The Superior Court recently ruled on the interpretation of an exclusion clause for damages resulting from a flood, in Gestion Michel Bernard inc. v. Promutuel Chaudière-Appalaches, Société mutuelle d’assurance générale[1].
Summary of the Facts
The Plaintiffs are the owners of a building located in Beauceville and the operators of a restaurant located in that building.
On April 16, 2019, a significant overflow of the Chaudière River (the “River”) struck Beauceville. The building was heavily damaged due to the flood. According to witnesses, it was surrounded by ± 3 feet of water, which caused a wall to collapse inwards and the building’s natural gas supply line to break.
Analysis
The Plaintiffs’ insurer refused to indemnify them on the grounds that their respective insurance policies contained an exclusion clause relating to flood losses. Following this refusal to indemnify, the Plaintiffs sued their insurer.
Therefore, the Court had to consider the principles applicable for coverage disputes. To this end, the Judge reiterated the said principles, i.e.:
(1) The insured must prove that the damages can be covered by the initial coverage.
(2) If such proof is made, the burden of proof will be reversed, and it will be up to the insurer to prove that the coverage does not apply due to an exclusion
(3) Finally, if the applicability of the exclusion is proven, there will be a new reversal of the burden of proof, and it will be up to the insured to prove that an exception to the exclusion applies.
The Plaintiffs relied on the decisions in Progressive Homes Ltd. v. Cie Canadienne d’assurances générales Lombard[2] and Développement les Terrasses de l’Île inc. v. Intact, compagnie d’assurance[3] to support their position that their insurer had to prove that “coverage is clearly and unequivocally excluded by an exclusion clause.”
The Judge made a significant distinction between the circumstances set out in Progressive Homes Ltd. and Développement les Terrasses de l’Île inc. In both these decisions, the Court analyzed the duty to defend based on a Wellington-type motion, whereas the present matter required the Court to determine whether the insurer must indemnify its insureds. In the latter situation, the insurer is not required to present “clear and unequivocal” evidence. On the contrary, the insurer only has to present a simple preponderance of evidence in order to win the case.
Applying these nuanced principles to the matter at hand, the Judge noted the following:
(1) All the parties agreed that the damages suffered were covered by the insurance, so the insureds met their burden of proof in this regard.
(2) The insurer met its burden of proof by demonstrating a preponderance of the evidence that an exclusion applied, namely that the damage was caused directly or indirectly, in whole or in part, by flooding, waves, tides, tidal waves, tsunamis or the escape or overflow of a natural or artificial body of water.
(3) The insureds could not prove, by a preponderance of evidence, that an exception applied, namely that the damage was caused indirectly by an explosion. Indeed, although the Plaintiffs attempted to prove that the damage was caused by the explosion of the natural gas pipe rather than by the flood, the Court held that the Plaintiffs’ expert was unable to identify the probable (and not merely possible) cause and that he could only speculate in this regard, and was therefore not qualified to give an opinion.
In light of these facts, the Court dismissed the Plaintiffs’ Originating Application.
Comments
Although the general principles applicable, in the question of insurance coverage, are well known, the Judge emphasized that a significant distinction must be made, depending on whether we are dealing with a Wellington-type motion (in matters of duty to defend) or on the merits (in matters of direct damages), as in this case.
[1] 2024 QCCS 2075.
[2] 2010 CSC 33.
[3] 2019 QCCA 1440.
