The Duty To Defend And Pollution Exclusions

• Published date: 30 September 2022
• Subject Matter: Environment, Environmental Law, Clean Air / Pollution
• Law Firm: CLC (Canadian Litigation Counsel)
• Author: Mr Jeremy Ellergodt (Whitelaw Twining) and Paul Cavin

On June 2, 2022, the Supreme Court of Canada refused leave to appeal Hemlow Estate v. Co-operators General Insurance Company, 2021 ONCA 908. In this case, Co-operators denied insurance coverage arguing that the damage in question was excluded as it was caused by 'pollutants'. This position was rejected in both the Trial and Court of Appeal decisions where those courts found that there was a duty to defend.

Background

John Hemlow was a sole proprietor who carried on business as a mechanical contractor. In order to insure his business, Hemlowco, Mr. Hemlow took out a Commercial General Liability policy with Co-operators. The policy included a 'Total Pollution Exclusion'. Mr. Hemlow discussed the exclusion with his broker, but did not purchase additional pollution coverage. It is important to note that the exclusion itself did not define 'pollutants' however it was defined elsewhere in the policy. The 'Total Pollution Exclusion' included in the policy read as follows;

This insurance does not apply to:

1. Pollution Liability

a) 'Bodily Injury' or 'property damage' or 'personal injury' arising out of the actual, alleged, potential or threatened spill discharge, emission, dispersal, seepage, leakage, migration, release or escape of 'pollutants'.

b) Any loss, cost or expense arising out of any request, demand or order that any Insured or others test for, monitor, clean up, remove contain, treat, detoxify, decontaminate, stabilize remediate or neutralize or in any way respond to, or assess the effect of 'pollutants'.

c) Any fines, penalties, punitive or exemplary damages assessed against or imposed upon any Insured arising directly or indirectly out of the of the [sic] actual, alleged, potential or threatened spill discharge, emission, dispersal, seepage, leakage, migration, release or escape of 'pollutants' (para. 12).

Rich Products of Canada ('Rich') retained Wear-Check Canada Inc. ('Wear-Check') to sample and analyze oil from the mechanical and refrigeration systems at a Rich facility in Fort Erie, Ontario. Wear-Check subcontracted with Mr. Hemlow to carry out sampling work. Sadly, Mr. Hemlow was killed in a workplace accident while carrying out the duties of the subcontract. Specifically, Mr. Hemlow died due to ammonia exposure when he opened a valve that released pressurized ammonia. This act also caused significant damage to Rich's property. Rich alleged that the damage to their property was caused by negligence, nuisance, and breach of contract. As such...