Canada: Exclusion Clauses And Fortuitous Damage

The recent B.C. case of Wynward Insurance Group v. MS Developments Inc., 2015 BCSC 324 ("Wynward Insurance"), looks at an insurance policy exclusion clause for damage "caused directly or indirectly" by earth expansion and offers clarification as to whether it operates to exclude only damage caused by natural causes, or whether it also excludes fortuitous damage, such as that caused by a man-made event.

By way of background, in The Owners, Strata Plan NW2580 v. Canadian Northern Shield Insurance Company, 2006 BCSC 330 ("NW2580"), a building was damaged when an excessive amount of preload was placed on an adjacent property. The preload caused earth movement/ settlement, which in turn caused structural damage to the building.

The insurer relied on two exclusion clauses, one related to earth movement and the second related to earth settlement to deny coverage. The insured argued that the exclusion clauses only applied to natural damage caused by changes in soil, moisture and temperature and not to damage which occurs "fortuitously" such as a man-made event.

First, the court found that the earth movement exclusion was ambiguous and on the basis of contra proferentem found that the clause did not apply to man-made events. Next, the court turned to the settlement exclusion which read [emphasis added]:

This form does not insure against loss or damage caused directly or indirectly:

(x) to "buildings" by:

(cc) Settling, expansion, contraction, moving, shifting or cracking unless concurrently and directly caused by a peril not otherwise excluded.

Because the exclusion clause used the words "caused directly or indirectly", the court held that it applied to both natural and fortuitous loss, stating:

Exclusion CC included the words "caused directly or indirectly", which suggests that whether the settlement was a direct or indirect, proximate, concurrent or contributing cause, coverage would not be extended.

On this basis, the Court found that the exclusion was not ambiguous and the insured was denied coverage.

In Engle Estate v. Aviva Insurance Co. of Canada, 2010 ABCA 18 ("Engle Estate"), the Alberta Court of Appeal dealt with damage caused to an insured property by an excavation on an adjacent property. The insurer again denied coverage based on a settlement exclusion clause that was almost identical to NW2580 and included the "caused directly or indirectly" wording. In commenting on the applicability of NW2580, the court stated:

The court adopted a strict interpretation of the earth movement exclusion clause and noted that a plain reading of the clause could arguably lead to the interpretation that it applied to natural and man-made events. However, the court also noted that the insurer could easily have clarified the scope of earth movement by adding the words "whether natural or man-made." Accordingly, the court found the clause was ambiguous and resorted to the contra proferentem rule to conclude that the earth movement exclusion only applied to naturally occurring events. While purporting to apply this same approach to the settlement exclusion clause, the court found that clause was not ambiguous and that it applied, albeit "awkwardly", in the circumstances. However, exclusion clauses are to be interpreted narrowly, not awkwardly.

The Strata Plan decision [NW2580] is not binding on this court and, with respect, I do not find the reasoning to be persuasive. It appears the court in that case did not consistently apply the interpretive principles governing insurance contracts, particularly the principle that exclusion clauses are to be narrowly interpreted.

The court in Engle Estate held that the "caused directly or indirectly" wording in the settlement exclusion clause did not provide an answer to whether the exclusion applied to man-made events. The court found the clause ambiguous and, based on the reasonable expectations of the parties, held that the word "settling" is commonly understood to mean only that which occurs naturally and not that which occurs fortuitously. On that basis, the court held that:

In my opinion, the reasonable intention of the parties to a policy such as this is that the settlement exclusion clause applies to naturally occurring settlement, but not settlement that occurs otherwise. This interpretation is reflected by the language of the insurance policy, and is consistent with the underlying purpose of an "all risk" insurance policy to protect against fortuitous events.

The decisions of NW2580 and Engle Estate created two contradictory lines of authority with respect to whether a similar exclusion clause applies to fortuitous damage. In NW2580, the court held that the exclusion clause applied to both natural and fortuitous damage; however, in Engle Estate, the court found that the exclusion clause only applied to naturally occurring damage. In Wynward Insurance, the court discussed this issue.

In that case, the water inside of a pipe froze and expanded, causing the pipe to burst. Some of the water then escaped into the soil below under the concrete floor. When that water froze, it caused the ground to lift up and shifted portions of the floors of the premises, causing damage to tiles, interior walls and the ceiling in the affected areas. The court considered an exclusion clause relating to earth expansion that used the same "directly or indirectly" wording as the settlement exclusion clause in NW2580.

The insured claimed that the exclusion clause was ambiguous because it did not stipulate what material was meant to settle or expand. The court held that NW2580 made it clear that such an exclusion clause applied to the expansion of ground material. The insured argued that Engle Estate had put the reasoning of NW2580 into doubt. In discussing NW2580, the court stated:

In NW2580 a very similar clause was held to apply to both natural and unnatural events.


NW2580 has not been overturned in this Province. The respondents point out that NW2580 was mentioned but not followed by the Alberta Court of Appeal in Engle Estate v. Aviva Insurance Company of Canada, 2010 ABCA 18. The Engle case is interesting and is certainly a different take on interpretation than NW2580, but it is not binding on this court. I find that the principle of comity and stare decisis requires that I give effect to NW2580 here rather than follow a contrary ruling from a different court in a different jurisdiction.

On the basis of comity and stare decisis, the court decided to follow the logic of NW2580 and determined that the exclusion clause was not ambiguous. Further, the court endorsed the reasoning in NW2580 that such an exclusion clause applies to both natural and fortuitous damages. The Wynward Insurance decision was rendered on March 4, 2015. On March 31, 2015 the insured filed an appeal. It remains to be seen whether the Court of Appeal will comment on the continued applicability of the NW2580 decision post-Engle Estate.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.