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Court of Appeal Examines Pollution Exclusion

The Ontario Court of Appeal recently upheld a decision in which a pollution exclusion in a commercial general liability policy was found to not negate the insurer’s duty to defend.

In Hemlow Estate v. Co-operators General Insurance Company, 2021 ONCA 908, John Hemlow, a mechanical contractor, opened a valve to a pipe containing pressurized ammonia. The resulting ammonia exposure killed Mr. Hemlow and caused significant property damage. The company that suffered the property damage, Rich Products of Canada Limited, sued Mr. Hemlow’s estate and the company that retained him.

Mr. Hemlow had an insurance policy with Co-operators that excluded coverage for damage caused by “pollutants”. Co-operators denied that it had a duty to defend the action on the basis that the pollution exclusion applied.

On an application, the judge held that Co-operators had a duty to defend the Estate. The Court of Appeal upheld this decision.

The Court of Appeal noted the well-known principle that the duty to defend arises from the claims as pleaded. In the case in issue, there is nothing in the statement of claim that involves, or asserts, a claim arising out of “pollution”.  Rather, the claim advanced by the plaintiff is a straightforward claim for damage to its property, founded in negligence, nuisance and breach of contract.

The Court of Appeal stated that if the damage to the plaintiff’s property had resulted from an explosion or a fire caused by Mr. Hemlow, he would certainly be entitled to coverage under the CGL policy. The Court of Appeal indicated that this result does not change because the mechanism causing the damage happens to be a substance that can be labeled as a pollutant.

The Court of Appeal stated that it is important to recognize that Mr. Hemlow was not engaged in work that generally involved risks from pollution. The claim involves allegations that Mr. Hemlow acted in a negligent manner when he opened the valve. The Court of Appeal said that this type of negligence claim is precisely the type of claim for which parties obtain CGL policies. The fact that the substance which caused damage was a pollutant does not change the nature of the claim.

Therefore, the Court of Appeal held that a duty to defend arises.