Drilling down into policy limits: business interruption versus property damage

Insurance law – Property insurance –  Business interruption insurance – Economic loss – Subrogation – Right of insurer to subrogation – Loss of income – Practice – Summary judgments – Duties and liabilities of insurer

Imperial Metals Corp. v. Factory Mutual Insurance Co., [2022] B.C.J. No. 66, 2022 BCSC 73, British Columbia Supreme Court, January 17, 2022, W.A. Baker J.

The insured sought coverage for property damage and business interruption losses after the tailing disposal facility at the insured’s mine failed. The mine was shut down for a significant period of time, resulting in economic losses. The total losses claimed were in excess of $300 million. The insurer promptly paid the insured $10 million without requiring proof of loss. The insured commenced a separate action against the engineers involved in the construction of the tailing disposal facility and recovered over $100 million in settlement.

On this summary trial application, the insured sought a declaration that it was entitled to more than the $10 million already paid by the insurer. The insurer counterclaimed, seeking a declaration that it was entitled to reimbursement through subrogation of the amounts recovered against the engineers.

The policy contained a maximum limit of liability in an occurrence of $315 million with no earth movement, and $250 million with earth movement. The policy also contained a limit of $10 million for tailing disposal facilities. The insured argued that the $10 million limit should only apply to the property damage to the tailing disposal facility, and not to the consequential business interruption losses which should be captured by a greater limit.

The court disagreed with both parties’ positions regarding the applicable limits, and found that the insured was entitled to the $10 million already paid for property damage, plus an additional $10 million for time element loss. Where a limit refers only to physical loss or damage and does not refer to loss caused by physical loss or damage, the policy draws a distinction between the two kinds of losses. The court interpreted the express $10 million limit in the policy for the tailing disposal facility as being applicable to physical losses. The policy provided that time element loss was subject to the limit that applied to the insured physical loss. As such, the limit for time element loss for the tailings disposal facility was the same amount, but separate from, the limit for the physical loss for the tailings disposal facility.

The court determined that the insurer was entitled to share in the recovery of the settlement from the engineers, after deducting the costs of recovery . Contrary to the insured’s submissions, the insurer was not obligated to commence proceedings in order to pursue its statutory right to recovery under section 36 of the Insurance Act. The court confirmed that section 36 permits an insurer to pursue a subrogated claim even if it has not fully indemnified the insured for all losses.

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.

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