Case Summary: Aviva Insurance Company of Canada v Intact Insurance Company
Defence + Indemnity
The Court held that a duty to defend was triggered by pleadings alleging an escape of fuel oil onto neighbouring property despite a pollution exclusion clause in the policies, because the pleaded facts did not allow a determination if the escape fell within the exception to the exclusion clause for “sudden and accidental” escapes.
Aviva Insurance Company of Canada v Intact Insurance Company, 2017 ONSC 509, per Cavanagh, J. 
I. FACTS AND ISSUES
In the underlying action, Crombie Property Holdings Limited (“Crombie”), brought action for damages resulting from alleged contamination of contaminated property as result of alleged migration of fuel oil from a neighbouring property. Crombie claimed that Avondale Store Ltd. (“Avondale”) allowed contaminants to escape from service station and underground tanks into the natural environment, and onto the source property, from where they migrated onto Crombie’s property, and continued to migrate. The claim against Avondale was founded in negligence, strict liability, nuisance, trespass and breach of statute.
Aviva (the Insurers and corporate successors to General Accident Assurance Co. of Canada) acknowledged a duty to defend under their umbrella insurance policy as it concluded that, given allegations in claim, it was unable to determine if discharge, dispersal or escape of pollutants was sudden and accidental as set out in exclusion in policy.
Aviva also claimed that Intact (the commercial general liability insurer and corporate successor to Cornhill) had a duty to defend, which Intact denied. Intact relied upon the environmental liability exclusion and advised Aviva that it would not provide a defence on behalf of Aviva as it has no duty to defend or indemnify Aviva.
Both the relevant policies provided by the corporate successors to Aviva and Intact contained the same exclusion clause:
Environmental Liability Exclusion
It is agreed that this policy does not apply to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapours, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water of any description no matter where located or how contained, or into any watercourse, drainage or sewerage system, but this exclusion does not apply if such discharge, dispersal or escape is sudden and accidental.
The policies issued by Cornhill from 1987 through to 1991 use pollution exclusion wording described by Aviva as the “absolute pollution exclusion” wording. Aviva acknowledges that the “absolute pollution exclusion” wording in those policies is effective to preclude coverage for Avondale with respect to the allegations made against Avondale in the Underlying Action and that Intact has the right to deny a duty to defend under those policies”.
In both policies, the exclusion contained an exception in the event of release or escape of pollution which is “sudden and accidental”. Aviva brought application for declaration that Intact provide coverage. The question of whether Intact owed a duty to defend depended on whether or not the exception to this exclusion applied.
II. HELD: For Aviva; duty to defend owed
1. The Court Held that Intact had not satisfied its onus of having to prove that all of the claims against the insured are excluded from coverage by the pollution clause and therefore Intact had a duty to defend. Aviva and Intact would share equally in the costs of defending the underlying action against the insured.
2. The Court held that the Statement of Claim in underlying action did not allege facts that would allow one to know whether it was alleged that escape of contaminants was caused by something which occurred over short period of time, or by cause that would have resulted in slow and gradual escape of contaminants over extended period of time.
a. The Court noted that there are divergent authorities in both Canada and the United States concerning whether the word “sudden” as it is used in the exception to the applicable environmental liability exclusion clause in relation to the discharge, dispersal, release or escape of the contaminants means only “unexpectedly” or “without warning”, or whether there is also a temporal component of “briefness”.
b. The Court also noted that there are three cases in Ontario that have addressed the interpretation to be given to the term “sudden and accidental” as it appears in the exception to the environmental liability exclusion clause that has the same language as the clause in the Aviva and the Intact Policy: Murphy Oil Co. v. Continental Insurance Co. [1981 CarswellOnt 1238 (Ont. Co. Ct.); Zatko v. Paterson Spring Service Ltd., 1985 CarswellOnt 796 (Ont. H.C.); BP Canada Inc. v. Comco Service Station Construction & Maintenance Ltd., 1990 CarswellOnt 637 (Ont. H.C.). Each of these cases involved leaks from fuel oil tanks and they each considered the meaning of the term “sudden and accidental”. In each case there was evidence concerning the cause of the oil leak.
c. By contrast, the Statement of Claim in the underlying action in the case at Bar did not allege facts “that would allow one to know whether it is alleged that the escape of contaminants onto the source property was caused by something such as, for example, an accidental puncture or rupture of the underground fuel oil tank during construction, or an accidental spill of fuel oil from a delivery truck, which would have resulted in the escape of contaminants onto the source property over a short period of time, or by another cause that would have resulted in a slow and gradual escape of contaminants over an extended period of time. The Statement of Claim also does not allege when the escape of contaminants occurred”.
d. The Court held that it was therefore possible, depending upon the evidence tendered in the Underlying Action and the findings at trial, that the court could decide that fuel discharged, dispersed, released or escaped onto the source property over a short period of time before it migrated to the contaminated property.
e. The Court held that it was therefore possible that the word “sudden”, as used in exception in policy, would be held to relate to discharge, dispersal, release or escape of contaminants out of which damage to property arises, and not to damage to property arising there from. Therefore, the Court held that Intact had not satisfied its onus of having to prove that all of the claims against the insured are excluded from coverage by the pollution exclusion clause. Intact had a duty to defend.
3. The Court held that Aviva was entitled to a contribution from Intact towards defence costs:
38 Where there are multiple insurers whose duty to defend is triggered by allegations in the Underlying Action, the insurer that accepts the duty to defend may compel a contribution to defence costs from any other insurer which improperly denies the duty to defend. The respective obligations of the insurers, while not a matter of contract, are governed by principles of equity and good conscience: Broadhurst & Ball v. American Home Assurance Co., 1990 CarswellOnt 638 (Ont. C.A.), at para. 41.