A multi-peril business insurance / all-risk policy does not provide coverage for losses caused to an insured’s building by negligent preloading of an adjacent property by a third party

Strata Plan NW2580 v. Canadian Northern Shield Insurance Co., [2006] B.C.J. No. 429 British Columbia Supreme Court

A building owned by Strata Plan NW2580 (the “Owners”) was damaged when an excessive amount of preload (soil or sand placed on land to cause compaction and settlement) was placed on an adjacent property by a third party. The excessive preload caused earth movement/settlement which, in turn, caused structural damage to the building. The Owners were insured by a multi-peril business insurance/all-risk policy (the “Policy”) issued by Canadian Northern Shield Insurance Company (“CNS”). The Owners were denied coverage for their loss, and commenced an action for a declaration of entitlement to benefits under the Policy.

The Policy contained two relevant exclusion clauses; clause (AA) and clause (CC). Clause (AA) excluded damage caused directly or indirectly to the building by subsistence or other earth movement. Clause (CC) excluded coverage for losses caused by settling, moving, shifting or cracking. The Court was asked to determine whether the loss incurred by the Owners was covered by the Policy.

Martinson, J. determined that the Owners proved that their loss fell within the initial coverage provisions of the Policy, and that CNS therefore bore the onus of proving that the loss fell within an exclusion clause contained within the Policy. Martinson, J. determined that the approximate cause of the damage to the insured building was the excessive preload, whereas the direct cause of the damage to the building was the earth movement or settlement.

In reviewing exclusion (AA), Martinson, J. concluded that the exclusion clause did not apply in this case as the clause must be interpreted as limited to applying to naturally occurring, as opposed to unnaturally occurring, phenomena. Since the damage to the building was caused by the preloading of the adjacent lot, the clause did not apply. However, Martinson, J. determined that exclusion (CC) applied since the settlement of the soil was the cause of the damage. The damage was not covered by the Policy, and the action was dismissed.

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