In Hemlow Estate v. Co-operators General Insurance Co, 2021 ONCA 908, the Ontario Court of Appeal held that the insurer had a duty to defend a claim relating to the negligence of the insured, which resulted in the insured’s own death and property damage at the location where he was working. The court affirmed that the Pollution Exclusion did not apply, as the claim was based in negligence and breach of contract, and not from the escape of a pollutant.
John Hemlow, the insured, was killed in a workplace accident. Hemlow was a contractor, who during the course of his work, opened a valve to a pipe releasing pressurized ammonia that caused extensive property damage. As a result, the property owners brought an action in negligence, nuisance and breach of contract against the Estate of Hemlow.
Hemlow had a Commercial General Liability (CGL) policy with Co-Operators. The policy contained a Total Pollution Exclusion, which excluded coverage for damage caused by “pollutants”. In a different part of the policy, not connected to the Total Pollution Exclusion, the word “Pollutants” was defined as “any solid, liquid, gaseous or thermal irritant or contaminant including smoke, odours, vapour, soot, fumes, acids, alkalis, chemicals and waste.”
The insurer relied on the Total Pollution Exclusion in refusing to defend the estate. The estate brought an application seeking a declaration the insurer had a duty to defend. The application judge granted the application and held that Co-operators had a duty to defend. The judge found the word “pollution” was ambiguous in the policy and where there is ambiguity in the contract, the court’s interpretation will be guided by the reasonable expectation of the parties. The judge held the reasonable expectation of the insured was that the exclusion applied solely to the pollution of the natural environment. Therefore, the exclusion did not apply.
The Duty to Defend
On appeal, the Court upheld the application judge’s decision. The Court of Appeal relied on the general principle that the existence of a duty to defend depends on the nature of claims made. Here, the claim made by the plaintiff fell within the terms of the CGL policy because it was a straightforward claim for breach of contract and negligence. There was nothing in the statement of claim that involved, or asserted, a claim arising out of pollution. Hence, the duty to defend arises.
The Court held the fact that the damage causing substance was a pollutant did not change the nature of the claim, stating “It also must not be allowed to distract from the proper interpretation of the CGL policy nor obscure or distort the conclusion as to whether a duty to defend arises.”
Review of the Law on Pollution Exclusions
In arriving at its decision, the Court of Appeal touched briefly on history of pollution exclusion litigation.
Zurich Insurance Co. v. 686234 Ontario Ltd.,  O.J. No. 4496, was a Court of Appeal decision that was very similar to the facts of this case. In Zurich, carbon monoxide leaked from the insured building’s furnace resulting in the plaintiff’s injuries. The Court in Hemlow Estate noted the similarity between the cases, where both involved an accidental leak of a “pollutant”, but in neither of them involved alleged negligence in the handling or potential discharge of a pollutant. The Court of Appeal stated that it is important to recognize that Mr. Hemlow was not engaged in work that generally involved risks from pollution.
Next, the Court distinguished ING Insurance Co. of Canada v. Miracle, 2011 ONCA 321 from this appeal. The statement of claim in ING was framed as a claim for damage to the natural environment caused by a form of pollution. Sharpe JA wrote in ING that such a claim fits entirely within the historical purpose of the pollution exclusion, which was “to preclude coverage for the cost of government-mandated environmental cleanup under existing and emerging legislation making polluters responsible for damage to the natural environment”. The Court noted that the damages sought in the case before them were different than in ING. Specifically the damages sought by the plaintiffs against the Hemlow Estate were for out of pocket expenses, business losses and property damage, which did not fit within the historical purpose of the pollution exclusion.
Hemlow Estate provides an important reminder to insurers that it is the nature of the claim which governs the duty to defend analysis. Even where the actions of the insured led to the discharge of pollutants, a claim pled in negligence may not engage the pollution exclusion clause.
As a secondary point, the Court touched upon the fact that Hemlow’s work does not involve risks of pollution. As stated in Zurich and ING, the purpose of the pollution exclusion clause was traditionally used to limit liability for damage to the environment from industrial pollution. The facts of Hemlow cannot be read to fit under this purpose.