Precision Plating, who was insured by AXA, operated out of a
multi-tenanted commercial building. A fire broke out, which
triggered the sprinkler system, filling chemical vats and causing
them to overflow. These overflowing vats seeped diluted chemicals
into neighbouring businesses, contaminating the surrounding
property. As a result, the property owners, whose property was
damaged by the chemicals, commenced an action against Precision
Plating. Precision Plating then turned to AXA to defend the action
and indemnify Precision Plating for any damages awarded to the
At the time of the fire, Precision Plating had a Commercial
General Liability ("CGL") policy in place. This CGL
policy included an indemnification for the policy holder for damage
to a third party's property along with a standard pollution
exclusion. The exclusion provided that coverage would not apply
where damage was caused or contributed to by the "discharge,
emission, dispersal, seepage, leakage, migration, release or escape
at any time of the Pollutants." Within the terms of the
policy, Pollutants included chemicals of the sort that had escaped
during the fire.
AXA denied coverage by relying on the pollution exclusion
clause. At trial, the Court determined that as the damage to the
claimants' property was caused by fire, the insurer was
obligated to defend, and the pollution exclusion did not exclude
coverage. In other words, the Court held that the immediate cause
of the damage was the fire.
On appeal, the British Columbia Court of Appeal reversed the
ruling. The Court determined that the trial judge erred in framing
his analysis with reference to the cause of the damage rather than
the liability giving rise to the damage. The escape of the
pollutants caused the damage, not the fire. As a result of this
interpretation and the wording in the CGL policy, AXA was not
required to defend the action or indemnify Precision Plating for
damages caused by the release of pollutants.
Generally, an insurer's obligation to provide coverage will
be broadly interpreted in favour of the insured. Where a policy is
unclear or ambiguous, those uncertainties are generally resolved in
favour of the insured. When policy exclusions have been clearly
defined, those exclusions will be enforced and the insurer will
have no duty to defend or indemnify the insured against claims for
In Precision, the B.C. Court of Appeal determined the
pollution exclusion was clear and enforceable. By refusing
Precision Plating's application for leave to appeal, the
Supreme Court of Canada has denied them any further opportunity to
try and challenge the application of the exclusion to the damages
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