Source: https://theallgrouponlinejournal.com/category/insurance/page/2/
Timestamp: 2019-04-18 20:49:38+00:00

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The recent costs endorsement in Hoang v. The Personal Insurance Co. provides policyholders with a succinct reminder of the general rule that a policyholder is entitled to full indemnity costs where an insurer wrongfully denies its obligation to provide coverage.
The underlying action arose as a result of injuries sustained by a minor pedestrian, Christopher Hoang, when he was struck by a motor vehicle shortly after being dropped off on a city sidewalk by his father. A claim was commenced against the driver of the vehicle and against Christopher’s father, Mr. Hoang. A jury found that the driver of the vehicle that struck Christopher was not negligent. It found that Mr. Hoang negligently caused or contributed to the accident and his son’s injuries by selecting an unsuitable choice of unloading area.
The insurer denied coverage to Mr. Hoang, and the plaintiffs were forced to bring an action for coverage, under section 258(1) of the Insurance Act directly against the defendant insurer to have the insurance money payable under Mr. Hoang’s motor vehicle policy applied toward satisfaction of the judgment.
In the coverage action, the plaintiffs were successful in obtaining summary judgment against the defendant insurer requiring the payment of damages, costs and interest in the underlying action. With respect to the costs of the costs of the coverage action, the plaintiffs sought costs on a full indemnity basis, rather than on the usual partial indemnity scale.
While the costs endorsement repeats well-established case law, it is noteworthy because it affirms an expansive view: that an insured is entitled to full indemnity in any coverage case. Justice E.M. Morgan accepted the plaintiffs counsel’s submissions that insured parties and insurance companies should be considered in a different light than other litigants. Such a view is “both authoritative and logical” since “it would be unfair and burdensome to make their customers pay a premium plus legal fees in order to obtain the coverage they bought.” Insurance premiums are presumed to reflect the insurance company’s risk, and any attempt to reduce that risk by engaging in litigation over coverage obligations, should result in full compensation where the insurance company loses.
The costs endorsement is consistent with earlier jurisprudence that provides a policyholder full indemnity costs where an insurer wrongfully denies its duty to defend, with respect to any application to enforce its rights, as well as for costs incurred defending the underlying action until the insurer assumes its defence obligations.
 2017 ONSC 4193 at paragraphs 4-6.
 2017 ONSC 4193 at paragraph 6.
 Aitken v. Unifund Assurance Co. 2012 ONCA 641 at para. 44.
Melissa A. Wright is an associate at Theall Group LLP and maintains a broad commercial litigation practice. Prior to joining Theall Group LLP, Melissa summered, articled and practiced at the Toronto offices of a prominent business law firm gaining corporate tax, dispute resolution and commercial litigation experience. Melissa graduated from the University of Windsor’s Faculty of Law in 2011 and was called to the Ontario Bar in 2012.
In Coachman Insurance Co. v. Kraft, a recent decision of the Ontario Superior Court, the Court found that “use” of a “motorized vehicle” in a homeowner’s policy exclusion includes the conduct of a passenger on an ATV. Even as a passenger, one may exercise “some form of control over” a motor vehicle, sufficient to come within the definition of the term “use”.
In the underlying action, David Kraft (“Mr. Kraft”) was allegedly injured in a single-vehicle ATV accident caused by Barry Kelley’s (“Mr. Kelley”) negligent conduct. The ATV was owned and operated by Mr. Kraft. Mr. Kelley was a passenger seated behind Mr. Kraft, on the left side of the ATV’s rear rack. Mr. Kraft alleges that as he began to execute a turn, the ATV flipped backwards and landed on top of him causing significant injuries.
General allegations of negligent conduct which may have contributed to the alleged negligent conduct that comprises the other two categories. Mr. Kelley being intoxicated to the point he became a danger to others including Mr. Kraft and creating and perpetuating a situation of danger (“the Third Category”).
At the time of the accident, Mr. Kelley was insured under a home insurance policy issued by Coachman Insurance Company (“Coachman”). The Coachman policy granted third party liability coverage for bodily injury and/or property damage fortuitously arising out of Mr. Kelley’s personal actions anywhere in the world. However, that coverage was subject to a series of enumerated exclusions, which included “claims due to a motorized vehicle or trailer that you own or use” [the “Motorized Vehicle Exclusion”]. The term “motorized vehicle” expressly included “all-terrain-vehicles”; however, the term “use” was not defined in the policy.
Coachman brought an application for a declaration that it did not owe a duty to defend or indemnify Mr. Kelley, asserting that the policy’s Motorized Vehicle Exclusion precluded coverage.
Mr. Kelley did not defend the underlying action and similarly, did not respond to Coachman’s application. However, Mr. Kraft, the plaintiff in the underlying action, argued that the allegations of liability against Mr. Kelley fell within the policy’s scope of coverage because the word “use” in the motorized vehicle exclusion should be construed as meaning “some measure of operational control over” a motorized vehicle, in this case the ATV. The allegations in the statement of claim did not assert that Mr. Kelly exercised “operational control” over the ATV and therefore they did not amount to allegations of his “use” of it.
Mr. Kraft’s own automobile insurer also intervened on the application pursuant to the underinsured coverage (OPCF 44R Family Protection endorsement), in support of Mr. Kraft’s position.
In finding that Coachman had a duty to defend Mr. Kelley in the underlying action, the Court first reviewed the well-established legal principles applicable to assessing an insurer’s duty to defend and the interpretation of insurance policies, generally. The Court pointed out that an insurer’s duty to defend (which is broader than its duty to indemnify) is triggered when a “mere possibility exists” that a pleaded claim falls within the scope coverage. The Court also noted that where the language of the policy is ambiguous, the court should resolve the ambiguity in accordance with general rules of contract construction, contra proferentem and the principle that coverage clauses should be construed broadly in favour of the insured and exclusion clauses narrowly against the insurer.
The Court found that the Motorized Vehicle Exclusion was ambiguous as it relates to the nature of the activities intended to constitute an insured’s “use” of a motorized vehicle. In resolving this ambiguity, the Court reviewed the relevant case law and narrowly construed the subject exclusion, finding that the Motorized Vehicle Exclusion is intended to apply when the insured’s negligence giving rise to liability is founded in an act or omission in which the insured exercises “some form of control over” a motorized vehicle and that conduct causes “bodily injury” or “property damage”.
In each of the allegations in the First Category, the Court noted, there is an inference or expression that Mr. Kelley exercised “some form of control over the ATV”, because his various negligent actions and interactions with the ATV (or a part thereof) were alleged to be the direct cause of the ATV flipping over. As a result, the Court concluded that the allegations included in the First Category constituted “claims due to a motorized vehicle…used” by Mr. Kelley, within the meaning of the Motorized Vehicle Exclusion and therefore did not trigger Coachman’s duty to defend.
The basis for the liability asserted in the allegations included in the second category are not dependent on an allegation or finding involving the insured’s “use” of the ATV, within the meaning of the exclusion. The allegations in the second category do not plead any exercise of control by the insured over any aspect of the ATV. Rather, the asserted basis for liability is founded in: Mr. Kelley’s alleged unreasonable conduct in physically contacting Mr. Kraft’s body in a manner that prevented him from safely exiting the ATV; and Mr. Kelley’s breach of a pleaded duty “not to obstruct, delay or prevent Mr. Kraft from exiting the ATV in an emergency situation”. The substance of those allegations rests upon a claim that Mr. Kelley negligently interfered with Mr. Kraft’s person and his activities and that his conduct, in that regard, resulted in bodily injury to Mr. Kraft.
The Second Category of allegations were distinct and divisible from the allegations of negligent use of the ATV by Mr. Kelley in the First Category. As a result, the Court held that the allegations in the Second Category triggered Coachman’s duty to defend.
With regards to the Third Category of allegations, the Court found these allegations were equally capable of applying to Mr. Kelley’s alleged negligence in the manner in which he interacted with the ATV and his alleged negligent interference with Mr. Kraft’s body and activities. The allegations that Mr. Kelley was negligent due to intoxication and creating a situation of danger could be read as elements of both Mr. Kelley’s negligent “use of/interference with” the ATV and his “negligent interference” with Mr. Kraft’s person and activities, thereby falling both within and outside of the Motorized Vehicle Exclusion. As a result, the Court concluded that the Third Category of allegations also engaged Coachman’s duty to defend.
The Court made a point to note that had Coachman wished to exclude coverage where the loss was concurrently caused by a covered peril and an excluded “motorized vehicle” peril, it ought to have employed specific language to achieve that result, as it did with another exclusion in the policy.
As a result of the Court findings regarding the Second and Third Category of allegations, the Court held that Coachman owed a duty to defend Mr. Kelley in the underlying action. The Court also concluded that a determination of Coachman’s duty to indemnify was premature and should only be made after relevant findings of fact are made in the final disposition of the underlying action.
The Court in Coachman interprets the definition of “use” to include exercising “some form of control over” a vehicle. This “control” over a motorized vehicle, as we have seen in this case, can be exercised by not only an operator of a motorized vehicle, as one would expect, but also as a passenger. Counsel may wish to consider how this interpretation can be applied in other cases involving allegations of “use”.
 Coachman, supra at para 102. The relevant allegations against Mr. Kelley are set out in complete detail at para. 10 of the decision.
 Coachman, supra at para 23 citing Progressive Homes Ltd. v. Lombard General Insurance Co., 2010 SCC 33 at paras. 19-20.
 Coachman, supra at para 29.
 Coachman, supra at para 105.
 Coachman, supra at para. 107.
 Coachman, supra at para. 114.
Camille M. Dunbar is an associate at Theall Group LLP and maintains a broad civil/commercial litigation practice. Prior to joining Theall Group LLP, Camille summered and articled at the Toronto office of a prominent national business law firm, gaining commercial litigation experience in class proceedings, injunctions, franchise disputes, professional liability, employment law, municipal liability and negligence/product liability. Camille graduated from Osgoode Hall Law School in 2013 and was called to the Ontario Bar in 2014.
The Ontario Court of Appeal’s recent decision in G & P Procleaners and General Contractors Inc. v. Gore Mutual Insurance Co. (“Procleaners”) is an interesting example of the application of the “your work” exclusion, particularly since the Court rejected the approach to policy interpretation that the Newfoundland Court of Appeal gave to an exclusion with very similar wording.
Procleaners involved a contractor who was hired to clean the windows of a newly constructed commercial building. Some of the windows were damaged by cement debris that adhered to the wet windows during cleaning. The debris came from stone cutting machines that were being used onsite at the time of cleaning. The contractor reimbursed the owner of the building approximately $134,000 for the damage to the windows and then sought indemnification under its commercial general liability policy (the “Policy”).
(h) “Property damage” to: . . .
(vi) that particular part of any property that must be restored, repaired or replaced because “your work” was incorrectly performed on it.
The motions judge agreed with the insurer, finding that the property damage was excluded by the Policy. On the motion, the contractor had admitted that the scratches on the windows resulted from, or arose out of, its window cleaning operations. The contractor did not rely on any exception to the “your work” exclusion clause.
An “occurrence” is an event that causes property damage that is neither expected nor intended by the insured. In the reasons for judgment of the Court of Appeal, Justice Hourigan agreed with the motions judge that the “occurrence” causing property damage in this case was the scratching of the windows caused by the contractor’s employees and not the presence of airborne cement debris. The cleaning of the windows using squeegees was expected and intended; however the scratching that occurred from cleaning was unexpected and unintended. The damage did not “arise out of” cleaning itself, because the contractor’s employees chose to undertake their cleaning operations in the midst of airborne debris. If they had not done so, there would have been no property damage.
The damage therefore fell within the initial coverage grant, but was excluded from coverage by the “your work” exclusion. The exclusion covered property damage to that particular part of real property (i.e., the building’s windows) on which the employee was performing operations (i.e., cleaning the windows) since the property damage (i.e., scratching of the windows) arose out of those operations.
The contractor argued on appeal that the exclusion clause was ambiguous, relying on the Newfoundland Court of Appeal’s decision in Lombard General Insurance Company of Canada v. Crosbie Industrial Services Limited (“Crosbie”). In Crosbie, a fuel oil tank was destroyed following an explosion that occurred while the inside of the tank was being cleaned. Crosbie involved a nearly identical exclusion clause. The Court held for the insured on the basis that the exclusions at issue were ambiguous because they failed to identify a relationship between an “occurrence” and “your work” incorrectly performed. Therefore the “your work” exclusions could only apply where the damage was caused by incorrectly performed work absent an occurrence. As the explosion was an occurrence, the exclusions did not apply. The Court of Appeal in Procleaners rejected Crosbie as circular and inconsistent with the proper interpretation of insurance contracts, as it was illogical to apply an exclusion clause prior to determining whether there was an occurrence that triggered coverage. This is the correct result, since first principles require an occurrence to fall within the coverage grant before an exclusion clause can apply.
[…] Commercial general liability policies are generally intended to cover an insured’s liability to third parties for property damage other than to the property on which the insured’s work is being performed. They also cover consequential damage to parts of the property other than to the particular part of the property on which the work is performed. But they are not “all-risk” policies. They do not insure the manner in which the insured conducts its business. They do not generally cover the cost of repairing the insured’s own defective or faulty work product (citations omitted).
While Procleaners is not a “cost of making good” case, the facts are reminiscent of the Supreme Court of Canada’s decision in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co. (“Ledcor”) (previously discussed in Covered, September 16, 2016). Ledcor involved a contractor hired to clean the windows of a building which was covered by an all risks builders-risk wrap up policy. In the course of cleaning the windows, the contractor used improper materials and equipment resulting in significant damage.
The Supreme Court held that the costs of replacing the windows was covered under the policy at issue as resulting damage, and only the costs of redoing the faulty work (i.e., cleaning the windows) was excluded by the faulty workmanship exclusion in the policy. Essentially the “cost of making good” was limited to the cost of redoing the particular contractor’s work.
The takeaway from Procleaners for policyholders is that small contracts have the potential to result in significant financial liability for costs that may not be covered by a commercial general liability policy. Prudence is required by employees, to not undertake work in conditions that may cause unexpected and unintended property damage. In contrast, greater coverage may be afforded to a contractor under an all-risks builders-risk wrap-up policy, as was the case in Ledcor. For counsel, this case is a good demonstration of the proper approach to policy interpretation, which requires a finding that the loss falls within the coverage grant before the exclusions can be considered.
 2017 ONCA 298 at para 8.
 2017 ONCA 298 at para 11.
 2017 ONCA 298 at para 17.
 2017 ONCA 298 at para 18.
 2017 ONCA 298 at para 20.
 2017 ONCA 298 at para 24.
In a recent decision from the Ontario Superior Court, Nodel v. Stewart Title Guaranty Co., Justice Matheson applied well established policy interpretation principles to an “exception from coverage” clause contained in a schedule to a title insurance policy, which effectively operated as an exclusion clause. Typically, an exclusion clause bars coverage when a claim otherwise falls within the initial grant of coverage. Exceptions then bring an otherwise excluded claim back within coverage. Oddly, in the title insurance policy issued by the respondent, Stewart Title Guaranty Co.’s (“Stewart Title”), both the exclusion and “exception from coverage” clauses set out risks that fell outside the scope of the coverage grant. It was one such “exception from coverage” clause that was at issue in Nodel, specifically the interpretation of the words “are paid to”.
It all started with a fraudulent mortgage transaction. The applicant, Karl Nodel (“Mr. Nodel”), a private lender, agreed to provide a loan to (who he thought was) John Colarieti (“Mr. Colarieti”). Mr. Colarieti purported to be borrowing the funds for investment purposes. The proposed security was a second mortgage registered on his property in Toronto.
Mr. Nodel hired Isaac Singer (“Mr. Singer”) to act on his behalf as the lender in the transaction. Colarieti hired Bryan Dale (“Mr. Dale”) to act on his behalf as the borrower. Prior to the close of the deal, Mr. Singer applied for title insurance from the respondent, Stewart Title, on behalf of Mr. Nodel to protect his investment against fraud.
Stewart Title had initially flagged the transaction for review because Mr. Dale was on a “flash list” of real estate lawyers with a prior disciplinary history with the Law Society of Upper Canada (“LSUC”). After an internal review, and upon receiving supporting documentation from Mr. Singer, Stewart Title cleared the flag and issued a title insurance policy (the “Policy”) to Mr. Nodel.
On closing, Mr. Singer disbursed the mortgage funds to Mr. Dale in trust for the borrower, according to a written direction from Mr. Dale himself. A mortgage was registered against Mr. Colarieti’s property.
The fraud was discovered shortly thereafter. It was also discovered at that time that Mr. Dale had disbursed the mortgage proceeds from his trust account to unrelated third parties, not to Mr. Colarieti.
[. . .] then the Company can deny coverage and shall have no liability to the Insured for any matters that involve the allegation of mortgage/title fraud [. . .].
This clause removed coverage if the proceeds were not paid to one of the listed parties. In this case, the relevant party to which the proceeds ought to have been paid was the registered title holder, Mr. Colarieti.
When coverage under the Policy was denied, Mr. Nodel sued (among other parties) Mr. Singer for his loss on the mortgage transaction. Mr. Singer brought a third party claim against Stewart Title. The action was settled except with respect to Stewart Title. LawPRO, on behalf of Mr. Singer, proceeded against Stewart Title by way of an application for an interpretation of the exception from coverage clause relied upon to deny coverage and, in the alternative, for a relief from forfeiture.
iv. if there remain ambiguities, they are construed against the insurer − coverage provisions are interpreted broadly and exception provisions narrowly.
The Court also pointed out that a clause that nullifies coverage will not be enforced. In addition, although the factual matrix is less relevant for standard form contracts, factors such as the purpose of the contract and the industry in which it operates should nevertheless be considered. The parties agreed that the purpose of the Policy was to provide insurance for mortgage fraud (among other things). The parties also admitted it was common practice to disburse funds to lawyers in trust for their clients.
The Court then turned to the exception from coverage clause at issue, specifically the phrase “are paid to any person or entity other than [. . .] to the registered title holder”. Stewart Title argued that monies are “are paid to” the registered title holder if the cheques is made out to them or wired to their bank account directly. Mr. Nodel argued that funds are paid to the registered title holder/borrower when they are disbursed to the title holder/borrower’s lawyer, in trust for title holder/borrower.
The Court found that the term “paid” was ambiguous. The Court pointed out, for example, that “paid” could mean that a person has received monies that they are entitled to. When funds are paid to a lawyer in trust for their client, the Court noted, the funds are not necessarily received by their client. As a result, if the term “paid to” required proper receipt by the borrower, the exception from coverage clause would be unenforceable because it would nullify coverage for fraud. In circumstances of fraud, the funds are never properly received by the purported borrower. While Stewart Title acknowledged that this was one potential meaning of “paid”, this definition was not advanced by the insurer as it would effectively nullify coverage and would therefore be unenforceable.
Having found that the clause was ambiguous, the Court moved on to apply the general rules of contract construction. The Court looked to the regulatory regime regarding client identification and the flow of trust funds as well as the common practice of lawyer holding and disbursing funds in trust on behalf of a client. LSUC by-law 9 requires lawyers holding funds in trust for their clients to withdraw funds only in specified circumstances, namely where the money is “properly required for payment to a client or to a person on behalf of a client”. When Mr. Singer disbursed the funds to the borrower’s counsel in trust for his client, borrower’s counsel was restricted in what could be done with those funds. Relying on the foregoing background facts, which would have been known by both the insurer and the insured, the Court found that the exception from coverage clause permitted payments to a lawyer in trust for his or her client.
In addition, given the accepted interpretative rule that ambiguities are construed against the insurer, the Court concluded that the clause did not incorporate the unexpressed requirement that cheques must be made payable to a listed approved party, or wired to them directly, or the subject of a special undertaking from their lawyer. By not expressing the manner of payment, the Court found that the impugned clause permitted multiple payment methods including disbursing the funds to the lawyer, in trust for his or her client.
Having found that the exception from coverage clause did not apply to bar coverage, the court did not address the alternative claim for relief from forfeiture.
This decision provides a recent application of the well-established principles of policy interpretation, as well as a close look at the meaning of the words “”are paid to” in what was effectively an exclusion clause in a title insurance policy. The Court confirmed that where the language of the policy is ambiguous, general rules of contract interpretation apply. The reasonable expectations of the parties and the surrounding circumstances must be considered to resolve the ambiguity. If all else fails, the doctrine of contra proferentem still applies to interpret ambiguities against the insurer as the drafter of the policy.
 Nodel v. Stewart Title Guaranty Co., 2017 ONSC 890 [“Nodel“].
 Nodel, supra at para. 43.
In Hollowcore v. Visocchi, the Ontario Court of Appeal (ONCA) recently limited the application of a “delay” exclusion where damages awarded against the insured arose from two concurrent causes, notwithstanding that one of these causes was excluded from coverage. The damages in Hollowcore were caused by negligence and delay by the insured. The policy covered damages arising out of negligence claims, but excluded claims arising out of the insureds’ failure to complete engineering drawings on time.
In 1999, Hollowcore Incorporated and Prestressed Systems Inc. (PSI) hired Visco Engineering Inc. to prepare engineering drawings for an addition to an Ohio parking garage. There were a number of problems with the work submitted by Visco and its owner, Mr. Visocchi, who was a professional engineer. Many drawings had errors, were deficient or submitted late. These issues delayed construction and caused Hollowcore and PSI to incur back charges and other damages.
Hollowcore and PSI brought an action for breach of contract, negligence and negligent misrepresentation against Visco and Mr. Visocchi. They later added their insurers as third party defendants.
The trial judge (TJ) , found Visco and Mr. Visocchi liable for negligence and negligent misrepresentation. Visco was also found liable for breach of contract. The TJ apportioned these damages between Visco, Mr. Visocchi and the insurers, finding that some of the damages were attributable to delay on the part of Visco and Mr. Visocchi, while other damages arose out of Visco and Mr. Visocchi’s negligence. As a result, the TJ found a portion of the damages were covered by the policy, while other portions were not, as a result of an exclusion for claims arising from delay. The TJ determined that certain heads of damages were covered, but that for the vast majority of the damages it was virtually impossible to separate the damages between negligence (covered) and delay (excluded) damages. As a result, the TJ ordered the insurers to only pay 55% of those damages. Visco and Mr. Visocchi appealed.
Writing for the ONCA, Justice Benotto found the insurers liable for all of PSI’s damages. The key to her decision turned on the burden of proof which she noted rested squarely on the insurers who sought to rely on the exclusion, a burden the insurers had not met.
According to Justice Benotto, the insurers had not discharged this burden. Although the damages sustained by Hollowcore and PSI had been caused by negligence and a failure to complete drawings on time, the damages attributable to delay had, in turn, been caused by Visco and Mr. Visocchi’s negligence. Consequently, these damages were captured by the policy’s coverage of damages arising out of negligence and did not fall within the exclusion for delay. In order for the exclusion to apply, the damages must be caused “by pure delay”, rather than by a delay arising from negligence.
The decision also considered the TJ’s calculation of damages and fixing of the exchange rate from US to Canadian dollars, which are not relevant to the insurance issues in this case.
In Hollowcore, the ONCA was asked to interpret an exclusion for losses arising from delay, that can typically be found in errors and omissions insurance policies issued to engineers and architects. The ONCA’s interpretation of this exclusion has limited its application to damages that are proven to be solely attributed to delay and not also caused by another covered act. In effect, the court found that where all of a loss is caused by concurrent negligence and delay, an insurer will be liable for the entire loss. The insurer will have the clear burden to demonstrate specific damages that were caused solely by delay by the insured.
 Hollowcore v Visocchi, 2016 ONCA 600.
The Supreme Court of Canada has released its much-anticipated decision in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co. The case is notable in three ways. First, it continues a trend of the Court bringing real commercial sense to the interpretation of insurance policies. Second, it restricts the scope of the faulty workmanship exclusion to the actual cost of redoing the work. Third, it unfortunately provides unnecessary commentary that may result in some ongoing uncertainty, particularly in the area of faulty design.
The insureds argued that this clause only excluded the cost of redoing the faulty work, which they said was the cost of re-cleaning the windows. The insurers argued that this clause excluded both the cost of redoing the faulty work and the cost to repair that part of the insured’s property on which the work was being performed. The insurer argued that “resulting damage” applied to consequential damage to some other part of the insured’s property.
The Court agreed with the insured and concluded that the exclusion only applied to the cost of redoing the work. In doing so, the Court noted that this result aligns with the commercial realities of construction projects, the very purpose of builders’ risk policies, and the expectations of both insureds and insurers when they enter into such all risk policies.
The Court also made significant findings on broader questions of law. Most notably, the Court confirmed that trial judges interpreting standard-form insurance contracts are subject to a “correctness” standard. This means that their interpretation must be consistent across all cases involving that particular standard-form policy. As a result, policyholders with standard-form wording should always be aware of court cases interpreting their contracts.
In this case, the standard-form faulty workmanship exclusion (with a resulting damage exception) was held to exclude only the cost of redoing the faulty work. While this was an excellent result for the insured, and is generally favourable to policyholders, the Court went on to discuss a number of examples of prior appellate cases which may result in some residual uncertainty.
Most notably, the Court’s interpretation of the exclusion clause places considerable emphasis on the work for which the contractor, or subcontractor, was hired to perform. As a result, the entire contractual obligation may greatly affect whether coverage is excluded.
For example, the Court referred to Ontario Hydro v. Royal Insurance, in which a contractor was responsible for designing a boiler system, acquiring the material and supervising the commissioning of the boiler. After installation, the contractor performed an acid wash of the superheater which caused extensive cracking to the tubing in the boilers. The judge in that case concluded that the cost of making good the faulty workmanship included the cost of the tubing and therefore excluded those costs from coverage. The Supreme Court appears to have agreed with this conclusion, because replacing the tubing was “necessary for the contractor to fulfill its contractual obligation”. In the context of Ledcor, this means that if the window cleaner had also contracted to fabricate and install the windows, the claim may have been excluded.
The Court also considered “faulty design” cases where a contractor is engaged to both design and build an “item”. The Court identified that where a contractor makes a mistake in the design of the “item” that is “integral to the whole of that item”, the costs to repair or replace that “item” would be excluded from coverage. For example, the Court referred to Simcoe & Erie General Insurance Co. v. Royal Insurance Co. of Canada, where an engineer was hired to design and oversee the construction of a bridge. Because the engineer made a design error that was fundamental to the whole of the bridge, and because “making good” the design involved replacing the entire structure, the exclusion applied. Unfortunately, it is not clear from the passage, whether the Court turned its mind to cases were a particular part of the design resulted in damage to other parts. In other words, it is not clear whether the Court’s reference to the “item” was to a particular component of the structure or if it would always apply to the entire structure.
Ultimately, the take-away for policyholders in this case is that, when someone is contracted to perform a particular task, a “cost of making good” exclusion of this type will only exclude the cost of redoing that particular contractor’s work. This interpretation will favour cases where the scope of work is limited. Where the contractor’s project scope is broad and undefined, the costs of redoing that particular contractor’s work will remain a live legal issue. This is especially true in faulty design cases where the question of whether the fault was “integral to the whole” is ambiguous.
Overall, this decision is a well-reasoned interpretation of the exclusion. In a case where a window washer caused resulting damage, the exclusion was correctly limited to the cost of rewashing the windows, and the actual damage was covered. While we recognize some of the Court’s references to prior decisions may be relied on by insurers to undermine the general application of this principle, the insured will be able to rely on the clear and unequivocal statement by the Court that the exclusion only applies to what is involved in actually re-doing the specific work.
Municipalities often retain contractors to provide a wide variety of important public services, for example, snow and ice removal. To protect itself from liability arising from a contractor’s negligence, a municipality might insist on being named as an additional insured on the contractor’s insurance policy. In Carneiro v. Durham (Regional Municipality) , the Ontario Court of Appeal recently had the opportunity to consider the bundle of rights afforded to a municipality, named as an additional under a contractor’s liability policy. The Court held that the municipality had independent rights under the policy, including a right to a defence, regardless of the defence provided to the named insured.
The events that led to the dispute in this case began on a snowy day in the Regional Municipality of Durham (“Durham”). Antonio Carneiro Jr. died in a car accident when he allegedly lost control of his vehicle due to ice and snow on a Durham Road. His family members claimed damages for the alleged negligence of Durham, Miller Maintenance Limited (“Miller”), the province of Ontario and two individual defendants.
Durham had contracted Miller to provide snowplow services for the municipality’s roads during the winter. The contract required Miller to include Durham as an additional insured under its liability policy. Miller’s policy with Zurich did just that.
The statement of claim set out a laundry list of identical particulars of negligence against Miller, Durham and Ontario. It asserted a number of failings, including a failure to keep the road free of ice and snow, inadequate design and construction of the road and failure to close the road during a heavy snowstorm.
Durham brought a Third Party claim against Zurich, seeking a declaration that Zurich had a duty to defend and indemnify Durham in the action. Zurich claimed it had no duty to defend Durham because some of the particulars of negligence in the statement of claim – those unrelated to Miller’s winter maintenance work – fell outside the scope of the coverage it provided to Durham.
Zurich acknowledged that the allegations pertaining to Durham’s liability arising out of Miller’s winter maintenance responsibilities were covered by the policy. However, Zurich argued that by defending Miller it was protecting Durham against any liability it may have for Miller’s negligence.
The motion judge found that Zurich was only required to defend Durham “with respect to the claims insured for Miller”. Durham was to provide its own defence with respect to all other allegations in the claim. The motion judge concluded that Durham was ultimately protected because it would be entitled to recover its costs at the end of the litigation if it were found not liable.
The duty to defend is a separate contractual obligation that is not met by Zurich simply indemnifying Durham at the end of the day.
The Court noted that when pleadings allege facts that, if true require an insurer to indemnify the insured, the insurer is obligated to defend the claim. The true nature of the claim in the action was clear: the deceased lost control of his car because it skidded on ice and snow on the roadway, which Durham and Miller allegedly failed to keep clear. Therefore, Zurich’s duty to defend was triggered, subject to any qualification in the policy.
Second, Zurich’s policy required it to defend the action, not just with regards to the covered claims. Zurich’s policy imposed a duty to defend Durham as an additional insured against any action seeking damages to which the insurance applied. As a result, Zurich had an obligation to pay the reasonable costs of Durham’s defence for covered claims, even if that defence furthered the defence of uncovered claims. There was nothing in the policy language to qualify the duty to defend or to suggest that the duty did not apply to “mixed” claims of covered and uncovered claims.
As an additional insured, Durham has independent rights, including a right to a defence, regardless of the defence provided to the named insured. If Zurich’s position were correct, it would seldom be required to provide a defence to an additional insured because it would usually be defending the named insured against the same liabilities.
In addition, the Court found that the motion judge erred when he decided it was not in Zurich’s best interests to defend when there were both insured and uninsured claims. This finding ignored Zurich’s contractual duty to defend.
Lastly, the Court found that Zurich could not discharge its duty to defend by suggesting Durham could seek its costs at the end of the litigation if it were found not liable. The outcome of the trial, the Court pointed out, is irrelevant to the duty to defend. The Court opined that the duty to defend would be a hollow one if the insurer’s only obligation were to indemnify its insured at the end of the day. That was not the obligation Zurich undertook when it issued a policy naming Durham as an additional insured. Rather, Zurich promised to defend Durham and it should have been held to that promise.
The Court concluded that Zurich was obligated to defend Durham in the action in its entirety. At the end of the proceedings, Zurich could seek an apportionment of defence costs to the extent they dealt solely with uncovered claims or exceeded the reasonable costs associated with the defence of covered claims.
This decision reminds us of the benefits and independent rights of being listed as an additional insured under a contractor’s insurance policy. Those rights, including the right to a defence, are independent of the defence provided to the named insured. Municipalities should find some comfort in this ruling and continue to insist being listed as additional insured under their contractor’s policies.
Many all-risks insurance policies exclude damage caused by a contractor’s faulty workmanship. The breadth of these “faulty workmanship” exclusions vary considerably. On one hand, a clause may narrowly exclude only the “cost of making good” the contractor’s defective work. On the other hand, a clause may exclude not only the cost of correcting the fault, but any damage caused as a result of the work performed. Such damage is commonly known as “resulting damage”. The Ontario Court of Appeal recently held that an insurer cannot exclude resulting damage by implication. Where a “faulty workmanship” clause is silent on resulting damage, such damage will remain covered.
In Monk v. Farmers’ Mutual Insurance Co., the insured hired Pleasantview Log Restoration Systems (“Pleasantview”) to perform restoration work to the exterior of her log home. The restoration involved the use of water and required that windows and other seams be sealed. Upon completion of the restoration in 2008, the insured discovered water damage to her carpeting, bedroom wall, and light fixtures. She noticed additional damage in 2009 and 2010.
The home was insured under a standard “all risks” homeowner’s policy issued by Farmers’ Mutual (“Farmers”) and arranged by Muskoka Insurance Brokers Ltd. (“Muskoka”).
Upon denial of the claim, Monk sued Farmers and Muskoka, who both moved for summary judgment on two grounds: (i) the claim was the repair of faulty workmanship, which was specifically excluded by the insurance policy and (ii) the action was barred by the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B.
We do not insure … the cost of making good faulty material or workmanship.
The motion judge found that this exclusion clause was “clear and unambiguous” and that it excluded “both damage to the ‘work’ which forms the subject matter of the contract, as well as damages resulting from the faulty workmanship related to the work”. To arrive at this conclusion, the motion judge outlined four considerations.
First, the motion judge reasoned that an “all-perils” insurance policy should not be viewed as a “de-facto performance bond for the work of a third party.” In other words, a contractor might be encouraged to charge for work at a full price, perform the work carelessly, and rely on an insurer to correct the cost of correcting its mistakes.
Second, the motion judge was mindful of the fact that insurers have good incentive to exclude resulting damage entirely because the “[c]ourts have frequently struggled with the issue of what constitutes resulting damage.” According to the motion judge, removal of any reference to resulting damage in the faulty workmanship clause provided “greater certainty”.
Third, the motion judge considered that “most home insurance policies” explicitly state that resulting damage is covered in the faulty workmanship clause.
We do not insure loss or damage to … property … while being worked on, where the damage results from such process or work (but resulting damage to other insured property is covered).
In effect, the motion judge held that, absent language to the contrary, a faulty workmanship clause excludes both the work performed and any resulting damage. Due to this finding, the motion judge declined to consider the limitations issue and granted summary judgment in favour of Farmers and Muskoka.
The Court of Appeal rejected the entirety of the above analysis and found that the motion judge erred in several ways.
Writing for a unanimous Court, Huscroft J.A. recognized that while it is true that a contractor should be responsible for its faulty work, and while it is also true that an insurer might reasonably have an incentive to exclude resulting damage, the reviewing judge must take into account the wellestablished principles of insurance contract interpretation.
The motion judge’s suggestion that the absence of an exception for resulting damage from the “faulty workmanship” exclusion reflects Farmers’ intention not to provide coverage for such damage is misplaced. An insurer’s unilateral intention is not relevant to the interpretation of the insurance agreement.
Huscroft J.A. also rejected the motion judge’s reference to “most” policies, as that consideration was “irrelevant to the proper interpretation of this insurance contract”.
Finally, Huscroft J.A. disagreed with the motion judge’s reference to the “while being worked on” clause. Although the “while being worked on” clause did explicitly indicate that resulting damage was covered, Huscroft J.A. held that it was not appropriate to refer to a clause intended to broaden coverage in order to strengthen the breadth of an exclusion.
Ultimately, the Court granted the appeal and referred the matter back to the motion judge for determination on the limitations issue.
The decision in Monk v. Farmers’ Mutual Insurance Co. was a necessary correction to an outlier in our jurisprudence. This decision reaffirms the well-established principles of insurance contract interpretation and serves as a reminder to insurers that they cannot benefit from “exclusion by implication”. In light of this decision, policyholders are encouraged to review their insurance contract for “faulty workmanship” clauses and the specific wording dealing with resulting damage.
 Monk v. Famers’ Mutual Insurance Co., 2014 ONSC 3940.
 Monk v. Farmers’ Mutual Insurance Co., 2015 ONCA 911.
 Ibid at para. 35 (emphasis original).
A stout, upholstered chair may, at first blush, seem innocuous. It’s easy to ignore the warnings often recited by parents and teachers to sit property when rocking back and forth on a chair’s legs. However, in Nerland v. Toronto-Dominion Bank, the British Columbia Supreme Court reminded us why the old adage dies hard.
In Nerland, the 61-year-old plaintiff took a seat on a chair at a sit-down wicket at a branch of the Toronto-Dominion Bank (TD). While a bank employee went off to complete the plaintiff’s transaction, the plaintiff leaned forward to pick up some documents on the counter and the chair went out from under him. He fell to the floor, striking his head, neck, shoulder and elbow, suffering injuries.
The parties agreed on damages and the trial proceeded on liability only. The chair at issue was upholstered with wooden legs affixed with hard plastic tips. The floor around the sit down wicket was tiled. The plaintiff argued that he did not tilt the chair deliberately, but could not recall how the chair toppled. There was no incident report or security video of the incident. After the fall, the plaintiff claimed the branch manager suggested there had been a prior incident and the bank had meant to put a mat down in that area. He also testified that when he returned to the branch a few weeks later, the chair had been placed on a mat.
TD retained an engineering expert to opine on the mechanics of the fall, particularly, the degree to which the chair could be tipped forward before it lost stability. Relying on the expert evidence, the Court found that the plaintiff was seated in the front half of the chair and deliberately tipped the chair onto its front legs to reach the documents on the wicket counter.
After dismissing the plaintiff’s claim under British Columbia Occupiers Liability Act, the Court assessed the negligence claim. The plaintiff submitted that tipping the chair onto its front legs was normal, foreseeable human conduct, and injury is likely to occur only where the tipped chair slips out from beneath a person due to the plastic tips on the tiled floor.
The chair provided to the plaintiff to sit on at the sit down wicket was reasonably safe to sit on. I found no evidence of any prior or subsequent incidents with similar chairs. The placement of a mat under the chair at the sit down wicket at some point after the plaintiff fell was not an admission of liability and I do not find it a persuasive factor. I find the plaintiff exerted the effort required to tip the chair forward onto its two front legs to such a degree that it toppled out from under him. His action in tipping the chair forward caused the fall, not the plastic chair glides.
The Court noted that the plaintiff could have waited for the bank employee to return and hand him the documents or he could have stood up to reach across the desk for them. To prevent customers from tipping chairs forward (or indeed backwards), the Court commented, TD would either have to fix the feet of the chairs permanently to the floor or appoint an employee to closely monitor the activities of customers while seated in chairs.
As the manufacturer and retailer were not named in this decision, it is not, strictly speaking, a products liability case. However, the decision does consider the question of foreseeable misuse of a product, finding that it was the plaintiff’s own intentional acts that created the danger and caused the chair to fall, not the chair itself or the plastic tips.
This decision also confirms that although TD Bank owed the plaintiff, its customer, a duty of care, the standard is reasonableness, not the elimination of every possible danger. Furthermore, remedial steps taken by a defendant, like placing the impugned chair on a mat in this case, is not necessarily proof that such steps were required to make the premises reasonably safe. Lastly, and perhaps most practically important, it reminds us to heed the advice we often heard at a young age, “sit properly in that chair or you’re going to hurt yourself”! Unfortunately for the plaintiff in this case, he was left to bear full responsibility for his injuries sustained in the fall.
 R.S.B.C. 1996, c. 337 [the “Act”] (finding that the chair was chattel and therefore outside the scope of the Act).
 Nerland, supra note 1, at paras. 75-76.

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