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Jan 17, 2019

Ont. Super. Ct. dismisses property coverage claims on basis of applicable exclusions

Author Michael S. Teitelbaum

In La Rose Bakery 2000 Inc. v. Intact Insurance Company, Ontario Superior Court Justice Lederer summarily dismissed business interruption and loss of inventory/stock spoilage claims under the plaintiff's property policy with Intact, finding exclusions in the policy for loss or damage arising from damage to any electrical transmission lines or distribution lines or their supporting structures, were applicable.
His Honour explained that the plaintiff operates a commercial bakery in leased premises in a shopping plaza. On December 22, 2013, a winter ice storm caused a loss of power to several areas of the city including the shopping plaza. The power outage occurred from December 22, 2013 to December 25, 2013. There was no physical damage to the plaza or to the bakery as a result of the storm. No repairs to any buildings or structures were needed. The power was restored without any intervention on the part of the owner of the plaza or the plaintiff.

Following the ice storm and resulting loss of power, the plaintiff made a claim under its policy. Intact's position was that the policy did not cover the losses for which the claim was made.
Regarding the stock claim, the pertinent insuring agreement policy provisions read:
Insurance is extended to cover physical loss of or damage to “stock” on the “premises” caused by dampness or dryness of atmosphere or change of temperature. The dampness or dryness of atmosphere or change of temperature must be the direct result of (a) or (b) below.
(b) Interruption to the supply of “services” to the “premises”. The interruption must be caused by physical loss of or damage to apparatus that generates or supplies such “services” to the “premises”. The physical loss or damage must directly result from an insured peril. The apparatus that sustains loss or damage must be located on or within 25 kilometers of the “premises”.

On this wording, His Honour stated in part:
[10] This clause raises the prospect that the claim could be insured. It may be, as already noted, that the interruption to the electrical service did not result from damage to apparatus located on the premises. The question that remains is whether or not the cause of the interruption was damage to apparatus located off the premises but within 25 kilometers. Toronto Hydro advised that the power outage was a result of adverse weather and extreme freezing rain which caused two feeder lines to fail. The feeders supply power to the transformer and the secondary lines that feed the premises of the bakery. No statement was made or position taken as to which of them was the immediate cause of the power outage, whether the policy covered this as damage to “apparatus” or where these failures took place (was either or both of them was “within
25 kilometers of the premises”). It does not matter. None of these considerations are the source of the refusal of coverage. Rather it is the exclusions that follow that are the foundation for the denial:
This coverage does not cover loss or damage resulting from partial or total interruption to the supply of “services” arising from:
(i) Loss or damage to any electrical transmission lines or distribution lines or their supporting structures, except for those located on the “premises”;
(ii) Lack of sufficient capacity; or
(iii) Intentional reduction in supply.
[11] It is the first of these exclusions which applies. It was the loss or damage to “electrical transmission lines or distribution lines” that are not located on the “premises” which resulted in the “stock spoilage” for which the plaintiff seeks coverage. By this clause, in the policy, coverage is not provided for the damage that occurred. It bears noting that “services” as used in the policy is defined:
As used in this coverage “services” means electricity, water, gas or steam.
[12] Accordingly, it seems, if the damage had been caused by an interruption to the supply of water, gas or steam, where there was sufficient capacity, no “intentional reduction in supply” and the “apparatus” was on or within 25 kilometers of the bakery, coverage would have been available. As it is, it was not and there is no genuine issue for trial.
Similarly, in respect of the business interruption claim, the pertinent provision reads:
Profits and/or Rental Income (Broad Form) is extended to include loss arising from the interruption of business resulting from the direct physical loss of or damage to property that is located within 25 kilometers of the “Premises”, from an insured peril under this policy. Such property must be used to generate or supply “services” to the premises.
His Honour wrote in this respect:
[14] Lost profits are insured, albeit with the same territorial limitation as in subparagraph (b) above dealing with stock spoilage. It must be damage to property used to supply the service, subject to the limitation that the property must be within 25 kilometers of the premises where the business is located. The issue of the location of the damage to the feeder lines and the applicable transmission lines comes up again. Were they the location of damage that resulted in the loss and if so, were they within 25 kilometers of the bakery? As with the policy regarding “stock spoilage” it does not matter. The policy in respect of business interruption continues:
This coverage only applies to loss, as insured by the Profits and/or Rental Income (Broad Form) coverage provided by this policy, due to “service interruption”.
[15] There was a service interruption. The policy, in its concluding points defines “services” and “service interruption:
As used in this coverage
“services” means electricity, water, gas or steam
“service interruption” means loss of “services” for a period exceeding 24 consecutive hours
[16] Thus, it would seem that coverage is to be provided for an interruption to the business, albeit when the interruption extends beyond 24 hours, where the loss is as a result of a power outage. However, as with stock spoilage there is an exclusion:
This coverage does not cover loss, as insured by the Profits and/or Rental Income (Broad Form) coverage provided by this policy, during the first 24 consecutive hours of loss of “services” or directly or indirectly arising from:
(i) Loss or damage to electrical transmission lines or distribution lines or their supporting structures;
(ii) Loss or reduction of “services” due to lack of sufficient capacity; or
(iii) An intentional reduction in the supply of “services”.
[17] It is the first of the three subparagraphs that is pertinent. Where it is damage to electrical transmission lines that are the cause of the power outage and the resulting business interruption the exclusion applies; there is no coverage. In this case the exclusion does apply.


  • exclusions
  • stock spoilage
  • business interruption claim
  • property coverage
  • policy interpretation

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