Travelers is asking a federal judge to rule it doesn’t have to cover a $26 million dispute over a failed energy system in Canada.
Filed on July 23, in the US District Court for the Western District of Washington, the complaint by Travelers Property Casualty Company of America targets Wellons Group, Inc. The insurer wants a declaratory judgment stating it owes no duty to defend or indemnify Wellons in a lawsuit Tolko Industries, Ltd. brought in Alberta’s Court of King’s Bench.
The underlying Canadian case dates back to a 2018 deal between Tolko and Wellons Canada for the design, supply and installation of a thermal energy system at Tolko’s facility. That contract, according to the complaint, included strict performance guarantees – minimum thermal output targets among them. Tolko alleges the system failed to meet those promises, citing inconsistent operation at 110 MM BTU/Hr, oil degradation and plugging problems.
Tolko’s lawsuit in Canada, as described in Travelers’ filing, seeks damages for breach of contract, misrepresentation, negligence, unjust enrichment and breaches of good faith and honest contractual performance. The amounts claimed include $26,404,343.29 for payments made under the agreement, liquidated damages, costs for a supplemental energy system, and $5 million for lost profits, lost opportunities, market share and other related losses.
Travelers’ complaint focuses on the coverage question. The policy at issue – identified as Y-630-9P704091-TIL-22 – is a commercial general liability policy covering bodily injury and property damage caused by an occurrence. The insurer argues none of Tolko’s allegations involve bodily injury or property damage. Instead, it says the claims revolve around contractual performance and financial losses, which fall outside the policy’s scope.
The complaint also highlights a contractual liability exclusion. The policy excludes coverage for damages the insured is obligated to pay because of liability assumed in a contract. According to Travelers, Wellons Group’s only role in the deal was through a Parent Guarantee – a promise to cover up to $2 million of Wellons Canada’s obligations – not through any independent conduct that could trigger coverage.
For now, the matter is at the starting line. The federal court has yet to rule on whether Travelers must defend or indemnify Wellons. But for insurance professionals, the dispute raises familiar questions about how far contractual liability exclusions reach when large-scale industrial performance guarantees go sideways.
