No Longer a Viper’s Nest: Causation Connection Clarified for Additional Insured Coverage

In a recent decision the British Columbia Court of Appeal has rejected the “but for” test as being sufficient to satisfy the causal element required by the phrase “liability arising out of the operations of the named insured”.

In Vernon Vipers Hockey Club, Dr. J. Duncan Wray Inc. and American Home Assurance Co. (Commerce and Industry Insurance Co. of Canada) v. Canadian Recreation Excellence (Vernon) Corporation (“CRE”) and the Regional District of North Okanagan (“NORD”), 2012 BCCA 291, the Plaintiff, Kinnear, attended a multi-plex facility in Vernon to watch a hockey game hosted by the Vernon Vipers Hockey Club (the “Club”).  NORD owned the facility and CRE was the operator.  Mr. Kinnear was injured when he left the facility to purchase refreshments from a retail outlet across the street.  He sued CRE and NORD. CRE and NORD issued third party proceedings against the Club and its insurer, asserting that as additional insureds under the Club’s policy (“for liability arising out of the operations of the Club”), they were entitled to be defended and to be indemnified.  They argued that the causal connection between Mr. Kinnear’s claim and the operations of the Club was satisfied by a simple “but for” proposition as follows:

“But for the Club’s hosting of the hockey game, Mr. Kinnear would not have attended, would not have traversed through the Boulder Zone, would not have fallen and CRE and NORD would not have faced exposure to liability.  Ergo the claim arises out of the operations of the Club with the result that coverage for them as additional insureds was triggered.”

The British Columbia Court of Appeal characterized the issue as being “what degree of connectedness is required by the phrase ‘arising out of’”.  In rejecting the “but for” causal connection, the Court held that the correct interpretation of “arising out of” and “arising from” in the context of an insurance contract requires a closer causal nexus than a simple “but for” test.  Compliance with the simple “but for” test is necessary, but not sufficient.  The phrase “arising out of” should be construed as requiring an unbroken chain of causation, a connection between the alleged liability and the named insured’s operations, which is more than merely incidental or fortuitous.  While the scope of the word “operations” is to be given a broad interpretation that can extend beyond the simple presentation of games to spectators and may include conduct and the provision of facilities necessary to accomplish the objective, the pleaded facts of the case must establish a strong nexus between the named insured’s operations and the source of the additional insured’s alleged liability.  There must be a clear nexus between the insured’s operations, the alleged negligence, and the alleged injury.

In the Kinnear case, the Court of Appeal held that no aspect of the Club’s operations was alleged to have caused Mr. Kinnear to fall and injure himself.  The pleadings merely alleged that the operations caused him to be in a place where, for unrelated reasons, he became injured.  Accordingly, the Court of Appeal upheld the trial judge’s finding that the liability alleged against NORD and CRE did not arise out of the operations of the named insured Club.

This decision conclusively establishes that notwithstanding dicta contained in certain cases, the coverage afforded to an additional insured for “liability arising out of the operations of the named insured” requires a causal connection not satisfied by a simple “but for” test.  It requires an unbroken chain of causation linking the pleaded liability of the additional insured, for the injuries sustained, with the operations of the named insured.

Judi Kennedy of Alexander Holburn was counsel for the insurer on both trial and appeal.