Business often rely on their insurance policies to cover any losses should something prevent them from operating as expected. Something like a broken freezer might have a negligible impact on everyday people, but for a business that keeps is good frozen, such an incident might lead to a serious loss of income. A cold storage business in Alberta recently won an appeal against its insurance company after it refused to provide defence when its clients’ products were lost following an equipment failure.

Background

The plaintiff operated a cold storage warehouse where it held frozen products for its clients. The insurer agreed to insure the warehouse business. Their policy was a composed of a number of different forms that went on to create a single policy. The court listed the following forms as relevant to the proceedings (collectively referred to as “the forms”):

Warehouse (the “Warehouse Form”)

Equipment Breakdown Coverage – Standard Comprehensive (the “Equipment Breakdown Comprehensive Form”)

Equipment Breakdown Coverage – Consequential Damage (the “Equipment Breakdown Consequential Form”)

Commercial General Liability (the “CGL”)

The plaintiff was responsible for the care, custody, and control of products for two clients involved in the dispute. Both of the clients alleged that negligence and breach of contract led to their products being damaged. In both situation, the clients claimed the plaintiff’s negligence in failing to maintain the appropriate temperature in the warehouse, as well as its failure to properly inspect and maintain its equipment caused their products to become thawed over a period spanning 2015 and 2016.

When the clients sued the plaintiff, the plaintiff sought coverage under its insurance policy. However, the insurer denied it had a duty to defend, claiming the Equipment Breakdown Coverage. It claimed the reason the products thawed was because of a change in temperature within the warehouse, which was specifically excluded under that form. It also claimed that the equipment breakdown coverage was only intended to cover sudden and accidental failures, and that it was a first-party policy, which means it only provides coverage for the insured, not its clients.

The Commercial General Liability form

The plaintiff pointed to the CGL form, arguing it provided a general duty to defend across the entire policy. The court agreed, writing,

“Based on a reading of the Policy in its entirety, I find that the “Defence” provision contained in the CGL is applicable to the Policy as a whole. The CGL Defence provision reads:

DEFENCE, SETTLEMENT AND SUPPLEMENTARY PAYMENTS – COVERAGES A, B and D

With respect to the insurance afforded by the other terms of this Policy, the Insurer agrees:

(a)        to defend in the name of and on behalf of the Insured, claims, suits or other proceedings that may at any time be instituted against the Insured for any accident or “occurrence” covered by this Policy. . ..

(emphasis added)”

The court held that a trial is needed to determine whether the loss arose from an accident or through negligence. The insurer has a duty to defend the plaintiff at that trial.

HMC Lawyers’ Insurance tam has decades of collective experience that has provided us with a comprehensive understanding to the potential risks and legal issues that commonly arise in insurance coverage disputes. We help our clients identify and avoid potential problems when it comes to questions of insurance coverage. Please call us at 1-800-480-3534 or reach us online if you have an insurance coverage question.