B.C. Supreme Court considers various CGL policy provisions and exclusions in finding no indemnity coverage

In Westaqua Commodity Group Ltd. v. Sovereign General Insurance Co., 2014 CarswellBC 396, the British Columbia Supreme Court found that the plaintiff insured was not entitled to coverage under its CGL policy for the cost of a third party disposing of a contaminated product the insured had supplied.

The plaintiff purchased a product from a supplier and then sold it to a third party who then used it to make fish food. It was subsequently discovered to be contaminated. The contamination occurred before it was purchased by the plaintiff. Some of the contaminated product was used by the third party to manufacture fish food and it caused damage to the fish (including deaths). That damage was settled (and the defendant insurer defended the plaintiff) and it was not part of this application.

Some of the contaminated product was sold to the third party but not used to make fish food. It could not be used for any other purpose and it had to be destroyed by the third party who then made a claim against the plaintiff. In this application the plaintiff sought indemnification for the cost to dispose of this unused but contaminated product.

The issues in this application were whether there was “property damage”, (the court found there was), and an “occurrence” (the court found there was not), within the meaning of the policy and, if there was property damage and an occurrence, whether exclusions (and exceptions) in the policy apply. The court found that if there had been an occurrence, the impaired property and product recall exclusions would apply, but the contractual liability and own product exclusions would not apply.

The decision “picks up” and applies the comments in the Supreme Court’s Progressive Homes v. Lombard decision to the effect that “property damage” can include defective property. However, the court then goes on to find that, in the circumstances, there is no “occurrence”. Although Progressive Homes also states that “faulty workmanship” may qualify as an accident or occurrence, as there was no faulty workmanship here, the court held this was of no assistance to the insured, and that there was no evidence of an “event” insofar as the insured was concerned.

In reviewing the cases, the court noted that what was in issue here was entitlement to indemnity, and not a duty to defend, so the legal test is stricter.