Written by Amrit Kalra, Associate

Case citation: Tremblett v. TD Insurance Direct Agency Ltd., 2023 BCSC 1366

Insurance adjusters play a crucial role in evaluating and settling claims, and staying informed about recent court decisions can greatly enhance their effectiveness. In a recent case involving property damage coverage, the BC Court's decision provides valuable insights for insurance adjusters on the importance of policy language, the distinction between direct and indirect causes of damage, and the role of exclusion clauses.

Facts 

In Tremblett v. TD Insurance Direct Agency Ltd., the Plaintiff property owner had secured insurance coverage for their residential property located in Okanagan Falls, British Columbia. When he returned from a brief holiday, the Plaintiff discovered damage to his property caused by the ground settling or shifting and demanded coverage pursuant to an extended water damage endorsement in the policy. While relying on exclusion clauses under the policy, the Defendant insurance company denied coverage.

The damage to the property was not disputed. Expert evidence opined that the settling was caused by high groundwater levels and identified three possible sources of the water. None of the three identified sources of the water, resulting in the settling or subsidence, were within the control of the Plaintiff.

The sole issue at this summary trial was whether the Plaintiff’s claim was covered by the Defendant’s policy or excluded pursuant to one or more of the exclusion clauses.

What factors did the Court consider in its interpretation of the insurance policy and its exclusion clauses?

The insurance policy contained exclusion clauses related to:

• [Exclusion 3]    earthquake, erosion and other geological phenomena
• [Exclusion 4]    ground movement
• [Exclusion 17]  settling

The relevant portion of the extended water policy endrosement stated:You are insured against sudden and accidental loss or damage caused directly to the insured property, including animals, by: 

1. Water originating from escape, overflow or backing up of …
2. Ground or surface water that suddenly and accidentally enters or seeps into the building through walls, foundation, basement boards…
3. Water originating from the rising or overflow of any steam or body of fresh water…

The Court reviewed three previous Court of Appeal decisions^[1] critical to the interpretation of the policy and concluded that the Plaintiff must show three interrelated things in order to succeed: 

1. That the extended water damage exclusion in the policy could apply to his loss;
2. That none of the exclusions in the policy unambiguously apply to his loss; and
3. If some exclusions appear to apply and create ambiguity, that the policy as a whole is ambiguous as to their meaning.
   
   

If the policy is ambiguous, then the court will attempt to resolve the ambiguity by considering factors such as the reasonable expectations of the parties which tend to favour coverage for the benefit of the insured.

If the policy leaves no ambiguity, the insurer will succeed given that the policy is drafted to protect the insurer’s interest.

Decision 

While acknowledging that the Plaintiff was an extremely sympathetic litigant who paid additional premium for extend coverage and sustained damage resulting from factors outside his control, the Court ruled in favour of the Defendant insurer.

The court based its decision on two reasons. Firstly, the extended water damage exclusion in the policy only covered loss or damage “directly caused” by water. In this case, the water caused the loss or damage indirectly (water led to settling/subsidence which ultimately caused damage to the property). Secondly, from the three exclusion clauses, all three of which were cause-dependent, the Court concluded that exclusion clause (3) was unambiguous, thus favoured the Defendant insurer.

Exclusion 3 was found unambiguous and ultimately fatal to the Plaintiff’s claim thus resulting in the Plaintiff’s loss being excluded under the policy. 

Takeaway 

Insurance adjusters should take note of the valuable lessons provided by this property damage coverage dispute. A thorough understanding of policy language, the distinction between direct and indirect causes of damage, principle of ambiguity favouring the insured, and the implications of exclusion clauses can lead to more accurate claim assessments.

[1] Buchanan v. Wawanesa Mutual Insurance Company 2010 BCCA 333;

 Pavlovic v. Economical Mutual Insurance Co., 1994, 99 BCLR (2d) 298, 1994 CanLII 2834 (C.A.);

 Leahy v. Canadian Norther Shield Insurance Company, 2000 BCCA 408