Construction Contracts & Project Insurance: “We're Covered, Right ...

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Construction Contracts & Project Insurance: “We're Covered, Right ...

Northern Alberta Rims:Royal Glenora Club, Braemar Room11160 River Valley RoadEdmonton, ABConstruction Contracts &Project Insurance:“We’re Covered, Right?”(or maybe not)March 14, 2012Presented by Nigel P. Kent


Table of Contents:1. Introduction2. Transferring/Allocating Risk by Contract- Waivers and Limitations of Liability- Warranties and Guarantees- Indemnities- Insurance Provisions3. Project Insurance: What’s Covered and What Isn’t- CCDC 2 – 2008 Requirements- Principles of Policy Interpretation- Property Insurance Highlights- Liability Insurance Highlights4. Conclusion1


1. Introduction (some preliminary observations)• contracts and insurance are major mechanisms for themanagement of risk• construction contracts (like property and liabilityinsurance) are essentially unregulated• so-called “Standard Forms” reflect the interest of theinterest groups that develop them and rarely reflectconsensus from all industry stakeholders…you mustexamine the “small print”!2


Introduction (some preliminary observations)….• contracts are only enforceable as between parties to thecontract (signatories) . . . . if the contract is between the“Owner” and “Contractor”, it does not bind thesubcontractor or consultant• not all risks can be passed on to insurance companies(“insurance policies include exclusions”, CCDC’s Guideto the Use of the CCDC 2 – 2008)3


Introduction (some preliminary observations)….• “It is important for the parties to conduct a detailedreview of the insurance requirements of the Project withinsurance professionals that are qualified to provideconstruction insurance. The purpose of the reviewshould be to identify the types of coverage that may berequired to satisfactorily protect the various parties’interests in the work. Specialized coverages may benecessary to adequately insure additional risks. . . . Arisk management strategy that addresses insurable andnon-insurable risks…is an important part of the process”,supra4


2. Transferring/Allocating Risk by Contract• Waivers and Limitations of Liability• Warranties and Guarantees• Indemnities• Insurance Provisions5


Transferring/Allocating Risk by Contract…Waivers and Limitations of Liability• to be legally enforceable, must be expressly stated withclarity in the document signed by the parties (will bestrictly construed by the Courts)• examples . . . ski hills, purchase orders, car rentalagreements…many such “waivers” are legallyunenforceable7


Waivers and Limitations of LiabilityTransferring/Allocating Risk by Contract…• Standard Architects Agreement/Example:“The Client agrees that any and all claims which he has or hereaftermay have against the Architect in any way arising out of or related tothe Architect’s duties and responsibilities pursuant to this Agreement,whether such claims sound in contract or tort, shall be limited to theamount of $250,000 for each claim . . . and to the extent only that [theArchitect’s professional E&O] insurance is available to the Architect tosatisfy such claims. . . .The Architect’s liability for all claims of the Client arising out of thisAgreement shall absolutely cease to exist after a period of six yearsfrom the date of [substantial completion performance of the work etc.]whichever shall first occur, and following the expiration of such periodthe Client shall have no claim whatsoever against the Architect”.8


Transferring/Allocating Risk by Contract…• College of New Caledonia v. Craft Construction CompanyLtd. 2007, BCSC 1408• construction of Prince George Campus in 1994;• subsequent major roof and water ingress problems – 3years later and ongoing;• College sued various contractors/suppliers in Action No. 1(did not sue Architect);9


Transferring/Allocating Risk by Contract….• Defendants third partied Architects into action;• College later sued Architect in Action No. 2 after thesixth anniversary of substantial completion;• Architects applied for summary dismissal of action andthird party proceedings against it on the basis of thelimitation of liability clauses above;• Court enforced clauses and dismissed all claimsagainst the Architect;• Owner’s claim v. Architect dismissed because:1. brought after six years; and2. Architect no longer had any insurance.10


Transferring/Allocating Risk by Contract….• Defendant’s third party claims against Architectdismissed because such claims cannot be sustainedat law if the third party has no direct liability to thePlaintiff.• CCDC 2 2008 Stipulated Price Construction Contract• Contract comprises three parts1. Agreement (between Owner and Contractor);2. Definitions; and3. General Conditions.11


Transferring/Allocating Risk by Contract….• GC 11 deals with insurance;• GC 12 deals with “indemnification, waiver of claims,and warranty”• GC 12.2.1 contains 254 words and 12.2.4 have 327words each in a single sentence . . . they are undulycomplex and not easy for ordinary construction personto understand• GC 12.2 provides for a mutual “waiver and releasefrom all claims which either has or ought to haveknown about against the other arising from theirinvolvement in the work, including, without limitation,claims arising from negligence or breach of contractwhich occurred before or on the date of substantialperformance of the work except . . .”12


Transferring/Allocating Risk by Contract….• Exceptions are basically for:1. claims in respect of which “written notice” has beenprovided within the limitation period; and2. indemnity rights under the contract.• Some owners have radically modified or eliminatedthis waiver/release by way of “supplementalconditions”• You must examine and understand the small print!13


Transferring/Allocating Risk by Contract….Warranties and Guarantees• “Warranty” is a much bandied-about and frequentlymisunderstood term;• a warranty is valueless unless its terms are clearly set out,particularly, the triggers (what exactly is being warranted)and remedies (what exactly will be done);• frequently accompanied by limitations of liability (“soleremedy”) which may or may not be legally enforceable;• in the CCDC 2 – 2008, the Contractor’s Warranty is setout in GC 12.3:14


Transferring/Allocating Risk by Contract….Warranties and Guarantees (cont'd)- one year from date of substantial performance;- prompt written notice of defects/deficiencies required;- Contractor to promptly correct same at Contractorsexpense;- Contractor also to correct/pay for any damage resultingfrom such repair work;- Contractor’s responsibility with respect to any extendedwarranties is limited to obtaining same from theWarrantor.• Some owners have radically modified or eliminated this clauseby way of “supplemental conditions”• Again, you must examine and understand all the small print!15


Insurance Provisions (cont'd)Transferring/Allocating Risk by Contract….North Newton Warehouses v. Alliance WoodcraftManufacturing, 2005, BCCA 305• leased warehouse space damaged by negligence of tenant’semployees• landlord’s insurer pays out insurance claim and then issuessubrogated lawsuit versus tenant• Court held the subrogated claim could not be maintained inlight of the covenant to obtain insurance, that the insurancecovenant was for the tenant’s benefit and bestowed immunityupon the tenant, and dismissed the action.17


Insurance Provisions (cont'd)Transferring/Allocating Risk by Contract….Howalta Electrical Services Inc. v. CDI CareerDevelopment Institutes, 2011 ABCA 234• Landlord’s building destroyed by fire• fire not caused by Tenant but by their contractors who workedon building• damage repaired by Landlord’s insurers who startedsubrogated action against contractors• Defendants issued third party proceedings against the Tenantseeking contribution and indemnity under Alberta’s TortFeasors Act• Alberta Court of Appeal strikes out the third party proceedings18


Transferring/Allocating Risk by Contract….Insurance Provisions (cont'd)• Contractor’s claim for contribution and indemnity could notsucceed because of the complete liability immunity enjoyed bythe Tenant as against the Landlord arising from the insurancecovenant and the lease• “Leases or fire insurance can bar suing a tenant for fire damagein two well-settled ways:19


Transferring/Allocating Risk by Contract….Insurance Provisions (cont'd)1. Bar A blocks a subrogated suit by an insurance companyagainst someone who is an insured, or paid premiums,under the policy. That rule plainly protects a tenant whoselease makes him or her pay a proportionate share of theLandlord’s insurance premiums.2. Bar B blocks any suit by a Landlord who covenanted toinsure, and impliedly covenanted to give the Defendant thebenefit of that insurance. It does not matter whether the suitis really by the Landlord or only in its name”20


Transferring/Allocating Risk by Contract….Insurance Provisions (cont'd)• What about insurance covenants in constructioncontracts?• CCDC 2 – 2008 requires the Contractor to obtaininsurance for the project (not owner)• Combination of GC 11.1 and CCDC 41 (insurancerequirements form) requires Contractor to obtain:- general liability insurance not less than the coverageprovided by IBC Forms 2100/2320- Owner and Consultant to be additional insureds as well asContractor (no subcontractors insured)21


Transferring/Allocating Risk by Contract….Insurance Provisions (cont'd)– coverage for Owner/Consultant only for their liability“arising out of the operations of the Contractor, otherthan legal liability arising out of their sole negligence”(not insured for their own negligence?)– ‘completed operations hazard’ coverage required for sixyears following substantial performance (completelyunrealistic)– broad form property insurance to be “not less thancoverage provided by IBC Forms 4042/404722


Transferring/Allocating Risk by Contract….Insurance Provisions (cont'd)– property insurance to be issued in the joint names ofContractor, Owner and Consultant with allsub-contractors as additional insureds:– (also auto/aircraft/water-craft liability and boiler &machinery insurance required)• Owners frequently modify these ‘standard’ insurancerequirements.• Let’s review the ‘standard’ policies….23


3. Project Insurance: What’s Covered and What Isn’t• CCDC 2 – 2008 requirements• Principles of Policy Interpretation• Property Insurance Highlights- Who is Insured?- “All risk”/coverage does not insure all risks- Waivers of Subrogation• Liability Insurance Highlights- Who is Insured?- Coverage for building deficiency claims- Over-lapping coverage issues24


Project Insurance: What’s Covered and What Isn’t….CCDC 2 – 2008 insurance requirements• Coverages and wordings under property/liabilitypolicies in Canada completely unregulated• Upcoming amendments to Insurance Act (July 1) willmandate some wording contents (Statutory Conditions,Innocent Co-insureds, etc.)• Insurance Bureau of Canada (IBC) has issued“standard form” policy wording/forms etc. but insurerscan (and do) modify• Brokers frequently use “manuscript” wordings25


Project Insurance: What’s Covered and What Isn’t….CCDC 2 – 2008 insurance requirements (cont'd)• So, significant variations in wordings can and do occurin the insurance industry• CCDC 2 – 2008/CCDC 41 mandates coverage notless than IBC Forms 2100/2320 (liability) and4042/4047 (property) but additions to/variations ofthese coverages can and do occur• Owners can (and often do) substantially modify theproject insurance requirements by way of their own“Supplemental General Conditions”26


Project Insurance: What’s Covered and What Isn’t….Principles of Policy Interpretation• Bear in mind when examining wordings (if anyoneever reads the wordings anyway?)• “One must always be alert to the unequal bargainingpower at work in insurance contracts, and interpretsuch policies accordingly.”(Lloyds v. Scalera, 2000 S.C.C.)27


Project Insurance: What’s Covered and What Isn’t….Principles of Policy Interpretation (cont'd)• “Insurers have language available to them that wouldremove all ambiguity from the meaning of anexclusion … if an insurer wishes to exclude coverage,the insurer must expressly state it.”(Derksen v. 539938 Ontario Ltd., 2001 S.C.C.)28


Project Insurance: What’s Covered and What Isn’t….Principles of Policy Interpretation (cont'd)• “It must be remembered that the policy itself isdrawn by the insurance company. It is theinsurance company that chooses the languagewhich sets out the terms and conditions of thepolicy. That language is not always a model ofclarity which can be readily understood bylaypersons. The policy is not negotiated betweenthe parties. Rather, it is submitted to a potentialpolicy holder on a take-it-or-leave-it basis….”(Brissette Estate v. Westbury Life, 1992 S.C.C.)29


Project Insurance: What’s Covered and What Isn’t….Principles of Policy Interpretation (cont'd)• “It is necessary to interpret insurance contracts asthey would be understood by the average personapplying for insurance, and not as they might beperceived by persons versed in the niceties ofinsurance law.”(National Bank of Greece v. Katsikonouris, 1990 S.C.C.)30


Project Insurance: What’s Covered and What Isn’t….Principles of Policy Interpretation (cont'd)• Progressive Homes Ltd. v. Lombard GeneralInsurance, 2010 S.C.C. 33:– “The focus of insurance policy interpretation should firstand foremost be on the language of the policy at issue…”– “When the language of the policy is unambiguous, theCourt should give effect to the clear language, readingthe contract as a whole…”31


Project Insurance: What’s Covered and What Isn’t….Principles of Policy Interpretation (cont'd)– “Interpret the policy in the order of coverage, exclusionsand then exceptions…”– “Courts should prefer interpretations that are consistentwith the reasonable expectations of the parties… [and]should avoid interpretations that would give rise to anunrealistic result…”– “Similar insurance policies should be construedconsistently [by the Courts]…”32


Project Insurance: What’s Covered and What Isn’t….Principles of Policy Interpretation (cont'd)– Ambiguities will be construed against the insurer and inthat regard, “coverage provisions are interpreted broadlyand exclusion clauses narrowly…”• Some industry observers (mostly insurers) think theCourts are too quick to find perceived ambiguities inpolicy wordings and resolve them against insurers33


Project Insurance: What’s Covered and What Isn’t…Principles of Policy Interpretation (cont'd)• New Insurance Act provision (July 1st, 2012):“If a contract contains a … term … that is or may bematerial to the risk … [it] is not binding on the insured if itis held to be unjust or unreasonable by the Court beforewhich a question relating to it is tried.”• Another possible weapon for circumventing policyexclusions/warranties?34


Project Insurance: What’s Covered and What Isn’t….Property Insurance Highlights• CCDC 2 / CCDC 41 mandate property coverage “notless than the insurance provided by IBC Forms 4042and 4047”• Form 4042 is “Builders Risk Broad Form” coverage• Form 4047 is a “Builders Risk Policy CCDCEndorsement” imposing additional terms, amendmentsand definitions35


Project Insurance: What’s Covered and What Isn’t….Property Insurance Highlights (cont'd)• CCDC 41 (“insurance requirements” document)affirms that the contractor is not required to provideinsurance coverage for the matters covered by theexclusions in the Builders Risk Broad Form Policy• So what is not insured?36


Project Insurance: What’s Covered and What Isn’t….Property Insurance Highlights (cont'd)• Who is insured?– The Builders Risk Form insures “property in the courseof construction, installation, reconstruction or repairowned by the Insured or by others (provided the valueof such property is included in the amount of insurance)all to enter into and form part of the completed project(described on the Declarations Page) includingexpendable materials and supplies, temporarybuildings, scaffolding, excavation, site preparation andsimilar work”37


Project Insurance: What’s Covered and What Isn’t….Property Insurance Highlights (cont'd)– The “Insured” is not defined but will be set out on theDeclarations Page– CCDC 2 2008 General Condition 11.1.1.4 requires theinsurance to be in the “joint names of the Contractor,the Owner and the Consultant” and the Policy to“include as insureds all Subcontractors38


Project Insurance: What’s Covered and What Isn’t….Property Insurance Highlights (cont'd)– IBC Form 4047 also amends the Policy with an“Additional Insureds” clause which reads:“All contractors and/or all subcontractors are addedas Additional Insureds. This does not includesuppliers who perform no work at the constructionsite, consulting engineers or consulting architects”39


Project Insurance: What’s Covered and What Isn’t….Property Insurance Highlights (cont'd)• “All Risk” Coverage Does Not Ensure All Risks– Coverage under the Builders Risk policy is “against allrisks of direct physical loss of or damage to the propertyinsured”– Query: Do the words “direct physical” qualify both thewords “loss of” and “damage to”? (some cases haveheld no!)40


Project Insurance: What’s Covered and What Isn’t….Property Insurance Highlights (cont'd)– The policy contains numerous exclusions, i.e., nocoverage for:• Contractor’s tools and equipment• Damage to electrical equipment caused byelectrical currents including arcing• The cost of making good faulty or impropermaterial / workmanship / design (more below)• Penalties for non-completion or delay41


Project Insurance: What’s Covered and What Isn’t….Property Insurance Highlights (cont'd)• Increase in replacement cost caused by bylaws• Latent defect or inherent vice• Damage caused by mechanical or electricalbreakdown• Damage caused by frost or freezing• Damage caused by dampness, changes oftemperature, leakage, etc.42


Project Insurance: What’s Covered and What Isn’t….Property Insurance Highlights (cont'd)• Damage caused by “pollutants”, etc.– Allocation of risk for all of these uninsured typesof losses should be addressed in theconstruction contract… who will be responsiblefor what?43


44Faulty Workmanship, Materials, or Design?


Project Insurance: What’s Covered and What Isn’t….The Faulty Workmanship / Design Exclusion• The exclusion reads:“This policy does not insure:(a) the cost of making good:(i) faulty or improper material(ii) faulty or improper workmanship(iii) faulty or improper design,Provided, however, to the extent otherwise insured andnot otherwise excluded under this policy resultantdamage to the property is insured”45


Project Insurance: What’s Covered and What Isn’t….• What is “resultant damage”?• Where do you draw the line between the property that isfaultily designed and “other property” which is damagedas a consequence?• Triple Five Corp. v. Simcoe & Erie Group, 1997 Alta. CA- all risk policy for rollercoaster complex at West EdmontonShopping Mall- rollercoaster car left track causing physical damage, injuryand death46


Project Insurance: What’s Covered and What Isn’t….- “the [resultant damage] exception requires the Court toengage in an exercise of line-drawing among thevarious properties of the insured covered by the policy.The [insured] accepts that the test for “otherness” iswhether two properties are a single integratedstructure, a test that raises, as the [insured] concedes,a question of fact whether two things are so closelyinter-related as to be one. An example from this caseof resulting damage to other insured property arosewhen the car left the track and hit other property, suchas the walls and the like.”47


Project Insurance: What’s Covered and What Isn’t….- the Court held there was no coverage for the (huge)cost of re-designing the rollercoaster nor for the(huge) business interruption loss that resulted.Damage to the walls (minor) was covered.• If you are building a bridge and, nearingcompletion, the substructure fails because of faultyworkmanship or design and the whole bridgecollapses, what is covered? (Maybe nothing!)48


Project Insurance: What’s Covered and What Isn’t….• IBC Form 4047 (the additional form mandated byCCDC 2 – 2008) actually attempts to define the extentof what is excluded and what is covered:“Resultant Damage” shall mean physical damage to theinsured property other than the cost of rectifying thedefault or fault that caused the physical damage. Thecost of rectifying the defect or fault (the cost of makinggood) shall be the cost which the Insured would haveincurred to do so had such defect or fault beendiscovered immediately before the physical damageoccurred and rectified at that time.”49


Project Insurance: What’s Covered and What Isn’t….• This definition increases builder’s risk coveragebeyond what many of the Court rulings have heldrespecting the faulty design/workmanship exclusion,i.e. to also exclude costs of repair of collapse causedby faulty design.50


Project Insurance: What’s Covered and What Isn’t….Waiver of Subrogation• Immunity from lawsuits arising from damage to theproject while under construction is the result of,- the agreement in the construction contract to obtaininsurance;- the fact that the builder’s risk policy insures the interestsof all persons involved in the project (Owner, Contractor,Sub-Contractors, Consultants); and51


Project Insurance: What’s Covered and What Isn’t….Waiver of Subrogation (cont'd)- express waivers of subrogation in the policy itself• “The Insurer, upon making any payment or assumingliability therefore under this Policy, shall be subrogatedto all rights of recovery of the Insured against othersand may bring action to enforce such rights.Notwithstanding the foregoing, all rights of subrogationare hereby waived against any corporation, firm,individual and other interest with respect to whichinsurance is provided by this Policy.”52


Project Insurance: What’s Covered and What Isn’t….Waiver of Subrogation (cont'd)• However, the rights to pursue recovery fromprofessional designers are expressly reserved by IBCForm 4047• “With respect to coverage provided for “ResultantDamage” from a fault or defect in design, the Insurer(s)hereby retains its full rights of subrogation against anyarchitect, engineer or other consultant if insured by thisPolicy who is responsible for such fault or defect.”53


Project Insurance: What’s Covered and What Isn’t….Waiver of Subrogation (cont'd)• What contractual limitations apply to claims versusprofessionals? How much insurance will they have?54


Project Insurance: What’s Covered and What Isn’t….Liability Insurance Highlights• GC 11.1.1 and CCDC 41 mandate:- General liability insurance not less than the coverageprovided by IBC Forms 2100/2320- Owner and Consultant to be additional insureds as wellas Contractor (no sub-contractors)- coverage for Owner/Consultant only for their liability“arising out of the operations of the Contractor, other thanlegal liability arising out of their sole negligence” (notinsured for their own negligence?); and55


Project Insurance: What’s Covered and What Isn’t….Liability Insurance Highlights (cont'd)- “completed operations hazard” coverage for 6 years(!!)following substantial performance• IBC 2100 is the Standard Commercial General Liability(CGL) policy (wording was substantially revised in 2005by IBC)56


Project Insurance: What’s Covered and What Isn’t….Liability Insurance Highlights (cont'd)• CGL policies provide coverage for,- Coverage A: bodily injury and property damage liability(more below)- Coverage B: personal and advertising injury liability- Coverage C: medical payments- Coverage D: tenants’ legal liability57


Project Insurance: What’s Covered and What Isn’t….Liability Insurance Highlights (cont'd)• CGL insurance is also “litigation cost insurance” (alsothe most important part)• Policy requires insurer to defend anylawsuits/arbitrations against the Insured seekingdamages of a sort covered by the Policy• the costs of defending this litigation (often verysubstantial) are payable by the Insurer in addition to thestated limits of coverage58


Project Insurance: What’s Covered and What Isn’t….Who is Insured?• The CGL policy insures the “Named Insured” in thePolicy Declarations as well as any other persondescribed in “Section II – Who Is An Insured”• for a Named Insured corporation, such extra insuredsinclude employees, executive officers, directors andeven shareholders• IBC Form 2320 is the Endorsement by which“Additional Insureds” are added to the Policy, i.e. theproject owner and consultant:59


Project Insurance: What’s Covered and What Isn’t….Who is Insured? (cont'd)“Each of the following is also to be included as an Additional Insuredbut only with respect to liability arising out of or attributable to thework of the Named Insured shown above, as described below . . .(insert names)”• debate in the case law about nature/extent of coverage forsuch Additional Insureds . . . do the words “arising out of”provide coverage for the Additional Insureds own/separatenegligence? (probably yes)• each entity usually has their own liability (CGL) coverage too,so “overlapping coverage” disputes often arise.60


Project Insurance: What’s Covered and What Isn’t….Coverage for Building Deficiency Liability Claims (cont'd)• CGL Liability coverage for “property damage” claimsextends to the Insured’s:- legal obligation to pay,- “compensatory damages”,- because of “property damage” (physical injury to orloss of use of tangible property),- occurring during the policy period,- which was not previously known to the Insured, and- which is caused by an “occurrence” (basically, anaccident).61


Project Insurance: What’s Covered and What Isn’t….Coverage for Building Deficiency Liability Claims (cont'd)• The policy also contains a variety of so-called“business risk” exclusions and no coverage for:– pure contractual liabilities (unless liability also exists intort),– damage to that particular part of real property on whichyour Contractor/Sub-Contractors are working (notepresent tense)– that particular part of any property that must be restored,repaired or replaced because your “work” wasincorrectly performed on it (but this exclusion does notapply once the work is completed)62


Project Insurance: What’s Covered and What Isn’t….Coverage for Building Deficiency Liability Claims (cont'd)- damage to your “work” arising out of it or any part of it,(unless such work was performed on the Insured’s behalfby a sub-contractor)- claims for property that has not been physically injuredarising out of a defect in your “work” or a failure toperform a contract in accordance with its terms63


Project Insurance: What’s Covered and What Isn’t….Coverage for Building Deficiency Liability Claims (cont'd)• CGL insurers have often denied coverage for BuildingDeficiency liability claims arguing,– defective workmanship is not an “accident”,– defective work is not “property damage”,– the “business risk” exclusions applied, and– a “CGL Policy is not meant to be a performance bond”argument.64


Project Insurance: What’s Covered and What Isn’t….Coverage for Building Deficiency Liability Claims (cont'd)Progressive Homes Ltd. v. Lombard General Insurance,2010 SCC 33:- leaky condo claim against general contractor,- Contractor’s CGL insurer denied coverage, invoking all of theabove reasons,- Supreme Court ruled the liability insurer must defend thelitigation (at the Insurer’s cost) because some or part of theclaims might possibly fall within coverage, reasoning,- “the definition of “property damage” may not categoricallyexclude “defective property”,65


Project Insurance: What’s Covered and What Isn’t….Coverage for Building Deficiency Liability Claims (cont'd)- “a defect can amount to “physical injury”, especially where theharm to the property is “physical” in the sense that it is visibleor apparent [or] where the defect renders the property entirelyuseless”,- “there is no categorical bar to concluding in any particularcase that defective workmanship is an accident” . . .[indeed]the allegations of negligence “suggest that the damage wasfortuitous”, and meet the coverage requirements,- the sub-contractor exception to the “work” exclusion applies,- “the Pleadings also describe defective property, which mayalso be “property damage”: e.g., improperly built walls,inadequate ventilation system, poorly installed windows.Where the specific property actually falls within the definitionof “property damage” [at the end of the day] is a matter to bedetermined on the evidence at trial . . .Lombard owes a duty todefend”.66


Project Insurance: What’s Covered and What Isn’t….Coverage for Building Deficiency Liability Claims (cont'd)• Result: CGL Insurers are now compelled to defendBuilding Deficiency claims . . . remains to be seen howmuch coverage may exist for actual judgments.67


Project Insurance: What’s Covered and What Isn’t….Overlapping Coverage Issues• Many sources of overlapping coverage:- contractual requirements to obtain insurance for others (e.g.,constructions contracts, leases, etc.)- expansive definitions of "Insureds" in Policy and/or AdditionalInsured Endorsements- Associations buying group insurance for members- such people often have their own separate insuranceavailable too• How to resolve priorities?68


Building Deficiency Claim Coverage ScenarioExcess#1Excess#2Excess#3Wrap-Up(24 monthscompleted operations)E & O ?PolicyYear1 2 3 4 5 6 7 8 9CGL #1(4 years /$4 Million)CGL #2(3 years /$3 Million)CGL #3(1 year /$1 Million)CalendarYear20052006 2007 '08 '09 '10 '11 2012 2013FINISHCONSTRUCTIONSTARTSTARTREMEDIATIONFINISH69


Project Insurance: What’s Covered and What Isn’t….Overlapping Coverage Issues (cont'd)• Family Insurance v. Lombard Canada, 2002 SCC 48:- where an insured is covered under more than one policy,Insured can select the policy under which to claimcoverage (subject to any policy conditions to thecontrary);- that Insurer, in turn, is entitled to obtain contribution fromall other insurers who have also covered the same risk;- in doing so, the Court will review the “other insurance”clauses contained in the polices;70


Project Insurance: What’s Covered and What Isn’t….Overlapping Coverage Issues (cont'd)- If those clauses can be reconciled, they will be enforced;- where the competing clauses cannot be reconciled (e.g.,both say their coverage is excess only), then both clausesare inoperative;- in such situations, each Insurer is independently liable to theInsured but as between themselves, the loss is borne equallyby each Insurer.• Most Insurers/Sub-Contractors/Consultants will have theirown liability insurance in addition to the project liabilityinsurance obtained by contact;71


Project Insurance: What’s Covered and What Isn’t….Overlapping Coverage Issues (cont'd)• Hence, almost invariably, multiple policies andoverlapping coverage issues will exist;• Insured gets to select which Insurer he wants to “tag”.72


4. Conclusion• The whole point of the exercise is risk allocation.• Exposures must be determined having regard to:1. the construction contract clauses, and2. the available insurance coverages.• The small print in the contracts must be very carefullyreviewed.• Using insurance professionals (brokers) who have in-depthconstruction insurance expertise is critical.73


Conclusion….• Ask your broker to review the contracts and then pose thequestion: “okay, thanks for the project CGL and so-called“all-risk” property policy, now tell me, what are the majorrisks/exposures for which I am not covered under thisinsurance”?• If they can’t or won’t answer, find another broker!74


THANK YOUPresented by Nigel P. Kentnpk@cwilson.com | 604.643.3135www.cwilson.com

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