Case information

Insurance — Property insurance — All risks policy — Exclusions clauses and exceptions —Interpretation — Whether damage occurring during an extreme rainfall event came within policy’s flood endorsement or was excluded from coverage as surface water — What are the limits of all risk insurance coverage — Where the parties agree to exclude coverage for damage cause by surface water, to what extent can that language be used to interpret any subsequent endorsements providing flood coverage.

Case summaries are prepared by the Office of the Registrar of the Supreme Court of Canada (Law Branch). Please note that summaries are not provided to the Judges of the Court. They are placed on the Court file and website for information purposes only.

On July 8, 2013, the Greater Toronto Area experienced an unparalleled rain event with the highest amount of measured rainfall in a two hour period and in a single day since data tracking began. Flooding was widespread across the area. Water entered into the banquet hall facility operated by the respondent, causing significant damage. The respondent was insured under an all risk policy by the applicant insurer, and the Sewer Back Up Endorsement under the policy with a limit of $500,000 was fully paid out by it to the respondent. The respondent commenced an action claiming that the flood endorsement and other coverages under the policy also applied on the facts of the case.

The Ontario Superior Court of Justice held that the event did not meet the definition of flood in the endorsement and that the surface water exclusion applied. It also denied the claims for the other coverages and dismissed the respondent’s action. The Court of Appeal for Ontario allowed the appeal in part, upholding the respondent’s claim for coverage under the flood endorsement of its policy. It found that by giving effect to the definition of surface water in interpreting the flood endorsement, the lower court nullified the coverage in almost all cases, belied the reasonable expectations of the parties and departed from the principle that provisions granting coverage should be construed broadly. The applicant was ordered to pay an amount of $429,329.18 to the respondent, plus prejudgment interest.