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Read your insurance policy. That’s the bottom line advice for businesses of all kinds, especially when it comes to pollution exclusions in property damage and liability insurance policies. A used car company and its principal learned this the hard way.

Mississauga Motor Mart, and its directing mind, unsuccessfully sued its insurer for coverage and defence, after the Motor Mart’s former landlord sued them for waste oil damage.

The former landlord’s statement of claim alleges that a spill of waste oil occurred at the leased premises, causing significant damage to the property, resulting in clean up costs, repair costs and losses due to delay in re-leasing the premises upon the expiry of the MMM lease, while the repairs were effected. The spill and the damage to the landlord’s property are alleged to have been occasioned by the defendants’ “breach of contract and/or negligence” as particularized in the statement of claim.

The pollution exclusion

The policy says:

“This insurance does not apply to:…
4.  Pollution
(1) … “property damage” … arising out of the actual, … spill, … release or escape of “pollutants”:

a.   At or from any premises, site or location which is or was at any time … occupied by any insured, or rented or loaned to any insured. …
b.   At or from any premises, site or location which is or was at any time used by or for any insured … for the handling, storage, disposal, processing or treatment of waste”

The term “property damage” is defined to mean:

a.         Physical injury to tangible property, including all resulting loss of use of that property;

According to the court,

[18] Once again, taking into account the contemplation of the parties at the time the policy was concluded, in my view the only reasonable interpretation is that the insurer did not intend to obligate itself to indemnify the insured in relation to any liabilities for “compensatory damages” arising out of the spill of a “pollutant”, regardless whether those damages were payable on account of actual injury or economic loss. All of the damages claimed by the landlord in the Action flow from “property damage” caused by the spill. In my view, all of the damage claims in the Action properly fall within the pollution exclusion in the policy.

Bottom line: businesses with pollution risks need to buy insurance WITHOUT pollution exclusions. See Mississauga Motors Mart Inc. v. Sovereign General Insurance Company, 2013 ONSC 6360.

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