In 2102908 Alberta Ltd v Intact Insurance Company<\/em>, 2023 ABCA 34, the Alberta Court of Appeal resolved an issue pertaining to ambiguous policy provisions in favour of the insured party. This decision highlights the importance for insurers to avoid ambiguous language in insurance policies, as such language will most likely be construed against the insurer\u2019s interests.<\/p>\n\n\n\n 2102908 Alberta (the \u201cInsured\u201d) operated a bowling alley on the ground floor of a building in Fort McMurray, Alberta (the \u201cPremises\u201d). The Insured held a commercial insurance policy (the \u201cPolicy\u201d) with Intact Insurance Company (the \u201cInsurer\u201d), which provided coverage for the Premises.<\/p>\n\n\n\n The Policy included a broad form for property coverage (the \u201cBroad Form\u201d), which insured against \u201call risks of direct physical loss or damage to the insured property.\u201d However, multiple provisions of the Broad Form contained specific exclusions pertaining to water damage. Section 2.2 provided that coverage would not apply to damage caused, either wholly or partially, by flood, including \u201csurface water,\u201d or the overflow of any natural or artificial body of water (the \u201cFlood Exclusion\u201d). Section 2.3.2 excluded coverage for damage resulting from the backup or overflow of water from sewers, sumps, septic tanks, or drains, while Section 2.3.3 excluded coverage for damage caused by the entry of rain, sleet, or snow into the Premises.<\/p>\n\n\n\n The Policy, however, also included an extension of coverage form, which supplemented the Broad Form (the \u201cExtension\u201d). The Extension provided additional coverage for damage that was \u201ccaused by seepage, leakage or influx of water derived from natural sources.\u201d This led to an apparent inconsistency in the Policy as between the Extension and the Flood Exclusion.<\/p>\n\n\n\n In April 2020, an influx of surface water caused damage to the Premises after a nearby river overflowed. The Insured claimed coverage under the Policy, which the Insurer denied. The Insured subsequently made a claim against the Insurer for indemnification.<\/p>\n\n\n\n The Insured took the position that damage to the Premises was covered by the Extension. The Insurer argued that the damage was caused by flood, which was specifically excluded from coverage as per the Flood Exclusion.<\/p>\n\n\n\n The parties entered into a statement of agreed facts, which described how a \u201cflood\u201d caused an \u201cinflux of surface water\u201d to enter the Premises which caused subsequent damage. They submitted a question to be resolved by desk application, asking the chambers judge whether the Insured was covered for the damage by the Extension, or if the damage was excluded from coverage by the Flood Exclusion.<\/p>\n\n\n\n The chambers judge found that the Policy was ambiguous and applied the principle of contra proferentem <\/em>to resolve the ambiguity. <\/em>This principle was considered by the Supreme Court of Canada in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co.,<\/em> 2016 SCC 37 (Ledcor<\/em>) and requires that, when the court is interpreting ambiguous agreements, the ambiguity ought to be interpreted against the interests of whoever drafted the agreement, which, in this case, was the Insurer. The chambers judge ruled that when interpreting the Policy as a whole, the water damage was covered under the Extension and, therefore, the Insured was entitled to indemnification.<\/p>\n\n\n\n The Insurer appealed the chambers decision, submitting that the chambers judge erred in finding the Policy was ambiguous and in resolving that ambiguity in favour of the Insured.<\/p>\n\n\n\n The Court of Appeal considered whether \u201cflood\u201d or \u201cinflux\u201d were mutually exclusive causes of damage, as submitted by the Insurer on appeal, or whether the Policy was ambiguous, as was ruled by the lower court.<\/p>\n\n\n\n The majority of the Court of Appeal determined that the Policy was ambiguous, since it excluded coverage for damage from \u201cflood\u201d on the Broad Form but provided coverage for damage from \u201can influx of water derived from natural sources\u201d through the Extension. This ambiguity arose primarily because it is difficult to envision scenarios where damage from a flood cannot also be said to have arisen from an influx of water.<\/p>\n\n\n\n While there was no direct evidence regarding the parties\u2019 intentions when agreeing to the Policy terms, the Court of Appeal determined it was obvious the Insured aimed to extend coverage to seepages, leakages, or influxes of water. It was reasonable for the Insured to expect this purchase to provide coverage for \u201cinflux\u201d of water from a flood.<\/p>\n\n\n\n The Court of Appeal found further support for this interpretation when considering the commercial reality of purchasing insurance policies. They questioned what an Insured actually purchases when extending their coverage to protect from an \u201cinflux of water derived from natural sources,\u201d if that coverage then excludes water damage resulting from flood, rain, sleet, or snow, etc. The Insured, according to the Court of Appeal, would derive no practical benefit from purchasing the Extension under this interpretation. The Court of Appeal found that interpreting the Extension as applying to an influx of water deriving from a flood struck an appropriate balance.<\/p>\n\n\n\nBrief facts<\/h2>\n\n\n\n
Parties\u2019 positions<\/h2>\n\n\n\n
Decision under appeal<\/h2>\n\n\n\n
Analysis<\/h2>\n\n\n\n