Businesses in high-risk industries—those handling hazardous materials, facing frequent lawsuits (including class actions), or prone to severe injuries or significant property damage—often need more than a standard Commercial General Liability (CGL) policy. These businesses should explore higher liability limits via excess or umbrella insurance.

Increasingly, even low-risk businesses are required by vendors and clients to carry umbrella coverage as a condition of contracts. As Eric Scott notes, “Often, one insurer is not willing to put up large [primary] limits on a very small business,” making umbrella policies a practical solution for small and medium-sized organizations to meet these contractual obligations.

Rising court awards, especially in the U.S., further underscore the need for this added protection. It’s vital to understand the difference between excess and umbrella coverage: excess extends existing CGL limits, while umbrella offers broader coverage, filling gaps once the underlying policy is exhausted.

A clear understanding of what’s covered and, crucially, what’s not at the umbrella level is essential. For example, in catastrophic losses involving multiple severe injuries or deaths, umbrella policies with high attachment points may only be triggered after multiple underlying policies are exhausted.

While understanding the need for higher limits through excess or umbrella insurance is crucial for businesses in high-risk industries and increasingly important even for low-risk businesses to meet contractual obligations, it’s equally vital to understand what those basic CGL policies actually cover.

This highlights the critical need for clearer communication about policy coverage before purchase. Being unaware of common CGL exclusions and the availability of other crucial product lines like pollution liability, errors & omissions (E&O), and directors & officers (D&O) insurance remains the top reason for claim denials in the property and casualty sector.

As the following case demonstrates, even seemingly comprehensive coverage can have significant gaps, particularly when it comes to specialized risks.

This case involves a coverage dispute between West Van Lions Gate Cleaners Ltd. and its insurers, Intact and Economical, regarding a lawsuit alleging environmental contamination. A neighbouring business sued West Van, claiming that dry-cleaning chemicals and petroleum products from the dry cleaner’s site contaminated their property’s groundwater and soil.

West Van sought coverage from its insurers, who denied the claim based on pollution exclusions in their Commercial General Liability (CGL) policies. The case has made its way through the British Columbia court system, and West Van has applied for leave to appeal to the Supreme Court of Canada.

Basis for Denial of Coverage and Court Ruling

Both Intact and Economical denied coverage based on pollution exclusions present in their respective CGL policies. These exclusions varied slightly in wording but generally aimed to exclude coverage for damages “arising out of” the release or escape of pollutants at or from premises owned or occupied by the insured. The key issue was whether the alleged contamination fell within these exclusions.

Initially, the British Columbia Supreme Court ruled in favour of West Van, finding ambiguity in the exclusion wording, particularly concerning contamination originating from prior owners or operators of the site.

However, the British Columbia Court of Appeal overturned this decision. The judge emphasized that the policies were “occurrence-based” and not intended to cover events predating the policy’s effective dates. The appeal court concluded that the pollution exclusions clearly applied, and the insurers had no duty to defend West Van.

Would “more coverage” have helped West Van Lions Gate Cleaners?

Unfortunately, the exact coverage amount that West Van Lions Gate Cleaners Ltd. was seeking from Intact and Economical is not publicly available in the case details. It’s tough to give a precise number without more information, but we can make an educated guess based on similar cases and the context of this one. The potential cost of this claim could have ranged from several hundred thousand to a few million dollars.

Today’s business landscape presents evolving risks that often leave standard commercial liability policies with dangerous gaps. Unexpected policy exclusions can lead to devastating financial losses. Fortunately, commercial insurance rate increases are currently trending downward, as reported by Swiss Re Institute, Applied Systems, and Aon Canada. “On the casualty side, we observe a trend of general market softening across most long-tail lines,” notes Kera McDonald, chief underwriting officer at Swiss Re Corporate Solutions.

However, even with favourable market conditions, your business protection strategy must adapt to these changing risks. Regular policy reviews are crucial to identify potential gaps before they result in costly surprises. Partnering with a qualified insurance professional who understands your industry’s specific challenges is invaluable in building a robust coverage plan.

It’s essential to remember that your basic liability policy may not cover everything you assume it does. Investing time now to review your coverage is a wise decision. Discovering gaps during a claim is far more expensive than addressing them proactively.

Many business owners operate under misconceptions about commercial liability coverage that can leave them vulnerable to significant financial losses. Understanding these common myths is crucial for proper risk management.

The commercial liability insurance landscape in Canada continues to evolve in response to emerging risks, legal developments, and market conditions. Understanding these trends is essential for businesses seeking to optimize their coverage strategies.