Please take a moment to consider the following scenario. Your insured installs an above ground pool. Later that same year, the pool starts to fall apart. Your insured attends the property and tries to fix the problem. Your insured is unsuccessful. The homeowner sues your insured. Your insured submits the claim seeking a defence under their commercial general liability policy.
Reviewing the Statement of Claim, you consider the pleadings to determine whether a duty to defend is triggered, keeping in mind that the duty to defend is broader than the duty to indemnify, and knowing the principle that wide latitude is to be given when reading the allegations. Essentially, the simple assertion of a claim which could potentially fall within coverage triggers a duty to defend. Extrinsic evidence, if specifically referred to in the pleadings may be considered in determining the substance and true nature of the pleadings. However, it is the pleadings, broadly and generously interpreted – not an investigation – which determines the duty to defend. There is no real weighing of evidence to be considered, it is more a matter of what has been alleged on paper.
Obviously, the policy does not afford coverage for a new pool – the insured’s own work product is not covered. Therefore no duty is triggered based on claims for such expenses. But if the pool’s failure is alleged to have caused a flooded basement or to have taken out a collection of rare flowering shrubs in an adjacent prize winning garden, then there will be a need to respond. Keeping a keen eye out for allegations of property damage beyond the pool, you peruse the document. You note several claims related to fixing the pool including a claim by the property owner for his costs to relocate a deck. There is no physical injury to tangible property suggested in that allegation.
Be advised however, that the Nova Scotia Court of Appeal has recently examined a similar case and found property damage where defective work made property useless for its intended purpose (Wawanesa Mutual Insurance Company v.Beaverdam Pools Ltd. (2010) NB CA 1). The insurer also tried to escape liability on the basis that the insured’s negligence was not an occurrence or accident, including continuous or repeated exposure to substantially the same harmful conditions. Perhaps not as surprisingly, this effort also failed. It has arguably been clear for much longer that an accident, for the purpose of the commercial general liability policy, includes “any unlooked for mishap” (Canadian Indemnity Co.v. Walkem Machinery & Equipment Ltd., [1976] 1 S.C.R. 309).
Keep in mind, the deck was not damaged. The defective work was found to make the deck useless for its intended purpose. The triggering of a duty to defend the legal action was to be identified by the claim for costs, in this case, to raise the deck to make it level with the replaced pool.
One is left to imagine other scenarios. In the end, keep in mind that property damage need not be physical in order for it to be caught within a typical commercial generality liability policy, and the trend is to read pleadings as broadly as possible so as to trigger a duty to defend.