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.
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)