Insurance coverage for a rainy day

Coverage granted under a flood endorsement in an all risks policy for entry of water due to heavy rainfall

Insurance law – All-risk insurance – Exclusions – Interpretation of policy – Business interruption – Damages – Economic loss – Practice – Leave to appeal – Insured – Rights, duties and liabilities

Le Treport Wedding & Convention Centre Ltd. v. Co-operators General Insurance Co., [2020] O.J. No. 3253, 2020 ONCA 487, Ontario Court of Appeal, July 29, 2020, K.N. Feldman, P.D. Lauwers and G. Huscroft JJ.A.

The insurer issued an all risks policy covering the insured’s banquet hall, which was damaged by water during a storm. The storm resulted in the heaviest rainfall ever recorded in the Greater Toronto Area. The rain flooded the road adjacent to the banquet hall and filled a neighboring ditch. Nearby creeks spilled over. Water entered the banquet hall through its doors, down through its roof, and up through its floor drains.

The insurer paid the policy limits under the Sewer Back Up Endorsement, but denied coverage under the Flood Endorsement, and denied coverage under the Profits Endorsement Form. The trial judge agreed with the insurer and dismissed the action. The insured appealed, arguing that the trial judge erred in finding that the insured was not entitled to coverage under the Flood Endorsement Form or Profits Endorsement Form, extra-contractual damages on the basis that the insurer delayed making payments, and compensation for professional fees incurred to establish the quantum of the business interruption loss. The appeal was allowed with respect to coverage under the Flood Endorsement, and denied on the other grounds.

The Court of Appeal found that the trial judge erred in importing the exclusion of “Surface Water” from the policy into the Flood Endorsement. The policy and endorsement must be read together. Importing the Surface Water exclusion into the Flood endorsement would effectively nullify flood coverage, unless an insured building was right on the edge of a body of water. The trial judge also erred in concluding that there was not a “flood” within the meaning in the endorsement. “Flood” was defined as “the rising of, the breaking out or the overflow of any body of water, whether natural or man-made and includes waves, tides, tidal waves and tsunamis”. The Court distinguished precedent which held that a flood was limited to the overflow of a pre-existing body of water. Water had not merely pooled and seeped into the banquet hall, but was a massive, forceful, and fast-moving flow of water that would fall under the ordinary meaning of “flood”. Moreover, the water entry resulted from a failure of all water channeling features in the vicinity, including a nearby creek and stormwater management system.

With respect to the Profits Endorsement Form, the appeal was dismissed, as the trial judge made a finding of fact that there was no decrease in revenue in the year after the flood, and the insured did not prove any lost profits. The trial judge correctly made some adjustment to the costs award to account for the insurer’s delay in making its final payment. Any delay in remediation was due to the insured’s own insistence on continuing to operate. Finally, the insured’s appeal was dismissed with respect to professional fees to quantify its business interruption loses. While the policy provided coverage for professional fees incurred in arriving at the amount of loss payable, the insured’s fees were not for that purpose. Instead, the professional fees incurred were for the purpose of providing evidence at trial.

This case was digested by Joe Antifaev, and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please contact Joe Antifaev at jantifaev@harpergrey.com.

To stay current with the new case law and emerging legal issues in this area, subscribe here.