International Law

C.A. Rejects Insurer’s Interpretation of “Anti-concurrent causation” clause

In Appin Realty Corporation Limited v. Economical Mutual Insurance Company, the Court of Appeal upheld the decision of Mr. Justice Stanley Kershman, which was the subject of an earlier post on this site. Our firm acted for the successful respondent, Appin Realty. The case dealt with an “anti-concurrent causation” clause in a CGL policy and with the appointment of the insured’s counsel to defend the underlying lawsuit, notwithstanding the coverage dispute.

In an action against Appin, a former caretaker of a building owned by it alleged that he had been made ill by mould or bacteria in his unit. Appin’s liability insurance policy with Economical Mutual contained an exclusion for “fungi and fungal derivatives”. That exclusion specifically referred to mould but did not mention bacteria. Justice Kershman had found that because it was possible that at trial, the plaintiff’s injuries might be found to have been caused solely by the non-excluded cause of bacteria, Economical owed Appin a duty to defend the action.

Economical relied heavily on an “anti-concurrent causation” clause in its policy. It argued that that wording meant that the “fungi and fungal derivatives” exclusion applies “whenever mould is alleged to or in fact does contribute to a loss”.

The anti-concurrent causation clause read as follows:

This exclusion applies regardless of the cause of the loss or damage, other causes of the injury, damage, expense or costs or whether other causes acted concurrently or in any sequence to produce the injury, damage, expenses or costs.

The Court of Appeal described the insurer’s argument this way:

According to the insurer, the effect of that language was to absolve the insurer of a duty to defend in any case where bodily injury from mould is alleged, even if combined with other causes of bodily injury, such as bacteria. The insurer further submitted that the effect of the clause is that the duty to defend is narrower than the duty to indemnify. In this regard, the insurer submitted that if, after a trial, it were found that the injury was caused solely by bacteria, the insurer would have a duty to indemnify the insured, even though it had not been obliged to defend the action on the insured?s behalf.

The court held that the meaning of the clause was ambiguous. In the course of the argument of the appeal, the panel (Justices John Laskin, Michael Moldaver and Kathryn Feldman) took Economical’s counsel to task about the language that the insurer had used (although making it clear that they were not being critical at all of the counsel arguing on behalf of the insurer). Justice Laskin in particular observed that, “if the three of us can’t understand what this provision is supposed to mean, how does your client expect an insured to understand it?”

The court rejected the insurer’s argument, that by virtue of the anti-concurrent causation clause, the duty to defend had been made narrower than the duty to indemnify. This position “stands on its head the general proposition that the duty to defend is broader than the duty to indemnify”.

The second issue on the appeal was whether Justice Kershman had erred in permitting our firm to act for Appin in the defence of the underlying action, at the expense of the insurer. Counsel for Economical argued that this would present a conflict of interest and that a separate law firm should be retained. The concern was that counsel acting for the insured could “steer” the underlying litigation in a direction to trigger coverage. (Of course, the same problem would exist for counsel appointed by the insurer.)

The court was more troubled by this issue, but ultimately ruled that it was not satisfied that Justice Kershman had been in error.

Full post as published by Cavanagh Williams on March 02, 2008 (boomark / email).