Case Summary: No coverage where insured failed to prove smoke damage
Insured was not covered for minor contamination to property, made by smoke and soot from a nearby fire, as there was no evidence of damage, and contamination was not “directly” caused by the fire.
Insurance law – Commercial general liability insurance – Property damage – Exclusions – Interpretation of policy – Practice – Summary judgments – Evidence – Expert evidence
Sidhu (c.o.b. Prosperity Electric) v. Aviva Insurance Co. of Canada,  B.C.J. No. 1240, 2020 BCSC 1171, British Columbia Supreme Court, August 7, 2020, S.C. Fitzpatrick J.
The insured operated a proprietorship selling electrical equipment, on premises with a stock room. There was a fire outside the premises. Smoke from the fire migrated into the stock room, causing some minor chloride contamination but no other damage to the stock.
The policy covered all risks of direct physical loss of or damage to the Insured property, except as otherwise provided, which included the stock.
The insurer refused to pay part of the insured’s claim, on the basis that there was no coverage for that portion of the loss under the policy. The insured commenced an action and the insurer brought a summary trial application seeking a declaration that it was not required to indemnify the insured.
The first argument the Court considered was whether the minor presence of chloride contamination on some of the stock resulted in “physical loss of or damage” to all of the stock.
The only evidence as to the condition of the stock was put forward by the insurer. The insurer tendered an expert report in which the expert opined that the stock was not materially contaminated, altered, or damaged by the fire, despite the fact that swab samples showed low levels of Chloride Equivalent.
The insured did not provide any evidence of physical loss or damage to the stock, and did not arrange for any testing, despite apparent coverage under the policy that insures for reasonable fees for testing. The insured argued that the insurer’s expert’s report confirming low levels of chloride contamination resulted in the stock having been altered in a ‘material dimension’. The Court found that the insured failed to establish that the stock had been physically altered in a ‘material dimension’, giving rise to any “physical loss of or damage” to the property.
The insurer’s second argument was that even if the stock was damaged, the damage was excluded by the policy’s contamination exclusion. In response, the insured argued that the stock fell under the exception to exclusion, suggesting that the contamination exclusion does not apply to loss or damage caused directly by named perils, including fire. The Court found that the contamination exclusion applied and the exception to the exclusion did not apply, as the fire did not directly cause the contamination: the fire caused smoke and soot, which migrated to the stock.
The insurer’s application was allowed and the insured’s claim was dismissed.
This case was digested by Erika L. Decker, 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 Erika L. Decker at email@example.com.