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By: Faiza Tariq, Associate |
Introduction
In a recent decision[1], the British Columbia Court of Appeal (“BCCA”) interpreted a clause that excluded loss or damage caused directly or indirectly by “subsidence”. The court upheld the trial judge’s finding that the clause was unambiguously worded and clearly excluded coverage for the loss. In addition, the BCCA also agreed with the trial judge’s finding that the policy’s Extended Water Damage Endorsement (the “Endorsement”) did not extend coverage on the facts of the case.
The Trial
The insured owned a home located in Okanagan Falls, British Columbia. Upon returning from vacation, he discovered sink holes in his yard, cracks in his home’s foundation and other damages to his home. The insured asked his property insurer to cover the cost of repairing the house. The insurer denied his claim based on a report from an engineer, which concluded that the damage had been caused by subsidence of the soil underneath the house, which itself had been caused by groundwater flow. The insurer concluded that in these circumstances, the subsidence exclusion clause entitled it to deny coverage entirely. The trial judge accepted the engineer’s conclusions and agreed with the insurer’s position.
The Appeal
The BCCA upheld the trial judge’s decision. The BCCA found that based on the engineer’s report, the flow of groundwater was an indirect cause of the damage because it led to subsidence which subsequently caused the damage to the house. The exclusion clause clearly stated that coverage was excluded when subsidence causes the loss or damage. This exclusion applied regardless of whether subsidence was the direct or indirect cause, and also when it was a sole or a concurrent contributor to the loss or damage, or whether subsidence was part of a chain of events. In this case, the groundwater flow undermined the soil under the insured’s house, triggering a chain of events, one of which was the subsidence of the soil.
This exclusion barred coverage regardless of whether the Endorsement had been triggered. However, in any event, the BCCA agreed with the trial judge that the Endorsement did not apply. The Endorsement could only be triggered in circumstances involving (a) an “escape, overflow or backing up of” water from sewers, storm drains, or other man-made systems; or (b) water that directly damages property, and that enters or seeps into a building. In this case, there had been no escape, overflow or backing up of water from any man-made systems. Nor did the groundwater “directly” damage property, and it never entered or seeped into any building. The damage was caused indirectly by the flow of water through the ground.
Conclusion
Although the trial judge observed that the insured was “an extremely sympathetic litigant”, this case reiterates that the starting point in determining coverage is the language in the policy, not the parties’ overall circumstances.
It is also worth repeating that in coverage disputes, the burden of proving that an exclusion applies falls on the insurer. Some courts get this wrong, as the trial judge did in this case, claiming that the insured had to show that none of the policy exclusions applied. That is an incorrect statement of the law. In coverage matters, the insured simply needs to show that a grant of coverage has been triggered in the circumstances. The insured does not need to prove that an exclusion does not apply; it is for the insurer to prove that an exclusion does apply.[2] In this case, the trial judge’s error of law did not affect the outcome, as the engineer’s report proved that the damage was caused by subsidence, triggering the exclusion. However, if the evidence had been less definitive, the insurer might not have been able to prove that the exclusion applied. In that case, the policy would likely have afforded coverage. The policy’s grant of coverage applied to “all risks of direct loss or damage”, which would have likely included the foundation cracks and other property damage.
Footnotes
[1] Tremblett v TD Insurance Direct Agency Ltd., 2024 BCCA 358.
[2] For instance, see Progressive Homes Ltd. v Lombard General Insurance Co. of Canada, 2010 SCC 33 at para 67.
Faiza Tariq is an associate at Theall Group LLP and is developing a broad commercial litigation practice. Prior to joining Theall Group LLP, Faiza articled at a prominent litigation boutique in downtown Toronto. During her articles, Faiza worked on a class action, cross-border IP litigation, employment law disputes, real estate litigation and commercial disputes, including assisting with a complex trial on the Commercial List. She also wrote an article entitled ‘Municipalities Do Not Owe a Duty of Care to Developers to Protect Their Economic Interest During Rezoning Application Process’ which was published in the Ontario Bar Association’s Real Property Law section.
Photo courtesy of Valentin Lacoste at Unsplash