Insurance Law

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The Lake Overflows but the Loss Is Excluded

One will recall the catastrophic events of the evening of April 27 2019 when a dike collapsed in Sainte-Marthe-sur-le-Lac flooding a large neighborhood causing catastrophic damages to property. But was this loss covered by the residential policy issued by La Personnelle? That is the question the Superior Court attempted to answer in the matter of Rogerson vs Personal General Insurance Inc., 2023 QCCS 1192 rendered on April 19, 2023 by Justice Louis Charette.

This decision is a good reminder of the applicable principles in the analysis of insurance coverage and the interpretation of policy wording.

First, the Court underlined that the insured has the burden of establishing that the loss is covered by the policy wording as well as the resulting damages. The insurer then has the burden of proving that the loss is excluded. The Court summarized the guiding principles as follows:

  1. where the language of the insurance policy is unambiguous, the Court should give effect to the clear language, reading the contract as a whole;
  2. if the language of the insurance policy is ambiguous, the Court must rely on the general rules of contract interpretation; the Court must avoid interpretations that would give rise to unrealistic results or that would not have been contemplated by the parties at the time the policy was concluded;
  3. should the rules of interpretation fail to resolve the ambiguity, the policy must be interpreted against the insurer;
  4. the coverage provisions should be interpreted broadly whereas the exclusions should be interpreted narrowly.

In this case, Plaintiffs were covered by a residential policy subject to the flood and water exclusions which read as follows:

(8)Flood

We do not insure loss or damage caused directly or indirectly by flood.

Flood includes waves, tides, tidal waves, tsunamis, seiches, dam breaks and the rising or overflow of any stream of water or body of water, whether natural or man-made.

This exclusion applies whether or not there is another cause or occurrence (whether covered or not) that contribute concurrently or in any sequence to the occasioning of the loss or damage.

However, we insure loss or damage caused directly to insured property by a fire or explosion resulting from flood.

(30) Water Damage

We do not insure:

(a) Loss or damage caused by water from continuous or repeated escape, overflow or backing up of water whether or not you were aware of such escape, overflow or backing up.

(b) Loss or damage caused by water from escape, overflow or backing up of:

[…]

  • sewer connections;
  • sewers;
  • septic tanks, drain fields or other wastewater treatment systems;

[…]

(d) Loss or damage caused by ground or surface water, including if it enters or seeps into the building.

The policy however contained an endorsement providing additional coverage for “Insured Perils” which was also subject to an exclusion and which read as follows:

Insured perils

We insure sudden and accidental loss or damage to insured property caused directly by:

  • Water from escape, overflow or backing up of:
    • sewer connections;
    • sewers;
    • septic tanks, drain fields or other wastewater treatment systems;
    • sumps, retention tanks or holding ponds;
    • subsoil drainage pipes (French drains);
    • ditches.

Exclusions

The following exclusions are added to the insurance policy, but solely for the purpose of this endorsement:

  • Loss or damage caused directly or indirectly by a peril insured by the endorsement which occurs when a flood reaches the surface of the ground on the premises. This exclusion applies whether the loss or damage arises before, during or after the arrival of this flood on the premises.

For the purpose of this endorsement, flood includes waves, tides, tidal waves, tsunamis, seiches, dam breaks and the rising or overflow of any stream of water or body of water, whether natural or man-made.

This exclusion applies whether or not there is another cause or occurrence (whether covered or not) that contributes currently or in any sequence to the occasioning of the loss or damage.

Plaintiffs argued that the Flood Exclusion was ambiguous and should be interpreted in their favour and that it did not apply as a damage to the basement was caused only by the sewer back-up. The Court concluded that the coverage and the exclusion of the endorsement were not ambiguous as damages caused directly or indirectly by a flood are not covered. The Court noted that a loss or damage resulting from a sewer back-up is covered. However, it is excluded when:

  • the loss or damage, caused directly or indirectly from a sewer back-up, occurs when a flood reaches the surface of the ground on the premises; and
  • whether the loss or damage arises before, during or after the arrival of the flood on the premises.

The Court concluded that this exclusion applies whether or not another cause or occurrence contributed concurrently or in any sequence to the occasioning of the loss or damage. Justice Charette of the Superior Court noted that damage caused by a sewer back-up resulting directly or indirectly from a flood is excluded adding that, the wording also required that the flood water reach the insured premises as it did.

This decision confirms that this interpretation is consistent with the fact that damage from a flood is not covered whereas the endorsement adds coverage for water damage. The endorsement adds coverage for water damage but not for loss or damage resulting from a flood. “The objective is to ensure that damages resulting from a flood are excluded even when another cause contributes concurrently.” The Court noted that the flood was the first element in the chain of causation of the damages. Furthermore, the facts established that the flood, as defined by the endorsement, had reached the insured’s premises in accordance with the definition contained in the policy. It was therefore determined that the insurer had proven the necessary facts to invoke the Flood Exclusion of the Endorsement. As such, therefore, the claim was not covered.

We remind you that we have a team specialized in municipal liability and the contact partners are Hugues Duguay and Justin Beeby.

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Authors

Mariella De Stefano

Lawyer, Partner and Co-chair of the Insurance Law Group

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