Insurer unable to rely on pollution exclusion clause to deny duty to defend insured town in relation to allegation its storm sewer was in disrepair.
Insurance law – Public entity insurance – Exclusions – Duties and liabilities of insurer
Lincoln (Town) v. AIG Insurance Co. of Canada,  O.J. No. 1071, 2020 ONSC 1456, Ontario Superior Court of Justice, March 10, 2020, P.M. Perell J.
An action was brought against the insured town alleging it was negligent in failing to stop the flow of sewage and water onto a property. The action also alleged that a storm sewer maintained by the insured was in a state of disrepair and caused additional sewage back-up. The insured sought coverage under its Public Entity General Insurance Policy but the insurer denied the claim on the basis that a pollution exclusion applied.
The insured sought a declaration that the insurer had a duty to defend under the policy.
The Court found that there were two branches of the claim against the insured: (1) that it failed to stop the flow of sewage and, (2) that the storm sewer was in a state of disrepair. Only the first claim fell within the policy’s pollution exclusion.
With respect to the second branch of the claim, the Court found:
- the storm sewer and lands around the pumping station are not premises owned by the town at which the escape of pollutants occurred;
- they are not premises used for the handling, storage, disposal, processing or treatment of waste; and
- they are not premises on which the town performed operations on pollutants.
The Court found that there was a possibility that the insured may not be liable for the first branch of the claim but could be liable for the second branch. The Court concluded the second branch of the claim was not derivative of the first branch and was related to a different source of liability. As there was a possibility that the claim could fall within the liability coverage, the insurer owed a duty to defend the insured.
This case was digested by Dominic Wan, 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 Dominic Wan at firstname.lastname@example.org.