[1]               The Applicant, the Estate of John Hemlow, brought the within application seeking declarations that the Respondent, Co-operators General Insurance Company (“Co-operators), has a duty to defend and a duty to indemnify the Applicant under Co-operators Policy No. 1679203 (the “Policy”) with respect to an action commenced by Rich Products of Canada Limited (“Rich”) on June 14, 2017, in the Superior Court of Justice in Toronto (Court File No. CV-17-577081) (“the Action”).

[2]               At the outset of arguing the matter, counsel agreed that the issue of whether the respondent has a duty to indemnify should be left to the trial judge in the event that the relief sought by the Applicant is granted. Our courts have repeatedly held that the duty to defend arises when the claim alleges acts or omissions falling within the policy coverage, but the duty to indemnify arises only where such allegations are proven at trial.[1] The application on the duty to defend is intended to be a summary matter, not a trial on the issue of whether there is a duty to indemnify. 

[3]               Co-operators denies that it has a duty to defend on the basis that the damages claimed by Rich were caused by the negligence of the late Mr. Hemlow in permitting the escape of ammonia (a pollutant), which is specifically excluded from coverage under a “Total Pollution Exclusion”.

[4]               For the reasons that follow, the application is granted.

[5]               The late John Hemlow was a sole proprietor who carried on business as a mechanical contractor.  Specifically, he worked in the oil analysis business as an oil sample technician, under a sole proprietorship named “Hemlowco”.  Mr. Hemlow attended various industrial and commercial facilities, and analyzed oil and lubricating fluids from the mechanical systems used at each facility.

[6]               John Hemlow started his business in February 2011.  He actually took over business operated to that time by his brother, Chuck Hemlow.  At that time, he applied for a Commercial General Liability policy with Co-Operators, and coverage was bound.  It was renewed annually to the time of this accident.

[7]               In 2011, the issue of obtaining coverage for pollution related events was discussed by John Hemlow and his insurance broker.  In an email sent February 2, 2011, the agent, Matthew Donohoe, wrote the following in the second paragraph:[2]

[8]               In her cross examination, Jackie Hemlow, John’s widow, agreed that her late husband knew that, due to the type and nature of his work, there could be a “pollution event”, but figured the risks were so low that he did not think it was worth buying a policy of insurance for it.[3]

[9]               Chuck Hemlow filed an affidavit on this application.[4]  In it, he explained the nature of the business.  He swore that, when his brother John took over his business, they discussed insurance coverage, and he recommended that John contact the same insurance broker as he had used.  At para. 7 of his affidavit, Chuck stated that some of his customers required him to carry liability insurance as a condition of working in their premises, in the event that damage was caused to the customer’s business as a result of his work (and that of his brother).  Chuck stated that he understood that their businesses were not covered for damages due to pollution to the natural environment. 

[10]           Chuck was cross-examined on his affidavit and the transcript filed with the court.  At p. 42, he stated that his definition or understanding of pollution “is stuff getting into the environment.” His evidence indicated that he and his brother were charged with taking oil samples from varying sizes of engines, compressors, turbines, and gearboxes.  The major pollution risk that he identified with their work was the escape of oil due to the failure to reinsert a plug, and the oil thereafter entering the natural environment.  Another example of “pollution” would be if he or John had poured a bucket of waste oil down a water drain, rather than properly disposing of it.

[11]           On March 11, 2011, John Hemlow signed the Total Pollution Exclusion.

[12]           The “Total Pollution Exclusion” upon which the insurer is relying reads as follows:

[13]           It is of some importance that “pollutants” were not defined to in the Total Pollution Exclusion signed by John Hemlow.  The insurer relies on the fact that they were defined in the policy elsewhere.  In my view, this is pertinent when the court looks at what the reasonable expectations of the parties were.

[14]           “Pollutants” are defined in s. VI, para. 12 of the policy, entitled Definitions, as follows:

[15]           In 2015, Rich retained Wear-Check Canada Inc. (“Wear-Check”), a company that specializes in equipment oil and filter analysis, to sample and analyze oil from the mechanical and refrigeration systems at the Rich processing facility located in Fort Erie, Ontario (“Rich Facility”).

[16]           Wear-Check subcontracted with John Hemlow to carry out the sampling and analysis work for which it was responsible under its contract with Rich.

[17]           John Hemlow attended at the Rich Facility on July 6, 2015.  The statement of claim issued by Rich alleges that, during the course of his work, John opened a valve to a pipe containing pressurized ammonia, which was used in the mechanical and refrigeration systems at the property owned by Rich, causing pressurized ammonia to escape and cause significant damage to the Rich property.[7]

[18]           Jackie Hemlow, in her filed affidavit, denies that her late husband caused the damages to the Rich facility by causing the ammonia to escape. In para. 15 of her affidavit, Mrs. Hemlow swore the following:

[19]           Co-operators has not denied the accuracy of Mrs. Hemlow’s sworn statement, or provided any information relative to the tragic incident.  Instead, it simply has taken the position that, regardless of how the loss occurred, it is not required to respond to the claim because the damages were caused by a “pollutant”, as defined in the Policy that it issued to Mr. Hemlow.

[20]           Rich has claimed that the damage to its property was caused by the negligence of both named defendants, Wear-Check and John Hemlow.  Alternatively, Rich claims damages for nuisance and/or breach of contract.

[21]           On June 20, 2017, the estate of John Hemlow was served with the Statement of Claim of Rich Products alleging that John Hemlow had negligently caused the release of the ammonia during the course of his work at the Rich Products facility.  In its claim, Rich sought damages for out of pocket expenses, business losses and property damage in the amount of $3,000,000. 

[22]           On July 2, 2017, Co-operators advised that it would not be defending this claim on behalf of the late John Hemlow carrying on business as Hemlowco.  The insurer took, and maintains, the position that this claim is excluded due to the “Total Pollution Exclusion” in the Policy.

[23]           Counsel agreed that the issue for this court to decide is whether Co-operators has a duty to defend the Estate of John Hemlow in the legal action commenced by Rich Products, or does the Total Pollution Exclusion negate any duty to defend?

[24]           Mr. Zizzo, counsel for the estate, argued that the term “pollution” was not defined in the policy, and, hence, the policy exclusion entitled “Total Pollution Exclusion” is inaccurate and misleading. In his view, the understanding of the average person is that pollution involves the escape of a contaminant into the natural environment, such as into the atmosphere, a river or into land, which not always – but often – affects adjacent properties.  He noted the following dictionary definitions of the word “pollution”:

[25]           Mr. Zizzo noted that the ammonia did not migrate to adjacent properties. While acknowledging that the ammonia itself is a pollutant, in Mr. Zizzo’s view, that was not determinative of the issue.  He argued that there was no act of pollution in the well-understood meaning of that word caused by John Hemlow. There was, arguably, a negligent act – but not a polluting act, as understood by John Hemlow at the time of signing the Policy endorsement.  There is no evidence that John knew that ammonia would leak out of the refrigeration unit as he worked on it.  Clearly, if he knew it, he would not have turned the valve, knowing it could well cost him his life. 

[26]           Mr. Zizzo relied heavily on the case of Zurich Insurance Co. v. 686234 Ontario Ltd.[11] where the Court of Appeal dealt with a similar issue.  In that case, the plaintiffs claimed that they suffered injuries from breathing carbon monoxide that leaked from a furnace on the premises.  In rejecting the insurer’s motion for a judgment that it was not required to defend this claim based on a Total Pollution exclusion, the application judge interpreted the exclusion to be intended to only apply to injuries sustained from pollution of the natural environment, and not from an indoor environment.  The Court of Appeal upheld that decision.  In doing so, Borins J.A. reviewed some of the extensive litigation and academic discussion from the United States over the scope of the absolute pollution liability exclusion. Ultimately, the court determined that the historical context of the exclusion suggested that its purpose was to bar coverage for damages arising from environmental pollution.  It was not to apply to damages resulting from a carbon monoxide leak from a heating system.[12]

[27]           Mr. Zizzo acknowledged that John Hemlow was aware that he worked in a field where pollution damage was a recognized concern. 

[28]           However, it is clear from the evidence of Jackie Hemlow that John felt the risk of a “polluting event” was minimal.  The issue is whether the event, which did occur, fell within the reasonable understanding of a person, such as Mr. Hemlow, based on the wording of the policy and the nature of his business.

[29]           Mr. Hemlow’s brother Chuck also filed an affidavit on this application.  In it, he described the type of work he and his brother did in the business, which John took over from him in 2011.  The major part of their work was to take oil samples from various machines used by their customers and submit those samples for analysis to detect any impurities.  They would also sell lubrication related products to their customers to address possible problems. Chuck discussed with John the insurance John would need, and directed him to his former insurance broker.  Chuck swore that he expected that his insurer would cover any damage to the customer’s property due to their work.  He understood that the coverage did not extend to pollution damage to the natural environment.  He did not feel John or himself needed such coverage, as they understood the limited nature of possible pollution to the natural environment that could result from their work.

[30]           The sworn affidavit of Matthew Petch was filed on behalf of Co-operators.[13] Mr. Petch is a Unit Specialist employed by Co-operators and he had carriage of this matter at all relevant times.

[31]           He has explained the efforts of Co-operators to eliminate the coverage for polluting events from GLC policies issued by the respondent.  He stated at para. 9 of his affidavit as follows:

[32]           At para. 11 of his affidavit, Mr. Petch stated that it was Co-operator’s intention to eliminate all claims whatsoever “known colloquially as “pollution” because of the unpredictability of such events, the enormous safety risks and clean up costs, and financial exposure associated with such claims.”

[33]           Mr. Petch explained that when a client seeks coverage for specialized insurance not covered by Co-operators’ standard CGL policies, they are referred to Federated Agencies Limited (FAL), which is a brokerage owned by Co-operators.   It is designed to provide specialized insurance coverage for particular needs, such as airplanes, yachts, directors’ and officers’ liability, pollution risks, environmental liability and other commercial property liability products.[14]

[34]           Mr. Dowhan, counsel for Co-operators, quite properly submitted that there is no limitation in the wording of the policy regarding pollution of “the natural environment”.  He noted that the original wording of the policy changed in 2011 and the preamble to the Total Pollution Exclusion clearly articulated that fact. He further noted that the Total Pollution Exclusion Endorsement was signed by John Hemlow on March 11, 2011, when it was part of the operative wording of the policy and listed on all policy documentation from that time. 

[35]           I concur with that submission of Mr. Dowhan.  The Certificate of Insurance for the CGL policy 1679203[15] issued to Mr. Hemlow for the period when this loss occurred clearly indicates that the Total Pollution Exclusion was part of the policy and was in full force and effect.

[36]           Mr. Dowhan argued that the language of the policy and the Total Pollution Exclusion is unambiguous and, accordingly, the court should give effect to the clear language of the policy, reading the contract as a whole.  Co-operators concedes that the allegations against John Hemlow in the Rich Products claim would fall within the initial grant of coverage for the purposes of the duty to defend analysis. The issue is whether the Total Pollution Exclusion applies to negate the duty to defend, and Co-operators contends that it clearly does.  He submitted that no words in the policy or the Total Pollution Exclusion are ambiguous or capable of two or more meanings.

[37]           In responding to Mr. Zizzo’s submission that the term “pollutant” may be colloquially interpreted as pertaining to “the natural environment”, Mr. Dowhan disagreed and submitted that it is clearly defined in the Policy as having a broader meaning – that is, “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, odours, vapour, soot, fumes, acids, alkalis, chemicals and waste0000000.”

[38]           He noted that both gaseous and liquid ammonia are clearly irritants and contaminants: they are listed as “toxic substances” in Schedule 1 to the Canadian Environmental Protection Act.[16]  On the evidence before this court, there is no issue the gaseous ammonia killed John Hemlow, and its presence necessitated the evacuation and decontamination of the Rich facility.

[39]           Co-operators submits that, as John Hemlow was in the business of taking samples from machinery – including ammonia compressors and refrigeration equipment – the particulars of the Total Pollution Exclusion should have been within his list of perceived risks exposure at the time he obtained his insurance.  In support of that argument, Mr. Dowhan referred the court to four cases.

[40]           In 699982 Ontario Ltd. v. Intact Insurance Co.,[17] the insured was the owner of commercial building.  It had leased part of the premises to a dry-cleaning business. A chemical called PCE, used by the tenant in its dry-cleaning business, leaked from the insured’s property onto adjacent properties and caused damage.  When sued by the aggrieved property owners, the insured demanded that its insurer, Intact Insurance, defend and indemnify it.  The court held that the wording of the policy’s pollution exclusion clause was unambiguous and the claim was not covered by the terms of the policy.  In her reasons, the application judge, Roberts J. (as she then was), noted at para. 15 that the exclusion should have been within the objectively reasonable expectation of 699982 at the time that it entered into the policy of insurance.  The Ontario Court of Appeal upheld her decision.[18]

[41]           In Palliser Regional (School) Division No. 26 v. Aviva Scottish & York Insurance Co. Limited,[19] Park J. of the Alberta Court of Queen’s Bench was tasked with determining the applicability of a pollution exclusion clause in a CGL policy issued to the applicant school board.  A school in the Palliser school district was built on a former exposed coal bed, which had grown over with a layer of soil and grass.  However, some of the coal bed subsequently again became exposed after third parties stripped off the protective cover of soil and grass.  Residents of a nearby subdivision brought an action for damages, alleging that winds had transported coal dust and particulate matter onto their properties.  The insurer relied on the Pollution Exclusion in the policy it had issued to the applicant, Palliser.  Palliser argued that, as it did not cause the pollution, the Pollution exclusion should not apply.  The court agreed and found that it was not within the reasonable expectation of the parties to the CGL policy that the activity of the school board in running a school would result in the release of coal dust from the underlying coal bed.   At para 40, Park J. wrote the following:

[42]            In O’Byrne v. Farmers’ Mutual Insurance Company,[20] Sproat J. considered, among other questions, whether a Total Pollution Exclusion vitiated coverage.  The loss in question occurred in March 2005, not long after Zurich was considered by the Court of Appeal in 2002. The O’Byrne case involved the escape of oil from a furnace that did not leak outside the building, just as the ammonia did not leak out of the Rich facility in the case at bar.

[43]            The policy in O’Byrne involved an “all risks” insurance policy.  It contained a Total Pollution Exclusion very similar in wording to that before this court:

[44]            In O’Byrne, the insured parties owned a two storey multi-use commercial building.  An oil-fired furnace was located in one of the two apartments on the second level.  The tenant of that apartment inserted a piece of cardboard into the primary control of the furnace, which led to a significant spill of oil one day when the tenant was absent. The oil spilled onto the apartment floor, leaked through the floorboards and saturated the ceiling of the main floor tenants.  There was no escape of the oil outside the building.

[45]            Sproat J., relying on the Court of Appeal’s analysis in Zurich, determined that the insurer had a duty to indemnify the O’Byrne plaintiffs.  At para. 62, he noted the similarity of wording between the two CGL policies:

[46]            The Court of Appeal upheld the trial judge’s decision[21] on other grounds.  However, Van Rensburg J.A. indicated at para. 53 that she did not necessarily agree with the findings of Sproat J. that the Total Pollution Exclusion should be read to apply only with “traditional environmental contamination” and that, because the oil did not escape the premises into the environment, the exclusion was not applicable.  She emphasized that the extent to which the policy provides coverage for pollution damage depends on a reading of the pollution exclusion.

[47]            The Ontario Court of Appeal again revisited the interpretation and application of a total pollution exclusion clause in the 2011 case of ING Insurance Co of Canada v. Miracle[22] – some nine years after Zurich. The insured in Miracle owned and operated a gas bar, and he was sued for allegedly permitting petroleum hydrocarbon fuels to escape from his underground storage tanks onto adjacent property.  The statement of claim specifically discussed fuels escaping into the natural environment. The plaintiff pled, and relied on, specific environmental statutes. In finding that the pollution exclusion applied on the facts of that case, the court found that, unlike the facts in Zurich, Mr. Miracle was engaged in a business in which the risks of pollution and environmental damage were well recognized.  The court found that the claim fit into the historical reason for the pollution exclusion, which was to avoid an insurer being responsible for expensive environmental cleanup under legislative enactments governing such spills.[23]  Mr. Dowhan argued that this same reasoning is applicable to the case at bar.

[48]           The principles and the test governing an insurer’s duty to defend were well articulated by the Supreme Court of Canada in Monenco Ltd. v Commonwealth Insurance Co.[24] Iacobucci J. stated that the “pleadings rule” is applicable on a motion such as the one before this court.  It is the pleadings that govern the duty to defend when read in conjunction with the operative terms of the insurance policy.   If the pleadings assert a cause of action, which, if true, would require the insurer to indemnify the insured for the claim, then the insurer is obliged to provide a defence. 

[49]           In the case at bar, Co-operators relies on the “Total Pollution Exclusion”.  It does not assert that the claims in the statement of claim are incorrect or correct, but only that coverage is denied to the Estate of John Hemlow by virtue of the “Total Pollution Exclusion”.  The Ontario Court of Appeal[25] in Zurich stated that, despite the apparent clarity of an exclusion clause, it will not be applied if (i) it is inconsistent with the main purpose for which the insurance is purchased (in this case, accident liability insurance in the course of doing oil analysis) and (ii) its application would be inconsistent with the reasonable expectations of the ordinary person as to the coverage purchased.

[50]           On a motion to determine if the insurer has a duty to defend, the applicant will succeed if there is a “mere possibility” that a claim falls within the coverage under the policy.[26]

[51]           Our courts have repeatedly articulated the principles applicable to the interpretation of insurance policies.  I borrow from, and rely on, the Supreme Court of Canada’s articulation of those three central principles:[27]

[52]           On this application, there is no issue regarding whether the claim falls within the initial grant of coverage.  The issue is whether the claim is excluded by operation of an exclusion clause, specifically the Total Pollution Exclusion.    

[53]           On this application, I listened to counsel’s submissions for four to five hours, as they argued over whether this incident was covered by the Policy.  In my view, if the Policy and the Total Pollution Exclusion had been clearly written so that a layperson could easily read it and understand what acts/omissions were excluded, there would not be the ambiguity that evidently exists.

[54]            The extent to which the Policy provides coverage for pollution damage depends on a reading of the pollution exclusion.  It was written by the insurer, and vetted by its lawyers and others experienced in the industry.  Realistically, few, if any, insured persons retain counsel to review an insurance policy before purchasing it.  Thus, it is clear law that in the event that there is an ambiguity in the wording, it will be construed against the interest of the insurer.

[55]           The Total Pollution Exclusion points to an environmental emphasis and application.  It is boldly entitled “Total Pollution Exclusion”. 

[56]           It then provides that the insurance does not apply to

[57]           It then speaks of “Bodily Injury” or “property damage” arising out of the actual, alleged, potential or threatened spill, discharge, emission, dispersal, seepage, leakage, migration, release or escape of “pollutants”.  The following paragraphs use environmental words of description including monitor, clean up, remove, contain, treat, detoxify, decontaminate etc. 

[58]           Here, the insurer has attempted to exclude any act of emission of virtually any product that it has defined as an act of pollution. Pollutants are clearly defined in the Policy in the definitions section.  Unfortunately, the term pollution is not defined in the Policy.  It is this latter omission that leads to a possible ambiguity in the Policy. 

[59]           In my view, the definition in the Policy of what constitutes a polluting act is overly broad and the insurer has inaccurately defined the exclusion. It is a Total Emissions Exclusion, not a Total Pollution Exclusion.  The use of the word Pollution in the heading of the exclusion document is misleading and confusing.  It may very well have caught the act that is alleged in the statement of claim, but, because of its inherent ambiguity, it is possible that it did not meet the reasonable expectations of the insured.  That is, the insured possibly, and reasonably, believed that the exclusions applied to pollution in the way normally understood by most people: pollution of the natural environment.

[60]           In the present case, there is no evidence that John Hemlow was engaged in a business that carried with it an obvious and well-known risk of pollution, as for example in the Miracle case.  The statement of claim does not make any mention of damage to the natural environment.

[61]           I find that the exclusion is possibly capable of more than one reasonable interpretation and that ambiguity dictates that it should be interpreted in favour of the applicant.[28]

[62]           In my view, the pollution exclusion clause is worded to protect the insurer from liability for environmental pollution and the improper disposal or contamination of hazardous waste.  It would have taken very little for a clause to be added in the Total Pollution Exclusion document signed by Mr. Hemlow to state that the exclusion is not limited to environmental claims, but also includes all claims arising from any emission of any of the enumerated substances. The insurance industry has been gradually rewording these pollution clauses and exclusions over the years, as evidenced by the cases provided to this court. However, Co-operators has failed to make its intentions clear and easily understandable in this Policy.

[63]           As Mr. Zizzo argued, a hyper literal interpretation of the total pollution exclusion, as urged by Co-operators, could be used to exclude damages caused by a fire, or even a slip-and-fall on a little bit of oil that spilled from a plug removed by Mr. Hemlow as he analyzed a compressor or motor.

[64]           On the evidence before this court, I find, for the following four reasons, that it was possibly within the objectively reasonable expectation of John Hemlow that he was insured.

[65]           The definition used by Co-operators of “Total Pollution Exclusion” was misleading in that it not only included an exclusion of events which an average person would associate with pollution, but any accidental occurrence that caused any damage to the customer’s property and which did not lead to environmental pollution as commonly understood.

[66]           In Zurich, at para. 38, the court stated the following:

[67]           In Consolidated Bathurst Export Ltd. v. Mutual Boiler & Machinery Insurance Co.,[29] Estey J. wrote the following at p. 901–02:

[68]           A similar statement was made by Lacourciere J.A. of the Ontario Court of Appeal in Weston Ornamental Iron Works Ltd. v Continental Insurance Co.[30] In that case, the insured’s business involved welding of construction equipment on various sites.  A fire occurred, which destroyed a customer’s bulldozer. The insurer denied coverage as the CGL policy excluded coverage for “loss of…any personal property…as a result of any work performed thereon by the insured.” In overturning the trial judge’s ruling in favour of the insurer, the court wrote at the following pp. 479–80:

[69]           It does not tax the imagination of most people that an exclusion entitled Total Emissions Exclusion (or something to convey exactly what was being excluded) could have been added for “Escape of Chemicals, gases, fluids, smoke or other Damaging products”.  It would have eliminated the confusion that the word ‘pollution” imposes in the context of an exclusion intended by an insurer in a case such as the one before the court. 

[70]            Given that the Total Pollution Exclusion is ambiguous and could have been clarified in at least two respects as suggested in this ruling to fulfill the objective realistic expectations of the insured, I am satisfied that Co-operators must defend this action on the merits on behalf of its insured, the late John Hemlow.

[71]            I find that there is a possibility that the Policy will have to respond to the claim by indemnifying the Estate.

[72]           The Application is granted. 

[73]           It is ordered that the Cooperators General Insurance Company shall defend the Estate of John Hemlow under its Liability Insurance policy No. 1679203 with respect to the claims made in the action commenced in the Superior Court of Justice at Toronto as Court File No. CV-17-577081 bearing the following style of Cause: 

[74]           The balance of this Application related to the duty, if any, of Co-operators to indemnify the Estate of John Hemlow, is adjourned to be heard by the Trial Judge or as otherwise ordered by another Judge of this court.

[75]            If counsel cannot agree on costs, I will receive short written submissions from counsel for the Estate, together with a costs outline and appropriate dockets on, or before, February 10, 2021.  Counsel for the Estate shall serve and file any responding materials on, or before, February 22, 2021.  Counsel for Cooperators may serve and file brief reply materials on, or before, March 1, 2021.