Background:

• The Corporation of the City of Thunder Bay (“the City”) faced several lawsuits alleging property damage due to its use of sodium hydroxide in the water supply, which allegedly caused losses linked to lead contamination.
• The City had general liability insurance first with Lloyd’s Underwriters (2017-2020), then with Great American Insurance Company (the appellant).
• Great American Insurance argued that it was not required to defend the City under its policy because of an exclusion clause for claims related to lead.

Lower Court Ruling:

• The application judge ruled that Great American had a duty to defend the City, finding ambiguity in the lead exclusion clause.
• The judge referenced the Supreme Court of Canada’s Progressive Homes Ltd. v. Lombard decision, which requires insurers to clearly demonstrate that an exclusion clause applies in order to deny coverage.

Court of Appeal Decision:

• The appeal was dismissed. The Court agreed that the lead exclusion clause was ambiguous, meaning Great American failed to clearly exclude coverage under the policy.
• As a result, Great American is obligated to defend the City against the claims.
• The argument regarding the potential unenforceability of the exclusion under Ontario’s Insurance Act was not addressed, as it was unnecessary given the main finding.

Costs:

• Lloyd’s Underwriters were awarded partial indemnity costs of $16,500.
• The City was awarded substantial indemnity costs of $30,000.