Broad Exclusions Do Not Apply Simply Because Peril Is In Chain Of Causation

The Ontario Court of Appeal recently held that a broad contributing cause exclusion does not apply simply because an excluded peril was included in the chain of causation. In O'Byrne v. Farmers' Mutual Insurance Co.,1 negligence of the insured's tenant set in motion a chain of events ultimately leading to an oil spill after a furnace broke down. The "all risks" policy included an exclusion for "loss or damage directly or indirectly caused by, resulting from, contributed to or aggravated by: ...e) centrifugal force, mechanical or electrical breakdown or derangement..." The insurer argued that since the furnace broke down, the loss was due to multiple causes including "mechanical derangement" of the furnace. The Court disagreed and looked at the evidence to determine the real cause of the loss.

The insured owned a two-story apartment building which was insured pursuant to an "all risks" insurance policy issued by the Farmers' Mutual Insurance Co. ("Farmers'"). An oil fired furnace was located in one of two residential apartments on the second floor. The tenant there inserted a piece of cardboard into the...