In Dave's K. & K. Sandblasting (1988) Ltd. v. Aviva Insurance Co. of Canada (2007), the B.C. Supreme Court considered the enforceability of an exclusion clause relating to coverage for the costs of environmental remediation under cost-recovery legislation such as the British Columbia Environmental Management Act. In the proceeding, the insured ("DKKS") sought a declaration that its insurer ("Aviva") was obliged to defend DKKS in an underlying action for remediation costs brought by the owner of a contaminated site that DKKS had previously leased, and that any resulting liability fell within the scope of the insured's coverage.

In finding that the exclusion policy applied, that coverage was excluded, and no duty to defend on the part of Aviva arose, the court reviewed the history of the pollution exclusion clause. It noted that under earlier jurisprudence, the clause was held not to apply where the pollution in question was not caused by an insured's business activities, on the reasoning that in these circumstances it was in neither of the parties' reasonable expectations that the business in question could or would result in pollution. Conversely, the court reasoned, where it was in the reasonable contemplation of the parties that the business activities of the insured could or would result in pollution of the environment, the exclusion clause applied, and the insured was obliged to obtain specific coverage for the risk of pollution at higher premiums.

The Court held that DKKS was involved in business activities, namely, the operation of a sandblasting business on the premises, which could lead to the pollution of the environment, and that this was in the reasonable contemplation of the parties at the time they entered into the contract of insurance. As a result, it held that the pollution exclusion applied, that coverage was excluded, and that no duty to defend on the part of the insurer arose.

About BLG

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.