The "Root" of all Exclusions

A tree is only as strong as its roots. Likewise an insurance policy is only as strong as its wording. Exclusions can exclude certain types of perils or causes or they can exclude certain types of loss regardless of how caused. This case is an example of the latter and exemplifies how any Derksen analysis of multiple causation is actually irrelevant to this type of (properly worded) exclusion.

In Jordan v. CGU and Uegama (2004 BCSC 402) roots originating from the Plaintiff’s neighbour grew onto the Plaintiff’s property impeding the drainage system, clogging the sump pump and constraining water drainage from the property. This caused damage to the Plaintiff’s concrete slab foundations, swimming pool and drainage system.

The Plaintiffs were insured under an "all risk" policy with CGU. CGU relied upon two exclusions to deny coverage:

CGU took the position that the Plaintiff damages as pleaded, namely, settling, cracking, corrosion and deterioration were expressly covered by the exclusions.

The Plaintiff submitted that the exclusions did not apply by virtue of the sewer backup endorsement that covered "direct loss or damage caused by the backing up or escape of water from a sewer". The endorsement however provided that it was "subject to all other terms and conditions" of the form. The Plaintiff argued that Derksen mandated a broad and not restrictive interpretation of the exclusions and that the sewer backup endorsement extended coverage for the loss in the circumstances.

The Court applied Leahy v. Canadian Northern Shield (2000 BCCA 408) and drew a distinction between provisions that exclude specific types of damage regardless of how caused, and from provisions that exclude damages from a specific type of cause. As such the Court found that the exclusions in this case referred to types of damage incurred, regardless of the cause and were unaffected by the endorsement, which related to loss or damage from a particular cause, namely sewer backup.

Regardless of the Plaintiff’s reliance on Derksen to argue ambiguity and multiple causation to enforce coverage, the Court commented that a broad interpretation of the endorsement does not change its plain meaning and it was still subject to all the other terms and conditions of the policy, including the exclusion clauses. Further where there is no ambiguity the contra proferentem rule does not apply. The Court therefore enforced the exclusion and dismissed the action against CGU.

Insurable Interest Subscribers who would like to read the decision in full can access the Reasons for Judgment at:

http://www.courts.gov.bc.ca/Jdb-txt/SC/04/04/2004BCSC0402.htm

Readers with any questions regarding policy drafting or coverage issues generally, are invited to contact Nigel Kent at (604) 643-3135 or npk@cwilson.com, or Krista Prockiw at (604) 643-3105 or kxp@cwilson.com.