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

The Defendants were involved in building an addition to the church building owned by the Plaintiff society. The Defendants were alleged to have caused a fire during the course of the building project which burned the church down. The Plaintiff society settled with its insurer for indemnity for the damage caused by the fire, and the insurer commenced a subrogated action in the name of the Plaintiff society against the Defendants. The Defendants then applied for a declaration that they were insureds under the contract of insurance between the Plaintiff society and its insurers, pursuant to the Commercial Policy and Builders Rider, and thus entitled to indemnification against subrogation.

The Court held that there were three stages to the Defendants' application: the first was the determination of whether the insurers bore a duty to defend the Defendant; the second and third were the indemnification and subrogation issues, the determination of which the Court held would require a trial. The duty to defend, however, could be determined on the application. The Court found that the duty to defend and to indemnify against the costs of an action does not depend upon the judgment obtained in the action. Accordingly, the duty to defend is much broader than the duty to indemnify against a judgment. The Court held that there was a reasonable probability that the Defendants would be found to be insureds under the Plaintiff society's insurance policy, and therefore the insurer was compelled to provide the Defendants with a defence.

This was an appeal by a Third Party from a motion judge's decision. The Plaintiff operated a Pharmacy in premises leased from the Defendants. The lease agreement provided that all of the lessee's policies of insurance were to contain a waiver of subrogation for the benefit of the lessor. The Plaintiff sustained water damage to its inventory and office equipment when water escaped from one of the pipes in the leased premises' sprinkler system.

The Plaintiff filed with its insurer, which paid out in full settlement of the claims. The insurer then commenced a subrogated action in the name of the Plaintiff against the Defendants. The Defendants raised the lease provision as a complete defence to the claim and issued a third party notice to the law firm that had prepared the lease agreement, claiming indemnity in the event that the lease failed to protect the Defendants from the claims advanced in the underlying action. The Defendants then applied, under Rule 23 of the New Brunswick Rules of Court for a judicial determination as to whether, by virtue of the lease agreement, the Plaintiff could pursue its claims. The motion judge held that the lease agreement did not preclude the subrogated action. The Third Party law firm appealed.

In interpreting the lease clause purportedly barring the subrogated action, the Court was mindful of the fact that the clause was taken verbatim from a New Brunswick statute, which is enacted in both English and French. As a result, the Court had to take a nuanced approach in interpreting the contract, as some of the traditional principles of contractual interpretation, such as the contra preferentum rule, could not apply. The Court found that the motion judge had erred in finding that the lease agreement did not preclude the subrogated action. Rather, the Court held that the lease operated to “effectuate a loss-bearing scheme that bars the underlying subrogated action in nuisance and negligence.”

This was an application by the Applicant for a declaration that the Respondent had a duty to defend him under a commercial liability policy in an action commenced against the Applicant by the Plaintiff. The Applicant and Plaintiff were employees of a grocery store. The Plaintiff alleged that the Applicant placed him in a headlock and caused him to slip and fall, causing permanent injuries and damages.

The Applicant asserted that he was an insured under the grocery store’s commercial liability policy. The Respondent argued that the Applicant’s acts were captured by an exclusion under the policy which purported to exclude bodily injury or property damage caused intentionally by or at the direction of the insured.

The Respondent further argued that it was not necessary for the court to find intent to cause injury in order to engage the exclusion clause. Rather, it was enough if the insured’s acts were intentional.

The Applicant countered by citing a related case - ING Insurance Co. of Canada v. Mitsios, [2007] O.J. No. 338, - with the same fact pattern where the court found that the exclusion clause has been interpreted by the courts to require that the injuries be intentionally caused.

In that case the exclusion clause was under a homeowner’s policy and excluded “bodily injury or property damage by an intentional or criminal act or failure to act by any person insured by this policy.” The Court held that although the exclusion clause under the homeowner’s policy was different than the exclusion clause in the commercial liability policy in the case at bar, the reasoning was equally applicable. The Court found that a finding that the insured intended to cause the injuries was necessary to trigger the exclusion clause.

This was an appeal involving two issues. The first related to the scope of an exclusion clause and the motion judge's determination that it did not absolve the insurer from its duty to defend the insured against the insured's claim for bodily injury arising from his exposure to mold and/or bacteria. The second related to the motion judge's determination that the insured could require the insurer to retain counsel of the insured's choice.

On the first issue the insurer relied on the clause in the policy under the heading "Common Exclusions". That provision provided as follows:

"This insurance does not apply to:

7. FUNGI AND FUNGAL DERIVATIVES

(a) "bodily injury", "property damage", "personal injury", or Medical Payments or any other costs, loss or expense incurred by others, arising directly or indirectly, from the actual, alleged or threatened inhalation of, ingestion of, contact with, exposure to, existence of, presence of, spread of, reproduction, discharge or other growth of any "fungi" or "spores" however caused, including any costs or expenses incurred to prevent, respond to, test for, monitor, abate, mitigate, remove, cleanup, contain, remediate, treat, detoxify, neutralize, assess or otherwise deal with or dispose of "fungi" or "spores"…

This exclusion applies regardless of the cause of the loss or damage, other causes of the injury, damage, expense or costs or whether other causes acted concurrently or in any sequence to produce the injury, damage, expenses or costs."

The motion judge found that this exclusion, including the "concurrent exclusion" clause, did not absolve the insurer of its duty to defend because the plaintiff had pleaded that his injuries arose from mould and bacteria and if it were found that the injuries were due solely to bacteria (a non-excluded peril), the exclusion clause would not apply.

On appeal, the insurer argued that the motion judge failed to consider the effect of the word "alleged" within s. 7(a) of the exclusion. According to the insurer, the effect of that language was to absolve the insurer of a duty to defend in any case where bodily injury from mould is alleged, even if combined with other causes of bodily injury, such as bacteria. The insurer submitted that the effect of the clause was that the duty to defend was narrower than the duty to indemnify.

The court disagreed with the insurer's position finding that the language in clause 7(a) is both unclear and ambiguous in its effect. The court found that a plain reading of the provision did not support the insurer's position. The court further found that the insurer's position "stands on its head" the general proposition that the duty to defend is broader than the duty to indemnify. The court found that if the clause was meant to convey that the insurer's duty to defend is narrower than its duty to indemnify then clear and unambiguous language would be required. 

Because of the issues with respect to coverage both the insured and insurer sought to appoint the counsel of their choice. The motion judge had referred to the principle that an insurer's right to control the defence is not absolute citing Brockton (Municipality) v. Frank Cowan Co. (2002), 57 O.R. (3d) 447 (C.A.). The motion judge found that the insured's counsel was competent and experienced and should be retained by the insured to defend the action at the insurer's expense. On appeal the insurer suggested that in order to meet the mutual concerns expressed by both sides, a third approach would be to agree on independent counsel. The Court of Appeal was not prepared to interfere with the trial judge's exercise of his discretion.

The insured operated an abattoir and meat processing plant which was completely lost in a fire. The insured filed a proof of loss with its insurer claiming replacement value. The insurer argued that the insured was not entitled to replacement value; rather it was only entitled to net-asset value or actual-cash value, an amount which the insured paid. The difference was substantial. 

The insurer asked the court to grant it leave to file an Amended Statement of Defence allowing it to advance the plea of "rectification of contract" on the basis that at all material times the parties understood entitlement to indemnification was on a replacement-cost basis but required the insureds to first replace the lost property. The insured had not rebuilt the processing plant because the City would not permit it to do so since a residential area had closed in around the site and from the City's perspective the area was no longer suitable for a meat processing plant and abattoir. The insured submitted that the application to amend should be denied because the argument of rectification was hopeless in the face of s. 513 of the Insurance Act, R.S.A. 2000, c. I-3 which provides:

"513(1) All the terms and conditions of a contract of insurance must be set out in full in the policy whereby securely attached to it when issued, and unless so set out no term of the contract or condition, stipulation, warranty or proviso modifying or impairing its effect is valid or admissible in evidence to the prejudice of the insured or any beneficiary."

The insurer argued that s. 513(1) does not displace the doctrine of rectification.

The court found that the policy was clear and unambiguous. It found that the insurer was not relying on some uncertainty arising out of the interpretation of the policy itself. Instead, the insurer contended that a very significant condition, that the insured was required to actually rebuild in order to be entitled to replacement cost, was simply left out. The court found that to allow the insurer to rectify the insurance policy in a manner that would add a condition imposing this limitation on the insured would be to fall wholly afoul of s. 513(1) of the Act.

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 Insurer issued a "Prime Hard Hat" liability insurance policy to the Insured, which provided for commercial general liability insurance and commercial umbrella coverage insurance (the "Policy"). The Policy insured "property damage" up to a limit of $2,000,000, with a deductible of $5,000 for each "occurrence". The umbrella policy insured "property damage" up to a limit of $8,000,000, with a self-insured retention of $10,000 for each "occurrence".

In the underlying action, the Plaintiff claimed damages for the cost of correcting deficiencies in the structure of a building, lost productivity and the cost incurred in investigating the building deficiencies. The Plaintiff entered into a contract with the Insured, the General Contractor on the project, for the construction on the Plaintiff's property of a steel processing facility, which involved the erection of five overhead cranes. The Insured subcontracted with Spencer Steel Ltd. to supply the structural steel and to build several runways to support the overhead cranes. Larco Industrial Services Ltd. was retained to supply, install, relocate, retrofit and commission the five overhead cranes. The Plaintiff began to notice vibrations when the cranes were in use. As the operation of the facility proceeded, improperly aligned crane runways, shifting crane runways, cracked concrete block walls and broken or loose runway bolts were discovered. The Plaintiff commenced an action against the Insured and other defendants involved in various capacities in the construction of the building for general damages for breach of contract and negligence.

For damage to be "property damage" under the Policy, the damage had to be to work other than that of the General Contractor. Damage to work of the General Contractor was excluded under the Policy. For the incident that resulted in the damage to be an "occurrence" under the Policy, the damage had to be to work other than what the General Contractor had contracted to perform.

The Insured argued that in this case it was appropriate to look outside the Statement of Claim to determine the true nature and substance of the pleadings. The Insured took the view that the Court could look to extrinsic evidence, other pleadings and a response to a Demand for Particulars to determine the substance of the pleadings. The Insured sought, with the assistance of external sources, to support its argument that Larco performed its work under an independent contract and that the damage to the Plaintiff's property resulted from Larco's work, which was outside the work the Insured performed in constructing the building.

The Insurer took the position that no claim for damage to work outside the work the Insured contracted with the Plaintiff to do could be inferred from the Plaintiff's pleadings. In the Insurer's view, it was not necessary, nor would it be appropriate to look outside the Statement of Claim to determine whether coverage was triggered.

The Court accepted the Insurer's position that the substance of the Plaintiff's allegations against the Insured was directed at the work of the Insured and contractors and not against work outside the Insured's contract with the Plaintiff. The Court found that the question whether Larco was a subcontractor of the Insured or had an independent contract with the Plaintiff was contentious and it would not be appropriate to answer that question on a preliminary determination of coverage. Therefore, the Court declined to consider any pleadings other than those directed against the Insured.

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.

Lincoln Canada Services LP ("Lincoln") leased a building from First Gulf Design Build Inc. ("First Gulf").  A sprinkler leak occurred and Lincoln sustained a loss of $72,153.17. This was less than the deductible under its insurance policy. Lincoln sought to recover those losses from First Gulf pursuant to the lease between the parties.

First Gulf argued that section 7.01 of the Lease, which required the Tenant to maintain insurance coverage for sprinkler leakage in the name of the Tenant and the Landlord and required that the policy contain a waiver of any subrogtation rights the Tenant's insurer may have against the Landlord, prevented Lincoln and its insurers from making any claim against it for damage which is covered by the required insurance policy. 

The Court found that the provision relieved the Landlord from the risk of liability for sprinkler leaks arising from the Landlord's negligence and brought that risk under the insurance coverage to be maintained by Lincoln. The Court found that the amount of the deductible was a matter between the party and its insurer and did not change the allocation of risk as between the parties to the Lease.