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Mechanical Breakdown Exclusion Upheld
Published in the June 2008 issue of Transportation Notes - View Article
components.
It was later determined by the trial judge that the proximate cause of the engine explosion was negligence on the part of Dawson’s employees. They had allowed oil to contaminate the air system of the truck’s turbocharger while repairing the truck.
Although it made what it characterized as ex gratia payments (amounting to only partial payment of the loss) on a part of the claim, ICBC denied liability under the garage policy.
In denying the claim, ICBC made reference to s. 132 (1)(b) of the relevant regulations made under the Insurance (Motor Vehicle) Act, R.S.B.C. 1996, c. 231. This section reads as follows:
* 132(1) [ICBC] is not liable to indemnify any person under comprehensive or collision coverage for loss or damage
…
(b) [the exclusion clause] consisting of, or caused by, mechanical fracture, failure or breakdown of any part of a motor vehicle
[the saving provision] … unless the loss or damage is coincidental with other loss or damage for which indemnity is provided under comprehensive or collision coverage …
In essence, it was ICBC’s position, that because the damage “consisted of mechanical fracture, failure or breakdown”, and the saving provision did not apply, it was not responsible for indemnifying Dawson in this case.
The trial judge disagreed. In considering the section, he interpreted it as if the words “consisting of” were not present. Proceeding on this basis, he held that, because the cause of the damage was employee negligence (and not mechanical failure), the exclusion did not apply. He ordered ICBC to indemnify Dawson for the loss.
A three judge panel of the Court of Appeal overturned him. In order to do this, it had to consider both the exclusion and the saving provision in s. 132(1)(b) of the regulations.
With regard to the exclusion, the trial judge erred in confusing the cause of the losses suffered (the cause being the negligence of the employees) and the nature of those losses. The trial judge failed to consider the nature of the losses. These clearly consisted of mechanical fracture, failure or breakdown and the exclusion was accordingly triggered.
Having found that the exclusion did apply in this case, the Court then had to determine whether the saving provision was engaged. If it was engaged, the exclusion would not apply and indemnity would be required. On the other hand, if the saving provision was not applicable, the exclusion in the regulations would be valid and ICBC would not be held responsible for indemnifying Dawson for the loss.
Put another way, ICBC would not be required to indemnify Dawson if the damage was not “coincidental with other … damage for which indemnity is provided.”
In order to make this determination, the Court segregated the damages to the truck into two categories: (a) damage to the engine; and (b) damage to the cab.
The Court embarked on a chain of reasoning that led to the result that indemnification was not required:
First, the Court held that the policy is intended to cover damage to customers’ vehicles in the care, custody or control of Dawson. It was not disputed that this was the scenario in this case. In fact, the trial judge found that the loss was the result of the negligence of Dawson’s employees. Accordingly, this engages coverage under the policy.
Second, having made the determination above, the Court considered whether the exclusion in s. 132(1)(b) of the regulation applies. In this case, it did, because, as the Court of Appeal determined, the damage “consisted of” mechanical fracture, failure or breakdown, as contemplated in the regulations. Accordingly, on its face, the loss was excluded from coverage.
Third, the Court found that the cause of the damage to the cab was the direct result of the “mechanical fracture” of the engine (i.e. the explosion). Because the Court had found that “exploding engines” were not covered by the policy, the damages to the cab of the truck were caused by an event that was not “coincidental with other … damage for which indemnity is provided.”
It therefore followed that the saving provisions were not engaged and the exclusion stood, leading to the result that indemnity was not required in this circumstance.
The appeal was allowed and Dawson’s action was dismissed.
Dawson Truck Repairs v. Insurance Company of British Columbia,
Docket No. CA034079 (B.C.C.A.)