A tragic workplace accident, resulting in the death of the insured, laid the background for the Ontario Court of Appeal's (the "ONCA") finding that a pollution exclusion clause was not triggered and the insurer owed the insured a duty to defend.
The Underlying Action
In Hemlow Estate v Co-operators General Insurance Company, 2021 ONCA 908 [Hemlow] the insured, Mr. Hemlow, was a sole proprietor whose business focused on the sampling and analysis of oil and other mechanical lubricants. In 2015, he was subcontracted by Wear-Check to provide oil sampling and analysis at the processing facilities of Rich Products of Canada Limited ("Rich Products").
While providing his services at the Rich Products facility, Mr. Hemlow opened a valve containing pressurized ammonia. The ammonia exposure killed Mr. Hemlow and caused significant property damage to Rich Products. Rich Products subsequently brought a claim against Wear-Check and Mr. Hemlow's estate (the "Estate") for negligence, nuisance, and breach of contract (the "Underlying Action").
During Mr. Hemlow's services at the Rich Products' facility, he maintained a Commercial General Liability policy (the "Policy") with Co-operators General Insurance Company ("Co-operators").
Co-operators denied it had a duty to defend the Estate. It stated Rich Products' claims against the Estate concerned Mr. Hemlow's negligent conduct for allowing ammonia to escape and Co-operators viewed the ammonia as a pollutant that was excluded from coverage through the Policy's "Total Pollution Exclusion".
The "Total Pollution Exclusion" read, in part:
This insurance does not apply to:
1) Pollution Liability
a) "Bodily Injury" or "property damage" or "personal injury" arising out of the actual, alleged, potential or threatened spill discharge, emission, dispersal, seepage, leakage, migration, release or escape of "pollutants".
The "Total Pollution Exclusion" did not define the term "pollutants". Rather, "pollutants" was defined in an unrelated section of the Policy where the term was defined as:
"Pollutants" means any solid, liquid, gaseous or thermal irritant or contaminant including smoke, odours, vapour, soot, fumes, acids, alkalis, chemicals and waste.
Lower Court's Ruling
The Estate brought an application in the Ontario Superior Court seeking a declaration that Co-operators had a duty to defend the Estate. The parties accepted that the Underlying Action fell within the initial grant of coverage for the purposes of the duty to defend, however, Co-operators submitted the Underlying Action's claims were excluded under the "Total Pollution Exclusion" as explained above.
The Application Judge ultimately found Co-operators had a duty to defend the Estate.
In reaching his decision, the Application Judge found the "Total Pollution Exclusion" was ambiguous. There was no definition of the term "Pollution" in the exclusion clause and the clause could have been clarified to better fulfill the realistic expectations of the insured. Due to its ambiguity, Co-operators could not rely on the "Total Pollution Exclusion" and was ordered to assume the Estate's defence.
Court of Appeal
The sole issue before the ONCA was whether:
"the Application Judge err[ed] in concluding that the Total Pollution Exclusion clause contained in the CGL Policy does not apply to exclude Co-operators' duty to defend the Estate in the [Underlying Action]"
The Court dismissed Co-operators appeal and found that it had a duty to defend the Estate. The Court noted that while the parties fixated their dispute over the interpretation of the "Total Pollution Exclusion", the parties failed to properly consider the nature of Rich Products' claims against the Estate.
The ONCA stated "an insurer's duty to defend arises from the claims as pleaded". In assessing Rich Products' claims against the Estate, Rich Products pleaded Mr. Hemlow was negligent when he opened the valve, allowing ammonia to escape and cause damage to Rich Products' property. This claim was rooted in negligence. The Court noted that a negligence claim is exactly the type of claim that parties obtain a Commercial General Liability policy for.
The Court concluded that it did not matter that the damage causing substance could be labeled as a pollutant, nor should this fact obscure the proper interpretation of the Policy or distort whether a duty to defend arises. There was nothing in Rich Products' statement of claim that involved a claim arising out of "pollution" as the term is commonly understood. Instead, Rich Products' claim is a straightforward claim for property damage, which fell within initial grant of coverage. Therefore, Co-operators duty to defend arose.
Cases concerning the duty to defend are plentiful. The common theme among these cases is the well-established test to determine whether the duty is triggered, which is where there is a "mere possibility" that the claim falls within the policy's coverage. This analysis requires the court to carefully consider the underlying action's pleadings against the wording of the insurance policy's coverage provisions. Here the crux of Rich Products' pleadings was a claim for negligence causing property damage, which fit squarely in the Policy's initial grant of coverage. The ONCA found that there was nothing in the statement of claim that involved a claim arising out of pollution.
The ONCA's reasoning in Hemlow is a reminder of the importance to carefully consider the claims made against an insured. While the parties in Hemlow disputed whether a certain exclusion clause applied, the parties failed to appreciate that the claim advanced by Rich Products was a straightforward claim for property damage. Whether coverage is triggered does not change because the mechanism that caused the damage could be labelled a pollutant.
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