Stony Lake Logging v. I.C.B.C. Date:, 2015 BCPC 385

Citation: Stony Lake Logging v. I.C.B.C. Date: 20151117 2015 BCPC 0385 File No: 15843 Registry: Quesnel IN THE PROVINCIAL COURT OF BRITISH COLUMBIA BETWEEN: STONY LAKE LOGGING LTD. CLAIMANT AND: INSURANCE CORPORATION OF BRITISH COLUMBIA DEFENDANT REASONS FOR JUDGMENT OF THE HONOURABLE JUDGE R. D. MORGAN Counsel for the Claimant: Mr. Chudiak Counsel for the Defendant: Mr. Osei Place of Hearing: Quesnel , B.C. Date of Hearing: April 30 and September 3, 2015 Date of Judgment: November 17, 2015 Overview: [ 1 ] The claimant company is the owner of a 2010 Ford 550 4 x 4 diesel pickup truck it uses as a service truck. In late December

2010, the company’s mechanic, who is the normal driver of the vehicle, began experiencing some problems with the vehicle. [ 2 ] It was determined the resultant engine damage was because the engine was run with water in the fuel system. An estimated 10 litres of water was removed from the fuel.

The claimant concluded it had to be the result of vandalism and made a claim to I.C.B.C. [ 3 ] I.C.B.C. concedes that the claimant had insurance for damage resulting from mischief and vandalism, but takes the position that the engine damage occurred as a result of operating the vehicle after water in the fuel had been discovered, and not as a direct result of the alleged vandalism. [ 4 ] I.C.B.C. also says that the owner breached the terms of the policy by failing to notify I.C.B.C. in a timely manner at the point when the vandalism should have been suspected, and by making repairs to the vehicle prior to the claim, thereby prejudicing I.C.B.C.’s ability to assess the claim and repair options.

Facts: [ 5 ] On Wednesday, December 28, 2011, the claimant’s employee, who is a heavy duty mechanic and the usual driver of the vehicle, filled up the diesel tank from a Petro Can Bulk plant in Mackenzie, B.C., and drove the vehicle to Prince George, parking the vehicle in its usual spot at the employee’s residence. [ 6 ] The following day, the employee drove the vehicle to where the company was doing some logging in an area 30 km beyond their shop at Dunkley, which is approximately 80 km south of Prince George.

After doing some repairs on a piece of logging equipment the employee drove back towards Prince George, and during the drive noted a dashboard warning indicator came on warning of water in the fuel. The dash board display read ‘drain water from separator’. [ 7 ] The employee, who is familiar with diesel engines, stopped driving within ½ km and drained the water separator which he says is the recommended procedure. The employee re-started the engine and after noting the warning indicator had gone off, continued driving a further 20 km to the claimant’s shop which is located en-route back to Prince George.

The warning indicator did not come back on. Nevertheless, at the shop the employee drained the separator once again “to be sure”. [ 8 ] The employee drove the pickup truck 80 km from the shop back to Prince George to Finning Tractor to buy parts for the machine he was working on. While driving from Finning Tractor to his Prince George residence the employee noted the warning indicator come on for the second time. He stopped the vehicle and once again drained the water separator. [ 9 ] The water separator reservoir holds about 100 mL of fluid.

The employee drained the separator for 30 seconds in which he estimated resulted in much more than 100 mL of fluid being drained off. He re-started the vehicle and noted the warning indicator was no longer on. He drove the vehicle without any further problems, and parked it for the night in its usual spot just outside his residence. [ 10 ] On Friday morning, December 30, 2011 the employee drove the vehicle 80 km to the Dunkley shop and filled the diesel tank from the company bulk fuel tank.

He then drove 30 km into the bush to the jobsite and left the truck running while he worked on a nearby piece of logging equipment. At no time did he observe the warning indicator light to be on. [ 11 ] While working outside the vehicle, he started to hear what he described as “funny noises” coming from the engine of the idling truck. He entered the vehicle and noted no warning indicator was on. The vehicle was running poorly so he shut the motor off then looked under the hood to see if a fan belt was coming apart.

He could not see any problem. [ 12 ] He tried to re-start the truck however the vehicle would not start. The water in the fuel warning indicator light did not go on when he tried to restart the truck. Being a mechanic, he dismantled and inspected both the fuel filter located on the vehicle frame and the fuel filter located on the engine itself. Both looked fine. He also inspected the air filter.

He did not replace one of the filters but left it on the floor of the truck. [ 13 ] He then called the mechanic at Prince George Motors who provided an opinion that it was likely a fuel pump problem so the employee arranged for a tow truck.

The vehicle sat in the bush at the worksite location until January 4, 2012, when it was then towed to Prince George Motors. [ 14 ] Later that afternoon the employee was contacted by someone at Prince George Motors who informed the employee that a high pressure fuel pump had failed and that it would be approximately 2 weeks to obtain the parts and have the repairs made. [ 15 ] Two weeks later the employee received a call and was informed the truck repairs were complete.

The employee was also informed that there was no warranty coverage on the repairs because there had been water contamination in the fuel. [ 16 ] The employee went to pick up the vehicle, talked to the mechanic at Prince George motors and was told that they had found 10 L of water in the fuel. He was shown a sample of fuel and water in a see-through 5 gallon pail and could see the separation of the water from the fuel and estimated that there was indeed about 10 litres of water in the pail.

He obtained a small sample of the water and fuel mixture in a pop bottle. [ 17 ] He signed the repair invoice and called the owner of the company to tell him what happened. He then called the owner of Load Em Up Petroleums Ltd. which is the company that provides the bulk fuel to the locations where the employee had fueled up the pickup truck on at least the last two occasions. The employee asked if there had been any issues of water in their fuel and was told no and that if there had been the fuel company would have heard about it right away given they service so many vehicles.

He testified he nevertheless asked them to check their fuel and they did. [ 18 ] The employee also called other locations serviced by this company in Northern B.C. and Alberta to ask if they had experienced a problem with water in the diesel fuel and was told no.

[ 19 ] It was at that point the employee said the only conclusion he could come to was that someone had poured water directly into his pickup fuel tank as a form of vandalism. [ 20 ] He confirmed that the pickup truck came standard with a normal unlocking fuel cap and no fuel cap cover. He testified the vehicle has never used a tidy tank and that he had never filled the vehicle up using a Jerry can. [ 21 ] The owner of the claimant company told the employee to go to .IC.B.C. and make an insurance claim.

The employee called I.C.B.C. on January 25, 2012, which I find was about 1 week after he was first told by the mechanic at Prince George Motors that they had found 10 litres of water in the fuel. For clarity, he received this information about the water in the fuel after the repairs had been made. The employee made the insurance claim after he had done his investigation into the bulk fuel question and as soon as he then concluded vandalism had occurred. [ 22 ] On January 27, 2012 the employee attended in person and gave the I.C.B.C. representative his statement and a sample of the fuel/water mixture.

He also gave the I.C.B.C. representative a copy of the $8,996.02 Prince George Motors repair invoice and told the representative where he had the vehicle repaired. He stated at no time then or since has I.C.B.C. ever requested to see any of the parts that had been removed from the vehicle. [ 23 ] The employee testified that at no time was the fuel filler cap ever missing and that the fuel line from the tank was in good condition was not leaking. He had been driving the vehicle since August 2011 and had never experienced any problems with water in the fuel.

He is familiar with the WIF (Water in Fuel) system and with the Ford Owner’s Manual procedures. He says the procedure if the water in fuel light comes on is to stop, drain the water/fuel separator and check to see if light is out then continue driving. [ 24 ] He disagreed with I.C.B.C. counsel’s suggestion that given the manual says if the WIF system light ‘continues to illuminate have system checked and repaired’ meant he should have stopped driving until after the system had been checked and repaired.

He says - in effect - that given the light went out and did not come on the second time until hours after the first time that it would not be reasonable to interpret those facts as being equivalent to the system light ‘continuing to illuminate’. [ 25 ] The employee has other vehicles parked at his residence and has never experienced any vandalism to them.

He says the claimant company has experienced some vandalism to their equipment left in the bush at job sites. [ 26 ] He did not call the police when he concluded the water had been placed in the fuel tank by vandals because he was unable to come to this conclusion until weeks after the event when he was told by the mechanic 10 litres of water had been found in the truck fuel system, and believed by that point it was not feasible or likely that the RCMP would start an investigation for this type of offence so long after it occurred.

Nor was he instructed to call the police by I.C.B.C. after he made the claim. [ 27 ] Michael Pavey, who was certified as an expert in automotive diesel fuel systems, was the Shop/Service Manager at Prince George Motors during the relevant time period. He confirmed his shop found 10 litres of water in the truck fuel tank and he provided an opinion that there is no possible mechanical defect that could account for that much water ending up in the fuel system.

He says that much water could only have ended up in the fuel system if someone had poured it directly into the tank, or if there was water in the diesel storage tank prior to filling from that tank. [ 28 ] He testified that the engine damage resulted from the water in the fuel system. [ 29 ] Jeff Hall was called by I.C.B.C. as an expert in automotive repair and diesel fuel systems. He gave an opinion in his written report that included his opinion of the several sources from which water could enter a vehicle fuel system.

These included a contaminated source (tidy tank or jerry can or external fuel storage tank), or from the environment via a perforated filler neck or defective or missing fuel filler cap, or if water is poured directly into the tank. [ 30 ] Mr. Hall concluded in his written report that is was his opinion the water had entered the fuel system as a result of the long term effect of precipitation.

He said in his report it was his experience that mechanics empty fuel from tanks into an oil barrel and that it is impossible to then assess the amount of water in the fuel and that most often the mechanic will then overestimate the amount of water present. [ 31 ] Mr. Hall also provided his opinion that the driver had poured fuel from the truck’s tidy tank into the trucks tank, and that it was “highly likely” the tidy tank had not been maintained or operated correctly. [ 32 ] Mr.

Hall says it was crucial to ensure proper diagnosis of the problem that the mechanic have access to the HCFM filter and that the filter was unavailable to be inspected. Mr. Hall is critical in his report of the claimant employee for failing to ensure the HCFM (fuel filter) was available for inspection. [ 33 ] Mr. Hall’s opinions were countered by the report of Regan O’Neill, who was qualified as an expert on Ford diesel engines. He is an employee of Prince George Motors and confirms they drain fuel into see through containers. He also confirms the HCFM component Mr.

Hall believed was missing was not but that the filter was. He expressly disagrees with Mr. Hall’s opinion that 10 litres of water could have accumulated over time or as a result of precipitation. [ 34 ] On cross examination, Mr. Hall conceded he in fact did not know whether the truck had a tidy tank. The evidence has established the vehicle did not have a tidy tank. Mr. Hall also conceded he had no knowledge of what type of container the mechanics used to empty the fuel in and that he therefore had no reason to doubt the mechanic’s estimate as to the quantity of water in the fuel.

He also conceded that in this case it was “plausible” that someone poured water into the fuel tank of the truck. [ 35 ] Darlene Simmington is an I.C.B.C. adjuster. She testified that if an insured is covered for vandalism and vandalism is established that I.C.B.C. will pay the claim. She concedes that if someone purposefully poured 10 litres of water into the fuel tank of a vehicle that this would constitute vandalism. She emphasized the importance of I.C.B.C. being able to inspect a vehicle to confirm a vandalism claim.

[ 36 ] On cross examination the adjuster agreed having a sample of the fuel would assist in the investigation. She was unaware that a sample of the fuel mixture had been provided to I.C.B.C. when the claim was made. She agreed the adjuster who had been handling the claim could have asked to inspect the vehicle parts. She did not know if the inspector had in fact asked to inspect the parts. [ 37 ] She said in this type of case I.C.B.C. would look into how the water got into the fuel and that they would speak to the mechanic.

However she could not say if that had been done in this particular case. [ 38 ] The adjuster, who was not the adjuster handling the file, was referred to the original adjuster’s notes and agreed it appeared that the adjuster had done an investigation that included talking to a mechanic at Prince George Motors and to the owner of Load Em Up Fuels whom he noted to have been ‘very helpful’. [ 39 ] The witness for I.C.B.C. agreed these were logical investigatory steps.

She agreed that as a result of these steps I.C.B.C. would have determined the amount of water found in the truck’s fuel system and that it was unlikely the fuel came from tanks supplied by Load Em Up Fuels. [ 40 ] She says the claim was apparently still being investigated by the I.C.B.C. adjuster up until May 7 th 2012 when it was then denied by a manager who - it is recorded - decided there was no way to support a vandalism claim. [ 41 ] The I.C.B.C. adjuster agreed that with this particular claim there was no way of knowing that damage had been caused as a result of 10 litres of water having been put in the fuel tank until repairs had been made.

Position of the Claimant: [ 42 ] Mr. Chudiak’s comprehensive submissions for the claimant can be boiled down to the following: the claimant paid for insurance coverage for vandalism and vandalism has been established as the cause for the engine damage. The driver took all reasonable steps and was not negligent and reported to I.C.B.C. as soon as he reasonably concluded vandalism had occurred. Any delay arising out of the circumstances was not the fault of the claimant and, in any event, I.C.B.C. was not prejudiced in their investigation.

Position of the Defendant: [ 43 ] I.C.B.C. submits that the onus is on the claimant to prove vandalism and that, in this case, there are several possible explanations for how water got in the fuel that do not constitute vandalism. The defendant refers me to the decision of Pfleger v. ICBC & Gillespie , 2005 BCPC 524 (overruled on appeal on other grounds: see ICBC v. Pfleger et al 2006 BCSC 1328 ) for authority that suspicion of vandalism is not enough. [ 44 ] I.C.B.C. submits that even if the court determines the water was introduced into the fuel tank by

an act of vandalism, the damage caused to the engine was not caused by the water in the fuel, but was caused by the employee driving the vehicle with water in the fuel instead of having the vehicle towed, and relies on the exclusion of liability clause set in Division 5,

section 5.9 of the policy, and on ICBC v. Pfleger et al , 2006 BCSC 1328 . [ 45 ] In the further alternative, I.C.B.C. submits it is not liable under the contract for insurance because the claimant breached the policy by failing to promptly notify I.C.B.C. of the loss or damage and by making repairs to the vehicle and removing parts from the vehicle prior to .IC.B.C. having a reasonable opportunity to inspect the vehicle, to the prejudice of I.C.B.C., and relies on the exclusions of liability set out in Division 8,

section 5 of the policy, and on the decision in Rogozinsky v. I.C.B.C. , 2004 BCSC 423 . Analysis and Decision: [ 46 ] The initial onus is on the claimant to establish on the balance of probabilities that the damage to the truck falls within the scope of his policy coverage. [ 47 ] Once established, I.C.B.C. has the onus to prove, on the balance of probabilities, any affirmative defences in the form of the application of exclusionary clauses: (see Hughes v.

I.C.B.C. , 2010 BCPC 222 for an analysis on the shifting onus and appropriate standard of proof). [ 48 ] I find the evidence has established that the damage to the truck engine occurred as a result of water in the fuel being introduced to the running engine. [ 49 ] I also find that the 10 litres of water found in the fuel was, on the balance of probabilities, introduced into the fuel by an intentional act of vandalism and mischief. [ 50 ] The other possible sources or causes of the contaminated fuel suggested by the defence have been discounted. There was no tidy tank as was believed by the defence expert.

There was proof that the original source of the fuel was not contaminated. There was evidence that no jerry cans were used, the filler cap was on and in good repair and that there was no fracture or leak in the filler tube. [ 51 ] I also find, on the basis of both common sense and the opinions of the two experts called by the claimant, that the suggestion that precipitation could have resulted in 10 litres of water accumulating in the fuel to be preposterous and I reject it. [ 52 ] Before considering the defences raised by I.C.B.C., I guide myself by the Honourable Mr. Justice Halfyard’s decision in ICBC v.

Pfleger et al , 2006 BCSC 1328 . In that case the decision of the trial judge that the truck engine damage was caused by water in the fuel in combination with the negligence of the driver, who was not the insured. The finding that the driver was negligent by continuing to drive when he should have known water was in the fuel, was not appealed. Nor was the trial judge’s decision that the water in the fuel did not occur as a result of vandalism, appealed.

What was appealed was the trial judge’s decision that the exclusionary clauses set out in s. 132(1) of the Insurance (Motor Vehicle) Act Regulations did not apply. These are the same exclusionary clauses relied on by the defendant in the case at bar and will be discussed more fully later in these reasons.

[53] In the Pfleger decision, Justice Halfyard noted the following at paragraph 9: 9. It is accepted that the onus lies with the appellant to show that the exclusion clause applies. The law is clear that, in interpretingcontracts of insurance, ambiguities should be resolved in favor of the insured, coverage provisions should be construed broadly andexclusion clauses should be construed narrowly against the insurer. See Shelton v. ICBC (1993) (BC CA), 103 D.L.R. (4th) 283 (BCCA) at para. 7. [54] The exclusionary clause set out in s. 132(1) of the Regulations and considered by the court in Pfleger is reproduced in

Part 2,clause 5.9 of the Policy, and reads, in relevant part, as follows: 5.9 Restrictions on indemnity - (

a) The Corporation is not liable to indemnify any person under comprehensive for collision coverage for loss or damage (ii) consisting of, or caused by, mechanical fracture, failure or breakdown of any part of a motor vehicle,… Unless the loss or damage is coincidental with other loss or damage for which indemnity is provided under comprehensive or collisioncoverage or is caused by fire, theft or malicious mischief. [55] Justice Halfyard found the engine damage in the Pfleger case was caused by water in the diesel fuel, and the contaminated fuelmade its way into the truck engine as a result of Mr.

Gillespie’s negligence in driving the truck (see para. 15). He also found that theloss or damage to Mr.

Pfleger’s motor vehicle “consisted of… mechanical… failure or breakdown” of the engine (para. 16). [56] Justice Halfyard found that the saving provision of “Unless the loss or damage is coincidental with other loss or damage …” didnot apply because the mechanical breakdown occurred coincidentally with the driving of the motor vehicle and it could not be said thatthe driver’s negligence was itself “other loss or damage” because the driver’s negligence was a cause of the damage, and that damagewas the very damage which caused the mechanical breakdown of the engine. [57] Given the trial judge’s finding that vandalism had not been established, Justice Halfyard did not consider the saving provision of“Unless the loss or damage …. is caused by fire, theft or malicious mischief.” [58] In the case at bar, it has been established that the water was introduced into the diesel fuel by malicious mischief.

I also findthat the claimant’s employee, the driver of the truck, was not negligent in his response to the warning indicator light indicating water wasin the fuel. Rather, he followed the procedure set out in the Ford manual by stopping the vehicle and draining the fuel/water separator. After driving a further 20 km he drained the fuel/water separator again even though the warning indicator had not illuminated. Severalhours later, when the warning indicator illuminated for the second and last time, he again immediately stopped the vehicle and fullydrained the fuel/water separator.

The warning indicator did not illuminate again. Had the warning indicator immediately re-illuminated,having the fuel system checked would have been mandated. Having taken the steps recommended by the manufacturer of the truck and,given the absence of the re-illumination of the warning indicator, it was reasonable for the driver to conclude he had solved the problemand that it was safe to operate the vehicle. [59] On the particular facts of this case, the engine damage was caused by the malicious mischief of putting a copious amount ofwater in the fuel system, and was not caused by the negligence of the driver.

Consequently, the exclusion of coverage clause relied onby the defendant does not apply. [60] The further defence relied on by I.C.B.C. is in relation to the requirements set out in Division 8, clause 5 of the insurance policy,which reads in relevant part as follows: 5(1) If loss of or damage to the vehicle insured under this contract occurs, the insured must, if the loss or damage is covered by thiscontract, (

a) on the occurrence of loss or damage (

i) promptly notify the insurer of the loss or damage, and (ii) file a written statement with the insurer….

(3) If loss of or damage to a vehicle that is covered by this contract occurs, the owner or operator of the vehicle (

a) must, at the expense of the insurer, protect the vehicle as far as reasonably possible from further loss or damage, and (

b) until the insurer has had a reasonable opportunity to inspect the vehicle, must not, without the consent of the insurer, remove anyphysical evidence of the loss or damage to the vehicle or make any repairs to the vehicle, other than repairs that are immediatelynecessary to protect the vehicle from further loss or damage.

(4) The insurer is not liable under this contract (

a) for loss or damage resulting from the failure of an owner or operator to comply with sub condition (3)(a), or (

b) to an owner if the owner or an operator, to the prejudice of the insurer, contravenes subsection (3)(b). [61] I find the claimant did notify the defendant of the loss or damage promptly once the claimant determined the damage had beencaused by vandalism. It is also interesting to note that the mandatory language set out in clause 5(1) is not coupled with an expressexclusion of liability as is set out in subsection (4) in relation to subsection (3).

[ 62 ] With respect to the requirement set out in 5(3)(

b) of the policy that the insured must not remove any physical evidence of the loss or damage to the vehicle or make any repairs to the vehicle, I find that exclusion of liability clause must be given a common sense

interpretation that recognizes circumstances where the issue of coverage may not be triggered until after repairs are undertaken. [ 63 ] It would not be reasonable for insured vehicle owners to contact I.C.B.C. every time a fuel/water warning indicator illuminates. Nor is it reasonable that I.C.B.C. should be contacted whenever there is a mechanical problem with a vehicle when there is no indication the problem relates to a coverable issue. Consequently, there will be occasions, like the case at bar, when a coverable issue is not discoverable or discovered until after repairs are made. [ 64 ] I also note this exclusion of liability clause is limited by section 5(4)(

b) of the policy that requires I.C.B.C. to establish prejudice. In this case I.C.B.C. has not established on the balance of probabilities that it was prejudiced as a result of the repairs having been made prior to the insured becoming aware of that a claim should be made. [ 65 ] In

summary, I find that a large amount of water was introduced into the vehicle fuel system by an intentional act of malicious mischief, and that the driver was not negligent in operating the motor vehicle while it had water in the fuel and, consequently, the damage to the engine was caused by the malicious mischief. I.C.B.C. has not established it should be relieved from its liability to cover the claim.

Order: [ 66 ] The defendant is ordered to pay to the claimant forthwith the full invoiced amount of the cost of the repairs, plus interest at the Court Order Interest Act rate accumulating from the date the written insurance claim was filed with I.C.B.C., plus filing and service fees. _____________________________ R. D. Morgan Provincial Court Judge