As we often see in matters concerning insurance law, the wording of an insurance policy can have a significant impact on what the insured is entitled to when making a claim under the policy. This was the case in a recent situation in Alberta where a plaintiff’s business interruption insurance claim was denied because it resulted in the plaintiff’s failure to provide a product to its customer.

The facts leading to the claim

The plaintiff operated a steam turbine which generated power. The power generated from the turbine was sold to a municipality. The steam turbine went out of service for approximately 13 months from March 2008 to April 2009. As a result of not being able to provide power to the municipality, the plaintiff was required to compensate the municipality for the higher price of power it was forced to pay. The plaintiff sought to reclaim this amount, which totaled $10 million, from the insurer. The insurer refused to pay this amount to the plaintiff.

The policy

The policy in question contained coverage for the loss of gross earnings, which was defined as

“the net sales value of production less the cost of all raw stock, materials and supplies used in such production; (emphasis added).” The court noted immediately that “even construing this coverage provision broadly, there is no coverage for the $10 million which (the plaintiff) paid to the (municipality) for non-delivery of guaranteed amounts of power. That payment does not represent a loss of net sales value of production.”

However, the plaintiff argued that coverage for the shortfall amount was intended to be provided under the policy, since the failure of the plaintiff to provide power would result in loss sales amounting to $25 million over 18 months.

However, the court pointed out that the policy contained an exclusion clause, which stated

This policy does not insure against:

1. Any increase in loss due to:

2) fines or damages for breach of contract or for late or non-completion of orders.

3) for penalties of any nature

4) any other consequential or remote loss

1. any cost incurred resulting from the purchase of electrical power
2. any loss as respects energy brokering or energy trading activities

In this case, the court found that the $10 million the plaintiff had to pay the municipality did fall under the exclusion clause since it amounted to damages for breach of contract or for late or non-completion of orders. As a result, the court allowed the insurer’s request for summary judgment dismissing the plaintiff’s claim.

The team at HMC Lawyers has successfully handled claims against Canada’s largest, national law firms, and have the experience necessary to take on complex and challenging matters. We endeavour to build strong relationships with our clients, working closely with them to develop the best strategy for each matter. At every stage, we take steps to minimize exposure to risk by looking for appropriate opportunities for settlement. To discuss a claim with our Insurance Team, call 1-800-480-3534 or contact us online to make an appointment. We represent large Canadian and international insurers in Calgary, throughout Alberta, and across Western Canada.