(CGL) Policy

Faulty workmanship and the CGL policy 6occurring during the policy period;caused by an “occurrence” as defined;taking place in the “coverage territory”;for which the insured is legally obligated to pay compensatorydamages.25 As it is well-established that the term “occurrence” includes the insured’snegligence 8 , it is not uncommon for insured to take the position that lawsuits bycustomers seeking the costs of making good faulty workmanship or replacing adefective product are covered pursuant to the CGL policy’s “property damage”coverage.26 Assuming the claim is one for compensatory damages and that the otherterms and conditions of the policy have been met, it is first necessary todetermine if the claim is one for “property damage”.27 The issue of what constitutes “property damage” has been considered innumerous contexts. It is often said that claims for pure economic loss are notcovered by the CGL policy because no injury to or destruction of property or lossof use of property is involved. It is important to recall, however, that in someinstances the definition of “property damage” extends coverage to claims forinjury to or loss of use of intangible property. Where this is the case, courts havefound that impairment of intangible property interests such as goodwill doestrigger coverage under the CGL policy. 9 In such cases, the definition of “propertydamage” was not restricted to physical injury to tangible property or loss of use oftangible property. It is important to note, however, that the current IBC CGLwording does define “property damage” by reference to tangible property.28 In Bird Construction Co. v. Allstate Insurance Co. of Canada 10 it was heldthat a contractor could be held liable in tort to subsequent purchasers for thecosts required to make a building safe where there was a substantial danger tothe health and safety of its occupants and notwithstanding the fact that no injuryhad occurred. Does this liability trigger the “property damage” coverage in theCGL policy?29 The answer is no, as the fact that a contractor is potentially liable for thecosts of making a building safe does not mean that the insurer has to indemnify itwhere there is no “property damage” or “bodily injury” alleged. 11 Indeed, theliability imposed by the Supreme Court in Bird Construction, supra, was in view ofpotential property damage or bodily injury.30 The Alberta Court of Queen’s Bench in Raylo Chemicals, Inc. v. AXAPacific Ins. Co. 12 recently considered a claim against an insured under a CGLpolicy by a contractor who had been hired to effect certain additions andrenovations to the insured’s manufacturing plant. The contractor alleged that89101112Canadian Indemnity Co. v. Walkem Machinery Limited, [1976] 1 S.C.R. 309, 3 N.R. 523, 53 D.L.R.(3d) 1, [1975] 5 W.W.R. 510, [1975] I.L.R. 1-654 (SUB NOM. Straits Towing Ltd. v. Washington IronWorks).Blanchard v. Halifax Insurance Co. (1996), 40 C.C.L.I. (2d) 258 (N.B.Q.B.).[1995] 1 S.C.R. 85.Bird Construction Co. v. Allstate Insurance Co. of Canada (1996), 36 C.C.L.I. (2d) 29 (Man. C.A.).(1999), 242 A.R. 45 (Q.B.).

Faulty workmanship and the CGL policy 7because the insured had breached the contract or was negligent, it incurredincreased expense and employed additional labour and materials to carry outand complete the work it had contracted to do. Although the policy at issue didnot define “property damage”, the court had no difficulty in concluding that nonehad been alleged and therefore coverage was not triggered.31 The court held that the policy required that there be an allegation that theclaimant had suffered damages wholly or partly as a result of injury to ordestruction of property or loss of a right in property. In this case, the claim wasfor pure economic loss unrelated to any such injury to or destruction of propertyor loss of a right in property. As the court pointed out, depending on what thepolicy wording says, there may be coverage for claims against the insuredseeking damages as a result of the impairment of intangible property rights. 13This was not the case here, however. The court also noted that before examiningthe CGL policy’s exclusions, it is first necessary to determine that the claim isone for covered “property damage”, or alternatively “bodily injury”. It is only oncethis threshold has been crossed that it is incumbent on the insurer to prove thatthe claim is withdrawn from coverage as a result of an exclusion.32 In this respect, one should be mindful of the oft-stated principle ofinsurance policy interpretation whereby provisions granting coverage are to beinterpreted broadly while exclusions are to be interpreted narrowly.33 We turn now to the six principal exclusions to be considered in relation tofaulty workmanship claims. We address these in the order they appear in thepolicy (and not necessarily by order of importance).A. Contractual Liability34 The purpose of this exclusion is to withdraw coverage for claims allegingbreach of contract, where such liability would not exist were it not for the contractand with the exception of an “insured contract”. The exclusion reads as follows:35 This insurance does not apply to:36 […] “Bodily injury” or “property damage” for which the insured isobligated to pay compensatory damages by reason of the assumption ofliability in a contract or agreement. This exclusion does not apply toliability for compensatory damages:37 1) Assumed in a contract or agreement that is an “insured contract”, or38 2) That the insured would have in the absence of the contract oragreement.39 The definition of “insured contract” includes the following:40 “Insured contract” means:41 g. That part of any other contract or agreement pertaining to yourbusiness under which you assume the tort liability of another to paycompensatory damages because of “bodily injury” or “property damage”to a third person or organization, if the contract or agreement is madeprior to the “bodily injury” or “property damage”. Tort liability means a13See, for example, Hildon Hotel (1963) Ltd. v. Dominion Ins. Corp. (1968), 1 D.L.R. (3d) 214(B.C.S.C.).

Faulty workmanship and the CGL policy 949 In Yacht Harbour Pointe Development Corp. v. Architectura Waiseman 16 ,the court dealt with a definition of “insured contract” which was not restricted tothe assumption of another’s tort liability. As a result, a suit alleging breach ofwarranty of fitness against the owner of a residential building was held not to bewithdrawn from coverage although the liability was contractual. In the result, thecourt held that the claim was not covered for other reasons.It is also important to recall that the definition of “insured contract” does notcreate an additional insured under the CGL policy. It only extends coverage tothe insured for its liability to others as a result of assuming the tort liability of athird person. It is this vicarious liability of the insured that is the object of thedefinition of “insured contract”.50 As a final note, there is an important exception in the definition of “insuredcontract”. It does not apply to agreements to indemnify an architect, engineer orsurveyor for their professional liability. It may, however, extend to other types ofindemnification agreements, even with an architect, engineer or surveyor, whichdo not fall into one of the two categories of professional services which areexcluded from the definition, i.e. “preparing, approving or failing to prepare orapprove maps, drawings, opinions, reports, surveys, change orders, designs orspecifications”; or, “giving directions or instructions, or failing to give them, if thatis the primary cause of the injury or damage”.B. Damage to Ongoing Work51 The next exclusion which may be relevant in cases alleging faultyworkmanship is that which applies to “property damage” occurring before thework is completed. Exclusion h. in the current IBC CGL policy contains much ofwhat was included under the old Broad Form Property Damage Endorsementwhich was often issued along with the Comprehensive General Liability policy.There are, however, differences between the two exclusionary clauses whichmay take on greater or lesser importance depending on the facts in dispute. Thecurrent exclusion excludes both risks which are insured under some form of firstparty property insurance and “business risks” arising out of ongoing work. Theexclusion reads as follows:52 This insurance does not apply to:53 […] h. “Property damage” to:54 1) Property you own, rent or occupy;55 2) Premises you sell, give away or abandon, if the “property damage”arises out of any part of those premises;56 3) Property loaned to you;57 4) Personal property in your care, custody or control;58 5) That particular part of real property on which you or any contractor orsubcontractor working directly or indirectly on your behalf is performingoperations, if the “property damage” arises out of those operations; or59 6) That particular part of any property that must be restored, repaired orreplaced because “your work” was incorrectly performed on it.16(1999), 12 C.C.L.I. 156 (B.C.S.C.).

Faulty workmanship and the CGL policy 1060 Paragraph 2) of this exclusion does not apply if the premises are “yourwork” and were never occupied, rented or held for rental by you.61 Paragraphs 3), 4), 5) and 6) of this exclusion does not apply to liabilityassumed under a sidetrack agreement.62 Paragraph 6) of this exclusion does not apply to “property damage”included in the “products-completed operations hazard”.63 The term “your work” is defined as follows:64 “Your work” means:65 a. Work or operations performed by you or on your behalf; and66 b. Materials, parts or equipment furnished in connection with such workor operations.67 “Your work” includes warranties or representations made at any time withrespect to the fitness, quality, durability or performance of any of theitems included in a. or b. above.68 Finally, the definition of “products-completed operations hazard” provides,in part, as follows:69 “Products-completed operations hazard” includes all “bodily injury”and “property damage” occurring away from premises you own or rentand arising out of “your product” or “your work” except:70 1) Products that are still in your physical possession; or71 2) Work that has not yet been completed or abandoned.72 Those parts of the exclusion which are particularly relevant to claimsalleging faulty workmanship are contained in paragraphs h.4), 5) and 6).73 The care, custody or control exclusion in paragraph h.4) is intended towithdraw from coverage the risk of “property damage” inherent in the business ofstorage, repair, service or delivery. After all, these are risks which can be insuredunder various forms of first party property insurance.74 Despite some authority to the contrary from the Newfoundland courts 17 ,the prevailing view appears to be that paragraph h.4) refers to “personalproperty” in the legal sense. 18 Loosely translated into civil law terms, this meansmovable property.75 In a recent Quebec Superior Court decision, the court held that the term“care” in the context of a “care, custody or control” exclusion should not be givensuch a broad interpretation so as to withdraw coverage for the alleged failure byan insured to exercise reasonable care of property. 19 In that case, the insuredwas sued for damages resulting from the theft of leather which it had received171819See Day & Ross (Nfld.) Ltd. v. Ins. Corp. of Newfoundland (1987), 44 D.L.R. (4 th ) 343, 29 C.C.L.I.112, 66 Nfld. & P.E.I.R. 304, 204 A.P.R. 394 (Nfld. C.A.); Strangemore’s Electrical Ltd. v. Ins. Corp. ofNewfoundland Ltd. (1997), 151 Nfld. & P.E.I.R. 317, 471 A.P.R. 317, [1997] I.L.R. 1-3475, 43C.C.L.I. (2d) 322 (Nfld. T.D.).See Heather SANDERSON, Robert EMBLEM and Lyle WOODLEY, Commercial General LiabilityInsurance (Toronto and Vancouver: Butterworths, 2000) at p. 161.Harrison v. Cuirs Sal-Tan Inc., [2000] J.Q. no. 1640 JEL/2000-1558, No. 500-05-005473-911 (underappeal).

Faulty workmanship and the CGL policy 11from a customer for tanning. While the court had no difficulty in accepting theinsurer’s argument that allegations of negligence made against the insured asbailee having the custody and control of a client’s leather were excluded, otherallegations referring to the reasonable care of the leather it should haveexercised were not withdrawn from coverage. A contrary interpretation wouldwithdraw coverage for the insured’s principal activity which in this case wastanning leather.76 The next two branches of the exclusion which are particularly relevant tofaulty workmanship claims seek to withdraw coverage for “property damage”occurring before the work is completed. In order to determine whether or not thework is completed, it is necessary to review the contract documents and thefacts. The definition of “products-completed operations hazard” provides thefollowing in this regard:77 […] b) “Your work” will be deemed completed, at the earliest of thefollowing times:78 1) When all of the work called for in your contract has been completed.79 2) When all of the work to be done at the site has been completed ifyour contract calls for work at more than one site.80 3) When that part of work done at a job site has been put to its intendeduse by any person or organization other than another contractor orsubcontractor working on the same project.81 Work that may need service, maintenance, correction, repair or replacement,but which is otherwise complete, will be treated as completed.82 The issue has been the source of frequent litigation and is discussedbelow in connection with the “work performed” exclusion. As we shall see, it is animportant one as the “work performed” exclusion (which applies to completedwork) does not bar claims for “property damage” to an insured’s subcontractor’swork arising from faulty workmanship. There is no such exception in the on-goingwork exclusion, however.83 Paragraph h.5) withdraws coverage for “property damage” to thatparticular part of real property on which the insured or its subcontractor isworking. This is a risk intended to be covered by a form of first party propertyinsurance known as “Builder’s Risk” insurance. Builder’s Risk insurance typicallycovers the owner, general contractor and subcontractors to the extent of theirrespective insurable interests in what is being constructed and in any materialsthat are to become part of the completed structure. The coverage period spansthe period of construction and comes to an end when the project is completed.Builder’s Risk policies usually contain an exclusion for faulty workmanship. Atypical clause reads as follows:84 This policy does not insure the costs of making good faulty or defectiveworkmanship, material, construction or design, but this exclusion shallnot apply to damage resulting from such faulty or defective workmanship,material, construction or design. 2020See Heather SANDERSON, Robert EMBLEM, Lyle WOODLEY, Commercial General InsuranceLiability, (Toronto and Vancouver: Butterworths 2000) at page 163.

Faulty workmanship and the CGL policy 1285 It has been frequently argued that the exception to this exclusion (i.e.“damage resulting from such faulty or defective workmanship, material, constructionor design”) should be interpreted in a manner which does not withdrawcoverage for the cost of redoing work due to faulty workmanship. Courts haveheld, however, that the exception is very narrow and that a construction projectwill not be broken down into its various component parts in order to whittle awayat the scope of the faulty workmanship exclusion in Builder’s Risk policies. 2186 Given that recourse under a Builder’s Risk policy for the cost of redoingfaulty ongoing work is barred, the question arises as to whether there may becoverage under the CGL policy. As a result of paragraph h.5), however, suchclaims are excluded to the extent that they seek damages to remedy shoddywork on an ongoing construction project caused either by the insured or itssubcontractor. If, however, the shoddy work causes property damage to anotherpart of the real property (other than that “particular part” on which the insured orits contractor is working), then claims for consequential damages would not beexcluded as a result of paragraph h.5). The term “real property” is used in thelegal sense, translated loosely into civil law terms as immovable property.87 The question as to what the phrase “that particular part of real property”means has been dealt with in a number of U.S. cases. It appears from thesecases that if there is evidence that the construction work encompassed the wholeof the building or property, then damage to any part of such building or propertywill fall within the exclusion. Hence, where the insured agreed to renovate aclient’s apartment and the renovations extended to all of its component parts, aclaim alleging fire and smoke damage which occurred before the renovationproject was completed was withdrawn from coverage as a result of the exclusiondespite the fact that the damage affected parts of the apartment which were notin fact being worked on at the time. 2288 In another case where an insured had damaged windows in attempting toclean them of dirt and mortar which had coated them following masonry andfireplace work undertaken at the claimant’s house, the insurer was held to havebeen justified in relying on the ongoing work exclusion. The work on the windowswas incidental to the masonry and fireplace contract and therefore within thephrase “that particular part of real property” on which the insured was working. 2389 Paragraph h.6) refers to that particular part of property, whether real orpersonal, that must be restored, repaired or replaced because “your work” wasnot correctly performed on it. Like paragraph h.5), this exclusion only applies toongoing work. This is clear as a result of the last paragraph in exclusion h. which212223Simcoe & Erie General Ins. Co. v. Royal Ins. Co. of Canada (1982), 19 Alta. L.R. (2d) 133, [1982] 3W.W.R. 628, 36 A.R. 553, [1983] I.L.R. 1-1597 (Q.B.), aff’d. without written reasons (September 7,1983) (C.A.), leave to appeal to the S.C.C. refused (1983), 51 N.R. 158n; Poole Construction Ltd. v.Guardian Assur. Co. (1977), 4 A.R. 417, [1977] I.L.R. 1-879 (S.C.); University of Saskatchewan v.Fireman’s Fund Ins. Co. of Canada (1997), 158 Sask. R. 223, 153 W.A.C. 223, [1998] 5 W.W.R. 276,[1998] I.L.R. 1-3548, 50 C.C.L.I. (2d) 272 (C.A.), leave to appeal to S.C.C. refused, 227 N.R. 287n,168 Sask. R. 320n, 173 W.A.C. 320n; Golden Eagle Canada Ltd. v. American Home Assur. Co.,[1978] C.S. 699.William Crawford, Inc. v. Travelers Ins. Co., 838 F. Supp. 157 (S.D.N.Y. 1993).Alverson v. Northwestern Nat. Cas. Co., 559 N.W. 2d 234 (S.D. 1997).

Faulty workmanship and the CGL policy 13specifically states that paragraph 6) does not apply to “property damage”included in the “products-completed operations hazard”.90 As a result of paragraph h.6), claims for damages consisting of the cost torestore, repair or replace that particular part of the property on which the insuredwas working are excluded. As usual, damages to other property are notexcluded, unless the other property is “personal property” in the insured’s care,custody and control in which case the claim would be withdrawn as a result ofparagraph h.4).91 An example of how this particular exclusion has been interpreted isprovided by Economy Lumber Co. v. Ins. Co. of North America. 24 In that case,the insurer was alleged to have supplied defective siding which was installed ona number of houses. The court held that as a result of the phrase “that particularpart of any property” in the exclusion, a claim for damages to the houses whichwas separate from the claim for the cost of replacing the siding was notwithdrawn from coverage. After all, the insured had merely provided the sidingand had done no other work on the houses.92 In Kildonan Tree Service Ltd. v. The Sovereign General InsuranceCompany 25 , a tree trimming company sought coverage under its ComprehensiveGeneral Liability Insurance policy for a claim against it for mistakenly removingtrees. It had been hired to trim trees to within four meters of hydroelectric linesbut proceeded to cut down four trees without obtaining the consent of theproperty owners. The insurer denied coverage on the basis of a number of exclusionsfor claims arising out of the insured’s faulty workmanship. The court heldthat the exclusions did not apply as the claims did not result from faulty workmanship.The trees were cut down very carefully and no issue of workmanshipwas involved. Despite differences in wording between the exclusions consideredin this case and the relevant exclusions in the current IBC CGL policy, thedecision presents an interesting view of what faulty workmanship means.C. Your Products93 The standard form CGL policy also contains a “products” exclusion whichreads as follows:94 This insurance does not apply to:95 […] “Property damage” to “your product” arising out of it or any part of it.96 The term “your product” is defined as follows:97 a. Any goods or products, other than real property, manufactured, sold,handled, distributed or disposed of by:98 (1) You;99 (2) Others trading under your name; or100 (3) A person or organization whose business or assets you haveacquired; and2425204 Cal. Rptr. 135 (Ct. App. 1984)[1998] I.L.R. 1-3546 (Man. Q.B.)

Faulty workmanship and the CGL policy 14101 b. Containers (other than vehicles), materials, parts or equipmentfurnished in connection with such goods or products.102 “Your product” includes warranties or representations made at any timewith respect to the fitness, quality, durability or performance of any of theitems included in a. and b. above.103 “Your product” does not include vending machines or other propertyrented to or located for the use of others but not sold.104 It is important to note that this exclusion does not apply to real property(or immoveables, as the term loosely translates in civil law terms). Hence, issueswhich used to arise under the Comprehensive General Liability policy as towhether a building was a “product” and whether damages caused to the buildingwere excluded by the predecessor to the current “products” exclusion may nolonger be relevant as far as the current exclusion is concerned (see, for example,Privest Properties Ltd. v. Foundation Co. of Canada 26 ).105 The scope of the “products” exclusion is wider than that of the “workperformed” exclusion. In effect, the “work performed” exclusion does not apply to“property damage” to completed work performed by subcontractors even if thedamage is the result of the latter’s faulty workmanship. 27 If, however, what isbeing considered is a “product”, a subcontractor’s defective work product isexcluded. In both cases, damage to other property by reason of a subcontractor’sfaulty workmanship is not excluded. 28106 The following illustration may help:107 If the insured subcontracts part of its work on a construction project and itturns out after completion that the subcontracted work needs to be redone as aresult of the subcontractor’s faulty workmanship, the insured’s liability to othersfor the costs may be covered (depending on the application of the policy’s otherterms and conditions) because the “work performed” exclusion does not apply towithdraw coverage. If, however, what was being worked on was not real (orimmovable) property, but rather personal (or movable) property, the insured’sliability for the costs of making good a subcontractor’s faulty workmanship isexcluded.D. Your Work108 The “work performed” exclusion reads as follows:109 This insurance does not apply to:110 […] j. “Property damage” to “your work” arising out of it or any part of itand included in the “products-completed operations hazard”.262728(1991), 57 B.C.L.R. (2d) 88, [1991] I.L.R. 1-2731, 6 C.C.L.I. (2d) 23 (S.C.).Kalchthaler v. Keller Construction Co., 591 N.W. 2d 169 (Wis. App. 1999); Maryland CasualtyCompany v. George Wayne Reeder, 221 Ca. App. 3d 961 (1990).See, for example, Ocean Construction Supplies Ltd. v. Continental Insurance Co., [1978] 5 W.W.R.681, [1978] I.L.R. 1-1035 (B.C. S.C.), aff’d, [1981] 1 W.W.R. 60, 21 B.C.L.R. 194 (C.A.); see alsoGulf Plastics Ltd. v. Cornhill Ins. Co. (1990), 47 B.C.L.R. (2d) 379, 46 C.C.L.I. 144, [1990] I.L.R. 1-2644 (S.C.).

Faulty workmanship and the CGL policy 15111 This exclusion does not apply if the damaged work or the work out ofwhich the damage arises was performed on your behalf by a subcontractor.112 We have already discussed the importance of the distinction between the“work performed” exclusion and the “products” exclusion. In effect, the “workperformed” exclusion contains an exception for suits against the insured for thecosts of redoing shoddy work performed by a subcontractor. As has been notedby an American court, however, an expert retained by the insured to inspect itswork is not a subcontractor within the meaning of this exception to the “workperformed” exclusion. 29 Hence, the failure by an inspector hired by the insured todetect defects in the retaining wall the latter had built did not give rise tocoverage for the costs to repair the insured’s faulty workmanship pursuant to theexception.113 As with the “products” exclusion, it should always be recalled that thisexclusion does not withdraw coverage for claims of damage to other propertyarising out of the insured’s faulty workmanship. 30 An issue which often arises inconnection with the “work performed” exclusion is how to define the scope of thework. After all, the exclusion only withdraws coverage for property damage to“your work”, and not damage to other property. How does one distinguishbetween completed work and other property?114 Generally speaking, the work is defined by the contract under which theinsured was engaged. If the damage is to property within the scope of theinsured’s work as set out in the contract, then the liability for such damage shouldbe withdrawn from coverage by the “work performed” exclusion. 31115 Another issue that often arises is whether the work has been completed.In Conacher Construction Limited v. The Canadian Surety Co. 32 , coverage hadbeen denied to the insured contractor that had been retained to build waterworksand a sewer extension. The contractor carried out the work out by July 16 th ,subject to certain deficiencies set out in a letter dated July 22 nd which were notcorrected until September. It was told that there would be an extension of thecontract and therefore put off completing the deficiencies until that time. In theinterim, it removed its equipment. On August 30 th , an explosion occurred as aresult of a leak from a gas line broken due to the negligence of one of thecontractor’s employees while digging on July 8 th . The insured denied liability onthe basis of an exclusion clause withdrawing coverage for “liability arising out ofconstruction, installation and repair operations of the insured for another aftersuch operations have been completed or abandoned”. The court held that thework was not in fact completed because all the deficiencies had not beencorrected when the explosion occurred. There was a bona fide delay incompleting the contract. As a result, the insurer could not rely on the exclusionand was liable on the policy.116 This case is typical of many older decisions in which the insureds hadpurchased Comprehensive General Liability policies which did not provide for29303132Collett v. Insurance Co. of the West, 75 Cal. Rptr. 2d 165 (Cal. App. 4 Dist. 1998).See, for example, Ultramar Can. v. Demik Construction (1987), 27 C.C.L.I. 161 (Ont. H.C.).See, for example, Jacob v. Russo Builders, 592 N.W. 2d 271 (Wis. App. 1999).(1964), 47 D.L.R. 237 (Alta. C.A.).

Faulty workmanship and the CGL policy 16“products-completed operations coverage”. In other words, claims for bodilyinjury or property damage resulting from the insured’s completed work werespecifically withdrawn from coverage. As a result, these decisions should beapproached with caution as the courts may have been inclined to find in favour ofinsurance coverage by taking a more restrictive view of when the work wascompleted.117 In Canadian General Ins. Co. v Western Pile and Foundation (Ontario)Limited 33 , the Supreme Court of Canada held that an exclusion for completedconstruction operations which was similar to that considered in Conacher, supra,did in fact apply to withdraw coverage in a situation where there were defectswhich the insured was to remedy. In that case, the insured had contracted todrive steel sheet piles for a coffer dam to be constructed by another company.The piles were driven to the prescribed depths by January 29 th , after which theinsured withdrew its men and equipment from the site. A “blow-in” occurred onMarch 5 th at one of the corners of the coffer dam, causing substantial damages.The insured was found liable for the damages as it was found that there was agap in the piles it had driven. The insured sued its general public liability carrierwhich denied liability on the basis of an exclusion withdrawing coverage for“construction, installation or repair operations of the Insured for another aftersuch operations had been completed or abandoned”. The court held that theexclusion indeed applied and that the construction operations were complete,despite the fact that the insured was obliged to maintain the work in perfect orderand repair and remedy any defects which might appear.118 As a final note on this issue, it should be recalled that paragraph 9.b.under the definition of “Products-completed operations hazard” in the IBC CGLpolicy deems the work to be completed at the earliest of:119 1) When all of the work called for in your contract has been completed.120 2) When all of the work to be done at the site has been completed ifyour contract calls for work at more than one site.121 3) When that part of work done at a job site has been put to its intendeduse by any person or organization other than another contractor orsubcontractor working on the same project.122 Work that may need service, maintenance, correction, repair or replacement,but which is otherwise complete, will be treated as completed.123 Further, work that is otherwise complete but which may need “service,maintenance, correction, repair or replacement” is deemed completed.124 What coverage, if any, is available to pay for the costs of removing soundconstruction to gain access to, remove or repair faulty workmanship? The courtshave held that these costs either do not constitute “property damage” caused byan “occurrence” or are withdrawn from coverage by the “products” or “workperformed” exclusions. 343334[1972] S.C.R. 175.Privest Properties Ltd. v. Foundation Co. of Canada (1991), 57 B.C.L.R. (2D) 88, [1991] I.L.R. 1-2737, 6. C.C.L.I. (2d) 23 (S.C.); Carleton Iron Works Ltd. v. Ellis Don Construction Ltd., [1996] I.L.R.1-3373; 8 O.T.C. 287 (Gen. Div.).

Faulty workmanship and the CGL policy 17125 Another question which has arisen is whether costs incurred in investigatingthe cause of the problem in cases involving faulty workmanship triggercoverage under the CGL policy. It would appear that such claims should meetthe same fate as the “rip-and-tear” claims discussed above: investigation costseither do not constitute “property damage” caused by an “occurrence” or arewithdrawn from coverage by the “products” or “work performed” exclusions. 35E. Impaired Property126 The next exclusion to consider in relation to faulty workmanship claims iscalled the “performance” or “impaired property” exclusion. The intent of thisexclusion is to withdraw from coverage claims for damages where the insured’sdefective product or faulty work is incorporated into other property and renders itless useful without actually physically damaging it. This risk that an insured’sproduct or work will not perform as it is intended to is a “business risk” which theCGL policy is not intended to cover.127 The “impaired property” exclusion reads as follows:128 This insurance does not apply to:129 […] k. “Property damage” to “impaired property” or property that has notbeen physically injured, arising out of:130 1) A defect, deficiency, inadequacy or dangerous condition in “yourproduct” or “your work”; or131 2) A delay or failure by you or anyone acting on your behalf to performa contract or agreement in accordance with its terms.132 This exclusion does not apply to the loss of use of other property arisingout of sudden and accidental physical injury to “your product” or “yourwork” after it has been put to its intended us.133 Central to this exclusion is the definition of “impaired property”, whichreads as follows:134 “Impaired property” means tangible property, other than “your product”or “your work,” that cannot be used or is less useful because:135 a. It incorporates “your product” or “your work” that is known or thoughtto be defective, deficient, inadequate or dangerous; or136 b. You have failed to fulfill the terms of a contract or agreement;137 if such property can be restored to use by:138 a. The repair, replacement, adjustment or removal of “your product” or“your work”, or139 b. Your fulfilling the terms and conditions of the contract or agreement.140 It is important to note that for this exclusion to apply, it must be proventhat the “impaired property” can be corrected or fixed through the repair, removal,adjustment or replacement of the insured’s product or work or by its fullperformance of the contract. Hence, in Alie v. Bertrand & Frère Construction35Heather Sanderson, Robert Emblem, Lyle Woodley, Commercial General Liability Insurance(Toronto and Vancouver: Butterworths, 2000) at pp. 175-176

Faulty workmanship and the CGL policy 18Co. 36 , the court held that the exclusion did not apply to a claim for damages tofoundations resulting from the incorporation of fly ash (FA) along with cementpowder in the concrete supplied by an insured. Neither the FA nor the concretecould be removed as they had become part of the foundations, which alsocontained tie rods, anchor bolts, etc. Because the problem could not be correctedby removing the FA or the concrete, the court concluded that physical damage tothe foundations had occurred and therefore the “impaired property” exclusion didnot apply. In effect, the foundations could not be restored to use.A similar result was reached in Carwald Concrete v. Gen. Security 37 where thepouring of defective concrete was found to have rendered useless the rebars,reinforcing steel, ducting, wiring, plumbing and anchor bolts in a concrete pad.The court held that there was “property damage” which was not excluded by the“impaired property” exclusion.141 Assuming that the property can be restored to use, the exclusion withdrawscoverage for claims otherwise covered under the policy resulting from theincorporation of the insured’s faulty workmanship or defective materials. In effect,it seeks to restrict coverage for claims which fall within that part of the definitionof “property damage” which refers to “loss of use of tangible property that is notphysically injured”.142 There is, however, an exception to the exclusion in respect of loss of useof other property caused by “sudden and accidental” physical injury to theinsured’s product or work after it has been put to its intended use. The phrase“sudden and accidental” has been interpreted in the context of what is known asthe “sudden and accidental pollution” exclusion and there appears to be noreason why the jurisprudence interpreting this exclusion should not be applicableto the “performance” or “impaired property” exclusion in the CGL policy. Theleading case in Canada on this exclusion is BP v. Comco. 38 In that case, thecourt held that the term “sudden” necessarily imported a temporal element, while“accident” meant fortuitous.143 Unfortunately, aside from Alie, supra, there are few Canadian casesinterpreting the current “performance” or “impaired property” exclusion wherefaulty workmanship is alleged. There are, however, older decisions interpreting apredecessor “performance” exclusion. Caution must be exercised when referringto these, however, particularly as the current exclusion is the result of successiveefforts by the insurance industry to avoid some of the adverse judgmentsreached in the past. In one such case, the Ontario High Court held that a claimfor damages in the form of underpayment for milk delivered by a farmer resultingfrom the improper calibration of the volume gauge on a bulk milk tank sold to thefarmer by the insured was withdrawn from coverage as a result of the“performance” exclusion. 39 It is hard to fathom why counsel agreed that theunderpayment constituted “property damage”. In any case, the court held that the“performance” exclusion applied to withdraw coverage.36373839[2000] O.J. No. 1360 (Q.L.) (Sup. Ct.) (under appeal).(1986), 17 C.C.L.I. 241 (Alta. C.A.).(1990), 49 C.C.L.I. 298, 73 O.R. (2d) 317, [1990] I.L.R. 1-2621 (H.C.).Modern Agro v. Wellington Inc. (1986), 21 C.C.L.I. 143 (Ont. H.C.)

Faulty workmanship and the CGL policy 19F. Sistership144 A last exclusion to consider in cases of alleged faulty workmanship iswhat is commonly known as the “sistership” exclusion. This exclusion takes itsname from an American case where the insurer was held liable towards aninsured which incurred costs in recalling all “sisterships” of the same design afterone of its aircraft was found to be defective. 40 An exclusion was later added tothe CGL policy in order to withdraw similar claims from coverage in the future.145 The “sistership” exclusion reads as follows:146 This insurance does not apply to:147 […] l. Any loss, cost or expense incurred by you or others for the lossof use, withdrawal, recall, inspection, repair, replacement, adjustment,removal or disposal of:148 1) “Your product”;149 2) “Your work”; or150 3) “Impaired property”;151 if such product, work, or property is withdrawn or recalled from themarket or from use by any person or organization because of a known orsuspected defect, deficiency, inadequacy or dangerous condition in it.152 The intent of the sistership exclusion is to withdraw coverage for claimsfor costs to prevent the failure of the insured’s products. 41 In order for thisexclusion to apply, the claim must relate to the costs and expenses incurred inwithdrawing property from the market or from use. It does not apply to withdrawcoverage in cases where the property has already been damaged. Hence, wherea defective pre-mix produced by the insured was incorporated into peanut buttermanufactured by another party, thus causing damage to the peanut butter, theexclusion did not apply to the resulting liability. 42CONCLUSION153 The answer to the question as to whether the CGL policy responds tofaulty workmanship claims is not as straightforward as one might wish. Clearly,the principle that the CGL policy is not intended to cover “business risks” such asmaking good faulty workmanship is easier to state than to apply. Nevertheless, inapproaching the question, one should remember to first address the issue ofwhether “property damage” has been alleged before turning to the so-called“business risks” exclusions. These exclusions serve to underline that the CGLpolicy is not intended to respond to purely contractual liability (unless what is atissue is an “insured contract” as defined). Claims alleging faulty workmanship to404142Arcos Corp. v American Mutual Liberty Insurance Co., 350 F. Supp. 380 (E.D.Pa. 1972), aff’d 45 F.(2d) 678 (3 rd Cir. Pa. 1973).Carwold Concrete & Gravel Co. of Canada v. General Security Insurance Co. of Canada (1985), 17C.C.L.I. 241 (Alta. C.A.), leave to appeal refused (1986), 17 C.C.L.I. 241n 260 (S.C.C.).Foodpro National Inc. v. General Accident Assurance Co. of Canada (1986), 57 O.R. (2d) 489 (H.C.),aff’d (1988), 63 O.R. (2d) 288 (C.A.); app’n for leave to appeal to S.C.C. dismissed (October 31, 1998;S.C.C. File No. 20930). See also Gulf Plastics Ltd. v. Cornhill Insurance Co. (1990), 46 C.C.L.I. 144(B.C.S.C.); aff’d (1991), 3 C.C.L.I. (2d) 203 (B.C.C.A.).

Faulty workmanship and the CGL policy 20ongoing work are also excluded. As for completed work, there is an importantdistinction between faulty workmanship claims involving the insured’s productsas opposed to those involving its work. In both cases, claims for damages tomake good the insured’s own faulty workmanship are withdrawn from coverage.Only in respect of the “products exclusion”, however, is the faulty workmanship ofthe insured’s subcontractor excluded. Where the faulty workmanship is incorporatedinto a larger product rendering it less useful without physically damaging it,the “performance” or “impaired property” exclusion will apply unless the lossresults from sudden and accidental physical injury to the insured’s product orwork. Finally, the costs and expenses incurred in removing property from themarket or from use because of suspected faulty workmanship are excluded.

Faulty workmanship and the CGL policy 21POLICY NO.Agent BrokerAPPENDIX ICommercial General Liability PolicyINSURANCE CO.Head Office — CanadaIn return of the payment of the premium, and subject to all the terms of this policy, we agree withyou to provide the insurance as stated in this policy.1. Named InsuredAddressDECLARATIONS2. Policy PeriodFrom: ____|________|____ to: ____|________|____12:01 A.M. Standard Time, at your address shown above.3. Limits of InsuranceAggregate Limit: $Each Occurrence Limit: $Personal Injury Limit: $Tenant’s Legal Liability Limit: $ (Any one premises)Medical Expense Limit: $ (Any one person)4. Form of BusinessIndividual Partnership Joint Venture Organization (Other than Partnership or Joint Venture)5. Business Description :6. Location of All Premises You Own, Rent or Occupy:7. ClassificationCode No. Premium Basis Rate Advance Premium___________ __________________ ___________ _______________8. Minimum Premium: $____________ TOTAL PREMIUM: $_____________9. Endorsements Attached to this Policy:COUNTERSIGNED BY:(Date)(Authorized Representative)(Insured’s Signature)

Faulty workmanship and the CGL policy 22Commercial General Liability PolicyVarious provision in this policy restrict coverage. Read the entire policy carefully to determinerights, duties and what is and is not covered.Throughout this policy the words “you” and “your” refer to the Named Insured shown in theDeclarations. The words “we”, “us” and “our” refer to the Company providing this insurance.The word “Insured” means any person or organization qualifying as such under SECTION II –WHO IS AN INSURED.Other words and phrases that appear in quotation marks have special meaning.SECTION I – COVERAGESCOVERAGE A.. BODILY INJURY AND PROPERTY DAMAGE LIABILITY1. Insuring Agreementa. We will pay those sums that the Insured becomes legally obligated to pay ascompensatory damages because of “bodily injury” or “property damage” to which thisInsurance applies. No other obligation or liability to pay sums or perform acts or servicesis covered unless explicitly provided for under SUPPLEMENTARY PAYMENTS –COVERAGES A, B AND D. This Insurance applies only to “bodily injury” and “propertydamage” which occurs during the policy period. The “bodily injury” or “property damage”must be caused by an “occurrence”. The “occurrence” must take place in the “coverageterritory”. We will have the right and duty to defend any “action” seeking thosecompensatory damages but:1) The amount we will pay for compensatory damages is limited as described inSECTION III – LIMITS OF INSURANCE.2) We may investigate and settle any claim or “action” at our discretion; and3) Our right and duty to defend end when we have used up the applicable limit ofinsurance in the payment of judgments or settlements under Coverages A, B or D ormedical expenses under Coverage C.b. Compensatory damages because of “bodily injury” include compensatory damagesclaimed by any person or organization for care, loss of services or death resulting at anytime from the “bodily injury”.c. “Property damage” that is loss of use of tangible property that is not physically injuredshall be deemed to occur at the time of the “occurrence” that caused it.2. ExclusionsThis Insurance does not apply to:a. “Bodily injury” or “property damage” expected or intended from the standpoint of theInsured. This exclusion does not apply to “bodily injury” resulting from the use ofreasonable force to protect persons or property.b. “Bodily injury” or “property damage” for which the Insured is obligated to pay compensatorydamages by reason of the assumption of liability in a contract or agreement. Thisexclusion does not apply to liability for compensatory damages:1) Assumed in a contract or agreement that is an “Insured contract”; or2) That the Insured would have in the absence of the contract or agreement.c. Any obligation of the Insured under a workers compensation, disability benefits orunemployment compensation law or any similar law.d. “Bodily injury” to an employee of the Insured arising out of and in the course ofemployment by the Insured.This exclusion applies:1) Whether the Insured may be liable as an employer or in any other capacity; and

Faulty workmanship and the CGL policy 232) To any obligation to share compensatory damages with or repay someone else whomust pay compensatory damages because of the injury.This exclusion does not apply:i) To liability assumed by the Insured under an “Insured contract”; orii) To employees on whose behalf contributions are made by or required to bemade by the Insured under the provisions of any workers compensation law.e. 1) “Bodily injury” or “property damage” arising out of the ownership, use oroperation by or on behalf of any Insured of:a) Any “automobile”;b) Any motorized snow vehicle or its trailers;c) Any vehicle while being used in any speed or demolition contest or in anystunting activity or in practice or preparation for any such contest or activity; ord) Any vehicle which if it were to be insured would be required by law to be insuredunder a contract evidenced by a motor vehicle liability policy, or any vehicleinsured under such a contract, but this exclusion does not apply to theownership, use or operation of machinery, apparatus or equipment mounted onor attached to any vehicle while at the site of the use or operation of suchequipment.2) “Bodily injury” or “property damage” with respect to which any motor vehicleliability policy is in effect or would be in effect but for its termination uponexhaustion of its limit of liability or is required by law to be in effect.This exclusion e. does not apply to “bodily injury” to an employee of the Insured onwhose behalf contributions are made by or required to be made by the Insured underthe provisions of any workers compensation law.f. “Bodily injury” or “property damage” arising out of the ownership, maintenance, use,operation, loading or unloading, or entrustment to others, by or on behalf of anyInsured of any watercraft.This exclusion does not apply to:1) A watercraft while ashore on premises you own or rent;2) A watercraft you do not own that is:a) Less than 8 meters long; andb) Not being used to carry persons or property for a charge.3) “Bodily injury” to an employee of the Insured on whose behalf contributions aremade by or required to be made by the Insured under the provisions of anyworkers compensation law.g. 1) “Bodily injury” or “property damage” arising out of the ownership, maintenance,use, operation, loading or unloading, or the entrustment to others, by or on behalfof any insured of:a) Any aircraft; orb) Any air cushion vehicle.2) “Bodily injury” or “property damage” arising out of the ownership, existence, useor operation by or on behalf of any Insured of any premises for the purpose of anairport or aircraft landing area and all operations necessary or incidental thereto.h. “Property damage” to:1) Property you own, rent, or occupy;2) Premises you sell, give away or abandon, if the “property damage” arises out ofany part of those premises;3) Property loaned to you;

Faulty workmanship and the CGL policy 244) Personal property in your care, custody or control;5) That particular part of real property on which you or any contractor or subcontractorworking directly or indirectly on your behalf is performing operations, ifthe “property damage” arises out of those operations; or6) That particular part of any property that must be restored, repaired or replacedbecause “your work” was incorrectly performed on it.Paragraph 2) of this exclusion does not apply if the premises are “your work” andwere never occupied, rented or held for rental by you.Paragraphs 3), 4), 5) and 6) of this exclusion do not apply to liability assumed under asidetrack agreement.Paragraph 6) of this exclusion does not apply to “property damage” included in the“products-completed operations hazard”.i. “Property damage” to “your product” arising out of it or any part of it.j. “Property damage” to “your work” arising out of it or any part of it and included in the“products-completed operations hazard”.This exclusion does not apply if the damaged work or the work out of which thedamage arises was performed on your behalf by a subcontractor.k. “Property damage” to “impaired property” or property that has not been physicallyinjured, arising out of:1) A defect, deficiency, inadequacy or dangerous condition in “your product” or“your work”; or2) A delay or failure by you or anyone acting on your behalf to perform a contract oragreement in accordance with its terms.This exclusion does not apply to the loss of use of other property arising out ofsudden and accidental physical injury to “your product” or “your work” after it hasbeen put to its intended use.l. Any loss, cost or expense incurred by you or others for the loss of use, withdrawal,recall, inspection, repair, replacement, adjustment, removal or disposal of:1) “Your product”;2) “Your work”; or3) “Impaired property”;if such product, work, or property is withdrawn or recalled from the market or from useby any person or organization because of a known or suspected defect, deficiency,inadequacy or dangerous condition in it.m. Pollution Liability – See Common Exclusions.n. Nuclear Liability – See Common Exclusions.o. War Risks – See Common Exclusions.COVERAGE B. PERSONAL INJURY LIABILITY1. Insuring Agreementa. We will pay those sums that the Insured becomes legally obligated to pay as compensatorydamages because of “personal injury” to which this Insurance applies. No otherobligation or liability to pay sums or perform acts or services is covered unless explicitlyprovided for under SUPPLEMENTARY PAYMENTS – COVERAGES A, B AND D. We willhave the right and duty to defend any “action” seeking those compensatory damages but:1. The amount we will pay for compensatory damages is limited as described inSECTION III – LIMITS OF INSURANCE;2. We may investigate and settle any claim or “action” at our discretion; and

Faulty workmanship and the CGL policy 253) Our right and duty to defend end when we have used up the applicable limit ofinsurance in the payment of judgments or settlements under Coverages A, B or D ormedical expenses under Coverage C.b. This Insurance applies to “personal injury” only if caused by an offence:1) Committed in the “coverage territory” during the policy period; and2) Arising out of the conduct of your business, excluding advertising, publishing,broadcasting or telecasting done by or for you.2. ExclusionsThis Insurance does not apply to:“Personal injury”:1) Arising out of oral or written publication of material, if done by or at the direction of theInsured with knowledge of its falsity;2) Arising out of oral or written publication of material whose first publication took placebefore the beginning of the policy period;3) Arising out of the willful violation of a penal statute or ordinance committed by or with theconsent of the Insured; or4) For which the Insured has assumed liability in a contract or agreement. This exclusiondoes not apply to liability for compensatory damages that the Insured would have in theabsence of the contract or agreement.COVERAGE C. MEDICAL PAYMENTS1. Insuring Agreementa. We will pay medical expenses as described below for “bodily injury” caused by anaccident:1) On premises you own or rent;2) On ways next to premises you own or rent; or3) Because of your operations;provided that:a) The accident takes place in the “coverage territory” and during the policy period;b) The expenses are incurred and reported to us within one year of the date of theaccident; andc) The injured person submits to examination, at our expense, by physicians of ourchoice as often as we reasonably require.b. We will make these payments regardless of fault. These payments will not exceed theapplicable limit of insurance. We will pay reasonable expenses for:1) First aid at the time of an accident;2) Necessary medical, surgical, x-ray and dental services, including prosthetic devices;and3) Necessary ambulance, hospital, professional nursing and funeral services.2. ExclusionsWe will not pay expenses for “bodily injury”:a. To any Insured.b. To a person hired to do work for or on behalf of any Insured or a tenant of any Insured.c. To a person injured on that part of premises you own or rent that the person normallyoccupies.

Faulty workmanship and the CGL policy 26d. To a person, whether or not an employee of any Insured, who at the time of injury isentitled to benefits under any workers compensation or disability benefits law or a similarlaw.e. To a person injured while taking part in athletics.f. The payment of which is prohibited by law.g. Included within the “products-completed operations hazard”.h. Excluded under Coverage A.COVERAGE D. TENANTS’ LEGAL LIABILITY1. Insuring AgreementWe pill pay those sums that the Insured becomes legally obligated to pay as compensatorydamages because of “property damage” to which this Insurance applies. No other obligation orliability to pay sums or perform acts or services is covered unless explicitly provided for underSUPPLEMENTARY PAYMENTS – COVERAGES A, B AND D. This Insurance applies only to“property damage” caused by fire, explosion, smoke or leakage from fire protective equipmentto premises rented to you or occupied by you. This Insurance applies only to “propertydamage” which occurs during the policy period. The “property damage” must be caused by an“occurrence”. The “occurrence” must take place in the “coverage territory”. We will have theright and duty to defend any “action” seeking those compensatory damages but:a. The amount we will pay for compensatory damages is limited as described in SECTION III– LIMITS OF INSURANCE;b. We may investigate and settle any claim or “action” at our discretion; andc. Our right and duty to defend end when we have used up the applicable limit of Insurancein the payment of judgments or settlements under Coverages A, B or D or medicalexpenses under Coverage C.2. ExclusionsThis insurance does not apply to:a. “Property damage” expected or intended from the standpoint of the Insured.b. “Property damage” for which the Insured is obligated to pay by reason of the assumptionof liability in a contract or payment. This exclusion does not apply to liability forcompensatory damages that the Insured would have in the absence of the contract oragreement.c. Pollution Liability – See Common Exclusions.d. Nuclear Energy Liability – See Common Exclusions.e. War Risks – See Common Exclusions.COMMON EXCLUSIONS – COVERAGES A, C AND DThis Insurance does not apply to:1. Pollution Liabilitya. “Bodily injury” or “property damage” arising out of the actual, alleged or threateneddischarge, dispersal, release or escape of pollutants:1) At or from premises owned, rented or occupied by an Insured;2) At or from any site or location used by or for an Insured or others for the handling,storage, disposal, processing or treatment of waste;3) Which are at any time transported, handled, stored, treated, disposed of, orprocessed as waste by or for an Insured or any person or organization for whom theInsured may be legally responsible; or

Faulty workmanship and the CGL policy 274) At or from any site or location on which an Insured or any contractors or subcontractorsworking directly or indirectly on behalf of an Insured are performing operations:a) If the pollutants are brought on or to the site or location in connection with suchoperations; orb) If the operations are to test for, monitor, clean up, remove, contain, treat, detoxifyor neutralize the pollutants.b. Any loss, cost, or expense arising out of any governmental direction or request that anInsured test for, monitor, clean up, remove, contain, treat, detoxify or neutralize pollutants.“Pollutants” means any solid, liquid, gaseous or thermal irritant or contaminant, includingsmoke, vapour, soot, fumes, acids, alkalis, chemicals and waste. Waste includesmaterials to be recycled, reconditioned or reclaimed.Sub-paragraphs 1) and 4)a) of paragraph a. of this exclusion do not apply to “bodily injury”or “property damage” caused by heat, smoke or fumes from a hostile fire. As used in thisexclusion, a “hostile fire” means one which becomes uncontrollable or breaks out fromwhere it was intended to be.2. Nuclear Energy Liabilitya. Liability imposed by or arising under the Nuclear Liability Act;b. “Bodily injury” or “property damage” with respect to which an Insured under this policy isalso insured under a contract of nuclear energy liability insurance (whether the Insured isunnamed in such contract and whether or not it is legally enforceable by the Insured)issued by the Nuclear Insurance Association of Canada or any other insurer or group orpool of insurers or would be an Insured under any such policy but for its termination uponexhaustion of its limit of liability;c. “Bodily injury” or “property damage” resulting directly or indirectly from the nuclear hazardarising from:1) the ownership, maintenance, operation or use of a nuclear facility by or on behalf ofan Insured;2) the furnishing by an Insured of services, materials, parts or equipment in connectionwith the planning, construction, maintenance, operation or use of any nuclear facility;3) The possession, consumption, use, handling, disposal or transportation of fissionablesubstances, or of other radioactive material (except radioactive isotopes, away from anuclear facility, which have reached the final stage of fabrication so as to be useablefor any scientific, medical, agricultural, commercial or industrial purpose) used,distributed, handled or sold by an Insured.As used in this policy:1) The term “nuclear energy hazard” means the radioactive, toxic, explosive, or otherhazardous properties of radioactive material;2) The term “radioactive material” means uranium, thorium, plutonium, neptunium, theirrespective derivatives and compounds, radioactive isotopes of other elements andany other substances that the Atomic Energy Control Board may, by regulation,designate as being prescribed substances capable of releasing atomic energy, or asbeing requisite for the production, use or application of atomic energy;3) The term “nuclear facility” means:a) Any apparatus designed or used to sustain nuclear fission in a self-supportingchain reaction or to contain a critical mass of plutonium, thorium and uranium orany one or more of them;b) any equipment or device designed or used for (i) separating the isotopes ofplutonium, thorium and uranium or any one or more of them, (ii) processing orutilizing spent fuel, or (iii) handling, processing or packaging waste;

Faulty workmanship and the CGL policy 28c) any equipment or device used for the processing, fabricating or alloying ofplutonium, thorium or uranium enriched in the isotope uranium 233 or in theisotope uranium 235, or any one or more of them if at any time the total amountof such material in the custody of the Insured at the premises where suchequipment or device is located consists of or contains more than 25 grams ofplutonium or uranium 233 or any combination thereof, or more than 250 grams ofuranium 235;d) any structure, basin, excavation, premises or place prepared or used for thestorage or disposal of waste radioactive material;and includes the site on which any of the foregoing is located, together with alloperations conducted thereon and all premises used for such operations.4) The term “fissionable substance” means any prescribed substance that is, or fromwhich can be obtained, a substance capable of releasing atomic energy by nuclearfission.3. War Risks“Bodily injury” or “property damage” due to war, invasion, act of foreign enemy, hostilities(whether war be declared or not), civil war, rebellion, revolution, insurrection or militarypower.SUPPLEMENTARY PAYMENTS – COVERAGES A, B AND DWe will pay, with respect to any claim or “action” we defend:a. All expenses we incur.b. The cost of bonds to release attachments, but only for bond amounts within the applicablelimit of insurance. We do not have to furnish these bonds.c. All reasonable expenses incurred by the Insured at our request to assist us in theinvestigation or defence of the claim or “action”, including actual loss of earnings up to$100 a day because of time off from work.d. All costs taxed against the Insured in the “action” and any interest accruing after entry ofjudgment upon that part of the judgment which is within the applicable limit of insurance.These payments will not reduce the limits of insurance.SECTION II – WHO IS AN INSURED1. If you are designated in the Declarations as:a. An individual, you and your spouse are insureds, but only with respect to the conduct of abusiness of which you are the sole owner;b. A partnership or joint venture, you are an Insured. Your members, your partners, and theirspouses are also insureds, but only with respect to the conduct of your business;c. An organization other than a partnership or joint venture, your are an insured. Yourexecutive officers and directors are insureds, but only with respect to their duties as yourofficers or directors. Your stockholders are also insureds, but only with respect to theirliability as stockholders.2. Each of the following is also an insured:a. Your employees, other than your executive officers, but only for acts within the scope oftheir employment by you. However, none of these employees is an insured for:1) “Bodily injury” or “personal injury” to you or to a co-employee while in the course ofhis or her employment; or2) “Bodily injury” or “personal injury” to any person who at the time of injury is entitled tobenefits under any workers compensation or disability benefits law or a similar law; or

Faulty workmanship and the CGL policy 293) “Bodily injury” or “personal injury” arising out of his or her providing or failing toprovide professional health care services; or4) “Property damage” to property owned or occupied by or rented or loaned to thatemployee, any of your other employees, or any of your partners or members (if youare a partnership or joint venture).b. Any person (other than your employee), or any organization while acting as your realestate manager.c. Any person or organization having proper temporary custody of your property if you die,but only:1) With respect to liability arising out of the maintenance or use of that property; and2) Until your legal representative has been appointed.d. Your legal representative if you die, but only with respect to duties as such. Thatrepresentative will have all your rights and duties under this policy.3. Any organization you newly acquire or form, other than a partnership or joint venture, and overwhich you maintain ownership or majority interest, will be deemed to be a Named Insured ifthere is no other similar insurance available to that organization. However:a. Coverage under this provision if afforded only until the 90 th day after you acquire or formthe organization or the end of the policy period, whichever is earlier;b. Coverages A and D do not apply to “bodily injury” or “property damage” that occurredbefore you acquired or formed the organization; andc. Coverage B does not apply to “personal injury” arising out of an offense committed beforeyou acquired or formed the organization.No person or organization is an insured with respect to the conduct of any current or past partnershipor joint venture that is not shown as a Named Insured in the Declarations.SECTION III – LIMITS OF INSURANCE1. The limits of insurance stated in the Declarations and the rules below fix the most we will payregardless of the number of:a. Insureds;b. Claims made or “actions” brought; orc. Persons or organizations making claims or bringing “actions”.2. The Aggregate Limit is the most we will pay for the sum of:a. Medical expenses under Coverage C; andb. Compensatory damages under Coverage A, Coverage B, and Coverage D.3. Subject to 2. above, the Each Occurrence Limit is the most we will pay for the sum of:a. Compensatory damages under Coverage A and Coverage D; andb. Medical expenses under Coverage C:because of all “bodily injury” and “property damage” arising out of any one “occurrence”.4. Subject to 2. above, the Personal Injury Limit is the most we will pay under Coverage B for thesum of all compensatory damages because of all “personal injury” sustained by any oneperson or organization.5. Subject to 3. above, the Tenants’ Legal Liability Limit is the most we will pay under CoverageD for compensatory damages because of “property damage” to any one premises.6. Subject to 3. above, the Medical Expense Limit is the most we will pay under Coverage C forall medical expenses of “bodily injury” sustained by any one person.The limits of this policy apply separately to each consecutive annual period and to any remainingperiod of less than 12 months, starting with the beginning of the policy period shown in theDeclarations, unless the policy period is extended after issuance for an additional period of less

Faulty workmanship and the CGL policy 30than 12 months. In that case, the additional period will be deemed part of the last preceding periodfor purposes of determining the Limits of Insurance.SECTION IV – COMMERCIAL GENERAL LIABILITY CONDITIONS1. Bankruptcy.Bankruptcy or insolvency of the Insured or of the Insured’s estate will not relieve us of ourobligations under this policy.2. Canadian Currency Clause.All limits of insurance, premiums and other amounts as expressed in this policy are inCanadian currency.3. Cancellation.a. The first Named Insured shown in the Declarations may cancel this policy by mailing ordelivering to us advance written notice of cancellation.b. We may cancel this policy by mailing or delivering to the first Named Insured writtennotice of cancellation at least:1) 15 days before the effective date of cancellation if we cancel for nonpayment ofpremium; or2) 30 days before the effective date of cancellation if we cancel for any other reason.Except in Quebec, if notice is mailed, cancellation takes effect 15 or 30 days after receiptof the letter by the post office to which it is addressed, depending upon the reason forcancellation. Proof of mailing will be sufficient proof of notice.In Quebec, cancellation takes effect either 15 or 30 days after receipt of the notice at thelast known address of the first Named Insured, depending upon the reason forcancellation.c. We will mail or deliver our notice to the first Named Insured’s last mailing address knownto us.d. The policy period will end on the date cancellation takes effect.e. If this policy is cancelled, we will send the first Named Insured any premium refund due. Ifwe cancel, the refund will be pro rata. If the first Named Insured cancels, the refund maybe less than pro rata. The cancellation will be effective even if we have not made oroffered a refund.4. Changes.This policy contains all the agreements between you and us concerning the insuranceafforded. The first Named Insured shown in the Declarations is authorized to make changes inthe terms of this policy with our consent. The policy’s terms can be amended or waived only byendorsement issued by us and made a part of this policy.5. Duties in the Event of Occurrence, Claim or Action.a. You must see to it that we are notified promptly of an “occurrence” which may result in aclaim. Notice should include:1) How, when and where the “occurrence” took place; and2) The names and addresses of any injured persons and of witnesses.b. If a claim is made or “action” is brought against any insured, you must see to it that wereceive prompt written notice of the claim or “action”.c. You and any other involved Insured must:1) Immediately send us copies of any demands, notices, summonses or legal papersreceived in connection with the claim or “action”;2) Authorize us to obtain records and other information;

Faulty workmanship and the CGL policy 313) Cooperate with us in the investigation, settlement or defence of the claim or “action”;and4) Assist us, upon our request, in the enforcement of any right against any person ororganization which may be liable to the Insured because of injury or damage to whichthis insurance may also apply.d. No Insured will, except at their own cost, voluntarily make a payment, assume anyobligation, or incur any expense, other than for first aid, without our consent.6. Examination of Your Books and Records.We may examine and audit your books and records as they relate to this policy at any timeduring the policy period and up to three years afterward.7. Inspection and Surveys.We have the right but are not obligated to:a. Make inspections and surveys at any time;b. Give you reports on the conditions we find; andc. Recommend any changes.Any inspections, surveys, reports or recommendations relate only to insurability and thepremiums to be charged. We do not make safety inspections. We do not undertake to performthe duty of any person or organization to provide for the health or safety of workers or thepublic. And we do not warrant that conditions:a. Are safe or healthful; orb. Comply with laws, regulations, codes or standards.This condition applies not only to us, but also to any rating, advisory, rate service or similarorganization which makes insurance inspections, surveys, reports or recommendations.8. Legal Action Against Us.No person or organization has a right under this policy:a. To join us as a party or otherwise bring us into an “action” asking for compensatorydamages from an Insured; orb. To sue us on this policy unless all of its terms have been fully complied with.A person or organization may sue us to recover on an agreed settlement or on a finaljudgment against an Insured obtained after an actual trial; but we will not be liable forcompensatory damages that are not payable under the terms of this policy or that are inexcess of the applicable limit of insurance. An agreed settlement means a settlement andrelease of liability signed by us, the Insured and the claimant or the claimant’s legalrepresentative. Every “action or proceeding against us shall be commenced within one yearnext after the date of such judgment or agreed settlement and not afterwards. If this policy isgoverned by the law of Quebec every action or proceeding against us shall be commencedwithin three years from the time of right of action arises.9. Other Insurance.If other valid and collectible insurance is available to the Insured for a loss we cover underCoverages A, B or D of this policy our obligations are limited as follows:a. Primary InsuranceThis insurance is primary except when b. below applies. If this insurance is primary, ourobligations are not affected unless any of the other insurance is also primary. Then, wewill share with all that other insurance by the method described in c. below.b. Excess InsuranceThis insurance is excess over any of the other insurance, whether primary, excess,contingent or on any other basis:

Faulty workmanship and the CGL policy 321) That is Property Insurance such as, but not limited to, Fire, Extended Coverage,Builder’s Risk, Installation Risk or similar coverage for “your work” or for premisesrented to you; or2) If the loss arises out of the maintenance or use of watercraft to the extent not subjectto Exclusion f. of Coverage A (Section 1).When this insurance is excess, we will have no duty under Coverage A, B or D to defendany claim or “action” that any other insurer has a duty to defend. If not other insurerdefends, we will undertake to do so, but we will be entitled to all the Insured’s rightsagainst all those other insurers.When this insurance is excess over other insurance, we will pay only our share of theamount of the loss, if any, that exceeds the sum of:1) The total amount that all such other insurance would pay for the loss in the absenceof this insurance; and2) The total of all deductible and self-insured amounts under all that other insurance.We will share the remaining loss, if any, with any other insurance that is not described inthis Excess Insurance provision and was not bought specifically to apply in excess of theLimits of Insurance shown in the Declarations of this policy.c. Method of Sharing.If all of the other insurance permits contribution by equal shares, we will follow thismethod also. Under this approach each insurer contributes equal amounts until it has paidits applicable limit of insurance or none of the loss remains, whichever comes first.If any of the other insurance does not permit contribution by equal shares, we willcontribute by limits. Under this method, each insurer’s shares is based on the ratio of itsapplicable limit of insurance to the total applicable limits of insurance of all insurers.10. Premium Audit.a. We will compute all premiums for this policy in accordance with our rules and rates.b. Premium shown in this policy as advance premium is a deposit premium only. At the closeof each audit period we will compute the earned premium for that period. Audit premiumsare due and payable on notice to the first Named Insured. If the sum of the advance andaudit premiums paid for the policy term is greater than the earned premium, we will returnthe excess to the first Named Insured subject to the retention of the minimum premiumshown in the Declarations of this policy.c. The first Named Insured must keep records of the information we need for premiumcomputation, and send us copies at such times as we may request.11. Premiums.The first Named Insured shown in the Declarations:a. Is responsible for the payment of all premiums; andb. Will be the payee for any return premiums we pay.12. Representations.By accepting this policy, you agree:a. The statements in the Declarations are accurate and complete;b. Those statements are based upon representations you made to us; andc. We have issued this policy in reliance upon your representations.13. Separation of Insureds, Cross Liability.Except with respect to the Limits of Insurance, and any rights or duties specifically assigned tothe first Named Insured, this insurance applies:a. As of each Named Insured were the only Named Insured; andb. Separately to each insured against whom claim is made or “action” is brought.

Faulty workmanship and the CGL policy 3314. Transfer of Rights of Recovery Against Others to Us.If the Insured has rights to recover all or part of any payment we have made under this policy,those rights are transferred to us. The Insured must do nothing after loss to impair them. Atour request, the Insured will bring “action” or transfer those rights to us and help us enforcethem.15. Transfer of your Rights and Duties Under this Policy.Your rights and duties under this policy many not be transferred without our written consentexcept in the case of death of an individual Named Insured.If you die, your rights and duties will be transferred to your legal representative buy only whileacting within the scope of duties as your legal representative. Until your legal representative isappointed, anyone having proper temporary custody of your property will have your rights andduties buy only with respect to that property.SECTION V – DEFINITIONS1. “Action” means a civil proceeding in which compensatory damages because of “bodily injury”,“property damage” or “personal injury” to which this insurance applies are alleged. “Action”includes an arbitration proceeding alleging such damages to which you must submit or submitwith our consent.2. “Automobile” means any self-propelled land motor vehicle, trailer or semi-trailer (includingmachinery, apparatus, or equipment attached thereto) which is principally designed and isbeing used for transportation of persons or property on public roads.3. “Bodily injury” means bodily injury, sickness or disease sustained by a person, including deathresulting from any of these at any time.4. “Coverage territory” means:a. Canada and the United States of America (including its territories and possessions);b. International wasters or airspace, provided the injury or damage does not occur in thecourse of travel or transportation to or from any place not included in a. above; orc. All parts of the world if:1) The injury or damage arises out of:a) Goods or products made or sold by you in the territory described in a. above; orb) The activities of a person whose home is in the territory described in a. above,but is away for a short time on your business; and2) The Insured’s responsibility to pay compensatory damages is determined in an“action” on the merits, in the territory described in a. above or in a settlement weagree to in writing.5. “Impaired property” means tangible property, other than “your product” or “your work”, thatcannot be used or is less useful because:a. It incorporates “your product” or “your work” that is known or thought to be defective,deficient, inadequate or dangerous; orb. You have failed to fulfill the terms of a contract or agreement;if such property can be restored to use by:a. The repair, replacement, adjustment or removal of “your product” or “your work”; orb. Your fulfilling the terms of the contract or agreement.6. “Insured contract” means:a. A lease of premises;b. A sidetrack agreement;c. An easement or license agreement in connection with vehicle or pedestrian privaterailroad crossings at grade;

Faulty workmanship and the CGL policy 34d. Any other easement agreement;e. An indemnification of a municipality as required by ordinance, except in connection withwork for a municipality;f. An elevator maintenance agreement;g. That part of any other contract or agreement pertaining to your business under which youassume the tort liability of another to pay compensatory damages because of “bodilyinjury” or “property damage” to a third person or organization, if the contract or agreementis made prior to the “bodily injury” or “property damage”. Tort liability means a liability thatwould be imposed by law in the absence of any contract or agreement;An “Insured contract” does not include that part of any contract or agreement that indemnifiesan architect, engineer or surveyor for injury or damage arising out of:1) Preparing, approving or failing to prepare or approve maps, drawings, opinions,reports, surveys, change orders, designs or specifications; or2) Giving directions or instructions, or failing to give them, if that is the primary cause ofthe injury or damage;7. “Occurrence” means an accident, including continuous or repeated exposure to substantiallythe same general harmful conditions.8. “Personal injury” means injury, other than “bodily injury”, arising out of one or more of thefollowing offences:a. False arrest, detention or imprisonment;b. Malicious prosecution;c. Wrongful entry into, or eviction of a person from a room, dwelling or premises that theperson occupies;d. Oral or written publication of material that slanders or libels a person or organization ordisparages a person’s or organization’s goods, products or services; ore. Oral or written publication of material that violates a person’s right or privacy.9. a. “Products-completed operations hazard” includes all “bodily injury” and “property damage”occurring away from premises you own or rent and arising out of “your product” or “yourwork” except:1) Products that are still in your physical possession; or2) Work that has not yet been completed or abandoned.b. “Your work” will be deemed completed at the earliest of the following times:1) When all of the work called for in your contract has been completed;2) When all of the work to be done at the site has been completed if your contract callsfor work at more than one site;3) When that part of work done at a job site has been put to its intended use by anyperson or organization other than another contractor or subcontractor working on thesame project.Work that may need service, maintenance, correction, repair or replacement, but which isotherwise complete, will be treated as completed.c. This hazard does not include “bodily injury” or “property damage” arising out of theexistence of tools, uninstalled equipment or abandoned or unused materials.10. “Property damage” means:a. Physical injury to tangible property, including all resulting loss of use of that property;orb. Loss of use of tangible property that is not physically injured.11. “Your product” means:

Faulty workmanship and the CGL policy 35a. Any goods or products, other than real property, manufactured, sold, handled,distributed or disposed by:1) You;2) Others trading under your name; or3) A person or organization whose business or assets you have acquired; andb. Containers (other than vehicles), materials, parts or equipment furnished inconnection with such goods or products.“Your product” includes warranties or representations made at any time with respect tothe fitness, quality, durability or performance of any of the items included in a. and b.above.“Your product” does not include vending machines or other property rented to or locatedfor the use of others but not sold.12. “Your work” means:a. Work or operations performed by you or on your behalf; andb. Materials, parts or equipment furnished in connection with such work or operations.“Your work” includes warranties or representations made at any time with respect to thefitness, quality, durability or performance of any of the items included in a. or b. above.

Faulty workmanship and the CGL policy 36