In reasons of the Honourable Justice Rosenberg delivered on February 8, 2011, the Ontario Court of Appeal in Cabell v The Personal Insurance Company. 2011 ONCA 105 granted a declaration that the plaintiffs have insurance coverage for the loss relating to their outdoor in-ground swimming pool as a result of hydrostatic uplift pressure due to build up of groundwater, causing the pool to lift out of the ground and to crack and setting aside the lower courts dismissal of the plaintiffs’ application.

The plaintiffs had purchased an endorsement to their property insurance for “Outdoor Inground Swimming Pools, Hot Tub, Spa and Sauna Coverage”. The application judge in the lower court held that the endorsement was not an independent part of the policy and that the Common Exclusions in the policy applied to the endorsement to exclude claims for “settling, expansion, contraction, moving, bulging, buckling or cracking of any insured property…” In doing so the application judge had rejected the plaintiffs’ submissions that only the exclusions expressly referred to in the endorsement applied.

The Court of Appeal disagreed.

The reasons provide guidance in the analysis of the interaction of the policy of insurance, its endorsements and their respective coverage and exclusion.  

A review of the principles of interpretation of insurance contracts is set forth in the reasons, including: the broad interpretation of coverage, the strict interpretation of clauses limiting coverage and construction of ambiguities against the insurer. But the court made it clear that the principles of interpretation cannot themselves create ambiguities – so that if an exclusion clause is clear, it is to be applied according to its terms, subject to the “nullification of coverage doctrine.” 

A detailed review of the Supreme Court of Canada decisions on this doctrine revealed contrasting views. As annunciated in the earliest decision, it is “simply a particular application of the broader rule of interpretation that in the case of ambiguity in an exclusion clause, the ambiguity is to be construed against the insurer”. Whereas more recently the same court has suggested “a different way of looking at the nullification of coverage doctrine; namely that it is an independent doctrine that applies even in the absence of an ambiguity”.

The Court of Appeal found that the only reasonable interpretation of the endorsement is that it at least amends the policy so that the part of the Common Exclusions (in the policy) referring to outdoor swimming pools does not apply. The court disagreed with the application judge’s refusal to apply the nullification doctrine because “there was no evidence that the effect of the Common Exclusions was to nullify coverage and no objective evidence as to the reasonable expectation of the parties”.

Instead the court reasoned that “It seems to me that a court is in a good position to determine what are the most obvious risks for which an ordinary homeowners’ policy is issued. If the court is able to determine on an objective basis that the insurer’s interpretation would render nugatory coverage for the most obvious risks which the endorsement is issued, a tactical burden shifts to the insurer. It will be for the insurer to show the effect of its interpretation would not nullify the coverage and would not be contrary to the reasonable expectations of the ordinary person as to the coverage purchased”.

Pool owners suffering this type of damages need legal advice on both their homeowner’s policy and any endorsements they have purchased.

 David Alderson LL.B., LL.M

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