Exclusion clause sinks homeowner’s claim in subsidence dispute

Introduction

Tremblett v TD Insurance Direct Agency Ltd., 2024 BCCA 358 demonstrates the importance of well-drafted exclusion clauses in insurance policies. In this case, the BC Court of Appeal (“BCCA”) found that the exclusion clause in an insurance policy clearly and unambiguously excluded coverage for damage caused by subsidence. Even though subsidence was only one of several causes of damage to the plaintiff’s home, the clear language used in the exclusion clause effectively denied the plaintiff’s claim for coverage in full.

Background

Mr. Tremblett is the owner of a property in Okanagan Falls, British Columbia (the “Property”).  In February 2020, he purchased a home insurance policy for the Property, including extended water coverage (the “Policy”), from the defendant, Primmum Insurance Company (“Primmum”). Mr. Tremblett left for a short vacation and, upon his return, discovered that his Property, including his house and backyard, had been damaged by sink holes. After Mr. Tremblett reported the damage, Primmum dispatched Rock Glen Consulting (“Rock Glen”), a team of geotechnical engineers, to investigate the cause of the damage. Rock Glen’s report concluded that subsidence was “pervasive” on Mr. Tremblett’s property.[1] Primmum denied Mr. Tremblett’s claim for coverage, relying on two exclusion clauses contained in the Policy.

Trial Decision

Mr. Tremblett applied to have the issue of whether his claim was covered by the Policy determined by way of summary trial. Justice Hardwick of the BC Supreme Court set out three criteria which Mr. Tremblett would have to meet to succeed in his claim. First, Mr. Tremblett would have to show that the Policy applied to his loss. The court found that the Policy only covered loss or damage “directly caused” by water but the damage to Mr. Tremblett’s property was caused by subsidence which, in turn, was caused by water. As such, water was an indirect, not a direct, cause of the damage to Mr. Tremblett’s property and consequently, the Policy did not apply. In addition, the Policy only applied if the damage occurred in specific, enumerated ways such as water overflowing or sewers backing up, none of which had occurred. Second, Mr. Tremblett would have to satisfy the court that none of the exclusion clauses in the Policy unambiguously applied to his loss. Justice Hardwick found that Exclusion Clause #3, which stated that Primmum would not insure damage directly or indirectly caused by subsidence, was “fatal” to Mr. Tremblett’s claim because it was unambiguous and clearly rendered his particular claim ineligible for coverage. Mr. Tremblett appealed Justice Hardwick’s decision to the BC Court of Appeal (the “BCCA”).

On appeal

The BCCA dismissed Mr. Tremblett’s appeal. The court cited Rock Glen’s finding that the damage to the Property was the result of a “chain of events set in motion by the flow of groundwater beneath Mr. Tremblett’s property [which] undermined the soil and caused it to subside, which in turn caused damage to the foundation of his home.”[2] In other words, the damage was occasioned by several contributing causes, only one of which was subsidence.”[3] The BCCA affirmed Justice Hardwick’s conclusion that Exclusion Clause #3 applied to relieve Primmum from covering damage caused indirectly or directly by subsidence. Accordingly, even though subsidence was not the only cause of the damage, Exclusive Clause #3 still applied to exclude Mr. Tremblett’s claim from coverage.

Takeaways

This case serves as a reminder to insurers to periodically review and update policy language to ensure exclusion clauses are comprehensive, precise and reflective of their risk appetite. Exclusion clause #3 unambiguously and explicitly excluded damage caused directly or indirectly by subsidence and consequently, survived judicial scrutiny. As such, Exclusion Clause #3 serves as an example of the type of exclusion clause which is likely to be upheld by the court and can serve as a guide for insurers and policy writers. This case demonstrates that insurers can protect their interests and effectively manage risks using properly drafted policies.

[1]     Tremblett v TD Insurance Direct Agency Ltd., 2023 BCSC 1366 at para 10.

[2]     Tremblett v TD Insurance Direct Agency Ltd., 2024 BCCA 358 at para 46.

[3]     Ibid.