Citation:
Wynward Insurance Group v.
MS Developments Inc.,
2016 BCCA 513
Date: 20161230
Docket: CA42682
Between:
Wynward Insurance Group
Respondent
(Petitioner)
And
MS Developments Inc. and Yamas Taverna Ltd.
Appellants
(Respondents)
Before:
The Honourable Mr. Justice Willcock
The Honourable Mr. Justice Goepel
The Honourable Mr. Justice Fitch
On appeal from: An order of the Supreme Court of British Columbia, dated March 4,
2015 (Wynward Insurance Group v. MS Developments Inc., 2015 BCSC 324,
Kelowna Registry Docket No. 103978).
Counsel for the Appellants:
Counsel for the Respondent:
Place and Date of Hearing:
Place and Date of Judgment:
Written Reasons by:
The Honourable Mr. Justice Goepel
Concurred in by:
The Honourable Mr. Justice Willcock
The Honourable Mr. Justice Fitch
M.E.A. Danielson
A.L. Eged
Kelowna, British Columbia
October 19, 2016
Vancouver, British Columbia
December 30, 2016
2016 BCCA 513 (CanLII)
COURT OF APPEAL FOR BRITISH COLUMBIA
Wynward Insurance Group v. MS Developments Inc.
Page 2
MS Developments and Yamas appeal the chambers judge’s interpretation of
exclusion clauses in an insurance policy. MS Developments and Yamas own and
operate a restaurant, which suffered damage due to the freezing and rupture of
pipes. The premises were insured by Wynward Insurance under an all-risk insurance
policy, which contained certain exclusions. The chambers judge found the damage
was excluded from coverage. Held: Appeal dismissed. The Freezing Exclusion
provides that there is no insurance for loss or damage caused directly or indirectly
by freezing. The Freezing Exclusion contains an exception: the exclusion does not
apply to loss or damage caused directly by rupture of pipes. Thus, the policy was
drafted so that the exception to the exclusion only applied to direct damage caused
by the rupture of pipes. Here, there was no such direct damage. Thus, the Freezing
Exclusion applies to exclude the damage from coverage.
Reasons for Judgment of the Honourable Mr. Justice Goepel:
INTRODUCTION
[1]
The central issue on this appeal is whether one or more exclusion clauses in
an all-risk insurance policy applies in the circumstances of a loss suffered by the
appellants, MS Developments Inc. (“MS Developments”) and Yamas Taverna Ltd.
(“Yamas”). Mr. Justice Rogers found that the losses were excluded and that the
respondent, Wynward Insurance Group (“Wynward Insurance”), was entitled to a
declaration that it was not obliged to indemnify MS Developments and Yamas for the
damage that occurred. His reasons are indexed at 2015 BCSC 324.
[2]
MS Developments and Yamas now appeal. They allege that the chambers
judge erred in his interpretation of the exclusions.
[3]
For the reasons that follow, I would dismiss the appeal.
BACKGROUND
[4]
MS Developments and Yamas own and operate a restaurant in a building
located in Kelowna, British Columbia (the “Premises”). The Premises were insured
by an all-risk insurance policy issued by Wynward Insurance (the “Policy”). While the
2016 BCCA 513 (CanLII)
Summary:
Wynward Insurance Group v. MS Developments Inc.
Page 3
Policy was in force, the building on the Premises sustained damage, including
cracking and displacement of its floors, walls and ceilings (the “Damage”).
The parties agree that the chain of events that led to the Damage was as
follows:
1.
Failure of the heat wrap surrounding the freezer drain line;
2.
Freezing and bursting of the freezer drain line;
3.
Water escaping from the freezer drain line, running down the freezer
wall and onto and through the freezer floor slab; and
4.
Water accumulating under the freezer floor slab and building walls; that
water freezing and expanding, and creating a frost heave or uplift
under the freezer floor slab and the building walls.
[6]
MS Developments and Yamas made a claim for indemnity for the Damage
arising from the events noted above. Wynward Insurance denied coverage and
commenced these proceedings seeking a declaration that MS Developments and
Yamas’ losses were excluded from coverage.
THE INSURANCE POLICY
[7]
It is common ground between the parties that were it not for certain exclusion
provisions of the insurance policy, MS Developments and Yamas would be entitled
to indemnity for their loss. Wynward Insurance relies on three specific exclusion
clauses. The exclusion clauses read as follows:
6.B.
EXCLUDED PERILS
This form does not insure against loss or damage caused directly or
indirectly:
…
(e)
…
(ii) by changes in or extremes of temperature, heating or
freezing; (the Freezing Exclusion)
…
2016 BCCA 513 (CanLII)
[5]
Wynward Insurance Group v. MS Developments Inc.
Page 4
This exclusion (e) does not apply to:
1)
loss or damage caused directly by rupture of pipes or
breakage of apparatus …
damage to pipes caused directly by freezing, …
3)
loss of or damage to “building” or “equipment” caused
directly by “Named Perils”, theft or attempted theft;
(the “Exceptions from the Freezing Exclusion”)
…
(m)
by snowslide, landslide, subsidence or other earth movement.
This exclusion does not apply to property in transit, or to loss or
damage caused directly by resultant fire, explosion, smoke or leakage
from “fire protective equipment”, all as described in Clause 17(l); (the
“Earth Movement Exclusion”)
…
(o)
by settling, expansion, contraction, moving, shifting or
cracking. This exclusion does not apply to loss or damage caused
directly and concurrently by a peril not otherwise excluded in this
form; (the “Expansion Exclusion”)
[8]
The parties agree that if any one of the exclusions applies the appeal must
fail.
REASONS FOR JUDGMENT
[9]
The chambers judge commenced his analysis with reference to the approach
to interpreting insurance contracts set out by the Supreme Court of Canada in
Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC
33. He next made reference to the decision of this Court in Pavlovic v. Economical
Mutual Insurance Co. (1994), 99 B.C.L.R. (2d) 298 (C.A.) and the decision in The
Owners, Strata Plan NW2580 v. Canadian Northern Shield Insurance Company,
2006 BCSC 330.
[10]
The chambers judge then went on to analyze the three exclusion clauses. He
found that the Freezing Exclusion applied. In that regard he reasoned as follows:
[31]
Freezing, however, clearly did play a causal role in the loss. Water
that normally was in its liquid form froze and turned into a solid inside the
condensation drain pipe. Liquid water backed up against the frozen plug and
escaped via one or more tears in the pipe. That liquid water then flowed onto
the freezer floor where it froze, into the walls where it froze and expanded
2016 BCCA 513 (CanLII)
2)
Wynward Insurance Group v. MS Developments Inc.
Page 5
[32]
In my view, there can be no doubt but that the physical act of freezing
was an indirect cause of the damage to the structure of the respondents’
building. I am therefore driven to the conclusion that the exclusion contained
in Clause 6B(e)(ii) is operative in this case.
[11]
The chambers judge then turned to the Earth Movement Exclusion. He noted
that the Earth Movement Exclusion was basically the same as the exclusion
analyzed in NW2580. In NW2580, Madam Justice Martinson held that the Earth
Movement Exclusion was ambiguous because it did not distinguish between natural
and unnatural events. The chambers judge followed the decision in NW2580. He
held that the exclusion was ambiguous and did not operate to exclude coverage.
[12]
The chambers judge next considered the Expansion Exclusion. In NW2580, a
very similar clause had been held to apply to both natural and unnatural events. The
chambers judge noted that the decision in NW2580 had been mentioned but not
followed by the Alberta Court of Appeal in Engle Estate v. Aviva Insurance Company
of Canada, 2010 ABCA 18. He noted that Engle Estate was of interest but was not
binding on him. He held that the principles of comity and stare decisis required that
he follow NW2580 rather than a contrary ruling from a different court in a different
jurisdiction. He concluded the Expansion Exclusion also excluded coverage.
[13]
In the result, the chambers judge found that both the Freezing Exclusion and
the Expansion Exclusion applied and that Wynward Insurance satisfied the onus to
establish that MS Developments and Yamas’ losses were excluded from coverage.
Accordingly, he declared that Wynward Insurance was not obliged to indemnify MS
Developments and Yamas for the Damage.
THE APPEAL
[14]
MS Developments and Yamas submit that the chambers judge erred in failing
to consider and/or apply the exception in the Freezing Exclusion for damage caused
directly by the rupture of pipes or breakage of apparatus. They further submit that he
erred in following NW2580 and finding that the Expansion Exclusion applied.
2016 BCCA 513 (CanLII)
and cracked the walls, and into the ground where it mixed with the soil and
expanded as that mixture froze.
Wynward Insurance Group v. MS Developments Inc.
[15]
Page 6
Wynward Insurance submits that the chambers judge correctly interpreted the
Freezing Exclusion and Expansion Exclusion. It says however the chambers judge
erred in following NW2580 and finding the Earth Movement Exclusion to be
excludes coverage.
DISCUSSION
[16]
This case concerns the interpretation of a standard form insurance contract.
The appropriate standard of review is correctness: Ledcor Construction Ltd. v.
Northbridge Indemnity Insurance Co., 2016 SCC 37.
[17]
The general principles of insurance policy interpretation were set out in
Progressive Homes Ltd. v. Lombard General Insurance Company of Canada, 2010
SCC 33:
[22]
The primary interpretive principle is that when the language of the
policy is unambiguous, the court should give effect to clear language, reading
the contract as a whole (Scalera, at para. 71).
[23]
Where the language of the insurance policy is ambiguous, the courts
rely on general rules of contract construction (Consolidated-Bathurst, at pp.
900-902). For example, courts should prefer interpretations that are
consistent with the reasonable expectations of the parties (Gibbens, at para.
26; Scalera, at para. 71; Consolidated-Bathurst, at p. 901), so long as such
an interpretation can be supported by the text of the policy. Courts should
avoid interpretations that would give rise to an unrealistic result or that would
not have been in the contemplation of the parties at the time the policy was
concluded (Scalera, at para. 71; Consolidated-Bathurst, at p. 901). Courts
should also strive to ensure that similar insurance policies are construed
consistently (Gibbens, at para. 27). These rules of construction are applied to
resolve ambiguity. They do not operate to create ambiguity where there is
none in the first place.
[24]
When these rules of construction fail to resolve the ambiguity, courts
will construe the policy contra proferentem — against the insurer (Gibbens, at
para. 25; Scalera, at para. 70; Consolidated-Bathurst, at pp. 899-901). One
corollary of the contra proferentem rule is that coverage provisions are
interpreted broadly, and exclusion clauses narrowly (Jesuit Fathers, at para.
28).
[18]
MS Developments and Yamas were insured pursuant to an all-risk insurance
policy. Coverage under the policy is however limited by certain exclusions set out in
2016 BCCA 513 (CanLII)
ambiguous. It submits that properly interpreted, the Earth Movement Exclusion also
Wynward Insurance Group v. MS Developments Inc.
Page 7
the policy. The Freezing Exclusion provides that there is no insurance for loss or
damage caused directly or indirectly by freezing. The Freezing Exclusion contains
an exception that it does not apply to loss or damage caused directly by rupture of
[19]
In the first instance, the onus is on MS Developments and Yamas to prove
that the loss falls within the policy. It is common ground that they have done so.
Wynward Insurance bears the onus of proving that the exclusion clause applies to
the damage. If Wynward Insurance establishes that the exclusion clause applies,
MS Developments and Yamas then bear the onus of proving the exception to the
exclusion applies: Dawson Truck Repairs Ltd. v. Insurance Corporation of British
Columbia, 2008 BCCA 209 at para. 13.
[20]
In this case, the loss arose from an agreed chain of events. The chain
includes two separate freezing incidents. The drain line froze and then burst. The
freezing and bursting of the freezer drain line led to water escaping from the freezer
drain line; this water subsequently froze again causing the Damage.
[21]
In Pavlovic, this Court wrestled with how to determine the cause of a loss
when it arose from a series of events. In Pavlovic, the policy excluded coverage
caused by seepage or leakage of water. The chain of events that led to the loss was
that a water surface line failed, allowing water to escape into the ground. The
escaped water migrated or percolated through the soils to the area underlying the
foundations of the insured’s home. The wetted soils became densified and ultimately
collapsed. The void created by the collapsed soil allowed the house to settle as the
soil no longer provided support to the foundation. The uneven settlement of the
house caused the house to distort and thus to be damaged.
[22]
Finch J.A. (as he then was) wrote for the Court. He noted that looking at the
whole chain of events, beginning with the failure of the pipe and ending with the
settlement and damage of the house, it was evident that the migration and
percolation of water was one of several necessary links in the chain of causation. He
indicated that in the circumstances of the case one could say that the loss or
2016 BCCA 513 (CanLII)
pipes or breakage of apparatus. [Emphasis added].
Wynward Insurance Group v. MS Developments Inc.
Page 8
damage was caused by the excluded event. He said to do so however would be to
select as the cause of the loss only one event in the causal chain and he thought it
20
It could be argued with at least equal force, if only one of several
events is to be selected, that the event occurring either first or last in time
should be chosen. So, one could fairly say, that the appellants’ loss was
“caused by” the last event in time, subsidence of the soils around the
dwellings’ foundations. Or one could say, as the appellants argue, that the
appellants’ loss was caused by the first identified event in time, namely, the
failure or rupture of the water service line. I observe in passing that this
analysis leaves unanswered the question as to what caused the water
service line to fail. That question does not appear to be answered in the
evidence, or in the judge’s findings.
21
In these circumstances, I do not think one can fairly say that the
appellants’ loss and damage were “caused by” the leakage of water below
the ground. At most all one can say is that the leakage of water was an
indirect cause of the loss, and one of many other contributing causes.
22
It would be more accurate to say that the loss was caused by the
whole chain of events, of which leakage of water underground was a
contributing or indirect cause, and that the chain of events was set in motion
by the rupture or failure of the water service line from an unknown cause.
[23]
He concluded that in the circumstances of the case, the meaning of the
exclusion was at best ambiguous as it left open the question of whether the loss was
excluded where seepage or leakage is a “contributing cause” as opposed to the only
cause. He noted that this ambiguity could have been resolved by using language
such as “caused directly or indirectly”. That is the very language that is used in the
Freezing Exclusion.
[24]
The significance of the words “direct” and “indirect” in an insurance policy was
analyzed in the strikingly similar case of Canevada Country Communities Inc. v.
GAN Canada Insurance Co., 1999 BCCA 339. In Canevada, which also concerned
an all-risk commercial policy, the exclusion read as follows:
6(b) Loss or damage, unless directly caused by a peril not otherwise
excluded therein, caused directly or indirectly by rust or corrosion, frost or
freezing.
[25]
In Canevada, water froze in the sprinkler system and the freezing caused the
sprinkler pipes to break. Water subsequently discharged from the broken pipe
2016 BCCA 513 (CanLII)
would not be fair to do. In that regard he reasoned:
Wynward Insurance Group v. MS Developments Inc.
Page 9
causing damage to walls, woodwork, carpeting and electrical work. The damage was
caused by the discharge of water from the sprinkler system. The discharge of water
Rowles J.A. for the majority began her analysis by discussing the distinction
between “direct cause” and “proximate cause”:
[26]
26
The point in contention is the meaning to be given to the words
“directly caused” in paragraph 6(b). The appellants argue that a “direct cause”
should be treated as being synonymous with “proximate cause” and that both
terms should be taken to refer to the “direct, dominant, operative and
effective cause of the loss or damage”.
27
The problem with the interpretation for which the appellants contend,
becomes evident when one considers the use of the phrase “directly or
indirectly" in paragraph 6(b). Paragraph 6(b) states that the policy does not
insure “loss or damage ... caused directly or indirectly by rust or corrosion,
frost or freezing” (emphasis added in Canevada). If “directly” and
“proximately” are synonymous, the term “indirectly”, as the antonym of
“directly”, must presumably refer to a minor cause which operates in some
indirect or ineffective fashion. That reading would lead to the nonsensical
conclusion that the policy does not insure loss or damage where rust,
corrosion, frost, or freezing constitutes even a minor or “indirect” cause of the
loss or damage. The appellants’ reading of “directly” as “proximately” appears
to me to be strained, given the pairing of the word “directly” with its antonym
“indirectly”.
28
The respondent, on the other hand, argues that “direct cause” and
“proximate cause” deal with wholly different concepts. The respondent
submits that the word “proximate” and its antonym “remote” are concerned
with the quality of the closeness of a particular cause, whereas the word
“direct” and its antonym “indirect” are concerned with the degree to which an
event leads straight or immediately to its consequence.
29
In my view, the interpretation of “direct cause” advanced by the
respondents is clearly preferable. Taken in context, the terms “directly” and
“indirectly” are intended to capture the sense in which an event leads straight
or immediately to its consequence. [Emphasis added].
[27]
She then applied the distinction she had drawn to the facts before her:
32
The operation of paragraph 6(b) can be illustrated by considering the
sequence of events leading up to the damage suffered in this case. The loss
claimed in this case was damage to walls, woodwork, carpeting, and
electrical work. The damage was caused by a discharge of water from the
sprinkler system. The discharge of water, in turn, was caused by the damage
done to the sprinkler system by freezing temperatures. The damage to the
property was at once both a direct result of the discharge of water and an
indirect result of the freezing temperatures. The damage to the property
would accordingly have been excluded by paragraph 6(b) as being indirectly
2016 BCCA 513 (CanLII)
from the sprinkler system was a peril expressly covered by the policy.
Wynward Insurance Group v. MS Developments Inc.
Page 10
caused by freezing were it not for the fact that the interposed event in this
case, namely, the discharge of water from the sprinkler system, was itself a
peril expressly covered by the Policy.
The present case is nearly identical to Canevada, with an important
exception. The initial freezing caused water to be discharged from the pipes. Unlike
in Canevada, the discharged water did not cause the Damage. The Damage only
occurred when the discharged water subsequently froze again.
[29]
Examining the chain of events in this case through the lens of the Canevada
analysis it can be said that the Damage was caused indirectly by the initial freezing.
The Damage would be excluded unless the exception to the exclusion applies. The
exception requires a finding that the Damage was caused directly by the rupture of
pipes. That is what occurred in Canevada where the water coming from the pipes
caused the loss. It is not however what occurred in this case. In this case, the
ultimate freezing which caused the damage was not a direct result of the initial pipes
bursting but an indirect result.
[30]
The policy was clearly drafted in such a manner that the exception to the
exclusion only applied to direct damage caused by the rupture of pipes. In this case,
there was no such direct damage. For the exception to apply, the language would
have had to also include the word “indirect”. It did not. The words in the exception
are clearly narrower than the words in the exclusion.
[31]
Following the Canevada direct/indirect analysis I find that the Freezing
Exclusion does apply to exclude this loss. The Damage arose indirectly from the
initial freezing of the pipes.
[32]
The same result follows if the loss is considered in the context of the second
freezing incident. The second freezing incident was the direct cause of the loss.
Again the Freezing Exclusion applies to exempt the Damage from coverage.
[33]
As previously noted, for Wynward Insurance to succeed they need only to
establish that any one of the exclusion clauses apply. Accordingly, I do not find it
2016 BCCA 513 (CanLII)
[28]
Wynward Insurance Group v. MS Developments Inc.
Page 11
necessary to consider or comment on the Earth Movement Exclusion or the
Expansion Exclusion or the submissions that NW2580 was wrongly decided.
I would dismiss the appeal.
“The Honourable Mr. Justice Goepel”
I AGREE:
“The Honourable Mr. Justice Willcock”
I AGREE:
“The Honourable Mr. Justice Fitch”
2016 BCCA 513 (CanLII)
[34]