The decision of the Supreme Court of Canada Derksen v. 539938 Ontario Ltd., 2001 SCC 72, 205 D.L.R. (4th) 1, is perhaps the most significant decision of the Supreme Court of Canada in many years relating to the interpretation of exclusion clauses in insurance policies where the loss arises from more than one cause, one of which falls within coverage and one of which falls within an exclusion clause. Prior to the decision in Derksen, the widely held view was that if the loss arose from two causes, one of which was excluded, coverage for the entire loss would be excluded. This view was based on the court’s earlier decision in Ford Motor Co. of Canada v. Prudential Assurance Company,  S.C.R. 539. The court in Derksen distinguished its earlier decision in Ford Motor Co. by limiting the application of the principles outlined in that decision to the specific wording of the exclusion clause which was in issue. In the same decision, the court approved the decision of the British Columbia Court of Appeal in Pavlovic v. Economical Mutual Insurance Company (1994), 99 B.C.L.R. (2d) 298, 28 C.C.L.I. (2d) 314, which is discussed below.
On October 19, 2001, the Supreme Court of Canada rendered its judgment in Derksen. This case involved the interpretation of two automobile related exclusions in a CGL policy. The claim arose out of a motor vehicle accident on December 5, 1994 when a heavy metal plate flew off a contractor’s truck and went through the windshield of a school bus, killing one child and seriously injuring three others. On the day in question, the contractor had removed a sign assembly from a ditch and placed the sign inside the truck. However, he left the steel base plate unsecured on the outside of the truck. As he drove along the highway, the steel base plate flew off the truck.
The contractor had an automobile liability policy issued by Wawanesa, and a Commercial General Liability policy and umbrella policy both issued by General Accident. A question arose as to which of the policies provided coverage to the contractor. The parties brought a special case on an agreed statement of facts to determine the coverage issues. The motions judge held that all three policies provided coverage and this decision was upheld by the Ontario Court of Appeal. The appeal to the Supreme Court of Canada involved only the question of whether coverage was excluded under the CGL policy. In a 7-0 decision written by Mr. Justice Major, the court held that the CGL policy did provide coverage to the contractor.
Before addressing the CGL exclusions, Major J. first focused on the cause of the accident. He held, as did the courts below, that the accident resulted from two separate but concurrent acts of negligence. First, there was the non-automobile negligence of the contractor’s failure to properly clean up the work site and secure the steel base plate. Second, there was automobile related negligence in his having operated the vehicle without first having performed a safety check of the load.
The court’s decision suggests a preference to identify multiple causes of an accident rather than undertaking a detailed analysis to pinpoint one proximate cause. The CGL insurer had argued that the dominant cause of the accident was the negligent driving of the vehicle with an unsecured load; however Major J. noted that it was equally true that the accident would not have occurred but for the negligent clean up at the work site. The insurer then argued that the driving of the vehicle was an independent intervening proximate cause which broke the chain of causation with any negligence that may have occurred at the work site. Major J. rejected this approach and suggested that when dealing with insurance policies, a court should not try to determine which of two concurrent causes is proximate.
Major J. then addressed the question of whether the CGL afforded coverage when one of the causes of the loss was excluded and one was not. Until Derksen, the court’s own decision in Ford Motor Co. had often been cited for the principle that where a loss is caused by two concurrent causes, one of which is covered and one of which is excluded, then coverage for the entire loss will be excluded. Major J. rejected this interpretation of the Ford Motor Co. case and held it does not offer a general principle, but rather simply illustrates that a properly worded exclusion can oust coverage.
Major J. then turned to the exclusions. The first exclusion provided that coverage was excluded for injury or damage “arising out of the ownership, use or operation of… any automobile.” Major J. declined to follow his own earlier decision in Amos v. I.C.B.C.,  3 S.C.R. 405. That was a case which set out a two part test for interpreting the phrase “use or operation” and several courts had since held that the Amos test had general application to both insuring provisions and exclusion clauses, and to both automobile and CGL policies. Major J., however, declared that Amos was of “no assistance to this appeal” because Amos involved the interpretation of an insuring provision, which is to be interpreted broadly, whereas the case at bar involved an exclusion, which is to be interpreted narrowly.
In the final analysis, Major J. held that the “use or operation” exclusion was ambiguous because it did not address what would happen where the loss arose from two concurrent causes. The exclusion applied but only to that portion of the loss that was attributable to the automobile related negligence, and not the work site related negligence.
The second exclusion provided that coverage was excluded for injury or damage “with respect to which any motor vehicle liability policy is in effect.” Derksen is one of the first cases to examine in any detail the meaning of this exclusion. Major J. held that the mere presence of an automobile policy will not trigger the exclusion. Rather, the extent to which the auto policy is “in effect” must be examined. In this case, the auto policy was not in effect respecting the work site related negligence and therefore the exclusion did not totally exclude coverage. The exclusion did exclude that portion of the loss which could be attributed to the automobile related negligence.
From the perspective of the CGL insurer, it was unfortunate that Major J. declined to apply the Amos test to the interpretation of the phrase “use or operation” and not provide any further guidance as to how those words are to be interpreted in the context of an exclusion. The combined effect of the void left as to the meaning of this phrase, along with the effect of the court’s apparent preference to attribute a loss to multiple causes as opposed to identifying a proximate cause could have the effect of broadening the scope of losses that are found to be covered under a CGL.
WHERE DO WE GO FROM HERE?
In Derksen, the Supreme Court of Canada referred to the decisions of the B.C. Court of Appeal in Pavlovic as an example of the language required to exclude coverage where a loss arises from more than one cause.
In Pavlovic, the court considered a homeowner’s policy which provided insurance for all risks of direct physical loss or damage subject to the usual exclusion in respect of damage caused by seepage or leakage of water below the surface of the ground unless the loss or damage resulted from escape of water from a public water main, swimming pool or equipment attached. The plaintiff’s home was damaged when the line connecting it to a city water main ruptured and water escaped into the foundation soils causing subsidence and consequent settling, distortion and damage to the building. The court found that while the loss was caused in part by seepage, seepage was only one of a series of events in the causal chain which resulted in the loss and that the exclusion clause was not broadly enough drafted to exclude coverage in those circumstances. The court gave the following example of the type of clause which would be required to exclude coverage:
We do not insure for such loss regardless of the cause of the excluded event, other causes of the loss or whether other causes acted concurrently or in any sequence with the excluded event to produce the loss…
Another example of an exclusion clause which was determined to be broad enough to exclude coverage where more than one cause resulted in the loss was that considered by the Supreme Court of Canada in Ford Motor Co. In that case, the exclusion clause in issue provided as follows:
There shall in no event be any liability hereunder in respect to…(c) loss due to physical damage to the property insured caused by the cessation of work or by interruption of process or business operations or by change in temperature, whether liability in respect thereto is specifically assumed now or hereafter in relation to any other peril or not. (Emphasis added)
It is relatively apparent from the decision in Derksen that where there is arguably more than one cause of a loss and only one of the causes is excluded under the policy, there will be coverage for the claim unless the exclusion clause is drafted in such a manner as to exclude coverage regardless of whether any other cause acting either concurrently or in any sequence contributed to the loss.