Insured entitled to indemnification by insurer due to Court interpreting policy contra proferentem against insurer

Insurance law – Property insurance – Interpretation of policy – Ambiguity – Exclusions – Contra proferentum rule – Insured – Rights and duties of insured

2102908 Alberta Ltd. v. Intact Insurance Co., [2022] A.J. No. 284, 2022 ABQB 175, Alberta Court of Queen’s Bench, February 28, 2022, S.E. Richardson J.

The insured operated a bowling alley on the ground floor of a leased premises which sustained damage when water overflowed the banks of the local river resulting in surface water entering the insured property through multiple openings of the walls and doors.  The insurer denied the insured coverage on the basis that the policy excluded coverage for loss or damage caused directly or indirectly by flood.

The insured argued that an individual extension in the policy provided stand alone additional coverage for loss or damage caused by seepage, leakage or influx of water derived from natural sources (the “Coverage Extension”), and that there were no exclusions to this additional coverage.  The insurer argued that the damage was caused by a flood and that the Broad Form of coverage specifically excluded coverage for loss or damage caused directly or indirectly by flood (the “Flood Exclusion”).

The Court found that there was ambiguity between the Flood Exclusion and the Coverage Extension given that the Flood Exclusion related to a narrower event than the Coverage Extension.  The Court noted that the Statement of Agreed Facts put forward by the parties attested to the fact that the act that caused the damage was the influx of water into the insured premises as a result of water overflowing the banks of the river.  The Court found that, although colloquially this event could be described as a flood, the specific action that resulted in the damage to the premises was the influx of water into the premises.

Due to the ambiguity between the Flood Exclusion and the Coverage Extension, the Court found that the policy should be interpreted contra proferentem against the insurer, with the Coverage Extension clause interpreted broadly, and the Flood Exclusion interpreted narrowly.  Accordingly, the Court concluded that the policy contained an extension of coverage for loss or damage caused by seepage, leakage or influx of water derived from natural sources, which covered damages caused to the insured property by the overflowed river water, and that the insured was entitled to indemnification under the policy.

This case was digested by Alicia Catalano, 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 contact Alicia Catalano at [email protected].

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