Canada: The CGL Policy: Coverage A Concepts

INTRODUCTION

The Commercial General Liability ("CGL") Policy is the standard policy of insurance issued to businesses and commercial organizations to insure against third party liability for, among other things, bodily injury and property damage that arising out of the course of the insured's business operations. The CGL policy is sometimes referred to, in a nutshell, as the policy that insures businesses from third party claims resulting from accidents, including negligent behaviour, for which the insured is legally obligated to pay damages.

At the same time, as has been argued on countless occasions by insurers with some success, the CGL policy is not a warranty or performance bond to be looked to in the event of product or workmanship failures. This paper focuses on judicial interpretations of certain terminology and exclusions from Coverage A of the CGL policy. Specifically, this paper canvasses the meaning of "bodily injury" and "property damage" as those terms are typically defined in the CGL policy. Moreover, the scope and judicial interpretation of the typical "business risks" exclusions from coverage are also discussed.

THE MEANING OF "BODILY INJURY"

Most CGL policies cover "bodily injury" caused by an "occurrence", which is typically defined to mean an accident, including the continuous or repeated exposure to the same harmful conditions, for which the insured is legally obligated to pay damages to another.

The term "bodily injury" is commonly, though not always, defined as follows:

Bodily injury, sickness or disease sustained by any person which occurs during the policy period, including death at any time resulting therefrom.

In reference to the foregoing definition, one question that may come to mind is what exactly constitutes a "bodily injury" given that it makes reference to the term "bodily injury" in the definition itself. Similarly, other questions include what is the significance of the words "bodily", "injury", "sickness", or "disease" as they appear in the definition?

Scope of Coverage

Judicial interpretation of the CGL "bodily injury" definition has extended the term beyond typical physical pain. Any sickness or disease, whether it is physical or mental, is now generally captured by the definition.

The current judicial consensus in Canada appears to be that the words "sickness or disease" contemplate internal body issues. Authors of the Annotated Commercial General Liability Policy note that the term "sickness" "has been defined as a condition which simply interferes with one's usual activities", and that the term and its interpretation are quite broad. The term "disease" has specifically been found by Canadian courts to include "an ailment that disorders one or more of the vital functions or organs of the body, causing a morbid physical condition", as a condition of pathological origin, or finally as a deviation of normal or healthy functions.[3]

One issue that attracted considerable judicial attention in the past was whether emotional distress absent a physical manifestation of injury could constituted a "bodily injury" as that term was defined in the CGL policy. In Victoria General Hospital v. General Accident Assurance Co. of Canada[4], it was held that "bodily injury, sickness or disease" included coverage for a claim for severe emotional trauma resulting from incidents of sexual abuse. The Court in Victoria General Hospital relied on a perceived ambiguity on the basis that the insurer:

chose to define "bodily injury" as "bodily injury", followed by a comma, and then followed by the words, "sickness or disease." It is certainly open for a court to consider that in this policy "bodily injury" means three separate and distinct acts or events or occurrences, namely:

bodily injury, which taken alone might be restricted to those cases involving physical injury but, according to some of the American authorities, not necessarily so

sickness, which is by definition something different from physical injury;

disease, which is by definition something different from physical injury.

Consequently, a physical manifestation of the "sickness or disease" was not necessary for the Court to find that severe emotional trauma caused by sexual abuse constituted a "bodily injury" as defined in the policy. At the time, Victoria General Hospital represented a divergence from Ontario precedent, which had held that where the alleged injuries originated in the mind, and not the body, the "bodily injury" definition was not satisfied.[5] Victoria General Hospital is consistent with judicial opinion across Canada at present.

It has also been held that nervous shock, depression and psychological trauma stemming from sexual abuse amounted to "bodily injury, sickness or disease" in the context of an exclusion in a directors' and officers' liability policy.[6] This is significant as exclusions by their nature are interpreted more narrowly than the CGL Insuring Agreement's "bodily injury" definition.

There is also precedent in Ontario extending the definition of "bodily injury" to non-physical injuries. In Elmford Construction Co. v. Canadian Indemnity Co.[7], the Ontario Superior Court of Justice held that emotional distress that resulted from a plaintiff's fear that a retaining wall might collapse could possibly be argued to constitute "... bodily or mental injury or illness ... ":

With respect to the Caverlys' claim for damages for emotional stress, Canadian Indemnity submits that the policy covers only for "mental injury" and that emotional stress is not mental injury. It appears that Canadian Indemnity believes the policy covers only a direct injury to the brain. I suspect that, in a business liability policy such as in issue in this case, there would be very few situations where there would be evidence of objective mental injury. The policy covers "... damages because of bodily or mental injury or illness...." A court could possibly fit damages for emotional stress within that provision.

While mental illness and severe emotional distress absent any physical manifestation often constitutes "bodily injury", the term does not encompass injury to a person's reputation. In Maillet v. Halifax Insurance ING Canada[8], the Court of Queen's Bench of New Brunswick held that an injury to an individual's reputation could not trigger a liability policy's insuring agreement:

With respect however, it bears repeating that the Plaintiff is suing for defamation because of injury to his reputation. He is not claiming damages for 'loss of sleep' or for any other physical inconvenience. Those manifestations are supportive of his allegation that the Applicant's alleged defamatory remarks caused him grief and damaged his reputation in the community. That is the basis of his suit.

The policy covers damages arising from personal injuries or property damage. It would be stretching the ordinary terms of the policy to find that damages arising from injury to reputation falls within the category of 'bodily injuries.'

The British Columbia Supreme Court made a similar finding in Strata Plan NW3341 - Riverwest v. Royal Insurance Co.[9] An action was commenced against the owners of a Strata Plan alleging that the failure to complete repairs made a unit unfit for habitation. An argument was raised that such unfitness vis-ŕ-vis a person with a heart condition constituted an allegation of "bodily injury... sustained by a person." The Court quickly rejected this argument:

Even reading the pleadings broadly as I must do in considering whether there is a duty to defend, in my view the allegation is one of lost usage of the property, not bodily injury. I do not consider the pleadings might raise a claim for damages for bodily injury, and I do not find a duty to defend on the basis of "bodily injury".

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