Insurance & Reinsurance
A "proximate cause" analysis is still relevant when applying an exception to an exclusion provision in cases of concurrent causes, the Court of Appeal of Manitoba has ruled.
The ruling in Sher-Bett Construction (Manitoba) Inc. v. The Co-operators General Insurance Company is notable in that it takes a different approach than the 2001 ruling of the Supreme Court of Canada in Derksen v. 339938 Ontario Ltd., still considered the leading insurance case in Canada when dealing with concurrent causes.
In Derksen, the Supreme Court held that when there are two concurrent causes for a loss — one afforded coverage and the other excluded — it is not necessary to determine which one is the “proximate cause.” Only the portion of the loss attributable to the covered concurrent cause will be covered. However, if the wording of the exclusion expressly states it will apply despite other causes (e.g. caused directly or indirectly), the outcome will be different and the loss will be fully excluded. In Derksen, the exclusion contained no such express language, so the court held that the portion of the loss attributable to the covered concurrent cause was not excluded.
In Sher-Bett, the Court of Appeal of Manitoba had to determine whether an exclusion in a Builder's Risk policy (for loss or damage caused directly or indirectly by frost or freezing) and, more particularly, its related exception (for loss or damage caused directly by a peril not otherwise excluded) applied to damage of a freshly poured concrete floor during a building’s construction. The damage to the concrete floor occurred after the general contractor — the insured — applied a de-icing chemical, which resulted in multiple freezing-thaw cycles and the scaling of the concrete floor.
While the insurer argued that freezing was the only direct cause of the loss, the insured responded that it was the application of the de-icing chemical that caused it, making the loss fall within the exception to the exclusion (as being a peril not otherwise excluded).
The Court of Appeal of Manitoba first considered the meaning of "caused directly or indirectly" in the exclusion. It held that such wording generally connotes that both the direct and consequential losses of an event are captured. Here, the insured had conceded that the exclusion applied.
Notably, the Court of Appeal of Manitoba had to decide between two competing interpretations of the wording "caused directly" in the exception to the exclusion, namely whether it refers to: (i) the "proximate cause" or (ii) the cause "immediately preceding" the loss.
The Court of Appeal rejected the "closest in time" interpretative approach, as applied in other cases, including the 1999 BC Court of Appeal ruling in Canevada v. Country Communities Inc. v. GAN Canada Insurance Co. Following this approach, the exception to the exclusion would not apply since the application of the de-icing chemical was not the closest in time to the loss.
The Court of Appeal of Manitoba, relying on the decision of the Ontario Court of Appeal in 942325 Ontario Inc. v. Commonwealth Insurance Co., took an alternative approach. To the court, "caused directly" means the "proximate cause" and therefore the effective or dominant cause of the loss, even if more remote in time from the loss. In this case, the application of the de-icing was a proximate cause (as revealed by expert testimony) and therefore the exception to the exclusion applied. The loss was covered.
It’s also worth noting that in 1998, the Quebec Court of Appeal in Meale v. Zurich compagnie d'assurance applied reasoning similar to the one found in Sher-Bett and 942325.
To conclude, there are two divergent jurisprudential trends in Canada on the interpretation to be given to the wording "caused directly" in an exception to an exclusion. It will be interesting to see which Canadian courts apply a "proximate cause" approach and which ones follow the "closest in time" approach.