Canada: Who (Or What) Dunnit?: A Caution For Insurers Determining Coverage For Losses With Two Or More Suspected Causes

In insurance coverage determinations, the question of causation is generally the starting point. Did the house flood because of heavy rainfall or a sewer blockage? Did the roof collapse because of snow buildup or defective design?

While ideally, all claims would resolve with a satisfying reveal of the cause of the loss, the reality is that there will be scenarios where there is no straightforward causation theory and there are multiple possible independent sources that may have caused the loss.

The Supreme Court of Canada's 2001 decision of Derksen v. 539938 Ontario Ltd is the leading case in Canada on concurrent causation. The brief facts of Derksen are that during the clean-up of a worksite, a heavy sign base was left unsecured at the rear of a contractor's truck. As the truck was driving on the highway, the sign base went through the window of an oncoming school bus, killing one child and injuring three more. The Supreme Court of Canada held that the accident had two concurrent causes: the negligent clean-up of the work site and the negligent operation of the truck. Subsequently, both the contractor's automobile and commercial general liability policies had a duty to respond to the loss. The Court therefore acknowledged that there are cases in which there is not one factor that can be determined to be the primary cause of a loss and that in some cases, two concurrent causes will act together to cause the loss. The Court in Derksen also held that coverage could not be superseded by an exclusion clause that only excludes one of multiple independent concurrent causes of a loss, absent express language to the contrary.

The coverage dilemma that can occur due to concurrent causes was illustrated in a summary judgment decision recently released by the Saskatchewan Court of King's Bench: Brock Stock Farm Ltd. v. Economical Mutual Insurance Company, 2023 SKKB 119. In this case, the Plaintiff owned and operated a hog farm near Brock, Saskatchewan. The Plaintiff carried insurance under a subscription policy (the "Policy") with four insurers (the "Insurers"). The Policy provided insurance for the Plaintiff's farm buildings, including a large barn (the "Barn"). The Barn's roof was made up of a truss system.

The Policy was an all-risk, broad-form policy. Under "Perils Excluded", the Policy stated that it did not insure loss or damage "caused directly or indirectly" by rust, corrosion, wear and tear or gradual deterioration unless an exception applied.

In February 2016, a portion of the Barn's roof collapsed, and an insurance claim was submitted. The Plaintiff's position was that wind was a necessary cause of the collapse and that the loss was covered by the Policy. The Insurers disagreed, arguing that the cause of the collapse (and of an earlier partial collapse of the Barn's roof in December 2015 for which no insurance claim was made) was wear and tear or gradual deterioration through rusting and corrosion of the metal gusset plate connectors plates, which joined the wooden roof trusses.

The parties agreed that summary judgment was appropriate to resolve this matter and both parties filed detailed expert evidence. The Court ultimately concluded from the expert evidence that the combination of corrosion of the truss plates operated in tandem with the wind caused the Barn's collapse. Justice Crooks found that because the cause of the December 2015 collapse was not definitively known, it provided little assistance in assessing the cause of the February 2016 collapse. Justice Crooks also noted in her decision that she could not say that further corrosion or deterioration of the truss plates may have eventually resulted in a collapse solely from the dead load of the roof. However, she was satisfied that for the Barn collapse to have occurred at the particular time it did, it was due to the concurrent causes of the wind and the corrosion of the truss plates.

As the Plaintiff discharged its onus of establishing that the loss claimed fell within the coverage set out in the terms of the Policy, the onus then shifted to the Insurers to establish the application of any exclusion clause. By using the phrase "caused directly or indirectly", Justice Crooks noted that the Policy had used the type of language recommended in Derksen and that the Insurers had utilized clear words in the exclusion clause which left no ambiguity. In Justice Crooks's view, therefore, the core of this case centred on the exceptions within the exception clauses.

As the Insurers had demonstrated that there were exclusion clauses which applied, the onus shifted back to the Plaintiff to establish the loss fell within any exception to an exclusion clause. At issue was the wording of the following exclusion clause:

The Plaintiff asserted that the truss plates were part of an "apparatus not otherwise excluded". In reading the Policy as a whole, Justice Crooks found that there was ambiguity in the language used and if it was the Insurers' intention to limit the meaning of an "apparatus", it was open to them to include a similar limitation in the Policy. Ultimately, she concluded that the truss met the definition of an apparatus and that the loss fell within the exception under the exclusion clause, resulting in the loss being subject to coverage under the Policy and the Plaintiff being awarded $328,196.91 for costs to repair the Barn and for business interruption loss.

This decision in Brock serves as a reminder that it is necessary for a policy to have clear exculpatory language if an insurer is to deny coverage in situations involving a loss with two or more independent concurrent causes.

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