Let us start with a riddle:  Why did the driver of a tanker truck cross the road and pump fuel down the wrong pipe at local business?  Answer:  Because an employee of the business gave the wrong directions.  O.K., the punch line isn't funny but it does set the background to how a very simple mistake can lead to some tricky insurance issues.  Does the tanker truck's motor vehicle insurer respond?  Does its CGL carrier?  Do they have a shared responsibility?  And what about the CGL carrier for the business which may be liable for the faulty directions given by its employee?  Overall, we are left with more than just a pollution mess; we also have a bit of an insurance muddle.

 

The motor vehicle insurer for the tanker truck will have to determine whether or not this event arose out of the use and operation of a motor vehicle.  Generally the case law would favour a finding that this incident arose out of the use and operation of a motor vehicle.  However, the analysis is fact specific and there are certainly cases that could fall to the other side.  One issue that might affect the outcome would be whether or not the pump was powered by the same engine as the truck or separately.  More likely than not, the delivery would arise out of the use and operation of the vehicle.

 

Unlike the motor vehicle policy which has standard legislated wording, the CGL can vary quite significantly as to its terms.  However, if the IBC standard form is followed then in complete contrast to the automobile policy, there would be an exclusion for liability arising out of the use and operation of a motor vehicle. 

 

Given that this fact scenario likely falls within the motor vehicle exclusion to the CGL, does that mean that the CGL carrier gets to close its file? According to the most recent pronouncement on the issue from the Supreme Court of Canada, probably not.  If there are also allegations made against the tanker truck driver/owner for another form of liability, for example negligence in following delivery directions or in ensuring that fuel was being dispensed to a secure tank, it may be that the presence of concurrent forms of liability (auto and non-auto) is enough to keep the CGL insurer in the loop.

 

Depending on the wording of the tanker truck's CGL, the claim may also fall within the scope of the pollution exclusion.  If the standard IBC CGL wording is used, it is unlikely that the pollution exclusion would apply to the environmental loss.  The pollution spill would not come from a property owned, occupied by, rented or loaned to the tanker truck company.  In fact, recently the Court of Appeal specifically found that being on a property for a limited purpose for a limited time is not sufficient to find that the person " occupied " the property.[1]  And unless the fuel was being handled as waste, it is unlikely that any other portion of the absolute pollution exclusion would be triggered.  Surprisingly, the limited case law on the question of whether or not the delivery of fuel could be said to be an act of "performing operations" at a site also seems to conclude that it would not. 

 

In the context of this incident, it is likely that both the tanker truck's automobile insurer and CGL carrier will be called upon to respond to this loss.

 

While we have two insurance policies rushing to the defence of the tanker truck's owner and operator, the business which was taking the delivery might not have any insurance if it has a standard CGL and has failed to obtain a specific pollution policy.  The standard absolute pollution exclusion would likely apply to an oil leak coming from any premises or site owned, occupied or rented to the business owner.  The business may be uninsured.

 

Does it sound too good to be true  that the  CGL insurer for the business could walk away from the mess and leave the clean up to someone else?  It might be.  A court could refuse to apply the plain meaning of an exclusion if it would appear to virtually nullify coverage and be contrary to the reasonable expectations of an ordinary person.  For example, in a claim for environmental damages arising from a leak from a septic tank, a court refused to follow the plain wording of the pollution exclusion where the effect would be to deny coverage to a business involved in the sale of septic tanks[2].    Brokers beware, if the court does apply the exclusion in this context there may be a claim by the business against its insurance advisors for having failed to secure the necessary pollution insurance to deal with this risk. 

 

A simple mistake can lead to very complicated insurance questions.  Like a true riddle, there are no easy answers.  One slight change in the facts could result in completely different insurance implications.  However, the questions will remain largely the same.  Does the motor vehicle policy have to respond?  Does the CGL have to respond?  Even if the wording of the pollution exclusion (or any exclusion for that matter) is clear, will it be upheld by a court?  An environmental loss is likely to be a costly one so everyone has to be prepared to answer these questions at the outset and know which share of the loss is likely to fall on their plate. 

 

Written by:  Julie A. Dabrusin, Associate

Rogers Partners LLP