Don’t wait to investigate, or a coverage denial may be in the pipeline

There was no coverage for pollution from a pipeline because the leak was not detected within 30 days.

Insurance law – Liability insurance – Pollution exclusions – Interpretation of policy – Breach of contract – Damages – Failure to mitigate – Practice – Appeal – Summary judgments

Paramount Resources Ltd. v. Chubb Insurance Co. of Canada, [2024] A.J. No. 987, Alberta Court of Appeal, August 13, 2024, L.B. Ho, A. Woolley and J. Hawkes JJ.A.

The insurer denied coverage to the insured pipeline owner for remediation and defence costs associated with a leak. The policy provided coverage for a Pollution Incident, which required that an emission, discharge, release or escape be detected by any person within 720 hours after commencement of such emission, discharge, release or escape. Two months prior to detecting the leak, new measurement devices were installed on the pipeline. The parties agreed that an unintentional release of gas commenced on April 21, 2016, but was not detected at that time. On April 30, 2016, abnormalities were observed in the data collected by the new measurement devices. The pipeline personnel attributed the anomalous data to the newly installed equipment rather than evidence of a leak. It was not until June 9, 2016, more than 720 hours after the abnormalities were detected, that pipeline personnel observed hydrocarbon contamination.

The insured’s claim for coverage was granted at summary trial, on the basis that the abnormalities measured on April 30, 2016, constituted detection of the release. The appeal was allowed and the claim for coverage was dismissed. The Court of Appeal determined that the release was detected on June 9, 2016, and therefore beyond the 720 hour requirement for coverage. Interpreting detection as occurring on April 30, 2016, would have gone beyond the plain and obvious meaning of the policy. The 720 hour clause was intended to limit the insurer’s exposure to accidents that were ongoing and unaddressed for a defined time period.

This case was digested by Joe Antifaev and edited by Steven W. Abramson of Harper Grey LLP and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter.  If you would like to discuss this case further, please feel free to contact them directly at [email protected] or [email protected].