Why Intact can’t recover $2.9 million in excess insurance payment

Intact Insurance has lost its bid to recover $2.9 million it paid above and beyond its $5-million insurance policy limit for cleaning up a 2012 chemical spill in North Bay, Ontario.

Ontario’s Court of Appeal rejected Intact’s arguments that it had a right under the Environmental Protection Act (EPA) to recover the excess insurance payments from third-party commercial businesses that manufactured, distributed and brokered the transportation of the chemical pollutant, liquid formaldehyde.

Zurich Insurance defended the three separate commercial businesses.

Ontario’s top court denied Intact’s claim of unjust enrichment. Effectively, Intact argued Zurich and its insureds benefited by not having to pay the excess $2.9 million in pollution remediation costs that Intact had paid beyond its policy limit.

But the court found the true beneficiary of Intact’s excess payment was its own insured, a trucking transportation company that was partly responsible to pay clean-up costs.

The EPA did not require Intact to pay for remediation beyond policy limits, the Appeal Court found, adding Intact made its own ‘choice’ to continue paying the higher remediation costs.

“When Intact’s payments reached the policy limits, it ceased to be under any obligation to its insured under the policy with respect to remediation costs,” the Appeal Court ruled in a decision released on June 24, 2022. “It had no other legal duty to remediate.

“The spill and its effects, and the failure of [Zurich and its commercial insureds] to begin to fund remediation at that point, had no direct bearing on Intact’s legal interests. Intact could have chosen to make no further payments.”

Intact insured Transport Donia Banville (TDB), a trucking company, against liability for damage to the property of others. The policy limit was $5 million.

TDB was transporting a shipment of liquid formaldehyde in May 2012, when its vehicle overturned near a residential neighborhood in North Bay, and spilled about 30,000 litres of formaldehyde, as well as fuel and coolant, onto residential properties and into North Bay’s municipal drinking water supply.

The shipment was arranged by Group G3 Inc (G3). It was to go from the supplier of the formaldehyde, ARC Resins Corporation, to Tembec Inc. G3, Tembec and ARC were insured against liability for property damage to others by the respondent Zurich Insurance Company Ltd.

Shortly after the spill occurred, Intact, as TDB’s insurer, arranged and began to make payments toward remediation efforts. In July 2012, Intact advised Zurich the cost of the remediation efforts would likely exceed Intact’s $5-million policy limit.

Three months later, Zurich advised that it was not prepared to fund the remediation, since its insureds were not in receipt of a minister’s order under the EPA requiring them to remediate.

Intact continued to pay insurance amounts toward the ongoing remediation until at least May 2014. At that point, Ontario’s ministry of the environment issued an order declaring, among other things, Tembec, ARC, G3 and TDB were all in breach of their remediation obligations under s. 93 of the EPA.

The ministerial order declared contamination was still present and required Tembec, ARC, G3 and TDB to continue with the existing remedial plan or develop a new remedial plan for approval. Thereafter, Zurich, on behalf of its insureds G3, Tembec and ARC, started to pay for the ongoing remediation.

Intact claimed its total payments toward remediation, until Zurich began to make payments, was $7.96 million – $2.96 million above its policy limits. Intact alleged the spill, and the failure of Zurich’s insureds to contribute to the clean-up costs under s. 93 of the EPA, were the reasons it made the excess insurance payments.

But the court found Intact, as an insurer, is not eligible under s. 93 of the EPA to seek compensation for clean-up costs from third parties. For example, Intact was not under a ministry order to pay the costs, as the court noted. Unlike a municipality, the insurer had no ownership over the contaminated lands, so it was not required to pay the clean-up costs for its own land. And its legal obligation to the insured was to pay only up to the $5-million limit.

“The EPA does not contemplate remediation being undertaken by someone who does not fit into any of the categories the EPA envisages – someone whose person or property is not affected or threatened to be affected by the spill, and who is without any statutory obligation or permission to remediate,” the court ruled. More importantly for these purposes, the EPA does not include such persons in any of the express rights to compensation for remediation expenses…

“The legislature must be taken to have contemplated that persons with a duty to remediate may be insured, and that an insurer might pay for remediation. But the legislature did not include insurers in any of the express categories of persons who can directly claim compensation for expenses paid, presumably intending that any claim would be a subrogated one by and in the name of the insured.

“For this reason, Intact’s assertion that it has a direct right [to compensation for excess insurance payment] does not sit easily with the EPA statutory scheme.”

Feature photo courtesy of iStock.com/ZzzVuk