Ontario Court Of Appeal Clarifies Application Of Pollution Exclusion Clauses In Commercial General Liability Policies

In ING Insurance Company of Canada v. Miracle (Mohawk Imperial Sales and Mohawk Liquidate), 2011 ONCA 321, the Ontario Court of Appeal held that a "Pollution Liability" exclusion clause in a Commercial General Liability (CGL) insurance policy will apply where the insured participated in an activity that posed a known risk of pollution and environmental damage. This decision clarifies – and perhaps extends – its prior reasons in Zurich Insurance Company v. 686234 Ontario Ltd. (2002), 62 O.R. (3d) 447 (C.A.).

The insured party, Andrew Miracle o/a Mohawk Imperial Sales and Mohawk Liquidate (Miracle) was insured under a CGL insurance policy with ING Insurance Company of Canada (ING). Under a "Pollution Liability" exclusion clause, the CGL insurance policy excluded coverage for losses "arising out of the actual, alleged, potential or threatened spill, discharge, emission, dispersal, seepage, leakage, migration, release or escape of pollutants" from the lands or premises of Miracle. When gasoline escaped from an underground storage tank on Miracle's property and caused damage to adjacent land owned by Canada, Miracle sought indemnification from ING under the CGL insurance policy. ING applied for a declaration that it had no duty to defend or indemnify Miracle based on the Pollution Exclusion clause, and Miracle failed to respond to the application. Relying on section 132 of the Insurance Act, R.S.O. 1990, c. I.8 (which allows a claimant with an unsatisfied judgment against an insured defendant to recover the amount of the judgment against the defendant's insurer, if coverage exists), Canada and a co-defendant of the insured responded to ING's application.

In Zurich, the owner of an apartment building was sued by its tenants for damages caused by carbon monoxide poisoning caused by a defective furnace. The owner was insured and claimed indemnification from the insurer. The Court held that a "Pollution Liability" exclusion clause virtually identical to the one in issue in this case did not apply to protect the insurer from having to indemnify the owner. In holding that the parties in Zurich would not reasonably have expected to exclude "carbon monoxide poisoning" from coverage under an exclusion clause dealing with "environmental pollution," the Court relied on the Court's determination that the insured party's regular business activities did not "place it in the category of an active industrial polluter of the natural environment." The Court...