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Court of Appeal Upholds Ani Wall Decision
Published in the July 2008 issue of Litigation Notes - View Article
Synopsis: Court of Appeal upholds lower court on the applicability of “Your Work” and “Rip and Tear” exclusions
In the October, 2007 edition of Litigation Notes, we reported on the decision of the Ontario Superior Court of Justice in Axa Insurance v. Ani-Wall Concrete.
Axa was the CGL insurer for Ani-Wall, which constructed concrete foundations for a group of new homes under construction. Ani-Wall subcontracted to Dominion Concrete the supply of the cement that it used. The concrete supplied was defective and extensive repairs were required to the foundations of the homes after they were completed. The home builders sued Ani-Wall, for breach of contract and negligence. Axa denied coverage for the loss, citing the “your work”, “your product” and “rip and tear” exclusions in the policy. The judge dismissed Axa’s argument on the “your work” exclusion because the policy indicated that “This exclusion does not apply if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.” He ruled that the damage arose from defective cement supplied by the subcontractor Dominion Concrete. He dismissed the argument based on the “rip and tear” exclusion because the policy was ambiguous and also dismissed the argument on the “your product” exclusion.
Axa appealed to the Ontario Court of Appeal, but only in respect of the findings on the “your work” and the “rip and tear” exclusions.
“Subcontractor” was not defined in the policy.AXA argued that because Dominion merely supplied ready-made concrete to Ani-Wall, it was not a subcontractor, but a mere supplier. AXA relied on U.S. authorities, which identify the following three criteria for identifying a subcontractor: (1)The product supplied should be custom made according to specifications identified in the prime contract; (2) The supplier should provide on-site installation or supervision services; and (3) The product supplied should form an integral or substantial part of the prime contract.
The Court of Appeal declined to transpose these three criteria into Canadian law “…not because I reject the criteria outright or find them unhelpful in differentiating a subcontractor from a mere supplier for insurance purposes, but rather because I am reluctant to carve them in stone. Instead, I prefer to retain a degree of flexibility in the realm of insurance coverage, especially in cases like this, where coverage is acknowledged but the insurer seeks to rely on exclusionary provisions to limit its scope. As Ani-Wall points out, if insurers want to lay down hard and fast criteria, they can do so by defining the word “subcontractor” to their choosing. Insured persons who pay substantial premiums would then know where they stand and would not be left guessing about the extent of the coverage available to them.”
The Court went on to say that while this case was “close to the line” the word “subcontractor” should be construed broadly and any ambiguity in its meaning must be resolved in favour of Ani-Wall. The court concluded that “… it can reasonably be said that Ani-Wall subcontracted to Dominion its contractual obligation to supply concrete to the builders. In doing so, it triggered the “subcontractor” exception to the “Your Work” exclusion.
On the “Rip and Tear” exclusion the Court agreed with the applications judge that the clause was incomprehensible. “AXA, of course, is at liberty to rewrite the clause in a manner that makes sense.It cannot, however, look to this court to correct the problem.”
Axa Insurance (Canada) v. Ani-Wall Concrete Forming Inc. 2008 ONCA 563 (CanLII)