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How much Risk does a Builder's Risk Risk?

 Apr 10, 2019 8:45 PM
by Dan Strigberger

When a builder negligently repairs a school’s gymnasium roof, which causes rain to spill into the gym and damage the wooden floor below, does the builder’s All Risk Builder’s policy cover the damage to the floor? 

Pre-Eng v. Intact involved a coverage battle between the builder’s All Risk Builder’s policy with Northbridge and CGL policy with Intact. The Builder’s Risk policy provided the following coverage:

3. Insured Property

This Form insures the following items for the amount of insurance specified on the Coverage Schedule of Part I and II;

A. At the “project site”, provided that the value of the described property, whether owned by you or by others, is included in the amount of insurance:

(a) property in course of construction, installation, renovation, reconstruction or repair other than property described in 3.A(b),all to enter into and form part of the completed project including expendable materials and supplies, not otherwise excluded, necessary to complete the project;

The parties agreed that the Project Site included the entire school, disagreed over whether the gym floor was “property in course of construction, installation, renovation, reconstruction or repair…”

Meanwhile, the builder also held a CGL policy, which was intended to exclude coverage for what was covered under the Builder’s Risk policy. The exclusion clause reads as follows:

“Property damage” to:

5. That particular part of real property on which the Named Insured or any contractor or subcontractor working directly or indirectly on the Named Insured's behalf are performing operations, if the property damage arises out of those operations; or

6. That particular part of any property that must be restored, repaired or replaced because the Named Insured's work was incorrectly performed on it.

Northbridge argued that the Builder’s Risk policy explicitly covered “property under construction” and the gym floors were not under construction. They were damaged as a result of construction, but they were not under construction and were therefore not covered by the Builder’s Risk policy.

Intact argued, among other things, that there was ambiguity in the Builder’s Risk policy because, in this case, the builder was hired to do a variety of tasks at the school, which could inevitably lead to property damage to other areas in the school.

Both insurers sought summary judgment in a coverage action that the builder brought against them.

Conflicting Case Law

The motions judge noted that there was a conflict in Canadian case law involving the scope of Builder’s Risk insurance. On the one hand, a 2007 case from Alberta (Medicine Hat College) held that the Builder’s Risk policy covered damage caused to a building’s penthouse after the builder had negligently moved a gas pipeline and an explosion ensued. The contractor had not been hired to do any work on the penthouse of the building but that happened to be the site of the damage caused by his negligence. The Alberta Queen's Bench judge concluded that the penthouse mechanical room was included in the phrase “property in the course of construction” and was covered under the Builder's Risk policy.

On the other hand, a 2015 case from Ontario (Osler Health) held that the Builder’s Risk policy did not cover flooding damage to several parts of the hospital, caused by a plumber’s negligent installation of pipes during a kitchen renovation at the hospital. Justice Firestone concluded that the Builder's Risk insurance held by the contractor only covered damages to the kitchen itself, not to the other areas of the hospital which had been flooded.

More recently, the Supreme Court of Newfoundland and Labrador reviewed the same issue in a case called Dominion v. Viking Fire (Team Mechanical Construction). In that case, a renovator negligently installed a water treatment system in a large health sciences complex, which lead to leakage and extensive damages to many areas of the complex. The renovator had obtained a Builder’s Risk insurance policy which was substantially the same as the policies used in Medicine Hat Collegeand Osler Health. The motion judge expressly disagreed with the ruling in Osler Healthand instead followed the reasoning in Medicine Hat College (Builder’s Risk policy covered losses to other property).

However, on March 6, 2019, the Court of Appeal of Newfoundland and Labrador released its decision in Dominion v. Viking Fire, overturning the motion judge’s decision and adopting Justice Firestone’s reasoning in Osler Health.

So what does the Builder’s Risk policy cover?

The motions judge followed Justice Firestone’s decision and held that the Builder’s Risk policy with Northbridge did not cover the damage to the gym floors:

If Intact’s argument were correct, it would lead to the conclusion that the Builder’s Risk insurance was intended to cover the entire Project Site. That interpretation cannot be reconciled with the Northbridge policy which specifically limits coverage to property in the course of construction which is located at the Project Site. If the intention of the parties was to extend coverage to the entire site, there would have been no need to include section 3 in the agreement which defines the “insured property” as property located at the Project Site.

The judge concluded that the words “property in course of construction, installation, renovation, reconstruction or repair” are sufficiently clear to exclude the gym floor from coverage under the Builder’s Risk policy. The gym floor was not being installed, renovated, or reconstructed and there was no evidence to suggest that it was.

Takeaway

It appears that any conflict in Canadian case law over the scope of coverage under the Builder’s Risk policy is close to being wrapped up (if it isn't already). To date, two Ontario Superior Court Judges and the NLCA have limited its scope to cover only property that is being in the course of “construction, installation, renovation, reconstruction or repair”. Any other property losses not covered by the Builder’s Risk policy would likely be covered under the builder’s CGL policy, subject to any other terms or exclusions.

It will be interesting to see whether Intact appeals to give the Ontario Court of Appeal a chance to review this issue. Stay tuned…

See Pre-Eng v. Intact, 2019 ONSC 1700 (CanLII)

Coverage, Risk  
  

No Skirting of Responsibility

 Apr 10, 2019 12:00 PM
by Shalini Thomas

While at the Bramalea City Centre Mall with her mom and siblings, the plaintiff (a minor) fell backwards on an upward moving escalator. Unfortunately, her left hand got stuck in the step-to-skirt gap of the escalator resulting in a severing of her left index finger.

The plaintiff and her mother commenced a lawsuit against the owners of the mall, the Schindler Elevator Corporation and the Technical Standards and Safety Authority (the “TSSA”). Schindler was hired to inspect and maintain the escalators at the mall. In their regulatory capacity, the TSSA also periodically inspected the escalators. The escalators were subject to the inspection and maintenance requirements adopted by the TSSA.

The TSSA brought a partial motion for summary judgment which was ultimately dismissed. 

The plaintiffs produced an expert report which concluded that the subject step/skirt gap exceeded the upper standard and that the step/skirt performance index (“SPPI”) also exceeded the standard. The report opined that Schindler failed to take corrective measures to reduce the SPPI when it was discovered just a few months prior to the plaintiff’s injury. The report also opined that if the TSSA carried out inspections at the one-year frequency recommended by industry standards, they more likely than not would have discovered the SPPI issue, which in turn should have resulted in an issuance of a compliance order and a shutdown of the escalator.

While the TSSA were able to produce detailed logs of their inspections and reports/orders, it likely did not assist that TSSA provided conflicting evidence on how often the escalator was periodically inspected.  Furthermore, TSSA’s own evidence supported that the escalator had recurring issues with the anti-friction skirt, which the plaintiff’s expert opined increased the risk for step/skirt entrapment.

The Court held that a trier of fact would benefit from hearing evidence of all witnesses in order to determine the issues and assess the strength of the evidence, as well as provide a fair and just determination on the merits. The Court determined that TSSA’s actions / responsibilities were not clearly severable from the balance of the case against the remaining defendants, which would remain even if the motion was granted. 

This decision highlights that actions with multiple defendants who may be jointly and severally liable under the Occupiers' Liability Act are unlikely to be successful candidates for a partial summary judgment motion.

See Gallo v. Bramalea City Centre Equities Inc., 2019 ONSC 1443


Shalini defends insurance claims covering all aspects of general insurance liability including motor vehicle accidents, occupiers’ liability, slip and falls, as well as accident benefits litigation and arbitration and priority and loss transfer disputes.

Occupiers' Liability, Tort  
  

Too Good to be True? May be your Wilful Blindness

 Apr 9, 2019 6:45 PM
by Kathleen O'Hara

The Facts

This sordid tale begins with an employee going rogue with a company credit card. The Defendant Fung began purchasing iPhones and iPads from the Defendant Minetto in November 2011. The first transaction was seemingly innocent. The two met in the parking lot at Yorkdale Mall. Fung purchased one iPad from Minetto and paid in cash.

Over the course of the next 2.5 years, Minetto sold Fung over 4,900 iPhones and 5,300 iPads in increments of 10 to 20 pieces at a time. Initially, Fung and Minetto met in parking lots to exchange cash for the Apple Products. Eventually, they set up a virtual office where Minetto had Apple Inc. ship the Apple Products directly to Fung.

As it turns out, Minetto was using her employer Wescom’s corporate credit card to purchase the Apple Products and then selling the Apple Products for her own personal gain. Minetto’s actions went undiscovered for so long because she was the employee responsible for paying the corporate credit card invoices. In the end, Minetto defrauded her employer out of $6.8 million over 5 years. Some of her expenditures were for other unrelated personal items. Over $6.2 million was spent on Apple Products which Minetto later sold. Wescom ultimately discovered the fraud and terminated Minetto immediately.

Wescom obtained a Judgment on consent against Minetto for the full $6.8 million, plus interest. In a separate decision, Wescom was granted leave to sell Minetto’s home after a Judge found that Minetto committed multiple material breaches of their settlement agreement.

Superior Court Decision

An action was brought by Wescom based on Fung’s alleged unjust enrichment at the expense of Wescom. On consent, the Trial proceeded on the issues of: (1) Whether Fung knew or was wilfully blind to the fact that he was purchasing stolen goods or goods fraudulently obtained by Minetto; and, if yes (2) Did this apply to all transactions or just transactions after a certain date?

Fung admitted that he did not initially ask Minetto where or how she obtained the Apple Products. Later, he asked her if they were stolen and Minetto told him they were “legit”. Fung could detect no sign that the Apple Products were stolen. He was not concerned about the cash transactions or lack of documentation for the purchase or resale of the Apple Products.

What Fung knew or ought to have known was analyzed over three distinct stages:

Stage 1: November 2011 to early 2012 – Yorkdale Mall parking lot transactions

During the initial timeframe, Fung purchased 30 iPhones and 400 iPads from Minetto. The Judge held that there was no basis to find that Fung knew, or that the circumstances were sufficiently strong to arouse his suspicions, that the Apple Products had been stolen or obtained through fraud.

Stage 2: Early 2012 to April 2013 – Ikea parking lot transactions

The Judge found it important that Fung again questioned Minetto during Stage 2 whether the Apple Products were legitimate. He had already asked. If he believed her, and there had been no reason to suspect otherwise, why ask again? He found that Fung made a conscious choice not to seek verification or further information about the source of the Apple Products. Fung chose to remain deliberately ignorant. The Judge held that Fung was wilfully blind to the fact that the Apple Products were stolen or fraudulently obtained during Stage 2.

Stage 3: April 2013 to July 2014 – where Minetto shipped products directly to Fung’s virtual office

By this time, the business relationship had evolved. Products were being shipped directly from Apple to Fung’s virtual office. Fung ordered products from Minetto by email. Minetto would send him a shipping notification provided by Apple. Fung could track the shipment. Shipping was being paid by Wescom. The Judge held that this level of sophistication removed the probability that Fung was wilfully blind to the nature of how Minetto was procuring products. He held that Fung had actual knowledge of the source and nature of the Apple Products he was purchasing from Minetto.

Judgment was granted in the amount of $5 million against Fung. Fung’s crossclaim against Minetto for contribution and indemnity was granted in the same amount. Fung appealed.

Court of Appeal

Fung submitted that the Trial Judge erred by applying an objective standard to the wilful blindness analysis (rather than a subjective standard). The Court of Appeal agreed with Fung’s submission that the Trial Judge erred in law in his articulation of the concept of wilful blindness when he engaged in an objective analysis. The Trial Judge was not asked to consider whether Fung as a ‘reasonable person’ would have been alerted to a potential breach of trust.

A finding of wilful blindness, which is the same standard in criminal and civil proceedings, involves a subjective focus on the workings of a defendant’s mind.

Notwithstanding the mischaracterization, the Court held that the Trial Judge was correct in his application of the wilful blindness analysis when he found that Fung was wilfully blind. It was clear the Trial Judge made findings of fact establishing that Fung was wilfully blind from a subjective standard. Fung knew that the Apple Products were probably stolen or obtained by fraud, but made a deliberate choice not to investigate.

Fung’s appeal was dismissed by the Court.

This case highlights that, in the civil context, wilful blindness in is to be assessed on a balance of probabilities. The test is a subjective one. The Court held that Fung’s conduct met the definition of wilful blindness articulated in R. v. Sansregret (SCC), which “arises when a person who has become aware of the need for some inquiry declines to make the inquiry because he does not wish to know the truth. He would prefer to remain ignorant.” Once suspicions about certain facts are aroused, a duty to inquire is raised. A party cannot simply bury his head in the sand or look the other way. Failure to make those inquiries can turn what may seem like ‘harmless’ parking lot transactions into a successful claim for unjust enrichment.

See: Wescom Solutions Inc. v. Minetto, 2019 ONCA 251.


Kathleen was called to the bar in 2009. Over the years, she has developed an insurance defence practice with a particular focus on fraud. Read more ...

  

 

 
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