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. Intactinvolved 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…
The recent decision of Traders General Insurance Company v. Elizabeth Gibson asked the question, “Am I my [mother]’s keeper?” in the context of coverage for third party bodily injury claims under a homeowner policy. In this case, the answer was “No, you are her tenant.”
The facts of this case were fairly straightforward but highlight the risks of undefined terms within insurance policies. Traders General Insurance (“Traders”), insured Elizabeth Gibson under a homeowner’s policy. Elizabeth’s daughter, Betty, was involved in an accident in the home in March 2014. Betty sued her mother, among others, for her injuries.
The issue was whether the claim brought by Betty, who had lived in the home for 41 years, was excluded from coverage. It appears that during the trial, Traders brought an application for a declaration that the accident was excluded from coverage. Traders argued Betty was residing in the household. Betty’s counsel argued that she fell under the exception to the exclusion because she was really a “residence employee”, or in the alternative, a tenant.
Traders argued that the policy excluded “bodily injury to you or any person residing in your household other than a residence employee.” Residence employee was a defined term that meant: “…a person employed by you to perform duties in connection with the maintenance or use of the premises. This includes persons who perform household or domestic services or duties of a similar nature for you….”.
Betty alleged that she was in fact a residence employee. She alleged she provided domestic services to Elizabeth in exchange for a low monthly rental payment. She argued that she and her mother shared the daily tasks of living in the house such as vacuuming and dusting, preparing meals and eating together. Both Elizabeth and Betty shared household expenses, although Elizabeth contributed more toward those expenses and assumed responsibility for utilities and property taxes.
Ultimately, Brown J., did not accept this argument. This was largely because the relationship between Betty and Elizabeth did not have any of the hallmarks of a traditional employer/employee relationship. There was no written contract concerning work that Betty was to do. There was never a work schedule. Betty was not paid for the work she did. She was not issued a T4. Elizabeth never submitted any documentation relating to Betty with respect to Employment Insurance, Canada Pension Plan benefits, or Workplace Safety and Insurance Board premiums. Betty could do as much or as little as she wished at any time. She had discretion to perform the household tasks she wanted to. She did not report to Elizabeth regarding the work she did. Elizabeth did not supervise her.
However, Brown J. did accept the alternative argument that Betty was a “tenant”. The term “tenant” was not defined in the policy or in the Insurance Act. Brown J., found that there was no exclusion in the policy regarding bodily injured occasioned by a tenant. The judge found that it would be within the reasonable expectation of the policyholder that the policy provided coverage respecting the use and occupancy of the property. Relying on the Oxford Dictionary and Black’s Law DictionaryBrown J., concluded that one satisfies the requirements for a tenant where:
The tenant occupies the property in question; and
The tenant is permitted to do so by the landlord in exchange for some form of consideration. It need not be in writing or be for a fixed period of time.
Based on Betty’s payment of rent, and the fact she described the relationship as tenant and landlord in the statement of claim, Brown J., found that the Traders’ policy was required to respond to the claim. The policy holder was entitled to a defence, and indemnity, if required.
This case is a good example of the law of unintended consequences. It should highlight that courts continue to interpret coverage broadly and exclusions narrowly. Where terms remain undefined within a policy, insurers expose themselves to the risk of covering claims they may not have accounted for or received premiums. It reinforces that just because a family member lives in the same home, they may pursue coverage under a policy. Depending on the facts, living situations involving adult children who contribute to the rent or household expenses may not necessarily be excluded from coverage.
In Ferro v. Weiner, the late Enid Weiner owned a house on Lake Eugenia. From the late 1980s or early 1990s, it was Enid’s sole residence, before she moved to a nursing home in 2008 or 2009. Although she never resumed full-time residence at the house, her three adult children and their families all continued to use it as a cottage. She would occasionally stay there with them. At all relevant times she was the sole owner of the house.
In May 2010, a young man drowned at the house while attending a party. Enid’s daughter Regan, son Scott, and daughter-in-law Sandy were at the house during the incident. The victim’s parents and sister sued Enid, Regan, Scott, and Sandy.
Scott’s insurer, TD Insurance, defended and settled the plaintiffs’ claims. TD then brought a summary judgment motion, seeking a declaration that Intact Insurance was bound to defend and indemnify all defendants against the claims advanced by the plaintiffs. Intact insured Enid as the sole named insured under a Homeowners – Broad Form policy. TD argued that the defendants were insured under the Intact policy because they were all “living in the same household” as Enid at time of the incident.
The motion was granted, and the motion judge ordered a declaration that Scott, Sandy, and Regan were insured under the Intact Policy. She found that Scott and his family were not visitors to the house. She noted that Scott attended at the house when he wished and cared for it, as an owner would, and that he later took an ownership interest in it. Referring to Canadian Universities’ Reciprocal Insurance v. Halwell Mutual Insurance Co. (2002), 2002 CanLII 27712 (ON CA), she held that “household” can have a flexible meaning, and that “the meaning must be gleaned from interpreting its use in the policy of insurance using the rules of interpretation of contracts and of insurance policies, including that any ambiguity is to be resolved in favour of the insured.” She found that in the context of the intact policy and the property in question, Scott and his family were included in Enid’s household.
The Court of Appeal disagreed and allowed Intact’s appeal. The Court of Appeal held that the phrase “living in” was relevant to the question of whether the house was Scott’s residence. It was not.
The Court also held that the word “household” in the context of a homeowners policy refers to a community, most readily understood by analogy to a family unit:
A household is constituted not only by its members’ patterns of living with each other, but also by their settled intentions. Accordingly, courts have found that a person can maintain membership in a household despite lengthy absences from a common residence, provided there is continued self-identification as a member of the household, with a settled intention to return to the common residence. For example, university students do not necessarily cease to be members of their parents’ household when they move away for the academic year, provided they continue to view the parental home as home base and have an intention to return: Canadian Universities’. Similarly, a parent who is absent from the family home for extended periods because of the requirements of work does not therefore cease to be a member of the household during those absences as long as the parent intends to return…
On the facts of this case, the Court held that applying the established common law understanding of “household,” the facts found by the motion judge were incapable of supporting a finding that Enid and Scott, Sandy, and Regan had a “common life with the intimacy, unity, and permanence required to constitute a household.” At the time of the accident, Enid was living in a nursing home. Scott lived with his family in the city and had organized his life around his urban household. Prior to entering the nursing home, Enid lived with Scott’s brother, and not with Scott and his family.
It is also interesting to consider how the Court of Appeal rejected the respondents’ argument calling for a broad interpretation of the coverage clause at issue:
Whether a case involves a coverage clause or exclusion clause may influence the result in borderline cases, but this is not a borderline case. Where the facts are inconsistent with a person being a member of a household in accordance with settled jurisprudence, the fact that the case involves a coverage clause provides no assistance.
The recent decision of Van Huizen v. Trisura Guarantee Insurance Company, reinforces that Courts have little interest in protracted coverage battles between parties.
The facts of the case are important but straight forward. There were three main entities. Mr. Barkley, Hastings Appraisal Services (“Hastings”), and Mr. Van Huizen. Mr. Barkley was a property appraiser. He was employed by Hastings. Mr. Van Huizen operated Hastings. Both Mr. Barkley and Mr. Van Huizen had their own professional liability insurance certificates.
In 2008, Mr. Barkley was hired to do an appraisal. It was alleged that he was negligent in his appraisal, resulting in an eventual loss for the property’s insurer when the mortgagor defaulted. The insurer commenced a claim against Mr. Barkley and Hastings for negligent appraisal. A second claim was commenced against Mr. Van Huizen alleging that Mr. Barkley was either his employee or agent and was therefore vicariously liable.
Mr. Van Huizen reported the claim to Trisura, which subsequently denied coverage claiming that the “wrongful act” of Mr. Barkley did not trigger coverage under the policy insuring Mr. Van Huizen.
Trisura alleged that Mr. Van Huizen had coverage only for a negligent act or omission committed by him personally. Their position was that because Mr. Barkley who prepared the appraisal, he could have coverage under the certificate of insurance issued to him but not Mr. Van Huizen. Although the policy included coverage for the vicarious liability of an employer, it required that the negligent act or omission be committed by the member to whom the certificate of insurance was issued. Alternatively, Trisura argued that if an employer was entitled to coverage for the vicarious liability that arose out of the professional services rendered by a member other than the one named in the certificate, Mr. Barkley was not an employee of Mr. Van Huizen or Hastings as both had denied same in their respective statements of defence that he was.
Mr. Van Huizen viewed the case in simpler terms. In the main action and the third party claim, he was alleged to have been Mr. Barkley’s employer and therefore vicariously liable for his negligent acts or omissions. He was insured both for legal claims arising from his personal actions and from his status as an employer. The denial that he was Mr. Barkley’s employer in his statement of defence or that he was vicariously liable did not have an impact on the duty to defend because it was the allegations in the statement of claim and third party claim that matter.
The court cited Coast Capital Equipment Finance Ltd v. Old Republic, 2018 ONCA 540, for the following principles of law on the interpretation of insurance contracts:
The court must search for an interpretation from the whole of the contract which promotes the true intent of the parties at the time of entry into the contract.
Where words are capable of two or more meanings, the meaning that is more reasonable in promoting the intention of the parties will be selected.
Ambiguities will be construed against the insurer.
An interpretation which will result in either a windfall to the insurer or an unanticipated recovery to the insured is to be avoided.
Applying these principles and viewing the insurance contract as a whole, the court found Mr. Van Huizen had coverage for a legal claim arising from his own actions and also when it flows from his legal status as an employer of the alleged wrongdoer.
The Court found that under the policy, an insured does not have to be an appraiser; but he or she has to be an employer of someone who is and, if they are, the policy granted them coverage if they were alleged to be vicariously liable for the negligent acts or omissions of that member. As a result, Trisura had a duty to defend Mr. Van Huizen.
In parting, the court left the parties with this comment:
At its core, the liability issue is simple: did Mr. Barkley fall below the standard of care in preparation of the appraisal? Both he and Mr. Van Huizen carried insurance coverage for just this type of claim and yet, 10 years after that appraisal was done, litigation over coverage persists. I make this comment not in criticism of counsel but to affirm why, as the Court of Appeal has opined, these types of disputes need to be resolved expeditiously to avoid unnecessary costs and delay.
It is worth noting that in a perfect world, coverage litigation should be short and to the point. In many cases the issue should be determined solely on the pleadings and the contract of insurance. Courts will look for the reasonable interpretation of the clause that satisfies the contract as a whole. While creative and technical arguments have their place and should always be advanced, Justice Hurley would suggest that the ultimate question will be whether coverage makes sense in the circumstances.
An application was brought under rule 14.05(3)(d) of the Rules of Civil Procedure to determine rights that depend on contract interpretation. The applicant was National Gallery of Canada (“National Gallery”) and the respondents Lafleur de la Capitale (“Lafleur”) and Intact Insurance Company (“Intact”).
The application relates to two underlying actions arising out of a fatal trip and fall accident that occurred on August 27, 2013 on the National Gallery’s premises. Conrad Lafreniere, an employee of Lafleur, was performing routine maintenance work, cleaning leaves and debris, near the entrance ramp to the National Gallery’s underground parking garage. As a vehicle approached to enter the garage, Mr. Lafreniere moved over to the edge of the entrance ramp, fell over a concrete ledge, and suffered fatal injuries.
The first underlying action, against the National Gallery, was commenced by Mr. Lafreniere’s widow, Ms. Arsenault. The Workplace Safety and Insurance Board (“WSIB”) had a subrogated claim in relation to the claim commenced by Ms. Arsenault and payments made, by the WSIB, to her. The second underlying action, against the National Gallery, was commenced by Mr. Lafreniere’s mother and siblings pursuant to the Family Law Act.
The National Gallery and Lafleur entered into a Service Contract under which LaFleur was required to supply all labour and equipment to complete the interior and exterior maintenance throughout the premises. Lafleur was also responsible for properly training and supervising its employees and ensuring that all employees wore safety equipment and were kept safe while carrying out their work.
Under the Service Contract, Lafleur also agreed to indemnify and save harmless the National Gallery from all claims, demands, losses, costs, damages, actions, suits, or proceedings arising out of or in connection with its work under the contract.
Lafleur also agreed to obtain a CGL insurance policy under which National Gallery would be added as an additional named insured. The policy was issued to Lafleur by Intact.
In both underlying actions, the plaintiffs claimed that Mr. Lafreniere’s fall, and subsequent death, was caused by the negligence or breach of duty of the defendants, National Gallery and the Attorney General of Canada. All of the particulars of negligence, set out in paragraph 8, in the Statements of Claim related to design issues of the building and the property, including the failure to install a fence, railing or protective barrier in the area where Mr. Lafreniere fell, for example.
The National Gallery commenced a third party claim, in both underlying actions, against Lafleur for its failure to properly train Mr. Lafreniere, and also claimed contribution and indemnity from Lafleur.
Intact issued a Commercial General Liability policy to Lafleur. The National Gallery was named as an additional named insured under the policy by way of endorsement. The policy was with respect to the legal liability arising out of Lafleur’s operations under the Service Contract.
The court went on to examine the wording of the Services Contract between the National Gallery and Lafleur, in particular the paragraph dealing with “Indemnification by Contractor”. This section stated that Lafleur shall indemnify and save the National Gallery harmless from all claims . . . . “based upon, arising out of, related to, occasioned by or attributable to the activities of the Contractor, the Contractor’s servants, agents . . . in performing the Work . . . ”
The issue for the court was whether Lafleur and Intact owed a duty to defend the claims against the National Gallery in the underlying two actions.
In ultimately deciding in the negative, the court reviewed the leading case law, in this regard:
an insurer is required to defend a claim on behalf of an insured when the facts alleged in the pleadings, if proven true, would require the insurer to indemnify the insured for the claim: Progressive Homes Ltd v. Lombard General Insurance, 2010 SCC 33 (CanLII)
the duty of defend should, unless the contract of insurance indicates otherwise, be confined to the defence of claims which may be argued to fall under the policy: Nichols v. American Home Assuance Co., 1990 SCC (CanLII)
where there are multiple claims, or where only some of them are potentially covered, a court must assess the substance or the “true nature” of each claim contained within the pleadings to see if it falls within the scope of coverage: Papapetrou v 1054422 Ontario Ltd.2012 ONCA 506 (CanLII)
Following its review of these cases, the court agreed that the question of whether the duty to defend extends to the whole claim depends on the specific pleadings at issue and the resulting determination of the “true nature” of the claims.
In terms of the facts, in this application, the court concluded that in the underlying action brought in the name of Ms Arsenault, for WSIB’s subrogated interest, there was no duty on Intact to defend the National Gallery, for the following reasons:
The nature of the claim was really one of a subrogated workplace claim
The CGL coverage contained an exclusion for “Worker’s Compensation and Any Obligation of the Named Insured under a Workers’ Compensation plan”
The CGL coverage also contained an exclusion for bodily injury to an employee of the Insured arising out of and in the course of employment; Mr. Lafreniere was not an employee of the National Gallery nor in the course of employment with the National Gallery at the time of the accident
The Services Contract required that the National Gallery would be added as an additional insured – it was not listed as a named insured
The Certificate of Insurance required that the National Gallery was an additional Insured but only insofar as Legal Liability arising vicariously out of the operations of the Named Insured
With respect to the underlying action brought by the FLA claimants, the claim alleged that Mr. Lafreniere’s death was caused by the negligence of the National Gallery as occupier. The court found that the allegations in the Statement of Claim related to design issues of the building and the property and that the indemnity provisions in the policy must be read in conjunction with the allegations in the Statement of Claim.
The wording of the indemnity provision made it clear, to the court, that indemnity was “based upon, arising out of, related to, occasioned by or attributable to the activities of the Contractor.” Lafleur was the Contractor and was not named as a party in the Statement of Claim. There were no allegations in the Statement of Claim that alleged negligence or tortious activities of Lafleur so no indemnification could be triggered. The allegations in the Statement of Claim related to design and control by the National Gallery as occupier and, therefore, could not be related to or attributable to the activities of Lafleur.
The court went on to state that, on its face, the CGL policy would cover bodily injury and would be for the type of loss that was sustained. Even though there were no exclusions that applied, the major challenge, for National Gallery, was that the allegations in the Statement of Claim fell outside of the indemnity agreement.
The court concluded that the allegations in the Statement of Claim did not arise out of the activities of the Contractor, Lafleur. There were no allegations in the Statement of Claim that Lafleur or its servants did anything wrong; that is why the claim falls outside of the indemnity agreement.
Based on this analysis, the court found that neither Lafleur or Intact owed the National Gallery a duty to defend.
While this case does not offer anything new about the duty to defend, it provides a good analysis of the issues that arise in duty to defend disputes and a reminder that the allegations in the Statement of Claim must be carefully considered, along with the wording in the indemnity provision of the contract.
The matter of Rosen Express v. Northbridge is yet another case of stolen cargo for which Rosen sought coverage. The case underlines for insurers that courts will often take a broad approach to coverage and they must provide supporting evidence when alleging misrepresentation.
This case involved electronic goods which were ultimately destined for Best Buy in Quebec. Affidavit evidence supported that Greenway Carriers transported the goods to Rosen Express by leaving a Greenway trailer in Rosen’s yard. Rosen ultimately was tasked with delivering the trailer to Quebec. Notably, the Greenway and Rosen properties were directly beside one another.
The insurer argued that there should be no coverage for two reasons. First, it argued the goods were not in Rosen’s custody and thus not covered by the policy. In support of this, the insurer argued that the goods remained in Greenway’s trailer and it was a Greenway employee who completed the police report. The court rejected these arguments as speculative and accepted Rosen’s evidence that it intended to transport the goods using the Greenway trailer.
The court also found, based on the policy wording, that the cargo would be covered regardless of whether they were dropped off at the Rosen property. Greenway was found to be acting as Rosen’s agent and therefore the goods were considered to be in Rosen’s custody even if on the Greenway property.
Second, the insurer argued that Rosen made a material misrepresentation when it applied for insurance because it failed to disclose that it would be transporting electronic goods. There was a space on the application to specify the type(s) of electronic goods being transported, which was left blank. The application described the types of goods very generally, including “consumer goods”. In the application, Rosen provided evidence that electronics comprised 1 to 2% of its shipments.
Morgan J. rejected the insurer’s submission that there was a material misrepresentation. It was significant that the insurer did not provide any evidence to support that it was induced by the misrepresentation or that it would have treated the application differently. The court differentiated the case from one where an insured transports something drastically more dangerous or expensive than that declared on the application (e.g. explosives or gold bullion).
Although the court rejected the insurer’s coverage arguments, Rosen was not entitled to any compensation. There was a lack of evidence to support the value of the cargo as no claim had been made against Rosen. While there was some evidence on the bill of lading and post-loss amounts had been withheld from Rosen, the court was not satisfied that the cargo claim value could be determined with accuracy. Therefore, the court left for another day the issue as to whether the policy would respond to a cargo claim and the amount of same.