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“Your Work” Exclusion Applies to Subcontractor
Published in the April 2009 issue of Litigation Notes - View Article
Court considers whether a building contractor was insured for claims relating to faulty construction work by a subcontractor.
The B.C. Court of Appeal has examined the question of whether a building contractor was insured for claims relating to faulty construction work by a subcontractor. The Court concluded that, in this particular case, the loss was not insured. To reach that decision, careful examination of the insurance policy wording and the statement of claim was necessary. In a slightly different fact situation, this judgment could support the opposite conclusion.
Progressive Homes Ltd. was the general contractor on a condominium project. After completion of the project, Progressive was sued for construction defects, in particular, water leakage through exterior walls, windows and vents. Progressive applied to the Court for an order that its insurer, Lombard, provide a defence to the claims on the basis that the water damage to the buildings was an “accident” within the meaning of its liability policy.
The Court considered whether coverage was excluded by a policy term stating that the insurance does not apply to property damage to work performed by the insured. Lombard argued that the exclusion applied because the work performed by Progressive was the construction of the condominium and the damage was to the condominium itself. Lombard argued that the purpose of the policy was to protect the insured from liability for damage to the property of others, not to act as a performance bond for the insured’s own work. It argued that insurance is intended to address fortuitous events and should not be extended to compensate an insured for not doing its work properly.
Progressive argued it was commercially sensible to extend coverage to indemnify for defective work by a subcontractor so as to protect the contractor against bad work over which they may have little control. Defective work by a subcontractor can be a fortuitous occurrence from the contractor’s viewpoint. Progressive further argued that a complex structure like a condominium should not be considered a single piece of work. A defect in one element of the structure may result in damage to another element without triggering the exclusion.
The Court concluded that the question of whether the exclusion for the insured’s own work applied to work by the subcontractor must be based on the policy wording, not general principles. Exclusions in the policy called into question Lombard’s general assertion that there could never be coverage for defective work. However, the Court concluded that, even if there is coverage for defective work by a subcontractor resulting in damage to the work, the deficiency itself cannot be the damage. The Court said that this case was not the same as a case involving a boiler exploding and damaging the rest of the building, or a faulty electrical system causing a fire. Progressive argued that the deficiencies resulted in water leakage causing rot and deterioration to the building. However the Court was governed by what the plaintiffs alleged in the pleadings. The pleadings did not emphasize that a leak caused damage. The general thrust of the claim was that the entire building was defective in its construction. Unlike a boiler explosion, the problem here was that parts of the building did not perform their proper function rendering the building itself wholly defective. Therefore coverage was excluded.
Progressive Homes Ltd. v. Lombard General Insurance, [2009] B.C.J. No. 572 (C.A.)