Mardell Greenhouses Inc. ("Mardell") purchased a
particular mix of press block soil (the "Soil") from West
Creek Farms Ltd. ("West Creek") for use in commercial
flower production. Mardell alleged the Soil contained too much
sodium, resulting in harm to Mardell's flowers. Mardell brought
an action for breach of contract, negligence, and failure to comply
with provisions of the Sale of Goods Act, R.S.B.C. 1996,
West Creek sought coverage under a general commercial liability
insurance policy (the "Policy") that it held from
Lloyd's Underwriters (the "Insurer"). The Insurer
The central question was whether the Insurer could rely on an
efficacy exclusion contained in the Policy that provided, in
Notwithstanding anything contained herein this Policy shall not
apply to liability arising out of the failure of any Product
manufactured, sold supplied or distributed by the Insured to:
promote growth or enhance yield of
any crop/animal or other agricultural product
control or eradicate any weed disease
insect or pest
germinate, pollinate or reach expected
perform its intended function
Notwithstanding anything contained herein the Policy shall not
apply to liability arising out of the failure of any product
manufactured, sold supplied or distributed by the Insured which
results in a loss of prize winnings, earnings, awards, competition
fees or stud values or stud fees or the like
"Efficacy" was not defined in the Policy. The Court
relied on a dictionary definition that provided "[p]ower or
capacity to produce effects; ability to bring about the intended
The Court based its interpretation of the efficacy exclusion
clause on two key principles of insurance policy
The mere possibility that a claim
under the Policy may succeed is sufficient to engage an
insurer's duty to defend (Nichols v. American Home
Assurance Co.,  1 S.C.R. 801); and
While coverage provisions are broadly
interpreted, exclusion provisions are narrowly interpreted
(Progressive Homes Ltd. v. Lombard General Insurance Co. of
Canada, 2010 SCC 33).
In this case, the Court held the absence of either the word
"and" or "or" between the third and fourth
provision of the efficacy exclusion clause rendered it patently
ambiguous. Therefore, the Court undertook the task of construing
the ambiguous clause in the context of the Policy as well as in the
larger situational context.
Where language of an insurance policy
is ambiguous, it will be construed by the courts:
Giving preference to interpretations
consistent with the reasonable expectations of parties;
As long as such interpretation can be
supported by the text of the policy;
Avoiding interpretations that give
rise to unrealistic results;
Striving to ensure similar policies
are construed consistently;
And when general rules of contract
construction fails, construing the policy against the insurer.
The Court held "[t]he problem was not lack of efficacy, or
not only lack of efficacy, the problem was also damage." The
Soil not only failed to enhance flower growth, it also caused harm.
In such circumstances, the efficacy exclusion clause was of no
assistance to the Insurer. West Creek had purchased the Policy to
protect it from claims when its products harmed customers'
The Insurer's duty to defend West Creek was engaged in the
claim brought by Mardell. The Court ordered that it indemnify West
Creek for the expenses incurred or to be incurred in defending the
In conclusion, where an insurance policy intends to exclude
liability due to a failure to bring about an intended result in the
specific industry the insured is engaged in, it may not be worth
its weight in soil if it is ambiguous and runs contrary to the
reasonable expectations of the parties in the circumstances.
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about your specific circumstances.
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