The owner of a chain of grocery stores (the “Insured”) was successful in recovering from its insurer (the “Commonwealth”), losses relating to its perishable food inventory where the court held that a Province-wide blackout was the “direct and proximate cause” of the losses

942325 Ontario Inc. v. Commonwealth Insurance Co., [2005] O.J. No. 2607, Ontario Superior Court of Justice

The Insured owned a chain of grocery stores in southwestern Ontario. On August 14, 2003, most of southern Ontario and much of New York state suffered a power outage of immense proportion. As a result, 14 of the Insured’s grocery stores were without power for periods ranging from 8 hours to 37 hours. As a result of the duration of the power outage and the resulting failure of refrigeration, the Insured sustained significant losses of its perishable food inventory. Commonwealth denied coverage on the basis that the losses claimed by the Insured were not direct losses, but rather indirect, consequential losses which were not covered by the policy.

The court reviewed the nature of the loss. The Province-wide blackout caused loss of power at 14 supermarkets which led to the inevitable result of a loss in refrigeration, which in turn led to the spoilage of food. The court noted that such inevitability led to the conclusion that the blackout was the efficient or actual cause of the spoilage of food. The court noted that previously US courts had reached the same conclusion.

Commonwealth argued that the court’s interpretation of what constituted “consequential loss” under the policy should be informed by the wording of a coverage extension in the policy relating to consequential losses caused by the failure of refrigerating equipment. The court rejected this argument noting that a broad interpretation is to be given to the insuring agreement and that the intention of the parties could not be inferred only from reference to an extension clause. The court noted that the policy insured against “all risks” and that it was unlikely that the parties would not have contemplated a risk such as an external power outage. As there was some ambiguity in the interpretation of the meaning of consequential loss, this ambiguity should be resolved in favour of the Insured. The court concluded that the property losses suffered by the Insured were directly/proximately caused by the blackout and were covered by the broad terms of the policy. The court did not find that any exclusions in the policy were applicable to exclude coverage.

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