Court of Appeal finds ordinary meaning of “sudden and accidental” in insurance policy to be something that was “abrupt, unexpected and unintentional” and not bound by temporal constraints

Insurance law – Property insurance – Remediation – Exclusions – Interpretation of policy – Practice – Appeals

Zurich Insurance Co. v. Halifax (Regional Municipality), [2021] N.S.J. No. 240, 2021 NSCA 43, Nova Scotia Court of Appeal, June 3, 2021, M.J. Wood C.J.N.S., P. Bryson and A.S. Derrick JJ.A.

The Halifax Regional Municipality discovered hydrocarbon contamination on its bus depot property.  An investigation determined that the contamination was diesel fuel, and that the diesel fuel had been leaking over a period of months, from an old supply line that had not been capped.

The HRM incurred significant costs to clean up the contaminated soil and sought indemnity from its insurers.  The policy included coverage for the cost of decontaminating HRM property where the contamination resulted from “the sudden and accidental … discharge, release, escape, dispersal, seepage or migration of such contaminants…”.

The insurers denied HRM’s claim on the basis that the leak was not sudden and accidental as it occurred over several months, and that the language of the policy imported a temporal component of briefness, meaning momentary or lasting only a short time.

The insured sought a declaration of coverage pursuant to the policy.  The hearing judge found that the words “sudden and accidental” in the policy were ambiguous and the reasonable expectation of the parties was that the costs would be covered.

The insurer appealed on the basis that the hearing judge erred in finding that the phrase “sudden and accidental” was ambiguous.  The Court of Appeal found that the hearing judge did err in his ambiguity analysis, but that, ultimately, the judge reached the correct conclusion on coverage.

With respect to “sudden and accidental” the Court of Appeal found that, looking at the entire policy, and applying an ordinary meaning to its words, there was no ambiguity in the language of the decontamination clause.  The Court found that the proper interpretative approach to the phrase “sudden and accidental” was not the one undertaken by the hearing judge, at the invitation of counsel, which was to take those words and attempt to ascribe independent meaning to each.  The Court found that that approach led to confusion because of the similar meaning of the words, both of which conveyed an element of unexpectedness and surprise.

The Court found that the ordinary meaning of “sudden and accidental” is something that is abrupt, unexpected, and unintentional.  The Court rejected the insurers’ argument that there is a temporal element to the phrase “sudden and accidental” holding that there was no time frame identified expressly, or by implication, in the decontamination coverage provision and that an event can be sudden and accidental even if it continues for a significant period of time.

This case was digested by Tricia M. Milne, 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 Tricia M. Milne at tmilne@harpergrey.com.

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