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The Purpose Test In Detail 

Stevenson v. Reliance Petroleum Limited / Reliance Petroleum Limited v. Canadian General Insurance Company, [1956] S.C.R. 936 

In September 1951, an employee of Reliance Petroleum Limited (Reliance) attended a gas station to deliver fuel to an underground tank in the township of London, Ontario.  When filling underground tanks, the deliveryman is to check the tank with a dip-stick to determine how much fuel can safely be placed in the tank.  The employee failed to check the underground tank prior to filling it and left the tank-truck unattended.  The underground tank over flowed and the uncontained fuel caused a fire which resulted in considerable damage to the gas station.

Reliance paid out several claims relating to this fire, but then sought to have the insurer, Canadian General Insurance Company [referred to as “Lloyds”] indemnify their losses under two policies.   One of the clauses in which Reliance sought indemnification stated that Lloyd’s would insure the "loss or damage arising from the ownership, use or operation" of the vehicle – in this case the tank-truck.  

The Court undertook an analyses of the word “use”: 

In the circumstances of this case, "use" involved "operation", and "operation" involved "use", and it is one and the same thing to say either that the loss or damage was caused by use, or to say it was caused by operation of the vehicle. In my opinion it is a mere choice of alternative expressions. They both have the same meaning in this case. 

Further, the Court analyzed the context of the words “loss or damage arising from”: 

In their context, the words "loss or damage arising from" should be construed as being wide enough to include loss or damage "caused by".  Loss or damage could not be caused by mere ownership, but liability for that loss or damage could arise from mere ownership. I cannot conceive of loss or damage arising from use or operation unless the damage was caused by use or operation. 

Ultimately, this case wounds its way to the Supreme Court, where the court agreed with the Ontario Court of Appeal and Reliance was compensated under one of the two policies.  Lloyd’s was liable to cover Reliance under one of its policies:

"To pay on behalf of the Insured all sums which the insured shall become obligated to pay by reason of the liability imposed upon the Insured ... for damages because of injury to or destruction of property caused by accident ..." 

However, Lloyd’s was relieved from paying under the second policy, as the insurer had an exclusionary term in their policy: "This Policy shall have no application with respect to and shall not extend to nor cover any claim arising or existing by reason of any of the following matters: ... 

"(3)Any motor vehicle (including trailer or semi-trailer) that is required by law to have a license or permit, and which is off premises owned, rented or controlled by the Named Insured, or which is owned, hired or leased by the Insured, and, except with respect to operation by independent contractors, the ownership, maintenance or use, including loading or unloading, of any (a) watercraft while away from such premises or (b) aircraft." I agree with the learned trial judge that the foregoing provision is most ineptly worded. However, looking at the whole policy, it seems to me that the meaning and intent of that exclusion is reasonably plain.” 

Finally, the Court concluded that: 

The general indemnity clause which I have quoted covers all damages because of injury to or destruction of property "caused by accident". There could never be an accident "caused by" the mere existence of a motor vehicle. In my opinion what was intended to be excluded from t the general indemnity clause was an accident "caused by" the negligent use or operation of a motor vehicle. 

Since this accident was "caused by" the negligent use or operation of this motor vehicle it follows that the loss or damage resulting therefrom is not one of the risks against which the insurer agreed to protect the insured.

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