Lunenburg Industrial Foundry and Engineering Ltd. et al. v. Commercial Union Assurance Co. of Canada et al., 2005 NSSC 23

• Judge: Warner, J.
• Court: Supreme Court of Nova Scotia (Canada)
• Case Date: December 01, 2004
• Jurisdiction: Nova Scotia
• Citations: 2005 NSSC 23;(2005), 230 N.S.R.(2d) 249 (SC)

Lunenburg Ind. v. Com. Union (2005), 230 N.S.R.(2d) 249 (SC);

 729 A.P.R. 249

MLB headnote and full text

Temp. Cite: [2005] N.S.R.(2d) TBEd. FE.037

Lunenburg Industrial Foundry and Engineering Limited, Royal and Sun Alliance Insurance Company of Canada, Kingsway General Insurance Company, Sovereign General Insurance Company and Markel Insurance Company (plaintiffs) v. Commercial Union Assurance Company of Canada and AON Reed Stenhouse Inc. (defendants)

(S.H. No. 220046; 2005 NSSC 23)

Indexed As: Lunenburg Industrial Foundry and Engineering Ltd. et al. v. Commercial Union Assurance Co. of Canada et al.

Nova Scotia Supreme Court

Warner, J.

February 11, 2005.

Summary:

A shipyard marine railway was damaged when a chain hauling the cradle on which a fishing vessel rested came off its sprocket, causing the cradle to speed out of control and go into the harbour with the vessel. The railway was out of commission for six months. The shipyard, through its broker, had in place property insurance with Commercial (50%) and Royal and four other insurers (50%). The shipyard also had machinery breakdown insurance under a Boiler and Machinery Policy with Commercial, which included the only business interruption insurance. Royal and the other property insurers paid $1.7 million under the Property Policy. Royal sued Commercial for that portion of the claim Royal submitted should have been paid under the Boiler and Machinery Policy. The shipyard sued Commercial for business interruption loss under the Boiler and Machinery Policy. The contentious issues in determining whether the loss to the marine railway was covered under the Boiler and Machinery Policy was (1) whether the marine railway was an "object" and, if so, whether it was excluded as a "hoist" or "conveyor"; (2) whether the incident was an "accident"; and (3) whether the Boiler and Machinery Policy was to be interpreted so as to avoid overlapping coverage with the Property Policy.

The Nova Scotia Supreme Court held that (1) the marine railway was an "insured object" and not excluded as a "hoist" or "conveyor"; (2) the loss resulted from an "accident" as defined under the policy; and (3) overlapping coverage was permitted under the policy.

Insurance - Topic 781

Insurers - Liability - Where two or more policies cover risk - General - A business had insurance coverage under both a property policy and a boiler and machinery policy - Only the boiler and machinery policy had business interruption insurance - The boiler and machinery insurer submitted that its policy should be interpreted to avoid overlapping coverage with the property policy - The Nova Scotia Supreme Court held that although overlapping coverage was to be avoided if possible, such a general rule could not trump the wording of the boiler and machinery policy, which explicitly recognized that overlapping coverage could exist - See paragraphs 83 to 95.

Insurance - Topic 1852

The insurance contract - Interpretation of contract - Intent of the parties - The Nova Scotia Supreme Court stated that "a court should give effect to the intention of the parties - the insurer and the insured. If the words used are not clear enough to disclose what this joint intention is, the words are given a meaning which, if reasonable, favours the insured. This is considered fair either because the language was chosen by the insurer or because the meaning adopted by the court achieves a result which the parties could reasonably expect. ... coverage provisions are interpreted broadly while exclusions are interpreted narrowly." - See paragraph 20.

Insurance - Topic 1860

The insurance contract - Interpretation of contract - Construction - Popular meaning - [See Insurance - Topic 6763 ].

Insurance - Topic 1861

The insurance contract - Interpretation of contract - Contra proferentem rule - Ambiguity construed against insurer - [See Insurance - Topic 1852 ].

Insurance - Topic 6743

Boiler and machinery insurance - Extent of coverage - Accident defined - A boiler and machinery insurance policy provided coverage to a marine shipyard for any "insured object" damaged in an "accident" - An "accident" was defined as "a sudden and accidental breakdown of the Object or a part thereof which manifests itself at the time of its occurrence by physical damage to the Object" - Depletion, deterioration, corrosion or erosion and wear and tear were excluded from the definition of "accident" - The shipyard's marine railway (an inclined track used to remove a vessel from the water to land for repairs) was damaged when a chain hauling the cradle on which a fishing vessel rested came off its sprocket, causing the cradle to speed out of control and go into the harbour with the vessel - The Nova Scotia Supreme Court held that the railway damage resulted from an "accident" and coverage was provided - The breakdown was sudden and accidental - The chain and sprocket were not loose or lacking proper maintenance - The damage to the railway manifested itself at the time the chain came off the sprocket (i.e. the "occurrence") - The cause of the event was a spacer plate, not one of the listed exclusions (wear and tear, etc.) - See paragraphs 62 to 82.

Insurance - Topic 6763

Boiler and machinery insurance - Exclusions - Insured objects - Exclusions - A boiler and machinery insurance policy provided coverage to a marine shipyard for any "insured object" damaged in an "accident" - An "object" was defined as a mechanical or electrical machine or apparatus, but excluded a "conveyor" or "hoist" - The shipyard's marine railway (an inclined track used to remove a vessel from the water to land for repairs) was damaged when a chain hauling the cradle on which a fishing vessel rested came off its sprocket, causing the cradle to speed out of control and go into the harbour with the vessel - The insurer submitted that coverage was excluded, because the railway was a "hoist" or "conveyor" - The Nova Scotia Supreme Court held that the marine railway was not a "hoist" or "conveyor", notwithstanding that using a broad functional meaning of the words, a railway could technically constitute a "hoist" or "conveyor" - Employing such meaning would result in redundancy with other named excluded objects - Using the ordinary sense of the words in the context of the entire policy, no ordinary person would consider the railway a hoist or conveyor - The court stated that "whether defined by its function or its physical characteristics [a marine railway] is not a hoist or a conveyor, even if some portion of its function and physical characteristics may overlap those of a hoist, or are similar to some of those functions or characteristics of a conveyor" - See paragraphs 30 to 61.

Cases Noticed:

Manulife Bank of Canada v. Conlin, [1996] 3 S.C.R. 415; 203 N.R. 81; 94 O.A.C. 161, refd to. [para. 17].

Eli Lilly & Co. et al. v. Novopharm Ltd. et al., [1998] 2 S.C.R. 129; 227 N.R. 201, refd to. [para. 18].

Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., [1980] 1 S.C.R. 888; 32 N.R. 488, refd to. [para. 21].

Indemnity Insurance Co. of North America v. Excel Cleaning Service, [1954] S.C.R. 169, refd to. [para. 24].

Reid Crowther & Partners Ltd. v. Simcoe & Erie General Insurance Co., [1993] 1 S.C.R. 252; 147 N.R. 44; 83 Man.R.(2d) 81; 36 W.A.C. 81, refd to. [para. 24].

Sansalone v. Wawanesa Mutual Insurance Co. et al., [2000] 1 S.C.R. 627; 253 N.R. 95; 135 B.C.A.C. 255; 221 W.A.C. 255, refd to. [para. 24].

Reform Party of Canada v. Western Union Insurance Co. (2001), 153 B.C.A.C. 48; 251 W.A.C. 48; 2001 CarswellBC 700 (C.A.), refd to. [para. 24].

Pictou County Farmers' Mutual Fire Insurance Co. v. Williams (2001), 191 N.S.R.(2d) 390; 596 A.P.R. 390; 2001 NSCA 33, refd to. [para. 24].

McClelland and Stewart Ltd. v. Mutual Life Assurance Co. of Canada, [1981] 2 S.C.R. 6; 37 N.R. 190; 125 D.L.R.(3d) 257, refd to. [para. 26].

Arnoldin Construction & Forms Ltd. v. Alta Surety Co. et al. (1995), 137 N.S.R.(2d) 281; 391 A.P.R. 281; 1995 CarswellNS 319 (C.A.), refd to. [para. 26].

Wigle et al. v. Allstate Insurance Co. of Canada (1984), 6 O.A.C. 161; 1984 CarswellOnt 26 (C.A.), refd to. [para. 27].

Chilton v. Co-Operators General Insurance Co. (1997), 97 O.A.C. 369; 1997 CarswellOnt 360 (C.A.), refd to. [para. 27].

Brissette v. Westbury Life Insurance Co., [1992] 3 S.C.R. 87; 142 N.R. 104; 58 O.A.C. 10, refd to. [para. 28].

Lurette v. Wellington Insurance Co. (1996), 181 N.B.R.(2d) 304; 460 A.P.R. 304; 1996 CarswellNB 410 (C.A.), refd to. [para. 29].

Hennig v. Clarica Life Insurance Co. (2003), 320 A.R. 387; 288 W.A.C. 387; 2003 CarswellAlta 269 (C.A.), refd to. [para. 29].

Foundation Co. v. Aetna Casualty Co., 1997 CarswellAlta 168 (S.C.), refd to. [para. 32].

Hudson's Bay Co. v. Wyrzkowski, [1938] S.C.R. 278, dist. [para. 45].

Stone Container Corp. v. Hartford Steam Blower Inspection and Insurance Co. (1999), 165 F.3d 1157, refd to. [para. 56].

592716 Ontario Inc. v. Commercial Union Assurance Co. et al. (1988), 30 O.A.C. 154; 1988 CarswellOnt 714 (C.A.), refd to. [para. 70].

Edmonton (City) v. Protection Mutual Insurance Co. (1997), 197 A.R. 81; 1997 CarswellAlta 141 (Q.B.), affd. (1999), 250 A.R. 93; 213 W.A.C. 93; 1999 CarswellAlta 560 (C.A.), refd to. [para. 71].

Regina Cold Storage Ltd. v. Gerling Global General Insurance Co. (1979), 4 Sask.R. 13; 1979 CarswellSask 225 (C.A.), refd to. [para. 72].

Stelco Inc. v. Royal Insurance Co. of Canada et al. (1997), 101 O.A.C. 89 (C.A.), refd to. [para. 83].

Seagate Hotel Ltd. v. Simcoe Erie General Insurance Co., 1980 CarswellBC 230 (S.C.), refd to. [para. 83].

Family Insurance Corp. v. Lombard Canada Ltd., [2002] 2 S.C.R. 690; 288 N.R. 373; 167 B.C.A.C. 161; 274 W.A.C. 161, refd to. [para. 85].

Evans v. Maritime Medical Care Inc. (1991), 108 N.S.R.(2d) 340; 294 A.P.R. 340; 1991 CarswellNS 106 (C.A.), refd to. [para. 91].

Guardian Insurance Co. of Canada v. New Hampshire Insurance Co. (1999), 209 N.B.R.(2d) 161; 535 A.P.R. 161; 1999 CarswellNB 54 (C.A.), refd to. [para. 91].

Authors and Works Noticed:

Brown, Craig, and Menezes, Julio, Insurance Law in Canada (Looseleaf), c. 8 [para. 19].

Fridman, Gerald Henry Louis, The Law of Contract in Canada (4th Ed. 1999), p. 498 [para. 51].

Hilliker, Gordon, Liability Insurance Law in Canada (3rd Ed. 2001), c. 2, generally [para. 19].

Lichty, M.G., and Snowden, M.B., Annotated Commercial General Liability Policy (Looseleaf), c. 2 [para. 19].

MacGillivray, Insurance Law (9th Ed. 1997), c. 11, generally [para. 19]; 11.18 [para. 52].

Sanderson, Heather A., The Comprehensive General Liability Policy: The Insuring Intent (1990), c. 2 [para. 19].

Sullivan, Ruth, Sullivan and Driedger on the Construction of Statutes (4th Ed. 2002), pp. 175 to 186 [para. 47].

Counsel:

W. Augustus Richardson, for Royal & Sun Alliance Insurance Co. of Canada and all other insurance plaintiffs;

Hugh Wright and David J. Demirkan, for Commercial Union Assurance Co. of Canada;

Nancy G. Rubin and Colin D. Piercy, for AON Reed Stenhouse Inc.;

Peter Kinley, President of Lunenburg Industrial Foundry & Engineering Ltd., self-represented.

This action was heard on November 30 and December 1, 2004, at Halifax, N.S., before Warner, J., of the Nova Scotia Supreme Court, who delivered the following judgment on February 11, 2005.