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Landowners will often comply voluntarily with requests from the Ministry of the Environment (“MOE”), but cooperating may not always be in their best interest. Seeking early legal advice is important to determine what course of action, upon receiving notification, correspondence or an administrative Order from the MOE, is in fact in one’s best interest. The potential to misjudge what is in the landowner’s best interest is well illustrated in General Electric Canada Company v Aviva Canada, Inc.1 In this case, General Electric (“GE”) incurred significant costs complying with a MOE request to cooperate and assist with an environmental investigation, and was subsequently denied compensation for these costs from its insurer.

GE owned a property in Toronto from 1903 to 1980. For the duration of time that the property was owned by GE and it was used as a manufacturing facility. In 2004, the MOE began to investigate the potential for groundwater contamination on and around the property. In February 2004, the MOE issued letters to all former owners of the property, including GE, to advise them of this investigation and requested that GE provide any environmental assessments conducted on the property. Two months later, in April 2004, the MOE sent GE a second letter requesting further information concerning potential contamination and required GE to take action “in delineating the source area on [their] former property,” and also listed minimum requirements to include in the report. Moreover, the letter stated that unsatisfactory progress would result in a Director’s Order being issued against GE to resolve the matter.

GE agreed to cooperate with the MOE request, and in complying incurred out-of-pocket expenses of approximately $2.1 million for investigation costs, $1.86 million for remedial costs and $750,000 for legal costs. GE made a claim against its insurers, Aviva, for payment of these costs. The Court of Appeal upheld the Superior Court’s decision, dismissing the application on the grounds that GE had voluntarily complied with the MOE’s request and therefore there was no defence and GE could not claim its costs under the insurer’s duty to defend.

In their decision, the Court considered whether the letters the MOE sent to GE triggered the duty to defend under GE’s two comprehensive general liability policies. The court held that the costs GE sought indemnification for were compliance costs not defence costs. Their policy only covered defence costs and, since GE elected to voluntarily comply, there was no defence to speak of.

The Court of Appeal refused to follow the US courts finding an adversarial process commenced upon receipt of a regulator’s letter triggering the insurer’s duty to defend. Instead, the Court of Appeal held that any potential liability that GE may face under the Environmental Protection Act was only speculative.

If you receive a request from the MOE to cooperate, or engage in some type of investigation, seeking legal advice at an early stage is imperative. Your environmental lawyer will be able to provide you with advice on four key issues:

  1. Whether or not an MOE request constitutes a claim;
  2. Whether it is in the client’s best interest to comply with the request;
  3. How a court may give effect to the language in their insurance policy (i.e. whether the policy affords coverage of compliance costs); and,
  4. How to the client should handle the MOE request to increase the likelihood of receiving indemnity costs from their insurer.

Whatever the circumstances, seeking legal advice as early as possible is beneficial. Having a good understanding of your insurance policy and proceeding with caution when complying with a MOE request is always advisable.

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