Canada Insurance Lawyer & Attorney : Michael Thomas of Harper Grey Law Firm : British Columbia, Vancouver

A fire loss occurred at the UPEI Student Centre. The Centre was in the midst of a renovation and expansion whereby the old UPEI Alumni Gym would be selectively demolished and integrated within the new facility. The insurer had provided the "all risks" insurance coverage to the general contractor for the construction project. The insurer denied coverage on the basis that the fire loss involved the Gym, which according to the insurer was excluded from coverage under the "all risks" policy pursuant to a contractual exclusion for existing structures. UPEI then filed its proof of loss with its own property insurer which paid the claim and brought a subrogated action in negligence against all contractors and sub-contractors on the site who may have been tortfeasors.

Two sub-contractors brought third-party proceedings against the insurer for a declaration that the "all risks" policy that the insurer issued to the general contractor was the primary property insurance in respect of the loss and that the sub-contractors were unnamed insureds under that policy.

After the close of pleadings and completion of oral discovery on the third-party claims, the sub-contractors brought a motion for summary judgment against the insurer for judgment on the third-party claim.

The main issue on the motion was whether the fire loss occurred to a structure that was included or excluded from coverage. The policy provided as follows:

"1. This Policy, except as herein provided, insures

(a) property in the course of construction, installation, reconstruction, or repair."

The insurer issued an endorsement on the "all risks" policy which stated:

"It is hereby agreed that permission is granted for the continuing use and occupancy of the premises for the purposes necessary or incidental to such premises.

It is further agreed that coverage under this policy attaches only to section under renovation and not to existing structure."

The issue therefore was whether coverage under the "all risks" policy covered the damage caused by the fire that occurred in the Gym.

The court concluded that the Gym structure was dedicated to the construction project. The Centre was to be a new building.  The design of the Centre incorporated specific components of the Gym including three brick walls, foundation, steel roofing, and steel girders. During performance of the work, problems were discovered with the structural integrity of the Gym, and reinforcements were commissioned. That undertaking was assigned to one of the sub-contractors which brought the third-party proceedings.

The court also found that insurer's understanding of the construction project was materially at odds with that description.  The insurer understood that the new construction was an addition that would be attached to an existing structure. The Certificate of Insurance described the project as "renovation/additions student union building…". At the time of the fire the Gym was within the construction envelope and under renovation. It was part of the construction site. The contractor had control of the building. It was not then a building for use and enjoyment as a Gym. The court concluded as follows:

"(1) that the property damaged by the fire was property within the construction site and subject to the construction project;

(2) that the fire loss occurred during the operation of the construction project; and

(3) that the "all risks" insurer was operating under a misapprehension that the project was an addition to an existing student-union building and that the Alumni Gym was an existing and occupied building."

Despite these findings, the court found that the insurer's defence survived the "good hard look that is to be applied at the summary judgment stage." The court held that there were questions of fact that would or could involve full evidence at trial. When the fire occurred, the construction project was at a very early stage. There was also a question of fact regarding the nature of the property that was damaged by the fire. On this basis the Court found that the matter should proceed to trial and the motion for summary judgment was dismissed.

The issue that arose on this motion was whether the loss suffered by the Plaintiff was covered by a comprehensive business policy such that there was a right of subrogation by the Plaintiff as against the Defendants; or, alternatively, was the loss covered by a builder's risk policy held by the Defendants, such that there would be no right of subrogation by the Plaintiff against the Defendants.

The issue arose because the main Defendant's contract with the Plaintiff related to an expansion of the Plaintiff's existing facilities. All other authorities cited to the Court dealing with the issue of coverage under a builder's risk policy involved a new construction project and not a situation involving an expansion and/or addition to an existing structure. Nevertheless, the Court found these situations to be analogous. It found that in a situation where there is an addition to an existing structure (as opposed to when a new stand-alone building is being constructed on the same property), the negligence of a trade or sub-trade employed to do the work could cause damage to all, or at least a portion of the existing structure. In this case, there was no question that the new construction caused damage to the existing building.

The Supreme Court of Canada in Commonwealth Construction Co. v. Imperial Oil Ltd., [1978] 1 S.C.R. 317 recognised that each trade and sub-trade on a project has an insurable interest in the entire project. In this case, the Court expanded that principle to the situation where there is an expansion or addition to an existing structure and as such, found that trades and sub-trades involved in the expansion work have an insurable interest in the entire interconnected structure and not merely the new addition that they are working on.

In the result, the Court found that all parties involved in the construction of this project had an insurable interest not only in the addition to the existing structure, but the existing structure itself. To hold otherwise would defeat the reasonable expectations of the parties and would require a clear language of exclusion, which was absent in this case. As such, the loss in question was covered by the builder's risk policy.

The Third and Fourth Excess Insurers provided coverage to the Insured Company under policies that are part of what is known as a "ladder" scheme. The Primary Policy and the First and Second Excess policies were exhausted as a result of the settlement of an action initiated in the State of Delaware against the Insured Company.  The Third and Fourth Excess insurance policies provided coverage of the kind generally known as "follow form". In other words, the Insurers agree to provide insurance coverage excess of the underlying policies "in accordance with and subject to the same warranties, terms, conditions, exclusions and limitations as are contained in or as may be added to the Primary Policy. The Third and Fourth Excess Insurers took the position that there was either no coverage available to the Insured Company, or there were exclusions applicable with respect to the claims for which the Insured Company sought indemnification by virtue of the terms of the policies of insurance.

The coverage provided by the policies included "Organization Insurance" for loss of any Organization insured pursuant to the policies arising from a) a Securities Claim; b) an Oppressive Conduct Claim; or c) a Canadian pollution claim made against such Organization for any Wrongful Act. It was not disputed that the Insured Company came within the definition of the word "Organization". The Court considered the relevant definitions in the policies, including "Securities Claim", "Oppressive Conduct Claim" and "Wrongful Act", and accepted the Insurers' submission that there had been no finding of oppressive conduct on the part of the Insured Company for which indemnity under the policies would be available. Accordingly, the Court found that "sufficient doubt" had been raised that defence costs should not be required to be paid by the Insurers, at least at the time of the hearing of this application. 

The Court further held that even if the coverage issue were certain, it was unclear whether defence costs would be payable since the policies in issue did not contain a duty to defend clause and only spoke to indemnity.  The Court accepted the proposition that Canadian law is clear that the duty to defend is entirely contractual; i.e. there is no duty to defend unless the policy provides that there is one. However, this matter was left open since there was "at least the potential for a different conclusion if oppression was ever established."

The Court also declined to grant the relief sought on the basis that the claim for defence costs was premature.

The Insurance Corporation of British Columbia appealed a Provincial Court decision in which the judge held that because the insured's truck was stationary when it was damaged by another vehicle, the loss was not covered by collision protection and was instead covered by comprehensive protection. The British Columbia Supreme Court allowed the appeal and found that damage caused to a stationary insured vehicle when it is hit by another moving vehicle is damage caused by the collision of a vehicle with another object. The Court noted that to hold otherwise would mean that a vehicle stopped at a red light and hit from behind would be covered under comprehensive rather than collision insurance.

A number of sub-contractors supplied Ani-Wall with cement that was used to make concrete to construct the footings and foundations for the "Builders" whose homes suffered property damage when the footings and foundations failed. Ani-Wall was insured through a commercial general liability policy by Axa Insurance Company. Axa Insurance brought an Application to determine whether it is responsible for the sums that Ani-Wall is obliged to pay as compensatory damages due to the property damage under its commercial general liability policy. Axa Insurance took the position that Ani-Wall was not entitled to coverage because the prima facie coverage fell within three exclusions: Your Product Exclusion, Your Work Exclusion and the Rip and Tear Exclusion. The Court determined that it would be appropriate to determine whether appropriate insurance coverage was present in this case relying upon Bridgewood Building Corp. v. Lombard General Insurance Co. (2006), 266 D.L.R. (4th) 182 (Ont. C.A.)

In determining whether the "Your Work" exclusion applied, the Court relied upon Alie v. Bertrand & Frere Construction Company (2000), 30 C.C.L.I. (3d) 166 which states that the "Your Work" exclusion does not apply if the damaged work or the work out of which the damage arises, was performed by a sub-contractor. Thus, on a plain reading of the CGL policy the exclusion did not apply, since the concrete was supplied by sub-contractors.

Reagarding the "Your Product" exclusion clause Perell, J. noted that Ani-Wall's product was the footings and foundations created from the concrete supplied by the subcontractors. The "Your Product" exclusion clause would remove coverage for the cost of Ani-Wall's footings and foundations, but would not remove coverage for the cost of the damage to the house that went beyond the cost of the footings and foundations. However, since the cost of repairing and replacing the insured's defective product (the footings and foundations), approached the cost of repairing the third-party's damaged property (the homes), applying the "Work Product" exclusion in the manner suggested would be contrary to the reasonable expectation of the ordinary person as to the coverage purchased because the exclusion would subsume all of the coverage provided by the policy. Perell, J. noted that this would run contrary to the principle stated by the Ontario Court of Appeal in Weston Ornamental Iron Works Limted v. Continental Insurance Co., [1981] I.L.R. 1 - 1430 (Ont. C.A.). In addition, both Canadian and American courts have recognized that products incorporated into buildings are "real property" and therefore do not fall within the definition of "work product" exclusions.

In determining whether the the "Rip and Tear" exclusion applied, Perell, J. noted that the exclusion applied to actual expenses "incidental" to the intentional destrcution and removal of concreete products which are found to be defective. However, since the concrete products which are alleged to be defective are the same thing that is causing the property damage to the builder's properties and the homes, removing the incidental expenses would exclude coverage to the entire loss. Perell, J. determined that applying the "Rip and Tear" exclusion to these facts would be repugnant to the insurance coverage, and should not be enforced.

In the result, Axa's claim that the insurance coverage fell within the three exclusions was dismissed.

In September 1996, the Plaintiff, a judo student at the University, was injured and rendered a quadriplegic while sparing with a classmate following a formal judo class session at the University. The University had a policy of insurance which provided coverage to both the University and the two judo instructors who were responsible for running the judo course. The Plaintiff and his family sued the University, Judo Ontario and the two instructors. Judo Ontario and its "Member Clubs" were covered under a separate policy of insurance. The claims were settled with the Insurer for the University funding the settlement. The settlement agreement expressly provided that the Defendants' respective liability and the Insurers' responsibility would be determined subsequently. This was done with the Trial Judge apportioning liability equally between the University, as occupier of the premises where the incident occurred, and the two instructors, for failing to ensure the safety of the students. The Trial Judge found no liability on the part of either Judo Ontario or the student who was directly responsible for causing the Plaintiff's injuries.

After the Trial Judge had apportioned liability a dispute arose as to each Insurer’s responsibility. There were three Insurers in total; the Insurer which provided coverage to the University and the two judo instructors, the Insurer which provided coverage to Judo Ontario and its Member Clubs, and a third Insurer that provided separate coverage to one of the instructors. The Insurer for Judo Ontario (the Respondent in this proceeding) and its member clubs acknowledged that its policy was primary and the University's policy was excess, but disupted that the instructors were insured under the policy at the time of the incident. This issue was initially determined by Mr. Justice W. Siegel in favour of the Insurer for Judo Ontario.

In the Court of Appeal, the Respondent Insurer argued that coverage was not extended to the instructors because they were “volunteers” and were not acting within the scope of their duties assigned to them by a Member Club or by Judo Ontario. Whether the University Club was a “Member Club” of Judo Ontario was the principal issue for determination on appeal.

The Court of Appeal considered Judo Ontario’s governing By law, which contemplated both individual members and club members with the only distinction being between a "member" and a "member in good standing". Members of Judo Ontario were those admitted to membership by the Judo Ontario board of directors. The Court noted that members remain members of Judo Ontario unless they resign, or are suspended or expelled, and that none of these things had occurred with respect to the University Club which was admitted into membership during the 1994-1995 academic year. While the Club had failed to pay its fees for the 1995-1996 academic year, Judo Ontario had not taken any steps to suspend or expel the Club. The Court of Appeal disagreed with the Trial Judge and concluded that the University Club was still a member of Judo Ontario at the time of the incident, albeit not a "member in good standing". 

The Plaintiff was injured while riding as a passenger in the Defendant's uninsured vehicle which collided with another vehicle. The other vehicle was insured under the Provincial motor vehicle insurance scheme, which included uninsured motorist coverage. The Plaintiff sought coverage under the policy covering the offending vehicle on the basis of the prior decision of the Ontario Court of Appeal in Taggart (litigation guardian of) vs. Simmons (2001), 52 O.R. (3d) 704. The Motions Judge distinguished Taggart by finding that the standard automobile insurance policy considered there was different than the policy at issue in this case. An appeal was taken from that decision by the Minister of Finance in the name of the Defendant driver.

The Court of Appeal noted that entitlement to uninsured motorist coverage in Ontario is governed by Statute, Regulation and the terms of the applicable motor vehicle policy. Section 265 of the Ontario Insurance Act requires that every motor vehicle insurance contract provides uninsured motorist coverage to "a person insured under the contract". The Appellant, however, relied on the extended definition of “insured” in Section 224 of the Act, which includes “a person insured by a contract whether named or not and includes every person who is entitled to statutory accident benefits under the contract whether or not described therein as an insured person”. The definition in the Act of "insured person" for the purpose of entitlement to statutory accident benefits included “a person who is involved in an accident involving the insured automobile”. Given that the offending vehicle was an "insured automobile", it was common ground that the Plaintiff would be entitled to statutory accident benefits from the Insurer of the offending vehicle and would come within the Section 224 definition of insured. The issue for the Court was whether the definition of insured in Section 224 informed the narrower Section 265 definition of “person insured under the contract”, thereby entitling the Plaintiff to uninsured motorist coverage.

The Court considered the facts and rationale from Taggart, where the Court of Appeal had concluded that the expanded definition of insured in Section 224 informs the narrower definition of “person insured under the contract”.  The Court held that Taggart could not be limited as suggested by the Insurer for the offending vehicle, who argued that Taggart should only apply in respect of entitlement to statutory accident benefits and not in cases involving entitlement to uninsured motor vehicle coverage. The Court further held that it could not be shown that the panel of the Court of Appeal in Taggart had failed to consider judicial or statutory authority that was binding on it, and that it would have decided the case differently had such authority been considered.

On July 10, 2006, Ms. Ibrahim, a resident of Alberta, rented a motor vehicle from a rental agency in Alberta and purchased insurance from Lloyd’s Underwriters which included benefit coverage on terms prescribed by the Alberta Standard Automobile Policy S.P.F. No. 1; which notes that:

when an Insured person suffers personal injuries of an accident occurring in a no-fault jurisdiction, the Insurer agrees to pay to the Insured person the amount that would be payable under the applicable laws of no-fault jurisdiction as if the Insured person were a resident of the no-fault jurisdiction.

No-fault jurisdiction is defined to include Saskatchewan, applicable laws were defined as follows:

when an Insured person suffers personal injuries with respect to a no-fault jurisdiction, the laws in force from time to time cover the system of no-fault automobile insurance in that jurisdiction.

On the date that the Policy came into effect and the date of the accident the limit on Saskatchewan’s no-fault insurance benefits was $500,000. After the accident amendments were made which increased Saskatchewan’s no-fault insurance benefits to $5,000,000. In addition, the legislation directed the Insurer to recalculate benefits owed to insureds using the new insurance scheme.  Lloyd’s Underwriters refused to recalculate the benefits owed to Ibrahim under the new scheme. 

Ibrahim commenced this Application for a declaration of a recalculation of the benefits owed to her under the new scheme. Klebuc C.J.S. noted that the Alberta Policy defined applicable law as “the laws in force from time to time”, which in his view, specifically contemplated that any law in place in Saskatchewan, at any relevant time, applies to the Alberta Policy, and not the laws that exist on the day the Policy was issued. If Alberta intended to fix the amount of coverage as of the date of the Policy, it should have specifically stated such an intention in the legislation or insurance Policy. Lloyd’s Underwriters was required to recalculate Ibrahim’s entitlement to benefits under Saskatchewan’s new regieme which provided a maximum entitlement of $5,000,000.

A vehicle for sale by consignment was involved in an accident during a test drive. The Insurer for the vehicle dealership and the Insurer for the vehicle wholesaler disagreed as to which was to provide first loss coverage. The wholesaler was the owner of the vehicle. A chambers judge found that the Insurer for the wholesaler was to provide first loss coverage, on the basis that s. 650 of the Insurance Act, R.S.A. 2000, c.I-3, states that the owner’s policy is to provide first loss insurance.

The Insurer for the wholesaler argued that s. 610 of the Insurance Act operated, so as to make a provision in the dealership’s policy, which provided that the Insurer for the dealership would be the first loss insurer for vehicles in the dealership’s care or control, prevail over s. 650.

The Court of Appeal rejected this argument, and upheld the chamber judge’s ruling.

This was an appeal by the Plaintiff Insured, Mr. McKenzie from an order that the Defendant Insurers, Dominion of Canada General Insurance Company ("Dominion") and State Farm Fire and Casualty Company ("State Farm"), as primary insurers, were required to contribute equally in respect of claims made against Mr. McKenzie, Mr. Tischler and a third party following a boating accident. The trial judge ordered that a boat owner’s liability policy issued to Mr. Tischler by State Farm provided primary coverage. The judgement further declared that after coverage under the boat owner’s policy had been exhausted, Dominion, pursuant to a home owner’s policy issued to Mr. McKenzie’s father, and State Farm, pursuant to a personal liability umbrella policy ("PLUP") issued to Mr. Tischler, were required to contribute equally in respect of claims made against Mr. McKenzie. Mr. McKenzie was insured in respect of the claims against him under all three policies.

The issue on appeal was the order in which the State Farm PLUP and the Dominion home owner’s policy were required to contribute to the claims against Mr. McKenzie. Mr. McKenzie argued that once the limits of the boat owner’s policy were spent or exhausted, it fell to the homeowner’s policy issued by Dominion to pick up any losses and that the State Farm PLUP was required to contribute only if amounts remained to be paid after the Dominion policy limits were spent or exhausted. The Respondent, Dominion, argued that Mr. McKenzie’s approach in characterising the policies at issue as either being primary, excess and/or umbrella was flawed and contrary to the reasoning of the Supreme Court of Canada in Family Insurance Corp. v. Lombard Canada, [2002] 2 S.C.R. 695. Rather, the proper approach was to first determine whether the "other insurance" clauses in the Dominion homeowner’s policy and the State Farm PLUP could be reconciled. If they could not, then according to Family Insurance, the policy should rateably contribute to the claims against Mr. McKenzie.

The Court of Appeal found that the application Judge erred in accepting Dominion’s arguments as to the contribution obligations of the State Farm PLUP and the Dominion homeowner’s policy. The coverage provided by State Farm’s PLUP was as a true excess or umbrella policy while Dominion’s homeowner’s policy was required to provide primary coverage. The Court also found that the application Judge and Dominion misinterpreted Family Insurance, supra and that if the Supreme Court of Canada had intended to do away with any distinction among primary, excess and/or umbrella policies of insurance, it would have done so in a clear and expressed language to that effect.

The Court allowed the appeal holding that the Dominion policy and the State Farm PLUP were not, by their language, required to contribute equally to the claims against Mr. McKenzie. Rather, the State Farm PLUP was a true excess or umbrella policy and was not called upon to respond to the claims until the limits of the Dominion homeowner’s policy were exhausted.