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The Importance of the Nature of the Claim in Determining Coverage

By Kayley Richardson

In Hemlow Estate v. Co-operators General Insurance Company, 2021 ONCA 908, the Ontario Court of Appeal dismissed an insurer’s appeal of a coverage application decision, in which the application judge had held that the insurer had a duty to defend the insured.


Mr. Hemlow had been a sole proprietor who carried on business as a mechanical contractor, and held a valid policy of commercial general liability insurance with Co-operators.

In 2015, Hemlow was subcontracted by a company to carry out inspection services at a processing facility (“the Property”). During the course of his work, Hemlow was killed from exposure after opening a valve containing pressurized ammonia. The exposure also  caused  significant damage to the Property.

The owner of the property brought an action in negligence, nuisance, and breach of contract against the contractor and the Estate of Hemlow. Co-operators refused to defend the claim against the Estate based on the following “Total Pollution Exclusion” in Mr. Hemlow’s insurance policy:

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”.

The policy also contained the following definition of “Pollutants”:

“Pollutants” means any solid, liquid, gaseous or thermal irritant or contaminant including smoke, odours, vapour, soot, fumes, acids, alkalis, chemicals and waste.

The Estate brought an application seeking a declaration that Co-operators had a duty to defend it in the property owner’s action.

Application Judge’s Reasons

In his decision dated January 29, 2021,[1] the application judge found that Co-operators had a duty to defend the action because the word “Pollution” in the Total Pollution Exclusion was ambiguous, stating:

The pollution exclusion clause is worded to protect the insurer from liability for environmental pollution and the improper disposal or contamination of hazardous waste. It would have taken very little for a clause to be added in the Total Pollution Exclusion document signed by Mr. Hemlow to state that the exclusion is not limited to environmental claims, but also includes all claims arising from any emission of any of the enumerated substances.

The definition used by Co-operators of “Total Pollution Exclusion” was misleading in that it not only included an exclusion of events which an average person would associate with pollution, but any accidental occurrence that caused any damage to the customer’s property and which did not lead to environmental pollution as commonly understood.

Issue on Appeal

The issue before the Court of Appeal was whether the application judge had erred in concluding that the Total Pollution Exclusion contained in Hemlow’s CGL policy did not apply to exclude coverage and a duty to defend Hemlow’s Estate in the underlying action against it.


Standard Review

In its decision, the Court of Appeal discussed the well-established  standard of review for contractual interpretation stating:

Questions of mixed fact and law are entitled to deference unless the trial judge made a palpable and overriding error. Extricable questions of law are subject to a correctness standard of review: Sattva Capital Corp. v. Creston Moly Corp.2014 SCC 53, at para. 53Sattva, at para. 54, specifies that courts should be cautious in identifying questions of law in disputes involving contractual interpretation.”

For a particular category of contract – namely, standard form contracts – the standard of review is correctness: Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co.2016 SCC 37. This is because there is no meaningful factual matrix specific to the particular parties to assist in the interpretation process: see Ledcor, at para. 4.

In this case, the Court found that the Total Pollution Exclusion form was not a standard form contract, for the following two reasons:

First, the appellant does not seriously contend that a correctness standard should apply based on Ledcor. Rather, the appellant’s position is that there are extricable questions of law that the application judge got wrong under the Sattva standard.

Second, the Total Pollution Exclusion cannot fairly be characterized as a standard form contract. Standard form contracts are typically standard printed forms that will often be offered on a “take it or leave it” basis; the potential insured person either agrees to take the terms as they are or declines to enter the transaction altogether: see Ledcor, at para. 25.

Accordingly, the Court held that unless Co-operators could identify an extricable question of law (which it could not in this case), the palpable and overriding error standard would apply.

Duty Defend

The Court noted that the duty to defend arises from the claims as pleaded. The nature of the claim advanced against Hemlow’s Estate in the underlying action was a straightforward claim for property damage, in breach of contract and negligence. The purpose of the CGL insurance policy with Co-operators was to provide coverage should Mr. Hemlow happen to be negligent in his work, and a claim was brought against him as a result.

Therefore, a claim arising from negligence, which was at the core of the claim against the Estate, was precisely the type of claim to which a CGL policy applies. The Court also noted that, significantly, Mr. Hemlow was not engaged in work that generally involved risks from pollution.

The Court held that the fact that the substance that caused the property damage in the underlying claim was a pollutant did not change the nature of the claim. The underlying action was not a claim relating to environmental pollution, but simply a straightforward claim for property damage. Accordingly, the claim fell within the terms of coverage under the CGL policy, and the insurer’s duty to defend was triggered.

Take Away

When determining whether an insurer owes a duty to defend in a given case, the court will consider not just the bare language of the insurance policy at issue, but also the nature of the claims made against the insured. If there is a “mere possibility” that the claims advanced against the insured fall within the terms of the policy, then the duty to defend arises.

Here, although the policy contained an exclusion for “Pollution Liability” that purported to include property damage arising from the release of a pollutant, the Court held that the nature of the claim against the insured was not a claim for environmental pollution, but rather a straightforward claim for property damage caused by the insured’s negligence.

As property damage resulting from the insured’s negligence is exactly the sort of claim a CGL policy is meant to cover, the court held that there was a duty to defend, and the fact that the mechanism of the property damage involved the release of a pollutant did not change the analysis.

[1] Hemlow Estate v. Co-operators, 2021 ONSC 664