An insured under a homeowner’s policy (“Revivo”) was successful in obtaining an order that his insurer (“State Farm”) was obligated to defend an action against Revivo arising from a fire started while he was working on a “parts car” while completing a kit car. The court held that the exclusion clause in the policy relating to ownership, use or operation of a motor vehicle was inapplicable where neither the parts car nor the kit car was useable or operable as an automobile.

Meadowview Heights Ltd. v. Revivo, [2004] O.J. No. 4742, Ontario Superior Court of Justice

On October 6, 1996, Revivo purchased a 1984 Pontiac Fiero motor vehicle as part of a kit enabling the conversion of the Fiero into a replica of a Lamborghini Countach motor vehicle. In order to complete certain work, Revivo moved the vehicle to a garage known as Eli’s Auto Service. On December 20, 1996, Revivo purchased a 1985 Fiero motor vehicle which he intended to use for the purpose of supplying parts to be used in the conversion of the kit car. On March 14, 1997 Revivo was engaged in the conversion of the kit car and had each of the two cars on a hoist. While removing the radiator from the parts car, sparks from the torch ignited some gasoline and the subsequent fire caused extensive damage to the building and some of its contents. At the time of the fire, the parts car was not capable of being driven, did not have a current licence plate, and the engine, transmission and electrical system had been removed from the vehicle. At the time of the fire, the kit car did not have an engine installed and Revivo was in the process of performing transmission work to change the transmission on the vehicle.

Revivo was insured under a homeowner’s policy issued by State Farm. The policy contained an exclusion clause for claims arising from the “ownership, use or operation of any motorized land vehicle”. On the basis of this exclusion, State Farm denied coverage to Revivo with respect to any claims against Revivo arising out of the fire.

The court reviewed the decision of the Supreme Court of Canada in Derkson v. 539938 Ontario Ltd., [2001] 3 S.C.R. 398 where the court had considered what was meant by the phrase “arising out of the use or operation of a motor vehicle”. In that decision, the Supreme Court of Canada noted that its earlier decision in Amos v. Insurance Corp. of British Columbia, [1995] 3 S.C.R. 405 had provided a broad meaning to the phrase “arises out of” in the context of coverage. However, in Derkson, the court held that Amos was distinguishable where the phrase “arising out of” appeared in an exclusion clause rather than a coverage clause. The court noted that coverage provisions should be construed broadly and exclusion clauses narrowly. In the case at bar, the court held that State Farm was attempting to rely upon an exclusion clause and therefore a narrow interpretation should be given to the phrase “arising out of”. The court noted that a person in Revivo’s position would reasonably have considered it unnecessary to purchase automobile insurance to insure either the kit car or the parts car, as neither of these vehicles was useable or operable as an automobile at the time of the fire.

In the result, the court found that the exclusion clause did not exclude coverage and held that State Farm was required to indemnify and defend Revivo with respect to the claims arising from the fire.

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