Tom Donnelly and Joyce Tam were successful in the Ontario Superior Court in The Corporation of the City of Belleville v. Gore Mutual Insurance Company, 2021 ONSC 3854.
This case arises out of a coverage dispute between the Plaintiff, City of Belleville and the Defendants, the Insurers. The Defendants brought a Rule 21 Motion against the Plaintiff in front of the Ontario Superior Court of Justice. Justice Kershman held that the Defendants were successful on the motion.
A Director’s Order was issued by the Ontario Ministry of the Environment and Climate change on August 31, 2015, against several individuals and entities, including the City of Belleville. The Director’s Order found pollution and contamination on the Belleville Gas Plant site and required the remediation of the contaminated site. Belleville appealed the Director’s Order and sought relief at the Environmental Review Tribunal. The City of Belleville sought to have the Insurers defend the regulatory proceeding that it had appealed at the Environmental Review Tribunal. The Defendants contended that the Director’s Order was not a “civil action” and therefore, the Insurers did not have the duty to defend the City of Belleville.
Motion Hearing Issues
The Court was asked to consider whether the Director’s Order, an environmental regulatory proceeding, is a “civil action” within the meaning of the insurers’ liability policies, and in the affirmative, whether the insurers had the duty to defend the City of Belleville.
Motion Judge’s Decision
In the case before the Court, the insurance policies insured against civil actions and civil actions for damages. Therefore, the Court had to determine whether the Director’s Order was a “civil action” within the meaning of the insuring policies. In defining “action”, Justice Kershman relied on the definitions provided in the Rules of Civil Procedure and the Courts of Justice Act. In defining “civil action for damages”, the Court relied on the reasoning of Justice Caswell in Brockton (Municipality) v. Frank Cowan Co Ltd., who stated, in relevant part, that: “legal fees associated with responses to regulatory and investigative authorities […] including the [Ministry of the Environment] and the Public Inquiry, engineering expenses and remediation expenses are all outside the limits of the contractual risks undertaken by the Insurers”[1].
The Court relied on Justice Penny’s reasoning in General Electric Canada Company v. Aviva Canada, Inc.[2], who noted that the precision of policies is a relevant consideration. By way of contrast, in the General Electric Canada Company v. Aviva Canada, Inc. case, the insurance policies provided that the insurer would defend “suits” and “claims” against the insured. In the case at bar, the Court found that the wording and terms of the Defendants’ policies were specific, and therefore, it was reasonable to conclude that the insurance policies only provided coverage for civil actions, as defined by the Rules of Civil Procedure and the Courts of Justice Act. Accordingly, Justice Kershman held that a “civil action” or an “action” is not the same or equivalent to a “suit”.
Therefore, on the issue of whether the Director’s Order against the City of Belleville is a “civil action” within the meaning of the Insurers’ liability policies, Justice Kershman found that the City of Belleville’s regulatory appeal of the Director’s Order was not captured within the meaning of the words “civil action” or “action” in the insurance policies presented before the Court. Justice Kershman held that in appealing the Director’s Order, the City of Belleville entered an administrative appeal process as opposed to a civil litigation process.
Therefore, the City of Belleville’s regulatory proceedings were excluded from coverage.
Accordingly, the Court found that the Insurers did not have the duty to defend the City of Belleville. The duty to defend is a contractual obligation government by the terms of the insurance policy. The duty to defend refers to the insurer’s obligation to defend claims against an insured which are potentially covered by the insurance policy. In this case, the City of Belleville’s administrative appeal process was excluded from coverage under the insurance policies since the regulatory proceedings did not meet the definition of “civil action”. Justice Kershman followed the Court of Appeal’s position in Brockton (Municipality) v. Frank Cowan Co Ltd. [3] in holding that the duty to defend did not include legal fees incurred in response to regulatory and investigative authorities. Therefore, the insurers’ duty to defend the City of Belleville was not triggered.
[1] Brockton (Municipality) v. Frank Cowan Co Ltd.[2000] O.J. No. 4455 (S.C.), para. 91
[2] General Electric Canada Company v. Aviva Canada, Inc., 2010 ONSC 6806, 10 C.C.K.I. (5th) 16
Key Takeaways
- A regulatory clean up order is not a “civil action” and does not trigger coverage under a CGL policy.
- This precedential decision provides guidance to Canadian courts, policyholders, and insurers in claims involving regulatory orders and the duty to defend and will be an important precedent for Canadian insurers facing pollution liability claims.
For more information on our Insurance Coverage practice, please contact Tom Donnelly or Joyce Tam.