agreement. This decision in Surespan continues that trend, indicating that “reasonable expectations” cannot relieve a party from the consequences of their mistakes. Clear language is not only essential, it is binding.

Court of Appeal Lands on Insurer’s Side; Soil Not Included

By Cayleigh Shiff, DWF Vancouver, Email: cshiff@dolden.com; ,
Shelley Armstrong, DWF Vancouver, Email: sarmstrong@dolden.com; ,
Mark Barrett, DWF Toronto, Email: mbarrett@dolden.com; and
Steve Wallace, DWF Vancouver, Email: swallace@dolden.com

The British Columbia Court of Appeal confirms that a peril-based extension to a property policy does not modify the property insured unless expressly stated

DWF’s Shelley Armstrong and Mark Barrett recently succeeded in overturning a Supreme Court of British Columbia decision regarding the interpretation of a Watercover Extension and whether or not it extended coverage to the otherwise uninsured land and soil in the insureds’ backyard.

In 2018, an especially heavy rainfall washed away a portion of the Osbornes’ backyard. The Osbornes made a claim under their homeowners’ policy for damage to their land and soil, which the insurer denied on the basis that their policy did not insure the land or soil on the premises.

The Osbornes’ policy set out a list of insured property, including the homeowners’ dwelling, additional structures, building fixtures, and certain equipment. The insured property was described with references to the “Premises”, a term defined as “the land and buildings contained within the lot lines on which your insured Dwelling is situated…” Neither land nor soil were included within the list of insured property.

The Osbornes’ policy contained a general exclusion for damage caused by, inter alia, water, but it brought coverage back for damage caused by surface water via a Watercover Extension, which provided:

We insure loss or damage caused by surface water as defined, entering the insured Premises as a result of the sudden accumulation of rain, spring runoff, or overflow from freshwater lakes and/or rivers.

At the hearing, the chambers judge ruled that although land and soil were not insured property under the policy, the Watercover Extension extended coverage to the Premises, which by definition included the land and soils on the lot.

On appeal, however, Ms. Armstrong argued that the Watercover extension is a peril-based extension meant to address a peril-based exclusion and that it did not alter the property insured. Thus, the Watercover Extension only extended coverage to damage caused by surface water to the already defined list of insured property, which did not include the soil or land on the Osbornes’ property.

The Court of Appeal agreed and ruled that the Watercover Extension could not be interpreted as extending coverage to otherwise uninsured property; specifically, the inclusion of the word “Premises” in the Watercover Extension served to describe where the insured property was located and did not modify the exhaustive list of insured property as set out in the main policy.

Takeaway

This decision confirms that, provided it is properly drafted, a peril-based extension will not alter the property insured under a policy, and that soil/land typically is not included within the property insured in a property policy. It also serves as a reminder to read the words of the policy – not just the extension – carefully and to consider how many extension fits within the policy as a whole before determining the effect of the extension at issue.

Fatal Damages: An Analysis of the Ontario Superior Court’s Damages Calculations in Campeau v. Ontario

By Morgan Martin, DWF Toronto, Email: mmartin@dolden.com; and
Tiffany Sillanpää, DWF Toronto, Email: tsillanpää@dolden.com

In one of its first decisions of 2021, the Ontario Superior Court has offered detailed commentary on the range of damages available for fatality claims under the Family Law Act. In Campeau v Ontario, the deceased’s wife and two children sought damages from the Ministry of Labour for loss of service, loss of income, and loss of guidance, care and companionship after the court found the Ministry negligently implemented its workplace safety policies, causing the plaintiff’s death. The reasoning is instructive of the potential exposure for fatality claims generally.

Loss of Guidance, Care and Companionship

The court awarded a total of $353,625 in Loss of Guidance, Care, and Companionship damages before reductions from prior settlements. In assessing the impact of Mr. Campeau’s death on his family, the court established a helpful set of ranges for such damages and weighed family specific factors to inform its decision within those ranges.

The court confirmed that awards for the death of a spouse range from $70,000 to $100,000.

The court confirmed that awards for the death of a parent range from $40,000 to $80,000.

Justice Gordon noted that the highest award is approximately $150,000; however, such an amount is more appropriate where parents have lost a child.

Factors to be considered are: each family member’s relationship with the deceased and then their resilience with the death of the deceased. As Mr. Campeau was “an active and involved father and husband”, an award on the high-end of the ranges to compensate for the “significant and long-lasting impact” that Mr. Campeau’s death would have on his wife and children was made.

Mrs. Campeau was awarded $100,000 for loss of guidance, care, and companionship damages.

The court looked at additional factors when assessing the children’s damages. The eldest child had moved from the family home and was largely financially independent at the time of Mr. Campeau’s death. The court awarded her $45,000 for her loss of care, guidance and companionship.

The family’s second child still lived at home and was “under his father’s direct influence” at the time of Mr. Campeau’s death. For this reason, the court awarded him $60,000 for loss of care, guidance and companionship.

Loss of Income

Naturally, the court also awarded damages for Mr. Campeau’s loss of income and the impact this would have on the family. The court considered two factors to inform this otherwise straightforward damages calculation.

First, while Mrs. Campeau asserted that her husband would have worked till the age of 70, the court noted that the physical nature of Mr. Campeau’s work made it doubtful that he would have worked beyond age 65.

Secondly, the court considered the financial independence of Mr. Campeau’s eldest child and the fact that she had moved out of her parent’s house in 2008. She could not, therefore, be considered one of Mr. Campeau’s dependents in the loss of income calculation.

Loss of Service & Other Damages

Loss of Service damages generally cover the financial value of any unpaid work that the deceased performed for the family (e.g. homemaking, home repairs, etc.). Mrs. Campeau submitted an expert report quantifying the loss of service. While the court did not specifically outline the details of this expert report, Justice Gordon considered it fair and awarded $511,196 in loss of service damages.,

The court also considered the pain Mr. Campeau suffered in the 90 minutes between his initial injury and death. While the court found that the Mr. Campeau’s pain and suffering was likely excruciating, they noted it was not prolonged; a total of $69,000 in general damages was awarded to Mr. Campeau’s estate.

Takeaway

When assessing fatality claims in Ontario, the reasonable range of awards is:

  • $70,000 to $100,000 for the death of a spouse;
  • $40,000 to $80,000 for the death of a parent; and
  • the “highwater mark” for the death of a child is now $150,000

Expert Evidence in Canadian Class Actions

By Jason Arcuri, DWF Vancouver, Email: jarcuri@dolden.com

In two recent Canadian class action decisions, the court re-emphasized the requirements for expert evidence in establishing general causation on a classwide basis.

In Organigram Holdings Inc. v. Downton, Canada’s first ever product liability class action, the Nova Scotia Court of Appeal determined that there was insufficient expert evidence linking the potential harms of product exposure to the symptoms which the class members complained of. Moreover, the plaintiffs failed to show a workable methodology for establishing general causation for the variety of symptoms among class members. The Court, therefore, denied certification for the claims relating to alleged health consequences.

Similarly, in MacInnis v. Bayer Inc. et al., the Saskatchewan Court of Queen’s Bench dismissed a class certification application involving allegations that a product designed to be a permanent contraceptive device was associated with various health effects. Among its reasons, the Court found that the plaintiffs’ expert failed to set out a credible and plausible methodology with which to measure the unreasonableness of any risk associated with the product, nor did the expert provide any evidence of a methodology allowing for comparative measures.

Takeaway

These decisions re-confirm that class action certifications may be challenged where there is no “workable methodology” for proving harm to a proposed class. In order to succeed, the plaintiff’s methodology must offer a realistic prospect of establishing general causation on a class-wide basis. It will not be sufficient for a plaintiff to put forward a methodology that is too generic, theoretical or lacking. Rather, the methodology must be substantiated by credible, fact-based expert opinion.

The implications of these decisions were also recently examined in detail together with Kennedys Law LLP in a co authored article, which considered recent class action cases from the United Kingdom as well. For further reading, a link to this co-authored article is provided below:

https://kennedyslaw.com/thought-leadership/article/product-liabilityclass-action-hurdles-lessons-from-recent-canadian-and-uk-decisions/

Editor
Cody Mann
Tel: 604 891 0366
Email: cmann@dolden.com

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