Can the Existence of Debris in the Environment Constitute Property Damage for the Purpose of Auto Insurance?

Yes, says the BC Supreme Court. Very recently, two actions were decided, both of which arose out of motor vehicle accidents involving tractor-trailer units, and resulted in cargo being deposited into a river and a lake.

In Protrux Systems v. ICBC, 2004 BCSC 1194, an employee of the plaintiff had been driving a tractor and trailer unit carrying chipboard. The driver lost control of the vehicle, and the tractor and trailers came to rest on their sides in the river. The cargo had no salvage value. The tractor and trailers were insured by ICBC, and the cargo was insured by AXA Pacific Insurance Company ("AXA").

Without the knowledge of AXA or ICBC, the RCMP (or possibly the insured) arranged for the removal of the chipboard from the river. With some reluctance, AXA paid for the removal (purportedly as a loan to the insured), and sought recovery of the cleanup costs from ICBC by way of a subrogated claim in the insured’s name. While the AXA policy included coverage for “the removal of the debris of the property occasioned by loss or damage not otherwise excluded hereunder," the claim against ICBC was founded on section 64 of the Regulation to the Insurance (Motor Vehicle) Act, which provides that ICBC must indemnify an insured “for liability imposed on the insured by law for… loss or damage to property of another that… arises out of the use or operation by the insured of a vehicle… in Canada.”

In Westside Transport v. Continental Insurance, 2004 BCSC 1195, heard by the same Judge immediately after the completion of the hearing in Protrux, eight large rolls of paper ended up in a lake as a result of an MVA. Once again, the tractor and trailer were insured by ICBC, while the cargo was insured by a private insurer, Continental. Once again, the cargo had no salvage value. The Continental policy contained a debris removal clause with a limit of $10,000, and an "Other Insurance” clause purporting to make the Continental policy excess coverage only where other insurance existed.

Continental refused to authorize any recovery of the paper rolls, and warned the insured not to do so either. Consequently, no cleanup activity was undertaken until the Ministry demanded that the Plaintiff take immediate steps to recover and clean up the spilled paper, and a pollution abatement order was issued. At that point, ICBC paid the cost of cleanup and sought recovery from Continental by way of a subrogated action. As did AXA, Continental relied on section 64 of the Regulation to argue that ICBC’s policy covered the loss.

In both cases, it was agreed that the loss arose out of the use or operation of a motor vehicle in Canada, and therefore, the Court was faced with the issues of whether the liability to remove the destroyed cargo was imposed by law, and if so, whether or not the presence of the spilled cargo caused damage to the property of the provincial Crown. If both conditions were met, ICBC’s coverage would be triggered.

In Protrux, the Court held that while it was not necessary for a demand or order to have been made against the Plaintiff under the Waste Management Act before it could be said that there was "liability imposed ... by law", the insured’s failure to report the accident to the Ministry made it impossible to infer that legal liability for the removal of the chipboard arose under the Waste Management Act.

While this finding was enough to dispose of the case, the Court nevertheless considered the second issue, and held that although there was no pollution, there was damage to property owned by the Crown in the sense that it would cost money to remove the cargo so as to return the river to its original condition.

The Court also considered ICBC’s alternative submission that the plaintiff's coverage was vitiated by the Plaintiff’s unilateral settlement of the cleanup charge (through AXA), in contravention of s. 73 of the Regulation. The Court agreed, holding there was prejudice to ICBC in the fact that they had no opportunity to participate in the selection of the contractor or the process of removal of the chipboard, or to investigate the reasonableness of the charges. Therefore, the claim was dismissed.

In the Westside case, it was agreed that the Ministry’s demand and the pollution abatement order imposed legal liability on Westside to recover the rolls of paper and paper debris. The court then inferred that the presence of several large rolls of paper in the lake amounted to "damage" to the waters of the lake or to the land, confirming ICBC’s coverage. This left the question of when ICBC’s coverage was triggered. This was significant, because the Continental policy was much broader in its wording, and if ICBC’s indemnity obligation did not arise immediately but Continental’s did, ICBC could claim that the additional cleanup costs caused by the breakdown of the paper were the result of Continental’s negligent delay in arranging the cleanup.

The Court, however, held the rolls of paper in the lake constituted an immediate obstruction sufficient to constitute damage. As a result, ICBC’s indemnity obligation was immediate, and Continental’s alleged negligence in delaying the clean up was irrelevant.

The Court then considered the "other insurance" clause in the Continental policy, which purported to make that policy excess to the ICBC coverage. The Court enforced the excess clause on the basis of the “plain and ordinary meaning of the words used,” and held that Continental's obligation under its debris removal clause arose only as excess insurance. As a result, ICBC was left to bear the cleanup costs.

Based on the foregoing, it would appear that in a motor vehicle accident case, ICBC’s coverage will include the cost of cleaning up debris introduced into the environment, provided that the Ministry makes determinations sufficient to give rise to a legal obligation on the insured to clean up that debris (whether that obligation becomes the subject of a formal demand or not). While AXA lost the Protrux case on the basis of the insured’s failure to meet the coverage requirements in the ICBC policy, there was another alternative argument raised by ICBC that was not decided by the Court. This was the argument that AXA’s voluntary payment left the insured with no loss, and therefore there could be no coverage. An alternative avenue of recourse for AXA, which would have eliminated this argument, would have been to simply accept coverage for the debris removal and seek equitable contribution from ICBC in its own name. The downside to proceeding in this manner is that AXA’s recovery would have been limited to ICBC’s equitable share of the cost, rather than the whole amount, which was sought in the subrogated claim.

A copy of the Protrux case can be accessed on the BC Courts website at:
http://www.courts.gov.bc.ca/jdb-txt/sc/04/11/2004bcsc1194.htm.

and the Westside decision can be accessed at:
http://www.courts.gov.bc.ca/jdb-txt/sc/04/11/2004bcsc1195.htm.

Readers with any questions about either case, or motor vehicle or overlapping coverage issues generally, are invited to contact Jonathan Hodes at jlh@cwilson.com (e-mail) or 604-643-3168 (direct dial).