Exclusion Clauses And Fortuitous Damage

The recent B.C. case of Wynward Insurance Group v. MS Developments Inc., 2015 BCSC 324 ("Wynward Insurance"), looks at an insurance policy exclusion clause for damage "caused directly or indirectly" by earth expansion and offers clarification as to whether it operates to exclude only damage caused by natural causes, or whether it also excludes fortuitous damage, such as that caused by a man-made event.

By way of background, in The Owners, Strata Plan NW2580 v. Canadian Northern Shield Insurance Company, 2006 BCSC 330 ("NW2580"), a building was damaged when an excessive amount of preload was placed on an adjacent property. The preload caused earth movement/ settlement, which in turn caused structural damage to the building.

The insurer relied on two exclusion clauses, one related to earth movement and the second related to earth settlement to deny coverage. The insured argued that the exclusion clauses only applied to natural damage caused by changes in soil, moisture and temperature and not to damage which occurs "fortuitously" such as a man-made event.

First, the court found that the earth movement exclusion was ambiguous and on the basis of contra proferentem found that the clause did not apply to man-made events. Next, the court turned to the settlement exclusion which read [emphasis added]:

This form does not insure against loss or damage caused directly or indirectly:

(x) to "buildings" by:

(cc) Settling, expansion, contraction, moving, shifting or cracking unless concurrently and directly caused by a peril not otherwise excluded.

Because the exclusion clause used the words "caused directly or indirectly", the court held that it applied to both natural and fortuitous loss, stating:

Exclusion CC included the words "caused directly or indirectly", which suggests that whether the settlement was a direct or indirect, proximate, concurrent or contributing cause, coverage would not be extended.

On this basis, the Court found that the exclusion was not ambiguous and the insured was denied coverage.

In Engle Estate v. Aviva Insurance Co. of Canada, 2010 ABCA 18 ("Engle Estate"), the Alberta Court of Appeal dealt with damage caused to an insured property by an excavation on an adjacent property. The insurer again denied coverage based on a settlement exclusion clause that was almost identical to NW2580 and included the "caused directly or indirectly" wording. In commenting on the applicability of NW2580, the court stated:

The court adopted a...