An operator of an elementary school (“Palliser”) was successful in obtaining an order that its insurer (“Aviva”) was obligated to defend it with respect to claims brought by neighbours of Palliser which alleged that coal dust transported by wind from Palliser’s property was damaging their homes. The court held that the Pollution Exclusion in the policy did not apply to these claims as blowing coal dust failed the common sense test for “pollution” which was intended or expected to be excluded from coverage.

Palliser Regional School Division No. 26 v. Aviva Scottish & York Insurance Co., [2004] A.J. No. 1356, Alberta Court of Queen’s Bench

Palliser was the owner of the parcel of land which included an area of previously exposed coal bed. Palliser operated an elementary school on this land. Neighbours of Palliser commenced actions against Palliser alleging that westerly winds transported coal dust and particulate matter onto their residences resulting in damages to their property. Palliser was insured under a CGL with Aviva and requested a defence under the policy to the claims. Aviva denied the request on the basis that the Pollution Exclusion contained in the policy precluded coverage for the claims.

The Pollution Exclusion in the policy read, in part:

This Policy does not apply to … “property damage” … arising out of the actual, alleged or threatened discharge, dispersal, release or escape of pollutants … at or from the premises owned, rented or occupied by an Insured.

The court was satisfied that coal dust met the definition of “pollutant” in the Policy.

Aviva relied upon the decision in Kellogg Canada Inc. v. Zurich Insurance Co., [1997] O.J. No. 3116 (Ont. Ct. Just.) where a similarly worded pollution exclusion clause precluded coverage for damages suffered by Kellogg when a company retained by Kellogg used a sealant containing a toxic chemical while performing work at Kellogg’s manufacturing plant which ultimately migrated into the plant’s water supply. The court distinguished Kellogg, noting that the coal bed was not exposed by any activity conducted by or on behalf of Palliser.

Aviva further argued that there should be no distinguishment between active and passive polluters, pointing to the decision of Ontario v. Kansa General Insurance Co., 17 O.R. (3d) 38 (C.A.) The court agreed that it should be guided by the decision in Kansa but noted that in that case, the cause of action of negligence arose from pollution emanating from the activities carried on by the tenants of the property. In the case at bar, the court found that it was not within anyone’s reasonable expectations that the operation of an elementary school could or would result in the release or discharge of coal dust from the coal bed. The court noted that where an insured is involved in a business which could lead or possibly lead to pollution of the environment, then both the insurer and the insured would direct their minds to the probability of this risk.

The court reviewed the decision of the Ontario Court of Appeal in Zurich Insurance Co. v. 686234 Ontario Ltd., 62 O.R. (3rd) 337 where the court had held that even a clear and unambiguous exclusion clause will not be applied (1) where it is inconsistent with the main purpose of the insurance coverage and (2) where to apply the clause would be contrary to the reasonable expectations of the ordinary person as to the coverage purchased. The court concluded that the Pollution Exclusion clause was not directed at occurrences outside of those reasonably contemplated by the insurer and the insured as arising from the operations and activity of the insured in operating the elementary school. In these circumstances, the blowing coal dust failed the common sense test for “pollution” which was intended or expected to be excluded from coverage.

In the result, the court held that Aviva had a duty to defend Palliser.

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