CGL policies may not provide coverage for allegations of poor workmanship.
This is an appeal from a trial decision dismissing an application for a declaration that the Defendant insurer is obliged to defend the Plaintiff with respect to four different actions. The Court of Appeal held that there was no duty to defend and dismissed the appeal.
Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, [2009] B.C.J. No. 572, British Columbia Court of Appeal, March 4, 2008, C.A. Ryan, C.M. Huddart and P.A. Kirkpatrick JJ.A.
The Plaintiff is a general contractor and had a number of successive commercial general liability policies of insurance with the Defendant insurance company. Four actions were commenced against the Plaintiff when part of a condominium project it had built caused water damage to other parts of the building. During the building of the condominium project the Plaintiff had made use of sub-contractors for most of the work. It was alleged that the Plaintiff was negligent and in breach of contract with respect to the construction. The Plaintiff sought an Order that the Defendant had an obligation to defend it with respect to the claims.
The policies provided that the Plaintiff would be covered for damages due to property damage caused by an “accident” or an “occurrence”. “Accident was defined as “continuous or repeated exposure to conditions which result in property damage neither expected nor intended from the standpoint of the insured.” The term “occurrence” was defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Some of the policies contained exclusion clauses which provided that damage done by “work performed by or on behalf of the named insured” was not covered. The other policies contained exclusion clauses that stated that the damages arising from work “performed by the named insured” would not be covered.
The Defendant took the position that the policies did not cover poor workmanship or a failure to fulfill contractual obligations. The Plaintiff’s argued that the claims fell squarely within the language of the policies which insured them for “property damage” caused by “accident”.
The Trial Judge held that the policies were not triggered and therefore the Defendant had no obligation to defend the Plaintiff. The Plaintiff’s application was dismissed and it appealed that decision. The Trial Judge found it unnecessary to consider whether the exclusion clauses relating to work performed by subcontractors would apply since the policies were not triggered in the first place.
The Court of Appeal began its analysis of the issue with reference to the general principles of insurance contract interpretation. Words used must be given their plain and ordinary meaning, the contract must be interpreted contextually, and the Courts must give effect to the parties reasonable expectations. Additionally, ambiguities must be resolved in favour of the insured.
The Court went on to state that in considering this issue a Court should begin with the presumption that all sections of an agreement have meaning. The contract should be read as a whole rather than coverage clauses and exclusion clauses being read in isolation.
The Court of Appeal dismissed the appeal and held that the policy did not cover the loss which is framed in the pleadings as poor workmanship. The policies in question did not contain clear enough language necessary to establish that the insurance is intended to transfer fortuitous contingent risks, such as poor workmanship or faulty design.
This case was originally summarized by Kim Yee and originally edited by David Pilley.
