Construction Distribution & Supply Company Inc. v. Continental Casualty Company (CNA Insurance), 2024 ONCA 405, released May 22, concerned an appeal of a decision finding that the appellant, Continental Casualty Company, had a duty to defend the respondents, Construction Distribution & Supply Company Inc. and Discounter’s Pool & Spa Warehouse Inc, in an action brought by Highland Furniture.
The action was for damages caused to Highland’s property from a leak of liquid chlorine from the respondents’ premises. The appellant claimed the trial judge erred in concluding that a pollution exclusion clause in the commercial general liability policy, issued by the appellant, did not apply.
The appellate court found that the judge did not err in interpreting the contract. The judge had found that pollution is commonly understood as “the escape of an irritant or contaminant into the natural environment that causes damages related to the clean-up of the contamination, and the costs of investigating, testing and monitoring the contamination.”
Further, an irritant or contaminant does not become pollution “unless the substance enters the natural environment, and there is a requirement to investigate, test and clean up the substance.” The appellant argued that the judge interpreted the exclusion too narrowly.
The appellant posited that the exclusion did not “capture damage caused by a negligent act or omission in the course of regular business activities that incidentally involves pollution if the insured’s business does not normally involve a pollution risk.”
It argued that the clause applied because the respondent was storing a large volume of liquid chlorine (a pollutant) and the damage caused by it to the adjoining business was, therefore, a form of pollution.
It was further claimed that the pollution was “not incidental to the respondents’ business because it arose from a known risk of pollution associated with the storage of liquid chlorine” and that the true nature of the claim was a claim for damages arising out of a form of pollution.
The appellate court disagreed, finding that the judge’s finding that the exclusion clause did not apply was “supported by the purpose of the insurance and the respondents’ reasonable expectations.”
It found that the claim was for damages due to the respondent’s alleged negligence while conducting regular business, “the very sort of claim that the respondents were entitled to think would be covered by the policy, unless their regular business activities included an inherent risk of pollution.”
The court noted that while liquid chlorine “can cause damage if spilled, its storage for the purpose of resale does not comprise an inherent risk of pollution nor, more importantly, does Highland Furniture’s claim, upon which the coverage assessment is to be based, plead the existence of such a risk.”
The judge had correctly found that there was “at least a ‘mere possibility’ that the claim against the respondents is covered by the policy.”
The appeal was dismissed by Justices Lise Favreau, Bradley Miller and Grant Huscroft.
Counsel for the appellant were W. Colin Empke and Kathleen Lefebvre of Blaney McMurtry LLP.
Counsel for the respondents was David Bleiwas of Morrison Brown Sosnovitch LLP.
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