The Ontario Superior Court of Justice (the “Court”), sitting in Kitchener, recently ruled on a coverage application in Kin v. Ecclesiastical et al 2022 ONSC 1655[1]. The applicant sought coverage from Lloyd’s and the Court dismissed the application in its entirety.

Factual background

Kin Canada (“Kin”) is a charitable organization. Kinsman Club of Oshawa (“KCO”) is a separate corporate entity and is an additional insured under Kin’s commercial general liability policies with both Lloyd’s and Ecclesiastical Insurance Office Public Company Limited (“Ecclesiastical”).

KCO sold a property to the plaintiff in the underlying action. The plaintiff sued KCO alleging that two underground fuel storage tanks (USTs) were not disclosed at the time of the sale in 2005. The presence of the tanks was not discovered until 2018.

Kin was sued on the basis that it is vicariously liable for the actions of KCO. The underlying claim specifically alleged that the USTs had leaked. The Lloyd’s policy was in force at the time of the sale. It provided occurrence-based coverage and contained a pollution exclusion. Lloyd’s had no duty to defend or indemnify in relation to property damage arising out of the actual, alleged, potential or threatened spill, discharge, emission, disbursal, seepage, leakage, migration, release or escape of pollutants at any premises which were at any time owned or occupied by any insured.

Kin brought an application seeking a duty to defend from Lloyd’s and Ecclesiastical. Ecclesiastical was on risk when the USTs were discovered. KCO brought a separate application seeking a duty to defend from Ecclesiastical. The two Applications were heard together on March 3rd and 4th 2022. Counsel from Miller Thomson LLP, Elizabeth K. Ackman and Vanessa De Sousa appeared on behalf of Lloyd’s.

The Court’s application of the pollution exclusion

The Court gave effect to the clear language of the policy by reading the contract as a whole and held that:

  • The pollution exclusion was written in everyday English;
  • On a reasonable reading the claim in the underlying action had virtually everything to do with pollution;
  • The principal reason the plaintiff wanted the USTs removed was based on its allegation that the USTs are leaking and polluting the natural environment. That is pollution plain and simple;
  • The pollution exclusion applied to Kin because as a named insured it falls within the definition of “any insured”; and
  • The applicant’s argument that the pollution exclusion did not apply because the applicant was not engaged in an environmentally risky business made no sense and was not something which could have been within the reasonable understanding of the applicant.

The Court concluded that the pollution exclusion applied and Lloyd’s had no obligation to defend Kin in the underlying action.

 Takeaway

The Court took a common sense approach to the interpretation of the pollution exclusion in this case. The decision signifies that claims for damages to the natural environment caused by a form of pollution will be caught by the pollution exclusion, regardless of the nature of the insured’s business.

The decision is currently under appeal. Stay tuned for how the Ontario Court of Appeal will respond.

[1] 2022 ONSC 1655