Duty To Defend After Policy Expiration: The Court Interprets The Reasonable Expectations Of A Homeowners Policy

In Canadian Northern Shield Insurance Company v. Intact Insurance Company, 2015 BCSC 767, the British Columbia Supreme Court considered whether an insurer has a duty to defend an insured with respect to claims arising from damage that occurred outside the policy period.

In 2005, unusually heavy rainfall caused a landslide in North Vancouver. The landslide originated from a property situated at the top of an escarpment and caused substantial damage to the property situated below the escarpment. One of the inhabitants of the lower property died. Lawsuits were brought against the former and present owners of the property at the top of the escarpment. Canadian Northern Shield (CNS) was the insurer of the current owners of the upper property.  Intact Insurance had issued a policy to the former owners of the upper property, but the policy had expired three months before the landslide.

The North Vancouver District retained an engineer to survey the upper property in 1980. The engineer recommended removal of debris from the property, control of vegetative growth and periodic inspection of drainage and slopes for signs of distress, improved property drainage, and removal of abandoned septic tanks. The owners at the time, who eventually sold the property in 2004, did not follow these recommendations. The parties agreed at trial that this failure contributed materially to the landslide of January 2005.

For a ten year period ending in October 2004, Intact issued a personal lines homeowners’ policy to the former owners. Between October 2004 and October 2005, CNS issued a personal lines homeowner’s policy to the former owners. CNS responded to the multiple actions brought with respect to the landslide of January 2005. Intact refused to indemnify or defend the former owners in the actions. Thus, CNS defended and settled the actions and then sought a declaration of entitlement to equitable restitution or contribution from Intact toward defence and settlement costs.

The question before the court was whether the terms “accident” or “occurrence” in the Intact policy applied to acts or omissions done within the policy period, where the damage does not arise until after the expiration of the policy period.

The parties both submitted that the Intact policy was unambiguous, but argued for different results. CNS took the position that the Intact policy should be interpreted broadly to encompass the acts of the former owners notwithstanding that the landslide damage occurred three months after the Intact policy expired. Intact took the position that a negligent act or omission does not constitute an “accident” or “occurrence”, unless there is damage that occurs during the policy period. It argued that CNS’ interpretation wrongly conflated negligent with the terms “accident” or “occurrence” in the policy and there should be a close temporal nexus between the negligent act and the resultant damage to attract coverage from the policy.

The court found that the terms “accident” or “occurrence” in the policy were not ambiguous themselves, but in the context of the Policy as a whole there was ambiguity as there was no express definition providing some temporal restriction to damage.  Despite that, the court found that the plain meaning of the words “accident” or “occurrence”, when considered in the context of the contract as a whole, requires that at least some resulting damage must occur within the policy period. There is no need for a temporal restriction in the definition of property damage because said damage must arise from ownership, use, or occupancy of the premises maintained by the insured during the policy period. At the time of the landslide, the former owners were neither using nor occupying the property.

When considering the reasonable expectations of both parties, the court found that the policy could not be construed to cover accidents or occurrences outside of the coverage period. If this were the case, the former owners would be unable to determine whether their negligence constituted an accident or occurrence until the damage arose. Furthermore, the insurer would not know when the insured would call upon it to defend a claim. The wording of the policy indicated that neither party reasonably expected this outcome.

The court found that each individual policy must be construed from its own wording. The Intact policy did not contain express language regarding a temporal restriction of coverage. Despite this absence of express language, the reasonable expectations of both parties were that Intact would not be obliged to defend the former owners for damage arising after the policy expired.