The insured's business suffered a leak of liquid chlorine from its premises that damaged the plaintiff's property. The trial judge found the insurer had a duty to defend, despite a pollution exclusion clause in the policy. The Court of Appeal upheld the trial judge's decision, finding that it was supported by the purpose of the insurance and the insured's reasonable expectations.
Construction Distribution & Supply Co. v. Continental Casualty Company (c.o.b. CNA Insurance), [2024] O.J. No. 2445, Ontario Court of Appeal, May 22, 2024, G. Huscroft, B. Miller and L.G. Favreau JJ.A.
The insured suffered a leak of liquid chlorine from its premises that damaged the plaintiff's property. The insured's commercial general liability policy included an exclusion clause for pollution liability. The trial judge declared that the insurer had a duty to defend, finding that the exclusion clause did not apply because an irritant or contaminant does not become pollution until released into the natural environment.
The insurer appealed, arguing that the judge had interpreted the exclusion clause too narrowly. The Court of Appeal upheld the decision, stating that it was supported by the purpose of the insurance and the insured's reasonable expectations. The Court held that the insured's reasonable expectations were that they would be covered by the policy for alleged negligence while conducting their regular business, unless their regular business activities included an inherent risk of pollution. The Court held that the insured stored liquid chlorine for the purpose of resale, which does not comprise an inherent risk of pollution. Further, the Court stated that, the coverage assessment is to be based on the pleading, and the plaintiff did not plead the existence of such a risk. The Court distinguished the facts from those where the insured engages in an activity that carries a well-known risk of pollution.
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